<PAGE>   1
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-K/A
                                 AMENDMENT NO. 1

(Mark One)

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

For the quarterly period ended DECEMBER 31, 1996


                                       or

[ ]      TRANSITION REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES EXCHANGE
         ACT OF 1934 [NO FEE REQUIRED]

For the transition period from _____________________to___________________

Commission file number 0-15778

                       CORPORATE PROPERTY ASSOCIATES 7,
                       A CALIFORNIA LIMITED PARTNERSHIP
             (Exact name of registrant as specified in its charter)

        CALIFORNIA                                              13-3327950
(State or other jurisdiction                                 (I.R.S. Employer 
of incorporation or organization)                            Identification No.)

50 ROCKEFELLER PLAZA, NEW YORK, NEW YORK                           10020
(Address of principal executive offices)                         (Zip Code)

Registrant's telephone number, including area code   (212) 492-1100

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

Title of each class                    Name of each exchange on which registered

      NONE                                                 NONE



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

                            LIMITED PARTNERSHIP UNITS
                                (Title of Class)


                                (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 for 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.   [X] Yes  [ ]No

         Indicate by check mark if disclosure of deliquent filers pursuant to
Item 405 of Regulation S-K (Section 229.405 of this chapter) 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 non-affiliates of
Registrant: There is no active market for Limited Partnership Units.


<PAGE>   2
                                     PART II







Item 8.           Consolidated Financial Statements and Supplementary Data.


(i)      Report of Independent Accountants.

(ii)     Consolidated Balance Sheets as of December 31, 1995 and 1996.

(iii)    Consolidated Statements of Income for the years ended December 31,
         1994, 1995 and 1996. (iv) Consolidated Statements of Partners' Capital
         for the years ended December 31, 1994, 1995 and 1996.

(iv)     Consolidated Statements of Partners' Capital for the years ended
         December 31, 1994, 1995 and 1996.

(v)      Consolidated Statements of Cash Flows for the years ended December 31,
         1994, 1995 and 1996.

(vi)     Notes to Consolidated Financial Statements.




                                     - 8 -
<PAGE>   3
                        REPORT of INDEPENDENT ACCOUNTANTS





To the Partners of 
  Corporate Property Associates 7 -
  a California limited partnership 
  and Subsidiaries:


                  We have audited the accompanying consolidated balance sheets
of Corporate Property Associates 7 - a California limited partnership and
Subsidiaries as of December 31, 1995 and 1996, and the related consolidated
statements of income, partners' capital and cash flows for each of the three
years in the period ended December 31, 1996. We have also audited the financial
statement schedule included on pages 23 to 26 of this Annual Report. These
financial statements and financial statement schedule are the responsibility of
the General Partners. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.

                  We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by the General Partners, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

                  In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Corporate Property Associates 7 - a California limited partnership and
Subsidiaries as of December 31, 1995 and 1996, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles. In addition, in our opinion, the Schedule of Real Estate and
Accumulated Depreciation as of December 31, 1996, when considered in relation to
the basic financial statements taken as a whole, presents fairly, in all
material respects, the financial information required to be included therein
pursuant to Securities and Exchange Commission Regulation S-X Rule 12-28.





                                                     /s/Coopers & Lybrand L.L.P.
New York, New York
March 21, 1997


                                     - 6 -
<PAGE>   4
                         CORPORATE PROPERTY ASSOCIATES 7
                       - a California limited partnership
                                and SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                           December 31, 1995 and 1996


<TABLE>
<CAPTION>
                                                                           1995                    1996
                                                                           ----                    ----
<S>                                                                     <C>                     <C>        
        ASSETS:

Real estate leased to others:
   Accounted for under the
      operating method:
         Land                                                           $ 6,552,033             $ 6,552,033
         Buildings                                                       25,296,740              25,501,944
                                                                        -----------             -----------
                                                                         31,848,773              32,053,977
         Accumulated depreciation                                         6,185,070               7,031,430
                                                                        -----------             -----------
                                                                         25,663,703              25,022,547
   Net investment in direct financing leases                             15,542,368              15,542,368
                                                                        -----------             -----------
         Real estate leased to others                                    41,206,071              40,564,915
Operating real estate, net of accumulated
   depreciation of $3,762,695 in 1995
   and $4,070,423 in 1996                                                 8,343,020               8,254,274
Real estate held for sale                                                   543,138
Cash and cash equivalents                                                 4,968,410               5,591,985
Other assets, net of accumulated amortization of
   $148,276 in 1995 and $185,402 in 1996                                  1,167,905               1,020,950
                                                                        -----------            ------------
             Total assets                                               $56,228,544             $55,432,124
                                                                        ===========             ===========

        LIABILITIES:

Mortgage notes payable                                                  $11,928,751             $10,314,828
Note payable                                                              9,606,837               9,606,837
Accrued interest payable                                                    345,418                 324,737
Accounts payable and accrued expenses                                       708,394                 676,737
Accounts payable to affiliates                                              102,020                 113,485
Prepaid and deferred income                                                 428,827                 371,116
                                                                        -----------             -----------
             Total liabilities                                           23,120,247              21,407,740
                                                                        -----------             -----------

Commitments and contingencies

        PARTNERS' CAPITAL:

General Partners                                                            110,512                 161,740
Limited Partners (45,209 Limited Partnership
   Units issued and outstanding in 1995 and 1996)                        32,997,785              33,862,644
                                                                        -----------             -----------
             Total partners' capital                                     33,108,297              34,024,384
                                                                        -----------             -----------
             Total liabilities and
               partners' capital                                        $56,228,544             $55,432,124
                                                                        ===========             ===========
</TABLE>



The accompanying notes are an integral part of the consolidated financial
statements.


