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, 1998

                                       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) 650-1000

               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 4,500,000 units of limited
partnership  interest  (the  "Units") on Form S-11 under the  Securities  Act of
1933, as amended. Since no established market for such Units exists, there is no
market value for such Units. Each Unit was originally sold at $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. During
the year ended  December 31, 1997,  the  Partnership  sold a Property in Oviedo,
Florida, and during 1998 the Partnership  reinvested the net sales proceeds from
the  sale  of  this   Property  in  a  Property  in   Memphis,   Tennessee,   as
tenants-in-common,  with affiliates of the General Partners. In addition, during
1998,  the  Partnership  received  a  reimbursement  from the  developer  of the
Property  in  Farmington,   New  Mexico  upon  final   reconciliation  of  total
construction costs. In August 1998, the Partnership used these proceeds to enter
into a joint venture arrangement, Columbus Joint Venture, with affiliates of the
General Partners,  to construct and hold one restaurant Property. As a result of
the above  transactions,  as of December  31,  1998,  the  Partnership  owned 44
Properties,  including six Properties  consisting of land only, interests in one
Property owned through a joint venture in which the Partnership is a co-venturer
and two Properties owned with affiliates 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 general,  the Partnership leases
the  Properties  on a  triple-net  basis with the  lessees  responsible  for all
repairs and maintenance, property taxes, insurance and utilities.

         On March 11, 1999, the  Partnership  entered into an Agreement and Plan
of Merger with CNL American Properties Fund, Inc. ("APF"), pursuant to which the
Partnership  would be merged with and into a subsidiary  of APF (the  "Merger").
APF is a real estate investment trust whose primary business is the ownership of
restaurant properties leased on a long-term,  "triple-net" basis to operators of
national and regional  restaurant  chains. APF has agreed to issue shares of its
common stock, par value $0.01 per share (the "APF Shares"), as consideration for
the Merger.  At a special meeting of the partners that is expected to be held in
the third  quarter  of 1999,  Limited  Partners  holding in excess of 50% of the
Partnership's  outstanding limited partnership interests must approve the Merger
prior to consummation of the transaction. If the Limited Partners at the special
meeting approve the Merger,  APF will own the Properties and other assets of the
Partnership. See Item 8.
Financial Statements and Supplementary Data -- Note 11. Subsequent Event.

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

Leases

         Although there are variations in the specific terms of the leases,  the
following  is  a  summarized   description  of  the  general  structure  of  the
Partnership's leases. The leases of the Properties owned by the Partnership, the
Property owned by a joint venture in which the  Partnership is a co-venturer and
Properties  owned as  tenants-in-common  with affiliates of the General Partners
provide for initial  terms  ranging  from 15 to 20 years (the  average  being 19
years) and expire between 2009 and 2018.  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  certain  leases,  the  option
purchase  price  may equal  the  Partnership's  original  cost to  purchase  the
Property (including  acquisition  costs),  plus a specified  percentage from the
date of the lease or a specified percentage of the Partnership's purchase price,
if that amount is greater than the Property's  fair market value at the time the
purchase option is exercised.

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

         During 1998, the tenant of the  Properties in Madison and  Chattanooga,
Tennessee  exercised  its  option  under the terms of its  lease  agreement,  to
exchange the existing  Property  with a  replacement  Property.  In  conjunction
therewith, the Partnership exchanged the Boston Market Properties in Madison and
Chattanooga,  Tennessee for a Boston Market Property in each of Lawrence, Kansas
and Indianapolis,  Indiana.  The leases for the original Properties were amended
to allow the new Properties to continue under the terms of the original  leases;
therefore, all terms of the original leases remained unchanged.

         In January  1998,  the  Partnership  acquired a  Property  in  Memphis,
Tennessee,  as  tenants-in-common  with affiliates of the General  Partners.  In
August 1998, the Partnership entered into a joint venture arrangement,  Columbus
Joint Venture,  with affiliates of the General  Partners,  to construct and hold
one restaurant Property.  The lease terms for these Properties are substantially
the same as the Partnership's other leases, as described above.

         During  1998,  three  tenants,   Long  John  Silver's,   Inc.,   Finest
Foodservice, L.L.C., and Boston Chicken, Inc., filed for bankruptcy and rejected
the leases  relating  to four of their  seven  leases and ceased  making  rental
payments to the Partnership on the rejected  leases.  The  Partnership  will not
recognize  rental and earned income from these four Properties until new tenants
for  these  Properties  are  located  or until the  Properties  are sold and the
proceeds from such sales are  reinvested in additional  Properties.  As of March
11, 1999, the Partnership has continued  receiving  rental payments  relating to
the leases not rejected by the  tenants.  While the tenants have not rejected or
affirmed the remaining three leases,  there can be no assurance that some or all
of these leases will not be rejected in the future.  The lost revenues resulting
from the four leases that were rejected,  as described  above,  and the possible
rejection  of the three  remaining  leases  could have an adverse  effect on the
results  of  operations  of the  Partnership  if the  Partnership  is  unable to
re-lease the Properties in a timely manner.  The General  Partners are currently
seeking either new tenants or purchasers for the four Properties.

Major Tenants

         During  1998,   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, 1998,
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 nine
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 1999.  In
addition,  four Restaurant Chains,  Golden Corral Family Steakhouse  Restaurants
("Golden  Corral"),  Jack in the Box, Boston Market and Denny's,  each accounted
for more than ten percent of the Partnership's  total rental income during 1998.
In 1999, it is anticipated that Golden Corral, Jack in the Box, and Denny's 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 if the  Partnership is not able to re-lease the Properties
in a timely  manner.  As of December 31, 1998,  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
80.44% 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.

         In  addition,  in August  1998,  the  Partnership  entered into a joint
venture  arrangement,  Columbus  Joint Venture,  with  affiliates of the General
Partners,  to construct  and hold one Property.  The joint  venture  arrangement
provides  for the  Partnership  and its joint  venture  partners to share in all
costs  and  benefits  associated  in the joint  venture  in  proportion  to each
partner's  percentage  interest in the joint venture.  The  Partnership  and its
joint  venture  partners  are also jointly and  severally  liable for all debts,
obligations  and  other  liabilities  of the  joint  venture.  When  funding  is
complete,  the Partnership expects to have an approximate 32 percent interest in
the profits and losses of this joint venture.

Certain Management Services

         CNL Fund Advisors, Inc., an affiliate of the General Partners, provides
certain  services  relating to management of the  Partnership and its Properties
pursuant to a management  agreement with the Partnership.  Under this agreement,
CNL  Fund  Advisors,   Inc.  is  responsible  for  collecting  rental  payments,
inspecting  the  Properties  and the tenants'  books and records,  assisting the
Partnership  in  responding  to  tenant  inquiries  and  notices  and  providing
information  to  the  Partnership  about  the  status  of  the  leases  and  the
Properties.  CNL Fund  Advisors,  Inc.  also  assists  the  General  Partners in
negotiating the leases.  For these  services,  the Partnership has agreed to pay
CNL 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.

