UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549
                                    FORM 10-K


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

                   For the fiscal year ended December 31, 1997

                                       OR

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

                        For the transition period from to


                         Commission file number 0-26218

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

                     Florida                             59-3198891
         (State or other jurisdiction of    (I.R.S. Employer Identification No.)
         incorporation or organization)

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

       Registrant's telephone number, including area code: (407) 422-1574

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

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

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

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

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

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

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

                      DOCUMENTS INCORPORATED BY REFERENCE:
                                      None


<PAGE>



                                     PART I


Item 1.  Business

         CNL Income Fund XVI, Ltd. (the "Registrant" or the  "Partnership") is a
limited  partnership  which was  organized  pursuant to the laws of the State of
Florida on September 2, 1993. The general partners of the Partnership are Robert
A.  Bourne,  James  M.  Seneff,  Jr.  and  CNL  Realty  Corporation,  a  Florida
corporation  (the  "General  Partners").  Beginning on  September  2, 1994,  the
Partnership offered for sale up to $45,000,000 of limited partnership  interests
(the  "Units")  (4,500,000  Units at $10 per Unit)  pursuant  to a  registration
statement on Form S-11 under the Securities  Act of 1933, as amended,  effective
February 23, 1994.  The offering  terminated on June 12, 1995, at which date the
maximum  offering  proceeds of $45,000,000  had been received from investors who
were admitted to the Partnership as limited partners (the "Limited Partners").

         The  Partnership  was organized to acquire both newly  constructed  and
existing  restaurant  properties,  as well as properties upon which  restaurants
were to be  constructed  (the  "Properties"),  which  are  leased  primarily  to
operators of national and regional fast-food and family-style  restaurant chains
(the "Restaurant Chains").  Net proceeds to the Partnership from its offering of
Units,  after  deduction  of  organizational  and  offering  expenses,  totalled
$39,600,000 and were used to acquire 43 Properties,  including seven  Properties
consisting  of  land  only.  During  the  year  ended  December  31,  1996,  the
Partnership  sold a  Property  in  Appleton,  Wisconsin,  and used the net sales
proceeds to acquire a Boston  Market  Property  located in  Fayetteville,  North
Carolina,  with an affiliate of the General  Partners as  tenants-in-common.  In
addition,  during the year ended  December  31,  1997,  the  Partnership  sold a
Property  in  Oviedo,  Florida.  As a result  of the above  transactions,  as of
December 31, 1997, the Partnership owned 42 Properties, including six Properties
consisting   of  land  only  and  one  Property   owned  with  an  affiliate  as
tenants-in-common. The lessee of the six Properties consisting of only land owns
the buildings  currently on the land and has the right,  if not in default under
the lease,  to remove the buildings from the land at the end of the lease terms.
In January 1998, the Partnership reinvested the net sales proceeds from the sale
of the  Property  in Oviedo,  Florida in a Property in  Memphis,  Tennessee,  as
tenants-in-common,  with  affiliates of the General  Partners.  The  Partnership
leases the Properties on a triple-net basis with the lessees responsible for all
repairs and maintenance, property taxes, insurance and utilities.

         The  Partnership  will hold its Properties  until the General  Partners
determine that the sale or other  disposition of the Properties is  advantageous
in view of the Partnership's investment objectives.  In deciding whether to sell
Properties, the General Partners will consider factors such as potential capital
appreciation,  net cash flow and  federal  income  tax  considerations.  Certain
lessees also have been granted options to purchase Properties,  generally at the
Property's  then fair market  value after a specified  portion of the lease term
has elapsed.  In general,  the General Partners plan to seek the sale of some of
the  Properties  commencing  seven  to 12 years  after  their  acquisition.  The
Partnership  has no  obligation  to sell all or any portion of a Property at any
particular  time,  except as may be required  under  property  purchase  options
granted to certain lessees.

Leases

         Although there are variations in the specific terms of the leases,  the
following  is  a  summarized   description  of  the  general  structure  of  the
Partnership's  leases.  The leases of the  Properties  provide for initial terms
ranging from 15 to 20 years (the average being 19 years) and expire between 2009
and 2016. All leases are on a triple-net basis, with the lessees responsible for
all repairs and maintenance, property taxes, insurance and utilities. The leases
of the Properties  provide for minimum base annual rental  payments  (payable in
monthly installments) ranging from approximately $21,600 to $220,600. All of the
leases  provide  for  percentage  rent,  based on sales in excess of a specified
amount.  In addition,  the majority of the leases  provide  that,  commencing in
specified  lease years  (generally  the sixth lease year),  the annual base rent
required under the terms of the lease will increase.

         Generally,  the  leases  of the  Properties  provide  for  two to  five
five-year  renewal  options  subject  to the same  terms and  conditions  as the
initial  lease.  Certain  lessees  also have been  granted  options to  purchase
Properties at the Property's then fair market value after a specified portion of
the lease term has elapsed. Under the terms of

                                        1

<PAGE>



certain leases,  the option purchase price may equal the Partnership's  original
cost to purchase the Property  (including  acquisition  costs), plus a specified
percentage  from  the  date  of  the  lease  or a  specified  percentage  of the
Partnership's purchase price, if that amount is greater than the Property's fair
market value at the time the purchase option is exercised.

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

         In January 1998, the Partnership reinvested the net sales proceeds from
the sale of the  Property  in Oviedo,  Florida in an IHOP  Property  in Memphis,
Tennessee,  as  tenants-in-common  with affiliates of the General Partners.  The
lease terms for this Property are  substantially  the same as the  Partnership's
other leases as described above in the first three paragraphs of this section.

Major Tenants

         During  1997,   three  lessees  of  the   Partnership,   Golden  Corral
Corporation,  Foodmaker,  Inc., and DenAmerica  Corp. each contributed more than
ten percent of the  Partnership's  total rental income. As of December 31, 1997,
Golden  Corral   Corporation  was  the  lessee  under  leases  relating  to  six
restaurants,  Foodmaker,  Inc.  was the lessee  under  leases  relating  to five
restaurants,  and DenAmerica Corp. was the lessee under leases relating to eight
restaurants.  It is  anticipated  that  based  on the  minimum  rental  payments
required by the leases, these three lesses each will continue to contribute more
than ten percent of the Partnership's total rental income in 1998 and subsequent
years. In addition,  three Restaurant  Chains,  Golden Corral Family  Steakhouse
Restaurants ("Golden Corral"),  Jack in the Box and Denny's,  each accounted for
more than ten percent of the  Partnership's  total rental income during 1997. In
subsequent years, it is anticipated that these three Restaurant Chains each will
continue to contribute more than ten percent of the Partnership's  rental income
to which the Partnership is entitled under the terms of the leases.  Any failure
of these lessees or Restaurant  Chains could materially affect the Partnership's
income. As of December 31, 1997, Golden Corral  Corporation and DenAmerica Corp.
each leased Properties with an aggregate carrying value,  excluding  acquisition
fees and  certain  acquisition  expenses,  in excess of 20  percent of the total
assets of the Partnership.

Joint Venture Arrangement

         In October 1996,  the  Partnership  entered into an agreement to hold a
Boston  Market  Property as  tenants-in-common  with an affiliate of the General
Partners.  The agreement provides for the Partnership and the affiliate to share
in the profits and losses of the Property  and net cash flow from the  Property,
in proportion to each co- venturer's  percentage interest.  The Partnership owns
an 80.27% interest in this Property.

         In addition, in January 1998, the Partnership entered into an agreement
to hold an IHOP  Property  in Memphis,  Tennessee,  as  tenants-in-common,  with
affiliates of the General Partners.  The agreement  provides for the Partnership
and the  affiliates  to share in the profits and losses of the  Property and net
cash flow from the  Property,  in proportion  to each  co-venturer's  percentage
interest. The Partnership owns a 40.42% interest in this Property.

Certain Management Services

         CNL Income Fund Advisors,  Inc., an affiliate of the General  Partners,
provided  certain  services  relating to management of the  Partnership  and its
Properties  pursuant to a  management  agreement  with the  Partnership  through
September 30, 1995.  Under this  agreement,  CNL Income Fund Advisors,  Inc. was
responsible for collecting  rental  payments,  inspecting the Properties and the
tenants'  books and records,  assisting the  Partnership in responding to tenant
inquiries and notices and providing  information  to the  Partnership  about the
status of the leases and the  Properties.  CNL Income Fund  Advisors,  Inc. also
assisted the General Partners in negotiating the leases. For these services, the
Partnership  had agreed to pay CNL Income Fund  Advisors,  Inc. an annual fee of
one percent of the sum of gross rental revenues from Properties  wholly owned by
the  Partnership  plus the  Partnership's  allocable  share of gross revenues of
joint ventures in which the  Partnership is a co-venturer,  but not in excess of
competitive fees for comparable services.


                                        2

<PAGE>



         Effective October 1, 1995, CNL Income Fund Advisors,  Inc. assigned its
rights  in,  and its  obligations  under,  the  management  agreement  with  the
Partnership  to CNL Fund  Advisors,  Inc. All of the terms and conditions of the
management agreement,  including the payment of fees, as described above, remain
unchanged.

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

Competition

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

         At the time the Partnership  elects to dispose of its Properties  other
than as a result of the exercise of tenant options to purchase  Properties,  the
Partnership  will be in  competition  with other  persons and entities to locate
purchasers for its Properties.

Employees

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


Item 2.  Properties

         As of December 31, 1997,  the  Partnership  owned,  either  directly or
indirectly  through a joint venture  arrangement,  42 Properties,  located in 17
states and the District of  Columbia.  Reference is made to the Schedule of Real
Estate and Accumulated  Depreciation filed with this report for a listing of the
Properties and their respective  costs,  including  acquisition fees and certain
acquisition expenses.

Description of Properties

         Land. The Partnership's  Property sites range from approximately 16,600
to 104,800  square  feet  depending  upon  building  size and local  demographic
factors.  Sites  purchased  by  the  Partnership  are  in  locations  zoned  for
commercial use which have been reviewed for traffic patterns and volume.

         Buildings.  Each of the Properties owned by the Partnership  includes a
building that is one of a Restaurant  Chain's  approved  designs.  However,  the
buildings located on the seven Checkers Properties are owned by the tenant while
the land  parcels are owned by the  Partnership.  The  buildings  generally  are
rectangular and are  constructed  from various  combinations  of stucco,  steel,
wood, brick and tile. The sizes of the buildings owned by the Partnership  range
from approximately  2,000 to 11,100 square feet. All buildings on Properties are
freestanding  and surrounded by paved parking areas.  Buildings are suitable for
conversion to various uses, although  modifications may be required prior to use
for other than restaurant operations.

         Generally,  a  lessee  is  required,  under  the  terms  of  its  lease
agreement,  to make such capital  expenditures as may be reasonably necessary to
refurbish  buildings,  premises,  signs and  equipment  so as to comply with the
lessee's  obligations,  if applicable,  under the franchise agreement to reflect
the current commercial image of its Restaurant Chain. These capital expenditures
are required to be paid by the lessee during the term of the lease.

         Leases  with Major  Tenants.  The terms of each of the leases  with the
Partnership's  major  tenants as of December  31,  1997 (see Item 1.  Business -
Major Tenants), are substantially the same as those described in Item 1.
Business - Leases.

                                        3

<PAGE>




         Golden Corral  Corporation  leases six Golden Corral  restaurants.  The
initial term of each lease is 15 years (expiring  between 2009 and 2011) and the
average  minimum  base  annual  rent is  approximately  $158,300  (ranging  from
approximately $113,300 to $192,900).

         Foodmaker,  Inc. leases five Jack in the Box  restaurants.  The initial
term of each lease is 18 years (expiring  between 2011 and 2012) and the average
minimum base annual rent is approximately  $96,700  (ranging from  approximately
$87,500 to $115,600).

         DenAmerica Corp. leases eight Denny's restaurants.  The initial term of
each lease is 20 years  (expiring  in 2015) and the average  minimum base annual
rent is approximately $114,700 (ranging from approximately $64,800 to $220,600).

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


Item 3.  Legal Proceedings

         Neither the  Partnership,  nor its General Partners or any affiliate of
the General Partners, nor any of their respective properties,  is a party to, or
subject to, any material pending legal proceedings.


Item 4.  Submission of Matters to a Vote of Security Holders

         Not applicable.



                                     PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters

         As of March 13, 1998,  there were 3,017 holders of record of the Units.
There is no public trading market for the Units,  and it is not anticipated that
a public  market for the Units will develop.  Limited  Partners who wish to sell
their  Units  may  offer  the  Units  for  sale  pursuant  to the  Partnership's
distribution  reinvestment  plan (the "Plan"),  and Limited Partners who wish to
have their  distributions  used to acquire additional Units (to the extent Units
are  available  for  purchase)  may do so  pursuant  to such Plan.  The  General
Partners have the right to prohibit  transfers of Units.  Since  inception,  the
price  paid for any Unit  transferred  pursuant  to the Plan has been  $9.50 per
Unit. The price to be paid for any Unit  transferred  other than pursuant to the
Plan is subject to negotiation by the purchaser and the selling Limited Partner.
The Partnership will not redeem or repurchase Units.