                                     - 7 -
<PAGE>   5
                         CORPORATE PROPERTY ASSOCIATES 7
                       - a California limited partnership
                                and SUBSIDIARIES

                        CONSOLIDATED STATEMENTS of INCOME

              For the years ended December 31, 1994, 1995 and 1996



<TABLE>
<CAPTION>
                                                               1994                  1995                  1996
                                                               ----                  ----                  ----
<S>                                                         <C>                   <C>                   <C>        
Revenues:
   Rental income                                            $ 3,862,385           $ 4,298,952           $ 4,351,678
   Interest income from direct financing leases               3,537,977             2,283,445             2,258,757
   Other interest income                                        346,970               203,166               266,400
   Other income                                               1,271,691                                     143,866
   Revenues of hotel operations                               4,821,029             5,410,689             5,710,627
                                                            -----------           -----------           -----------
                                                             13,840,052            12,196,252            12,731,328
                                                            -----------           -----------           -----------

Expenses:
   Interest                                                   3,537,640             2,456,129             1,942,737
   Depreciation                                               1,619,726             1,361,952             1,154,088
   General and administrative                                   412,173               600,271               439,399
   Property expenses                                            317,277               299,608               550,201
   Amortization                                                  78,528                70,067                62,500
   Writedown to net realizable value                            641,731               319,685
   Operating expenses of hotel operations                     3,528,257             4,016,639             4,129,149
                                                            -----------           -----------           -----------
                                                             10,135,332             9,124,351             8,278,074
                                                            -----------           -----------           -----------

         Income before loss from equity
             investment, gains on sale,
             discontinued operations and
             extraordinary item                               3,704,720             3,071,901             4,453,254

   Loss from equity investment                                  152,617               135,621               128,879
                                                            -----------           -----------           -----------

         Income before gains on sale,
             discontinued operations and
             extraordinary item                               3,552,103             2,936,280             4,324,375

Gains on sale of real estate, net                             7,814,474             1,019,362                74,729

Gains on sale of securities                                     682,500
                                                            -----------            ----------           -----------


         Income from continuing
             operations                                      12,049,077             3,955,642             4,399,104


Earnings from discontinued operations                           456,272               246,847
                                                            -----------           -----------            ----------

Income before extraordinary
   items                                                     12,505,349             4,202,489             4,399,104
</TABLE>



                                   (Continued)

                                     - 8 -
<PAGE>   6

                         CORPORATE PROPERTY ASSOCIATES 7
                       - a California limited partnership
                                and SUBSIDIARIES

                  CONSOLIDATED STATEMENTS of INCOME, Continued

              For the years ended December 31, 1994, 1995 and 1996


<TABLE>
<CAPTION>

                                                               1994                  1995                  1996
                                                               ----                  ----                  ----

<S>                                                         <C>                   <C>                   <C>        
Extraordinary gain (loss) on extinguishment
      of debt                                                  (511,503)            1,323,858 
                                                            -----------           -----------           -----------


         Net income                                         $11,993,846           $ 5,526,347           $ 4,399,104
                                                            ===========           ===========           ===========


Net income allocated to:
   Individual General Partner                               $   140,990           $    55,263           $    43,991
                                                            ===========           ===========           ===========

   Corporate General Partner                                $   286,822           $   225,350           $   216,218
                                                            ===========           ===========           ===========

   Limited Partners                                         $11,566,034           $ 5,245,734           $ 4,138,895
                                                            ===========           ===========           ===========




Net income per Unit: (45,274 Limited Partnership Units 
    in 1994, 45,242 weighted average Limited Partnership 
    Units in 1995 and 45,209 Limited Partnership
    Units in 1996):
      Income from continuing operations                     $    256.62               $ 83.31              $ 91.55
      Discontinued operations                                      9.47                  5.13
      Extraordinary items                                        (10.62)                27.51
                                                            -----------           -----------           -----------
                                                            $    255.47           $    115.95           $     91.55
                                                            ===========           ===========           ===========
</TABLE>








The accompanying notes are an integral part of the consolidated financial
statements.


                                     - 9 -
<PAGE>   7
                         CORPORATE PROPERTY ASSOCIATES 7
                       - a California limited partnership
                                and SUBSIDIARIES

                  CONSOLIDATED STATEMENTS of PARTNERS' CAPITAL

              For the years ended December 31, 1994, 1995 and 1996


<TABLE>
<CAPTION>
                                                                Partners' Capital Accounts
                                                    ---------------------------------------------------------------------
                                                                                                                Limited
                                                                                                                Partners'
                                                                          General            Limited           Amount Per
                                                      Total               Partners           Partners           Unit (a)
                                                      -----               --------           --------           ---------
<S>                                                 <C>                 <C>                <C>                  <C> 
Balance, December 31, 1993                          $29,311,433         $(119,976)         $29,431,409          $651

Distributions                                        (3,246,729)         (194,804)          (3,051,925)          (67)

Net income, 1994                                     11,993,846           427,812           11,566,034           255
                                                    -----------         ---------          -----------          ----

Balance, December 31, 1994                           38,058,550           113,032           37,945,518           839

Distributions                                       (10,434,626)         (283,133)         (10,151,493)         (224)

Purchase of Limited Partner Units                       (41,974)                               (41,974)           (1)

Net income, 1995                                      5,526,347           280,613            5,245,734           116
                                                    -----------         ---------         ------------          ----

Balance, December 31, 1995                           33,108,297           110,512           32,997,785           730

Distributions                                        (3,483,017)         (208,981)          (3,274,036)          (73)

Net income, 1996                                      4,399,104           260,209            4,138,895            92
                                                    -----------         ---------          -----------          ----

Balance, December 31, 1996                          $34,024,384          $161,740          $33,862,644          $749
                                                    ===========         =========          ===========          ====
</TABLE>





(a)      Based on weighted average Units issued and outstanding during the
         periods.




The accompanying notes are an integral part of the consolidated financial
statements.