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

Competition

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

Employees

         The  Partnership   has  no  employees.   The  officers  of  CNL  Realty
Corporation  and the officers and employees of 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, 1998,  the  Partnership  owned,  either  directly or
indirectly  through a joint venture  arrangement,  44 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 six 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,  1998 (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  $155,400  (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  $97,400  (ranging from  approximately
$88,600 to $115,600).

         DenAmerica Corp. leases nine Denny's  restaurants.  The initial term of
each lease is 20 years (expiring  between 2014 and 2015) and the average minimum
base annual rent is approximately  $111,200 (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 11,  1999 there were 3,022  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.  From inception through
December 31, 1998, the price paid for any Unit transferred  pursuant to the Plan
was $9.50 per Unit. The price paid for any Unit transferred  other than pursuant
to the Plan was subject to negotiation by the purchaser and the selling  Limited
Partner. The Partnership will not redeem or repurchase Units.

         The following table reflects,  for each calendar quarter, the high, low
and average  sales prices for transfers of Units during 1998 and 1997 other than
pursuant to the Plan, net of commissions.
<TABLE>
<CAPTION>

                                                    1998 (1)                                 1997 (1)
                                       -----------------------------------      -----------------------------------
                                         High         Low        Average         High         Low         Average
                                       ---------    --------    ----------      --------    --------     ----------
<S> <C>
         First Quarter                      (2)         (2)           (2)        $ 9.50      $ 8.03         $ 9.29
         Second Quarter                  $10.00      $ 8.00         $9.01         10.00        8.75           9.40
         Third Quarter                    10.00        8.00          8.68           (2)         (2)            (2)
         Fourth Quarter                    9.50        8.12          8.75          8.80        7.93           8.45
</TABLE>

(1)      A total of 11,350 and 32,120 Units were transferred other than pursuant
         to the Plan for the years ended December 31, 1998 and 1997.

(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,  1998 and  1997,  the  Partnership
declared cash distributions of $3,690,000 and $3,600,000,  respectively,  to the
Limited  Partners.  During the quarter  ended March 31,  1998,  the  Partnership
declared a special  distribution of $90,000 which represented  cumulative excess
operating  reserves.  No amounts  distributed  to  partners  for the years ended
December  31,  1998 and 1997,  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.


<PAGE>



           Quarter Ended                       1998              1997
           -------------------------       -------------     -------------
           March 31                           $ 990,000         $ 900,000
           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>

                                           1998           1997            1996             1995            1994
                                       -------------- --------------- --------------  --------------- ---------------
<S> <C>
Year ended December 31:
     Revenues (1)                        $ 4,093,756    $ 4,455,994     $ 4,438,218      $ 3,023,641      $  207,735
     Net income (2)                        2,976,998      3,660,327       3,748,198        2,430,841         187,577
     Cash distributions
         declared (3)                      3,690,000      3,600,000       3,543,751        2,437,832         151,434
     Net income per Unit (2) (4)                0.65           0.81            0.82             0.60            0.17
     Cash distributions declared
         per Unit (3) (4)                       0.82           0.80            0.79             0.61            0.14

At December 31:
     Total assets                        $40,188,641    $40,938,320     $40,955,642      $41,240,500     $19,310,413
     Partners' capital                    39,191,924     39,904,926      39,844,599       39,640,152      17,474,033
</TABLE>

(1)      Revenues  include equity in earnings of joint ventures and  adjustments
         to  accrued  rental  income due to the  tenants  of certain  Properties
         filing for bankruptcy.

(2)      Net income for the year ended December 31, 1998 includes $266,257 for a
         provision for loss on building. 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.

(3)      Distributions  for the year ended  December  31, 1998 include a special
         distribution  to the Limited  Partners of  $90,000,  which  represented
         cumulative excess operating reserves.

(4)      Based  on  the  weighted   average  number  of  Limited  Partner  Units
         outstanding  during the years ended December 31, 1998,  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.


    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, 1998, the Partnership owned 44 Properties,  either
directly or indirectly through a joint venture arrangement.

Liquidity and Capital Resources

         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  $3,623,694,  $3,780,424,  and  $3,753,726  for the years  ended
December  31,  1998,  1997,  and 1996,  respectively.  The decrease in cash from
operations  during 1998, as compared to 1997,  and the increase  during 1997, as
compared to 1996,  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.

         Other  sources and uses of capital  included the  following  during the
years ended December 31, 1998, 1997, and 1996.

         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  80.44%
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.

         In April 1998, the Partnership received approximately $162,000 from the
developer  of  the  Property  in  Farmington,  New  Mexico.  This  represents  a
reimbursement from the developer upon final reconciliation of total construction
costs to the total  construction  costs funded by the  Partnership in accordance
with the development  agreement.  In August 1998, the Partnership entered into a
joint  venture  arrangement,  Columbus  Joint  Venture,  with  affiliates of the
General Partners,  to construct and hold one restaurant Property. As of December
31, 1998, the  Partnership had  contributed  approximately  $134,500 to purchase
land and pay for  construction  costs relating to the joint venture for a 32.35%
interest  in the  profits  and  losses of the joint  venture.  When  funding  is
completed, the Partnership expects to have an approximate 32 percent interest in
the profits and losses of the joint venture.

         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, 1998,
the  Partnership  had  $1,603,589  invested in such  short-term  investments  as
compared to $1,673,869 at December 31, 1997. The funds remaining at December 31,
1998, after payment of distributions and other liabilities, will be used to meet
the Partnership's working capital and other needs.

         In addition,  during  1996,  the  affiliates  incurred on behalf of the
Partnership $9,356 for certain  acquisition  expenses and during the years ended
December 31, 1998, 1997, and 1996, the affiliates  incurred  $125,080,  $84,319,
and $105,144,  respectively,  for certain operating expenses. As of December 31,
1998 and 1997, the Partnership owed $26,476 and $3,351, respectively, to related
parties for such amounts,  accounting and administrative services and management
fees. As of March 11, 1999,  the  Partnership  had reimbursed the affiliates all
such amounts. Other liabilities,  including distributions payable,  decreased to
$970,241 at December 31, 1998, from  $1,030,043 at December 31, 1997,  primarily
as a result  of the  payment  during  the  year  ended  December  31,  1998,  of
construction costs accrued for certain Properties at December 31, 1997.

         Based on cash from  operations,  and for the year  ended  December  31,
1998,   cumulative   excess  operating   reserves,   the  Partnership   declared
distributions to the Limited Partners of $3,690,000,  $3,600,000, and $3,543,751
for the years ended  December  31,  1998,  1997,  and 1996,  respectively.  This
represents distributions of $0.82, $0.80, and $0.79 per Unit for the years ended
December 31, 1998, 1997, and 1996,  respectively.  No amounts distributed to the
Limited  Partners for the years ended  December 31, 1998,  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. 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 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.