         The following table reflects,  for each calendar quarter, the high, low
and average  sales prices for transfers of Units during 1997 and 1996 other than
pursuant to the Plan, net of commissions.
<TABLE>
<CAPTION>

                                                            1997 (1)                     1996 (1)
                                                   ---------------------------       -----------------
                                                     High    Low    Average         High    Low    Average
<S> <C>
         First Quarter                              $ 9.50 $ 8.03    $ 9.29       $10.00   $7.50     $8.75
         Second Quarter                              10.00   8.75      9.40         9.50    8.30      8.85
         Third Quarter                                 (2)    (2)       (2)        10.00    9.50      9.63
         Fourth Quarter                               8.80   7.93      8.45        10.00    9.50      9.63
</TABLE>

(1)      A total of 32,120 and 15,283 Units were transferred other than pursuant
         to the Plan for the years ended December 31, 1997 and 1996.

                                        4

<PAGE>




(2) No transfer of Units took place  during the quarter  other than  pursuant to
the Plan.

         The  capital  contribution  per Unit was $10.  All cash  available  for
distribution  will be distributed to the partners  pursuant to the provisions of
the Partnership Agreement.

         For the  years  ended  December  31,  1997 and  1996,  the  Partnership
declared cash distributions of $3,600,000 and $3,543,751,  respectively,  to the
Limited  Partners.  The General  Partners  anticipate that the Partnership  will
declare a special distribution to the Limited Partners during the quarter ending
March 31, 1998,  representing  cumulative excess operating reserves.  No amounts
distributed  to partners  for the years ended  December  31, 1997 and 1996,  are
required to be or have been  treated by the  Partnership  as a return of capital
for  purposes of  calculating  the Limited  Partners'  return on their  adjusted
capital  contributions.  No distributions have been made to the General Partners
to date. As indicated in the chart below,  these  distributions were declared at
the close of each of the Partnership's  calendar quarters.  This amount includes
monthly  distributions  made in arrears  for the  Limited  Partners  electing to
receive such distributions on this basis.

         Quarter Ended                                1997              1996
         -------------                             ----------        ----------

         March 31                                   $ 900,000        $ 843,751
         June 30                                      900,000          900,000
         September 30                                 900,000          900,000
         December 31                                  900,000          900,000


         The  Partnership  intends to  continue  to make  distributions  of cash
available  for  distribution  to the  Limited  Partners  on a  quarterly  basis,
although some Limited  Partners,  in  accordance  with their  election,  receive
monthly distributions, for an annual fee. Item 6. Selected Financial Data
<TABLE>
<CAPTION>

                                               1997          1996          1995          1994            1993 (1)
                                           ------------  ------------- ------------- -------------   ------------
<S> <C>
Year Ended December 31:
    Revenues (2)                           $  4,455,994   $  4,438,218  $  3,023,641  $    207,735         $   -
    Net income (3)                            3,660,327      3,748,198     2,430,841       187,577             -
    Cash distributions declared               3,600,000      3,543,751     2,437,832       151,434             -
    Net income per Unit (3)(4)                     0.81           0.82          0.60          0.17             -
    Cash distributions declared
       per Unit (4)                                0.80           0.79          0.61          0.14             -

At December 31:
    Total assets                            $40,938,320    $40,955,642   $41,240,500   $19,310,413          $1,000
    Partners' capital                        39,904,926     39,844,599    39,640,152    17,474,033           1,000

</TABLE>

(1)      Selected  financial data for 1993  represents  the period  September 2,
         1993 (date of inception) through December 31, 1993.

(2)      Revenues include equity in earnings of joint venture.

(3)      Net income for the years  ended  December  31,  1997 and 1996,  include
         $41,148  and  $124,305,  respectively,  from gains on sales of land and
         building.

(4)      Based  on  the  weighted   average  number  of  Limited  Partner  Units
         outstanding  during the years ended  December 31, 1997,  1996 and 1995,
         and the period September 23, 1994 through December 31, 1994.

         The above selected  financial  data should be read in conjunction  with
the financial statements and related notes contained in Item 8 hereof.

                                        5

<PAGE>





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

         The  Partnership  was  organized on  September 2, 1993,  to acquire for
cash,  either  directly  or  through  joint  venture  arrangements,  both  newly
constructed  and  existing  restaurant  Properties,  as well as land upon  which
restaurant  Properties  were to be  constructed,  which are leased  primarily to
operators  of  selected   national  and  regional   fast-food  and  family-style
Restaurant Chains. The leases are triple-net leases,  with the lessees generally
responsible  for all repairs and  maintenance,  property  taxes,  insurance  and
utilities. As of December 31, 1997, the Partnership owned 42 Properties,  either
directly or indirectly through a joint venture arrangement.

Liquidity and Capital Resources

         On  September  2, 1994,  the  Partnership  commenced an offering to the
public  of  up  to  4,500,000  Units  of  limited  partnership   interest.   The
Partnership's  offering of Units  terminated on June 12, 1995, at which time the
maximum  proceeds  of  $45,000,000  (4,500,000  Units)  had been  received  from
investors.  The  Partnership,  therefore,  will  derive  no  additional  capital
resources from the offering.

         Net  proceeds to the  Partnership  from its  offering  of Units,  after
deduction of organizational and offering expenses,  totalled $39,600,000.  As of
December  31,  1994,  approximately  $16,300,000  had been  used to invest in 22
Properties (seven of which were undeveloped land on which restaurants were being
constructed  as of December  31, 1994) and to pay  acquisition  fees and certain
acquisition  expenses.  During the year ended December 31, 1995, the Partnership
completed construction of the seven Properties acquired in 1994, and acquired 19
additional   Properties  at  a  cost  of  approximately   $20,900,000  including
acquisition  fees and  miscellaneous  acquisition  expenses.  As a result of the
above  transactions,  as of December 31, 1995, the  Partnership  had acquired 41
Properties and had paid acquisition fees totalling $2,475,000 to an affiliate of
the General  Partners.  During the year ended December 31, 1996, the Partnership
used its remaining net offering  proceeds to acquire two  additional  Properties
(one of which was undeveloped land on which a restaurant was  constructed),  and
to establish a working capital reserve of approximately  $60,000 for Partnership
purposes.

         As a result of the Partnership's tenant selling its restaurant business
located on the Partnership's Property in Appleton, Wisconsin, in April 1996, the
Partnership  sold its Property for  $775,000,  resulting in a gain for financial
reporting  purposes of $124,305.  This Property was  originally  acquired by the
Partnership in February 1995 and had a cost of approximately $595,100, excluding
acquisition  fees  and  miscellaneous   acquisition  expenses;   therefore,  the
Partnership  sold the  Property  for  approximately  $179,900  in  excess of its
original  purchase price.  In October 1996, the  Partnership  reinvested the net
sales proceeds in a Boston Market Property in Fayetteville,  North Carolina,  as
tenants-in-common  with an  affiliate  of the General  Partners.  In  connection
therewith,  the Partnership and its affiliate  entered into an agreement whereby
each  co-venturer  will  share in the  profits  and  losses of the  Property  in
proportion  to each  co-venturer's  interest.  The  Partnership  owns an  80.27%
interest in the Property. The sale of the Property in Appleton,  Wisconsin,  was
structured to qualify as a like-kind  exchange  transaction  in accordance  with
Section 1031 of the Internal  Revenue Code. As a result,  no gain was recognized
for federal income tax purposes.  Therefore, the Partnership was not required to
distribute  any of the net  sales  proceeds  from the sale of this  Property  to
Limited Partners for the purpose of paying federal and state income taxes.

         In March 1997, the  Partnership  sold its Property in Oviedo,  Florida,
for $620,000 and received net sales proceeds of $610,384, resulting in a gain of
$41,148 for financial reporting purposes.  This Property was originally acquired
by the  Partnership in November 1994 and had a cost of  approximately  $509,700,
excluding acquisition fees and miscellaneous  acquisition  expenses;  therefore,
the Partnership  sold the Property for  approximately  $100,700 in excess of its
original  purchase price.  In January 1998, the  Partnership  reinvested the net
sales proceeds in an IHOP Property in Memphis,  Tennessee,  as tenants-in-common
with  affiliates  of  the  General  Partners.  In  connection   therewith,   the
Partnership  and  its  affiliates   entered  into  an  agreement   whereby  each
co-venturer  will share in the profits and losses of the Property in  proportion
to each  co-venturer's  interest.  The Partnership owns a 40.42% interest in the
Property.

         Currently,  the  Partnership's  primary  source of capital is cash from
operations  (which includes cash received from tenants,  distributions  from the
joint venture and interest received, less cash paid for expenses). Cash from

                                        6

<PAGE>



operations  was  $3,780,424,  $3,753,726  and  $2,481,395  for the  years  ended
December  31,  1997,  1996 and 1995,  respectively.  The  increase  in cash from
operations  during  1997 and 1996,  each as compared to the  previous  year,  is
primarily a result of changes in income and expenses as described in "Results of
Operations" below and changes in the Partnership's working capital.

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

         Currently,  cash  reserves  and rental  income  from the  Partnership's
Properties  are invested in money market  accounts or other  short-term,  highly
liquid  investments   pending  the  Partnership's  use  of  such  funds  to  pay
Partnership expenses or to make distributions to partners. At December 31, 1997,
the  Partnership  had  $1,673,869  invested in such  short-term  investments  as
compared to $1,546,203 at December 31, 1996. The funds remaining at December 31,
1997, after payment of distributions and other liabilities, will be used to meet
the Partnership's working capital and other needs.

         During 1995,  affiliates of the General Partners  incurred on behalf of
the Partnership  $258,466 for certain  organizational and offering expenses.  In
addition,  during  1996 and  1995,  the  affiliates  incurred  on  behalf of the
Partnership $9,356 and $97,589,  respectively,  for certain acquisition expenses
during the years ended December 31, 1997, 1996 and 1995, the affiliates incurred
and  $84,319,  $105,144  and  $131,272,   respectively,  for  certain  operating
expenses.  As of December  31, 1997 and 1996,  the  Partnership  owed $3,351 and
$2,292,  respectively,  to related  parties  for such  amounts,  accounting  and
administrative  services and  management  fees.  As of February  28,  1998,  the
Partnership had reimbursed the affiliates all such amounts.  Other  liabilities,
including  distributions payable,  decreased to $1,030,043 at December 31, 1997,
from  $1,108,751  at December  31,  1996,  primarily  as a result of the payment
during the year ended  December  31, 1997,  of  construction  costs  accrued for
certain Properties at December 31, 1996. Other liabilities also decreased due to
a decrease in rents paid in advance at December 31, 1997.

         Based on cash from operations,  the Partnership declared  distributions
to the Limited  Partners of $3,600,000,  $3,543,751 and $2,437,832 for the years
ended  December  31,  1997,  1996  and  1995,   respectively.   This  represents
distributions  of $0.80,  $0.79 and $0.61 per Unit for the years ended  December
31, 1997, 1996 and 1995, respectively.  The General Partners anticipate that the
Partnership  will declare a special  distribution to the Limited Partners during
the quarter  ending March 31, 1998,  representing  cumulative  excess  operating
reserves.  No amounts  distributed  to the Limited  Partners for the years ended
December 31, 1997, 1996 and 1995, are required to be or have been treated by the
Partnership  as a return of capital  for  purposes  of  calculating  the Limited
Partners'  return  on their  adjusted  capital  contributions.  The  Partnership
intends to continue to make  distributions of cash available for distribution to
Limited Partners on a quarterly basis.

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

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

         Due to low  operating  expenses  and  ongoing  cash flow,  the  General
Partners believe that the Partnership has sufficient working capital reserves at
this time. In addition,  because all leases of the Partnership's  Properties are
on

                                        7

<PAGE>



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

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

Results of Operations

         The  Partnership  owned and leased 41 wholly  owned  Properties  during
1995, 43 wholly owned Properties (including one Property in Appleton, Wisconsin,
which  was sold in April  1996)  during  1996,  and 42 wholly  owned  Properties
(including one Property in Oviedo, Florida, which was sold in March 1997) during
1997. In addition,  during 1997 and 1996, the  Partnership  owned and leased one
Property with an affiliate,  as tenants-in-common.  As of December 31, 1997, the
Partnership owned,  either directly or through a joint venture  arrangement,  42
Properties  which are subject to long-term,  triple-net  leases that provide for
minimum base annual rental  amounts  (payable in monthly  installments)  ranging
from approximately $21,600 to $220,600. All of the leases provide for percentage
rent based on sales in excess of a specified amount.  In addition,  the majority
of the leases provide that,  commencing in specified lease years  (generally the
sixth lease year),  the annual base rent  required  under the terms of the lease
will  increase.  For a  further  description  of the  Partnership's  leases  and
Properties, see Item 1. Business - Leases and Item 2. Properties, respectively.

