10-K 1 if8-01.txt CNL INCOME FUND VIII, LTD. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-K (Mark One) [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-19139 CNL INCOME FUND VIII, LTD. (Exact name of registrant as specified in its charter) Florida 59-2963338 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 450 South Orange Avenue Orlando, Florida 32801-3336 (Address of principal executive offices, including zip code) Registrant's telephone number, including area code: (407) 540-2000 Securities registered pursuant to Section 12 (b) of the Act: Title of each class: Name of exchange on which registered: None Not Applicable Securities registered pursuant to Section 12(g) of the Act: Units of limited partnership interest ($1 per Unit) (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [x] Aggregate market value of the voting stock held by nonaffiliates of the registrant: The registrant registered an offering of 35,000,000 units of limited partnership interest (the "Units") on Form S-11 under the Securities Act of 1933, as amended. Since no established market for such Units exists, there is no market value for such Units. Each Unit was originally sold at $1 per Unit. DOCUMENTS INCORPORATED BY REFERENCE: None PART I Item 1. Business CNL Income Fund VIII, Ltd. (the "Registrant" or the "Partnership") is a limited partnership which was organized pursuant to the laws of the State of Florida on August 18, 1989. The General Partners of the Partnership are Robert A. Bourne, James M. Seneff, Jr. and CNL Realty Corporation, a Florida corporation (the "General Partners"). Beginning on August 2, 1990, the Partnership offered for sale up to $35,000,000 of limited partnership interests (the "Units") (35,000,000 Units at $1 per Unit) pursuant to a registration statement on Form S-11 under the Securities Act of 1933, as amended, effective January 30, 1990. The offering terminated on March 7, 1991, at which date the maximum offering proceeds of $35,000,000 had been received from investors who were admitted to the Partnership as limited partners (the "Limited Partners"). The Partnership was organized to acquire both newly constructed and existing restaurant properties, as well as properties upon which restaurants were to be constructed (the "Properties"), which are leased primarily to operators of national and regional fast-food and family-style restaurant chains (the "Restaurant Chains"). Net proceeds to the Partnership from its offering of Units, after deduction of organizational and offering expenses, totaled $30,975,000 and were used to acquire 38 Properties, including interests in eight Properties owned by joint ventures in which the Partnership is a co-venturer, and to establish a working capital reserve for Partnership purposes. During the year ended December 31, 1995, the Partnership sold its Property in Ocoee, Florida and reinvested the majority of the net sales proceeds in a Property in North Fort Myers, Florida. Also, during the year ended December 31, 1995, the Partnership sold two Properties in Jacksonville, Florida. During the year ended December 31, 1996, the Partnership reinvested the remaining net sales proceeds from the 1995 sale of the Property in Ocoee, Florida, in Middleburg Joint Venture, in which the Partnership is a co-venturer to purchase and hold one property in Middleburg Heights, Ohio. Also, during the year ended December 31, 1996, the Partnership sold its Property in Orlando, Florida. During 1998, the Partnership received a settlement from the Florida Department of Transportation for a right of way taking relating to a parcel of land on its Property in Brooksville, Florida. In addition, during the year ended December 31, 1999, the Partnership received a prepaid principal payment from the borrower relating to one of the promissory notes the Partnership had previously accepted. During 1999, the Partnership reinvested the prepaid principal, along with the settlement received in the right of way taking, in Bossier Joint Venture, in which the Partnership is a co-venturer to purchase and hold one Property in Bossier City, Louisiana. During the year ended December 31, 2000, the Partnership sold four Properties one in each of Brooksville, Bayonet Point, Sun City, and Jacksonville, Florida; the Partnership reinvested a portion of the sales proceeds it received from the sales of the Properties in a Bennigan's Property located in Deerfield, Illinois and a Pizza Hut Property in Hialeah, Florida. In 2000, the Partnership also used a portion of the net sales proceeds from the sale of its Properties to acquire an interest in a Baker's Square Property in Libertyville, Illinois, with an affiliate of the General Partners as tenants-in-common. During the year ended December 31, 2001, the Partnership sold its Property in Statesville, North Carolina, and reinvested the majority of the net sales proceeds in a Jack in the Box Property located in Walker, Louisiana and a Bennigan's Property located in Denver, Colorado, each held with affiliates of the General Partners, which are Florida limited partnerships, as separate tenants-in-common arrangements. In addition, during 2001, Middleburg Joint Venture, in which the Partnership owns a 12.46% interest, sold its Property to the tenant, and the Partnership received a return of capital from the net sales proceeds. In April 2001, the Partnership reinvested the majority of the net sales proceeds received from Middleburg Joint Venture and entered into a joint venture arrangement, CNL VIII, X, XII Kokomo Joint Venture, with affiliates of the General Partners which are Florida limited partnerships, to purchase and hold one Property in Kokomo, Indiana, indirectly through a joint venture arrangement in which the Partnership is a co-venturer. As a result of the above transactions, as of December 31, 2001, the Partnership owned 37 Properties. The 37 Properties included interests in ten Properties owned by joint ventures in which the Partnership is a co-venturer and three Properties owned with affiliates as tenants-in-common. In addition, in January 2002, the Partnership reinvested a portion of the net sales proceeds it received from the sale of the Property in Statesville, North Carolina, and the prepaid principal relating to a promissory note, in a Denny's Property located in Ontario, Oregon, at an approximate cost of $654,400. The Properties are generally leased on a triple-net basis with the lessees responsible for all repairs and maintenance, property taxes, insurance and utilities. The Partnership will hold its Properties until the General Partners determine that the sale or other disposition of the Properties is advantageous in view of the Partnership's investment objectives. In deciding whether to sell Properties, the General Partners will consider factors such as potential capital appreciation, net cash flow and federal income tax considerations. Certain lessees also have been granted options to purchase Properties, generally at the Property's then fair market value after a specified portion of the lease term has elapsed. The Partnership has no obligation to sell all or any portion of a Property at any particular time, except as may be required under property purchase options granted to certain lessees. 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. Under the Agreement and Plan of Merger, APF was to issue shares of its common stock as consideration for the Merger. On March 1, 2000, the General Partners and APF announced that they had mutually agreed to terminate the Agreement and Plan of Merger. The agreement to terminate the Agreement and Plan of Merger was based, in large part, on the General Partners' concern that, in light of market conditions relating to publicly traded real estate investment trusts, the value of the transaction had diminished. As a result of such diminishment, the General Partners ability to unequivocally recommend voting for the transaction, in the exercise of their fiduciary duties, had become questionable. 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 and the Property owned as tenants-in-common with affiliates of the General Partners provide for initial terms, ranging from 14 to 25 years (the average being 18 years), and expire between 2005 and 2020. The leases are generally 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 $49,200 to $251,500. The majority of the leases provide for percentage rent, based on sales in excess of a specified amount. In addition, a majority of the leases provide that, commencing in specified lease years (ranging from the third to the sixth lease year), the annual base rent required under the terms of the lease will increase. Generally, the leases of the Properties provide for two to four five-year renewal options subject to the same terms and conditions as the initial lease. Lessees of 27 of the Partnership's 37 Properties also have been granted options to purchase Properties at the Property's then fair market value after a specified portion of the lease term has elapsed. Fair market value will be determined through an appraisal by an independent appraisal firm. Under the terms of certain leases, the option purchase price may equal the Partnership's original cost to purchase the Property (including acquisition costs), plus a specified percentage from the date of the lease or a specified percentage of the Partnership's purchase price, if that amount is greater than the Property's fair market value at the time the purchase option is exercised. The leases also generally provide that, in the event the Partnership wishes to sell the Property subject to that lease, the Partnership first must offer the lessee the right to purchase the Property on the same terms and conditions, and for the same price, as any offer which the Partnership has received for the sale of the Property. During 2001, the Partnership reinvested the majority of the net sales proceeds received from the sale of the Property owned by Middleburg Joint Venture (as described above), a joint venture arrangement CNL VIII, X, XII Kokomo Joint Venture, with affiliates of the General Partners, which are Florida limited partnerships, to purchase and hold one Property. The lease terms for this Property are substantially the same as the Partnership's other leases, as described above. During 2001, the Partnership reinvested the majority of the net sales proceeds it received from the sale of the Property in Statesville, North Carolina, in two Properties located in Walker, Louisiana and Denver, Colorado, each as separate tenants-in-common arrangements with affiliates of the General Partners and Florida limited partnerships. The lease terms for these Properties are substantially the same as the Partnership's other leases, as described above. During 2000, the tenant of the Property in Palm Bay, Florida experienced financial difficulties and vacated the Property. In September 2001, the Partnership entered into a new lease for this Property, and rents commenced in December 2001. The lease terms for this Property are substantially the same as the Partnership's other leases, as described above. In January 2002, the Partnership reinvested a portion of the net sales proceeds it received from the sale of the Property in Statesville, North Carolina, and the prepaid principal relating to a promissory note, in a Denny's Property located in Ontario, Oregon, at an approximate cost of $654,400. The lease terms for this Property are substantially the same as the Partnership's other leases as described above. In February 2002, a tenant, Brandon Fast Food Services, Inc., filed for bankruptcy. The tenant has neither rejected nor affirmed the one lease it has with the Partnership. As of March 15, 2002, the Partnership has continued receiving a portion of the rental payments relating to this lease. While the tenant has neither rejected nor affirmed this lease, there can be no assurance that the lease will not be rejected in the future. The lost revenues resulting from the possible rejection of this lease could have an adverse effect on the results of operations of the Partnership if the Partnership is unable to re-lease the Property in a timely manner. Major Tenants During 2001, two lessees of the Partnership and its consolidated joint venture, Golden Corral Corporation and Carrols Corporation, each contributed more than ten percent of the Partnership's total rental, earned and mortgage interest income (including rental, earned and mortgage interest income from the Partnership's consolidated joint venture and the Partnership's share of rental and earned income from nine Properties owned by unconsolidated joint ventures and three Properties owned with affiliates of the General Partners as tenants-in-common). As of December 31, 2001, Golden Corral Corporation was the lessee under leases relating to five restaurants, and Carrols Corporation was the lessee under leases relating to five restaurants. It is anticipated that, based on the minimum rental payments required by the leases, these two lessees each will continue to contribute more than ten percent of the Partnership's total rental, earned and mortgage interest income in 2002. In addition, two Restaurant Chains, Golden Corral Family Steakhouse Restaurants ("Golden Corral") and Burger King, each accounted for more than ten percent of the Partnership's total rental, earned and mortgage interest income in 2001 (including rental and earned income from the Partnership's consolidated joint venture and the Partnership's share of rental and earned income from nine Properties owned by unconsolidated joint ventures and three Properties owned with affiliates of the General Partners as tenants-in-common). In 2002, it is anticipated that these two Restaurant Chains each will continue to account for more than ten percent of the Partnership's total rental, earned and mortgage interest income to which the Partnership is entitled under the terms of the leases. Any failure of these lessees or Restaurant Chains could materially affect the Partnership's income if the Partnership is not able to re-lease the Properties in a timely manner. No single tenant or group of affiliated tenants lease Properties with an aggregate carrying value in excess of 20 percent of the total assets of the Partnership. Joint Venture and Tenancy in Common Arrangements The Partnership has entered into a joint venture arrangement, Woodway Joint Venture, with an unaffiliated entity to purchase and hold one Property. In addition, the Partnership has entered into three separate joint venture arrangements: Asheville Joint Venture with CNL Income Fund VI, Ltd., an affiliate of the General Partners, to purchase and hold one Property; CNL Restaurant Investments II with CNL Income Fund VII, Ltd. and CNL Income Fund IX, Ltd., affiliates of the General Partners, to purchase and hold six Properties; and Bossier City Joint Venture with CNL Income Fund XII, Ltd. and CNL Income Fund XIV, Ltd., affiliates of the General Partners, to purchase and hold one Property. In addition, in April 2001, the Partnership entered into a joint venture arrangement, CNL VIII, X, XII Kokomo Joint Venture, with CNL Income Fund X, Ltd. and CNL Income Fund XII, Ltd., affiliates of the General Partners', to purchase and hold one Property. Each of the affiliates is a limited partnership organized pursuant to the laws of the State of Florida. The joint venture arrangements provide for the Partnership and its joint venture partners to share in all costs and benefits associated with the joint ventures in accordance with their respective percentage interests in the joint ventures. The Partnership has an 87.68% interest in Woodway Joint Venture, an 85.54% interest in Asheville Joint Venture, a 36.8% interest in CNL Restaurant Investments II, a 34% interest in Bossier City Joint Venture, and a 10% interest in CNL VIII, X, XII Kokomo Joint Venture. The Partnership and its joint venture partners are also jointly and severally liable for all debts, obligations and other liabilities of the joint ventures. Woodway Joint Venture, Asheville Joint Venture and Bossier City Joint Venture each have an initial term of 20 years, and CNL VIII, X, XII Kokomo Joint Venture has an initial term of 30 years and, after the expiration of the initial term, continue in existence from year to year unless terminated at the option of either joint venturer or by an event of dissolution. Events of dissolution include the bankruptcy, insolvency or termination of any joint venturer, sale of the Property owned by the joint venture and mutual agreement of the Partnership and each joint venture partner to dissolve the joint venture. CNL Restaurant Investments II's joint venture agreement does not provide for a fixed term, but continues in existence until terminated by any of the joint venturers. The Partnership has management control of Woodway Joint Venture, and shares management control equally with affiliates of the General Partners for Asheville Joint Venture, CNL Restaurant Investments II, Bossier City Joint Venture and CNL VIII, X, XII Kokomo Joint Venture. The joint venture agreements restrict each venturer's ability to sell, transfer or assign its joint venture interest without first offering it for sale to its joint venture partner, either upon such terms and conditions as to which the venturers may agree or, in the event the venturers cannot agree, on the same terms and conditions as any offer from a third party to purchase such joint venture interest. Net cash flow from operations of Woodway Joint Venture, Asheville Joint Venture, CNL Restaurant Investments II, Bossier City Joint Venture and CNL VIII, X, XII Joint Venture is distributed 87.68%, 85.54%, 36.8%, 34% and 10%, respectively, to the Partnership and the balance is distributed to each of the other joint venture partners in accordance with their respective percentage interest in the joint venture. Any liquidation proceeds, after paying joint venture debts and liabilities and funding reserves for contingent liabilities, will be distributed first to the joint venture partners with positive capital account balances in proportion to such balances until such balances equal zero, and thereafter in proportion to each joint venture partner's percentage interest in the joint venture. In addition, to the above joint venture agreements, the Partnership entered into an agreement to hold a Property in Libertyville, Illinois, as tenants-in-common, with CNL Income Fund IX, Ltd., an affiliate of the General Partners. In addition in 2001, the Partnership entered into agreements to hold a Property in Walker, Louisiana, as tenants-in-common, with CNL Income Fund XVI, Ltd.; and a Property in Denver, Colorado, as tenants-in-common, with CNL Income Fund XVIII, Ltd. The agreements provide for the Partnership and the affiliates to share in the profits and losses of the Property and net cash flow from the Property, in proportion to each co-venturer's percentage interest. The Partnership owns a 66%, 17% and 19.3% interest in the Properties in Libertyville, Illinois; Walker, Louisiana; and Denver, Colorado, respectively. Each of the affiliates is a limited partnership organized pursuant to the laws of the state of Florida. The tenancy in common agreement restricts each party'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 parties. 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 APF Partners, LP, 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 APF Partners, LP (the "Advisor") 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. The Advisor also assists the General Partners in negotiating the leases. For these services, the Partnership has agreed to pay the Advisor an annual fee of one percent of the sum of gross operating revenues from Properties wholly owned by the Partnership plus the Partnership's allocable share of gross revenues of joint ventures in which the Partnership is a co-venturer, but not in excess of competitive fees for comparable services. Under the management agreement, the management fee is subordinated to receipt by the Limited Partners of an aggregate, ten percent, cumulative, noncompounded annual return on their adjusted capital contributions (the "10% Preferred Return"), calculated in accordance with the Partnership's limited partnership agreement (the "Partnership Agreement"). In any year in which the Limited Partners have not received the 10% Preferred Return, no management fee will be paid. During 2000, CNL Fund Advisors, Inc. assigned its rights in, and its obligations under, the management agreement with the Partnership to CNL APF Partners, LP. All of the terms and conditions of the management agreement, including the payment of fees, as described, remain unchanged. 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. 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. Employees The Partnership has no employees. The officers of CNL Realty Corporation and the officers and employees of APF, the parent company of the Advisor, 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 Financial 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, 2001, the Partnership owned 37 Properties. Of the 37 Properties, 24 are owned by the Partnership in fee simple, ten 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. Description of Properties Land. The Partnership's Property sites range from approximately 17,400 to 128,528 square feet depending upon building size and local demographic factors. Sites purchased by the Partnership are in locations zoned for commercial use which have been reviewed for traffic patterns and volume. The following table lists the Properties owned by the Partnership as of December 31, 2001 by state. More detailed information regarding the location of the Properties is contained in the Schedule of Real Estate and Accumulated Depreciation. State Number of Properties Arizona 1 Colorado 1 Florida 4 Illinois 2 Indiana 2 Louisiana 3 Michigan 3 Minnesota 1 New York 2 North Carolina 1 Ohio 8 Tennessee 2 Texas 6 Virginia 1 -------------- TOTAL PROPERTIES 37 ============== Buildings. Each of the Properties owned by the Partnership includes a building that is one of a Restaurant Chain's approved designs. The buildings generally are rectangular and are constructed from various combinations of stucco, steel, wood, brick and tile. Building sizes range from approximately 2,100 to 10,600 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, 2001, the Partnership had no plans for renovation of the Properties. Depreciation expense is computed for buildings and improvements using the straight line method using a depreciable life of 40 years for federal income tax purposes. As of December 31, 2001, the aggregate cost of the Properties owned by the Partnership (including its consolidated joint venture) and the unconsolidated joint ventures (including the Properties owned through tenancy in common arrangements), for federal income tax purposes was $24,018,253 and $15,459,570, respectively. The following table lists the Properties owned by the Partnership as of December 31, 2001 by Restaurant Chain. Restaurant Chain Number of Properties Baker's Square 1 Bennigan's 2 Burger King 13 Denny's 1 Golden Corral 5 Hardee's 4 IHOP 1 Jack in the Box 3 KFC 2 Perkins 1 Pizza Hut 1 Shoney's 1 Wendy's 1 Other 1 -------------- TOTAL PROPERTIES 37 ============== 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, 2001, 2000, 1999, 1998 and 1997, all of the Properties were occupied. The following is a schedule of the average rent per Property for each of the years ended December 31:

