<PAGE>   1

               FORM 10-K--ANNUAL REPORT PURSUANT TO SECTION 13 OR
                  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
               (As last amended in Rel. No. 34-29354 eff. 7-1-91)

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

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

     For the fiscal year ended DECEMBER 31, 1998

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

                For the transition period from ________to________

                         Commission file number 0-16718

              NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP
             (Exact name of registrant as specified in its charter)

             STATE OF WASHINGTON                               91-1366564
             -------------------                               ----------
       (State or other jurisdiction of                      (I.R.S. Employer
        incorporation or organization)                    Identification No.)

         3600 WASHINGTON MUTUAL TOWER
    1201 THIRD AVENUE, SEATTLE, WASHINGTON                       98101
    --------------------------------------                       -----
   (Address of principal executive offices)                    (Zip Code)

Registrant's telephone number, including area code: (206) 621-1351

   Securities registered pursuant to including 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:

                      UNITS OF LIMITED PARTNERSHIP INTEREST
                                (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.

                          Yes [X]    No [ ]


<PAGE>   2



                       DOCUMENTS INCORPORATED BY REFERENCE
                      (Partially Incorporated into Part IV)

(1) Form S-1 Registration Statement declared effective on August 6, 1987 (No.
    33-13879).

(2) Form 10-K Annual Reports for fiscal years ended December 31, 1987, December
    31, 1988, December 31, 1990, December 31, 1992 and December 31, 1993
    respectively.

(3) Form 10-Q Quarterly Reports for periods ended June 30, 1989, September 30,
    1989 and March 31, 1993, respectively.

(4) Form 8-K dated September 27, 1993

(5) Form 8-K dated March 1, 1996

(6) Form 8-K dated December 5, 1997

This filing contains ____ pages. Exhibits Index appears on page ____. Financial
Statements/Schedules Index appears on page ____.







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<PAGE>   3



Cautionary statement for purposes of the "Safe Harbor" provisions of the Private
Litigation Reform Act of 1995. Statements contained or incorporated by reference
in this document that are not based on historical fact are "forward-looking
statements" within the meaning of the Private Securities Reform Act of 1995.
Forward-looking statements may be identified by use of forward-looking
terminology such as "believe", "intends", "may", "will", "expect", "estimate",
"anticipate", "continue", or similar terms, variations of those terms or the
negative of those terms.

                                     PART I

ITEM 1.  BUSINESS

   Northland Cable Properties Seven Limited Partnership (the "Partnership") is a
Washington limited partnership consisting of two general partners (the "General
Partners") and approximately 2,929 limited partners as of December 31, 1998.
Northland Communications Corporation, a Washington corporation, is the Managing
General Partner of the Partnership (referred to herein as "Northland" or the
"Managing General Partner"). FN Equities Joint Venture, a California general
partnership, is the Administrative General Partner of the Partnership (the
"Administrative General Partner").

   Northland was formed in March 1981 and is principally involved in the
ownership and management of cable television systems. Northland currently
manages the operations and is the General Partner for cable television systems
owned by 4 limited partnerships. Northland is also the parent company of
Northland Cable Properties, Inc. which was formed in February 1995 and is
principally involved in direct ownership of cable television systems and is the
sole member and manager of NCV LLC. Northland is a subsidiary of Northland
Telecommunications Corporation ("NTC"). Other subsidiaries of NTC include:

   NORTHLAND CABLE TELEVISION, INC. - formed in October 1985 and principally
   involved in the direct ownership of cable television systems. Sole
   shareholder of Northland Cable News, Inc.

        NORTHLAND CABLE NEWS, INC. - formed in May 1994 and principally involved
        in the production and development of local news, sports and
        informational programming.

   NORTHLAND CABLE SERVICES CORPORATION - formed in August 1993 and principally
   involved in the development and production of computer software used in
   billing and financial record keeping for Northland-affiliated cable systems.
   Sole shareholder of Cable Ad-Concepts.

        CABLE AD-CONCEPTS, INC. - formed in November 1993 and principally
        involved in the sale, development and production of video commercial
        advertisements that are cablecast on Northland-affiliated cable
        systems.

   NORTHLAND MEDIA, INC. - formed in April 1995 as a holding company. Sole
   shareholder of the two following entities:

        STATESBORO MEDIA, INC. - formed in April 1995 and principally involved
        in operating an AM radio station serving the community of Statesboro,
        Georgia and surrounding areas.

        CORSICANA MEDIA, INC. - purchased in September 1998 from an affiliate
        and principally involved in operating an AM radio station serving the
        community of Corsicana, Texas and surrounding areas.

   The Partnership was formed on April 17, 1987 and began operations in 1987
with the acquisition of a cable television system serving two communities in
Texas and one system in Washington. Subsequently, in 1988, the Partnership
acquired another cable television system in Washington and sold a sub-system in
Texas. In 1993, the Partnership purchased a cable television system in Bayview,
Washington. In 1996, the Partnership purchased cable television systems serving
Vidalia, Georgia and Sandersville, Georgia. In 1997, The Partnership purchased
cable television systems serving Toccoa, Georgia and Royston, Georgia.
(Collectively, the cable television systems are referred to herein as the
"Systems".) As of December 31, 1998, the total number of basic subscribers
served by the Systems was 39,444, and the Partnership's penetration rate (basic
subscribers as a percentage of homes passed) was approximately 65%.

   The Partnership has 26 non-exclusive franchises to operate the Systems. These
franchises, which will expire at various dates through 2024, have been granted
by local and county authorities in the areas in which the Systems operate.
Annual franchise fees are



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<PAGE>   4

paid to the granting governmental authorities. These fees vary between 1% and 5%
and are generally based on the respective gross revenues of the Systems in a
particular community. The franchises may be terminated for failure to comply
with their respective conditions.

   The Partnership serves the communities and surrounding areas of Brenham and
Bay City, Texas, Camano Island and Sequim, Washington, as well as Vidalia,
Sandersville, Toccoa and Royston, Georgia. The following is a description of
these areas:

   Brenham, TX: Brenham, Texas, with a population of approximately 12,000 is
strategically located about midway between Houston and Austin. The population
has grown steadily over the last 15 years at a rate of two and one-half percent
per year. The city of Brenham serves as a hub for commerce, trade and services
to the surrounding counties of Burleson, Waller, Lee, Fayette, Austin, Colorado
and Grimes. Brenham's proximity to Houston makes it a gateway through which
international trade and commerce proceed to Austin, San Antonio and other
western cities. A main line of the Santa Fe Railway also services the city.
Certain information regarding the Brenham, TX system as of December 31, 1998, is
as follows:

<TABLE>
<S>                                            <C>  
          Basic Subscribers                    4,347
          Tier Subscribers                     1,691
          Premium Subscribers                  1,722
          Estimated Homes Passed               5,660
</TABLE>

   Bay City, TX: The Bay City system serves the communities of Bay City,
Markham, Matagorda, Van Vleck and certain unincorporated areas of Matagorda
county in southeast Texas. The local economies of the communities included in
the Bay City system are based primarily in agriculture, chemical manufacturing
and petroleum processing. Rich, productive agricultural lands are located along
the banks of the Colorado River in the Bay City area. Rice is the major crop.

   There is an abundance of recreational and sporting activities in the Bay City
area, including freshwater and deep-sea fishing. The Gulf of Mexico, Matagorda
Beach, the Colorado River, bays and bayous combine to meet the recreational
needs of both tourists and residents. Certain information regarding the Bay
City, TX system as of December 31, 1998, is as follows:

<TABLE>
<S>                                            <C>  
          Basic Subscribers                    5,700
          Tier Subscribers                     2,432
          Premium Subscribers                  1,896
          Estimated Homes Passed               8,685
</TABLE>

   Camano Island, WA: Camano Island is approximately 16 miles long and six miles
wide with a year-round population of over 6,000. Located in the Puget Sound,
north of Seattle and five miles west of Stanwood, Washington, the island is
connected to the mainland by a bridge which provides easy access to neighboring
communities. The Camano Island system also serves the communities of Stanwood,
WA and Bayview, WA.

   Camano Island is currently experiencing growth at a rate of 200 to 250 new
homes per year. The island is primarily residential with neighborhood grocery
stores, service stations, restaurants and other incidental services. The
neighboring mainland community of Stanwood provides the area with an education
system, additional shopping and medical services. Many employed residents of
Camano Island work in the neighboring cities of Everett (an industrial center),
Stanwood and Mount Vernon (mainly agricultural), while many have chosen Camano
Island as a retirement residence. Certain information regarding the Camano
Island, WA system as of December 31, 1998, is as follows:

<TABLE>
<S>                                            <C>  
          Basic Subscribers                    7,162
          Tier Subscribers                     3,721
          Premium Subscribers                  3,201
          Estimated Homes Passed               9,890
</TABLE>

   Sequim, WA: Clallam County's population is approximately 53,400, with
approximately 17,300 residing in the city of Port Angeles, WA, the county seat.
Sequim is located approximately 15 miles east of Port Angeles. The county's work
force is concentrated in the lumber/wood products, logging, tourism,
aerospace/aviation, fishing and education industries. Some of the most
productive forest land in the United States is located on the Olympic Peninsula,
and timber has been the traditional mainstay of



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Clallam County's economy. A natural deep-water harbor and relative proximity to
the Far East have encouraged international trade development for the county's
products. The Olympic National Park, ferry access to Victoria, British Columbia,
Canada, sport fishing, and other scenic and recreational attractions bring a
steady stream of tourists through Clallam County. Certain information regarding
the Sequim, WA system as of December 31, 1998, is as follows

<TABLE>
<S>                                            <C>  
          Basic Subscribers                    5,576
          Tier Subscribers                     3,147
          Premium Subscribers                    736
          Estimated Homes Passed               7,180
</TABLE>

   Vidalia, GA: Located approximately 15 miles south of Interstate 16, the city
of Vidalia is in Toombs County and lies midway between Savannah and Macon. With
a population of approximately 11,500, Vidalia is home of the Vidalia Sweet Onion
and provides services and support for the surrounding agricultural and light
manufacturing industries. Nearby Lyons, with a population of approximately 4,500
is the county seat of Toombs County. Certain information regarding the Vidalia,
GA system as of December 31, 1998, is as follows:

<TABLE>
<S>                                             <C>  
          Basic Subscribers                     5,750
          Tier Subscribers                      1,093
          Premium Subscribers                   3,170
          Estimated Homes Passed               12,585
</TABLE>

   Sandersville, GA: Located midway between Augusta and Macon, Sandersville is
the county seat of Washington County. Major employers with operations in the
communities served by the Sandersville system include kaolin processors,
transportation, both trucking and rail and a variety of light manufacturers.
Certain information regarding the Sandersville, GA system as of December 31,
1998, is as follows:

<TABLE>
<S>                                            <C>  
          Basic Subscribers                    3,392
          Tier Subscribers                       706
          Premium Subscribers                  2,597
          Estimated Homes Passed               4,720
</TABLE>

   Toccoa and Royston, GA: The City of Toccoa is located in northeastern Georgia
adjacent to the South Carolina border at the headwaters of Lake Hartwell. It is
81 miles northeast of Atlanta and 65 miles southwest of Greenville, South
Carolina. Toccoa serves as the county seat of Stephens County and its economy is
driven by the textile industry as well as agricultural products such as poultry,
pulpwood and livestock.

Split between Hart and Franklin counties, Royston is located in northeastern
Georgia approximately 60 miles north of Athens. The economy of Royston is
primarily driven by manufacturing industries. Certain information regarding the
Toccoa and Royston, Georgia systems as of December 31, 1998, is as follows:

<TABLE>
<S>                                             <C>  
          Basic Subscribers                     7,517
          Premium Subscribers                   3,076
          Estimated Homes Passed               11,530
</TABLE>

   The Partnership had 67 employees as of December 31, 1998. Management of these
systems is handled through offices located in the towns of Brenham and Bay City,
Texas, as well as Vidalia, Sandersville, Toccoa and Royston, Georgia. The Sequim
and Camano systems share the costs of offices maintained by affiliates of the
Partnership pursuant to the terms of operating management agreements. Pursuant
to the Agreement of Limited Partnership, the Partnership reimburses the Managing
General Partner for time spent by the Managing General Partner's accounting
staff on Partnership accounting and bookkeeping matters. (See Item 13(a) below.)

   The Partnership's cable television business is not considered seasonal. The
business of the Partnership is not dependent upon a single customer or a few
customers, the loss of any one or more of which would have a material adverse
effect on its business. No customer accounts for 10% or more of revenues. No
material portion of the Partnership's business is subject to renegotiation of
profits or termination of contracts or subcontracts at the election of any
governmental unit, except that franchise agreements may be



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terminated or modified by the franchising authorities as noted above. During the
last year, the Partnership did not engage in any research and development
activities.

   Partnership revenues are derived primarily from monthly payments received
from cable television subscribers. Subscribers are divided into three
categories: basic subscribers, tier subscribers and premium subscribers. "Basic
subscribers" are households that subscribe to the basic level of service, which
generally provides access to the three major television networks (ABC, NBC and
CBS), a few independent local stations, PBS (the Public Broadcasting System) and
certain satellite programming services, such as ESPN, CNN or The Discovery
Channel. "Tier subscribers" are households that subscribe to an additional level
of programming service, the content of which varies from system to system.
"Premium subscribers" are households that subscribe to one or more "pay
channels" in addition to the basic service. These pay channels include such
services as Showtime, Home Box Office, Cinemax, Disney or The Movie Channel.

COMPETITION

   Cable Television systems currently experience competition from several
sources.

BROADCAST TELEVISION

      Cable television systems have traditionally competed with broadcast
television, which consists of television signals that the viewer is able to
receive directly on his television without charge using an "off-air" antenna.
The extent of such competition is dependent in part upon the quality and
quantity of signals available by such antenna reception as compared to the
services provided by the local cable system. Accordingly, it has generally been
less difficult for cable operators to obtain higher penetration rates in rural
areas where signals available off-air are limited, than in metropolitan areas
where numerous, high quality off-air signals are often available without the aid
of cable television systems.