         On March 11, 1999, the  Partnership  entered into an Agreement and Plan
of Merger with APF,  pursuant to which the Partnership  would be merged with and
into a subsidiary  of APF. As  consideration  for the Merger,  APF has agreed to
issue  4,320,947  APF Shares  which,  for the  purposes  of  valuing  the merger
consideration,  have been valued by APF at $10.00 per APF Share,  the price paid
by APF  investors in APF's most recent public  offering.  In order to assist the
General  Partners in evaluating the proposed merger  consideration,  the General
Partners  retained  Valuation  Associates,  a nationally  recognized real estate
appraisal firm, to appraise the  Partnership's  restaurant  property  portfolio.
Based on Valuation Associates'  appraisal,  the Partnership's property portfolio
and other assets were valued on a going concern basis  (meaning the  Partnership
continues  unchanged) at  $42,519,005  as of December 31, 1998.  Legg Mason Wood
Walker,  Incorporated  has  rendered  a  fairness  opinion  that  the APF  Share
consideration, payable by APF, is fair to the Partnership from a financial point
of view.  The APF Shares are  expected  to be listed for trading on the New York
Stock Exchange concurrently with the consummation of the Merger, and, therefore,
would be freely  tradable  at the option of the former  Limited  Partners.  At a
special meeting of the partners that is expected to be held in the third quarter
of  1999,  Limited  Partners  holding  in  excess  of 50%  of the  Partnership's
outstanding  limited  partnership  interests  must  approve the Merger  prior to
consummation of the  transaction.  The General Partners intend to recommend that
the Limited Partners of the Partnership  approve the Merger.  In connection with
their  recommendation,  the  General  Partners  will  solicit the consent of the
Limited Partners at the special meeting.

Results of Operations

         The Partnership owned and leased 43 wholly owned Properties  (including
one Property in Appleton,  Wisconsin, which was sold in April 1996) during 1996,
42 wholly owned Properties (including one Property in Oviedo, Florida, which was
sold in March 1997) during 1997, and 43 wholly owned  Properties  (including two
Properties in Madison and Chattanooga, Tennessee exchanged for two Properties in
Lawrence,  Kansas and Indianapolis,  Indiana),  during 1998. In addition, during
1997 and 1996, the Partnership  owned and leased one Property with an affiliate,
as  tenants-in-common,  and during 1998, the  Partnership was a co-venturer in a
joint  venture  arrangement  that  owned  and  leased  one  Property,   and  the
Partnership   owned   and   leased   two   Properties   with   affiliates,    as
tenants-in-common.  As of December  31,  1998,  the  Partnership  owned,  either
directly,  as  tenants-in-common  or  through a joint  venture  arrangement,  44
Properties  which are  generally  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,  1998,  1997,  and  1996,  the
Partnership  earned $3,864,121,  $4,266,069,  and $4,297,558,  respectively,  in
rental  income from  operating  leases  (net of  adjustments  to accrued  rental
income) and earned income from direct  financing  leases from Properties  wholly
owned by the Partnership.  The decrease in rental and earned income during 1998,
as compared to 1997,  is partially  attributable  to the fact that in July 1998,
the tenant of the  Shoney's  Property  in Las Vegas,  Nevada  ceased  restaurant
operations and vacated the Property.  The  Partnership  established an allowance
for doubtful accounts during 1998 of approximately $82,500 for rental and earned
income  amounts  due from this  tenant due to the fact that  collection  of such
amounts is questionable.  The General  Partners are pursuing  collection of past
due amounts from the former tenant, and will recognize such amounts as income if
collected. In February 1999, the Partnership entered into a new lease with a new
tenant for this Property.  In addition,  during 1998, the Partnership  wrote off
approximately $77,300 of accrued rental income (non-cash accounting  adjustments
relating to the  straight-lining  of future  scheduled  rent  increases over the
lease term in accordance with generally accepted accounting principles) relating
to this Property.

         In addition,  rental and earned income decreased approximately $110,500
during  1998 as a result  of the fact  that in 1998,  three  tenants,  Long John
Silver's, Inc., Finest Foodservice,  L.L.C., and Boston Chicken, Inc., filed for
bankruptcy  and  rejected  the leases  relating to four of the seven  Properties
leased by these  tenants.  As a  result,  these  tenants  ceased  making  rental
payments on the four rejected  leases.  The Partnership has continued  receiving
rental  payments  relating  to  the  leases  not  rejected  by the  tenants.  In
conjunction with the four rejected leases, during 1998 the Partnership wrote off
approximately  $107,000 of accrued rental income (non-cash accounting adjustment
relating to the  straight-lining  of future  scheduled  rent  increases over the
lease term in accordance with generally  accepted  accounting  principles).  The
General  Partners are currently  seeking  either new tenants or  purchasers  for
these  Properties.  The  Partnership  will not  recognize  any rental and earned
income from these  Properties until new tenants for these Properties are located
or until the Properties are sold and the proceeds from such sales are reinvested
in  additional  Properties.  While the tenants have not rejected or affirmed the
remaining  three  leases,  there can be no  assurance  that some or all of these
leases will not be rejected in the future.  The lost revenues resulting from the
four leases that were rejected,  as described above, and the possible  rejection
of the three  remaining  leases  could have an adverse  effect on the results of
operations of the  Partnership  if the  Partnership  is not able to re-lease the
Properties in a timely manner.

         In addition,  the decrease in rental and earned  income during 1998 and
1997,  each as compared  to the  previous  year,  is  partially  the result of a
decrease in rental income due to the sale of the Property in Oviedo, Florida, in
March 1997.  The net sales  proceeds  were  reinvested in a Property in Memphis,
Tennessee,  with  affiliates  of  the  General  Partners  as  tenants-in-common,
resulting  in an increase in equity in earnings of joint  venture,  as described
below.  In addition,  the decrease in rental and earned  income  during 1997, as
compared to 1996, is a result of 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.

         In addition, for the years ended December 31, 1998, 1997, and 1996, the
Partnership earned $132,002, $73,507, and $19,668, respectively, attributable to
net income earned by joint ventures.  The increase in net income earned by joint
ventures during 1998, as compared to 1997, is primarily attributable to the fact
that in January  1998,  the  Partnership  reinvested  the net sales  proceeds it
received  from the 1997 sale of the  Property  in  Oviedo,  Florida,  in an IHOP
Property in  Memphis,  Tennessee,  with  affiliates  of the General  Partners as
tenants-in-common.  The increase  during 1997, as compared to 1996, is primarily
attributable  to the fact that in October 1996, the  Partnership  reinvested the
net sales  proceeds  it  received  from the sale of the  Property  in  Appleton,
Wisconsin, in a Property in Fayetteville, North Carolina, with affiliates of the
General  Partners.  This  Property was  operational  for a full year in 1997, as
compared to a partial year in 1996.

         During  the  year  ended  December  31,  1998,  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
(including the Partnership's share of rental income from the Property owned by a
joint   venture   and   the   two   Properties    owned   with   affiliates   as
tenants-in-common).  As of December 31, 1998, 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 nine restaurants.  It is anticipated that, based on the
minimum  rental  payments  required by the leases,  each of these  lessees  will
continue to contribute more than ten percent of the  Partnership's  total rental
income in 1999.  In addition,  during the year ended  December  31,  1998,  four
Restaurant  Chains,  Golden Corral,  Jack in the Box, Boston Market, 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  by a joint  venture  and the two  Properties  owned  with  affiliates  as
tenants-in-common).  During 1998,  the tenants of four Boston Market  Properties
filed for bankruptcy as described  below. In 1999, 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 if the Partnership is not able
to re-lease the Properties in a timely manner.