(1) Rental income includes the Partnership's share of rental income from the Properties owned through joint venture arrangements. Rental revenues have been adjusted, as applicable, for any amounts for which the Partnership has established a provision for doubtful accounts. The following is a schedule of lease expirations for leases in place as of December 31, 2001 for each year for the next ten years and thereafter.

Leases with Major Tenants. The terms of the leases with the Partnership's major tenants as of December 31, 2001 (see Item 1. Business - Major Tenants), are substantially the same as those described in Item 1. Business - Leases. Golden Corral Corporation leases five Golden Corral restaurants. The initial term of each lease is 15 years (four leases expiring in 2005 and one lease in 2016) and the average minimum base annual rent is approximately $176,000 (ranging from approximately $145,500 to $225,800). Carrols Corporation leases five Burger King restaurants. The initial term of each lease is 20 years (expiring in 2011) and the average minimum base annual rent is approximately $100,100 (ranging from approximately $83,000 to $111,700). Item 3. Legal Proceedings Neither the Partnership, nor its General Partners or any affiliate of the General Partners, nor any of their respective Properties, is party to, or subject to, any material pending legal proceedings. Item 4. Submission of Matters to a Vote of Security Holders Not applicable. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters (a) As of March 15, 2002, there were 3,414 holders of record of the Units. There is no public trading market for the Units, and it is not anticipated that a public market for the Units will develop. During 2001, Limited Partners who wished to sell their Units may have offered the Units for sale pursuant to the Partnership's distribution reinvestment plan (the "Plan"), and Limited Partners who wished to have their distributions used to acquire additional Units (to the extent Units were available for purchase), may have done so pursuant to such Plan. The General Partners have the right to prohibit transfers of Units. From inception through December 31, 2001, the price paid for any Unit transferred pursuant to the Plan was $.95 per Unit. The price paid for any Unit transferred other than pursuant to the Plan was subject to negotiation by the purchaser and the selling Limited Partner. The Partnership will not redeem or repurchase Units. The following table reflects, for each calendar quarter, the high, low and average sales prices for transfers of Units during 2001 and 2000 other than pursuant to the Plan, net of commissions.