OVERBUILDS

      Cable television franchises are not exclusive, so that more than one cable
television system may be built in the same area (known as an "overbuild"), with
potential loss of revenues to the operator of the original cable television
system. Constructing and developing a cable television system is a capital
intensive process, and it is often difficult for a new cable system operator to
create a marketing edge over the existing system. Generally, an overbuilder
would be required to obtain franchises from the local governmental authorities,
although in some instances, the overbuilder could be the local government
itself. In any case, an overbuilder would be required to obtain programming
contracts from entertainment programmers and, in most cases, would have to build
a complete cable system, including headends, trunk lines and drops to individual
subscribers homes, throughout the franchise areas.

      Federal cross-ownership restrictions historically limited entry by local
telephone companies into the cable television business. The 1996 Telecom Act
eliminated this cross-ownership restriction, making it possible for companies
with considerable resources to overbuild existing cable operators and enter the
business (for extensive discussion of the Act, see "REGULATION AND
LEGISLATION"). Several telephone companies have begun seeking cable television
franchises from local governmental authorities and constructing cable television
systems. The Partnership cannot predict at this time the extent of telephone
company competition that will emerge in areas served by the Partnership's cable
television systems. The entry of telephone companies as direct competitors,
however, is likely to continue over the next several years and could adversely
affect the profitability and market value of the Partnership's systems. The
entry of electric utility companies into the cable television business, as now
authorized by the 1996 Telecom Act, could have a similar adverse effect.

DBS

      High powered direct-to-home satellites have made possible the wide-scale
delivery of programming to individuals throughout the United States using small
roof-top or wall-mounted antennas. Several companies began offering direct
broadcast satellite ("DBS") service over the last few years and recently
announced mergers should strengthen the surviving companies. Companies offering
DBS service use video compression technology to increase channel capacity of
their systems to 100 or more channels and to provide packages of movies,
satellite networks and other program services which are competitive to those of
cable television systems. DBS faces technical and legal obstacles to offering
its customers popular local broadcast programming. At least one DBS provider,
however, is now attempting to do so, and the FCC and Congress are considering
proposals that would enhance the ability of DBS



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companies to provide popular broadcast programming, including broadcast network
programming. In addition to emerging high-powered DBS competition, cable
television systems face competition from several low-powered providers, whose
service requires use of much larger home satellite dishes. The ability of DBS
service providers to compete successfully with the cable television industry
will depend on, among other factors, the availability of equipment at reasonable
prices and the relative attractiveness of the programming options offered by the
cable television industry and DBS competitors.

PRIVATE CABLE

      Additional competition is provided by private cable television systems,
known as Satellite Master Antenna Television ("SMATV"), serving multi-unit
dwellings such as condominiums, apartment complexes, and private residential
communities. These private cable systems may enter into exclusive agreements
with apartment owners and homeowners associations, which may preclude operators
of franchised systems from serving residents of such private complexes. Private
cable requirements that do not cross public rights of way are free from the
federal, state and local regulatory requirements imposed on franchised cable
television operators.

MMDS

      Cable television systems also compete with wireless program distribution
services such as multichannel, multipoint distribution service ("MMDS") systems,
commonly called wireless cable, which are licensed to serve specific areas. MMDS
uses low-power microwave frequencies to transmit television programming
over-the-air to paying subscribers. The MMDS industry is less capital intensive
than the cable television industry, and it is therefore more practical to
construct MMDS systems in areas of lower subscriber penetration.

      Cable television systems are also in competition in various degrees with
other communications and entertainment media, including motion pictures, home
video cassette recorders, internet data delivery and internet video delivery.

REGULATION AND LEGISLATION

      The operation of cable television systems is extensively regulated by the
FCC, some state governments and most local governments. The Telecommunications
Act of 1996 ("1996 Telecom Act") alters the regulatory structure governing the
nation's telecommunications providers. It removes barriers to competition in
both the cable television market and the local telephone market. Among other
things, it also reduces the scope of cable rate regulation.

      The 1996 Telecom Act requires the FCC to undertake a host of implementing
rulemakings, the final outcome of which cannot yet be determined. Moreover,
Congress and the FCC have frequently revisited the subject of cable regulation.
Future legislative and regulatory changes could adversely affect the Company's
operations, and there have been recent calls to maintain or even tighten cable
regulation in the absence of widespread effective competition. This section
briefly summarizes key laws and regulations affecting the operation of the
Company's cable systems and does not purport to describe all present, proposed,
or possible laws and regulations affecting the Company.

CABLE RATE REGULATION

      The 1992 Cable Act imposed an extensive rate regulation regime on the
cable television industry. Under that regime, all cable systems are subject to
rate regulation, unless they face "effective competition" in their local
franchise area. Federal law now defines "effective competition" on a
community-specific basis as essentially requiring either low penetration (less
than 30%) by the incumbent cable operator, appreciable penetration (more than
15%) by competing multichannel video providers ("MVPs"), or the presence of a
competing MVP affiliated with a local telephone company.

      Although the FCC rules control, local government units (commonly referred
to as local franchising authorities or "LFAs") are primarily responsible for
administering the regulation of the lowest level of cable - the basic service
tier ("BST"), which typically contains local broadcast stations and public,
educational, and government ("PEG") access channels. Before an LFA begins BST
rate regulation, it must certify to the FCC that it will follow applicable
federal rules, and many LFAs have voluntarily declined to exercise this
authority. LFAs also have primary responsibility for regulating cable equipment
rates. Under federal law, charges for various types of cable equipment must be
unbundled from each other and from monthly charges for programming services.



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      The FCC itself directly administers rate regulation of any cable
programming service tiers ("CPST"), which typically contain satellite-delivered
programming. Under the 1996 Telecom Act, the FCC can regulate CPST rates only if
an LFA first receives at least two rate complaints from local subscribers and
then files a formal complaint with the FCC. When new CPST rate complaints are
filed, the FCC now considers only whether the incremental increase is justified
and will not reduce the previously established CPST rate.

      Under the FCC's rate regulations, most cable systems were required to
reduce their BST and CPST rates in 1993 and 1994, and have since had their rate
increases governed by a complicated price cap scheme that allows for the
recovery of inflation and certain increased costs, as well as providing some
incentive for expanding channel carriage. The FCC has modified its rate
adjustment regulations to allow for annual rate increases and to minimize
previous problems associated with regulatory lag. Operators also have the
opportunity of bypassing this "benchmark" regulatory scheme in favor of
traditional "cost-of-service" regulation in cases where the latter methodology
appears favorable. Premium cable services offered on a per-channel or
per-program basis remain unregulated, as do affirmatively market packages
consisting entirely of new programming product. Federal law requires that the
BST be offered to all cable subscribers, but limits the ability of operators to
require purchase of any CPST before purchasing premium services offered on a
per-channel or per-program basis.

SMALL OPERATORS

      The FCC and Congress have provided various forms of rate relief for
smaller cable systems owned by smaller operators. If requisite eligibility
criteria are satisfied, a cable operator may be allowed to rely on a vastly
simplified cost-of-service rate justification and/or may be allowed to avoid
regulation of CPST rates entirely. Under FCC regulations, cable systems serving
15,000 or fewer subscribers, which are owned by or affiliated with a cable
company serving in the aggregate no more than 400,000 subscribers, can submit a
simplified cost-of-service filing under which the regulated rate (including
equipment charges) will be presumed reasonable if it equates to no more than
$1.24 per channel. Eligibility for this relief continues if the small cable
system is subsequently acquired by a larger cable operator, but is lost when and
if the individual system serves in excess of 15,000 subscribers. The 1996
Telecom Act immediately deregulated the CPST rates of cable systems serving
communities with fewer than 50,000 subscribers, which are owned by or affiliated
with entities serving, in the aggregate, no more than one percent of the
nation's cable customers (approximately 617,000) and having no more than $250
million in annual revenues. The Partnership's systems currently qualify for such
regulatory relief.

      The 1996 Telecom Act sunsets FCC regulation of CPST rates for all systems
(regardless of size) on March 31, 1999. Certain critics of the cable television
industry, however, have called for a delay in the regulatory sunset and some
have even urged more rigorous rate regulation, including limits on operators
passing through to their customers increased programming costs and bundling
together multiple programming services. The 1996 Telecom Act also relaxes
existing uniform rate requirements by specifying that uniform rate requirements
do not apply where the operator faces "effective competition", and by exempting
bulk discounts to multiple dwelling units, although complaints about predatory
pricing still may be made to the FCC.

CABLE ENTRY INTO TELECOMMUNICATIONS

      The 1996 Telecom Act provides that no state or local laws or regulations
may prohibit or have the effect of prohibiting any entity from providing any
interstate or intrastate telecommunications service. States are authorized,
however, to impose "competitively neutral" requirements regarding universal
service, public safety and welfare, service quality, and consumer protection.
State and local governments also retain their authority to manage the public
rights-of-way and may require reasonable, competitively neutral compensation for
management of public rights-of-way when cable operators provide
telecommunications service. The favorable pole attachment rates afforded cable
operators under federal law can be gradually increased by utility companies
owning the poles (beginning in 2001) if the operator provides telecommunications
service, as well as cable service, over its plant.

      Cable entry into telecommunications will be affected by the regulatory
landscape now being fashioned by the FCC and state regulators. One critical
component of the 1996 Telecom Act to facilitate the entry of new
telecommunications providers (including cable operators) is the interconnection
obligation imposed on all telecommunications carriers. The Eighth Circuit Court
of Appeals vacated certain aspects of the FCC's initial interconnection order,
but that decision was reversed by the U.S. Supreme court in January 1999.

TELEPHONE COMPANY ENTRY INTO CABLE TELEVISION



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      The 1996 Telecom Act allows telephone companies to compete directly with
cable operators by repealing the historic telephone company/cable
cross-ownership ban. Local exchange carriers ("LECs"), including the Bell
Operating Companies can now compete with cable operators both inside and outside
their telephone service areas. Because of their resources, LECs could be
formidable competitors to traditional cable operators, and certain LECs have
begun offering cable service.

      Under the 1996 Telecom Act, an LEC (electric utility or other entity)
providing video programming to subscribers through wired facilities will be
regulated as a traditional cable operator (subject to local franchising and
federal regulatory requirements), unless the LEC elects to provide its
programming via an "open video system" ("OVS"). To qualify for OVS status, the
LEC must reserve two-thirds of the system's activated channels for unaffiliated
entities. The Fifth Circuit Court of Appeals recently reversed certain of the
FCC's OVS rules, including the FCC's preemption of local franchising.

      Although LECs and cable operators can now expand their offerings across
traditional service boundaries, the general prohibition remains on LEC buyouts
(i.e., any ownership interest exceeding 10 percent) of co-located cable systems,
cable operator buyouts of co-located LEC systems, and joint ventures between
cable operators and LECs in the same market. The 1996 Telecom Act provides a few
limited exceptions to this buyout prohibition, including a carefully
circumscribed "rural exemption". The 1996 Telecom Act also provides the FCC with
the limited authority to grant waivers of the buyout prohibition (subject to LFA
approval).

ELECTRIC UTILITY ENTRY INTO TELECOMMUNICATIONS/CABLE TELEVISION

      The 1996 Telecom Act provides that registered utility holding companies
and subsidiaries may provide telecommunications services (including cable
television) notwithstanding the Public Utilities Holding Company Act. Electric
utilities must establish separate subsidiaries, known as "exempt
telecommunications companies" and must apply to the FCC for operating authority.
Again, because of their resources, electric utilities could be formidable
competitors to traditional cable systems.

ADDITIONAL OWNERSHIP RESTRICTIONS

      The 1996 Telecom Act eliminates statutory restrictions on broadcast/cable
cross-ownership (including broadcast network/cable restrictions), but leaves in
place existing FCC regulations prohibiting local cross-ownership between
co-located television stations and cable systems. The 1996 Telecom Act leaves in
place existing restrictions on cable cross-ownership with SMATV and MMDS
facilities, but lifts those restrictions where the cable operator is subject to
effective competition. The FCC permits cable operators to own and operate SMATV
systems within their franchise area, provided that such operation is consistent
with local cable franchise requirements.

Pursuant to the 1992 Cable Act, the FCC adopted rules precluding a cable system
from devoting more than 40% of its activated channel capacity to the carriage of
affiliated national program services. A companion rule establishing a nationwide
ownership cap on any cable operator equal to 30% of all domestic cable
subscribers has been stayed pending further judicial review, although the FCC
recently expressed an interest in reviewing and reimposing this limit.

MUST CARRY/RETRANSMISSION CONSENT

      The 1992 Cable Act contains broadcast signal carriage requirements that
allow local commercial television broadcast stations to elect once every three
years between (a) requiring a cable system to carry the station ("must carry")
or (b) negotiating for payments of granting permission to the cable operator to
carry the station ("retransmission consent"). Less popular stations typically
elect "must carry", and more popular stations typically elect "retransmission
consent". Must carry requests can dilute the appeal of a cable system's
programming offerings and retransmission consent demands may require substantial
payments or other concessions. Either option has a potentially adverse affect on
the Company's business. The burden associated with "must carry" may increase
substantially if broadcasters proceed with planned conversion to digital
transmission and the FCC determines that cable systems must carry all analog and
digital broadcasters in their entirety. A rulemaking is now pending at the FCC
regarding the imposition of dual digital and analog must carry.

ACCESS CHANNELS



                                       9
<PAGE>   10

      LFAs can include franchise provisions requiring cable operators to set
aside certain channels for public, educational and governmental access
programming. Federal law also requires cable systems to designate a portion of
their channel capacity (up to 15% in some cases) for commercial leased access by
unaffiliated third parties. The FCC has adopted rules regulating the terms,
conditions and maximum rates a cable operator may charge for use of the
designated channel capacity, but use of commercial leased access channels has
been relatively limited to date.