                                     - 10 -
<PAGE>   8
                         CORPORATE PROPERTY ASSOCIATES 7
                       - a California limited partnership
                                and SUBSIDIARIES

                      CONSOLIDATED STATEMENTS of CASH FLOWS
              For the years ended December 31, 1994, 1995 and 1996


<TABLE>
<CAPTION>
                                                                             1994                    1995                  1996
                                                                             ----                    ----                  ----
<S>                                                                      <C>                   <C>                    <C>        
Cash flows from operating activities:
    Net income                                                           $ 11,993,846          $  5,526,347           $ 4,399,104
    Adjustments to reconcile net income to net
       cash provided by operating activities:
       Depreciation and amortization                                        1,698,254             1,432,019             1,216,588
       Extraordinary (gain) loss on extinguishment of debt                    511,503            (1,323,858)
       Net gains on sales                                                  (8,496,974)           (1,019,361)              (74,729)
       Noncash consideration received in connection
         with settlements                                                    (346,105)
       Cash receipts on operating leases greater
         than income recognized                                                40,807               170,647               170,647
       Writedown to net realizable value                                      641,731               319,685
       Amortization of deferred income                                        (60,930)              (21,514)              (21,514)
       Loss from equity investment                                            152,617               135,621               128,879
       Deferred rental income recognized in connection
         with disposition of properties                                      (811,101)
       Restructuring fees collected                                           722,222
       Net change in operating assets and liabilities,
         net of disposition of food service assets                           (698,639)             (129,810)             (319,902)
                                                                         ------------          ------------           ----------- 
            Net cash provided by operating activities                       5,347,231             5,089,776             5,499,073
                                                                         ------------          ------------           -----------
Cash flows from investing activities:
    Additional capitalized costs                                             (164,292)             (180,758)             (424,186)
    Proceeds from sales                                                    19,257,324             4,148,903               617,867
    Distributions received from equity investment                              38,281                31,457                27,761
                                                                         ------------          ------------           -----------
            Net cash provided by investing activities                      19,131,313             3,999,602               221,442
                                                                         ------------          ------------            ----------
Cash flows from financing activities:
    Distributions to partners                                              (3,246,729)          (10,434,626)           (3,483,017)
    Payments of mortgage principal                                           (739,391)           (1,567,369)             (613,923)
    Prepayments of mortgage payable                                       (12,763,584)           (2,602,884)           (1,000,000)
    Purchase of Limited Partnership Units                                                           (41,974)
    Deferred financing costs, net of reimbursement                              6,292
    Payments in connection with extinguishment of debt                       (469,550)
                                                                         ------------          ------------           -----------
            Net cash used in financing activities                         (17,212,962)          (14,646,853)           (5,096,940)
                                                                         ------------          ------------           ----------- 

            Net increase (decrease) in cash and
               cash equivalents                                             7,265,582            (5,557,475)              623,575

Cash and cash equivalents, beginning of year                                3,260,303            10,525,885             4,968,410
                                                                         ------------          ------------           -----------

            Cash and cash equivalents, end of year                       $ 10,525,885          $  4,968,410           $ 5,591,985
                                                                         ============          ============           ===========
</TABLE>



         The 1995 extraordinary gain on extinguishment of debt of $1,323,858 was
comprised of $1,215,566 forgiveness of principal and $108,292 of accrual
interest thereon.



The accompanying notes are an integral part of the consolidated financial
statements.


                                     - 11 -
<PAGE>   9
                         CORPORATE PROPERTY ASSOCIATES 7
                       - a California limited partnership
                                and SUBSIDIARIES

                   NOTES to CONSOLIDATED FINANCIAL STATEMENTS


1.      Summary of Significant Accounting Policies:

        Basis of Consolidation:

            The consolidated financial statements include the accounts of
               Corporate Property Associates 7, a wholly-owned subsidiary, which
               was dissolved in December 1995, and a 99% owned subsidiary
               (collectively, the "Partnership").

         Use of Estimates:

            The preparation of financial statements in conformity with generally
               accepted accounting principles requires management to make
               estimates and assumptions that affect the reported amounts of
               assets and liabilities and disclosure of contingent assets and
               liabilities at the date of the financial statements and the
               reported amounts of revenues and expenses during the reporting
               period. Actual results could differ from those estimates.

         Real Estate Leased to Others:

            Real estate is leased to others on a net lease basis, whereby the
               tenant is generally responsible for all operating expenses
               relating to the property, including property taxes, insurance,
               maintenance, repairs, renewals and improvements.

            The Partnership diversifies its real estate investments among
               various corporate tenants engaged in different industries and by
               property type throughout the United States.

            The leases are accounted for under either the direct financing or
               operating methods. Such methods are described below:

                      Direct financing method - Leases accounted for under the
                      direct financing method are recorded at their net
                      investment (Note 5). Unearned income is deferred and
                      amortized to income over the lease terms so as to produce
                      a constant periodic rate of return on the Partnership's
                      net investment in the lease.

                      Operating method - Real estate is recorded at cost,
                      revenue is recognized as rentals are earned and expenses
                      (including depreciation) are charged to operations as
                      incurred. When scheduled rents vary during the lease term,
                      income is recognized on a straight-line basis so as to
                      produce a constant periodic rent.

            The Partnership assesses the recoverability of its real estate
               assets, including residual interests, based on projections of
               undiscounted cash flows over the life of such assets. In the
               event that such cash flows are insufficient, the assets are
               adjusted to their estimated net realizable value.

            Substantially all of the Partnership's leases provide for either
               scheduled rent increases, periodic rent increases based on
               formulas indexed to increases in the Consumer Price Index or
               sales overrides.

         Operating Real Estate:

            Land, buildings and personal property are carried at cost. Major
               renewals and improvements are capitalized to the property
               accounts, while replacements, maintenance and repairs which do
               not improve or extend the lives of the respective assets are
               expensed currently.

         Real Estate Held for Sale:

            Real estate held for sale is accounted for at the lower of cost or
net realizable value.