         During  the  years  ended  December  31,  1997,   1996  and  1995,  the
Partnership  earned  $4,266,069,  $4,297,558 and  $2,698,956,  respectively,  in
rental  income from  operating  leases and earned  income from direct  financing
leases from Properties  wholly owned by the Partnership.  The decrease in rental
and earned income during 1997, as compared to 1996, is primarily attributable to
the sale of the  Property  in Oviedo,  Florida in March 1997 and the sale of the
Property  in  Appleton  Wisconsin  in April 1996.  The  decrease  during 1997 as
compared  to 1996 is  partially  offset  by the  acquisition  of two  additional
Properties in 1996 that were operational for a full year in 1997, as compared to
a partial year in 1996. The increase in rental and earned income during 1996, as
compared to 1995, is primarily  attributable  to the  acquisition  of additional
Properties in 1995,  and the fact that,  with the exception of one Property sold
in April 1996, the Properties owned at December 31, 1995, were operational for a
full year in 1996, as compared to a partial year in 1995.

         During the years  ended  December  31, 1997 and 1996,  the  Partnership
earned $35,604 and $37,600 in contingent  rental income as a result of the gross
sales of three restaurant Properties meeting the threshold during 1997 and 1996,
under the terms of their leases requiring payment of contingent rental income.

         In  addition,  for the years  ended  December  31,  1997 and 1996,  the
Partnership  earned $73,507 and $19,668  attributable  to net income earned by a
joint venture as a result of the Partnership  reinvesting the net sales proceeds
it received from the sale of the Property in Appleton,  Wisconsin, in a Property
in  Fayetteville,  North  Carolina,  in  October  1996,  with an  affiliate,  as
tenants-in-common.  The  increase  in net income  earned by this  joint  venture
during 1997, as compared to 1996, is primarily attributable to the fact that the
Property was  operational for a full year in 1997, as compared to a partial year
in 1996.

         During at least one of the years  ended  December  31,  1997,  1996 and
1995, four lessees of the  Partnership,  Golden Corral  Corporation,  Foodmaker,
Inc., Checkers Drive-In Restaurants,  Inc. and DenAmerica Corp. each contributed
more than ten percent of the  Partnership's  total rental income  (including the
Partnership's  share of rental income from the Property  owned with an affiliate
as  tenants-in-common).  As of December 31, 1997, Golden Corral  Corporation was
the lessee under leases  relating to six  restaurants,  Foodmaker,  Inc. was the
lessee under leases relating to five restaurants, Checkers Drive-In Restaurants,
Inc. was the lessee under leases relating to seven  restaurants,  and DenAmerica
Corp.  was  the  lessee  under  leases  relating  to  eight  restaurants.  It is
anticipated  that, based on the minimum rental payments  required by the leases,
Golden  Corral  Corporation,  Foodmaker,  Inc. and  DenAmerica  Corp.  each will
continue to contribute more than ten percent of the  Partnership's  total rental
income in 1998 and  subsequent  years.  In addition,  during at least one of the
years ended December 31, 1997,  1996 and 1995, five  Restaurant  Chains,  Golden
Corral, Jack in the Box, Checkers Drive-In Restaurants, Long John Silver's

                                        8

<PAGE>



and Denny's each accounted for more than ten percent of the Partnership's  total
rental  income  (including  the  Partnership's  share of rental  income from the
Property owned with an affiliate as tenants-in-common).  In subsequent years, it
is  anticipated  that  Golden  Corral,  Jack in the Box and  Denny's  each  will
continue  to account  for more than ten  percent of the total  rental  income to
which the Partnership is entitled under the terms of the leases.  Any failure of
these lessees or Restaurant  Chains could  materially  affect the  Partnership's
income.

         During  the  years  ended  December  31,  1997,   1996  and  1995,  the
Partnership also earned $73,634, $75,160 and $321,137, respectively, in interest
income from  investments in money market  accounts or other  short-term,  highly
liquid investments.  The decrease in interest income during 1996, as compared to
1995, is primarily  attributable to the decrease in the amount of funds invested
in short-term  liquid  investments as a result of the  acquisition of additional
Properties during 1995 and the payment during 1996 of construction costs accrued
for certain Properties at December 31, 1995.

         Operating expenses,  including  depreciation and amortization  expense,
were $836,815, $814,325 and $592,800 for the years ended December 31, 1997, 1996
and 1995, respectively. The increase in operating expenses during 1997 and 1996,
each as compared to the previous year, is partially  attributable to an increase
in  depreciation  expense  as  the  result  of  the  acquisition  of  additional
Properties  during  1996 and  1995,  and the fact that the  Properties  acquired
during  1996  and  1995  were  operational  for a full  year in 1997  and  1996,
respectively,  as  compared  to a partial  year in 1996 and 1995,  respectively.
Operating  expenses also increased during 1997 and 1996, each as compared to the
previous  year,  as a  result  of the  Partnership  incurring  additional  taxes
relating to the filing of various state tax returns during 1997 and 1996.

         As a  result  of the  sale  of the  Property  in  Oviedo,  Florida,  as
described above in "Liquidity and Capital Resources," the Partnership recognized
a gain of $41,148 for financial reporting purposes,  for the year ended December
31, 1997.  As a result of the sale of the Property in  Appleton,  Wisconsin,  as
described in "Liquidity and Capital  Resources,"  the  Partnership  recognized a
gain for financial  reporting  purposes of $124,305 for the year ended  December
31, 1996. No Properties were sold during 1995.

         The General Partners of the Partnership are in the process of assessing
and addressing the impact of the year 2000 on their computer  package  software.
The  hardware and  built-in  software  are  believed to be year 2000  compliant.
Accordingly, the General Partners do not expect this matter to materially impact
how the  Partnership  conducts  business  nor its  current or future  results of
operations or financial position.

         The Partnership's leases as of December 31, 1997, are triple-net leases
and contain  provisions that the General  Partners  believe mitigate the adverse
effect of inflation.  Such provisions  include clauses  requiring the payment of
percentage rent based on certain restaurant sales above a specified level and/or
automatic  increases  in base rent at  specified  times  during  the term of the
lease.  Management  expects that  increases in  restaurant  sales volumes due to
inflation  and real sales growth  should  result in an increase in rental income
over  time.  Continued  inflation  also may cause  capital  appreciation  of the
Partnership's Properties.  Inflation and changing prices, however, also may have
an  adverse  impact on the sales of the  restaurants  and on  potential  capital
appreciation of the Properties.


Item 8.   Financial Statements and Supplementary Data

                                        9

<PAGE>



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

                                    CONTENTS






                                                        Page

Report of Independent Accountants                         12

Financial Statements:

  Balance Sheets                                          13

  Statements of Income                                    14

  Statements of Partners' Capital                         15

  Statements of Cash Flows                                16

  Notes to Financial Statements                           19

                                       10

<PAGE>







                        Report of Independent Accountants




To the Partners
CNL Income Fund XVI, Ltd.


We have audited the financial statements and the financial statement schedule of
CNL Income Fund XVI, Ltd. (a Florida limited  partnership)  listed in Item 14(a)
of this Form 10-K. These financial  statements and financial  statement schedule
are the responsibility of the Partnership's management. Our responsibility is to
express  an  opinion  on these  financial  statements  and  financial  statement
schedule based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the 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 CNL Income Fund XVI, Ltd. as of
December 31, 1997 and 1996, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles.  In addition, in our opinion, the
financial  statement  schedule referred to above, when considered in relation to
the  basic  financial  statements  taken as a  whole,  presents  fairly,  in all
material respects, the information required to be included therein.



/s/ Coopers & Lybrand, L.L.P.
--------------------------------


Orlando, Florida
January 26, 1998

                                       11

<PAGE>



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

                                 BALANCE SHEETS


                                                           December 31,
           ASSETS                                   1997             1996
           ------                                -----------      -------

Land and buildings on operating
  leases, less accumulated
  depreciation                                   $30,658,994      $31,766,349
Net investment in direct financing
  leases                                           5,968,812        6,006,496
Investment in joint venture                          771,684          774,389
Cash and cash equivalents                          1,673,869        1,546,203
Restricted cash                                      627,899               -
Receivables, less allowance for
  doubtful accounts of $879
  and $9,875                                          31,946           76,094
Prepaid expenses                                       9,293            9,174
Organization costs, less
  accumulated amortization of
  $6,550 and $4,550                                    3,450            5,450
Accrued rental income                              1,192,373          771,487
                                                 -----------      -----------

                                                 $40,938,320      $40,955,642
                                                 ===========      ===========


LIABILITIES AND PARTNERS' CAPITAL

Acquisition and construction costs
  payable                                        $    53,278      $   106,036
Accounts payable                                       2,707            2,262
Escrowed real estate taxes payable                     4,353            3,343
Distributions payable                                900,000          900,000
Due to related parties                                 3,351            2,292
Rents paid in advance and deposits                    69,705           97,110
                                                 -----------      -----------
    Total liabilities                              1,033,394        1,111,043

Partners' capital                                 39,904,926       39,844,599
                                                 -----------      -----------

                                                 $40,938,320      $40,955,642
                                                 ===========      ===========












                 See accompanying notes to financial statements.

                                       12

<PAGE>



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

                              STATEMENTS OF INCOME
<TABLE>
<CAPTION>

                                                                                Year Ended December 31,
                                                                   1997                1996               1995
                                                                ----------          ----------         -------
<S> <C>
Revenues:
  Rental income from
    operating leases                                            $3,562,920          $3,571,244         $2,209,434
  Earned income from direct
    financing leases                                               703,149             726,314            489,522
  Contingent rental income                                          35,604              37,600                 -
  Interest                                                          73,634              75,160            321,137
  Other income                                                       7,180               8,232              3,548
                                                                ----------          ----------         ----------
                                                                 4,382,487           4,418,550          3,023,641
                                                                ----------          ----------         ----------
Expenses:
  General operating and
    administrative                                                 186,934             183,734            187,800
  Professional services                                             25,352              26,569             59,526
  Management fees to related
    parties                                                         40,087              39,206             24,128
  State and other taxes                                             20,559              12,369              3,141
  Depreciation and
    amortization                                                   563,883             552,447            318,205
                                                                ----------          ----------         ----------
                                                                   836,815             814,325            592,800
                                                                ----------          ----------         ----------

Income Before Equity in
  Earnings of Joint Venture
  and Gain on Sale of Land
  and Buildings                                                  3,545,672           3,604,225          2,430,841

Equity in Earnings of Joint
  Venture                                                           73,507              19,668                 -

Gain on Sale of Land and
  Buildings                                                         41,148             124,305                 -
                                                                ----------          ----------         ---------

Net Income                                                      $3,660,327          $3,748,198         $2,430,841
                                                                ==========          ==========         ==========

Allocation of Net Income:
  General partners                                              $   36,192          $   36,239         $   24,308
  Limited partners                                               3,624,135           3,711,959          2,406,533
                                                                ----------          ----------         ----------

                                                                $3,660,327          $3,748,198         $2,430,841
                                                                ==========          ==========         ==========

Net Income Per Limited Partner
  Unit                                                          $     0.81          $     0.82         $     0.60
                                                                ==========          ==========         ==========

Weighted Average Number of
  Limited Partner Units
  Outstanding                                                    4,500,000           4,500,000          4,010,281
                                                                ==========          ==========         ==========
</TABLE>


                 See accompanying notes to financial statements.

                                       13

<PAGE>



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

                         STATEMENTS OF PARTNERS' CAPITAL

                  Years Ended December 31, 1997, 1996 and 1995

<TABLE>
<CAPTION>


                                           General Partners                      Limited Partners
                                                    Accumu-                                 Accumu-
                                        Contri-     lated       Contri-       Distri-       lated       Syndication
                                        butions    Earnings     butions       butions      Earnings        Costs          Total
                                        -------    --------   -----------   -----------   ----------    -----------    --------
<S> <C>
Balance, December 31, 1994              $ 1,000   $ 1,876     $20,174,172   $  (151,434)  $  185,701    $(2,737,282)   $17,474,033

  Contributions from
    limited partners                         -         -       24,825,828            -            -              -      24,825,828
  Distributions to limited
    partners ($0.61 per limited
    partner unit)                            -         -               -     (2,437,832)          -              -      (2,437,832)
  Syndication costs                          -         -               -             -            -      (2,652,718)    (2,652,718)
  Net income                                 -     24,308              -             -     2,406,533             -       2,430,841
                                        -------   -------     -----------   -----------   ----------    -----------    -----------

Balance, December 31, 1995                1,000    26,184      45,000,000    (2,589,266)   2,592,234     (5,390,000)    39,640,152

  Distributions to limited
    partners ($0.79 per limited
    partner unit)                            -         -               -     (3,543,751)          -              -      (3,543,751)
  Net income                                 -     36,239              -             -     3,711,959             -       3,748,198
                                        -------   -------     -----------   -----------   ----------    -----------    -----------

Balance, December 31, 1996                1,000    62,423      45,000,000    (6,133,017)   6,304,193     (5,390,000)    39,844,599

  Distributions to limited
    partners ($0.80 per limited
    partner unit)                            -         -               -     (3,600,000)          -              -      (3,600,000)
  Net income                                 -     36,192              -             -     3,624,135             -       3,660,327
                                        -------   -------     -----------   -----------   ----------    -----------    -----------

Balance, December 31, 1997              $ 1,000   $98,615     $45,000,000   $(9,733,017)  $9,928,328    $(5,390,000)   $39,904,926
                                        =======   =======     ===========   ===========   ==========    ===========    ===========

</TABLE>

                 See accompanying notes to financial statements.

