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

                                   FORM 10-K/A
                                 Amendment No. 2



(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>



         The Form 10-K of CNL Income Fund XVI, Ltd. for the year ended  December
31,  1997 is being  amended  to  provide  additional  disclosure  under  Item 1.
Business, Item 2. Properties and Item 7. Management's Discussion and Analysis of
Financial  Condition and Results of Operations - Capital  Resources,  Short-Term
Liquidity and Long Term Liquidity.


                                     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.  The 42  Properties
include 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.


                                                         1

<PAGE>



         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 -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 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

                                                         2

<PAGE>



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  lessees 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 in excess of 20 percent of the total assets of the Partnership.

 Tenancy in Common Arrangements

         In October 1996,  the  Partnership  entered into an agreement to hold a
Boston Market Property as tenants-in-common  with CNL Income Fund XVII, Ltd., an
affiliate of the General  Partners.  The agreement  provides for the Partnership
and the  affiliate  to share in the profits and losses of the  Property  and net
cash flow from the  Property,  in  proportion  to each co-  tenant'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 CNL
Income Fund II, Ltd.  and CNL Income Fund VI,  Ltd.,  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- tenant's percentage  interest.  The Partnership owns a
40.42% interest in this Property.

         Each of the affiliates listed above is a limited partnership  organized
pursuant  to the laws of the State of Florida.  The tenancy in common  agreement
restricts each co-tenant's ability to sell, transfer,  or assign its interest in
the tenancy in common's

                                                         3

<PAGE>



Property without first offering it for sale to the remaining co-tenant.

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


Certain Management Services

         CNL 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.

         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.

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

                                                         4

<PAGE>



affiliates, who may also perform certain services for the
Partnership.


Item 2.  Properties


         As of December 31, 1997, the Partnership owned 42 Properties. Of the 42
Properties,  41 are  owned by the  Partnership  in fee  simple  and one is owned
through a tenancy in common  arrangement.  See Item 1.  Business - Joint Venture
and Tenancy in Common Arrangements. The Partnership is not permitted to encumber
its Properties under the terms of its partnership  agreement.  Reference is made
to the  Schedule of Real  Estate and  Accumulated  Depreciation  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.


                                                         5

<PAGE>



         The following table lists the Properties owned by the Partnership as of
December 31, 1997 by state. More detailed information  regarding the location of
the  Properties  is  contained  in the  Schedule of Real Estate and  Accumulated
Depreciation filed with this report.

         State                            Number of Properties

         Arizona                                    1
         California                                 2
         Colorado                                   1
         Washington D.C.                            1
         Florida                                    5
         Georgia                                    1
         Idaho                                      1
         Indiana                                    1
         Kansas                                     1
         Minnesota                                  2
         Missouri                                   4
         North Carolina                             3
         New Mexico                                 3
         Nevada                                     1
         Ohio                                       3
         Tennessee                                  2
         Texas                                      9
         Utah                                       1
                                               ------
         TOTAL PROPERTIES:                         42
                                               ======

         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

                                                         6

<PAGE>



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.  As of December 31, 1997, the Partnership
had no plans for renovation of the Properties.  Depreciation expense is computed
for  buildings  and  improvements   using  the  straight  line  method  using  a
depreciable life of 40 years for federal income tax purposes. As of December 31,
1997, the aggregate cost basis of the Properties  owned by the  Partnership  and
through  tenancy in common  arrangements  for federal  income tax  purposes  was
$38,151,418 and $775,000, respectively.



                                                         7

<PAGE>



         The following table lists the Properties owned by the Partnership as of
December 31, 1997 by Restaurant Chain.

         Restaurant Chain                 Number of Properties

         Arby's                                   1
         Boston Market                            5
         Checkers                                 6
         Denny's                                  9
         Golden Corral                            6
         IHOP                                     1
         Jack in the Box                          5
         KFC                                      1
         Long John Silver's                       6
         Shoney's                                 1
         Wendy's                                  1
                                             ------
         TOTAL PROPERTIES                        42
                                             ======


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

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


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

         At December 31, 1997,  1996, 1995, and 1994, all of the Properties were
leased.  The following is a schedule of the average  annual rent for each of the
years ended December 31:
<TABLE>
<CAPTION>


                                                         For the Year Ended December 31:
                                   1997            1996              1995               1994          1993 (2)
                              -------------      -----------     -----------        ----------     ----------
<S> <C>
    Rental Revenues (1)        $4,392,092        $4,357,033       $2,698,956          $130,720        -
    Properties                         42                43               41                22        -
    Average Rent per Unit        $104,574          $101,326          $65,828            $5,942        -
</TABLE>

(1)      Rental revenues include the Partnership's share of rental revenues from
         the  property  owned  through a tenancy in common  arrangement.  Rental
         revenues have been adjusted,  as applicable,  for any amounts for which
         the Partnership has established an allowance for doubtful accounts.