                                    Continued

                                     - 12 -
<PAGE>   10
                         CORPORATE PROPERTY ASSOCIATES 7
                       - a California limited partnership
                                and SUBSIDIARIES

              NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued


         Depreciation:

            Depreciation is being computed using the straight-line method over
               the estimated useful lives of the properties which range from 5
               to 30 years.

         Cash Equivalents:

            The Partnership considers all short-term, highly liquid investments
               that are both readily convertible to cash and have a maturity of
               generally three months or less at the time of purchase to be cash
               equivalents. Items classified as cash equivalents include
               commercial paper and money market funds. Substantially all of the
               Partnership's cash and cash equivalents at December 31, 1995 and
               1996 were held in the custody of three financial institutions.

         Other Assets:

            Included in other assets are deferred rental income, deferred
               charges and an investment in a limited partnership. Deferred
               rental income is the aggregate difference for operating method
               leases between scheduled rents which vary during the lease term
               and income recognized on a straight-line basis. Deferred charges
               are primarily costs incurred in connection with mortgage note
               financings and refinancings and are deferred and amortized on a
               straight-line basis over the terms of the mortgages. The
               Partnership's 50% interest in a limited partnership is accounted
               for under the equity method, i.e. at cost, increased or decreased
               by the Partnership's share of earnings or losses, less
               distributions.

         Deferred Rental Income:

            Deferred rental income recognized in connection with consideration
               received in entering into lease modifications is being amortized
               on a straight-line basis from the date of the amendments through
               the end of the initial terms of the leases or date of sale, if
               sooner.

         Income Taxes:

            A  partnership is not liable for Federal income taxes as each
               partner recognizes his proportionate share of the partnership
               income or loss in his tax return. Accordingly, no provision for
               income taxes is recognized for financial statement purposes.

 2.     Partnership Agreement:

            The Partnership was organized on February 3, 1986 under the Revised
               Uniform Limited Partnership Act of the State of California for
               the purpose of engaging in the business of investing in and
               leasing industrial and commercial real estate. The Corporate
               General Partner purchased 100 Limited Partnership Units in
               connection with the Partnership's public offering. The
               Partnership will terminate on December 31, 2010, or sooner, in
               accordance with the terms of the Amended Agreement of Limited
               Partnership (the "Agreement").

            The Agreement provides that the General Partners are allocated 6%
               (1% to the Individual General Partner, William P. Carey, and 5%
               to the Corporate General Partner, Seventh Carey Corporate
               Property, Inc.) and the Limited Partners are allocated 94% of the
               profits and losses as well as distributions of Distributable Cash
               From Operations, as defined, except as described below.

                                    Continued

                                     - 13 -
<PAGE>   11
                         CORPORATE PROPERTY ASSOCIATES 7
                       - a California limited partnership
                                and SUBSIDIARIES

              NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued


               The General Partners may be entitled to receive a subordinated
               preferred return, measured based upon the cumulative proceeds
               arising from the sale of Partnership assets. Pursuant to the
               subordination provisions of the Agreement, the preferred return
               may be paid only after the limited partners receive 100% of their
               initial investment from the proceeds of asset sales and a
               cumulative annual return of 8% since the inception of the
               Partnership. The General Partners interest in such preferred
               return amounts to $805,015 based upon the cumulative proceeds
               from the sale since the inception of the Partnership through
               December 31, 1996. The Partnership's ability to satisfy the
               subordination provisions of the Agreement may not be determinable
               until liquidation of a substantial portion of the Partnership's
               assets has been made, formal plans of liquidation are adopted or
               limited partnership units are converted to other securities which
               provide the security holder with greater liquidity than a limited
               partnership unit. Management believes that as of the report date,
               ultimate payment of the preferred return is reasonably possible
               but not probable, as defined pursuant to Statement of Financial
               Accounting Standards No. 5.

            In accordance with the Agreement, the General Partners were
               allocated a portion of the 1993 and 1994 gains on sale as well as
               a portion of the related tax gains in order to eliminate their
               negative balances. The Partnership paid a special distribution of
               $6,859,697 in 1995 related to the sales which was allocated 1% to
               the Individual General Partner and 99% to the Limited Partners in
               accordance with the Agreement.

 3.     Transactions with Related Parties:

            Under the Agreement, W.P. Carey & Co., Inc. ("W.P. Carey") and other
               affiliates are also entitled to receive property management and
               leasing fees and reimbursement of certain expenses incurred in
               connection with the Partnership's operations. General and
               administrative expense reimbursements consist primarily of the
               actual cost of personnel needed in providing administrative
               services necessary for the operation of the Partnership. Property
               management and leasing fees and general and administrative
               expense reimbursements incurred are summarized as follows:

<TABLE>
<CAPTION>
                                                                          1994             1995              1996
                                                                          ----             ----              ----
<S>                                                                     <C>              <C>               <C>     
                  Property management and leasing fees                  $135,794         $102,753          $101,181
                  General and administrative
                      expense reimbursements                             113,171          123,492           110,024
                                                                        --------         --------          --------
                                                                        $248,965         $226,245          $211,205
                                                                        ========         ========          ========
</TABLE>

            During 1994, 1995 and 1996, fees aggregating $23,426, $67,230 and
               $66,717 respectively, were incurred for legal services performed
               by a firm in which the Secretary of the Corporate General Partner
               and other affiliates is a partner.

            The Partnership is a participant in an agreement with W.P. Carey and
               other affiliates for the purpose of leasing office space used for
               the administration of real estate entities and W.P. Carey and for
               sharing the associated costs. Pursuant to the terms of the
               agreement, the Partnership's share of rental, occupancy and
               leasehold improvement costs is based on adjusted gross revenues,
               as defined. Net expenses incurred in 1994, 1995 and 1996 were
               $51,874, $90,569 and $73,823, respectively. The increase in 1995
               was due, in part, to certain nonrecurring costs incurred in
               connection with the relocation of the Partnership's offices.