                                       14

<PAGE>



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

                            STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>

                                                                           Year Ended December 31,
                                                               1997                 1996                 1995
                                                           ------------         ------------         --------
<S> <C>
Increase (Decrease) in Cash and
  Cash Equivalents:

    Cash Flows From Operating
      Activities:
        Cash received from tenants                         $  3,881,005         $  4,007,432         $  2,353,106
        Distributions from joint
          venture                                                76,212               20,279                   -
        Cash paid for expenses                                 (231,712)            (349,145)            (194,749)
        Interest received                                        54,919               75,160              323,038
                                                           ------------         ------------         ------------
            Net cash provided by
              operating activities                            3,780,424            3,753,726            2,481,395
                                                           ------------         ------------         ------------

    Cash Flows From Investing
      Activities:
        Proceeds from sale of land
          and buildings                                         610,384              775,000                   -
        Additions to land and
          buildings on operating
          leases                                                (23,501)          (2,355,627)         (16,012,458)
        Investment in direct
          financing leases                                      (29,257)            (405,937)          (5,595,236)
        Investment in joint
          venture                                                    -              (775,000)                  -
        Increase in restricted
          cash                                                 (610,384)                  -                    -
        Increase in other assets                                     -                                    (58,720)
        Other                                                        -                    -                20,714
                                                           ------------         ------------         ------------
            Net cash used in
              investing activities                              (52,758)          (2,761,564)         (21,645,700)
                                                           ------------         ------------         ------------

    Cash Flows From Financing
      Activities:
        Reimbursement of acqui-
          sition and syndication
          costs paid by related
          parties on behalf of
          the Partnership                                            -                (2,494)            (405,569)
        Contributions from limited
          partners                                                   -                    -            24,825,828
        Distributions to limited
          partners                                           (3,600,000)          (3,431,251)          (1,798,921)
        Payment of syndication
          costs                                                      -                    -            (2,452,743)
                                                           ------------         ------------         ------------
            Net cash provided by
              (used in) financing
              activities                                     (3,600,000)          (3,433,745)          20,168,595
                                                           ------------         ------------         ------------

Net Increase (Decrease) in Cash
  and Cash Equivalents                                          127,666           (2,441,583)           1,004,290

Cash and Cash Equivalents at
  Beginning of Year                                           1,546,203            3,987,786            2,983,496
                                                           ------------         ------------         ------------

Cash and Cash Equivalents at
  End of Year                                              $  1,673,869         $  1,546,203         $  3,987,786
                                                           ============         ============         ============
</TABLE>

                 See accompanying notes to financial statements.

                                       15

<PAGE>



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

                      STATEMENTS OF CASH FLOWS - CONTINUED

<TABLE>
<CAPTION>

                                                                            Year Ended December 31,
                                                               1997                 1996                 1995
                                                           ------------         ------------         --------
<S> <C>
Reconciliation of Net Income to
  Net Cash Provided by Operating
  Activities:

    Net income                                             $  3,660,327         $  3,748,198         $  2,430,841
                                                           ------------         ------------         ------------
    Adjustments to reconcile net
      income to net cash provided
      by operating activities:
        Depreciation                                            561,883              550,447              316,205
        Amortization                                              2,000                2,000                2,000
        Equity in earnings of
          joint venture, net of
          distributions                                           2,705                  611                   -
        Gain on sale of land and
          buildings                                             (41,148)            (124,305)                  -
        Decrease (increase) in
          receivables                                            26,633               58,396              (83,993)
        Decrease in net investment
          in direct financing
          leases                                                 37,684               29,269               16,003
        Increase in prepaid
          expenses                                                 (119)              (8,514)                (660)
        Increase in accrued rental
          income                                               (444,650)            (468,201)            (299,090)
        Increase in accounts
          payable and accrued
          expenses                                                1,455                  517                4,036
        Increase (decrease) in due
          to related parties,
          excluding reimbursement
          of acquisition and
          syndication costs paid
          on behalf of the
          Partnership                                             1,059              (76,259)              76,682
        Increase (decrease) in
          rents paid in advance
          and deposits                                          (27,405)              41,567               19,371
                                                           ------------         ------------         ------------
            Total adjustments                                   120,097                5,528               50,554
                                                           ------------         ------------         ------------

Net Cash Provided by Operating
  Activities                                               $  3,780,424         $  3,753,726         $  2,481,395
                                                           ============         ============         ============


</TABLE>




                 See accompanying notes to financial statements.

                                       16

<PAGE>



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

                      STATEMENTS OF CASH FLOWS - CONTINUED
<TABLE>
<CAPTION>


                                                                           Year Ended December 31,
                                                               1997                 1996                 1995
                                                           ------------         ------------         --------
<S> <C>
Supplemental Schedule of Non-Cash
  Investing and Financing
  Activities:

    Related parties paid certain
      acquisition and syndication
      costs on behalf of
      the Partnership as follows:
        Acquisition costs                                  $         -          $      9,356         $     97,589
        Syndication costs                                            -                    -               258,466
                                                           ------------         ------------         ------------

                                                           $         -          $      9,356         $    356,055
                                                           ============         ============         ============

Distributions declared and
  unpaid at December 31                                    $    900,000         $    900,000         $    787,500
                                                           ============         ============         ============

</TABLE>





                 See accompanying notes to financial statements.

                                       17

<PAGE>



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

                          NOTES TO FINANCIAL STATEMENTS

                  Years Ended December 31, 1997, 1996 and 1995


1.       Significant Accounting Policies:

         Organization  and Nature of Business - CNL Income Fund XVI,  Ltd.  (the
         "Partnership") is a Florida limited  partnership that was organized for
         the purpose of acquiring both newly constructed and existing restaurant
         properties,  as well as properties  upon which  restaurants  were to be
         constructed,  which are leased  primarily  to operators of national and
         regional fast-food and family-style  restaurant chains. Under the terms
         of a  registration  statement  filed with the  Securities  and Exchange
         Commission,  the  Partnership  is  authorized  to  sell  a  maximum  of
         4,500,000 units ($45,000,000) of limited partnership  interest. A total
         of 4,500,000 units  ($45,000,000) of limited  partnership  interest was
         sold.

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

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

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

                                       18

<PAGE>



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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                  Years Ended December 31, 1997, 1996 and 1995


1.       Significant Accounting Policies - Continued:

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

                  Accrued  rental  income  represents  the  aggregate  amount of
                  income  recognized  on a  straight-line  basis  in  excess  of
                  scheduled rental payments to date.

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

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

                                       19

<PAGE>



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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                  Years Ended December 31, 1997, 1996 and 1995


1.       Significant Accounting Policies - Continued:

         Investment in Joint Venture - The Partnership accounts for its interest
         in   a   property   in   Fayetteville,    North   Carolina,   held   as
         tenants-in-common with an affiliate,  using the equity method since the
         Partnership shares control with an affiliate which has the same general
         partners.

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

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

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

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

         Additionally,  for tax  purposes,  syndication  costs are  included  in
         Partnership equity and in the basis of each partner's  investment.  For
         financial  reporting  purposes,  syndication  costs are netted  against
         partners' capital and represent a reduction of Partnership equity and a
         reduction in the basis of each partner's investment (Note 6).

                                       20

<PAGE>



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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                  Years Ended December 31, 1997, 1996 and 1995


1.       Significant Accounting Policies - Continued:

         Weighted Average Number of Limited Partner Units Outstanding Net income
         and  distributions  per limited partner unit are calculated  based upon
         the weighted  average number of units of limited  partnership  interest
         outstanding during the period the Partnership was operational.

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

2.       Leases:

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

                                       21

<PAGE>



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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                  Years Ended December 31, 1997, 1996 and 1995


3.       Land and Buildings on Operating Leases:

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

                                          1997                   1996
                                       -----------            -----------

                  Land                 $15,259,455            $15,804,927
                  Buildings             16,836,982             16,836,982
                                       -----------            -----------
                                        32,096,437             32,641,909
                  Less accumulated
                    depreciation        (1,437,443)              (875,560)
                                       -----------            -----------

                                       $30,658,994            $31,766,349
                                       ===========            ===========

         In  April  1996,  the  Partnership   sold  its  property  in  Appleton,
         Wisconsin, and received net sales proceeds of $775,000,  resulting in a
         gain of $124,305 for financial  reporting  purposes.  This property was
         originally  acquired by the Partnership in February 1995 and had a cost
         of approximately $595,100, excluding acquisition fees and miscellaneous
         acquisition expenses;  therefore, the Partnership sold the property for
         approximately $179,900 in excess of its original purchase price.

         In March 1997, the  Partnership  sold its property in Oviedo,  Florida,
         for $620,000 and received net sales proceeds of $610,384,  resulting in
         a gain of $41,148 for financial reporting  purposes.  This property was
         originally  acquired by the Partnership in November 1994 and had a cost
         of approximately $509,700, excluding acquisition fees and miscellaneous
         acquisition expenses;  therefore, the Partnership sold the property for
         approximately $100,700 in excess of its original purchase price.

         Generally,  the leases provide for escalating  guaranteed minimum rents
         throughout the lease term.  Income from these  scheduled rent increases
         is  recognized on a  straight-line  basis over the terms of the leases.
         For the years ended December 31, 1997,  1996 and 1995, the  Partnership
         recognized  $444,650,  $468,201  and  $299,090,  respectively,  of such
         rental income.


                                       22

<PAGE>



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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                  Years Ended December 31, 1997, 1996 and 1995


3.       Land and Buildings on Operating Leases - Continued:

         The following is a schedule of the future  minimum lease payments to be
         received on noncancellable operating leases at December 31, 1997:

                  1998                     $ 3,128,262
                  1999                       3,177,377
                  2000                       3,309,707
                  2001                       3,378,687
                  2002                       3,401,533
                  Thereafter                38,510,788
                                           -----------

                                           $54,906,354

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

4.       Net Investment in Direct Financing Leases:

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

                                                    1997            1996
                                                ------------    -----------

                  Minimum lease payments
                    receivable                  $ 13,526,299    $ 14,267,132
                  Estimated residual
                    values                         1,932,560       1,932,560
                  Less unearned income            (9,490,047)    (10,193,196)
                                                ------------    ------------

                  Net investment in
                    direct financing
                    leases                      $  5,968,812    $  6,006,496
                                                ============    ============



                                       23

<PAGE>



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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                  Years Ended December 31, 1997, 1996 and 1995


4.       Net Investment in Direct Financing Leases - Continued:

         The  following  is a schedule of future  minimum  lease  payments to be
         received on direct financing leases at December 31, 1997:

                  1998                       $   741,451
                  1999                           742,074
                  2000                           755,382
                  2001                           759,526
                  2002                           765,536
                  Thereafter                   9,762,330
                                             -----------

                                             $13,526,299

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

5.       Investment in Joint Venture:

         In October 1996, the Partnership  acquired a property in  Fayetteville,
         North Carolina,  with an affiliate of the Partnership that has the same
         general partners,  as tenants-in-common.  In connection therewith,  the
         Partnership   contributed  $775,000  for  a  80.27%  interest  in  such
         property.  The Partnership accounts for its investment in this property
         using the equity method since the  Partnership  shares  control with an
         affiliate.  Amounts  relating to this  investment  are  presented as an
         investment in joint venture.



                                       24

<PAGE>



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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                  Years Ended December 31, 1997, 1996 and 1995


5.       Investment in Joint Venture - Continued:

         The Partnership and an affiliate,  as tenants-in-common,  own and lease
         one Boston  Market  property.  The  following  presents  the  combined,
         condensed   financial    information   for   the   property   held   as
         tenants-in-common with an affiliate at December 31:

                                                     1997          1996
                                                   --------      --------
                  Land and building on
                    operating lease,
                    less accumulated
                    depreciation                   $941,142      $960,732
                  Cash                                8,190           100
                  Prepaid expenses                       29            -
                  Accrued rental income              20,171         3,929
                  Liabilities                         8,163            23
                  Partners' capital                 961,369       964,738
                  Revenues                          112,744        29,293
                  Net income                         91,575        24,502

         The Partnership recognized income totalling $73,507 and $19,668 for the
         years  ended  December  31,  1997 and  1996,  respectively,  from  this
         property held as tenants-in-common with an affiliate.

6.       Restricted Cash:

         As of December 31, 1997,  the net sales  proceeds of $610,384  from the
         sale of the  property  in Oviedo,  Florida,  plus  accrued  interest of
         $17,515, were being held in an interest-bearing  escrow account pending
         the  release  of funds by the escrow  agent to  acquire  an  additional
         property.

7.       Syndication Costs:

         Syndication costs consisting of legal fees, commissions,  the marketing
         support and due diligence expense reimbursement fee, printing and other
         expenses incurred in connection with the offering totalled  $5,390,000.
         These offering  expenses were charged to the limited  partners' capital
         accounts to reflect the net capital proceeds of the offering.