(2)      The date for 1993 represents the  period  September  2,  1993  (date of
         inception) through December 31, 1993.



                                                         9

<PAGE>



         The following is a schedule of lease expirations for leases in place as
of  December  31,  1997  for  each of the ten  years  beginning  with  1998  and
thereafter.
<TABLE>
<CAPTION>

                                                                                            Percentage of
                                            Number              Annual Rental                Gross Annual
        Expiration Year                 of Leases                  Revenues                 Rental Income
<S> <C>
              1998                              -                           -                           -
              1999                              -                           -                           -
              2000                              -                           -                           -
              2001                              -                           -                           -
              2002                              -                           -                           -
              2003                              -                           -                           -
              2004                              -                           -                           -
              2005                              -                           -                           -
              2006                              -                           -                           -
              2007                              -                           -                           -
              Thereafter                       42                   4,345,910                     100.00%
                                          -------             ---------------               -------------
              Totals                           42                   4,345,910                     100.00%
                                          =======             ===============               =============
</TABLE>


      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.

      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

                                                        10

<PAGE>



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).




 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.



                                                        11

<PAGE>



                                     PART II

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 tenancy in common arrangement.

 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.


                                                        12

<PAGE>



      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

                                                        13

<PAGE>



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
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 or through the tenancy in
common  arrangement  in which the  Partnership  owns an  interest,  is or may be
encumbered.   Subject  to  certain  restrictions  on  borrowing,   however,  the
Partnership  may borrow  funds but will not encumber  any of the  Properties  in
connection  with any such  borrowing.  The  Partnership  will not borrow for the
purpose of returning capital to the Limited  Partners.  The Partnership will not
borrow  under  arrangements  that  would  make the  Limited  Partners  liable to
creditors of the Partnership. The General Partners further have represented that
they will use their  reasonable  efforts to structure  any  borrowing so that it
will not constitute  "acquisition  indebtedness" for federal income tax purposes
and also will limit the Partnership's  outstanding indebtedness to three percent
of the  aggregate  adjusted  tax  basis  of its  Properties.  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 , rental income from the Partnership's Properties
and net sales  proceeds from the sale of  Properties,  pending  reinvestment  in
additional   Properties,   are  invested  in  money  market  accounts  or  other
short-term,  highly  liquid  investments  such as  demand  deposit  accounts  at
commercial banks, CDs and money market accounts with less than a 30-day maturity
date, pending the Partnership's use of such funds to pay Partnership expenses or
to make  distributions  to partners.  At December 31, 1997, the  Partnership had
$1,673,869 invested in such short-term  investments as compared to $1,546,203 at
December 31, 1996. As of December 31, 1997, the average  interest rate earned on
the rental income  deposited in demand deposit  accounts at commercial banks was
approximately three percent annually.  The funds remaining at December 31, 1997,
after payment of distributions and other  liabilities,  will be used to meet the
Partnership's working capital and other needs.

Short-Term Liquidity

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


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

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

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


      The Partnership  generally distributes cash from operations remaining
after the payment of the operating  expenses of the  Partnership,  to the extent
that  the  General  Partners   determine  that  such  funds  are  available  for
distribution.   Based  on  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.


         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

                                                        15

<PAGE>



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.


Long-Term Liquidity

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


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

                                                        16

<PAGE>



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 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

                                                        17

<PAGE>



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 "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 "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.

                                                        18

<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 29th day of
July, 1999.

                                         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        July 29, 1999
--------------------------          (Principal Financial and Accounting
Robert A. Bourne                    Officer)


/s/ James M. Seneff, Jr.            Chief Executive Oficer and Director      July 29, 1999
--------------------------          (Principal Executive Officer)
James M. Seneff, Jr.



</TABLE>