            The Partnership's ownership interests in certain properties are
               jointly held with affiliated entities as tenants-in-common or
               limited partners with the Partnership's interests in such jointly
               held properties ranging from 24.74% to 65.5172%. The Partnership
               accounts for its assets and liabilities relating to
               tenants-in-common interests on a proportional basis.

                                    Continued


                                     - 14 -
<PAGE>   12
                         CORPORATE PROPERTY ASSOCIATES 7
                       - a California limited partnership
                                and SUBSIDIARIES

              NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued



4.      Real Estate Leased to Others Accounted for Under the Operating Method
         and Operating Real Estate:

        A.  Real Estate Leased to Others:

            Scheduled future minimum rents, exclusive of renewals, under
               noncancellable operating leases amount to approximately
               $3,606,000 in 1997, $2,726,000 in 1998, $2,705,000 in 1999,
               $2,576,000 in 2000, $2,339,000 in 2001 and aggregate
               approximately $20,425,000 through 2013.

            Contingent rents were approximately $139,000, $138,000 and $106,000
               in 1994, 1995 and 1996, respectively.


        B.  Operating Real Estate:

            Operating real estate, at cost, is summarized as follows:

<TABLE>
<CAPTION>
                                                                                 December 31,
                                                                                 ------------
                                                                            1995                      1996
                                                                            ----                      ----
<S>                                                                     <C>                       <C>        
                      Land                                              $ 2,050,688               $ 2,050,688
                      Building                                            8,250,352                 8,651,587
                      Personal property                                   1,804,675                 1,622,422
                                                                        -----------               -----------
                                                                         12,105,715                12,324,697
                      Less, Accumulated
                        depreciation                                      3,762,695                 4,070,423
                                                                        -----------               -----------
                                                                        $ 8,343,020               $ 8,254,274
                                                                        ===========               ===========
</TABLE>


 5.     Net Investment in Direct Financing Leases:

            Net investment in direct financing leases is summarized as follows:

<TABLE>
<CAPTION>
                                                                                 December 31,
                                                                                 ------------
                                                                            1995                      1996
                                                                            ----                      ----
                      
<S>                                                                     <C>                       <C>        
                      Minimum lease payments receivable                 $31,518,276               $29,710,372
                      Unguaranteed residual value                        15,542,368                15,542,368
                                                                        -----------               -----------
                                                                         47,060,644                45,252,740
                      Less, Unearned income                              31,518,276                29,710,372
                                                                        -----------               -----------
                                                                        $15,542,368               $15,542,368
                                                                        ===========               ===========
</TABLE>

            Scheduled future minimum rents, exclusive of renewals, under
               noncancellable direct financing leases amount to approximately
               $1,890,000 in each of the years 1997 to 2001 and aggregate
               approximately $29,710,000 through 2014.

            Contingent rents were approximately $490,000, $322,000 and $344,000
               in 1994, 1995 and 1996, respectively. Future minimum ground lease
               commitments for certain properties occupied by AutoZone, Inc.
               ("AutoZone") aggregate $843,000 through 2005.


                                    Continued

                                     - 15 -
<PAGE>   13
                         CORPORATE PROPERTY ASSOCIATES 7
                       - a California limited partnership
                                and SUBSIDIARIES
              NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued




6.      Mortgage Notes Payable and Note Payable:

        A.  Mortgage Notes Payable:

            Mortgage notes payable, all of which are nonrecourse to the
               Partnership and the partners, are collateralized by real property
               with a carrying amount of approximately $23,244,595, before
               accumulated depreciation and the assignment of various leases. As
               of December 31, 1996, mortgage notes payable bear interest at
               rates varying from 9.03% to 11.25% per annum and mature in 1997
               and 1998. Scheduled principal payments, including balloon
               payments, are as follows:

<TABLE>
<CAPTION>
               Year Ending December 31,
<S>                             <C>                                                             <C>        
                                1997                                                            $ 6,846,625
                                1998                                                              3,468,203
                                                                                                -----------
                                Total                                                           $10,314,828
                                                                                                ===========
</TABLE>


        B.  Note Payable:

            The $9,606,837 note payable is a recourse obligation of the
               Partnership and provides for quarterly payments of interest at a
               floating rate equal to the London Inter-Bank Offered Rate
               ("LIBOR") plus 4.25% per annum (9.81% at December 31, 1996). The
               note payable matures in July 1999, at which time a balloon
               payment for the entire outstanding principal will be due.

            Covenants under the credit agreement include a requirement that the
               Partnership may not incur any additional debt unless the new debt
               replaces existing debt and does not exceed a maximum nonrecourse
               debt limitation at the inception of the loan of $36,897,696 less
               an adjustment for subsequent scheduled principal amortization on
               existing nonrecourse loans plus closing costs of any new
               nonrecourse loans. Additionally, the Partnership must maintain
               certain debt coverage ratios and maintain a minimum consolidated
               net worth and aggregate appraised property value of $15,000,000.
               The debt coverage ratio requires the Partnership to maintain
               ratios of free operating cash flow to the debt service on the
               note ranging from 3:1 to 3.4:1 over the term of the agreement.
               The Partnership is in compliance with such terms at December 31,
               1996.

            The credit agreement requires the Partnership to offer the lender
               the proceeds from property sales as a prepayment of the note
               payable. The lender has not accepted any mandatory prepayment
               offers.

            Interest paid on all debt obligations was $3,426,650, $2,467,322 and
               $1,963,418 in 1994, 1995 and 1996, respectively.