         During 1998,  the tenants of four Boston  Market  Properties  filed for
bankruptcy and rejected the leases relating to two  Properties.  The Partnership
will not recognize any rental and earned income from these  Properties until new
tenants for the Properties are located, or until the Properties are sold and the
proceeds  from such sales are  reinvested in  additional  Properties.  While the
tenants have not rejected or affirmed the remaining two leases,  there can be no
assurance that some or all of the leases will not be rejected in the future. The
lost revenues  resulting  from the two leases that were  rejected,  as described
above,  and the  possible  rejection of the  remaining  two leases could have an
adverse  effect  on  the  results  of  operations  of  the  Partnership  if  the
Partnership is not able to re-lease these Properties in a timely manner.

         Operating expenses,  including  depreciation and amortization  expense,
were  $850,501,  $836,815 and  $814,325  for the years ended  December 31, 1998,
1997, and 1996, respectively. The increase in operating expenses during 1998, as
compared to 1997,  is primarily  due to the fact that the  Partnership  incurred
$24,652  in  transaction  costs  relating  to  the  General  Partners  retaining
financial and legal  advisors to assist them in evaluating and  negotiating  the
proposed  Merger  with  APF,  as  described  above  in  "Liquidity  and  Capital
Resources."
 If the  Limited  Partners  reject the  Merger,  the  Partnership  will bear the
portion of the  transaction  costs based upon the  percentage of "For" votes and
the General Partners will bear the portion of such transaction  costs based upon
the percentage of "Against" votes and abstentions.



<PAGE>


         The increase in operating expenses during 1998 is partially offset by a
decrease  in  depreciation   expense  as  a  result  of  the   reimbursement  of
construction  costs from the developer  relating to the Property in  Farmington,
New  Mexico,  which  reduced  the  depreciable  basis  of land and  building  on
operating  leases  during 1998,  as described  above in  "Liquidity  and Capital
Resources."

         During 1998, the Partnership  incurred certain  expenses,  such as real
estate taxes,  insurance,  and maintenance relating to a Shoney's Property,  two
Boston  Market  Properties  and two Long John Silver's  Properties  which became
vacant, as described above. In February 1999, the Partnership entered into a new
lease with a new tenant for the Shoney's Property in Las Vegas,  Nevada. The new
tenant is responsible for real estate taxes, insurance, and maintenance relating
to this Property;  therefore,  the General  Partners do not anticipate  that the
Partnership will incur these expenses for this Property in the future.  However,
the  Partnership  will continue to incur certain  expenses,  such as real estate
taxes,  insurance,   and  maintenance  related  to  the  four  remaining  vacant
Properties  until new  tenants  for these  Properties  are  located or until the
Properties are sold. The Partnership is currently  seeking new tenants or buyers
for these Properties.

         The increase in operating expenses during 1997, as compared to 1996, is
partially  attributable to an increase in depreciation  expense as the result of
the  acquisition  of additional  Properties  during 1996,  and the fact that the
Properties  acquired  during 1996 were  operational  for a full year in 1997, as
compared to a partial year in 1996.  Operating  expenses also  increased  during
1997, as a result of the Partnership  incurring additional taxes relating to the
filing of various state tax returns during 1997.

         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 1998.

         During the year ended  December 31, 1998,  the  Partnership  recorded a
provision  for loss on building of $266,257  for  financial  reporting  purposes
relating to a Long John Silver's  Property in Celina,  Ohio.  The tenant of this
Property filed for bankruptcy and ceased payment of rents under the terms of its
lease agreement.  The allowance represents the difference between the Property's
carrying value at December 31, 1998 and the estimated net  realizable  value for
this Property. No such allowance was established during the years ended December
31, 1997 and 1996.

         The Partnership's leases as of December 31, 1998, 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.

Year 2000

         The Year 2000 problem is the result of information  technology  systems
and embedded  systems  (products which are made with  microprocessor  (computer)
chips such as HVAC systems,  physical  security  systems and elevators)  using a
two-digit  format,  as  opposed  to four  digits,  to  indicate  the year.  Such
information  technology and embedded systems may be unable to properly recognize
and process date-sensitive information beginning January 1, 2000.

         The  Partnership  currently  does not have any  information  technology
systems.  Affiliates of the General Partners provide all services  requiring the
use of information  technology  systems pursuant to a management  agreement with
the  Partnership.   The  maintenance  of  embedded  systems,   if  any,  at  the
Partnership's  Properties is the responsibility of the tenants of the Properties
in accordance with the terms of the Partnership's  leases.  The General Partners
and  affiliates  have  established  a team  dedicated to reviewing  the internal
information technology systems used in the operation of the Partnership, and the
information  technology and embedded  systems and the Year 2000 compliance plans
of the Partnership's tenants, significant suppliers,  financial institutions and
transfer agent.

         The  information  technology  infrastructure  of the  affiliates of the
General  Partners  consists of a network of personal  computers and servers that
were  obtained   from  major   suppliers.   The   affiliates   utilize   various
administrative  and financial  software  applications on that  infrastructure to
perform the business functions of the Partnership.  The inability of the General
Partners  and  affiliates  to identify  and timely  correct  material  Year 2000
deficiencies  in  the  software  and/or   infrastructure   could  result  in  an
interruption in, or failure of, certain of the Partnership's business activities
or operations.  Accordingly,  the General Partners and affiliates have requested
and  are  evaluating  documentation  from  the  suppliers  of the  software  and
infrastructure  of the  affiliates  regarding the Year 2000  compliance of their
products  that  are  used  in  the  business  activities  or  operations  of the
Partnership.   The  General  Partners  and  affiliates  have  not  yet  received
sufficient certifications to be assured that the suppliers have fully considered
and mitigated any potential material impact of the Year 2000  deficiencies.  The
costs  expected to be incurred by the General  Partners and affiliates to become
Year 2000  compliant  will be incurred by the General  Partners and  affiliates;
therefore,  these  costs  will  have no impact  on the  Partnership's  financial
position or results of operations.

         The  Partnership  has  material  third  party  relationships  with  its
tenants,  financial  institutions and transfer agent. The Partnership depends on
its  tenants  for  rents  and  cash  flows,   its  financial   institutions  for
availability  of cash and its  transfer  agent to  maintain  and track  investor
information.  If any of these third parties are unable to meet their obligations
to the  Partnership  because of the Year 2000  deficiencies,  such a failure may
have a material impact on the  Partnership.  Accordingly,  the General  Partners
have requested and are evaluating  documentation from the Partnership's tenants,
financial  institutions,   and  transfer  agent  relating  to  their  Year  2000
compliance  plans.  The  General  Partners  have  not  yet  received  sufficient
certifications  to be assured  that the  tenants,  financial  institutions,  and
transfer agent have fully considered and mitigated any potential material impact
of the Year 2000 deficiencies.  Therefore,  the General Partners do not, at this
time,  know of the potential  costs to the  Partnership of any adverse impact or
effect of any Year 2000 deficiencies by these third parties.