ACCESS TO PROGRAMMING

      To spur development of independent cable programmers and competition to
incumbent cable operators, the 1992 Cable Act imposed restrictions on the
dealings between cable operators and cable programmers. Of special significance
from a competitive business posture, the 1992 Cable Act precludes video
programmers affiliated with cable companies from favoring cable operators over
competitors and requires such programmers to sell their programming to other
multichannel video distributors. This provision limits the ability of vertically
integrated cable programmers to offer exclusive programming arrangements to
cable companies. There recently has been increased interest in further
restricting the marketing practices of cable programmers, including subjecting
programmers who are not affiliated with cable operators to all of the existing
program access requirements. In addition, some cable critics have argued that
vertically integrated, non-satellite programming (such as certain regional
sports networks) which is now exempt from the ban on exclusive programming,
should be subjected to this prohibition.

INSIDE WIRING

     The FCC determined that an incumbent cable operator can be required by the
owner of a multiple dwelling unit ("MDU") complex to remove, abandon or sell the
"home run" wiring it initially provided. In addition, the FCC is reviewing the
enforceability of contracts to provide exclusive video service within a MDU
complex. The FCC has proposed abrogating all such contracts held by incumbent
cable operators, but allowing such contracts when held by new entrants. These
changes, and others now being considered by the FCC, would, if implemented, make
it easier for an MDU complex owner to terminate service from an incumbent cable
operator in favor of a new entrant and leave the already competitive MDU sector
even more challenging for incumbent operators. In a separate proceeding, the FCC
has preempted restrictions on the deployment of private antennas, including
satellite dishes, on rental property within the exclusive use of a tenant (such
as balconies and patios).

OTHER FCC REGULATIONS

      In addition to the FCC regulations noted above, there are other FCC
regulations covering such areas as equal employment opportunity, subscriber
privacy, programming practices (including, among other things, syndicated
program exclusivity, network program nonduplication, local sports blackouts,
indecent programming, lottery programming, political programming, sponsorship
identification, children's programming advertisements and closed captioning),
registration of frequency usage, lockbox availability, antenna structure
notification, tower marking and lighting, consumer protection and customer
service standards, technical standards, consumer electronics equipment
compatibility and Emergency Alert Systems. The FCC recently stated that cable
customers must be allowed to purchase cable converters from third party vendors,
and established a multi-year phase-in during which signal security functions
(which remain in the operator's exclusive control) would be unbundled from basic
converter functions (which could then be satisfied by third party vendors).
Details regarding this phase-in are still under FCC review. The FCC has the
authority to enforce its regulations through the imposition of substantial
fines, the issuance of cease and desist orders and/or the imposition of other
administrative sanctions, such as the revocation of FCC licenses needed to
operate certain transmission facilities used in connection with cable
operations.

COPYRIGHT

      Cable television systems are subject to federal copyright licensing
covering carriage of television and radio broadcast signals. In exchange for
filing certain reports and contributing a percentage of their revenues to a
federal copyright royalty pool (that varies depending on the size of the system
and the number of distant broadcast television signals carried), cable operators
can obtain blanket permission to retransmit copyrighted material contained in
television broadcast signals. The possible modification or elimination of this
compulsory copyright license is the subject of continuing legislative review and
could adversely affect the Company's ability to obtain desired broadcast
programming. In addition, the cable industry pays music licensing fees to BMI
and is negotiating a similar arrangement with ASCAP. Copyright clearances for
nonbroadcast programming services are arranged through private negotiations.



                                       10
<PAGE>   11

STATE AND LOCAL REGULATION

      Cable television systems generally are operated pursuant to nonexclusive
franchises granted by a municipality or other state or local government entity
in order to cross public rights-of-way. Federal law now prohibits franchise
authorities from granting exclusive franchises or from unreasonably refusing to
award additional franchises. Cable franchises generally are granted for fixed
terms and in many cases include monetary penalties for non-compliance and may be
terminable if the franchisee fails to comply with material provisions.

      The terms and conditions of franchises vary materially from jurisdiction
to jurisdiction. Each franchise generally contains provisions governing cable
operations, service rates, franchise fees, system construction and maintenance
obligations, system channel capacity, design and technical performance, customer
service standards, and indemnification protections. A number of states subject
cable television systems to the jurisdiction of centralized state governmental
agencies, some of which impose regulation of a character similar to that of a
public utility. Although LFAs have considerable discretion in establishing
franchise terms, there are certain federal limitations. For example, LFAs cannot
insist on franchise fees exceeding 5% of the system's gross revenues, cannot
dictate the particular technology used by the system, and cannot specify video
programming that must be carried on the system other than identifying broad
categories of programming.

      Federal law contains renewal procedures designed to protect incumbent
franchises against arbitrary denials of renewal. Even if a franchise is renewed,
the franchise authority may seek to impose new and more onerous requirements
such as significant upgrades in facilities and services or increased franchise
fees as a condition of renewal. Similarly, if a franchise authority's consent is
required for the purchase or sale of a cable system or franchise, such authority
may attempt to impose more burdensome or onerous franchise requirements in
connection with a request for consent. Historically, franchises have been
renewed for cable operators that have provided satisfactory services and have
complied with the terms of their franchises.

INTERNET SERVICE

Although there is no significant federal regulation of cable system delivery of
Internet services at the current time and the FCC recently issued a report to
Congress finding no immediate need to impose such regulation, this situation may
change as cable systems expand their broadband delivery of Internet services. In
particular, proposals have been advanced at the FCC that would require cable
operators to provide access to unaffiliated Internet service providers and
online service providers. Certain Internet service providers also are attempting
to use existing commercial leased access provisions to gain the imposition of
mandatory Internet access requirements as part of cable franchise renewals or
transfer approvals.

SUMMARY

   The foregoing does not purport to be a summary of all present and proposed
federal, state and local regulations and legislation relating to the cable
television industry. Other existing federal legislation and regulations,
copyright licensing and, in many jurisdictions, state and local franchise
requirements are currently the subject of a variety of judicial proceedings,
legislative hearings and administrative and legislative proposals which could
change, in varying degrees, the manner in which cable television systems
operate. Neither the outcome of these proceedings nor their impact upon the
cable television industry or the Partnership can be predicted at this time.

   The Partnership expects to adapt its business to adjust to the changes that
may be required under any scenario of regulation. At this time, the Partnership
cannot assess the effects, if any, that present regulation may have on the
Partnership's operations and potential appreciation of its Systems. There can be
no assurance, however, that the final form of regulation will not have a
material adverse impact on Partnership operations.

ITEM 2.  PROPERTIES

   The Partnership's cable television systems are located in and around Brenham
and Bay City, Texas; Camano Island, Sequim, Stanwood, and Bayview, Washington,
and Vidalia, Sandersville, Toccoa and Royston, Georgia. The principal physical
properties of the Systems consist of system components (including antennas,
coaxial cable, electronic amplification and distribution equipment),



                                       11
<PAGE>   12

motor vehicles, miscellaneous hardware, spare parts and real property, including
office buildings and headend sites and buildings. The Partnership's cable plant
passed approximately 60,250 homes as of December 31, 1998. Management believes
that the Partnership's plant passes all areas which are currently economically
feasible to service. Future line extensions depend upon the density of homes in
the area as well as available capital resources for the construction of new
plant. (See Part II. Item 7. Liquidity and Capital Resources.)

ITEM 3.  LEGAL PROCEEDINGS

   None.

ITEM 4.  SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

   None.














                                       12
<PAGE>   13



                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

   (a) There is no established public trading market for the Partnership's units
of limited partnership interest.

   (b) The approximate number of equity holders as of December 31, 1998, is as
follows:

<TABLE>
<S>                                            <C>  
          Limited Partners:                    2,916

          General Partners:                        2
</TABLE>

   (c) During 1998, the Partnership did not make cash distributions to the
limited partners or to the Managing General Partner. The limited partners have
received in the aggregate in the form of cash distributions $3,108,554 on total
initial contributions of $24,893,000 as of December 31, 1998. As of December 31,
1998, the Partnership had repurchased $65,000 in limited partnership units ($500
per unit). Future distributions depend upon results of operations, leverage
ratios, and compliance with financial covenants required by the Partnership's
lender.

ITEM 6.  SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                           YEARS ENDED DECEMBER 31,
                                  --------------------------------------------------------------------------
                                      1998            1997            1996           1995           1994
                                  ------------    ------------    ------------    -----------    -----------
<S>                               <C>             <C>             <C>             <C>            <C>        
        SUMMARY OF OPERATIONS:
        Revenue                   $ 16,877,376    $ 13,573,985    $ 11,310,000    $ 8,526,053    $ 7,757,306
        Operating income (loss)      1,884,639         372,969          16,476         40,080        (91,965)
        Loss on disposal of
          Assets                      (202,025)        (14,486)        (10,146)       (17,626)             0
        Net loss                    (2,053,933)     (2,421,083)     (2,215,885)    (1,205,316)    (1,265,325)
        Net loss per limited
          partner unit
          (weighted average)               (41)            (48)            (44)           (24)           (25)
        Cumulative tax losses
          per limited partner
          Unit                            (402)           (402)           (402)          (405)          (415)
</TABLE>


<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                 ----------------------------------------------------------------------------
                                     1998            1997            1996            1995            1994
                                 ------------    ------------    ------------    ------------    ------------
<S>                              <C>             <C>             <C>             <C>             <C>         
        BALANCE SHEET DATA:
        Total assets             $ 34,424,298    $ 36,349,084    $ 28,151,750    $ 14,520,969    $ 17,549,748
        Notes payable              41,217,445      41,543,600      31,200,000      16,056,381      17,537,318
        Total liabilities          43,877,329      43,784,182      33,129,765      17,149,665      18,461,214
        General partners'
          Deficit                    (306,999)       (286,460)       (262,249)       (238,836)       (221,764)
        Limited partners'
          (deficit)capital         (9,146,032)     (7,112,638)    (4,7,15,766)     (2,389,860)       (689,702)
        Distributions per
          Limited partner unit              0               0               3              10              10
        Cumulative distribu-
          tions per limited
          Partner unit                     63              63              63              60              50
</TABLE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

RESULTS OF OPERATIONS

1998 AND 1997

   Total revenue reached $16,877,376 for the year ended December 31, 1998,
representing an increase of approximately 24% over 1997. Of the 1998 revenue,
$12,049,723 (71%) is derived from subscriptions to basic service, $1,446,083
(9%) from subscriptions to premium services, $1,239,779 (8%) from subscriptions
to tier services, $380,554 (2%) from installation charges, $389,924 (2%) from



                                       13
<PAGE>   14

service maintenance revenue, $788,527 (5%) from advertising revenue and $582,786
(3%) from other sources. The December 1997 acquisition of the Toccoa and Royston
systems increased revenues approximately 19%. The remaining 5% of revenue growth
is primarily attributable to rate increases placed into effect in August 1998.

   The following table displays historical average rate information for various
services offered by the Partnership's systems (amounts per subscriber per
month):

<TABLE>
<CAPTION>
                                    1998     1997     1996     1995     1994
                                   ------   ------   ------   ------   ------
<S>                                <C>      <C>      <C>      <C>      <C>   
        Basic Rate                 $24.55   $23.75   $22.45   $21.80   $20.90
        Tier Rate                    8.25     8.15     7.30     6.85     5.75
        HBO Rate                    10.65    10.15    10.05    10.65    10.25
        Cinemax Rate                 7.25     8.70     8.50     8.15     8.15
        Showtime Rate                8.10     8.50     8.00    10.20     9.40
        Movie Channel Rate           7.00     7.50     7.45     9.25     8.95
        Disney Rate                  6.50     7.50     7.20     7.50     7.50
        Encore Rate                  1.50       --       --       --       --
        Starz Rate                   7.00       --       --       --       --
        Service Contract Rate        2.35     2.60     3.05     2.85     2.80
</TABLE>

   Operating expenses totaled $1,506,573 for the year ended December 31, 1998,
representing an increase of approximately 17% over 1997. This increase is
primarily attributable to a full period inclusion of the Toccoa and Royston
systems. Excluding the impact of the Toccoa and Royston acquisitions, operating
expenses would have had no significant change over 1997. A reduction in regional
management costs offset increases in salary and benefit costs. Salary and
benefit costs are the major component of operating expenses. Employee wages are
reviewed annually, and in most cases, increased based on cost of living
adjustments and other factors. Therefore, management expects the trend of
increases in operating expenses to continue.

   General and administrative expenses totaled $3,962,335 for the year ended
December 31, 1998, representing an increase of approximately 21% over 1997. This
increase is mainly due to the acquisition of the Toccoa and Royston systems.
Excluding the impact of the Toccoa and Royston acquisitions, general and
administrative expenses would have had no significant change over 1997. A
one-time adjustment to copyright fees offset increases in salary and benefit
costs, and increases in revenue based expenses, such as franchise fees and
management fees. Significant administrative expenses are based on Partnership
revenues (franchise fees, copyright fees and management fees). Therefore, as the
Partnership's revenues increase, the trend of increased administrative expenses
is expected to continue.

   Programming expenses totaled $4,450,948 for the year ended December 31, 1998,
representing an increase of approximately 29% over 1997. The acquisition of the
Toccoa and Royston systems increased programming expense approximately 22%. The
remaining 7% is due to higher costs charged by various program suppliers, as
well as the addition of new channels. Programming expenses mainly consist of
payments made to suppliers of various cable programming services. As these costs
are based on the number of subscribers served, future subscriber increases will
cause the trend of programming expense increases to continue. Moreover, rate
increases from program suppliers, as well as fees due to the launch of
additional channels, will contribute to the trend of increased programming
costs.

   Depreciation and amortization expense decreased approximately 2% as compared
to 1997. This is due to assets that became fully depreciated and amortized
during the year which offset increases from the acquisition of the Toccoa and
Royston systems and other fixed asset purchases.