                                       25

<PAGE>



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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                  Years Ended December 31, 1997, 1996 and 1995


8.       Allocations and Distributions:

         Generally,  net income and losses of the  Partnership,  excluding gains
         and losses from the sale of properties, are allocated 99 percent to the
         limited partners and one percent to the general partners. Distributions
         of net cash flow are made 99 percent to the  limited  partners  and one
         percent  to the  general  partners;  provided,  however,  that  the one
         percent  of net cash flow to be  distributed  to the  general  partners
         shall  be  subordinated  to  receipt  by  the  limited  partners  of an
         aggregate,  eight percent,  cumulative,  noncompounded annual return on
         their  invested  capital   contributions  (the  "Limited  Partners'  8%
         Return").

         Generally,  net  sales  proceeds  from the sale of  properties,  to the
         extent  distributed,  will be distributed first to the limited partners
         in an amount sufficient to provide them with their Limited Partners' 8%
         Return,  plus the return of their adjusted capital  contributions.  The
         general   partners  will  then  receive,   to  the  extent   previously
         subordinated   and  unpaid,   a  one  percent  interest  in  all  prior
         distributions   of  net  cash  flow  and  a  return  of  their  capital
         contributions.  Any remaining  sales  proceeds will be  distributed  95
         percent  to the  limited  partners  and  five  percent  to the  general
         partners.

         Any gain from the sale of a property  is, in general,  allocated in the
         same manner as net sales proceeds are distributable.  Any loss from the
         sale of a  property  is, in  general,  allocated  first,  on a pro rata
         basis,  to partners with positive  balances in their capital  accounts;
         and thereafter,  95 percent to the limited partners and five percent to
         the general partners.

         During  the  years  ended  December  31,  1997,   1996  and  1995,  the
         Partnership   declared   distributions   to  the  limited  partners  of
         $3,600,000,  $3,543,751 and $2,437,832,  respectively. No distributions
         have been made to the general partners to date.



                                       26

<PAGE>



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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                  Years Ended December 31, 1997, 1996 and 1995


9.       Income Taxes:

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

                                                                    1997               1996               1995
                                                                 ----------         ----------         -------
<S> <C>
                  Net income for financial
                    reporting purposes                           $3,660,327         $3,748,198         $2,430,841

                  Depreciation for tax
                    reporting purposes
                    less than (in excess
                    of) depreciation for
                    financial reporting
                    purposes                                          3,576             (1,943)           (13,929)

                  Direct financing leases
                    recorded as operating
                    leases for tax
                    reporting purposes                               37,684             29,269             16,003

                  Equity in earnings of joint
                    venture for financial
                    reporting purposes in
                    excess of equity in
                    earnings of joint venture
                    for tax reporting purposes                        (477)            (1,330)                -

                  Gain on sale of land and
                    buildings for financial
                    reporting purposes less
                    than (in excess of) gain
                    for tax reporting purposes                       23,764           (124,305)                -

                  Allowance for doubtful
                    accounts                                         (8,996)             6,913              2,962

                  Accrued rental income                            (444,650)          (468,201)          (299,090)

                  Rents paid in advance                             (27,405)            47,221              2,595

                  Other                                                  -               4,008                 -
                                                                 ----------         ----------         ---------

                  Net income for federal
                    income tax purposes                          $3,243,823         $3,239,830         $2,139,382
                                                                 ==========         ==========         ==========
</TABLE>

                                       27

<PAGE>



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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                  Years Ended December 31, 1997, 1996 and 1995


10.      Related Party Transactions:

         One of the individual general partners, James M. Seneff, Jr., is one of
         the principal  shareholders  of CNL Group,  Inc., the parent company of
         CNL Securities,  Corp. and CNL Fund Advisors, Inc. The other individual
         general partner, Robert A. Bourne, is president of CNL Securities Corp.
         and served as  president of CNL Fund  Advisors,  Inc.  through  October
         1997. CNL Income Fund Advisors,  Inc. was a wholly owned  subsidiary of
         CNL Group,  Inc. until its merger,  effective January 1, 1996, with CNL
         Fund Advisors,  Inc. During the years ended December 31, 1997, 1996 and
         1995,  CNL Income  Fund  Advisors,  Inc.  and CNL Fund  Advisors,  Inc.
         (hereinafter  referred to  collectively  as the  "Affiliates")  and CNL
         Securities  Corp. each performed  certain services for the Partnership,
         as described below.

         For  the  year  ended  December  31,  1995,  the  Partnership  incurred
         $2,110,195  in  syndication  costs  due to  CNL  Securities  Corp.  for
         services in connection with selling limited  partnership  interests.  A
         substantial   portion  of  these  amounts   ($1,991,106)  was  paid  as
         commissions to other broker-dealers.

         In addition,  for the year ended  December 31,  1995,  the  Partnership
         incurred  $124,129 as a marketing  support  and due  diligence  expense
         reimbursement  fee due to CNL Securities  Corp. This fee equals 0.5% of
         the limited partner  contributions  of $24,825,828  received during the
         year ended  December 31, 1995. A portion of this fee has been reallowed
         to other  broker-dealers  and all due diligence expenses were paid from
         such fee.

         Additionally,  the Partnership  incurred  $1,365,421 for the year ended
         December  31,  1995  in  acquisition  fees  due to the  Affiliates  for
         services in finding,  negotiating and acquiring properties on behalf of
         the  Partnership.  These fees  represent  5.5% of the  limited  partner
         capital  contributions  of $24,825,828  received  during the year ended
         December 31, 1995.

         During  the years  ended  December  31,  1997,  1996 and 1995,  certain
         Affiliates acted as manager of the Partnership's properties pursuant to
         a management agreement with the Partnership.  In connection  therewith,
         the Partnership agreed to pay the Affiliates an annual,  noncumulative,
         subordinated management fee of one percent of the sum of gross revenues
         from properties  wholly owned by the Partnership and the  Partnership's
         allocable share of gross revenues from joint

                                       28

<PAGE>



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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                  Years Ended December 31, 1997, 1996 and 1995


10.      Related Party Transactions - Continued:

         ventures.  The  management  fee,  which will not exceed  fees which are
         competitive for similar  services in the same  geographic  area, may or
         may not be  taken,  in  whole  or in part as to any  year,  in the sole
         discretion of the Affiliates.  All or any portion of the management fee
         not taken as to any fiscal year shall be deferred  without interest and
         may be  taken  in  such  other  fiscal  year  as the  Affiliates  shall
         determine. The Partnership incurred management fees of $40,087, $39,206
         and $24,128  for the years  ended  December  31,  1997,  1996 and 1995,
         respectively.

         Certain   Affiliates   are  also   entitled   to  receive  a  deferred,
         subordinated real estate  disposition fee, payable upon the sale of one
         or more  properties,  based on the lesser of one-half of a  competitive
         real  estate  commission  or three  percent  of the sales  price if the
         Affiliates  provide a substantial amount of services in connection with
         the  sale.  However,  if the net sales  proceeds  are  reinvested  in a
         replacement  property,  no such real  estate  disposition  fees will be
         incurred  until  such  replacement  property  is sold and the net sales
         proceeds are  distributed.  The payment of the real estate  disposition
         fee is  subordinated  to  receipt  by the  limited  partners  of  their
         aggregate  Limited  Partners' 8% Return,  plus their  invested  capital
         contributions.  No deferred,  subordinated real estate disposition fees
         have been incurred since inception.

         During the years ended  December  31, 1997,  1996 and 1995,  Affiliates
         provided  accounting  and  administrative  services to the  Partnership
         (including  accounting and  administrative  services in connection with
         the offering of units) on a day-to-day basis. The expenses incurred for
         these services were classified as follows:
<TABLE>
<CAPTION>

                                               1997        1996       1995
                                             --------    --------   ------
<S> <C>
                  Syndication costs          $     -     $     -    $159,928
                  General operating
                    and administrative
                expenses                       89,270     118,677    114,317
                                             --------    --------   --------

                                             $ 89,270    $118,677   $274,245
                                             ========    ========   ========
</TABLE>

                                       29

<PAGE>



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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                  Years Ended December 31, 1997, 1996 and 1995


10.      Related Party Transactions - Continued:

         During 1996, the Partnership acquired one property from an affiliate of
         the general partners, for a purchase price of $775,000. The property is
         being held as tenants-in-common,  with another affiliate of the general
         partners.  The affiliates had purchased and  temporarily  held title to
         these  properties  in  order  to  facilitate  the  acquisition  of  the
         properties  by  the  Partnership.  The  purchase  prices  paid  by  the
         Partnership represented the costs incurred by the affiliates to acquire
         the properties, including closing costs.

         The due to  related  parties at  December  31,  1997 and 1996  totalled
         $3,351 and $2,292, respectively.

11.      Concentration of Credit Risk:

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

                                         1997          1996          1995
                                      ----------    ----------    ----------

                  DenAmerica
                    Corp.             $1,046,845    $1,051,328    $  361,810
                  Golden Corral
                    Corporation          979,009       954,476       663,648
                  Foodmaker, Inc.        556,610       556,610       557,877
                  Checkers Drive-
                    In Restaur-
                    ants, Inc.           237,152       290,041       290,041


                                       30

<PAGE>



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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                  Years Ended December 31, 1997, 1996 and 1995


10.      Concentration of Credit Risk - Continued:

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

                                       1997          1996         1995
                                    ----------    ----------   ---------

                  Denny's           $1,164,928    $1,163,621   $  461,380
                  Golden Corral
                    Family Steak-
                    house Restau-
                    rants              979,009       954,476      663,648
                  Jack in the Box      556,610       556,610      557,877
                  Long John
                    Silver's           406,033       432,495      331,094
                  Checkers Drive-In
                    Restaurants        237,152       290,041      290,041

         Although  the  Partnership's   properties  are  geographically  diverse
         throughout the United States and the  Partnership's  lessees  operate a
         variety of restaurant concepts,  default by any one of these lessees or
         restaurant chains could significantly  impact the results of operations
         of the Partnership. However, the general partners believe that the risk
         of such a default is reduced due to the  essential or important  nature
         of these properties for the on-going operations of the lessees.

11.      Subsequent Event:

         In January  1998,  the  Partnership  acquired a  property  in  Memphis,
         Tennessee,   as  tenants-in-common   with  affiliates  of  the  general
         partners. In connection therewith, the Partnership contributed $607,896
         for a 40.42% interest in such property.  The  Partnership  will account
         for its  investment in this property  using the equity method since the
         Partnership will share control with affiliates.

                                       31

<PAGE>




Item 9.  Changes in and Disagreements with Accountants on Accounting and
         Financial Disclosure

         None.


                                    PART III


Item 10.  Directors and Executive Officers of the Registrant

         The General Partners of the Registrant are James M. Seneff, Jr., Robert
A.  Bourne  and CNL  Realty  Corporation,  a Florida  corporation.  The  General
Partners  manage  and  control  the  Partnership's   affairs  and  have  general
responsibility   and  the  ultimate  authority  in  all  matters  affecting  the
Partnership's  business.  The  Partnership  has  available  to it the  services,
personnel and experience of CNL Fund Advisors,  Inc., CNL Group,  Inc. and their
affiliates, all of which are affiliates of the General Partners.