(1) A total of 551,448 and 176,000 Units were transferred other than pursuant to the Plan for the years ended December 31, 2001 and 2000, respectively. (2) No transfer of Units took place during the quarter other than pursuant to the Plan. The capital contribution per Unit was $1. All cash available for distribution will be distributed to the partners pursuant to the provisions of the Partnership Agreement. For each year ended December 31, 2001 and 2000, the Partnership declared cash distributions of $3,150,004 to the Limited Partners. Distributions of $787,501 were declared to the limited partners at the close of each of the Partnership's calendar quarters during 2001 and 2000. These amounts include monthly distributions made in arrears for the Limited Partners electing to receive such distributions on this basis. No amounts distributed to partners for the years ended December 31, 2001 and 2000, 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. No distributions have been made to the General Partners to date. The Partnership intends to continue to make distributions of cash available for distribution to the Limited Partners on a quarterly basis, although some Limited Partners, in accordance with their election, receive monthly distributions, for an annual fee. (b) Not applicable. Item 6. Selected Financial Data

(1) Revenues include equity in earnings of unconsolidated joint ventures and minority interest in income of consolidated joint ventures. (2) Net income for the year ended December 31, 2001 includes $299,479 from provision for write-down of assets. Net income for the year ended December 31, 2001, 2000 and 1998, includes $28,301, $612,693 and $108,176, respectively, from gain on sale of assets. (3) Distributions for the year ended December 31, 1998, include two special distributions to the Limited Partners for a total of $700,000 which represented cumulative excess operating reserves. The above selected financial data should be read in conjunction with the financial statements and related notes contained in Item 8 hereof. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The Partnership was organized on August 18, 1989, to acquire for cash, either directly or through joint venture arrangements, both newly constructed and existing restaurant Properties, as well as land upon which restaurant Properties were to be constructed, which are leased primarily to operators of selected national and regional fast-food and family-style Restaurant Chains. The leases are generally triple-net leases, with the lessee generally responsible for all repairs and maintenance, property taxes, insurance and utilities. As of December 31, 2001, the Partnership owned 37 Properties, either directly or indirectly through joint venture arrangements. Capital Resources The Partnership's primary source of capital for the years ended December 31, 2001, 2000, and 1999 was 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 $3,196,595, $3,349,897, and $3,321,006, for the years ended December 31, 2001, 2000, and 1999, respectively. The decrease in cash from operations during 2001, as compared to 2000, and the increase in cash from operations during 2000, as compared to 1999, were primarily a result of changes in income and expenses, as described in "Results of Operations" below, and changes in the Partnership's working capital. Other sources and uses of capital included the following during the years ended December 31, 2001, 2000 and 1999. As of December 31, 1999, the Partnership had accepted three promissory notes in connection with the sale of three of its Properties. During the year ended December 31, 1999, the borrower relating to one of the promissory notes prepaid principal of $272,500, which was applied to the outstanding principal balance. During the year ended December 31, 2001, the borrower relating to the other two promissory notes prepaid principal of approximately $441,500 which represented the outstanding principal balance. In November 1999, the Partnership reinvested the right of way taking proceeds received in 1998 and the prepaid principal in a joint venture, Bossier City Joint Venture, with CNL Income Fund XII, Ltd. and CNL Income Fund XIV, Ltd., both Florida limited partnerships and affiliates of the General Partners. The joint venture was formed to purchase and hold one Property. The Partnership contributed a total of $448,531 to the joint venture and owns a 34% interest in its profits and losses. In July 2000, the Partnership sold its Properties in Brooksville, Bayonet Point and Sun City, Florida, to an unrelated third party for a total of approximately $3,465,100 and received net sales proceeds totaling approximately $3,402,700, resulting in a total gain of approximately $484,800. The transaction relating to the sale of the Properties in Sun City and Bayonet Point, Florida and the reinvestment of the net sales proceeds, was structured to qualify as a like kind exchange transaction for federal income tax purposes. However, the Partnership will distribute amounts sufficient to enable the Limited Partners to pay federal and state income taxes, if any (at a level reasonably assumed by the General Partners), resulting from the sale. In July 2000, the Partnership reinvested the sales proceeds it received from the sale of the Properties in Sun City, Florida and Bayonet Point, Florida in a Bennigan's Property located in Deerfield, Illinois, at an approximate cost of $2,462,700. The Partnership acquired this Property from CNL BB Corp., an affiliate of the General Partners. In connection therewith, the Partnership entered into a long term, triple-net lease with terms substantially the same as its other leases. In August 2000, the Partnership used a portion of the net sales proceeds from the sale of its 2000 properties to acquire an interest in a Baker's Square Property in Libertyville, Illinois, as tenants-in-common, with CNL Income Fund IX, Ltd., a Florida limited partnership, and an affiliate of the general partners. As of December 31, 2001, the Partnership owned a 66% interest in this Property. In September 2000, the Partnership sold its property in Jacksonville, Florida, for approximately $422,500 and received net sales proceeds of approximately $420,000, resulting in a gain of approximately $127,900. The Partnership distributed amounts sufficient to enable the Limited Partners to pay federal and state income taxes, if any (at a level reasonably assumed by the General Partners), resulting from the sale. In October 2000, the Partnership reinvested the sales proceeds it received from the sale of its Property in Jacksonville, Florida in a Pizza Hut Property in Hialeah, Florida at an approximate cost of $472,300. In connection therewith, the Partnership entered into a long term, triple-net lease with terms substantially the same as its other leases. In March 2001, Middleburg Joint Venture, in which the Partnership owned a 12.46% interest, sold its Property to the tenant in accordance with the option under its lease agreement to purchase the Property, for $1,900,000. Due to the fact that the joint venture had recorded accrued rental income, representing non-cash amounts that the joint venture had recognized as income since the inception of the lease relating to the straight-lining of future scheduled rent increases in accordance with generally accepted accounting principles, a loss of approximately $61,900 was recorded in March 2001. Middleburg Joint Venture was dissolved in accordance with the joint venture agreement and no gain or loss on the dissolution of the joint venture was recorded. As a result, the Partnership received approximately $236,700 as a return of capital for its pro-rata share of the net sales proceeds. In April 2001, the Partnership reinvested the net sales proceeds it received as a return of capital from Middleburg Joint Venture, in another joint venture arrangement, CNL VIII, X, XII Kokomo Joint Venture, with CNL Income Fund X, Ltd. and CNL Income Fund XII, Ltd., Florida limited partnerships and affiliates of the general partners, to purchase and hold one restaurant Property, at a total cost of approximately $2,112,000. The joint venture acquired the Property from CNL BB Corp., an affiliate of the general partners, who had purchased and temporarily held title to this Property in order to facilitate the acquisition of the Property by the joint venture. As of December 31, 2001, the Partnership had contributed approximately $211,200 and had an approximate 10% interest in the profits and losses of the joint venture. In May 2001, the Partnership sold its Property in Statesville, North Carolina, and received net sales proceeds of $877,000, resulting in a gain of approximately $28,300. In June 2001, the Partnership reinvested a portion of these sales proceeds in an additional Property in Walker, Louisiana as tenants-in-common with CNL Income Fund XVI, Ltd., a Florida limited partnership and affiliate of the general partners. As of December 31, 2001, the Partnership had contributed approximately $232,300 for a 17% interest in the Property. In addition, in July 2001, the Partnership reinvested the remaining net sales proceeds it received from the sale of the property in Statesville, North Carolina in a Bennigan's property in Denver, Colorado, as tenants-in-common, with CNL Income Fund XVIII, Ltd., a Florida limited partnership and an affiliate of the general partners. As of December 31, 2001, the Partnership had contributed approximately $422,500 for a 19.30% interest in the Property. None of the Properties owned by the Partnership or the joint ventures, in which the Partnership owns an interest, is or may be encumbered. Under its Partnership Agreement, the Partnership is prohibited from borrowing for any purpose; provided, however, that the General Partners or their affiliates are entitled to reimbursement, at cost, for actual expenses incurred by the General Partners or their affiliates on behalf of the Partnership. Affiliates of the General Partners from time to time incur certain operating expenses on behalf of the Partnership for which the Partnership reimburses the affiliates without interest. Currently, rental income from the Partnership's Properties is invested in money market accounts or other short-term, highly liquid investments such as demand deposit accounts at commercial banks, money market accounts and certificates of deposit with less than a 90-day maturity date, pending the Partnership's use of such funds to pay Partnership expenses or to make distributions to the partners. At December 31, 2001, the Partnership had $2,085,133 invested in such short-term investments as compared to $1,226,635 at December 31, 2000. As of December 31, 2001, the average interest rate earned by the Partnership on the rental income deposited in demand deposit accounts at commercial banks was approximately 3.6% annually. The funds remaining at December 31, 2001, after the payment of distributions and other liabilities, will be used to invest in an additional Property and to meet the Partnership's working capital needs. In January 2002, the Partnership reinvested a portion of the net sales proceeds it received from the sale of the Property in Statesville, North Carolina, and the prepaid principal relating to a promissory note, in a Denny's Property located in Ontario, Oregon, at an approximate cost of $654,400. In February 2002, a tenant, Brandon Fast Food Services, Inc., filed for bankruptcy. The tenant has neither rejected nor affirmed the one lease it has with the Partnership. As of March 15, 2002, the Partnership has continued receiving a portion of the rental payments relating to this lease. While the tenant has neither rejected nor affirmed this lease, there can be no assurance that the lease will not be rejected in the future. The lost revenues resulting from the possible rejection of this lease could have an adverse effect on the results of operations of the Partnership if the Partnership is unable to re-lease the Property in a timely manner. Short-Term Liquidity The Partnership's short-term liquidity requirements consist primarily of the operating expenses of the Partnership. The Partnership's investment strategy of acquiring Properties for cash and leasing them under triple-net leases to operators who generally meet specified financial standards minimizes the Partnership's operating expenses. The General Partners believe that the leases will continue to generate cash flow in excess of operating expenses. Due to low operating expenses and ongoing cash flow, the General Partners believe that the Partnership has sufficient working capital reserves at this time. In addition, because all leases of the Partnership's Properties are generally on a triple-net basis, it is not anticipated that a permanent reserve for maintenance and repairs will be established at this time. To the extent, however, that the Partnership has insufficient funds for such purposes, the General Partners will contribute to the Partnership an aggregate amount of up to one percent of the offering proceeds for maintenance and repairs. The General Partners have the right, but not the obligation, to make additional capital contributions if they deem it appropriate in connection with the operations of the Partnership. The Partnership generally distributes cash from operations remaining after the payment of the operating expenses of the Partnership, to the extent that the General Partners determine that such funds are available for distribution. Based on cash from operations, the Partnership declared distributions to the Limited Partners of $3,150,004 for each of the years ended December 31, 2001, 2000 and 1999. This represents distributions of $0.09 per Unit for each of the years ended December 31, 2001, 2000, and 1999. No amounts distributed to the Limited Partners for the years ended December 31, 2001, 2000, and 1999, 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 2000, the General Partners waived their right to receive future distributions from the Partnership, including both distributions of operating cash flow and distributions of liquidation proceeds, to the extent that the cumulative amount of such distributions would exceed the balance in the General Partners' capital account as of December 31, 1999. Accordingly, the General Partners were not allocated any net income and did not receive any distributions during the years ended December 31, 2001 and 2000. As of December 31, 2001 and 2000, the Partnership owed $20,432 and $4,351, respectively, to affiliates for such amounts as operating expenses and accounting and administrative services. As of March 15, 2002, the Partnership had reimbursed the affiliates all such amounts. In addition, as of December 31, 2001, the Partnership had incurred $55,050 in real estate disposition fees due to an affiliate as a result of services in connection with the sale of several Properties. The payment of such fees is deferred until the Limited Partners have received the sum of their 10% Preferred Return and their adjusted capital contributions. Other liabilities of the Partnership, including distributions payable, decreased to $855,851 at December 31, 2001, from $906,941 at December 31, 2000. The decrease in other liabilities was primarily attributable to a decrease in the rents paid in advance and the amounts that were accrued for transaction costs at December 31, 2001, as compared to December 31, 2000 relating to the proposed and terminated merger with APF, as described in "Termination of Merger." The General Partners believe that the Partnership has sufficient cash on hand to meet its current working capital needs. Long-Term Liquidity The Partnership has no long-term debt or other long-term liquidity requirements. Critical Accounting Policies The Partnership's leases are accounted for under the provisions of Statement of Accounting Standard No. 13, "Accounting for Leases" ("FAS 13"), and have been accounted for using either the direct financing or the operating method. FAS 13 requires management to estimate the economic life of the leased property, the residual value of the leased property and the present value of minimum lease payments to be received from the tenant. In addition, management assumes that all payments to be received under its leases are collectible. Changes in management's estimates or assumption regarding collectibility of lease payments could result in a change in accounting for the lease at the inception of the lease. The Partnership accounts for its unconsolidated joint ventures using the equity method of accounting. Under generally accepted accounting principles, the equity method of accounting is appropriate for entities that are partially owned by the Partnership, but for which operations of the investee are shared with other partners. The Partnership's joint venture agreements require the consent of all partners on all key decisions affecting the operations of the underlying Property. Management reviews its Properties and investments in unconsolidated entities periodically (no less than once per year) for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable through operations. Management determines whether 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. Results of Operations During 1999, the Partnership and its consolidated joint venture owned and leased 28 wholly owned Properties. During 2000, the Partnership and its consolidated joint venture, Woodway Joint Venture, owned and leased 30 wholly owned Properties (including four Properties which were sold during 2000). During 2001, the Partnership and its consolidated joint venture, Woodway Joint Venture, owned and leased 26 wholly owned Properties (including one Property which was sold during 2001) to operators of fast-food and family-style restaurant chains. During 1999, the Partnership was a co-venturer in three joint ventures that owned and leased a total of eight Properties (including one Property which was sold during 2001). In addition, during 1999, the Partnership was a co-venturer in one additional joint venture that owned and leased one Property. During 2000, the Partnership also owned and leased one additional Property with affiliates of the General Partners, as tenants-in-common. In addition, during 2001, the Partnership was a co-venturer in one additional joint venture that owned and leased one Property, and also owned and leased two additional Properties with affiliates of the General Partners, as tenants-in-common. As of December 31, 2001, the Partnership owned, either directly or through joint venture arrangements, 37 Properties which are, in general, 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 $49,200 to $251,500. The majority of leases provide for percentage rent based on sales in excess of a specified amount. In addition, a majority of the leases provide that, commencing in specified lease years (ranging from the third to sixth lease year), the annual base rent required under the terms of the lease will increase. For further description of the Partnership's leases and Properties, see Item 1. Business - Leases and Item 2. Properties, respectively. During the years ended December 31, 2001, 2000, and 1999, the Partnership and its consolidated joint venture earned $2,637,096, $2,837,794, and $2,901,093, respectively, in rental income from operating leases and earned income from direct financing leases. The decrease in rental and earned income during 2001 and 2000, each as compared to the previous year, was partially due to the fact that the Partnership sold one and four Properties, respectively, as discussed in "Capital Resources," resulting in a decrease in rental and earned income of approximately $272,600 and $187,300 during the years ended December 31, 2001 and 2000, respectively. The decrease in rental and earned income was partially offset by an increase in rental and earned income of approximately $204,800 and $130,600, during the years ended December 31, 2001 and 2000, respectively, as a result of the Partnership reinvesting a portion of the net sales proceeds in two Properties in Deerfield, Illinois and Hialeah, Florida, as described in "Capital Resources." Rental and earned income are expected to remain at reduced amounts while equity in earnings of joint ventures is expected to increase due to the fact that the Partnership reinvested a portion of the net sales proceeds, from the sale of a Property in 2001, in two Properties with affiliates of the General Partners, as two separate tenants-in-common arrangements. Rental and earned income decreased during the year ended December 31, 2001, as compared to the year ended December 31, 2000, by approximately $58,300 due to the fact that during the year ended December 31, 2001, the tenant of the Property in North Fort Myers, Florida, vacated the Property and ceased making rental payments on this Property. As a result, the Partnership stopped recording rental and earned income relating to this Property. In September 2001, the Partnership entered into a new lease with a new tenant for this Property for which rental payments commenced in December 2001. For the years ended December 31, 2001, 2000, and 1999, the Partnership also earned $85,987, $113,627, and $113,285, respectively, in contingent rental income. The decrease in contingent rental income for 2001, as compared to 2000, was primarily attributable to a decrease in gross sales for certain restaurant Properties requiring the payment of contingent rental income. For the years ended December 31, 2001, 2000, and 1999, the Partnership also earned $390,505, $319,184, and $276,012, respectively, attributable to net income earned by unconsolidated joint ventures in which the Partnership is a co-venturer. The increase in net income earned by joint ventures during 2001 and 2000, each as compared to the previous year, was primarily due to the fact that the Partnership invested in 1999 in a Joint Venture, in 2000 in a Property as tenants-in-common with affiliates of the General Partners, and in 2001 in a Joint Venture and in a Property, as tenants-in-common, with affiliates of the General Partners, as described in "Capital Resources." The increase in net income earned by these joint ventures during the year ended December 31, 2001 was partially offset by a decrease in net income earned by these joint ventures as a result of the sale of the Property owned by Middleburg Joint Venture in March 2001. In addition, in conjunction with the sale of the Property, Middleburg Joint Venture, recognized a loss of approximately $61,900 in March 2001, as described above in "Capital Resources." During the year ended December 31, 2001, two lessees of the Partnership and its consolidated joint venture, Golden Corral Corporation and Carrols Corporation, each contributed more than ten percent of the Partnership's total rental, earned and mortgage interest income (including rental and earned income from the Partnership's consolidated joint venture and the Partnership's share of rental and earned income from nine Properties owned by joint ventures and three Properties owned with affiliates as tenants-in-common). As of December 31, 2001, Golden Corral Corporation was the lessee under leases relating to five restaurants, and Carrols Corporation was the lessee under leases relating to five restaurants. It is anticipated that, based on the minimum annual rental payments required by the leases, these two lessees will continue to contribute more than ten percent of the Partnership's total rental, earned and mortgage interest income during 2002. In addition, during the year ended December 31, 2001, two Restaurant Chains, Golden Corral and Burger King, each accounted for more than ten percent of the Partnership's total rental, earned and mortgage interest income (including rental and earned income from the Partnership's consolidated joint venture and the Partnership's share of rental and earned income from nine Properties owned by unconsolidated joint ventures and three Properties owned with affiliates as tenants-in-common). In 2002, it is anticipated that these two Restaurant Chains each will continue to account for more than ten percent of the Partnership's total rental, earned and mortgage interest income to which the Partnership is entitled under the terms of the leases. Any failure of these lessees or Restaurant Chains could materially affect the Partnership's income if the Partnership is not able to re-lease the Property in a timely manner. During the years ended December 31, 2001, 2000, and 1999, the Partnership also earned $270,989, $271,702, and $223,683, respectively, in interest and other income. The increase in interest and other income during 2000, as compared to 1999, was due to interest earned on the net sales proceeds received from the sale of Properties described above, pending reinvestment in additional Properties, as described above in "Capital Resources." The increase in interest and other income during 2000, as compared to 1999, was partially offset by a reduction in interest income as a result of the prepayment of principal on a mortgage note of $272,500 during 1999, as described above in "Capital Resources." Operating expenses, including depreciation expense and provisions for write-down of assets, were $1,063,333, $554,511, and $690,605, for the years ended December 31, 2001, 2000 and 1999, respectively. During the year ended December 31, 2001, the Partnership recorded a provision for write-down of assets in the amount of $181,815, including $93,671 in previously accrued rental income, relating to the Property in North Fort Myers, Florida, due to the fact that the tenant ceased operations and vacated this Property. The provision represented the difference between the carrying value of the Property, including the accumulated accrued rental income and the General Partners' estimated net realizable value of the Property at December 31, 2001. In addition, during the year ended December 31, 2001, the Partnership recorded a provision for write-down of assets of $117,664 in previously accrued rental income relating to the property located in Statesville, North Carolina. The tenant of the Property defaulted under the terms of its lease, discontinued the operations of the restaurant and vacated the Property. The accrued rental income was the accumulated amount of non-cash accounting adjustments previously recorded in order to recognize future scheduled rent increases as income evenly over the term of the lease. The provision represented the difference between the carrying value of the property, including the accumulated accrued rental income, and the general partners' estimated net realizable value of the property. The Partnership sold this Property in May 2001, as described above in "Capital Resources." The increase in operating expenses during the year ended December 31, 2001, as compared to the year ended December 31, 2000, was partially attributable to, and the decrease during the year ended December 31, 2000, as compared to the year ended December 31, 1999, was partially offset by, an increase in the costs incurred for administrative expenses for servicing the Partnership and its Properties, as permitted by the Partnership agreement. In addition, the increase in operating expenses during the year ended December 31, 2001 was partially due to the Partnership incurring additional state taxes due to changes in tax laws of a state in which the Partnership conducts business. In addition, the increase in operating expenses during 2001, as compared to 2000, was partially due to the fact the Partnership incurred certain expenses such as legal fees and maintenance relating to several Properties. In addition, the Partnership incurred real estate taxes during 2001, relating to the Property in North Fort Myers, Florida, due to the tenant vacating the Property. The Partnership ceased collection efforts of these real estate taxes. The Partnership entered into a new lease with a new tenant for this Property, and in accordance with the terms of the lease, the new tenant is responsible for such expenses commencing December 2001. The increase in operating expenses, during 2001, as compared to 2000, was partially offset by, and the decrease during 2000, as compared to 1999, was primarily attributable to, the fact that during 2000 and 1999 the Partnership incurred $32,424 and $185,446, respectively, in transaction costs related to the General Partners retaining financial and legal advisors to assist them in evaluating and negotiating the proposed merger with CNL American Properties Fund, Inc. ("APF"). On March 1, 2000, the General Partners and APF mutually agreed to terminate the merger. No such expenses were incurred during 2001. As a result of the sales of the Properties as described above in "Capital Resources," the Partnership recorded a total gain of $28,301 and $612,693 during the years ended December 31, 2001 and 2000. No Properties were sold during 1999. The Partnership's leases as of December 31, 2001, 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. Inflation, overall, has had a minimal effect on results of operations of the Partnership. Continued inflation 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. The restaurant industry, as a whole, has been one of the many industries affected by the general slowdown in the economy. While the Partnership has experienced some losses due to the financial difficulties of a limited number of restaurant operators, the General Partners remain confident in the overall performance of the fast-food and family style restaurants, the concepts that comprise the Partnership's portfolio. Industry data shows that these restaurant concepts continue to outperform and remain more stable than higher-end restaurants, which have been more adversely affected by the slowing economy. In December 1999, the Securities and Exchange Commission released SAB 101, which provides the staff's view in applying generally accepted accounting principles to selected revenue recognition issues. SAB 101 requires the Partnership to defer recognition of certain percentage rental income until certain defined thresholds are met. The Partnership adopted SAB 101 beginning January 1, 2000. Implementation of SAB 101 did not have a material impact on the Partnership's results of operations. In July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 141 "Business Combinations" (FAS 141) and Statement of Financial Accounting Standards No. 142 "Goodwill and Other Intangible Assets" (FAS 142). The Partnership has reviewed both statements and has determined that both FAS 141 and FAS 142 do not apply to the Partnership as of December 31, 2001. In October 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets" (FAS 144). This statement requires that a long-lived asset be tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. The assessment is based on the carrying amount of the asset at the date it is tested for recoverability. An impairment loss is recognized when the carrying amount of a long-lived asset exceeds its fair value. If an impairment is recognized, the adjusted carrying amount of a long-lived asset is its new cost basis. The adoption of FAS 144 did not have any effect on the partnership's recording of impairment losses as this Statement retained the fundamental provisions of FAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of". Termination of 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. Under the Agreement and Plan of Merger, APF was to issue shares of its common stock as consideration for the Merger. On March 1, 2000, the General Partners and APF announced that they had mutually agreed to terminate the Agreement and Plan of Merger. The agreement to terminate the Agreement and Plan of Merger was based, in large part, on the General Partners' concern that, in light of market conditions relating to publicly traded real estate investment trusts, the value of the transaction had diminished. As a result of such diminishment, the General Partners' ability to unequivocally recommend voting for the transaction, in the exercise of their fiduciary duties, had become questionable. Interest Rate Risk The Partnership accepted a promissory note in conjunction with the sale of a Property. The principal amounts outstanding under the mortgage note totaled $917,857 at December 31, 2001. The General Partners believe that the estimated fair value of the mortgage notes at December 31, 2001 approximated the outstanding principal amounts. The Partnership is exposed to equity loss in the event of changes in interest rates. The fair value of the mortgage notes would decline if interest rates rise. The following table presents the expected cash flows of principal that are sensitive to these changes. Mortgage Note Fixed Rate ------------------- 2002 $ 55,609 2003 61,890 2004 68,881 2005 76,662 2006 85,321 Thereafter 569,494 ------------------- $ 917,857 =================== Item 7A. Quantitative and Qualitative Disclosures About Market Risk This information is described above in Item 7. Management's Discussion and Analysis of Financial Condition -- Interest Rate Risk. Item 8. Financial Statements and Supplementary Data CNL INCOME FUND VIII, LTD. (A Florida Limited Partnership) CONTENTS Page Report of Independent Certified Public Accountants 18 Financial Statements: Balance Sheets 19 Statements of Income 20 Statements of Partners' Capital 21 Statements of Cash Flows 22-23 Notes to Financial Statements 24-41 Report of Independent Certified Public Accountants To the Partners CNL Income Fund VIII, Ltd. In our opinion, the accompanying balance sheets and the related statements of income, of partners' capital and of cash flows present fairly, in all material respects, the financial position of CNL Income Fund VIII, Ltd. (a Florida limited partnership) at December 31, 2001 and 2000, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America. 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 auditing standards generally accepted in the United States of America, 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 our opinion. /s/ PricewaterhouseCoopers LLP Orlando, Florida February 8, 2002 CNL INCOME FUND VIII, LTD. (A Florida Limited Partnership) BALANCE SHEETS