   Interest expense for the year ended December 31, 1998 increased approximately
35% as compared to 1997. The Partnership's average bank debt balance increased
from approximately $36,371,800 during 1997 to $41,380,523 during 1998 mainly due
to borrowings to finance the Toccoa and Royston acquisitions. The Partnership's
effective interest rate during 1998 was approximately 8.39% as compared to a
rate of approximately 8.73% during 1997.

   The operating losses incurred by the Partnership are historically a result of
significant non-cash charges to income for depreciation and amortization. Prior
to the deduction for these non-cash items, the Partnership has generated
positive operating income, which has increased in each year in the three year
period ending December 31, 1998. Management anticipates that this trend will
continue, and



                                       14
<PAGE>   15

that the Partnership will continue to generate net operating losses after
depreciation and amortization until a majority of the Partnership's assets are
fully depreciated.

1997 AND 1996

   Total revenue reached $13,573,985 for the year ended December 31, 1997,
representing an increase of approximately 20% over 1996. This is mainly due to
the acquisition of the Vidalia, GA system in March 1996, the Sandersville, GA
system in September 1996 and rate increases placed into effect August 1997. Of
the 1997 revenue, $9,619,864 (71%) is derived from subscriptions to basic
service, $1,205,147 (9%) from subscriptions to premium services, $1,074,192 (8%)
from subscriptions to tier services, $320,070 (2%) from installation charges,
$339,728 (2%) from service maintenance revenue and $1,014,984 (8%) from other
sources.

   Operating expenses totaled $1,286,933 for the year ended December 31, 1997,
representing an increase of approximately 20% over 1996. The increase is
primarily attributable to a full period inclusion of the Vidalia and
Sandersville systems as well as increased salary and benefit costs. Salary and
benefit costs are the major component of operating expenses. Employee wages are
reviewed annually, and in most cases, increased based on cost of living
adjustments and other factors. Therefore, management expects the trend of
increases in operating expenses to continue.

   General and administrative expenses totaled $3,284,191 for the year ended
December 31, 1997, representing an increase of approximately 20% over 1996. This
is mainly due to the acquisition of the Vidalia and Sandersville systems,
increases in salary and benefit costs, and increases in revenue based expenses,
such as franchise fees and management fees. Significant administrative expenses
are based on Partnership revenues (franchise fees, copyright fees and management
fees). Therefore, as the Partnership's revenues increase, the trend of increased
administrative expenses is expected to continue.

   Programming expenses totaled $3,437,344 for the year ended December 31, 1997,
representing an increase of approximately 25% over 1996. This is due to the
acquisition of the Vidalia and Sandersville systems, increases in costs charged
by various program suppliers, as well as the addition of new channels.
Programming expenses mainly consist of payments made to suppliers of various
cable programming services. As these costs are based on the number of
subscribers served, future subscriber increases will cause the trend of
programming expense increases to continue. Moreover, rate increases from program
suppliers, as well as fees due to the launch of additional channels, will
contribute to the trend of increased programming costs.

   Depreciation and amortization expense increased 10% over the prior year due
to the acquisition of the Vidalia and Sandersville systems. In addition, certain
assets became fully depreciated during the year and were offset by fixed asset
purchases.

   Interest expense for the year ended December 31, 1997 increased approximately
25% as compared to 1996. The Partnership's average bank debt balance increased
from approximately $23,628,190 during 1996 to $36,371,800 during 1997 mainly due
to borrowings to finance the Toccoa and Royston acquisitions. The Partnership's
effective interest rate during 1997 was approximately 8.73% as compared to a
rate of approximately 8.32% during 1996.

The operating losses incurred by the Partnership are historically a result of
significant non-cash charges to income for depreciation and amortization. Prior
to the deduction for these non-cash items, the Partnership has generated
positive operating income, which has increased in each year in the three year
period ending December 31, 1997. Management anticipates that this trend will
continue, and that the Partnership will continue to generate net operating
losses after depreciation and amortization until a majority of the Partnership's
assets are fully depreciated.

EFFECTS OF REGULATION

   On October 5, 1992, Congress enacted the Cable Television Consumer Protection
and Competition Act of 1992 (the "1992 Act"). The 1992 Act and subsequent
revisions and rulemakings substantially re-regulated the cable television
industry. The regulatory aspects of the 1992 Act included giving the local
franchising authorities and the FCC the ability to regulate rates for basic
services, equipment charges and additional CPST's when certain conditions were
met. All of the Partnership's cable systems were potentially



                                       15
<PAGE>   16

subject to rate regulation. The most significant impact of rate regulation was
the inability to raise rates for regulated services as costs of operation rose
during an FCC imposed rate freeze from April 5, 1993 to May 15, 1994.

   On February 8, 1996, the Telecommunications Act of 1996 (the "1996 Act")
became law. The 1996 Act will eliminate all rate regulation on CPST's of small
cable systems, defined by the 1996 Act as systems serving fewer 50,000
subscribers owned by operators serving fewer than 1% of all subscribers in the
United States (approximately 600,000 subscribers). All of the Partnership's
cable systems qualify as small cable systems. Many of the changes called for by
the 1996 Act will not take effect until the FCC issues new regulations, a
process that could take from several months to a few years depending on the
complexity of the required changes and the statutory time limits. Because of
this, the full impact of the 1996 Act on the Partnership's operations cannot be
determined at this time.

   As of the date of this filing, the Partnership has received notification that
local franchising authorities with jurisdiction over approximately 9% of total
subscribers have formally requested rate justifications. Based on Management's
analysis, the basic service tier rates charged by these systems are within the
maximum rates allowed under FCC rate regulations.

LIQUIDITY AND CAPITAL RESOURCES

   During 1998, the Partnership's primary source of liquidity was cash flow from
operations and credit available under the bank loan facility. The Partnership
generates cash on a monthly basis through the monthly billing of subscribers for
cable services. Losses from uncollectible accounts have not been material.
During 1998, cash generated from monthly billings was sufficient to meet the
Partnership's needs for working capital, capital expenditures and debt service.
Management's projections for 1999 indicate that the cash generated from monthly
subscriber billings is expected to be sufficient to meet the Partnership's
working capital needs, as well as the debt service obligations of its bank loan.

   In December 1997 the Partnership amended its term loan agreement increasing
its overall credit limit to $45,000,000 to finance the acquisition of the Toccoa
and Royston systems. Terms of the credit agreement provide for a $37,000,000
term loan payable in graduating quarterly installments which began March 31,
1998, and a $8,000,000 revolving credit facility converting to a term loan on
December 1, 2000 with graduating quarterly installments of principal. Both
facilities mature June 30, 2006. As of December 31, 1998, $3,650,000 was
available for borrowing by the Partnership on its revolving credit facility.

   At December 31, 1998, the Partnership's term loan balance was $40,850,000. As
of the date of this filing, interest rates on the credit facility were as
follows: $20,500,000 fixed at 8.635% under the terms of a self-amortizing
interest rate swap agreement with the Partnership's lender expiring December 29,
2000; $9,000,000 interest rate swap agreement fixed at 8.315% expiring June 15,
2000; $6,000,000 interest rate swap agreement fixed at of 8.335% expiring March
12, 2001; $4,100,000 interest rate swap agreement fixed at 8.335% expiring March
12, 2001. The balance of $250,000 bears interest at the prime rate plus 1.25%
(currently 9.00%). The above rates include a margin paid to the lender based on
overall leverage and may increase or decrease as the Partnership's overall
leverage fluctuates.

   The Partnership has only limited involvement with derivative financial 
instruments and does not use them for trading purposes. They are used to manage 
well-defined interest rate risks. The Partnership periodically enters into 
interest rate swap agreements with major banks or financial institutions 
(typically its bank) in which the Partnership pays a fixed rate and receives a 
floating rate with the interest payments being calculated on a notional amount. 
Gains or losses associated with changes in fair values of these swaps and the 
underlying notional principal amounts are deferred and recognized against 
interest expense over the term of the agreements in the Partnership's 
statements of operations.

   The Partnership is exposed to credit-related losses in the event of 
nonperformance by counterparties to financial instruments but does not expect 
any counterparties to fail to meet their obligations, as the Partnership 
currently deals only with its bank. The notional amounts of these interest rate 
swaps are $39,600,000 at December 31, 1998. Notional amounts do not represent 
amounts exchanged by the parties and, thus, are not a measure of exposure to 
the Partnership through its use of derivatives. The exposure in a derivative 
contract is the net difference between what each party is required to pay based 
on the contractual terms against the notional amount of the contract, which in 
the Partnership's case are interest rates. The use of derivatives does not have 
a significant effect on the Partnership's result of operations or its financial 
position.

                                Expected Maturity Date

<TABLE>
<CAPTION>
                              1999           2000           2001           2002           2003        Thereafter        Total
<S>                         <C>            <C>            <C>            <C>            <C>           <C>             <C>
Liabilities
Debt Maturity               1,275,334      2,207,532      3,279,921      4,632,518      6,183,742     23,818,398      41,217,445
Debt Interest Payments      3,433,049      3,293,338      3,068,833      2,734,137      2,276,609      2,852,734      17,658,700
Average Interest Rate            8.46%          8.46%          8.46%          8.46%          8.46%          8.46%           8.46%

Interest Rate Swaps
  Variable to Fixed
  Notional Amount                  --     17,750,000             --             --             --             --      17,750,000
  Average Pay Rate*                --           6.26%            --             --             --             --            6.26%
  Average Receive Rate*            --           5.28%            --             --             --             --            5.28%

  Notional Amount                  --      9,000,000             --             --             --             --       9,000,000
  Average Pay Rate*                --           5.94%            --             --             --             --            5.94%
  Average Receive Rate*            --           5.22%            --             --             --             --            5.22%

  Notional Amount                  --             --      6,000,000             --             --             --       6,000,000
  Average Pay Rate*                --             --           5.96%            --             --             --            5.96%
  Average Receive Rate*            --             --           5.00%            --             --             --            5.00%

  Notional Amount                  --             --      4,100,000             --             --             --       4,100,000
  Average Pay Rate*                --             --           5.96%            --             --             --            5.96%
  Average Receive Rate*            --             --           5.00%            --             --             --            5.00%
</TABLE>

* plus an applicable margin, currently 2.375%

   It is the partnership's policy to renegotiate swap agreements on or near
expiration.

   At December 31, 1998 the Partnership was required under the terms of its
credit agreement to maintain certain financial ratios including a Total Debt to
Annualized Cash Flow Ratio of 5.50 to 1 and an Annualized Cash Flow to Pro Forma
Debt Service Ratio of 1.20 to 1, among other covenants. The Partnership was in
compliance with its required covenants at December 31, 1998.

CAPITAL EXPENDITURES

   During 1998, the Partnership incurred approximately $2,900,000 in capital
expenditures. These expenditures included the purchase of an office building and
tower and the initial phase of an upgrade of a portion of the distribution plant
to 550 MHz in the Toccoa, GA system; the continued fiber deployment to the
Stanwood School District and construction of a fiber backbone in the Camano, WA
system; the second and third phases of an upgrade of a portion of the
distribution plant to 450 MHz in the Bay City, TX system; the initial phase of
an upgrade of a portion of the distribution plant in the Brenham, TX system; as
well as line extensions and vehicle replacements in various systems.

   Management estimates that the Partnership will spend approximately $3,000,000
on capital expenditures during 1999. These expenditures include distribution
plant upgrades, line extensions, channel additions, commercial insertion
equipment and vehicle replacements in various systems.


                                       16
<PAGE>   17


YEAR 2000 ISSUES

   The efficient operation of the Partnership's business is dependent in part on
its computer software programs and operating systems (collectively, Programs and
Systems). These Programs and Systems are used in several key areas of the
Partnership's business, including subscriber billing and collections and
financial reporting. Management has evaluated the Programs and Systems utilized
in the conduct of the Partnership's business for the purpose of identifying year
2000 compliance problems. Failure to remedy these issues could impact the
ability of the Partnership to timely bill its subscribers for service provided
and properly report its financial condition and results of operations which
could have a material impact on its liquidity and capital resources.

   The Programs and Systems utilized in subscriber billing and collections have
been modified to address year 2000 compliance issues. These modifications were
substantially complete at the end of 1998. Management has completed the process
of replacing Programs and Systems related to financial reporting which resolve
year 2000 compliance issues. The aggregate cost to the Partnership to address
year 2000 compliance issues is not expected to be material to its results of
operations, liquidity and capital resources.

   Management is currently focusing its efforts on the impact of the year 2000
compliance issue on service delivery and has established an internal team to
address this issue. The internal team is identifying and testing all date
sensitive equipment involved in delivering service to its customers. In
addition, management will assess its options regarding repair or replacement of
affected equipment during this testing. The aggregate cost to the Partnership to
resolve year 2000 compliance issues related to service delivery equipment is
not expected to be material to its results of operations, liquidity and capital
resources.

   The provision of cable television services is significantly dependent on the
Partnership's ability to adequately receive programming signals via satellite
distribution or off air reception from various programmers and broadcasters. The
Partnership has inquired of certain significant programming vendors with respect
to their year 2000 issues and how they might impact the operations of the
Partnership. As of the date of this filing no significant programming vendor has
communicated a year 2000 issue that would affect materially the operations of
the Partnership. However, if significant programming vendors identify year 2000
issues in the future and are unable to resolve such issues in a timely manner,
it could result in a material financial risk.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

   The audited financial statements of the Partnership for the years ended
December 31, 1998, 1997 and 1996 are included as a part of this filing (see Item
14(a)(1) below).

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

   None.

















                                       17
<PAGE>   18



                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

   The Partnership has no directors or officers. The Managing General Partner of
the Partnership is Northland Communications Corporation, a Washington
corporation; the Administrative General Partner of the Partnership is FN
Equities Joint Venture, a California general partnership.

   Certain information regarding the officers and directors of Northland is set
forth below.