         The General  Partners  currently  expect that all year 2000  compliance
testing  and any  necessary  remedial  measures  on the  information  technology
systems used in the business  activities and operations of the Partnership  will
be completed prior to June 30, 1999.  Based on the progress the General Partners
and affiliates  have made in identifying and addressing the  Partnership's  Year
2000 issues and the plan and timeline to complete the  compliance  program,  the
General  Partners  do  not  foresee   significant   risks  associated  with  the
Partnership's  Year 2000 compliance at this time.  Because the General  Partners
and affiliates are still  evaluating  the status of the  information  technology
systems used in business  activities and operations of the  Partnership  and the
systems of the third parties with which the  Partnership  conducts its business,
the General Partners have not yet developed a comprehensive contingency plan and
are unable to identify "the most reasonably  likely worst case scenario" at this
time.  If  the  General  Partners  identify  significant  risks  related  to the
Partnership's  Year 2000 compliance or if the Partnership's Year 2000 compliance
program's  progress deviates  substantially from the anticipated  timeline,  the
General Partners will develop appropriate contingency plans.


Item 7A.   Quantitative and Qualitative Disclosures About Market Risk

         Not applicable.


Item 8.   Financial Statements and Supplementary Data


<PAGE>


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

                                    CONTENTS






                                                         Page

Report of Independent Accountants                          14

Financial Statements:

   Balance Sheets                                          15

   Statements of Income                                    16

   Statements of Partners' Capital                         17

   Statements of Cash Flows                                18

   Notes to Financial Statements                           21


<PAGE>






                        Report of Independent Accountants




To the Partners
CNL Income Fund XVI, Ltd.


In our opinion,  the financial  statements  listed in the index  appearing under
item 14(a)(1) present fairly, in all material  respects,  the financial position
of CNL Income Fund XVI,  Ltd. (a Florida  limited  partnership)  at December 31,
1998 and 1997,  and the results of its operations and its cash flows for each of
the three  years in the  period  ended  December  31,  1998 in  conformity  with
generally  accepted  accounting  principles.  In addition,  in our opinion,  the
financial  statement schedules listed in the index appearing under item 14(a)(2)
present fairly, in all material respects, the information set forth therein when
read in  conjunction  with the related  financial  statements.  These  financial
statements  and  financial  statement  schedules are the  responsibility  of the
Partnership's  management;  our responsibility is to express an opinion on these
financial  statements and financial  statement schedules based on our audits. We
conducted our audits of these  statements in accordance with generally  accepted
auditing  standards  which  require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the  amounts  and  disclosures  in  the  financial  statements,   assessing  the
accounting  principles  used and significant  estimates made by management,  and
evaluating the overall  financial  statement  presentation.  We believe that our
audits provide a reasonable basis for the opinion expressed above.






Orlando, Florida
January 26, 1999, except for Note 11 for which the date is March 11, 1999


<PAGE>


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

                                 BALANCE SHEETS

<TABLE>
<CAPTION>

                                                                                              December 31,
                                                                                   1998                      1997
                                                                             -----------------         ----------------
<S> <C>
                         ASSETS

Land and buildings on operating leases, less
    accumulated depreciation and allowance
    for loss on building                                                          $30,215,549              $30,658,994
Net investment in direct financing leases                                           5,361,848                5,968,812
Investment in joint ventures                                                        1,504,465                  771,684
Cash and cash equivalents                                                           1,603,589                1,673,869
Restricted cash                                                                            --                  627,899
Receivables, less allowance for doubtful
    accounts of $89,822 and $879                                                       63,214                   31,946
Prepaid expenses                                                                       13,745                    9,293
Organization costs, less accumulated
    amortization of $8,550 and $6,550                                                   1,450                    3,450
Accrued rental income                                                               1,424,781                1,192,373
                                                                             -----------------         ----------------

                                                                                  $40,188,641              $40,938,320
                                                                             =================         ================


                     LIABILITIES AND PARTNERS' CAPITAL

Acquisition and construction costs payable                                             $   --                $  53,278
Accounts payable                                                                        1,816                    2,707
Accrued and escrowed real estate taxes
    payable                                                                             7,163                    4,353
Distributions payable                                                                 900,000                  900,000
Due to related parties                                                                 26,476                    3,351
Rents paid in advance and deposits                                                     61,262                   69,705
                                                                             -----------------         ----------------
       Total liabilities                                                              996,717                1,033,394

Partners' capital                                                                  39,191,924               39,904,926
                                                                             -----------------         ----------------

                                                                                  $40,188,641              $40,938,320
                                                                             =================         ================

</TABLE>



                 See accompanying notes to financial statements.


<PAGE>


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

                              STATEMENTS OF INCOME
<TABLE>
<CAPTION>

                                                                             Year Ended December 31,
                                                                 1998                 1997                 1996
                                                             --------------       --------------       --------------
<S> <C>
Revenues:
    Rental income from operating leases                         $3,446,902           $3,562,920           $3,571,244
    Adjustments to accrued rental income                          (184,368 )                 --                   --
    Earned income from direct financing leases                     601,587              703,149              726,314
    Contingent rental income                                        35,860               35,604               37,600
    Interest income                                                 60,199               73,634               75,160
    Other income                                                     1,574                7,180                8,232
                                                             --------------       --------------       --------------
                                                                 3,961,754            4,382,487            4,418,550
                                                             --------------       --------------       --------------
Expenses:
    General operating and administrative                           158,519              186,934              183,734
    Professional services                                           40,471               25,352               26,569
    Management fees to related parties                              38,570               40,087               39,206
    Real estate taxes                                                9,060                   --                   --
    State and other taxes                                           19,398               20,559               12,369
    Loss on termination of direct financing lease                    4,471                   --                   --
    Depreciation and amortization                                  555,360              563,883              552,447
    Transaction costs                                               24,652                   --                   --
                                                             --------------       --------------       --------------
                                                                   850,501              836,815              814,325
                                                             --------------       --------------       --------------
Income Before Equity in Earnings of Joint
    Ventures, Gain on Sale of Land and
    Buildings, and Provision for Loss on Building                3,111,253            3,545,672            3,604,225

Equity in Earnings of Joint Ventures                               132,002               73,507               19,668

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

Provision for Loss on Building                                    (266,257 )                 --                   --
                                                             --------------       --------------       --------------

Net Income                                                      $2,976,998           $3,660,327           $3,748,198
                                                             ==============       ==============       ==============

Allocation of Net Income:
    General partners                                              $ 31,685             $ 36,192             $ 36,239
    Limited partners                                             2,945,313            3,624,135            3,711,959
                                                             --------------       --------------       --------------
                                                                $2,976,998           $3,660,327           $3,748,198
                                                             ==============       ==============       ==============

Net Income Per Limited Partner Unit                               $   0.65             $   0.81             $   0.82
                                                             ==============       ==============       ==============

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

                 See accompanying notes to financial statements.