         James M. Seneff, Jr., age 51, is a principal  stockholder of CNL Group,
Inc., a diversified  real estate company,  and has served as its Chairman of the
Board of Directors,  director and Chief Executive Officer since its formation in
1980.  CNL Group,  Inc.  is the  parent  company of CNL  Securities  Corp.,  CNL
Investment Company, CNL Fund Advisors,  Inc., CNL Real Estate Advisors, Inc. and
prior to its merger with CNL Fund Advisors, Inc., effective January 1, 1996, CNL
Income Fund Advisors, Inc. Mr. Seneff is Chief Executive Officer, and has been a
director and registered  principal of CNL Securities Corp.,  which served as the
managing dealer in the Partnership's  offering of Units,  since its formation in
1979.  Mr.  Seneff also has held the position of President and a director of CNL
Management  Company,  a registered  investment  advisor,  since its formation in
1976,  has served as Chief  Executive  Officer and  Chairman of the Board of CNL
Investment  Company,  and Chief  Executive  Officer and Chairman of the Board of
Commercial Net Lease Realty,  Inc. since 1992, has served as the Chairman of the
Board and the Chief  Executive  Officer of CNL Realty  Advisors,  Inc. since its
inception in 1991 through  December 31, 1997, at which time CNL Realty Advisors,
Inc.  merged with Commercial Net Lease Realty,  Inc.,  served as Chairman of the
Board and Chief  Executive  Officer of CNL Income Fund Advisors,  Inc. since its
inception in 1994 through December 31, 1995, has served as a director,  Chairman
of the Board and Chief  Executive  Officer of CNL Fund Advisors,  Inc. since its
inception in 1994,  and has held the position of Chief  Executive  Officer and a
director of CNL Institutional  Advisors,  Inc., a registered investment advisor,
since its inception in 1990.  In addition,  Mr. Seneff has served as a director,
Chairman of the Board and Chief  Executive  Officer of CNL  American  Properties
Fund,  Inc. since 1994, and has served as a director,  Chairman of the Board and
Chief Executive  Officer of CNL American Realty Fund, Inc. since 1996 and of CNL
Real Estate Advisors,  Inc. since January 1997. Mr. Seneff  previously served on
the Florida State  Commission on Ethics and is a former member and past Chairman
of the State of Florida  Investment  Advisory  Council,  which recommends to the
Florida  Board  of  Administration  investments  for  various  Florida  employee
retirement  funds.  The Florida  Board of  Administration,  Florida's  principal
investment advisory and money management agency, oversees the investment of more
than $60 billion of retirement funds.  Since 1971, Mr. Seneff has been active in
the  acquisition,  development  and  management  of real  estate  projects  and,
directly or through an  affiliated  entity,  has served as a general  partner or
joint  venturer in over 100 real  estate  ventures  involved  in the  financing,
acquisition,  construction and rental of office buildings,  apartment complexes,
restaurants,  hotels  and other  real  estate.  Included  in these  real  estate
ventures are approximately 65 privately offered real estate limited partnerships
in which Mr.  Seneff,  directly or through an affiliated  entity,  serves or has
served as a general partner. Also included are CNL Income Fund, Ltd., CNL Income
Fund II, Ltd.,  CNL Income Fund III,  Ltd., CNL Income Fund IV, Ltd., CNL Income
Fund V, Ltd.,  CNL Income Fund VI, Ltd.,  CNL Income Fund VII,  Ltd., CNL Income
Fund VIII,  Ltd.,  CNL Income Fund IX, Ltd., CNL Income Fund X, Ltd., CNL Income
Fund XI, Ltd., CNL Income Fund XII, Ltd., CNL Income Fund XIII, Ltd., CNL Income
Fund XIV,  Ltd.,  CNL Income Fund XV, Ltd.,  CNL Income Fund XVII,  Ltd. and CNL
Income Fund XVIII, Ltd. (the "CNL Income Fund Partnerships"), public real estate
limited  partnerships  with  investment  objectives  similar  to  those  of  the
Partnership,  in which  Mr.  Seneff  serves  as a general  partner.  Mr.  Seneff
received his degree in Business  Administration from Florida State University in
1968.


                                       32

<PAGE>



         Robert A.  Bourne,  age 50, is  President  and  Treasurer of CNL Group,
Inc., President,  a director and a registered principal of CNL Securities Corp.,
President and a director of CNL Investment Company, and prior to its merger with
CNL Fund Advisors,  Inc.,  effective  January 1, 1996, CNL Income Fund Advisors,
Inc., and Chief Investment Officer,  Vice Chairman of the Board of Directors,  a
director  and  Treasurer  of CNL  Institutional  Advisors,  Inc.,  a  registered
investment  advisor.  Mr.  Bourne  served  as  President  of  CNL  Institutional
Advisors,  Inc. from the date of its inception  through June 30, 1997 and served
as President of CNL Fund Advisors,  Inc. from the date of its inception  through
October 1997.  Mr. Bourne also has served as a director since 1992, as President
from July 1992 to February  1996, as Secretary and Treasurer  from February 1996
through  December 1997, and since February 1996,  served as Vice Chairman of the
Board of Directors of Commercial Net Lease Realty, Inc. In addition,  Mr. Bourne
has served as a director  since its inception in 1991, as President from 1991 to
February  1996, as Secretary from February 1996 to July 1996, and since February
1996, served as Treasurer and Vice Chairman of CNL Realty Advisors, Inc. through
December  31,  1997,  at which  time  CNL  Realty  Advisors,  Inc.  merged  with
Commercial  Net Lease  Realty,  Inc.  In  addition,  Mr.  Bourne  has  served as
President and a director of CNL American  Properties  Fund, Inc. since 1994, and
has served as President and a director of CNL American  Realty Fund,  Inc. since
1996 and of CNL Real Estate  Advisors,  Inc. since January 1997. Upon graduation
from Florida State  University in 1970,  where he received a B.A. in Accounting,
with honors,  Mr.  Bourne  worked as a certified  public  accountant  and,  from
September  1971  through  December  1978,  was  employed  by  Coopers & Lybrand,
Certified  Public  Accountants,  where  he  held  the  position  of tax  manager
beginning in 1975.  From January 1979 until June 1982,  Mr. Bourne was a partner
in the  accounting  firm of Cross & Bourne  and from July 1982  through  January
1987, he was a partner in the accounting firm of Bourne & Rose, P.A.,  Certified
Public  Accountants.  Mr. Bourne,  who joined CNL Securities  Corp. in 1979, has
participated  as a general  partner or joint  venturer  in over 100 real  estate
ventures  involved in the  financing,  acquisition,  construction  and rental of
office  buildings,  apartment  complexes,  restaurants,  hotels  and other  real
estate.  Included in these real estate ventures are  approximately  64 privately
offered  real  estate  limited  partnerships  in which Mr.  Bourne,  directly or
through an affiliated  entity,  serves or has served as a general partner.  Also
included  are the CNL Income  Fund  Partnerships,  public  real  estate  limited
partnerships with investment objectives similar to those of the Partnership,  in
which Mr. Bourne serves as a general partner.

         CNL Realty Corporation is a corporation organized on November 26, 1985,
under the laws of the State of Florida.  Its sole directors and shareholders are
James M. Seneff, Jr. and Robert A. Bourne, the individual General Partners.  CNL
Realty  Corporation  was organized to serve as the corporate  general partner of
real estate limited partnerships,  such as the Partnership,  organized by one or
both of the individual General Partners. CNL Realty Corporation currently serves
as the corporate general partner of the CNL Income Fund Partnerships.

         CNL  Fund  Advisors,  Inc.  provides  certain  management  services  in
connection with the Partnership and its Properties. CNL Fund Advisors, Inc. is a
corporation  organized  in 1994 under the laws of the State of Florida,  and its
principal  office is located at 400 East South Street,  Orlando,  Florida 32801.
CNL Fund  Advisors,  Inc. is a wholly  owned  subsidiary  of CNL Group,  Inc., a
diversified  real  estate  company,   and  was  organized  to  perform  property
acquisition, property management and other services.

         CNL  Group,  Inc.,  which is the parent  company of CNL Fund  Advisors,
Inc.,  was organized in 1980 under the laws of the State of Florida.  CNL Group,
Inc. is a diversified  real estate  company which  provides a wide range of real
estate,  development  and  financial  services to companies in the United States
through the  activities  of its  subsidiaries.  These  activities  are primarily
focused  on the  franchised  restaurant  and  hospitality  industries.  James M.
Seneff,  Jr., an individual General Partner of the Partnership,  is the Chairman
of the Board,  Chief Executive  Officer,  and a director of CNL Group,  Inc. Mr.
Seneff and his wife own all of the outstanding shares of CNL Group, Inc.

         The following persons serve as operating officers of CNL Group, Inc. or
its affiliates or  subsidiaries  in the discretion of the Boards of Directors of
those companies,  but, except as specifically indicated, do not serve as members
of the Boards of Directors of those  entities.  The Boards of Directors have the
responsibility for creating and implementing the policies of CNL Group, Inc. and
its affiliated companies.



                                       33

<PAGE>



         Curtis B. McWilliams,  age 42, joined CNL Fund Advisors,  Inc. in April
1997 and  currently  serves  as  President  of CNL Fund  Advisors,  Inc.  and as
Executive Vice President of CNL American Properties Fund, Inc. In addition,  Mr.
McWilliams  serves  as  Executive  Vice  President  of CNL  Group,  Inc.  and as
President of CNL Financial Services,  Inc. and certain other subsidiaries of CNL
Group,  Inc. From September 1983 through March 1997, Mr. McWilliams was employed
by Merrill  Lynch.  From  January  1991 to August  1996,  Mr.  McWilliams  was a
managing director in the corporate  banking group of Merrill Lynch's  investment
banking division.  During this time, he was a senior  relationship  manager with
Merrill  Lynch and as such was  responsible  for a number of the  firm's  larger
clients.  From February 1990 to February  1993, he also served as co-head of one
of the  Industrial  Banking  Groups within Merrill  Lynch's  investment  banking
division and had administrative responsibility for a group of bankers and client
relationships, including the firm's transportation group. From September 1996 to
March  1997,  Mr.  McWilliams  served as  Chairman  of Merrill  Lynch's  Private
Advisory Services. Mr. McWilliams received a B.S.E. in Chemical Engineering from
Princeton  University  in 1977 and a Masters of Business  Administration  with a
concentration in finance from the University of Chicago in 1983.

         John T. Walker,  age 39, is the Chief  Operating  Officer and Executive
Vice President of CNL Fund Advisors, Inc. and CNL American Properties Fund, Inc.
and serves as Executive Vice President of CNL American Realty Fund, Inc. and CNL
Real Estate  Advisors,  Inc. From May 1992 to May 1994,  he was  Executive  Vice
President for Finance and Administration and Chief Financial Officer of Z Music,
Inc., a cable  television  network  which was  subsequently  acquired by Gaylord
Entertainment, where he was responsible for overall financial and administrative
management  and planning.  From January 1990 through April 1992,  Mr. Walker was
Chief Financial  Officer of the First Baptist Church in Orlando,  Florida.  From
April 1984 through  December  1989, he was a partner in the  accounting  firm of
Chastang,  Ferrell & Walker,  P.A.,  where he was the partner in charge of audit
and  consulting  services,  and  from  1981 to  1984,  Mr.  Walker  was a Senior
Consultant/Audit Senior at Price Waterhouse.  Mr. Walker is a Cum Laude graduate
of Wake Forest  University with a B.S. in Accountancy and is a certified  public
accountant.

         Lynn E. Rose,  age 49, a  certified  public  accountant,  has served as
Chief  Financial  Officer of CNL Group,  Inc. since December 1993, has served as
Secretary of CNL Group,  Inc. since 1987, and served as Controller of CNL Group,
Inc. from 1987 until  December  1993. In addition,  Ms. Rose has served as Chief
Financial Officer and Secretary of CNL Securities Corp. since July 1994. She has
served as Chief Operating Officer, Vice President and Secretary of CNL Corporate
Services,  Inc. since November 1994. Ms. Rose also has served as Chief Financial
Officer and Secretary of CNL Institutional Advisors, Inc. since its inception in
1990, served as a director and Secretary of CNL Realty Advisors,  Inc. since its
inception in 1991 through  December 31, 1997, at which time CNL Realty Advisors,
Inc.  merged with  Commercial  Net Lease Realty,  Inc.,  Treasurer of CNL Realty
Advisors, Inc. from 1991 to February 1996, Secretary and Treasurer of Commercial
Net Lease Realty, Inc. from 1992 to February 1996,  Secretary of CNL Income Fund
Advisors,  Inc.  since its inception in 1994 to December  1995,  and a director,
Secretary and Treasurer of CNL Fund Advisors,  Inc. since 1994 and has served as
a director,  Secretary and  Treasurer of CNL Real Estate  Advisors,  Inc.  since
January  1997.  Ms.  Rose also has  served as  Secretary  and  Treasurer  of CNL
American  Properties  Fund,  Inc.  since 1994,  and has served as Secretary  and
Treasurer of CNL American  Realty Fund, Inc. since 1996. Ms. Rose also currently
serves as Secretary  for  approximately  50  additional  corporations.  Ms. Rose
oversees the management information services, administration,  legal compliance,
accounting,   tenant  compliance,  and  reporting  for  over  300  corporations,
partnerships,  and joint ventures.  Prior to joining CNL, Ms. Rose was a partner
with Robert A. Bourne in the accounting firm of Bourne & Rose,  P.A.,  Certified
Public  Accountants.  Ms. Rose holds a B.A. in Sociology  from the University of
Central Florida. She was licensed as a certified public accountant in 1979.



                                       34

<PAGE>



         Jeanne A. Wall,  age 39, has served as Chief  Operating  Officer of CNL
Investment  Company and of CNL  Securities  Corp.  since  November  1994 and has
served as Executive Vice President of CNL Investment Company since January 1991.
In 1984,  Ms. Wall joined CNL  Securities  Corp.  In 1985,  Ms. Wall became Vice
President of CNL Securities Corp., in 1987, she became Senior Vice President and
in July 1997, she became  Executive  Vice  President of CNL Securities  Corp. In
this  capacity,  Ms. Wall serves as national  marketing  and sales  director and
oversees  the  national  marketing  plan  for the CNL  investment  programs.  In
addition, Ms. Wall oversees product development,  partnership administration and
investor  services for  programs  offered  through  participating  brokers,  and
corporate  communications for CNL Group, Inc. and Affiliates.  Ms. Wall also has
served  as  Senior  Vice  President  of  CNL  Institutional  Advisors,  Inc.,  a
registered  investment  advisor,  from 1990 to 1993,  as Vice  President  of CNL
Realty  Advisors,  Inc.  since  its  inception  in 1991  through  1997,  as Vice
President of  Commercial  Net Lease  Realty,  Inc.  from 1992 through  1997,  as
Executive Vice President of CNL Fund Advisors, Inc. since 1994, and as Executive
Vice President of CNL American  Properties  Fund,  Inc. since 1994. In addition,
Ms. Wall has served as Executive  Vice  President  of CNL Real Estate  Advisors,
Inc. since January 1997 and as Executive  Vice President of CNL American  Realty
Fund,  Inc.  since 1996. Ms. Wall holds a B.A. in Business  Administration  from
Linfield College and is a registered  principal of CNL Securities Corp. Ms. Wall
currently serves as a trustee on the board of the Investment Program Association
and on the Direct  Participation  Program committee for the National Association
of Securities Dealers (NASD).