   JOHN S. WHETZELL (AGE 57). Mr. Whetzell is the founder of Northland
Communications Corporation and has been President since its inception and a
Director since March 1982. Mr. Whetzell became Chairman of the Board of
Directors in December 1984. He also serves as President and Chairman of the
Board of Northland Telecommunications Corporation and each of its subsidiaries.
He has been involved with the cable television industry for over 24 years.
Between March 1979 and February 1982 he was in charge of the Ernst & Whinney
national cable television consulting services. Mr. Whetzell first became
involved in the cable television industry when he served as the Chief Economist
of the Cable Television Bureau of the Federal Communications Commission (FCC)
from May 1974 to February 1979. He provided economic studies to support the
deregulation of cable television both in federal and state arenas. He
participated in the formulation of accounting standards for the industry and
assisted the FCC in negotiating and developing the pole attachment rate formula
for cable television. His undergraduate degree is in economics from George
Washington University, and he has an MBA degree from New York University.

   JOHN E. IVERSON (AGE 62). Mr. Iverson is the Assistant Secretary of Northland
Communications Corporation and has served on the Board of Directors since
December 1984. He also serves on the Board of Directors of Northland
Telecommunications Corporation and each of its subsidiaries. He is currently a
member in the law firm of Ryan, Swanson & Cleveland P.L.L.C., Northland's
general counsel. He is a member of the Washington State Bar Association and
American Bar Association and has been practicing law for more than 35 years.
Mr. Iverson is the past president and a Trustee of the Pacific Northwest Ballet
Association. Mr. Iverson has a Juris Doctor degree from the University of
Washington.

   RICHARD I. CLARK (AGE 41). Mr. Clark has served as Vice President of
Northland since March 1982. He has served on the Board of Directors of both
Northland Communications Corporation and Northland Telecommunications
Corporation since July 1985. He also serves as Vice President and Director of
all subsidiaries of Northland Telecommunications Corporation. Mr. Clark was
elected Treasurer in April 1987, prior to which he served as Secretary from
March 1982. Mr. Clark was an original incorporator of Northland and is
responsible for the administration and investor relations activities of
Northland, including financial planning and corporate development. From July
1979 to February 1982, Mr. Clark was employed by Ernst & Whinney in the area of
providing cable television consultation services and has been involved with the
cable television industry for nearly 20 years. He has directed cable television
feasibility studies and on-site market surveys. Mr. Clark has assisted in the
design and maintenance of financial and budget computer programs, and he has
prepared documents for major cable television companies in franchising and
budgeting projects through the application of these programs. In 1979, Mr. Clark
graduated cum laude from Pacific Lutheran University with a Bachelor of Arts
degree in accounting.

   JAMES E. HANLON (AGE 65). Since June 1985, Mr. Hanlon has been a Divisional
Vice President for Northland and is currently responsible for the management of
systems serving subscribers in Texas, Alabama and Mississippi. Prior to his
association with Northland, he served as Chief Executive of M.C.T.
Communications, a cable television company, from 1981 to June 1985. His
responsibilities included supervision of the franchise, construction and
operation of a cable television system located near Tyler, Texas. From 1979 to
1981, Mr. Hanlon was President of the CATV Division of Buford Television, Inc.,
and from 1973 to 1979, he served as President and General Manager of Suffolk
Cablevision in Suffolk County, New York. Mr. Hanlon has also served as Vice
President and Corporate Controller of International, Inc. and Division
Controller of New York Yankees, Inc. Mr. Hanlon has a Bachelor of Science degree
in Business Administration from St. Johns University.

   JAMES A. PENNEY (AGE 44). Mr. Penney is Vice President and General Counsel
for Northland Telecommunications Corporation and each of its subsidiaries and
has served in this role since September 1985. He was elected Secretary in April
1987. Mr. Penney is responsible for advising all Northland systems with regard
to legal and regulatory matters, and also is involved in the acquisition and
financing of new cable systems. From 1983 until 1985 he was associated with the
law firm of Ryan, Swanson &



                                       18
<PAGE>   19


Cleveland P.L.L.C., Northland's general counsel. Mr. Penney holds a Bachelor of
Arts Degree from the University of Florida and a Juris Doctor from The College
of William and Mary, where he was a member of The William and Mary Law Review.

   GARY S. JONES (AGE 41). Mr. Jones is Vice President for Northland. Mr. Jones
joined Northland in March 1986 as Controller and has been Vice President of
Northland Telecommunications Corporation and each of its subsidiaries since
October 1986. Mr. Jones is responsible for cash management, financial reporting
and banking relations for Northland and is involved in the acquisition and
financing of new cable systems. Prior to joining Northland, Mr. Jones was
employed as a Certified Public Accountant with Laventhol & Horwath from 1980 to
1986. Mr. Jones received his Bachelor of Arts degree in Business Administration
with a major in accounting from the University of Washington in 1979.

   RICHARD J. DYSTE (AGE 53). Mr. Dyste has served as Vice President-Technical
Services of Northland Telecommunications Corporation and each of its
subsidiaries since April 1987. Mr. Dyste is responsible for planning and
advising all Northland cable systems with regard to technical performance as
well as system upgrades and rebuilds. He is a past president and current member
of the Mount Rainier Chapter of the Society of Cable Television Engineers, Inc.
Mr. Dyste joined Northland in 1986 as an engineer and served as Operations
Consultant to Northland Communications Corporation from August 1986 until April
1987. From 1977 to 1985, Mr. Dyste owned and operated Bainbridge TV Cable. He is
a graduate of Washington Technology Institute.

   H. LEE JOHNSON (AGE 55). Mr. Johnson has served as Divisional Vice President
for Northland's Statesboro, Georgia regional office since March 1994. He is
responsible for the management of systems serving subscribers in Georgia,
Mississippi, North Carolina and South Carolina. Prior to his association with
Northland he served as Regional Manager for Warner Communications, managing four
cable systems in Georgia from 1968 to 1973. Mr. Johnson has also served as
President of Sunbelt Finance Corporation and was employed as a System Manager
for Statesboro CATV when Northland purchased the system in 1986. Mr. Johnson has
been involved in the cable television industry for over 30 years and is a
current member of the Society of Cable Television Engineers. He is a graduate of
Swainsboro Technical Institute and has attended numerous training seminars,
including courses sponsored by Jerrold Electronics, Scientific Atlanta, The
Society of Cable Television Engineers and CATA.

   Certain information regarding the officers and directors of FN Equities Joint
Venture is set forth below:

   MILES Z. GORDON (AGE 51). Mr. Gordon is President of FNE and President and
Chief Executive Officer of Financial Network Investment Corporation (FNIC), and
has held those positions since 1983. From 1979 through April 1983 he was
President of University Securities Corporation. In 1978, Mr. Gordon was engaged
in the private practice of law, and from 1973 through 1978 he was employed by
the Securities and Exchange commission. He presently serves as Chairman of the
Securities Industry Association Independent Contractor Firms Committee. Mr.
Gordon was also Chairman and a member of the NASD District Business Conduct
Committee and a former member of the NASD Board of Governors. He is past
president of the California Syndication Forum and has also served on several
committees for the Securities Industry Association.

   JOHN S. SIMMERS (AGE 48). Mr. Simmers is Vice President and Secretary of FNE
and Executive Vice President and Chief Operating Officer of FNIC and has held
those positions since 1983. From June 1980 through April 1983 he was Executive
Vice President of University Securities Corporation, Vice President of
University Capital Corporation, and Vice President of University Asset
Management Group. From 1974 through May 1980 he was employed by the National
Association of Securities Dealers.

ITEM 11.  EXECUTIVE COMPENSATION

   The Partnership does not have executive officers. However, compensation was
paid to the General Partner during 1998 as indicated in Note 3 to the Notes to
Financial Statements--December 31, 1998 (see Items 14(a)(1) and 13(a) below).



                                       19
<PAGE>   20

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

   (a) CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Security ownership of
management as of December 31, 1998 is as follows:

<TABLE>
<CAPTION>
                                                          AMOUNT AND NATURE
                             NAME AND ADDRESS               OF BENEFICIAL          PERCENT OF
  TITLE OF CLASS             OF BENEFICIAL OWNER              OWNERSHIP              CLASS
  --------------             -------------------          -----------------        ----------
  <S>                     <C>                                <C>                  <C>
  General Partner's       Northland Communications           (See Note A)         (See Note A)
    Interest              Corporation
                          1201 Third Avenue
                          Suite 3600
                          Seattle, Washington  98101

  General Partner's       FN Equities Joint Venture          (See Note B)         (See Note B)
    Interest              2780 Skypark Dr.
                          Suite 300
                          Torrance, California  90505
</TABLE>

   Note A: Northland has a 1% interest in the Partnership, which increases to
20% interest in the Partnership at such time as the limited partners have
received 100% of their aggregate cash contributions plus a preferred return. The
natural person who exercises voting and/or investment control over these
interests is John S. Whetzell.

   Note B: FN Equities Joint Venture has no interest (0%) in the Partnership
until such time as the limited partners have received 100% of their aggregate
cash contributions plus a preferred return, at which time FN Equities Joint
Venture will have a 5% interest in the Partnership. The natural person who
exercises voting and/or investment control over these interests is John S.
Simmers.

   (b) CHANGES IN CONTROL. Northland has pledged its ownership interest as
Managing General Partner of the Partnership to the Partnership's lender as
collateral pursuant to the terms of the Partnership's term loan agreement.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

   (a) TRANSACTIONS WITH MANAGEMENT AND OTHERS. The Managing General Partner
receives a management fee equal to 5% of the gross revenues of the Partnership,
not including revenues from any sale or refinancing of the Partnership's
Systems. The Managing General Partner also receives reimbursement of normal
operating and general and administrative expenses incurred on behalf of the
Partnership.

   The Partnership has entered into operating management agreements with
affiliates managed by the Managing General Partner. Under the terms of these
agreements, the Partnership or an affiliate serves as the executive managing
agent for certain cable television systems and is reimbursed for certain
operating, programming and administrative expenses.

   The Partnership has also entered into an operating and management agreement
with NCTV, an affiliate of Northland. Under the terms of this agreement, the
Partnership serves as the exclusive managing agent for one of NCTV's cable
systems, and is reimbursed for certain operating, administrative and programming
costs.

   Northland Cable Services Corporation ("NCSC"), an affiliate of Northland,
provides software installation and billing services to the Partnership's
Systems.

   Northland Cable News, Inc. ("NCN"), an affiliate of Northland, provides
programming to certain of the Partnership's systems for which it is compensated.

   Cable Ad-Concepts, Inc. ("CAC"), an affiliate of Northland, provides the
production and development of video commercial advertisements and advertising
sales support for which it is compensated.



                                       20
<PAGE>   21

   See Note 3 of the Notes to Financial Statements--December 31, 1998 for
disclosures regarding transactions with the General Partners and affiliates.

                    The following schedule summarizes these transactions:

<TABLE>
<CAPTION>
                                                FOR THE YEARS ENDED DECEMBER 31,
                                               ----------------------------------
                                                 1998         1997         1996
                                               --------     --------     --------
<S>                                            <C>          <C>          <C>     
        Partnership management fees            $835,838     $670,026     $561,780
        Operating expense reimbursements        853,979      722,821      591,262
        Software installation and
          billing service fees to NCSC           79,141       62,514       96,267
        Programming fees to NCN                 198,077      199,541      115,432
        Reimbursements to CAC for
          services                               66,734       80,806       57,597
        Reimbursements to affiliates (net)      173,699       87,446      101,549
        Amounts due to General Partner
          and affiliates at year end            237,048       58,553       94,264
</TABLE>

   Management believes that all of the above transactions are on terms as
favorable to the Partnership as could be obtained from unaffiliated parties for
comparable goods or services.

   As disclosed in the Partnership's Prospectus (which has been incorporated by
reference), certain conflicts of interest may arise between the Partnership and
the General Partners and their affiliates. Certain conflicts may arise due to
the allocation of management time, services and functions between the
Partnership and existing and future partnerships as well as other business
ventures. The General Partners have sought to minimize these conflicts by
allocating costs between systems on a reasonable basis. Each limited partner may
have access to the books and non-confidential records of the Partnership. A
review of the books will allow a limited partner to assess the reasonableness of
these allocations. The Agreement of Limited Partnership provides that any
limited partner owning 10% or more of the Partnership units may call a special
meeting of the Limited Partners, by giving written notice to the General
Partners specifying in general terms the subjects to be considered. In the event
of a dispute between the General Partners and Limited Partners which cannot be
otherwise resolved, the Agreement of Limited Partnership provides steps for the
removal of a General Partner by the Limited Partners.

   (b) CERTAIN BUSINESS RELATIONSHIPS. John E. Iverson, a Director and Assistant
Secretary of the Managing General Partner, is a member of the law firm of Ryan,
Swanson & Cleveland P.L.L.C., which has rendered and is expected to continue to
render legal services to the Managing General Partner and the Partnership.

   (c) INDEBTEDNESS OF MANAGEMENT. None.