                                    Continued

                                     - 16 -
<PAGE>   14
                         CORPORATE PROPERTY ASSOCIATES 7
                       - a California limited partnership
                                and SUBSIDIARIES

              NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued



 7.     Distributions to Partners:

            Distributions are declared and paid to partners quarterly and are
summarized as follows:

<TABLE>
<CAPTION>
                                                                                                        Limited
         Year Ending             Distributions Paid                Distributions Paid                 Partners' Per
         December 31,            to General Partners               to Limited Partners               Unit Amount
         ------------            -------------------               -------------------               -----------

<S>                                    <C>                              <C>                                <C>    
          1994                         $194,804                         $ 3,051,925                        $ 67.41
                                       ========                         ===========                        =======

          1995:

          Quarterly distributions      $214,536                         $ 3,360,393                        $ 74.25
          Special distribution -
             Note 12                     68,597                           6,791,100                         150.00
                                       --------                         -----------                        -------
                                       $283,133                         $10,151,493                        $224.25
                                       ========                         ===========                        =======


          1996                         $208,981                         $ 3,274,036                        $ 72.42
                                       ========                         ===========                        =======
</TABLE>

        Distributions of $52,750 to the General Partners and $826,421 to the
        Limited Partners for the quarter ended December 31, 1996 were declared
        and paid in January 1997.



 8.     Income for Federal Tax Purposes:

            Income for financial statement purposes differs from income for
               Federal income tax purposes, because of the difference in the
               treatment of certain items for income tax purposes and financial
               statement purposes. A reconciliation of accounting differences is
               as follows:

<TABLE>
<CAPTION>
                                                                       1994                 1995              1996
                                                                       ----                 ----              ----
<S>                                                                  <C>                  <C>                <C>       
         Net income per Consolidated
             Statements of Income                                    $11,993,846          $ 5,526,347        $4,399,104
         Excess tax depreciation                                        (825,140)            (549,851)         (485,963)
         Difference in tax treatment of gains on
             sales of real estate                                      2,645,850           (1,889,176)           56,628
         Writedown to net realizable value                               641,731              319,685
         Other                                                          (861,038)              44,808          (302,371)
                                                                     -----------          -----------        ---------- 
                Net income reported for
                  Federal income tax purposes                        $13,595,249          $ 3,451,813        $3,667,398
                                                                     ===========          ===========        ==========
</TABLE>



                                    Continued

                                     - 17 -
<PAGE>   15
                         CORPORATE PROPERTY ASSOCIATES 7
                       - a California limited partnership
                                and SUBSIDIARIES

              NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued


 9.     Industry Segment Information:

            The Partnership's operations consist of the investment in and the
               leasing of industrial and commercial real estate and the
               operation of a food service facility and a hotel business.

            In 1994, 1995 and 1996, the Partnership earned its total commercial
               and industrial leasing revenues (rental income plus interest
               income from financing leases) from the following lease obligors:

<TABLE>
<CAPTION>
                                                      1994        %              1995       %            1996         %
                                                      ----       ---             ----      ---           ----        --
<S>                                                 <C>          <C>          <C>          <C>        <C>            <C>
   Advanced System
      Applications, Inc.                            $1,145,003    15%         $1,578,632    24%       $1,542,918      23%
   The Gap, Inc.                                       927,568    13             927,568    14           927,568      14
   KSG, Inc.                                           785,273    11             832,566    13           820,096      13
   Sybron Acquisition Company                          819,162    11             819,162    13           819,162      13
   Swiss M-Tex, L.P.                                   518,774     7             546,095     8           526,266       8
   AutoZone, Inc.                                      462,076     6             466,473     7           441,191       7
   CSK Auto, Inc. (formerly
      Northern Automotive, Inc.) (1)                   388,763     5             388,830     6           388,830       6
   Various other obligors                              411,893     6             387,445     6           346,678       5
   NVRyan L.P.                                         310,807     4             291,556     4           291,556       4
   NYNEX Corporation                                   215,600     3             215,600     3           215,600       3
   United States Postal Service                                                                          162,100       2
   Winn-Dixie Stores, Inc.                             128,470     2             128,470     2           128,470       2
   Mid-Continent Bottlers, Inc.                      1,286,973    17
                                                    ----------   ----         ----------   ----       ----------     ----
                                                    $7,400,362   100%         $6,582,397   100%       $6,610,435     100%
                                                    ==========   ====         ==========   ====       ==========     ====
</TABLE>


(1)      Rental income is net of ground lease rental expense of $97,000,
         $101,000 and $103,000 in 1994, 1995 and 1996, respectively (see Note
         5).



            The summarized results of the Partnership's share of the hotel
operations are as follows:

<TABLE>
<CAPTION>
                                                                   1994                  1995                    1996
                                                                   ----                  ----                    ----
<S>                                                           <C>                    <C>                    <C>        
     Revenues                                                 $ 4,821,029            $ 5,410,689            $ 5,710,627
     Fees paid to hotel management company                       (136,412)              (112,423)              (127,474)
     Other operating expenses                                  (3,391,845)            (3,904,216)            (4,001,675)
                                                              -----------            -----------            ------------

     Hotel operating income                                   $ 1,292,772            $ 1,394,050            $ 1,581,478
                                                              ===========            ===========            ===========
</TABLE>



10.     Discontinued Operations:

            On December 20, 1995, the Partnership sold the food service facility
               in Jupiter, Florida, at which it operated a restaurant, for
               $4,140,000, recognizing a gain on the sale of $1,019,362. In
               connection with the sale, it satisfied the two mortgage note
               obligations on the property and recognized an extraordinary gain
               on extinguishment of debt of $1,323,858.

                                    Continued

                                     - 18 -
<PAGE>   16
                         CORPORATE PROPERTY ASSOCIATES 7
                       - a California limited partnership
                                and SUBSIDIARIES

              NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued


            In January 1994, the terms of the loan collateralized by the
               property were modified by dividing the loan into two notes with
               balances of $2,700,000 ("Note A") and $1,082,883 ("Note B"),
               respectively. Under the modification, interest and principal
               payments on Note B were deferred. In accordance with the terms of
               the 1994 loan modification agreement, the $1,082,883 balance of
               Note B plus accrued interest thereon was forgiven upon payment of
               Note A, resulting in an extraordinary gain of $1,323,858 on
               extinguishment of debt. The Partnership used a portion of the
               sales proceeds to pay off the $2,603,000 balance of Note A.