<PAGE>

<TABLE>
<CAPTION>

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

                                                                         STATEMENTS OF PARTNERS' CAPITAL

                                                                  Years Ended December 31, 1998, 1997, and 1996

<S> <C>
                                     General Partners                     Limited Partners
                               -------------------------- ----------------------------------------------------
                                             Accumulated                              Accumulated  Syndication
                               Contributions   Earnings   Contributions Distributions   Earnings      Costs              Total
                               ------------- ------------ ------------- ------------- ------------- -----------     --------------

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

    Distributions to limited
       partners ($0.82 per
       limited partner unit)            --            --            --    (3,690,000 )           --           --     (3,690,000 )
    Net income                          --        31,685            --            --      2,945,313           --      2,976,998
                              -------------  ------------ ------------- -------------  ------------ -------------   ------------

Balance, December 31, 1998     $     1,000   $   130,300  $ 45,000,000  $(13,423,017 ) $ 12,873,641 $ (5,390,000 )  $39,191,924
                              =============  ============ ============= =============  ============ =============   ============

</TABLE>



                 See accompanying notes to financial statements.


<PAGE>


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

                            STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>


                                                                                  Year Ended December 31,
                                                                     1998                 1997                    1996
                                                                ----------------      ---------------       ----------------
<S> <C>
Increase (Decrease) in Cash and Cash Equivalents:

      Cash Flows from Operating Activities:
         Cash received from tenants                                 $ 3,675,430         $ 3,881,005             $  4,007,432
         Distributions from joint venture                               143,279              76,212                   20,279
         Cash paid for expenses                                        (273,929 )          (231,712  )              (349,145)
         Interest received                                               78,914              54,919                   75,160
                                                                ----------------      ---------------       ----------------
             Net cash provided by operating activities                3,623,694           3,780,424                3,753,726
                                                                ----------------      ---------------       ----------------

      Cash Flows from Investing Activities:
         Proceeds from sale of land and buildings                            --             610,384                  775,000
         Reimbursement of construction costs from
             developer                                                  161,648                  --                       --
         Additions to land and buildings on operating
             leases                                                      (3,545 )           (23,501  )            (2,355,627)
         Investment in direct financing leases                          (28,403 )           (29,257  )              (405,937)
         Investment in joint ventures                                  (744,058 )                --                 (775,000)
         Decrease (increase) in restricted cash                         610,384            (610,384  )                    --
                                                                ----------------      ---------------       ----------------
             Net cash used in investing activities                       (3,974 )           (52,758  )            (2,761,564)
                                                                ----------------      ---------------       ----------------

      Cash Flows from Financing Activities:
         Reimbursement of acquisition costs paid by
             related parties on behalf of the Partnership                    --                  --                   (2,494)
         Distributions to limited partners                           (3,690,000 )        (3,600,000  )            (3,431,251)
                                                                ----------------      ---------------       ----------------
                Net cash used in financing activities                (3,690,000 )        (3,600,000  )            (3,433,745)
                                                                ----------------      ---------------       ----------------

Net Increase (Decrease) in Cash and Cash Equivalents                    (70,280 )           127,666               (2,441,583)

Cash and Cash Equivalents at Beginning of Year                        1,673,869           1,546,203                3,987,786
                                                                ----------------      ---------------       ----------------

Cash and Cash Equivalents at End of Year                            $ 1,603,589         $ 1,673,869             $  1,546,203
                                                                ================      ===============       ================


</TABLE>





                 See accompanying notes to financial statements.


<PAGE>


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

                      STATEMENTS OF CASH FLOWS - CONTINUED

<TABLE>
<CAPTION>

                                                                               Year Ended December 31,

                                                                    1998                1997                1996
                                                               ---------------     ----------------    ---------------
<S> <C>
Reconciliation of Net Income to Net Cash
   Provided by Operating Activities:

      Net income                                                  $ 2,976,998           $3,660,327         $3,748,198
                                                               ---------------     ----------------    ---------------
      Adjustments to reconcile net income to
         net cash provided by operating
         activities:
             Loss on termination of direct
                financing lease                                         4,471                   --                 --
             Depreciation                                             553,360              561,883            550,447
             Amortization                                               2,000                2,000              2,000
             Equity in earnings of joint ventures,
                net of distributions                                   11,277                2,705                611
             Gain on sale of land and buildings                            --              (41,148 )         (124,305 )
             Provision for loss on building                           266,257                   --                 --
             Decrease (increase) in receivables                       (13,753 )             26,633             58,396
             Decrease in net investment in direct
                financing leases                                       43,343               37,684             29,269
             Increase in prepaid expenses                              (4,452 )               (119 )           (8,514 )
             Increase in accrued rental income                       (232,408 )           (444,650 )         (468,201 )
             Increase in accounts payable and
                accrued expenses                                        1,919                1,455                517
             Increase (decrease) in due to related
                parties, excluding reimbursement
                of acquisition costs paid on behalf
                of the Partnership                                     23,125                1,059            (76,259 )
             Increase (decrease) in rents paid in
                advance and deposits                                   (8,443 )            (27,405 )           41,567
                                                               ---------------     ----------------    ---------------
                   Total adjustments                                  646,696              120,097              5,528
                                                               ---------------     ----------------    ---------------

Net Cash Provided by Operating Activities                         $ 3,623,694           $3,780,424         $3,753,726
                                                               ===============     ================    ===============

</TABLE>




                 See accompanying notes to financial statements.


<PAGE>


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

                      STATEMENTS OF CASH FLOWS - CONTINUED

<TABLE>
<CAPTION>
                                                                               Year Ended December 31,
                                                                   1998                  1997               1996
                                                               ---------------      ---------------    ----------------
<S> <C>
Supplemental Schedule of Non-Cash Investing
   and Financing Activities:

      Related parties paid certain acquisition
         costs on behalf of the Partnership as
         follows:                                                     $   --                $   --           $   9,356
                                                               ===============      ===============     ===============

      Land and building under operating lease
         exchanged for land and building under
         operating lease                                           $ 779,181                $   --             $    --
                                                               ===============      ===============    ================

      Land and building under direct financing
         lease exchanged for land and building
         under direct financing lease                              $ 761,334                $   --             $    --
                                                               ===============      ===============    ================

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


</TABLE>




                 See accompanying notes to financial statements.


<PAGE>


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

                          NOTES TO FINANCIAL STATEMENTS

                  Years Ended December 31, 1998, 1997, and 1996


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.

         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.

                  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.



<PAGE>


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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                  Years Ended December 31, 1998, 1997, and 1996


1.       Significant Accounting Policies - Continued:

                  Accrued  rental  income  represents  the  aggregate  amount of
                  income  recognized  on a  straight-line  basis  in  excess  of
                  scheduled rental payments to date.  Whenever a tenant defaults
                  under  the  terms  of its  lease,  or  events  or  changes  in
                  circumstance  indicate  that the  tenant  will not  lease  the
                  property  through the end of the lease term,  the  Partnership
                  either  reserves or writes-off the  cumulative  accrued rental
                  income balance.