         Steven D. Shackelford, age 34, has served as Chief Financial Officer of
CNL Fund Advisors,  Inc. since September 1996 and as Chief Financial  Officer of
CNL American  Properties  Fund, Inc. since January 1997. From March 1995 to July
1996, he was a senior manager in the national office of Price  Waterhouse  where
he was responsible  for advising  foreign clients seeking to raise capital and a
public listing in the United  States.  From August 1992 to March 1995, he served
as a manager in the Price  Waterhouse,  Paris,  France  office  serving  several
multinational  clients. Mr. Shackelford was an audit staff and audit senior from
1986 to 1992 in the Orlando, Florida office of Price Waterhouse. Mr. Shackelford
received  a  B.A.  in  Accounting,  with  honors,  and  a  Masters  of  Business
Administration   from  Florida  State  University  and  is  a  certified  public
accountant.


Item 11.  Executive Compensation

         Other than as  described in Item 13, the  Partnership  has not paid and
does not intend to pay any executive compensation to the General Partners or any
of their affiliates.  There are no compensatory plans or arrangements  regarding
termination of employment or change of control.


Item 12.  Security Ownership of Certain Beneficial Owners and Management

         As of March 13,  1998,  no person was known to the  Registrant  to be a
beneficial owner of more than five percent of the Units.

         The following  table sets forth,  as of March 13, 1998,  the beneficial
ownership interests of the General Partners in the Registrant.
<TABLE>
<CAPTION>


           Title of Class               Name of Partner            Percent of Class
<S> <C>
    General Partnership Interests     James M. Seneff, Jr.                45%
                                      Robert A. Bourne                    45%
                                      CNL Realty Corporation              10%
                                                                         ----
                                                                         100%
</TABLE>

         Neither the General  Partners,  nor any of their  affiliates,  owns any
interest in the  Registrant,  except as noted above.  There are no  arrangements
which at a subsequent date may result in a change in control of the Registrant.

                                       35

<PAGE>



Item 13.  Certain Relationships and Related Transactions

         The  table  below   summarizes  the  types,   recipients,   methods  of
computation and amounts of compensation,  fees and distributions paid or payable
by the  Partnership  to the General  Partners and their  affiliates for the year
ended  December 31, 1997,  exclusive of any  distributions  to which the General
Partners or their  affiliates  may be entitled by reason of their  purchase  and
ownership of Units.
<TABLE>
<CAPTION>

==========================================================================================================================
                                                                                              Amount Incurred
         Type of Compensation                                                                  For the Year
              and Recipient                       Method of Computation                   Ended December 31, 1997
        -----------------------                   ---------------------                  ------------------------
<S> <C>
Reimbursement to affiliates for          Operating expenses are reimbursed        Operating expenses incurred
operating  expenses                      at the lower of cost or 90  percent      on behalf of the Partnership:
                                         of the prevailing rate at which          $84,319
                                         comparable services could have
                                         been obtained in the same                Accounting and administra-
                                         geographic area.  Affiliates of the      tive services:  $89,270
                                         General Partners from time to
                                         time incur certain operating
                                         expenses on behalf of the
                                         Partnership for which the
                                         Partnership reimburses the
                                         affiliates without interest.

Annual management fee to                 One percent of the sum of gross             $40,087
affiliates                               revenues from Properties wholly
                                         owned  by  the  Partnership   plus  the
                                         Partner-ship's allocable share of gross
                                         revenues of joint ventures in which the
                                         Part-nership  is  a  co-venturer.   The
                                         manage-ment  fee, which will not exceed
                                         competitive    fees   for    comparable
                                         services in the same  geographic  area,
                                         may or may not be taken, in whole or in
                                         part  as  to  any  year,  in  the  sole
                                         discretion  of  affiliates.  All or any
                                         portion of the management fee not taken
                                         as to any fiscal year shall be deferred
                                         without  interest  and may be  taken in
                                         such   other   fiscal   year   as   the
                                         affiliates shall determine.
==========================================================================================================================

</TABLE>



                                       36

<PAGE>


<TABLE>
<CAPTION>


==========================================================================================================================
                                                                                              Amount Incurred
         Type of Compensation                                                                  For the Year
              and Recipient                       Method of Computation                   Ended December 31, 1997
        -----------------------                   ---------------------                  ------------------------
<S> <C>
Deferred, subordinated real estate       A deferred, subordinated real               $ -0-
disposition fee payable to               estate disposition fee, payable
affiliates                               upon sale of one or more
                                         Properties,  in an amount  equal to the
                                         lesser of (i) one-half of a competitive
                                         real estate  commission,  or (ii) three
                                         percent  of the  sales  price  of  such
                                         Property or Properties. Payment of such
                                         fee shall be made only if affiliates of
                                         the   General    Partners   provide   a
                                         substantial   amount  of   services  in
                                         connection  with the sale of a Property
                                         or Properties and shall be subordinated
                                         to  certain   minimum  returns  to  the
                                         Limited Partners.  However,  if the net
                                         sales  proceeds  are  reinvested  in  a
                                         replacement   Property,  no  such  real
                                         estate disposition fee will be incurred
                                         until such replacement Property is sold
                                         and  the   net   sales   proceeds   are
                                         distributed.

General Partners' deferred, sub-         A deferred, subordinated share              $ -0-
ordinated share of Partnership net       equal to one percent of
cash flow                                Partnership distributions of net
                                         cash flow, subordinated to certain
                                         minimum returns to the Limited
                                         Partners.

General Partners' deferred, sub-         A deferred, subordinated share              $ -0-
ordinated share of Partnership net       equal to five percent of
sales proceeds from a sale or            Partnership distributions of such
sales                                    net sales proceeds, subordi-nated
                                         to certain minimum returns to the
                                         Limited Partners.
==========================================================================================================================
</TABLE>



                                       37

<PAGE>



                                     PART IV

Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a)       The following documents are filed as part of this report.

          1.  Financial Statements

                  Report of Independent Accountants

                  Balance Sheets at December 31, 1997 and 1996

                  Statements  of Income for the years ended  December  31, 1997,
                  1996 and 1995

                  Statements of Partners'  Capital for the years ended  December
                  31, 1997, 1996 and 1995

                  Statements  of Cash  Flows for the years  ended  December  31,
                  1997, 1996 and 1995

                  Notes to Financial Statements

          2.  Financial Statement Schedule

                  Schedule  III - Real Estate and  Accumulated  Depreciation  at
                  December 31, 1997

                  Notes  to  Schedule   III  -  Real   Estate  and   Accumulated
                  Depreciation at December 31, 1997

                  All other Schedules are omitted as the required information is
                  inapplicable  or is presented in the  financial  statements or
                  notes thereto.

          3.  Exhibits

                  3.1      Affidavit and  Certificate of Limited  Partnership of
                           CNL Income Fund XVI, Ltd. (Included as Exhibit 3.2 to
                           Registration  Statement No.  33-69968-01 on Form S-11
                           and incorporated herein by reference.)

                  4.1      Affidavit and  Certificate of Limited  Partnership of
                           CNL Income Fund XVI, Ltd. (Included as Exhibit 3.2 to
                           Registration  Statement No.  33-69968-01 on Form S-11
                           and incorporated herein by reference.)

                  4.2      Amended and Restated Agreement of Limited Partnership
                           of CNL Income Fund XVI, Ltd. (Included as Exhibit 4.2
                           to Form 10-K filed with the  Securities  and Exchange
                           Commission on March 30, 1995, and incorporated herein
                           by reference.)

                  10.1     Management  Agreement  between  CNL Income  Fund XVI,
                           Ltd. and CNL Investment  Company (Included as Exhibit
                           10.1 to Form  10-K  filed  with  the  Securities  and
                           Exchange   Commission   on  March   30,   1995,   and
                           incorporated herein by reference.)

                  10.2     Assignment   of   Management   Agreement   from   CNL
                           Investment Company to CNL Income Fund Advisors,  Inc.
                           (Included as Exhibit 10.2 to Form 10-K filed with the
                           Securities and Exchange Commission on March 30, 1995,
                           and incorporated herein by reference.)

                                       38

<PAGE>



                  10.3     Assignment  of Management  Agreement  from CNL Income
                           Fund  Advisors,  Inc.  to  CNL  Fund  Advisors,  Inc.
                           (Included as Exhibit 10.3 to Form 10-K filed with the
                           Securities and Exchange  Commission on April 1, 1996,
                           and incorporated herein by reference.)

                  27       Financial Data Schedule (Filed herewith.)

          (b)     The Registrant  filed no reports on Form 8-K during the period
                  October 1, 1997 through December 31, 1997.

          (c)     Not applicable.

          (d)     Other Financial Information

                  The   Partnership  is  required  to  file  audited   financial
                  information of two of its tenants (DenAmerica Corp. and Golden
                  Corral  Corporation)  as a result  of these two  tenants  each
                  leasing more than 20 percent of the Partnership's total assets
                  for the year ended  December 31, 1997.  DenAmerica  Corp. is a
                  public company and as of the date hereof,  had not filed their
                  Form  10-K;  therefore,   the  financial  statements  are  not
                  available to the  Partnership  to include in this filing.  The
                  Partnership will file this financial  information  under cover
                  of a Form  10-K/A as soon as it is  available.  Golden  Corral
                  Corporation  is a  privately-held  company  and its  financial
                  information is not publicly available.

                                       39

<PAGE>



                                   SIGNATURES


          Pursuant to the  requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the  undersigned,  thereunto duly  authorized,  on the 24th day of
March, 1998.

                                            CNL INCOME FUND XVI, LTD.

                                            By:    CNL REALTY CORPORATION
                                                   General Partner

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


                                            By:    ROBERT A. BOURNE
                                                   General Partner

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


                                            By:    JAMES M. SENEFF, JR.
                                                   General Partner

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



<PAGE>



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

==========================================================================================================================
               Signature                                  Title                                    Date
<S> <C>
/s/ Robert A. Bourne                     President, Treasurer and Director                    March 24, 1998
----------------------------------       (Principal Financial and
Robert A. Bourne                         Accounting  Officer)


/s/ James M. Seneff, Jr.                 Chief Executive Officer and                          March 24, 1998
----------------------------------       Director (Principal Executive
James M. Seneff, Jr.                     Officer)


==========================================================================================================================
</TABLE>




<PAGE>



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

             SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION

                                December 31, 1997

<TABLE>
<CAPTION>


                                                                                          Costs Capitalized
                                                                                               Subsequent
                                                          Initial Cost                     To Acquisition
                                                                      Buildings
                                      Encum-                             and             Improve-      Carrying
                                     brances           Land          Improvements         ments         Costs
<S> <C>
Properties the Partnership
  has Invested in Under
  Operating Leases:

    Arby's Restaurant:
      Indianapolis, Indiana               -         $  315,276       $  591,993        $        -        $   -

    Boston Market Restaurants:
      St. Cloud, Minnesota                -            502,786          645,127                 -            -
      Columbia Heights, Minnesota         -            277,576          725,953                 -            -
      Madison, Tennessee (i)              -            343,367          484,422                 -            -

    Checkers Drive-In Restaurants:
      Conyers, Georgia                    -            363,553               -                  -            -
      Lake Worth, Florida                 -            325,302               -                  -            -
      Ocala, Florida                      -            289,578               -                  -            -
      Pompano Beach, Florida              -            373,491               -                  -            -
      Tampa, Florida                      -            372,177               -                  -            -
      Tampa, Florida                      -            221,715               -                  -            -

    Denny's Restaurants:
      Tucson, Arizona                     -            218,353               -                  -            -
      Idaho Falls, Idaho                  -            552,186               -             692,274           -
      Branson, Missouri                   -          1,160,979               -           1,010,688           -
      Dover, Ohio                         -            266,829               -                  -            -
      Salina, Kansas                      -            260,711               -                  -            -
      Moab, Utah                          -            432,825               -                  -            -
      Mesquite, Texas                     -            403,548          650,659                 -            -
      Temple, Texas                       -            306,866          677,659                 -            -

    Golden Corral Family
      Steakhouse Restaurants:
        Fort Collins, Colorado            -            566,943               -           1,122,500           -
        Hickory, North Carolina           -            761,108               -           1,001,893           -
        Independence, Missouri            -            781,761               -           1,147,538           -
        Baytown, Texas                    -            446,240               -             971,766           -
        Rosenburg, Texas                  -            320,133               -             804,428           -
        Farmington, New Mexico            -            517,495               -           1,037,873           -