            In connection with the sale of the Jupiter property, the Partnership
               did not incur any gain or loss on the disposal of the food
               service business. Results for the food service operation business
               segment for 1994 and 1995 have been presented as discontinued
               operations and are as follows:

<TABLE>
<CAPTION>
                                                               1994                1995
                                                               ----                ----
<S>                                                         <C>                    <C>        
         Net sales                                          $ 4,035,009            $ 3,821,631
         Cost of goods sold                                  (1,181,181)            (1,165,386)
         Other operating expenses                            (2,397,556)            (2,409,398)
                                                            -----------            ----------- 
                                                            $   456,272            $   246,847
                                                            ===========            ===========
</TABLE>

11.     Hotel Property in Livonia, Michigan:

            In November 1987, the Partnership and Corporate Property Associates
               6 ("CPA(R):6"), an affiliate, purchased a Holiday Inn in Livonia,
               Michigan as tenants-in-common with 65.5172% and 34.4828%
               interests, respectively, and entered into a net lease with Brock
               Hotel Corporation which subsequently changed its name to Integra
               - A Hotel and Restaurant Company ("Integra"). Integra
               subsequently assigned its interest in the lease to a wholly-owned
               subsidiary, Livonia Inn Management, Inc., while Integra remained
               the guarantor of the lease.

            As a result of Integra's financial condition, the subsidiary stopped
               paying rent in May 1992 with Integra subsequently filing a
               voluntary bankruptcy petition in July 1992. Both of these events
               were defaults under the lease as well as the mortgage note
               collateralized by the Livonia property. In August 1992, pursuant
               to a letter of agreement, the Partnership and CPA(R):6 assumed
               control of the hotel operations.

            In March 1994, the Partnership and CPA(R):6, executed a settlement
               agreement with the Hallwood Group, Inc. ("Hallwood Group"),
               Integra's largest shareholder, under which the Partnership and
               CPA(R):6 agreed to surrender a promissory note made by Hallwood
               Group, which had been pledged by Integra to the Partnership and
               CPA(R):6 as additional security to Integra's lease obligation, in
               exchange for $150,000 in cash, a $500,000 promissory note from
               Hallwood Group and an equity participation having a potential
               value of up to $500,000 from the Hallwood Group. The $500,000
               note bears interest at 8% per annum and matures no later than
               March 8, 1998 and, subject to certain conditions, is redeemable
               at an earlier date. The note is collateralized by the Hallwood
               Group's pledge of 89,269 of its limited partnership units of
               Hallwood Realty Partners, L.P. ("Hallwood Realty"), a publicly
               traded limited partnership. The pledged units represent 5.2% of
               all outstanding limited partnership units of Hallwood Realty.
               Under the settlement agreement, the Hallwood Group has the
               obligation to pay to the Partnership and CPA(R):6 an amount equal
               to 25% of the increase in value of the Hallwood Realty units of
               up to $500,000, from March 1994 to the note maturity date. If the
               price per unit increases to $45 or greater, the Partnership and
               CPA(R):6 may, subject to certain restrictions, receive a payment
               from

                                    Continued

                                     - 19 -
<PAGE>   17
                         CORPORATE PROPERTY ASSOCIATES 7
                       - a California limited partnership
                                and SUBSIDIARIES

              NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued



               the Hallwood Group representing the 25% appreciation of the
               pledged units prior to the note maturity date. At December 31,
               1996, the pledged limited partner units had a market value of $24
               1/2 per unit. The Partnership's share of the cash proceeds and
               the note receivable of $425,862 are included in other income in
               1994.

            During 1996, the Partnership and CPA(R):6 received $221,000 (of
               which the Partnership share was $144,000) from the bankruptcy
               trustee in partial settlement of the Partnership's and CPA:6's
               claim against Integra.


12.     Gains on Sales:

            In October 1994, the Partnership sold its properties leased to
               Mid-Continent Bottlers, Inc. ("Mid-Continent") to the lessee for
               $17,800,000 and sold its 3.29% limited partnership interest in
               Midcon Bottlers, L.P., an affiliate of Mid-Continent, for
               $700,000.

            In connection with the sales, the Partnership recognized gains of
               $7,814,474 and $682,500, respectively. The Partnership used
               $3,895,320 of the sales proceeds to satisfy the Mid-Continent
               mortgage loan. In addition, the Partnership used a portion of the
               proceeds to prepay certain mortgage loans on properties which
               remain subject to leases. In January 1995, the Partnership used a
               portion of the proceeds to pay a special distribution to limited
               partners of $6,791,100 ($150 per Limited Partnership Unit) and
               $68,597 to a general partner.

            As more fully described in Note 10, the Partnership recognized a
               gain of $1,019,362 on the sale of the Jupiter, Florida property
               in December 1995.

            On February 12, 1996, the Partnership sold a property located in
               Denham Springs, Louisiana to its lessee, AutoZone, Inc.
               ("AutoZone"), for $431,779, net of selling costs, realizing a
               gain of $74,729 on the sale. AutoZone's lease allows it to offer
               to sever properties from its leases and purchase such properties
               which it judges to be unsuitable. In connection with the sale of
               the property, pursuant to the lease, and severing it from the
               lease, annual rent from AutoZone will be reduced by $40,766.

            On February 14, 1996, the Partnership sold a property in Monte
               Vista, Colorado which had previously been leased to Yellow Front
               Stores, Inc. for $186,090, net of selling costs. As the property
               was written down to a net realizable value at December 31, 1995
               to an amount equal to the net sales proceeds, no gain or loss was
               recognized on the sale. Annual rent from the Monte Vista property
               was $20,000.