                                       21
<PAGE>   22



                                           PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

   (a) DOCUMENTS FILED AS A PART OF THIS REPORT:

<TABLE>
<CAPTION>
                                                                                     SEQUENTIALLY
                                                                                       NUMBERED
                                                                                         PAGE
                                                                                     ------------
<S>       <C>                                                                             <C>
  (1)     FINANCIAL STATEMENTS:

          Report of Independent Public Accountants...................................     ____

          Balance Sheets--December 31, 1998 and 1997.................................     ____

          Statements of Operations for the years ended December 31, 1998, 
          1997 and 1996..............................................................     ____
          
          Statements of Changes in Partners' Capital (Deficit) for the years
          ended December 31, 1998, 1997 and 1996.....................................     ____

          Statements of Cash Flows for the years ended December 31, 1998,
          1997 and 1996..............................................................     ____
          
          Notes to Financial Statements--December 31, 1998...........................     ____

  (2)     EXHIBITS:

  4.1     Forms of Amended and Restated Certificate of Agreement of Limited
          Partnership(1)

 10.1     Brenham Franchise(2)

 10.1     Amendment to Brenham Franchise(4)

 10.3     Washington County Franchise(2)

 10.4     Island County Franchise (Amended)(2)

 10.5     Bay City Franchise(2)

 10.6     Sweeney Franchise(2)

 10.7     West Columbia Franchise(2)

 10.8     Wharton Franchise(2)

 10.9     Tenneco Development Corp. Franchise(3)

 10.10    Sequim Franchise(1)

 10.11    Clallam County Franchise(1)

 10.12    Credit Agreement with National Westminster Bank USA(1)

 10.13    First, Second and Third Amendments to Credit Agreement with
          National Westminster Bank USA (3)

 10.14    Amended and Restated Management Agreement with Northland
          Communications Corporation(3)

 10.15    Operating Management Agreement with Northland Cable Television, Inc.(3)
</TABLE>



                                       22
<PAGE>   23

<TABLE>
<S>       <C>                                                                             <C>
 10.16    Assignment and Transfer Agreement with Northland Telecommunications
          Corporation dated May 24, 1989(4)

 10.17    Agreement of Purchase and Sale with Sagebrush Cable Limited
          Partnership(5)

 10.18    Fourth, Fifth, Sixth and Seventh Amendments to Credit Agreement with
          National Westminster Bank USA (6)

 10.19    Franchise Agreement with the City of Sequim, WA effective as of
          May 6, 1992(7)

 10.20    Franchise Agreement with Clallam County, WA effective as of
          May 29, 1992(7)

 10.21    Eighth Amendment to Credit Agreement with National Westminster Bank
          USA dated as of May 28, 1992(7)

 10.22    Asset Purchase Agreement between Northland Cable Properties Seven
          Limited Partnership (Buyer) and Country Cable, Inc. (Seller)(8)

 10.23    Amendment to Asset Purchase Agreement between Northland Cable
          Properties Seven Limited Partnership and Country Cable, Inc.
          dated September 14, 1993(9)

 10.24    Commercial Loan Agreement between Seattle-First National Bank and
          Northland Cable Properties Seven Limited Partnership dated
          September 24, 1993(9)

 10.25    Franchise Agreement with Island County, WA dated October 4, 1993(10)

 10.26    Franchise Agreement with Skagit County - Assignment and Assumption
          Agreement dated September 27, 1993(10)

 10.27    Franchise Agreement with Whatcom County - Assignment and Assumption
          Agreement dated September 27, 1993(10)

 10.28    Amendment to Commercial Loan Agreement dated March 15, 1994(10)

 10.29    Operating and Management Agreement with Northland Cable Television,
          Inc. dated November 1, 1994(11)

 10.30    Asset Purchase Agreement between Northland Cable Properties Seven
          Limited Partnership and Southland Cablevision, Inc.(12)

 10.31    Asset Purchase Agreement between Northland Cable Properties
          Seven Limited Partnership and TCI Cablevision of Georgia, Inc.(12)

 10.32    Commercial Loan Agreement between Northland Cable Properties Seven
          Limited Partnership and Seattle First National Bank dated
          February 29, 1996(12)

 10.33    Asset purchase agreement between Northland Cable Properties
          Seven Limited Partnership and Robin Media Group, Inc.(13)

 10.34    Commercial Loan Agreement between Northland Cable Properties Seven
          Limited Partnership and Seattle First National Bank dated
          December 1, 1997.(13)
</TABLE>


                                       23
<PAGE>   24

------------

   (1)   Incorporated by reference from the Partnership's Form S-1 Registration
         Statement declared effective on August 6, 1987.

   (2)   Incorporated by reference from the partnership's Form 10-K Annual
         Report for the fiscal year ended December 31, 1987.

   (3)   Incorporated by reference from the partnership's Form 10-K Annual
         Report for the year ended December 31, 1988.

   (4)   Incorporated by reference from the partnership's Form 10-Q Quarterly
         Report for the period ended June 30, 1989.

   (5)   Incorporated by reference from the partnership's Form 10-Q Quarterly
         Report for the period ended September 30, 1989.

   (6)   Incorporated by reference from the partnership's Form 10-K Annual
         Report for the fiscal year ended December 31, 1990.

   (7)   Incorporated by reference from the partnership's Form 10-K Annual
         Report for the fiscal year ended December 31, 1992.

   (8)   Incorporated by reference from the partnership's Form 10-Q Quarterly
         Report for the period ended March 31, 1993.

   (9)   Incorporated by reference from the partnership's Form 8-K dated
         September 27, 1993 10Incorporated by reference from the partnership's
         Form 10-K Annual Report for the fiscal year ended December 31, 1993.

   (11)  Incorporated by reference from the partnership's Form 10-K Annual
         Report for the fiscal year ended December 31, 1993.

   (12)  Incorporated by reference from the partnership's Form 8-K dated
         March 1, 1996.

   (13)  Incorporated by reference from the partnership's Form 8-K dated
         December 5, 1997.

(b)  REPORTS ON FORM 8-K. Form 8-K dated December 5, 1997, was filed December
     19, 1997 reporting the acquisition of the Toccoa and Royston systems.



                                       24
<PAGE>   25


                                   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.


                            NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP

                            By: NORTHLAND COMMUNICATIONS CORPORATION
                                     (Managing General Partner)

Date: March 30, 1999        By:  /s/  John S. Whetzell
      --------------            ------------------------------------------------
                                      John S. Whetzell, President

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

<TABLE>
<CAPTION>
         SIGNATURES                       CAPACITIES                           DATE
         ----------                       ----------                           ----
<S>                           <C>                                              <C>
/s/   John S. Whetzell        Chief executive officer                     March 30, 1999
--------------------------    of registrant; chief executive
      John S. Whetzell        officer and chairman of the board of
                              directors of Northland Communications
                              Corporation
                                                                   

/s/   Richard I. Clark        Director of Northland Communications        March 30, 1999
--------------------------    Corporation
      Richard I. Clark

/s/   John E. Iverson         Director of Northland Communications        March 30, 1999
--------------------------    Corporation
      John E. Iverson

/s/   Gary S. Jones           Principal financial officer and             March 30, 1999                           
--------------------------    principal accounting officer of the                                        
      Gary S. Jones           registrant; vice president and principal
                              accounting officer of Northland 
                              Communications Corporation
</TABLE>







                                       25
<PAGE>   26



                                 EXHIBITS INDEX

<TABLE>
<CAPTION>
                                                                    SEQUENTIALLY
 EXHIBIT                                                              NUMBERED
 NUMBER                   DESCRIPTION                                   PAGE
 ------                   -----------                               ------------
 <S>         <C>                                                    <C>
  27.0       Financial Data Schedule
</TABLE>






















                                       26

<PAGE>   27















                          NORTHLAND CABLE PROPERTIES SEVEN LIMITED
                          PARTNERSHIP

                          FINANCIAL STATEMENTS
                          AS OF DECEMBER 31, 1998 AND 1997
                          TOGETHER WITH AUDITORS' REPORT



<PAGE>   28










                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To the Partners of
Northland Cable Properties Seven Limited Partnership:

We have audited the accompanying balance sheets of Northland Cable Properties
Seven Limited Partnership (a Washington limited partnership) as of December 31,
1998 and 1997, and the related statements of operations, changes in partners'
capital (deficit) and cash flows for each of the three years in the period ended
December 31, 1998. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Northland Cable Properties
Seven Limited Partnership as of December 31, 1998 and 1997, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles.




Seattle, Washington,
  February 15, 1999


<PAGE>   29



              NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP


                                 BALANCE SHEETS

                           DECEMBER 31, 1998 AND 1997



                                     ASSETS

<TABLE>
<CAPTION>
                                                                        1998              1997
                                                                    ------------      ------------
<S>                                                                 <C>               <C>         
CASH                                                                $  1,476,227      $    586,000

ACCOUNTS RECEIVABLE                                                      428,526           794,000

DUE FROM AFFILIATES                                                       53,143            46,380

PREPAID EXPENSES                                                         105,118            83,906

INVESTMENT IN CABLE TELEVISION PROPERTIES:
      Property and equipment, at cost                                 29,563,726        27,199,514
      Less- Accumulated depreciation                                 (15,279,030)      (13,322,455)
                                                                    ------------      ------------
                                                                      14,284,696        13,877,059

   Franchise agreements (net of accumulated
      amortization of $5,463,405 in 1998 and
      $20,358,047 in 1997)
                                                                      16,529,042        19,024,959
   Acquisition costs (net of accumulated
      amortization of $175,209 in 1998 and
      $1,563,176 in 1997)
                                                                         184,475           240,191
   Loan fees and other intangibles (net of
      accumulated amortization of $860,952 in
      1998 and $4,734,571 in 1997)
                                                                       1,193,552         1,521,497
   Goodwill (net of accumulated amortization
      of $53,410 in 1998 and $47,837 in 1997)
                                                                         169,519           175,092
                                                                    ------------      ------------
            Total investment in cable
               television properties                                  32,361,284        34,838,798
                                                                    ------------      ------------

            Total assets                                            $ 34,424,298      $ 36,349,084
                                                                    ============      ============


                              LIABILITIES AND PARTNERS' DEFICIT

LIABILITIES:
   Accounts payable and accrued expenses                            $  1,691,205      $  1,419,226
   Due to General Partner and affiliates
                                                                         290,191           104,933
   Deposits                                                               35,304            30,241
   Subscriber prepayments                                                643,184           650,182
   Notes payable                                                      41,217,445        41,543,600
                                                                    ------------      ------------
            Total liabilities                                         43,877,329        43,748,182
                                                                    ------------      ------------

COMMITMENTS AND CONTINGENCIES (Note 8)

PARTNERS' DEFICIT:
   General partners-
      Contributed capital                                                (25,367)          (25,367)
      Accumulated deficit                                               (281,632)         (261,093)
                                                                    ------------      ------------
                                                                        (306,999)         (286,460)
                                                                    ------------      ------------
   Limited partners-
      Contributed capital, net -
         49,656 units                                                 18,735,576        18,735,576
      Accumulated deficit                                            (27,881,608)      (25,848,214)
                                                                    ------------      ------------
                                                                      (9,146,032)       (7,112,638)
                                                                    ------------      ------------
            Total liabilities and partners'
               deficit                                              $ 34,424,298      $ 36,349,084
                                                                    ============      ============
</TABLE>


      The accompanying notes are an integral part of these balance sheets.

<PAGE>   30



              NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP


                            STATEMENTS OF OPERATIONS

              FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996


<TABLE>
<CAPTION>
                                                             1998              1997              1996
                                                         ------------      ------------      ------------
<S>                                                      <C>               <C>               <C>         
REVENUE                                                  $ 16,877,376      $ 13,573,985      $ 11,310,000
                                                         ------------      ------------      ------------
EXPENSES:
   Operating (including $87,794, $25,164
      and $(4,499), net, paid to (received
      from) affiliates in 1998, 1997 and 1996,
      respectively)                                         1,506,573         1,286,933         1,068,153

   General and administrative (including $1,495,928,
      $1,204,259 and $1,080,940, net, paid to
      affiliates in 1998, 1997 and 1996,
      respectively)                                         3,962,335         3,284,191         2,733,645

   Programming (including $205,030, $299,980 and
      $218,206, net, paid to affiliates in 1998,
      1997 and 1996, respectively)                          4,450,948         3,437,344         2,748,609

   Depreciation and amortization                            5,072,881         5,192,548         4,743,117
                                                         ------------      ------------      ------------
                                                           14,992,737        13,201,016        11,293,524
                                                         ------------      ------------      ------------
            Operating income                                1,884,639           372,969            16,476

OTHER INCOME (EXPENSE):
   Other income                                                    --            13,851                --
   Other expense                                             (153,940)         (122,346)         (104,389)
   Interest income                                             24,932             4,894            19,560
   Interest expense                                        (3,607,539)       (2,675,965)       (2,137,386)
   Loss on disposal of assets                                (202,025)          (14,486)          (10,146)
                                                         ------------      ------------      ------------
            Net loss                                     $ (2,053,933)     $ (2,421,083)     $ (2,215,885)
                                                         ============      ============      ============
ALLOCATION OF NET LOSS:
   General partners                                      $    (20,539)     $    (24,211)     $    (22,159)
                                                         ============      ============      ============

   Limited partners                                      $ (2,033,394)     $ (2,396,872)     $ (2,193,726)
                                                         ============      ============      ============
NET LOSS PER LIMITED PARTNERSHIP UNIT                    $        (41)     $        (48)     $        (44)
                                                         ============      ============      ============
</TABLE>



        The accompanying notes are an integral part of these statements.


<PAGE>   31



              NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP


              STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)

              FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996


<TABLE>
<CAPTION>
                                                General         Limited 
                                               Partners        Partners          Total
                                               ---------      -----------      -----------
<S>                                            <C>            <C>              <C>         
BALANCE, December 31, 1995                     $(238,836)     $(2,389,860)     $(2,628,696)

   Cash distributions ($2.50 per limited
      partnership unit)                           (1,254)        (124,180)        (125,434)

   Repurchase of limited partnership units            --           (8,000)          (8,000)

   Net loss                                      (22,159)      (2,193,726)      (2,215,885)
                                               ---------      -----------      -----------
BALANCE, December 31, 1996                      (262,249)      (4,715,766)      (4,978,015)

   Net loss                                      (24,211)      (2,396,872)      (2,421,083)
                                               ---------      -----------      -----------
BALANCE, December 31, 1997                      (286,460)      (7,112,638)      (7,399,098)

   Net loss                                      (20,539)      (2,033,394)      (2,053,933)
                                               ---------      -----------      -----------
BALANCE, December 31, 1998                     $(306,999)     $(9,146,032)     $(9,453,031)
                                               =========      ===========      ===========
</TABLE>



        The accompanying notes are an integral part of these statements.