         When  the  properties  are  sold,  the  related  cost  and  accumulated
         depreciation  for operating  leases and the net  investment  for direct
         financing leases,  plus any accrued rental income, are removed from the
         accounts and gains or losses from sales are  reflected  in income.  The
         general  partners of the partnership  review  properties for impairment
         whenever events or changes in circumstances  indicate that the carrying
         amount of the assets may not be  recoverable  through  operations.  The
         general partners  determine whether an impairment in value has occurred
         by comparing the estimated future  undiscounted  cash flows,  including
         the  residual  value of the  property,  with the  carrying  cost of the
         individual  property.  If an impairment  is  indicated,  the assets are
         adjusted to their fair value.  Although the general  partners have made
         their best estimate of these factors based on current conditions, it is
         reasonably  possible  that  changes  could occur in the near term which
         could adversely affect the general  partners' best estimate of net cash
         flows  expected to be generated  from its  properties  and the need for
         asset impairment write downs.

         When the  collection  of amounts  recorded as rental or other income is
         considered  to be  doubtful,  an  adjustment  is made to  increase  the
         allowance for doubtful accounts,  which is netted against  receivables,
         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.

         Investment  in  Joint  Ventures  -  The  Partnership's  investments  in
         Columbus Joint Venture and the properties in Corpus Christi,  Texas and
         Memphis,  Tennessee,  each of which is held as  tenants-in-common  with
         affiliates,  are  accounted  for  using  the  equity  method  since the
         Partnership  shares control with affiliates which have 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.


<PAGE>


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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                  Years Ended December 31, 1998, 1997, and 1996


1.       Significant Accounting Policies - Continued:

         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 being 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.

         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.



<PAGE>


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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                  Years Ended December 31, 1998, 1997, and 1996


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.

3.       Land and Buildings on Operating Leases:

         Land and  buildings on operating  leases  consisted of the following at
December 31:
<TABLE>
<CAPTION>

                                                                    1998                  1997
                                                              -----------------     -----------------
<S> <C>
                  Land                                             $15,378,217          $ 15,259,455
                  Buildings                                         17,045,781            16,836,982
                                                              -----------------     -----------------
                                                                    32,423,998            32,096,437

                  Less accumulated depreciation                     (1,942,192 )          (1,437,443 )
                                                              -----------------     -----------------
                                                                    30,481,806            30,658,994
                  Less allowance for loss on
                       building                                       (266,257 )                  --
                                                              -----------------     -----------------

                                                                   $30,215,549          $ 30,658,994
                                                              =================     =================

</TABLE>


<PAGE>


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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                  Years Ended December 31, 1998, 1997, and 1996


3.       Land and Buildings on Operating Leases - Continued:

         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 May 1998, the tenant of the property in Madison, Tennessee exercised
         its option  under the terms of its lease  agreement,  to  exchange  one
         existing   property  with  a  replacement   property.   In  conjunction
         therewith,  the  Partnership  exchanged the Boston  Market  property in
         Madison,  Tennessee for a Boston Market  property in Lawrence,  Kansas.
         The lease for the property in Madison,  Tennessee  was amended to allow
         the  property in  Lawrence,  Kansas to continue  under the terms of the
         original  lease.  All  closing  costs  were  paid  by the  tenant.  The
         Partnership  accounted  for this as a  nonmonetary  exchange of similar
         assets and recorded the acquisition of the property in Lawrence, Kansas
         at the net book value of the property in Madison, Tennessee. No gain or
         loss was  recognized  due to this  being  accounted  for as a  monetary
         exchange of similar assets.

         During the year ended  December 31, 1998,  the  Partnership  recorded a
         provision  for loss on building of $266,257,  relating to the Long John
         Silver's property located in Celina,  Ohio. The tenant of this Property
         filed for bankruptcy and ceased payment of rents under the terms of its
         lease agreement.  The allowance  represents the difference  between the
         carrying  value of the property at December  31, 1998,  and the current
         estimate of net realizable value for this property.

         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, 1998,  1997, and 1996, the Partnership
         recognized  $232,408  (net of $184,368 in  write-offs),  $444,650,  and
         $468,201, respectively, of such rental income.



<PAGE>


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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                  Years Ended December 31, 1998, 1997, and 1996


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, 1998:

                1999                                   $2,903,108
                2000                                    3,029,386
                2001                                    3,085,219
                2002                                    3,102,234
                2003                                    3,110,316
                Thereafter                             31,971,152
                                                 -----------------

                                                      $47,201,415
                                                 =================

         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:

                                              1998                  1997
                                         ----------------     ----------------

            Minimum lease payments
                receivable                  $ 11,674,487          $ 13,526,299
            Estimated residual values          1,710,925             1,932,560
            Less unearned income              (8,023,564 )          (9,490,047 )
                                         ---------------      ----------------
            Net investment in direct
                financing leases             $ 5,361,848           $ 5,968,812
                                         ================     ================



<PAGE>


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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                  Years Ended December 31, 1998, 1997, and 1996


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, 1998:

                1999                                $ 684,769
                2000                                  692,689
                2001                                  695,755
                2002                                  701,765
                2003                                  706,248
                Thereafter                          8,193,261
                                             -----------------

                                                  $11,674,487
                                             =================

         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).

         In June 1998,  the tenant of the  property  in  Chattanooga,  Tennessee
         exercised  its  option  under  the  terms of its  lease  agreement,  to
         exchange  one  existing  property  with  a  replacement   property.  In
         conjunction  therewith,  the  Partnership  exchanged  the Boston Market
         property in  Chattanooga,  Tennessee  for a Boston  Market  property in
         Indianapolis,  Indiana.  The lease  for the  property  in  Chattanooga,
         Tennessee was amended to allow the property in Indianapolis, Indiana to
         continue under the terms of the original lease.  All closing costs were
         paid by the tenant. The Partnership accounted for this as a nonmonetary
         exchange of similar assets and recorded the acquisition of the property
         in  Indianapolis,  Indiana  at the net book  value of the  property  in
         Chattanooga,  Tennessee.  No gain or loss  was  recognized  due to this
         being accounted for as a nonmonetary exchange of similar assets.

         During the year  ended  December  31,  1998,  one of the  Partnership's
         leases with Long John  Silver's,  Inc. was rejected in connection  with
         the  tenant  filing  for  bankruptcy.  As  a  result,  the  Partnership
         reclassified  the asset from net investment in direct  financing leases
         to land and buildings on operating leases. In accordance with Statement
         of Financial  Accounting Standards No. 13, "Accounting for Leases," the
         Partnership  recorded the  reclassified  asset at the lower of original
         cost, present fair value, or present carrying amount, which resulted in
         a loss on the  termination  of a direct  financing  lease of $4,471 for
         financial reporting purposes.



<PAGE>


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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                  Years Ended December 31, 1998, 1997, and 1996


5.       Investment in Joint Ventures:

         The Partnership  owns a property in  Fayetteville,  North Carolina,  as
         tenants-in-common  with  an  affiliate  of the  general  partners.  The
         Partnership  accounts for its  investment  in this  property  using the
         equity method since the  Partnership  shares control with an affiliate.
         As of December 31, 1998, the  Partnership  owned an 80.44%  interest in
         this property.

         In January 1998, the Partnership  acquired a 40.42% interest in an IHOP
         property in Memphis, Tennessee, as tenants-in-common with affiliates of
         the general  partners.  The Partnership  accounts for its investment in
         this  property  using the equity  method since the  Partnership  shares
         control with  affiliates,  and amounts  relating to its  investment are
         included in investment in joint ventures.