                                    Continued

                                     - 20 -
<PAGE>   18
                         CORPORATE PROPERTY ASSOCIATES 7
                       - a California limited partnership
                                and SUBSIDIARIES

              NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued


            In August 1994, the Partnership and Corporate Property Associates 8,
               L.P. ("CPA(R):8") sold a property formerly leased to NVRyan in
               Jefferson, Georgia for $844,778 (of which the Partnership's share
               was $312,880), net of costs. In addition, the Partnership and
               CPA(R):8 sold the property in Plant City, Florida in April 1994
               to an NVRyan sublessee for $1,200,000 (of which the Partnership's
               share was $444,444). No gain or loss was recognized on the sales
               as the properties were written down prior to the sales to an
               amount equal to the estimated sales proceeds. A writedown of
               $484,296 was recognized on the Jefferson property in 1994 and a
               writedown was recognized on the Plant City property in 1993.

            In June 1994, the Partnership and CPA(R):8 an affiliate, entered
               into a contract to sell the vacant Fredricksburg, Virginia
               property for $728,500 (of which the Partnership's share was
               $269,815), net of costs. Subsequently, the potential buyer
               withdrew its offer to buy the Fredricksburg, Virginia property.
               Although the transaction was not consummated, the Partnership's
               interest in the property was written down in 1994 by $157,433 to
               an amount equal to the anticipated net proceeds.


13.     Extraordinary Gains and Losses on Extinguishment of Debt:

            As fully described in Note 10, in connection with the sale of the
               Jupiter, Florida property in December 1995, the Partnership
               recognized an extraordinary gain on extinguishment of debt of
               $1,323,858.

            In December 1994, the Partnership paid off $1,886,148 of the
               mortgage loan on the AutoZone and NYNEX Corporation properties.
               In connection with paying off the mortgage loan, the Partnership
               incurred an extraordinary charge of $136,260 on the
               extinguishment of debt consisting of a prepayment charge of
               $94,307 and the writeoff of $41,953 in unamortized financing
               costs.

            In December 1994, the Partnership, through a newly formed
               subsidiary, paid off mortgage loans of $4,587,600 and $1,902,158
               on The Gap, Inc. ("Gap") and KSG, Inc. ("KSG") properties,
               respectively. In connection with the paying off of the Gap
               mortgage loan, the Partnership incurred a prepayment charge of
               $375,243, resulting in an extraordinary charge on the
               extinguishment of debt.


14.     Properties Leased to Advanced System Applications, Inc.:

            The Partnership and CPA(R):8 own property in Bloomingdale, Illinois,
               as tenants-in-common with 33.64% and 66.36% ownership interests,
               respectively which is leased to Advanced System Applications,
               Inc. ("ASA"). In July 1994 the Partnership and CPA(R):8 agreed to
               a lease modification agreement. Under the modification agreement,
               the scheduled expiration of the lease was changed to June 1997
               from June 2003 in exchange for an increase in the rent to
               $5,200,000 from $1,850,000. As this modification required the
               mortgage lender's consent, the mortgage loan payments were
               substantially increased so that the loan fully amortized on March
               1, 1996. Although ASA is obligated to make its lease payments
               through June 1997, it is in the process of vacating the property.
               ASA had been entitled to one-third of all rentals received for
               any new leases on space ASA had vacated; however, under a
               subsequent modification agreement, the Partnership and CPA(R):8
               agreed to reduce ASA's annual rent by $833,333 in exchange for
               ASA's assignment of all subtenant rents to the Partnership and
               CPA(R):8 and relinquishing its rights to any of the rents on the
               United State Postal Service (the "Postal Service") lease. ASA was
               also released from bearing the costs of insurance, maintenance
               and real estate taxes on the property.

                                    Continued

                                     - 21 -
<PAGE>   19
                         CORPORATE PROPERTY ASSOCIATES 7
                       - a California limited partnership
                                and SUBSIDIARIES

              NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued



            The Postal Service lease has a 10-year lease term which commenced
               May 1, 1996 at an annual rent of $722,800 (of which the
               Partnership's share is $243,150), increasing to $822,800 after
               five years. The Partnership and CPA(R):8 bear the obligation to
               provide maintenance and support services to the lessee. The lease
               also provides for rent escalations in 1998 based on increases in
               certain operating costs incurred by the Partnership and CPA(R):8.
               In addition, the Postal Service will reimburse the Partnership
               and CPA(R):8 for its pro rata share of real estate taxes. The
               Postal Service has an option to terminate the lease after five
               years and right of first refusal on space vacated by ASA.

            As provided for under the lease, the Partnership and CPA(R):8 funded
               a tenant improvement allowance of approximately $600,000 (of
               which the Partnership's share was $202,000) for improvements to
               the space occupied by the Postal Service.



15.     Disclosures About Fair Value of Financial Instruments:

            The carrying amounts of cash, accounts receivable and amounts
               payable and accrued expenses approximate fair value because of
               the short maturity of these items.

            The Partnership estimates that the fair value of mortgage notes
               payable approximately the carrying amount of such mortgage notes
               at December 31, 1996. The fair value of debt instruments was
               evaluated using a discounted cash flow model with discount rates
               which take into account the credit of the tenants and interest
               rate risk.

            The Partnership's note payable is a variable rate obligation indexed
               to the LIBOR. Accordingly, the carrying amount of the note
               payable approximates fair value as of December 31, 1996.



                                     - 22 -
<PAGE>   20
                                   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.


                                 CORPORATE PROPERTY ASSOCIATES 7
                                 - a California limited partnership
                                 and SUBSIDIARIES

                                 BY:     SEVENTH CAREY CORPORATE PROPERTY, INC.



    09/03/97                     BY:      /s/ Steven M. Berzin
    -------                               --------------------
     Date                                Claude Fernandez
                                         Executive Vice President and
                                         Chief Financial Officer
                                         (Principal Financial Officer)



    09/03/97                     BY:      /s/ Claude Fernandez
    -------                               --------------------
     Date                                Claude Fernandez
                                         Executive Vice President and
                                         Chief Administrative Officer
                                         (Principal Accounting Officer)





                                     - 23 -