<PAGE>   32



              NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP


                            STATEMENTS OF CASH FLOWS

              FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996


<TABLE>
<CAPTION>
                                                                      1998             1997            1996
                                                                   -----------     ------------     ------------
<S>                                                                <C>             <C>              <C>          
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                                        $(2,053,933)    $ (2,421,083)    $ (2,215,885)
   Adjustments to reconcile net loss to net cash
      provided by operating activities-
         Depreciation and amortization expense                       5,072,881        5,192,548        4,743,117
         Amortization of loan fees                                     151,700          122,346          104,389
         Loss on disposal of assets                                    202,025           14,486           10,146
         (Increase) decrease in operating assets:
           Accounts receivable                                         365,474         (392,775)        (173,976)
           Prepaid expenses                                            (21,212)          33,627          (56,392)
         Increase (decrease) in operating liabilities:
           Accounts payable and accrued expenses                       271,979          140,803          545,327
           Due to General Partner and affiliates                       178,495          (35,711)          11,901
           Deposits                                                      5,063           (6,270)          (5,282)
           Subscriber prepayments                                       (6,998)         249,699          164,451
                                                                   -----------     ------------     ------------
            Net cash provided by operating activities                4,165,474        2,897,670        3,127,796
                                                                   -----------     ------------     ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Acquisition of cable system                                              --      (11,360,000)     (15,834,960)
   Purchase of property and equipment                               (2,947,746)      (1,462,011)      (1,153,862)
   Purchase of other intangibles                                        (9,709)        (194,936)        (177,349)
   Proceeds from sale of fixed assets                                   10,034            9,150               --
                                                                   -----------     ------------     ------------
            Net cash used in investing activities                   (2,947,421)     (13,007,797)     (17,166,171)
                                                                   -----------     ------------     ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from notes payable                                         190,100       12,063,600       15,943,619
   Principal payments on notes payable                                (516,255)      (1,720,000)        (800,000)
   Loan fees and other                                                  (1,671)        (295,913)        (633,107)
   Distributions to partners                                                --               --         (125,434)
   Repurchase of limited partnership units                                  --               --           (8,000)
                                                                   -----------     ------------     ------------
            Net cash (used in) provided by financing activities       (327,826)      10,047,687       14,377,078
                                                                   -----------     ------------     ------------
INCREASE (DECREASE) IN CASH                                            890,227          (62,440)         338,703

CASH, beginning of year                                                586,000          648,440          309,737
                                                                   -----------     ------------     ------------
CASH, end of year                                                  $ 1,476,227     $    586,000     $    648,440
                                                                   ===========     ============     ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
   Cash paid during the year for interest                          $ 3,628,555     $  2,737,844     $  2,086,230
                                                                   ===========     ============     ============
</TABLE>


        The accompanying notes are an integral part of these statements.



<PAGE>   33



              NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP


                          NOTES TO FINANCIAL STATEMENTS

                                DECEMBER 31, 1998



1.  ORGANIZATION AND PARTNERS' INTERESTS:

Formation and Business

Northland Cable Properties Seven Limited Partnership (the Partnership), a
Washington limited partnership, was formed on April 17, 1987. The Partnership
was formed to acquire, develop and operate cable television systems. The
Partnership began operations on September 1, 1987, by acquiring a cable
television system in Brenham, Texas. Additional acquisitions include systems
serving seven cities and three unincorporated counties in southeast Texas; a
system serving Camano Island, Washington; two systems serving certain
unincorporated portions of Clallam County, Washington; a system serving certain
portions of Skagit and Whatcom counties, Washington; two systems serving four
cities in or around Vidalia, Georgia; a system serving two cities in or around
Sandersville, Georgia; and two systems serving several communities in and around
Toccoa and Royston, Georgia. The Partnership has 26 nonexclusive franchises to
operate the cable systems for periods which will expire at various dates through
2024.

Northland Communications Corporation is the Managing General Partner (the
General Partner) of the Partnership. Certain affiliates of the Partnership also
own and operate other cable television systems. In addition, the General Partner
manages cable television systems for other limited partnerships for which it is
General Partner.

FN Equities Joint Venture, a California joint venture, is the Administrative
General Partner of the Partnership.

Contributed Capital, Commissions and Offering Costs

The capitalization of the Partnership is set forth in the accompanying
statements of changes in partners' capital (deficit). No limited partner is
obligated to make any additional contribution to partnership capital.

The general partners purchased their 1% interest in the Partnership by
contributing $1,000 to partnership capital.

Pursuant to the Partnership Agreement, brokerage fees paid to an affiliate of
the Administrative General Partner and other offering costs are recorded as a
reduction of limited partners' capital. The Administrative General Partner
received a fee for providing certain administrative services to the Partnership.



<PAGE>   34
                                      -2-


2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Property and Equipment

Property and equipment are stated at cost. Replacements, renewals and
improvements are capitalized. Maintenance and repairs are charged to expense as
incurred.

Depreciation of property and equipment is provided using the straight-line
method over the following estimated service lives:

<TABLE>
<S>                                                               <C>     
            Buildings                                               20 years
            Distribution plant                                      10 years
            Other equipment and leasehold improvements            5-20 years
</TABLE>

The Partnership periodically reviews the carrying value of its long-lived
assets, including property, equipment and intangible assets, whenever events or
changes in circumstances indicate that the carrying value may not be
recoverable. To the extent the estimated future cash inflows attributable to the
asset, less estimated future cash outflows, is less than the carrying amount, an
impairment loss would be recognized.

Allocation of Cost of Purchased Cable Television Systems

The Partnership allocates the total contract purchase price of cable television
systems acquired as follows: first, to the estimated fair value of net tangible
assets acquired; then, to noncompetition agreements, franchise agreements and
other intangibles; then, any excess is allocated to goodwill.

Intangible Assets

Costs assigned to franchise agreements, acquisition costs, loan fees and other
intangibles and goodwill are being amortized using the straight-line method over
the following estimated useful lives:

<TABLE>
<S>                                                               <C>       
            Franchise agreements                                  9-25 years
            Acquisition costs                                        5 years
            Loan fees and other intangibles                        1-9 years
            Goodwill                                                40 years
</TABLE>

Revenue Recognition

Cable television service revenue is recognized in the month service is provided
to customers. Advance payments on cable services to be rendered are recorded as
subscriber prepayments. Revenues resulting from the sale of local spot
advertising are recognized when the related advertisements or commercials appear
before the public. Local spot advertising revenues earned were $788,527,
$532,801 and $483,649, respectively, in 1998, 1997 and 1996.

Derivatives

The Partnership has only limited involvement with derivative financial
instruments and does not use them for trading purposes. They are used to manage
well-defined interest rate risks. The Partnership periodically enters into
interest rate swap agreements with major banks or financial institutions
(typically its bank) in which the Partnership pays a fixed rate and receives a
floating rate with the interest payments being calculated on a notional amount.
Gains or losses associated with


<PAGE>   35
                                      -3-


changes in fair values of these swaps and the underlying notional principal
amounts are deferred and recognized against interest expense over the term of
the agreements in the Partnership's statements of operations.

The Partnership is exposed to credit-related losses in the event of
nonperformance by counterparties to financial instruments but does not expect
any counterparties to fail to meet their obligations, as the Partnership
currently deals only with its bank. The notional amounts of these interest rate
swaps are $39,600,000 at December 31, 1998. Notional amounts do not represent
amounts exchanged by the parties and, thus, are not a measure of exposure to the
Partnership through its use of derivatives. The exposure in a derivative
contract is the net difference between what each party is required to pay based
on the contractual terms against the notional amount of the contract, which in
the Partnership's case are interest rates. The use of derivatives does not have
a significant effect on the Partnership's result of operations or its financial
position.

Recently Issued Accounting Pronouncements

Statement of Financial Accounting Standards (SFAS) No. 130 - In 1998, the
Partnership adopted SFAS No. 130, "Reporting Comprehensive Income." This
statement establishes rules for the reporting of comprehensive income and its
components. Comprehensive income (loss) consists of net income (loss), foreign
currency translation adjustments and unrealized gains on investment securities
available-for-sale. As of December 31, 1998, the Partnership had no
comprehensive income to report, therefore the adoption of SFAS No. 130 had no
impact on equity.

Statement of Position 98-5 - In April 1998, the AICPA released Statement of
Position 98-5, "Reporting on Start-Up Activities" (SOP 98-5). The new standard
requires that all entities expense costs of start-up activities as those costs
are incurred. SOP 98-5 defines "start-up costs" as those costs directly related
to pre-operating, pre-opening, and organization activities. This standard must
be adopted in fiscal years beginning after December 15, 1998.

The Partnership previously capitalized pre-opening costs and amortized such
costs over a five-year period. As of December 31, 1998, all pre-opening costs
have been amortized. As a result, the adoption of SOP 98-5 will not have an
effect on the Partnership's financial position or results of operations.

Statement of Financial Accounting Standards No. 133 - In June 1998, the
Financial Accounting Standards Board issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." The statement establishes
accounting and reporting standards requiring that every derivative instrument
(including certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability measured at its
fair value. The statement requires that changes in the derivative's fair value
be recognized currently in earnings unless specific hedge accounting criteria
are met. Special accounting for qualifying hedges allows a derivative's gains
and losses to offset related results on the hedged item in the statement of
operations, and requires that a company must formally document, designate, and
assess the effectiveness of transactions that receive hedge accounting.



<PAGE>   36
                                      -4-


SFAS No. 133 is effective for fiscal years beginning after June 15, 1999. A
company may also implement the statement as of the beginning of any fiscal
quarter after issuance (that is, fiscal quarters beginning June 16, 1998 and
thereafter). SFAS No. 133 cannot be applied retroactively. SFAS No. 133 must be
applied to (a) derivative instruments and (b) certain derivative instruments
embedded in hybrid contracts that were issued, acquired, or substantively
modified after December 31, 1997 (and, at the company's election, before January
1, 1998).

The Partnership has not yet quantified the impacts of adopting SFAS No. 133 on
the financial statements and has not determined the timing of or method of
adoption of SFAS No. 133. However, the statement could increase volatility in
earnings and other comprehensive income.

Estimates Used in Financial Statement Presentation

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities and the 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.

Reclassifications

Certain reclassifications have been made to conform prior years' financial
statements with the current year presentation.

3.  TRANSACTIONS WITH GENERAL PARTNER AND AFFILIATES:

Management Fees

The General Partner receives a fee for managing the Partnership equal to 5% of
the gross revenues of the Partnership, excluding revenues from the sale of cable
television systems or franchises. The amount of management fees charged by the
General Partner was $835,838, $670,026 and $561,780 for 1998, 1997 and 1996,
respectively.

Income Allocation

All items of income, loss, deduction and credit are allocated 99% to the limited
partners and 1% to the general partners until the limited partners have received
aggregate cash distributions in an amount equal to aggregate capital
contributions as defined in the limited partnership agreement. Thereafter, the
general partners receive 25% and the limited partners are allocated 75% of
partnership income and losses. Cash distributions from operations will be
allocated in accordance with the net income and net loss percentages then in
effect. Prior to the General Partner's receiving cash distributions from
operations for any year, the limited partners must receive cash distributions in
an amount equal to the lesser of i) 50% of the limited partners' allocable share
of net income for such year or ii) the federal income tax payable on the limited
partners' allocable share of net income using the then highest marginal federal
income tax rate applicable to such net income. Any distributions other than from
cash flow, such as from the sale or refinancing of a system or upon dissolution
of the Partnership, will be determined according to contractual stipulations in
the Partnership Agreement.


<PAGE>   37
                                      -5-


The limited partners' total initial contributions to capital were $24,893,000
($500 per partnership unit). As of December 31, 1998, $3,108,554 ($52.50 per
partnership unit) had been distributed to the limited partners and the
Partnership has repurchased $65,000 of limited partnership units ($500 per
unit).

Reimbursements

The General Partner provides or causes to be provided certain centralized
services to the Partnership and other affiliated entities. The General Partner
is entitled to reimbursement from the Partnership for various expenses incurred
by it or its affiliates on behalf of the Partnership allocable to its management
of the Partnership, including travel expenses, pole and site rental, lease
payments, legal expenses, billing expenses, insurance, governmental fees and
licenses, headquarters supplies and expenses, pay television expenses, equipment
and vehicle charges, operating salaries and expenses, administrative salaries
and expenses, postage and office maintenance.

The amounts billed to the Partnership are based on costs incurred by affiliates
in rendering the services. The costs of certain services are charged directly to
the Partnership, based upon the personnel time spent by the employees rendering
the service. The cost of other services is allocated to the Partnership and
affiliates based upon relative size and revenue. Management believes that the
methods used to allocate services to the Partnership are reasonable. Amounts
charged for these services were $853,979, $722,821 and $591,262 for 1998, 1997
and 1996, respectively.

In 1998, 1997 and 1996, the Partnership was charged software installation
charges and maintenance fees for billing system support provided by an
affiliate, amounting to $79,141, $62,514 and $96,267, respectively.

The Partnership has entered into operating management agreements with affiliates
managed by the General Partner. Under the terms of these agreements, the
Partnership or an affiliate serves as the executive managing agent for certain
cable television systems and is reimbursed for certain operating, programming
and administrative expenses. The Partnership received $173,699, $87,446 and
$101,549, net, under the terms of these agreements during 1998, 1997 and 1996,
respectively.

The Partnership pays monthly program license fees to Northland Cable News, Inc.
(NCN), an affiliate of the General Partner, for the rights to distribute
programming developed and produced by NCN. Total license fees charged by NCN
during 1998, 1997 and 1996 were $198,077, $199,541 and $115,432, respectively.

Cable Ad Concepts, Inc. (CAC), an affiliate of the General Partner, was formed
in 1993 and began operations in 1994. CAC was organized to assist in the
development of local advertising markets and management and training of local
sales staff. CAC billed the Partnership $66,734, $80,806 and $57,597 in 1998,
1997 and 1996, respectively, for these services.