CNL INCOME FUND VIII, LTD. (A Florida Limited Partnership) NOTES TO FINANCIAL STATEMENTS Years Ended December 31, 2001, 2000, and 1999 1. Significant Accounting Policies: ------------------------------- Organization and Nature of Business - CNL Income Fund VIII, Ltd. (the "Partnership") is a Florida limited partnership that was organized for the purpose of acquiring both newly constructed and existing restaurant properties, as well as properties upon which restaurants were to be constructed, which are leased primarily to operators of national and regional fast-food and family-style restaurant chains. The general partners of the Partnership are CNL Realty Corporation (the "Corporate General Partner"), James M. Seneff, Jr. and Robert A. Bourne. Mr. Seneff and Mr. Bourne are also 50 percent shareholders of the Corporate general partner. The General Partners have responsibility for managing the day-to-day operations of the Partnership. Real Estate and Lease Accounting - The Partnership records the acquisition of land and buildings at cost, including acquisition and closing costs. Land and buildings are leased to unrelated third parties generally on a triple-net basis, whereby the tenant is generally responsible for all operating expenses relating to the property, including property taxes, insurance, maintenance and repairs. The leases are accounted for using either the direct financing or the operating method. Such methods are described below: Direct financing method - The leases accounted for using the direct financing method are recorded at their net investment (which at the inception of the lease generally represents the cost of the asset) (Note 4). Unearned income is deferred and amortized to income over the lease terms so as to produce a constant periodic rate of return on the Partnership's investment in the leases. Operating method - Land and building leases accounted for using the operating method are recorded at cost, revenue is recognized as rentals are earned and depreciation is charged to operations as incurred. Buildings are depreciated on the straight-line method over their estimated useful lives of 30 years. When scheduled rentals vary during the lease term, income is recognized on a straight-line basis so as to produce a constant periodic rent over the lease term commencing on the date the property is placed in service. CNL INCOME FUND VIII, LTD. (A Florida Limited Partnership) NOTES TO FINANCIAL STATEMENTS - CONTINUED Years Ended December 31, 2001, 2000, and 1999 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 reverses the cumulative accrued rental income balance. When the properties are sold, the related cost and accumulated depreciation for operating leases and the net investment for direct financing leases, plus any accrued rental income, are removed from the accounts and gains or losses from sales are reflected in income. The General Partners of the Partnership review the properties for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable through operations. The General Partners determine whether an impairment in value has occurred by comparing the estimated future undiscounted cash flows, including the residual value of the property, with the carrying cost of the individual property. If an impairment is indicated, the assets are adjusted to their fair value. Although the General Partners have made their best estimate of these factors based on current conditions, it is reasonably possible that changes could occur in the near term which could adversely affect the General Partners' estimate of net cash flows expected to be generated from its properties and the need for asset impairment write-downs. When the collection of amounts recorded as rental or other income is considered to be doubtful, an adjustment is made to increase the allowance for doubtful accounts, which is netted against receivables, although the Partnership continues to pursue collection of such amounts. If amounts are subsequently determined to be uncollectible, the corresponding receivable and the allowance for doubtful accounts are decreased accordingly. Investment in Joint Ventures - The Partnership accounts for its 87.68% interest in Woodway Joint Venture using the consolidation method. Minority interest represents the minority joint venture partner's proportionate share of the equity in the Partnership's consolidated joint venture. All significant intercompany accounts and transactions have been eliminated. CNL INCOME FUND VIII, LTD. (A Florida Limited Partnership) NOTES TO FINANCIAL STATEMENTS - CONTINUED Years Ended December 31, 2001, 2000, and 1999 1. Significant Accounting Policies - Continued: ------------------------------------------- The Partnership's investments in Asheville Joint Venture; CNL Restaurant Investments II; Bossier City Joint Venture; and CNL VIII, X, XII Kokomo Joint Venture; and a property in Libertyville, Illinois; a property in Walker, Louisiana; and a property in Denver, Colorado for which each property is held with affiliates of the General Partners as tenants-in-common, are accounted for using the equity method since each joint venture agreement requires the consent of all partners on all key decisions affecting the operations of the underlying property. 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. 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. See "Income Taxes" footnote for a reconciliation of net income for financial reporting purposes to net income for federal income tax purposes. 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 CNL INCOME FUND VIII, LTD. (A Florida Limited Partnership) NOTES TO FINANCIAL STATEMENTS - CONTINUED Years Ended December 31, 2001, 2000, and 1999 1. Significant Accounting Policies - Continued: ------------------------------------------- and future cash flows associated with long-lived assets. Actual results could differ from those estimates. Reclassification - Certain items in the prior year's financial statements have been reclassified to conform to 2001 presentation. These reclassifications had no effect on total partner's capital or net income. Staff Accounting Bulletin No. 101 ("SAB 101") - In December 1999, the Securities and Exchange Commission released SAB 101, which provides the staff's view in applying generally accepted accounting principles to selected revenue recognition issues. SAB 101 requires the Partnership to defer recognition of certain percentage rental income until certain defined thresholds are met. The Partnership adopted SAB 101 beginning January 1, 2000. Implementation of SAB 101 did not have a material impact on the Partnership's results of operations. Statement of Financial Accounting Standards No. 141 ("FAS 141") and Statement of Financial Accounting Standards No. 142 ("FAS 142") - In July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 141 "Business Combinations" and Statement of Financial Accounting Standards No. 142 "Goodwill and Other Intangible Assets". The Partnership has reviewed both statements and has determined that both FAS 141 and FAS 142 do not apply to the Partnership as of December 31, 2001. Statement of Financial Accounting Standards No. 144 ("FAS 144") - In October 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets". This statement requires that a long-lived asset be tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. The assessment is based on the carrying amount of the asset at the date it is tested for recoverability. An impairment loss is recognized when the carrying amount of a long-lived asset exceeds its fair value. If an impairment is recognized, the adjusted carrying amount of a long-lived asset is its new cost basis. The adoption of FAS 144 did not have any effect on the partnership's recording of impairment losses as this Statement retained the fundamental provisions of FAS No. 121 CNL INCOME FUND VIII, LTD. (A Florida Limited Partnership) NOTES TO FINANCIAL STATEMENTS - CONTINUED Years Ended December 31, 2001, 2000, and 1999 1. Significant Accounting Policies - Continued: ------------------------------------------- "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of". 2. Leases: ------ The Partnership leases its land and buildings primarily to operators of national and regional fast-food and family-style restaurants. The leases are accounted for under the provisions of Statement of Financial Accounting Standards No. 13, "Accounting for Leases." Some of the leases have been classified as operating leases and some of the leases have been classified as direct financing leases. For property leases classified as direct financing leases, the building portions of the majority of property leases are accounted for as direct financing leases while the land portions of these leases are accounted for as operating leases. Substantially all leases are for 14 to 25 years and provide for minimum and contingent rentals. In addition, the tenant generally pays all property taxes and assessments, fully maintains the interior and exterior of the building and carries insurance coverage for public liability, property damage, fire and extended coverage. The lease options generally allow tenants to renew the leases for two to four successive five-year periods subject to the same terms and conditions of the initial lease. Most leases also allow the tenant to purchase the property at fair market value after a specified portion of the lease has elapsed. 3. Land and Buildings on Operating Leases: -------------------------------------- Land and buildings on operating leases consisted of the following at December 31:

CNL INCOME FUND VIII, LTD. (A Florida Limited Partnership) NOTES TO FINANCIAL STATEMENTS - CONTINUED Years Ended December 31, 2001, 2000, and 1999 3. Land and Buildings on Operating Leases - Continued: -------------------------------------------------- In July 2000, the Partnership sold its properties in Brooksville, Bayonet Point and Sun City, Florida, for a total of approximately $3,465,100 and received net sales proceeds totaling approximately $3,402,700, resulting in a total gain of approximately $484,800. In July 2000, the Partnership reinvested the sales proceeds it received from the sale of the properties in Sun City, Florida and Bayonet Point, Florida in a Bennigan's property located in Deerfield, Illinois, at an approximate cost of $2,462,700 from CNL BB Corp., an affiliate of the general partners. In connection therewith, the Partnership entered into a long term, triple-net lease with terms substantially the same as its other leases (see Note 9). In September 2000, the Partnership sold its property in Jacksonville, Florida, for $422,506 and received net sales proceeds of approximately $420,000, resulting in a gain of approximately $127,900. In October 2000, the Partnership reinvested the sales proceeds it received from the sale of its property in Jacksonville, Florida in a Pizza Hut Property in Hialeah, Florida at an approximate cost of $472,300. In connection therewith, the Partnership entered into a long term, triple-net lease with terms substantially the same as its other leases. In May 2001, the Partnership sold its property in Statesville, North Carolina, and received net sales proceeds of $877,000, resulting in a gain of approximately $28,300 (see Note 4). The following is a schedule of the future minimum lease payments to be received on noncancellable operating leases at December 31, 2001: 2002 $2,031,058 2003 2,063,300 2004 2,077,429 2005 1,951,193 2006 1,475,826 Thereafter 8,239,630 ---------------- $17,838,436 ================ CNL INCOME FUND VIII, LTD. (A Florida Limited Partnership) NOTES TO FINANCIAL STATEMENTS - CONTINUED Years Ended December 31, 2001, 2000, and 1999 3. Land and Buildings on Operating Leases - Continued: -------------------------------------------------- Since lease renewal periods are exercisable at the option of the tenant, the above table only presents future minimum lease payments due during the initial lease terms. In addition, this table does not include any amounts for future contingent rentals which may be received on the leases based on a percentage of the tenant's gross sales. 4. Net Investment in Direct Financing Leases: ----------------------------------------- The following lists the components of the net investment in direct financing leases at December 31:

In July 2000, the Partnership sold two properties, for which the building portion had been classified as a direct financing lease. In connection therewith, the gross investment (minimum lease payments receivable and the estimated residual value) and unearned income relating to the building were removed from the accounts and the gain from the sale of the property was reflected in income (see Note 3). In May 2001, the Partnership sold a property, for which the building portion had been classified as a direct financing lease. In connection therewith, the gross investment (minimum lease payments receivable and the estimated residual value) and unearned income relating to the building were removed from the accounts and the gain from the sale of the property was reflected in income (see Note 3). CNL INCOME FUND VIII, LTD. (A Florida Limited Partnership) NOTES TO FINANCIAL STATEMENTS - CONTINUED Years Ended December 31, 2001, 2000, and 1999 4. Net Investment in Direct Financing Leases - Continued: ----------------------------------------------------- At June 30, 2001, the Partnership established a provision for impairment in carrying value in the amount of $88,144 for its property in North Fort Myers, Florida, due to the fact that the tenant ceased operations and vacated this property. The provision represented the difference between the carrying value of the net investment in the direct financing lease and the general partners' estimated net realizable value of the investment in the direct financing lease at June 30, 2001. During July 2001, this lease was terminated due to the fact that the tenant vacated the property and ceased restaurant operations. As a result, the Partnership reclassified the lease from direct financing leases to land and buildings on operating leases. In accordance with the Statement of Financial Accounting Standards No. 13, "Accounting for Leases," the Partnership recorded the reclassified lease at the lower of original cost, present fair value, or present carrying amount. No loss on the reclassification of the direct financing lease was recorded. The following is a schedule of future minimum lease payments to be received on direct financing leases at December 31, 2001: 2002 $ 831,145 2003 831,145 2004 831,145 2005 831,145 2006 857,472 Thereafter 3,334,679 ---------------- $7,516,731 ================ The above table does not include future minimum lease payments for renewal periods or for contingent rental payments that may become due in future periods (See Note 3). 5. Investment in Joint Ventures: ---------------------------- The Partnership has an 85.54%, a 36.8%, and a 34% interest in the profits and losses of Asheville Joint Venture, CNL Restaurant Investments II, and Bossier City Joint Venture, respectively. The remaining interests in these joint ventures are held by affiliates of the Partnership which have the same general partners. Asheville Joint Venture and Bossier City Joint Venture each owns and leases one property, and CNL Restaurant Investments CNL INCOME FUND VIII, LTD. (A Florida Limited Partnership) NOTES TO FINANCIAL STATEMENTS - CONTINUED Years Ended December 31, 2001, 2000, and 1999 5. Investment in Joint Ventures - Continued: ---------------------------------------- II owns and leases six properties, to an operator of national fast-food or family-style restaurants. In August 2000, the Partnership used a portion of the net sales proceeds from sale of its properties to acquire an interest in a Baker's Square property in Libertyville, Illinois, with CNL Income Fund IX, Ltd., ("CNL IX") a Florida limited partnership, and an affiliate of the general partners. The Partnership accounts for its investment using the equity method since the agreement requires the consent of all partners on all key decisions affecting the operations of the underlying property. As of December 31, 2001, the Partnership owned a 66% interest in this property. In March 2001, Middleburg Joint Venture, in which the Partnership owned a 12.46% interest, sold its property to the tenant, in accordance with the purchase option under the lease agreement, for $1,900,000. Due to the fact that the joint venture had recorded accrued rental income, representing non-cash amounts that the joint venture had recognized as income since the inception of the lease relating to the straight-lining of future scheduled rent increases in accordance with generally accepted accounting principles, a loss of approximately $61,900 was recorded by the joint venture in March 2001. The Partnership dissolved the joint venture and did not recognize any gain/loss on the dissolution of the joint venture. As a result, the Partnership received approximately $236,700 as a return of capital for its pro-rata share of the net sales proceeds. The Partnership reinvested the proceeds received as a return of capital from Middleburg Joint Venture in another joint venture arrangement, as described below. CNL INCOME FUND VIII, LTD. (A Florida Limited Partnership) NOTES TO FINANCIAL STATEMENTS - CONTINUED Years Ended December 31, 2001, 2000, and 1999 5. Investment in Joint Ventures - Continued: ---------------------------------------- In April 2001, the Partnership reinvested the amounts received as a return of capital from Middleburg Joint Venture in another joint venture arrangement, CNL VIII, X, XII Kokomo Joint Venture, with CNL Income Fund X, Ltd. and CNL Income Fund XII, Ltd., both Florida limited partnerships and affiliates of the general partners. The Partnership acquired this interest from CNL BB Corp., an affiliate of the general partners (see Note 9). As of December 31, 2001, the Partnership had contributed approximately $211,200 for a 10% interest in the profits and losses of the joint venture. The Partnership accounts for its investment in this joint venture under the equity method since the joint venture agreement requires the consent of all partners on all key decisions affecting the operations of the underlying property. In June 2001, the Partnership reinvested a portion of the sales proceeds from the property in Statesville, North Carolina, described above, in an additional property in Walker, Louisiana as tenants-in-common with CNL Income Fund XVI, Ltd., a Florida limited partnership and affiliate of the general partners. As of December 31, 2001, the Partnership had contributed approximately $232,300 for a 17% interest in the property. The Partnership accounts for its investment under the equity method since the agreement requires the consent of all partners on all key decisions affecting the operations of the underlying property. In July 2001, the Partnership reinvested the remaining sales proceeds it received from the sale of the property in Statesville, North Carolina, in an additional property in Denver, Colorado, as tenants-in-common, with CNL Income Fund XVIII, Ltd., a Florida limited partnership and affiliate of the general partners. As of December 31, 2001, the Partnership had contributed approximately $422,500 for a 19.30% interest in the profits and losses of the property. The Partnership accounts for its investment in this property under the equity method since the agreement requires the consent of all partners on all key decisions affecting the operations of the underlying property. CNL INCOME FUND VIII, LTD. (A Florida Limited Partnership) NOTES TO FINANCIAL STATEMENTS - CONTINUED Years Ended December 31, 2001, 2000, and 1999 5. Investment in Joint Ventures - Continued: ---------------------------------------- The following presents the joint ventures' combined, condensed financial information at December 31:

The Partnership recognized income totaling $390,505, $319,184, and $276,012, for the years ended December 31, 2001, 2000, and 1999, respectively, from these joint ventures. 6. Mortgage Notes Receivable: ------------------------- As of December 31, 1996, the Partnership had accepted two promissory notes in the principal sum totalling $460,000 in connection with the sale of two of its properties in Jacksonville, Florida. The promissory notes, which are collateralized by mortgages on the properties, bear interest at a rate of 10% per annum, and are being collected in 119 equal monthly installments of $2,106 and $1,931, with balloon payments of $218,252 and $200,324, respectively, due in December 2005. During the year ended December 31, 2001, the borrower repaid principal in the amount of approximately $441,500 which represented the total outstanding principal balance for both notes. In addition, in connection with the 1996 sale of its property in Orlando, Florida, the Partnership accepted a promissory note in the principal sum of $1,388,568, representing the gross sales price of $1,375,000, plus tenant closing costs of $13,568 that the Partnership financed on behalf of the tenant. The promissory note bears interest at a rate of 10.75% per annum, is collateralized by a mortgage on the property and is being CNL INCOME FUND VIII, LTD. (A Florida Limited Partnership) NOTES TO FINANCIAL STATEMENTS - CONTINUED Years Ended December 31, 2001, 2000, and 1999 6. Mortgage Notes Receivable - Continued: ------------------------------------- collected in 12 monthly installments of interest only, in 17 monthly installments of $15,413 consisting of principal and interest, and thereafter in 151 monthly installments of $12,633 consisting of principal and interest. During the year ended December 31, 1999, the borrower repaid principal in the amount of $272,500. This amount was applied to the outstanding principal balance. The mortgage notes receivable consisted of the following at December 31:

The General Partners believe that the estimated fair value of mortgage notes receivable at December 31, 2001 and 2000, approximated the outstanding principal amount based on estimated current rates at which similar loans would be made to borrowers with similar credit and for similar maturities. 7. Allocations and Distributions: ----------------------------- From inception through December 31, 1999, generally, all net income and net losses of the Partnership, excluding gains and losses from the sale of properties, were allocated 99% to the limited partners and one percent to the General Partners. From inception through December 31, 1999, distributions of net cash flow were made 99% 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 was subordinated to receipt by the limited partners of an aggregate, ten percent, cumulative, noncompounded annual return on their adjusted capital contributions (the "10% Preferred Return"). From inception through December 31, 1999, generally, net sales proceeds from the sale of properties not in liquidation of the Partnership, to the extent distributed, were distributed first to the limited partners in an amount sufficient to provide them with their 10% Preferred Return, plus the return of their adjusted capital contributions. The General Partners then received, to the extent previously subordinated and unpaid, a one percent CNL INCOME FUND VIII, LTD. (A Florida Limited Partnership) NOTES TO FINANCIAL STATEMENTS - CONTINUED Years Ended December 31, 2001, 2000, and 1999 7. Allocations and Distributions - Continued: ----------------------------------------- interest in all prior distributions of net cash flow and a return of their capital contributions. Any remaining sales proceeds were 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 was, in general, allocated in the same manner as net sales proceeds are distributable. Any loss from the sale of a property was, in general, allocated first, on a pro rata basis, to partners with positive balances in their capital accounts; thereafter, 95 percent to the limited partners and five percent to the General Partners. Generally, net sales proceeds from a liquidating sale of properties, will be used in the following order: (i) first to pay and discharge all of the Partnership's liabilities to creditors, (ii) second, to establish reserves that may be deemed necessary for any anticipated or unforeseen liabilities or obligations of the Partnership, (iii) third, to pay all of the Partnership's liabilities, if any, to the general and limited partners, (iv) fourth, after allocations of net income, gains and/or losses, to distribute to the partners with positive capital account balances, in proportion to such balances, up to amounts sufficient to reduce such positive balances to zero, and (v) thereafter, any funds remaining shall then be distributed 95 percent to the limited partners and five percent to the General Partners. Effective January 1, 2000, the General Partners waived their right to receive future distributions from the Partnership, including both distributions of operating cash flow and distributions of liquidation proceeds, to the extent that the cumulative amount of such distributions would exceed the balance in the General Partners' capital account as of December 31, 1999. Accordingly, for years commencing January 1, 2000 and after, the Partnership's net income will be allocated entirely among the limited partners. However, if losses are allocated to the general partners in a year, an amount of income equal to the sum of such losses may be allocated to the General Partners in succeeding years. Accordingly, the General Partners were not allocated any net income and did not receive any distributions during the years ended December 31, 2001 and 2000. During each of the years ended December 31, 2001, 2000, and 1999 the Partnership declared distributions to the limited partners of $3,150,004. No distributions have been made to the General Partners to date. CNL INCOME FUND VIII, LTD. (A Florida Limited Partnership) NOTES TO FINANCIAL STATEMENTS - CONTINUED Years Ended December 31, 2001, 2000, and 1999 8. Income Taxes: ------------ The following is a reconciliation of net income for financial reporting purposes to net income for federal income tax purposes for the years ended December 31:

CNL INCOME FUND VIII, LTD. (A Florida Limited Partnership) NOTES TO FINANCIAL STATEMENTS - CONTINUED Years Ended December 31, 2001, 2000, and 1999 9. Related Party Transactions: -------------------------- One of the individual general partners, James M. Seneff, Jr., is one of the principal shareholders of CNL Holdings, Inc. The other individual general partner, Robert A. Bourne, serves as President and Treasurer of CNL Group, Inc., a wholly owned subsidiary of CNL Holdings, Inc. CNL APF Partners, LP (the "Advisor") is a wholly owned subsidiary of CNL American Properties Fund, Inc. ("APF"). CNL Fund Advisors, Inc., a majority owned subsidiary of CNL Financial Group, Inc. until it merged with and into APF effective September 1, 1999, served as the Partnership's advisor until it assigned its rights and obligations under a management agreement with the Partnership to the Advisor effective July 1, 2000. The individual general partners are stockholders and directors of APF. The Advisor provides certain services relating to management of the Partnership and its properties pursuant to a management agreement with the Partnership. In connection therewith, the Partnership has agreed to pay the Advisor an annual, noncumulative, subordinated management fee of one percent of the sum of gross revenues from properties wholly owned by the Partnership and the Partnership's allocable share of gross revenues from joint ventures, but not in excess of competitive fees for comparable services. These fees will be incurred and will be payable only after the limited partners receive their 10% Preferred Return. Due to the fact that these fees are noncumulative, if the limited partners have not received their 10% Preferred Return in any particular year, no management fees will be due or payable for such year. As a result of such threshold, no management fees were incurred during the years ended December 31, 2001, 2000, and 1999. The Advisor 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 Advisor 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 were incurred for the years ended December 31, 2001, 2000 and 1999. CNL INCOME FUND VIII, LTD. (A Florida Limited Partnership) NOTES TO FINANCIAL STATEMENTS - CONTINUED Years Ended December 31, 2001, 2000, and 1999 9. Related Party Transactions - Continued: -------------------------------------- In July 2000, the Partnership reinvested the sales proceeds it received from the sale of the properties in Sun City, Florida and Bayonet Point, Florida in a Bennigan's property located in Deerfield, Illinois, at an approximate cost of $2,462,700 from CNL BB Corp., 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. The purchase price paid by the Partnership represents the costs incurred by CNL BB Corp. to acquire and carry the property, including closing costs. In April 2001, the Partnership, CNL Income Fund X, Ltd., and CNL Income Fund XII, Ltd., through a joint venture agreement, acquired an interest in a Golden Corral property from CNL BB Corp., an affiliate of the general partners, at an approximate cost of $2,112,000. CNL Income Fund X, Ltd. and CNL Income Fund XII, Ltd., are Florida limited partnerships and affiliates 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. The purchase price paid by the Partnership represents the costs incurred by CNL BB Corp. to acquire and carry the property, including closing costs. During the years ended December 31, 2001, 2000, and 1999, the Partnership's advisor and its affiliates provided accounting and administrative services to the Partnership on a day-to-day basis, including services during 2000 and 1999 relating to the proposed and terminated merger. The Partnership incurred $201,158, $95,548, and $118,104, for the years ended December 31, 2001, 2000, and 1999, respectively, for such services. The due to related parties consisted of the following at December 31:

CNL INCOME FUND VIII, LTD. (A Florida Limited Partnership) NOTES TO FINANCIAL STATEMENTS - CONTINUED Years Ended December 31, 2001, 2000, and 1999 10. Concentration of Credit Risk: ---------------------------- The following schedule presents total rental, earned and mortgage interest income from individual lessees, each representing more than ten percent of the Partnership's total rental, earned and mortgage interest income (including the Partnership's share of total rental and earned income from the unconsolidated joint ventures and the property held as tenants-in-common with affiliates of the general partners), for each of the years ended December 31:

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

The information denoted by N/A indicates that for each period presented, the tenants and the chains did not represent more than ten percent of the Partnership's total rental and mortgage interest 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. CNL INCOME FUND VIII, LTD. (A Florida Limited Partnership) NOTES TO FINANCIAL STATEMENTS - CONTINUED Years Ended December 31, 2001, 2000, and 1999 11. Selected Quarterly Financial Data: --------------------------------- The following table presents selected unaudited quarterly financial data for each full quarter during the years ended December 31, 2001 and 2000:

(1) Revenues include equity in earnings of unconsolidated joint ventures and minority interest in income of consolidated joint ventures. 12. Subsequent Event: ---------------- In January 2002, the Partnership reinvested a portion of the net sales proceeds it received from the sale of the property in Statesville, North Carolina and the proceeds received relating to its promissory notes, in a Denny's property located in Ontario, Oregon, at an approximate cost of $654,400. In February 2002, a tenant, Brandon Fast Food Services, Inc., filed for bankruptcy. The tenant has neither rejected nor affirmed the one lease it has with the Partnership. While the tenant has neither rejected nor affirmed this lease, there can be no assurance that the lease will not be rejected in the future. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. PART III Item 10. Directors and Executive Officers of the Registrant The General Partners of the Registrant are James M. Seneff, Jr., Robert A. Bourne and CNL Realty Corporation, a Florida corporation. The General Partners manage and control the Partnership's affairs and have general responsibility and the ultimate authority in all matters affecting the Partnership's business. The Partnership has available to it the services, personnel and experience of CNL Fund Advisors, Inc., CNL Financial Group, Inc. and their affiliates, all of which are affiliates of the General Partners. James M. Seneff, Jr., age 55. Since 1971, Mr. Seneff has been active in the acquisition, development, and management of real estate projects and, directly or through an affiliated entity, has served as a general partner or co-venturer in over 100 real estate ventures. These ventures have involved the financing, acquisition, construction, and leasing of restaurants, office buildings, apartment complexes, hotels, and other real estate. Mr. Seneff has served as Director of CNL American Properties Fund, Inc. ("APF"), a public, unlisted real estate investment trust, since 1994. Mr. Seneff served as Chief Executive Officer of APF from 1994 through August 1999, has served as Chairman of the Board from 1994 to 2000, and has been Co-CEO since 2000. Mr. Seneff served as Chairman of the Board and Chief Executive Officer of CNL Fund Advisors (the "Advisor") until it merged with APF in September 1999, and in June 2000, was re-elected to those positions of the Advisor. Mr. Seneff is a principal stockholder of CNL Holdings, Inc., the parent company of CNL Financial Group, Inc. (formerly CNL Group, Inc.), a diversified real estate company, and has served as a Director, Chairman of the Board and Chief Executive Officer of CNL Financial Group, Inc. since its formation in 1980. CNL Financial Group, Inc. is the parent company, either directly or indirectly through subsidiaries, of CNL Real Estate Services, Inc., CNL Capital Markets, Inc., CNL Investment Company and CNL Securities Corp. Mr. Seneff also serves as a Director, Chairman of the Board and Chief Executive Officer of CNL Hospitality Properties, Inc., a public, unlisted real estate investment trust, as well as, CNL Hospitality Corp., its advisor. In addition, he serves as a Director, Chairman of the Board and Chief Executive Officer of CNL Retirement Properties, Inc., a public, unlisted real estate investment trust and its advisor, CNL Retirement Corp. Since 1992, Mr. Seneff has also served as a Director, Chairman of the Board and Chief Executive Officer of Commercial Net Lease Realty, Inc., a public real estate investment trust that is listed on the New York Stock Exchange. Mr. Seneff has also served as a Director, Chairman of the Board and Chief Executive Officer of CNL Securities Corp. since 1979; CNL Investment Company since 1990; and CNL Institutional Advisors, Inc., a registered investment advisor for pension plans, since 1990. Mr. Seneff formerly served as a Director of First Union National Bank of Florida, N.A., and currently serves as the Chairman of the Board of CNL Bank. Mr. Seneff previously served on the Florida State Commission on Ethics and is a former member and past Chairman of the State of Florida Investment Advisory Council, which recommends to the Florida Board of Administration investments for various Florida employee retirement funds. The Florida Board of Administration, Florida's principal investment advisory and money management agency, oversees the investment of more than $60 billion of retirement funds. Mr. Seneff received his degree in Business Administration from Florida State University in 1968. Robert A. Bourne, age 54. Mr. Bourne has participated as a general partner or co-venturer in over 100 real estate ventures involved in the financing, acquisition, construction, and leasing of restaurants, office buildings, apartment complexes, hotels, and other real estate. Mr. Bourne is Director of the Board of Directors of APF. Mr. Bourne served as President of APF from 1994 through February 1999. He also served as Treasurer from February 1999 through August 1999 and from May 1994 through December 1994. He also served in various executive positions with the Advisor prior to its merger with APF including, President from 1994 through September 1997, and Director from 1994 through August 1999. Mr. Bourne serves as President and Treasurer of CNL Financial Group, Inc. (formerly CNL Group, Inc.); Director, Vice Chairman of the Board and President of CNL Hospitality Properties, Inc., a public, unlisted real estate investment trust; as well as, Director, President and Treasurer of CNL Hospitality Corp., its advisor. In addition, Mr. Bourne serves as Director, President and Treasurer of CNL Retirement Properties, Inc., a public, unlisted real estate investment trust; as well as, a Director, President and Treasurer of its advisor, CNL Retirement Corp. Mr. Bourne also serves as a Director of CNL Bank. He has served as a Director since 1992, Vice Chairman of the Board since February 1996, Secretary and Treasurer from February 1996 through 1997, and President from July 1992 through February 1996, of Commercial Net Lease Realty, Inc., a public real estate investment trust listed on the New York Stock Exchange. Mr. Bourne also serves as Director, President and Treasurer for various affiliates of CNL Financial Group, Inc. including, CNL Investment Company, CNL Securities Corp. and CNL Institutional Advisors, Inc., a registered investment advisor for pension plans. Mr. Bourne began his career as a certified public accountant employed by Coopers & Lybrand, Certified Public Accountants, from 1971 through 1978, where he attained the position of Tax Manager in 1975. Mr. Bourne graduated from Florida State University in 1970 where he received a B.A. in Accounting, with honors. Curtis B. McWilliams, age 46. Mr. McWilliams has served as Co-Chief Executive Officer of APF since December 2000 and previously served as Chief Executive Officer from September 1999 through December 2000. Prior to the acquisition of the Advisor, Mr. McWilliams served as President of APF from February 1999 until September 1999. From February 1998 to February 1999, he served as Executive Vice President of APF. Mr. McWilliams joined CNL Financial Group, Inc. (formerly CNL Group, Inc.) in April 1997 and served as an Executive Vice President until February 1999 and served as President from February 1999 to September 1999. In addition, Mr. McWilliams served as President of the Advisor and CNL Financial Services, Inc. from April 1997 until the acquisition of such entities by APF in September 1999. From September 1983 through March 1997, Mr. McWilliams was employed by Merrill Lynch & Co. The majority of his career at Merrill Lynch & Co. was in the Investment Banking division where he served as a Managing Director. Mr. McWilliams received a B.S.E. in Chemical Engineering from Princeton University in 1977 and a Master of Business Administration degree with a concentration in finance from the University of Chicago in 1983. Steven D. Shackelford, age 38. Mr. Shackelford was promoted to Executive Vice President of APF in July 2000. He served as Senior Vice President and Chief Financial Officer of APF from January 1997 until his promotion. Mr. Shackelford also served as Secretary and Treasurer of APF since September 1999. He also served as Chief Financial Officer of the Advisor from September 1996 to September 1999. From March 1995 to July 1996, Mr. Shackelford was a senior manager in the national office of Price Waterhouse LLP where he was responsible for advising foreign clients seeking to raise capital and a public listing in the United States. From August 1992 to March 1995, he was a manager in the Paris, France office of Price Waterhouse, serving several multi-national clients. Mr. Shackelford was an audit staff and senior from 1986 to 1992 in the Orlando, Florida office of Price Waterhouse. Mr. Shackelford received a Bachelor of Arts degree in Accounting, with honors, and a Master of Business Administration degree from Florida State University and is a certified public accountant. Item 11. Executive Compensation Other than as described in Item 13, the Partnership has not paid and does not intend to pay any executive compensation to the General Partners or any of their affiliates. There are no compensatory plans or arrangements regarding termination of employment or change of control. Item 12. Security Ownership of Certain Beneficial Owners and Management As of March 15, 2002, no person was known to the Registrant to be a beneficial owner of more than five percent of the Units. The following table sets forth, as of March 15, 2002, the beneficial ownership interests of the General Partners in the Registrant.

Neither the General Partners, nor any of their affiliates, owns any interest in the Registrant, except as noted above. Item 13. Certain Relationships and Related Transactions The table below summarizes the types, recipients, methods of computation and amounts of compensation, fees and distributions paid or payable by the Partnership to the General Partners and their affiliates for the year ended December 31, 2001, exclusive of any distributions to which the General Partners or their affiliates may be entitled by reason of their purchase and ownership of Units.

In April 2001, the Partnership, CNL Income Fund X, Ltd., and CNL Income Fund XII, Ltd., through a joint venture agreement, acquired an interest in a Golden Corral property from CNL BB Corp., an affiliate of the general partners, at an approximate cost of $2,112,000. CNL Income Fund X, Ltd. and CNL Income Fund XII, Ltd., are Florida limited partnerships and affiliates 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. The purchase price paid by the Partnership represents the costs incurred by CNL BB Corp. to acquire and carry the property, including closing costs. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) The following documents are filed as part of this report. 1. Financial Statements Report of Independent Certified Public Accountants Balance Sheets at December 31, 2001 and 2000 Statements of Income for the years ended December 31, 2001, 2000, and 1999 Statements of Partners' Capital for the years ended December 31, 2001, 2000, and 1999 Statements of Cash Flows for the years ended December 31, 2001, 2000, and 1999 Notes to Financial Statements 2. Financial Statement Schedules Schedule III - Real Estate and Accumulated Depreciation at December 31, 2001 Notes to Schedule III - Real Estate and Accumulated Depreciation at December 31, 2001 Schedule IV - Mortgage Loans on Real Estate at December 31, 2001 All other Schedules are omitted as the required information is inapplicable or is presented in the financial statements or notes thereto. 3. Exhibits 3.1 Affidavit and Certificate of Limited Partnership of CNL Income Fund VIII, Ltd. (Included as Exhibit 3.2 to Registration Statement No. 33-31482 on Form S-11 and incorporated herein by reference.) 4.1 Affidavit and Certificate of Limited Partnership of CNL Income Fund VIII, Ltd. (Included as Exhibit 3.2 to Registration Statement No. 33-31482 on Form S-11 and incorporated herein by reference.) 4.2 Amended and Restated Agreement of Limited Partnership of CNL Income Fund VIII, Ltd. (Included as Exhibit 4.2 to Form 10-K filed with the Securities and Exchange Commission on April 1, 1996, and incorporated herein by reference.) 10.1 Management Agreement between CNL Income Fund VIII, Ltd. and CNL Investment Company (Included as Exhibit 10.1 to Form 10-K filed with the Securities and Exchange Commission on April 1, 1996, and incorporated herein by reference.) 10.2 Assignment of Management Agreement from CNL Investment Company to CNL Income Fund Advisors, Inc. (Included as Exhibit 10.2 to Form 10-K filed with the Securities and Exchange Commission on March 30, 1995, and incorporated herein by reference.) 10.3 Assignment of Management Agreement from CNL Income Fund Advisors, Inc. to CNL Fund Advisors, Inc. (Included as Exhibit 10.3 to Form 10-K filed with the Securities and Exchange Commission on April 1, 1996, and incorporated herein by reference.) 10.4 Assignment of Management Agreement from CNL Fund Advisors, Inc. to CNL APF Partners, LP. (Included as Exhibit 10.4 to Form 10-Q filed with the Securities and Exchange Commission on August 9, 2001, and incorporated herein by reference.) (b) The Registrant filed no reports on Form 8-K during the period October 1, 2001 through December 31, 2001. 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 26th day of March, 2002. CNL INCOME FUND VIII, LTD. By: CNL REALTY CORPORATION General Partner /s/ Robert A. Bourne ---------------------------- ROBERT A. BOURNE, President By: ROBERT A. BOURNE General Partner /s/ Robert A. Bourne ---------------------------- ROBERT A. BOURNE By: JAMES M. SENEFF, JR. General Partner /s/ James M. Seneff, Jr. ---------------------------- JAMES M. SENEFF, JR. 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.

CNL INCOME FUND VIII, LTD. (A Florida Limited Partnership) NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 2001 (a) Transactions in real estate and accumulated depreciation during 2001, 2000, and 1999, are summarized as follows:

(b) Depreciation expense is computed for buildings and improvements based upon estimated lives of 30 years. (c) As of December 31, 2001, the aggregate cost of the Properties owned by the Partnership and its consolidated joint venture, and the unconsolidated joint ventures for federal income tax purposes was $24,018,253 and $15,549,570, respectively. All of the leases are treated as operating leases for federal income tax purposes. (d) The portion of the lease relating to the building has been recorded as a direct financing lease. The cost of the building has been included in the net investment in direct financing lease; therefore, depreciation is not applicable. (e) The lease for land and building has been recorded as a direct financing lease. The cost of the land and building has been included in net investment in direct financing leases; therefore, depreciation is not applicable. CNL INCOME FUND VIII, LTD. (A Florida Limited Partnership) NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED December 31, 2001 (f) Certain components of the lease relating to land and building have been recorded as a direct financing lease. Accordingly, costs relating to these components of this lease are not shown. (g) The restaurant on this Property was converted from a Popeyes Famous Fried Chicken Restaurant to a Burger King restaurant in February 1993. (h) Effective January 1, 1994, the lease for this Property was amended, resulting in the reclassification of the building portion of the lease as an operating lease. The building was recorded at net book value as of January 1, 1994, and depreciated over its remaining estimated life of approximately 27 years. (i) Effective August 1, 1998, the lease for this Property was amended, resulting in the reclassification of the building portion of the lease as an operating lease. The building was recorded at net book value as of August 1, 1998, and depreciated over its remaining estimated life of approximately 23 years. (j) Effective July 16, 2001, the lease for this Property was terminated, resulting in the reclassification of the building portion of the lease as an operating lease. The building was recorded at net book value as of July 16, 2001, and depreciated over its remaining estimated life of approximately 24 years. (k) During the year ended December 31, 2001, the Partnership and affiliates of the General Partners, as tenant-in-common, purchased land and building from CNL BB Corp., an affiliate of the General Partners, for an aggregate cost of $2,112,011. CNL INCOME FUND VIII, LTD. (A Florida Limited Partnership) SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE December 31, 2001

(1) The tax carrying value notes is $917,857. (2) Monthly payments of $12,633 were consisting of principal and interest at an annual rate of 10.75%. During 1999, the Partnership received a prepaid principal payment from the borrower that was applied to the unpaid principal balance, reflected in the carrying amount of mortgage. (3) The changes in the carrying amounts are summarized as follows:

CNL INCOME FUND VIII LTD 10-K