    IHOP Restaurant:
      Ft. Worth, Texas                    -            364,634          554,302                 -            -

    Jack in the Box Restaurants:
      Brownsville, Texas                  -            553,671               -             658,282           -
      Grand Prairie, Texas                -            439,950               -             636,524           -
      Rancho Cordova, California          -            401,302          595,722                 -            -
      Temple City, California             -            744,493          225,404                 -            -
      Texas City, Texas                   -            403,476          568,053                 -            -

    KFC Restaurant:
      Concordia, Missouri                 -            188,759               -             434,369           -

</TABLE>

<PAGE>









<TABLE>
<CAPTION>


                                                                                                                         Life
                                                                                                                       on Which
                    Gross Amount at Which Carried                                                                     Depreciation
                        at Close of Period (g)                                                                         in Latest
                             Buildings                                                 Date                             Income
                                and                               Accumulated         of Con-          Date          Statement is
             Land           Improvements          Total           Depreciation       struction       Acquired          Computed
         -----------        ------------       -----------        ------------       ---------       --------        ----------
<S> <C>





         $   315,276        $   591,993        $   907,269        $ 46,778              1978           08/95            (c)


             502,786            645,127          1,147,913          49,327              1995           09/95            (c)
             277,576            725,953          1,003,529          49,391              1995           12/95            (c)
             343,367            484,422            827,789          42,890              1995           05/95            (c)


             363,553                 -             363,553              (b)               -            12/94            (b)
             325,302                 -             325,302              (b)               -            12/94            (b)
             289,578                 -             289,578              (b)               -            12/94            (b)
             373,491                 -             373,491              (b)               -            12/94            (b)
             372,177                 -             372,177              (b)               -            12/94            (b)
             221,715                 -             221,715              (b)               -            12/94            (b)


             218,353              (d)              218,353            (e)               1995           10/94            (e)
             552,186            692,274          1,244,460          58,134              1995           01/95            (c)
           1,160,979          1,010,688          2,171,667          68,242              1995           03/95            (c)
             266,829              (d)              266,829            (e)               1971           03/95            (e)
             260,711              (d)              260,711            (e)               1995           04/95            (e)
             432,825              (d)              432,825            (e)               1995           06/95            (e)
             403,548            650,659          1,054,207          50,642              1995           08/95            (c)
             306,866            677,659            984,525          52,743              1975           08/95            (c)



             566,943          1,122,500          1,689,443         104,844              1995           10/94            (c)
             761,108          1,001,893          1,763,001         100,281              1994           11/94            (c)
             781,761          1,147,538          1,929,299         114,859              1994           11/94            (c)
             446,240            971,766          1,418,006          88,764              1995           01/95            (c)
             320,133            804,428          1,124,561          65,095              1995           05/95            (c)
             517,495          1,037,873          1,555,368          62,154              1996           01/96            (c)


             364,634            554,302            918,936          33,701              1994           03/96            (c)


             553,671            658,282          1,211,953          65,152              1995           10/94            (c)
             439,950            636,524          1,076,474          58,988              1995           10/94            (c)
             401,302            595,722            997,024          62,945              1985           10/94            (c)
             744,493            225,404            969,897          23,817              1984           10/94            (c)
             403,476            568,053            971,529          60,022              1991           10/94            (c)


             188,759            434,369            623,128          30,981              1995           09/95            (c)
</TABLE>

                                       F-1

<PAGE>



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

             SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION

                                December 31, 1997


<TABLE>
<CAPTION>

                                                                                                     Costs Capitalized
                                                                                                         Subsequent
                                                                    Initial Cost                       To Acquisition
                                                                                Buildings
                                                Encum-                             and             Improve-      Carrying
                                               brances          Land           Improvements         ments         Costs
<S> <C>
    Long John Silver's Restaurants:
      Charlotte, North Carolina                     -            313,200               -             415,695           -
      Copperas Cove, Texas                          -            162,000               -                  -            -
      Kansas City, Missouri                         -            370,204               -             433,058           -
      Silver City, New Mexico                       -            116,767          183,174                 -            -

    Shoney's Restaurant:
      Las Vegas, Nevada                             -            426,238               -                  -            -

    Wendy's Old Fashioned Hamburgers
      Restaurant:
        Washington, District of
          Columbia                                  -            393,963          567,626                 -            -
                                                             -----------       ----------        -----------      ------

                                                             $15,259,455       $6,470,094        $10,366,888      $    -
                                                             ===========       ==========        ===========      ======

Property of Joint Venture in Which the
  Partnership has an 80.27%  Interest and
  has Invested in Under an Operating Lease:

    Boston Market Restaurant:
      Fayetteville, North Carolina                  -        $   377,800       $  587,700        $        -       $    -
                                                             ===========       ==========        ===========      ======

Properties the Partnership
  has Invested in Under
  Direct Financing Leases:

    Boston Market Restaurant:
        Chattanooga, Tennessee (i)                  -            184,014          577,320                 -            -

    Denny's Restaurants:
      Tucson, Arizona                               -        $        -        $      -          $   539,769      $    -
      Bucyrus, Ohio                                 -            139,003          155,194            273,858           -
      Dover, Ohio                                   -                 -           200,612            236,270           -
      Salina, Kansas                                -                 -               -              693,781           -
      Moab, Utah                                    -                 -               -              727,211           -

    Long John Silver's Restaurants:
      Celina, Ohio                                  -            109,129             -               425,145           -
      Clovis, New Mexico                            -            127,607          425,282                 -            -
      Copperas Cove, Texas                          -                 -           424,319                 -            -

    Shoney's Restaurant:
      Las Vegas, Nevada                             -                 -           812,466                 -            -
                                                             -----------       ----------        -----------      ------

                                                             $   559,753       $2,595,193        $ 2,896,034      $    -
                                                             ===========       ==========        ===========      ======
</TABLE>


<PAGE>









<TABLE>
<CAPTION>


                                                                                                                         Life
                                                                                                                       on Which
                   Gross Amount at Which Carried                                                                     Depreciation
                      at Close of Period (g)                                                                         in Latest
                             Buildings                                                 Date                             Income
                                and                               Accumulated         of Con-          Date          Statement is
             Land           Improvements          Total           Depreciation       struction       Acquired          Computed
         -----------        ------------       -----------        ------------       ---------       --------        ----------
<S> <C>

             313,200            415,695            728,895          37,299              1995           12/94            (c)
             162,000             (d)               162,000            (e)               1994           12/94            (e)
             370,204            433,058            803,262          40,172              1995           12/94            (c)
             116,767            183,174            299,941          12,630              1982           12/95            (c)


             426,238             (d)               426,238            (e)               1992           05/95            (e)




             393,963            567,626            961,589          57,592              1983           12/94            (c)
         -----------        -----------        -----------      ----------

         $15,259,455        $16,836,982        $32,096,437      $1,437,443
         ===========        ===========        ===========      ==========







         $   377,800        $   587,700        $   965,500      $   24,358              1996           10/96            (c)
         ===========        ===========        ===========      ==========






               (d)                  (d)                (d)             (f)               1995           05/95           (f)


               -                  (d)                  (d)             (e)               1995           10/94           (e)
               (d)                  (d)                (d)             (f)               1973           03/95           (f)
               -                  (d)                  (d)             (e)               1971           03/95           (e)
               -                  (d)                  (d)             (e)               1995           04/95           (e)
               -                  (d)                  (d)             (e)               1995           06/94           (e)


               (d)                  (d)                (d)             (f)               1995           10/94           (f)
               (d)                  (d)                (d)             (f)               1976           12/94           (f)
               -                  (d)                  (d)             (e)               1994           12/94           (e)


               -                  (d)                  (d)             (e)               1992           05/95           (e)
</TABLE>

                                       F-2

<PAGE>



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

        NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION

                                December 31, 1997



(a)      Transactions in real estate and accumulated  depreciation  during 1997,
         1996 and 1995 are summarized as follows:
<TABLE>
<CAPTION>

                                                                                                          Accumulated
                                                                                         Cost             Depreciation
<S> <C>
                    Properties the Partnership
                      has Invested in Under
                      Operating Leases:

                        Balance, December 31, 1994                                    $14,697,306        $    8,908
                        Acquisitions                                                   15,418,316                -
                        Reclassified to net invest-
                          ment in direct financing
                          lease                                                         (649,736)                -
                        Depreciation expense                                                   -            316,205
                                                                                      -----------        ----------

                        Balance, December 31, 1995                                     29,465,886           325,113
                        Acquisitions                                                    3,488,522                -
                        Dispositions                                                    (312,499)                -
                        Depreciation expense                                                   -            550,447
                                                                                      -----------        ----------

                        Balance, December 31, 1996                                     32,641,909           875,560
                        Dispositions                                                    (545,472)                -
                        Depreciation expense                                                   -            561,883
                                                                                      -----------        ----------

                        Balance, December 31, 1997                                    $32,096,437        $1,437,443
                                                                                      ===========        ==========


                    Property of Joint  Venture in Which
                      the Partnership has an 80.27%
                      Interest and has Invested in Under
                      and Operating Lease:

                        Balance, December 31, 1995                                    $        -         $       -
                        Acquisition                                                       965,500                -
                        Depreciation expense                                                   -              4,768
                                                                                      -----------        ----------

                        Balance, December 31, 1996                                        965,500             4,768
                        Depreciation expense                                                   -             19,590
                                                                                      -----------        ----------

                        Balance, December 31, 1997                                    $   965,500        $   24,358
                                                                                      ===========        ==========
</TABLE>


(b)        The  building  portion  of this  Property  is  owned  by the  tenant;
           therefore, depreciation is not applicable.

(c)        Depreciation expense is computed for buildings and improvements based
           upon estimated lives of 30 years.

(d)        For financial  reporting  purposes,  certain  components of the lease
           relating  to  land  and  building  have  been  recorded  as a  direct
           financing lease.  Accordingly,  costs relating to these components of
           this lease are not shown.

(e)        For financial reporting  purposes,  the portion of the lease relating
           to the building has been recorded as a direct  financing  lease.  The
           cost of the building has been  included in net  investment  in direct
           financing leases; therefore, depreciation is not applicable.

                                       F-3

<PAGE>



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

               NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
                            DEPRECIATION - CONTINUED

                                December 31, 1997



(f)      For financial reporting  purposes,  the lease for the land and building
         has been recorded as a direct financing lease. The cost of the land and
         building  has been  included  in net  investment  in  direct  financing
         leases; therefore, depreciation is not applicable.

(g)      As of December 31, 1997, the aggregate cost of the Properties  owned by
         the  Partnership  and the joint venture for federal income tax purposes
         was  $38,151,418  and  $775,000,  respectively.  All of the  leases are
         treated as operating leases for federal income tax purposes.

(h)      During the years ended December 31, 1996 and 1994, the Partnership, and
         an affiliate as  tenants-in-common,  purchased  land and buildings from
         CNL BB Corp.,  an affiliate of the General  Partners,  for an aggregate
         cost of $775,000 and $4,094,922, respectively.

(i)      The restaurants in Madison,  Tennessee and Chattanooga,  Tennessee were
         converted  from Kenny  Rogers  Roasters  restaurants  to Boston  Market
         restaurants in 1996.

                                       F-4

<PAGE>



                                    EXHIBITS


<PAGE>


                                  EXHIBIT INDEX


Exhibit Number                                                             Page

      3.1         Affidavit and Certificate of Limited Partnership of CNL Income
                  Fund  XVI,  Ltd.  (Included  as  Exhibit  3.2 to  Registration
                  Statement  No.  33-69968-01  on  Form  S- 11 and  incorporated
                  herein by reference.)

      4.1         Affidavit and Certificate of Limited Partnership of CNL Income
                  Fund  XVI,  Ltd.  (Included  as  Exhibit  3.2 to  Registration
                  Statement  No.  33-69968-01  on  Form  S- 11 and  incorporated
                  herein by reference.)

      4.2         Amended and Restated  Agreement of Limited  Partnership of CNL
                  Income Fund XVI,  Ltd.  (Included  as Exhibit 4.2 to Form 10-K
                  filed with the Securities and Exchange Commission on March 30,
                  1995, and incorporated herein by reference.)

     10.1         Management Agreement between CNL Income Fund XVI, Ltd. and CNL
                  Investment  Company  (Included  as  Exhibit  10.1 to Form 10-K
                  filed with the Securities and Exchange Commission on March 30,
                  1995, and incorporated herein by reference.)

     10.2         Assignment of Management Agreement from CNL Investment Company
                  to CNL Income Fund Advisors, Inc. (Included as Exhibit 10.2 to
                  Form 10-K filed with the Securities and Exchange Commission on
                  March 30, 1995, and incorporated herein by reference.)

     10.3         Assignment  of  Management  Agreement  from  CNL  Income  Fund
                  Advisors, Inc. to CNL Fund Advisors, Inc. (Included as Exhibit
                  10.3 to Form  10-K  filed  with the  Securities  and  Exchange
                  Commission  on April  1,  1996,  and  incorporated  herein  by
                  reference.)

     27           Financial Data Schedule (Filed herewith.)



                                        i