<PAGE>   38
                                      -6-


Due from/to General Partner and Affiliates

The receivable from the General Partner and affiliates consists of the
following:

<TABLE>
<CAPTION>
                                                December 31,
                                            --------------------
                                             1998         1997
                                            -------      -------
<S>                                         <C>          <C>    
          Management fees                   $    --      $ 5,250
          Reimbursable operating costs       51,246       37,507
          Other                               1,897        3,623
                                            -------      -------
                                            $53,143      $46,380
                                            =======      =======
</TABLE>

The payable to the General Partner and affiliates consists of the following:

<TABLE>
<CAPTION>
                                                 December 31,
                                            ----------------------
                                              1998          1997
                                            --------      --------
<S>                                         <C>           <C>     
          Management fees                   $ 67,801      $     --
          Reimbursable operating costs       131,087       100,197
          Other                               91,303         4,736
                                            --------      --------
                                            $290,191      $104,933
                                            ========      ========
</TABLE>

4.  PROPERTY AND EQUIPMENT:

<TABLE>
<CAPTION>
                                                December 31,
                                        ----------------------------
                                           1998             1997
                                        -----------      -----------
<S>                                     <C>              <C>        
          Land and buildings            $   897,473      $   685,788
          Distribution plant             26,373,567       24,810,149
          Other equipment                 1,806,433        1,683,833
          Leasehold improvements             21,899           19,744
          Construction in progress          464,354               --
                                        -----------      -----------
                                        $29,563,726      $27,199,514
                                        ===========      ===========
</TABLE>



<PAGE>   39
                                      -7-


5.  ACCOUNTS PAYABLE AND ACCRUED EXPENSES:

<TABLE>
<CAPTION>
                                              December 31,
                                       --------------------------
                                          1998            1997
                                       ----------      ----------
<S>                                    <C>             <C>       
          Programmer license fees      $  486,707      $  517,208
          Accounts payable                505,047         159,205
          Franchise fees                  281,332         271,829
          Payroll                          89,229          78,694
          Taxes                            80,187          83,217
          Interest                         92,928         113,944
          Copyright fees                   40,987          78,752
          Pole rental                      78,113          58,712
          Other                            36,675          57,665
                                       ----------      ----------
                                       $1,691,205      $1,419,226
                                       ==========      ==========
</TABLE>

6.  NOTES PAYABLE:

<TABLE>
<CAPTION>
                                                                    December 31,
                                                             --------------------------
                                                                1998           1997
                                                             -----------    -----------
<S>                                                          <C>            <C>        
Revolving credit and term loan, collateralized by a
  first lien position on all present and future assets
  of the Partnership. Interest rates vary based on
  certain financial covenants; currently 8.46% (weighted
  average). Graduated principal payments plus interest
  are due quarterly until maturity on June 30, 2006. The
  revolving credit facility allows for borrowings not to
  exceed $8,000,000 until it converts to a term loan on
  December 1, 2000. At December 31, 1998, the
  Partnership had $3,650,000 available on its revolving
  credit facility.                                           $40,850,000    $41,350,000

Term loan, secured by parcel of land purchased with
  proceeds. Interest accrues at 9.25%. Principal and
  interest payments are due quarterly until maturity on
  January 14, 2003.                                              189,068        193,600

Term loan, secured by parcel of land purchased with
  proceeds. Interest accrues at 8.00%. Principal and
  interest payments are due monthly until maturity on
  April 1, 2006.                                                 178,377             --
                                                             -----------    -----------
                                                             $41,217,445    $41,543,600
                                                             ===========    ===========
</TABLE>



<PAGE>   40
                                      -8-


Annual maturities of the notes payable after December 31, 1998, are as follows:

<TABLE>
<S>                                                      <C>        
            1999                                         $ 1,275,334
            2000                                           2,027,532
            2001                                           3,279,921
            2002                                           4,632,518
            2003                                           6,183,742
            Thereafter                                    23,818,398
                                                         -----------
                                                         $41,217,445
                                                         ===========
</TABLE>

Under the term loan agreement, the Partnership has agreed to restrictive
covenants which require the maintenance of certain ratios, including an
Annualized Cash Flow to Pro Forma Debt Service Ratio of 1.20 to 1 and a Total
Debt to Annualized Cash Flow Ratio of 5.50 to 1, among other restrictions. The
General Partner submits quarterly debt compliance reports to the Partnership's
creditor under this agreement. As of December 31, 1998, the Partnership was in
compliance with the terms of the loan agreement.

The Partnership has entered into interest rate swap agreements to reduce the
impact of changes in interest rates. Interest rate swap transactions generally
involve the exchange of fixed and floating interest payment obligations without
the exchange of underlying principal amounts. At December 31, 1998, the
Partnership had outstanding four interest rate swap agreements with its bank,
having a notional principal amount of $39,600,000. These agreements effectively
change the Partnership's interest rate exposure to a fixed rate of 6.11%
(weighted average), plus an applicable margin based on certain financial
covenants (the margin at December 31, 1998 was 2.375%).

<TABLE>
<CAPTION>
       Maturity Date              Fixed Rate      Notional Amount
       -------------              ----------      ---------------
<S>                                 <C>             <C>        
     December 29, 2000              6.26%           $20,500,000
     June 15, 2000                  5.94%           $ 9,000,000
     March 12, 2001                 5.96%           $ 6,000,000
     March 12, 2001                 5.96%           $ 4,100,000
</TABLE>

At December 31, 1998, the Partnership would have been required to pay
approximately $762,184 to settle these agreements based on fair value estimate
received from the financial institution.

7.  INCOME TAXES:

Income taxes have not been recorded in the accompanying financial statements
because they are obligations of the partners. The federal and state income tax
returns of the Partnership are prepared and filed by the General Partner.

The tax returns, the qualification of the Partnership as such for tax purposes,
and the amount of distributable partnership income or loss are subject to
examination by federal and state taxing authorities. If such examinations result
in changes with respect to the Partnership's qualification or in changes with
respect to the income or loss, the tax liability of the partners would likely be
changed accordingly.



<PAGE>   41
                                      -9-


Taxable income to the limited partners was approximately $0, $0 and $124,180 for
the three years in the period ended December 31, 1998, and is different from
that reported in the statement of operations principally due to the difference
in depreciation expense allowed for tax purposes and that amount recognized
under generally accepted accounting principles. There were no other significant
differences between taxable income and the net loss reported in the statements
of operations.

The Partnership agreement provides that tax losses may not be allocated to the
Limited Partners if such loss allocation would create a deficit in the Limited
Partners' Capital Account. Such excess losses are reallocated to the General
Partner ("Reallocated Limited Partner Losses"). In general, in subsequent years,
100% of the Partnership's net income is allocated to the General Partner until
the General Partner has been allocated net income in amounts equal to the
Reallocated Limited Partner Losses.

In general, under current federal income tax laws, a partner's allocated share
of tax losses from a partnership is allowed as a deduction on his individual
income tax return only to the extent of the partner's adjusted basis in his
partnership interest at the end of the tax year. Any excess losses over adjusted
basis may be carried forward to future tax years and are allowed as deductions
to the extent the partner has an increase in his adjusted basis in the
Partnership through either an allocation of partnership income or additional
capital contributions to the Partnership.

In addition, the current tax law does not allow a taxpayer to use losses from a
business activity in which he does not materially participate (a "passive
activity," e.g., a limited partner in a limited partnership) to offset other
income such as salary, active business income, dividends, interest, royalties
and capital gains. However, such losses can be used to offset other income from
passive activities. Disallowed losses can be carried forward indefinitely to
offset future income from passive activities. Disallowed losses can be used in
full when the taxpayer recognizes gain or loss upon the disposition of his
entire interest in the passive activity.

8.  COMMITMENTS AND CONTINGENCIES:

Lease Arrangements

The Partnership leases certain tower sites, office facilities and pole
attachments under leases accounted for as operating leases. Rental expense
included in operations amounts to $335,704, $244,278 and $175,429 in 1998, 1997
and 1996, respectively. Minimum lease payments through the end of the lease
terms are as follows:

<TABLE>
<S>                                                     <C>     
               1999                                     $ 49,903
               2000                                       33,434
               2001                                       20,804
               2002                                        8,562
               2003                                        8,104
               Thereafter                                 19,708
                                                        --------
                                                        $140,515
                                                        ========
</TABLE>



<PAGE>   42
                                      -10-


Effects of Regulation

On February 8, 1996, the Telecommunications Act of 1996 (the 1996 Act) was
enacted. This act dramatically changed federal telecommunications laws and the
future competitiveness of the industry. Many of the changes called for by the
1996 Act will not take effect until the Federal Communications Commission (FCC)
issues new regulations which, in some cases, may not be completed for a few
years. Because of this, the full impact of the 1996 Act on the Partnership's
operations cannot be determined at this time. A summary of the provisions
affecting the cable television industry, more specifically those affecting the
Partnership's operations, follows.

Cable Programming Service Tier Regulation. FCC regulation of rates for cable
programming service tiers has been eliminated for small cable systems owned by
small companies. Small cable systems are those having 50,000 or fewer
subscribers which are owned by companies with fewer than 1% of national cable
subscribers (approximately 600,000) and more than $250 million in annual
revenue. The Partnership qualifies as a small cable company and all of the
Partnership's cable systems qualify as small cable systems. Basic tier rates
remain subject to regulations by the local franchising authority under most
circumstances until effective competition exists. The 1996 Act expands the
definition of effective competition to include the offering of video programming
services directly to subscribers in a franchised area served by a local
telephone exchange carrier, its affiliates or any multichannel video programming
distributor which uses the facilities of the local exchange carrier. The FCC has
not yet determined the penetration criteria that will trigger the presence of
effective competition under these circumstances.

Telephone Companies. The 1996 Act allows telephone companies to offer video
programming services directly to customers in their service areas immediately
upon enactment. They may provide video programming as a cable operator fully
subject to any provision of the 1996 Act, or a radio-based multichannel
programming distributor not subject to any provisions of the 1996 Act, or
through nonfranchised "open video systems" offering nondiscriminatory capacity
to unaffiliated programmers, subject to select provisions of the 1996 Act.
Although management's opinion is that the probability of competition from
telephone companies in rural areas is unlikely in the near future, there are no
assurances that such competition will not materialize.

The 1996 Act encompasses many other aspects of providing cable television
service including prices for equipment, discounting rates to multiple dwelling
units, lifting of anti-trafficking restrictions, cable-telephone cross ownership
provisions, pole attachment rate formulas, rate uniformity, program access,
scrambling and censoring of Public Educational and Governmental and leased
access channels.

Self-Insurance

The Partnership began self-insuring for aerial and underground plant in 1996.
Beginning in 1997, the Partnership began making quarterly contributions into an
insurance fund maintained by an affiliate which covers all Northland entities
and would defray a portion of any loss should the Partnership be faced with a
significant uninsured loss. To the extent the Partnership's losses exceed the
fund's balance, the Partnership would absorb any such loss. If the Partnership
were to sustain a material uninsured loss, such reserves could be insufficient
to fully fund such a loss. The capital cost of replacing such equipment and
physical plant, could have a material adverse effect on the Partnership, its
financial condition, prospects and debt service ability.


<PAGE>   43
                                      -11-


Amounts paid to the affiliate, which maintains the fund for the Partnership and
its affiliates, are expensed as incurred and are included in the statements of
operations. To the extent a loss has been incurred related to risks that are
self-insured, the Partnership records an expense and an associated liability for
the amount of the loss, net of any amounts to be drawn from the fund. For 1998
and 1997, respectively, the Partnership was charged $24,132 and $19,321 by the
fund. As of December 31, 1998, the fund had a balance of $249,617.

9.  CABLE TELEVISION ACQUISITIONS:

On March 1, 1996, the Partnership acquired substantially all of the operating
assets and franchise rights of two cable systems serving approximately 6,500
basic subscribers in or around the communities of Vidalia, Higgston, Lyons,
Santa Claus and certain unincorporated areas of Montgomery County and Toombs
County, all in the state of Georgia (the Vidalia system). The purchase price of
the first system, owned by the Southland Cablevision, Inc. (Southland) and
representing approximately 2,700 basic subscribers, was $3,710,000. Of this
total, Southland received $3,410,000 at the closing date with the balance of
$300,000, net of certain purchase price adjustments, paid during September 1996.
The purchase price of the second system, owned by TCI Cablevision of Georgia,
Inc. and representing approximately 3,800 basic subscribers was $6,537,179. Of
this total, $6,210,804 was paid on the closing date with the balance of
$326,375, net of certain purchase price adjustments, paid during May 1996.

On September 13, 1996, the Partnership acquired substantially all of the
operating assets and franchise rights of the cable television systems serving
approximately 3,300 basic subscribers in or around the communities of
Sandersville, Tennille and nearby unincorporated areas of Washington County, all
in the state of Georgia (the Sandersville system), for a total purchase price of
$5,608,367. The system was owned by TCI Cablevision of Georgia, Inc. Of the
total purchase price, $5,328,497 was paid on the closing date. The balance of
$279,870 was deposited into an escrow account, and was paid in January of 1997
once an agreement was reached regarding certain purchase price adjustments.

On December 5, 1997, the Partnership acquired substantially all operating assets
and franchise rights of the cable television systems serving approximately 7,420
basic subscribers in or around the communities of Toccoa, Royston and certain
unincorporated areas of Stephens, Franklin and Hart counties, all in the state
of Georgia from Robin Media Group, Inc. The systems were acquired at a purchase
price of $11,360,000 adjusted at closing for the proration of certain revenues
and expenses. Of the total $11,360,000 purchase price the Seller received
$11,305,000 on December 5, 1997. The remaining balance of $55,000 held in escrow
was paid in March of 1998 once an agreement was reached regarding certain
purchase price adjustments.



<PAGE>   44
                                      -12-


Pro forma operating results of the Partnership for December 31, 1997, assuming
the acquisition of the Toccoa and Royston systems had been made at the beginning
of 1997, follow:

<TABLE>
                                                 1997
                                             -----------
                                             (unaudited)
<S>                                          <C>        
          Revenue                            $16,063,153
                                             ===========
          Net loss                           $(3,456,028)
                                             ===========
          Net loss per limited
            partnership unit                 $       (70)
                                             ===========
</TABLE>