         In  August  1998,  the   Partnership   entered  into  a  joint  venture
         arrangement,  Columbus  Joint Venture,  with  affiliates of the general
         partners, to construct and hold one restaurant property. As of December
         31, 1998, the Partnership had contributed  approximately  $134,500,  to
         purchase land and pay construction costs relating to the joint venture.
         The  Partnership  has agreed to  contribute  additional  amounts to the
         joint venture relating to $182,900 in additional  construction costs to
         the joint  venture.  As of December 31, 1998, the  Partnership  owned a
         32.35% interest in this joint venture.  When funding is completed,  the
         Partnership  expects to have an approximate 32 percent  interest in the
         profits and losses of the joint venture.  The Partnership  accounts for
         its  investment in this joint venture under the equity method since the
         Partnership shares control with affiliates.



<PAGE>


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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                  Years Ended December 31, 1998, 1997, and 1996


5.       Investment in Joint Ventures - Continued:

         Columbus  Joint  Venture  and  the  Partnership   and  affiliates,   as
         tenants-in-common in two separate tenancy-in-common  arrangements, each
         own and lease one  property  to  operators  of national  fast-food  and
         family-style   restaurants.   The  following   presents  the  combined,
         condensed   financial   information  for  the  joint  venture  and  the
         properties held as tenants-in-common with affiliates at December 31:
<TABLE>
<CAPTION>

                                                                               1998                 1997
                                                                          ---------------      ---------------
<S> <C>
                Land and buildings on operating
                    lease, less accumulated
                    depreciation                                              $3,274,577             $941,142
                Cash                                                               4,825                8,190
                Prepaid expenses                                                     197                   29
                Accrued rental income                                             56,105               20,171
                Liabilities                                                      477,951                8,163
                Partners' capital                                              2,857,753              961,369
                Revenues                                                         284,333              112,744
                Net income                                                       235,485               91,575
</TABLE>

         The Partnership  recognized  income totalling  $132,002,  $73,507,  and
         $19,668  for the  years  ended  December  31,  1998,  1997,  and  1996,
         respectively,  from  this  joint  venture  and the  properties  held as
         tenants-in-common with an affiliates.

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.  In January 1998, the funds were released from escrow and the
         Partnership  acquired a 40.42% interest in an IHOP property in Memphis,
         Tennessee, as tenants-in-common with affiliates of the general partners
         (see Note 5).



<PAGE>


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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                  Years Ended December 31, 1998, 1997, and 1996


7.       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  not in
         liquidation  of the  Partnership,  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,  not in  liquidation  of the
         Partnership  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.

         Generally,  net sales proceeds from a sale of properties in liquidation
         of the  Partnership,  will be used in the following  order: i) first to
         pay and discharge all of the  Partnership's  liabilities  to creditors,
         ii) second, to establish  reserves that may be deemed necessary for any
         anticipated   or  unforeseen   liabilities   or   obligations   of  the
         Partnership,  iii) third, to pay all of the Partnership's  liabilities,
         if  any,  to the  general  and  limited  partners,  iv)  fourth,  after
         allocations of net income,  gains and/or  losses,  to the partners with
         positive capital account balances,  in proportion to such balances,  up
         to amounts  sufficient to reduce such positive balances to zero, and v)
         thereafter, any funds remaining shall then be distributed 95 percent to
         the limited partners and five percent to the general partners.

         During  the  years  ended  December  31,  1998,  1997,  and  1996,  the
         Partnership   declared   distributions   to  the  limited  partners  of
         $3,690,000, $3,600,000, and $3,543,751,  respectively. No distributions
         have been made to the general partners to date.



<PAGE>


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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                  Years Ended December 31, 1998, 1997, and 1996


8.       Income Taxes:

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

<TABLE>
<CAPTION>

                                                                      1998               1997             1996
                                                                   ------------      -------------     ------------
<S> <C>
                  Net income for financial reporting purposes      $ 2,976,998        $ 3,660,327      $ 3,748,198

                  Depreciation  for  tax  reporting   purposes
                      less than (in excess of) depreciation for      
                      financial reporting purposes                         809              3,576           (1,943 )

                  Allowance for loss on building                       266,257                 --               --

                  Direct    financing   leases   recorded   as
                  operating leases for tax reporting purposes           43,343             37,684           29,269

                  Loss on termination of direct financing leases         4,471                 --               --

                  Equity in earnings of joint ventures for
                      financial  reporting  purposes in excess
                      of equity in earnings of joint ventures
                      for tax reporting purposes                       (11,217 )             (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                       88,943             (8,996 )          6,913

                  Accrued rental income                               (232,408 )         (444,650 )       (468,201 )

                  Rents paid in advance                                 (8,443 )          (27,405 )         47,221

                  Capitalization of transaction costs for tax
                      reporting purposes                                24,652                 --               --

                  Other                                                    212                 --            4,008
                                                                   ------------      -------------     ------------

                  Net income for federal income tax purposes        $3,153,617         $3,243,823      $ 3,239,830
                                                                   ============      =============     ============

</TABLE>


<PAGE>


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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                  Years Ended December 31, 1998, 1997, and 1996


9.       Related Party Transactions:

         One of the individual general partners, James M. Seneff, Jr., is one of
         the principal shareholders of CNL Group, Inc., the majority stockholder
         of CNL Fund Advisors, Inc. The other individual general partner, Robert
         A. Bourne,  serves as  treasurer,  director,  and vice  chairman of the
         board of  directors  of CNL  Fund  Advisors.  During  the  years  ended
         December 31, 1998, 1997, and 1996, CNL Fund Advisors, Inc. (hereinafter
         referred to as the  "Affiliate")  performed  certain  services  for the
         Partnership, as described below.

         During the years ended December 31, 1998, 1997, and 1996, the Affiliate
         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  Affiliate  an  annual,  noncumulative,
         subordinated management fee of one percent of the sum of gross revenues
         from properties wholly owned by the Partnership and the
         Partnership's  allocable  share of gross revenues from joint  ventures.
         The management  fee,  which will not exceed fees which are  competitive
         for similar  services in the same  geo-graphic  area, may or may not be
         taken,  in whole or in part as to any year,  in the sole  discretion of
         the Affiliate. 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  Affiliate  shall   determine.   The
         Partnership  incurred management fees of $38,570,  $40,087, and $39,206
         for the years ended December 31, 1998, 1997, and 1996, respectively.

         The Affiliate is also entitled to receive a deferred, subordinated real
         estate   disposition  fee,  payable  upon  the  sale  of  one  or  more
         properties,  based on the  lesser of  one-half  of a  competitive  real
         estate  commission or three percent of the sales price if the Affiliate
         provides a substantial  amount of services in connection with the sale.
         However,  if the net sales  proceeds are  reinvested  in a  replacement
         property,  no such real estate  disposition fees will be incurred until
         such  replacement  property  is sold  and the net  sales  proceeds  are
         distributed.  The  payment  of  the  real  estate  disposition  fee  is
         subordinated  to receipt by the  limited  partners  of their  aggregate
         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, 1998, 1997, and 1996, the Affiliate
         provided accounting and administrative services to the Partnership on a
         day-to-day  basis.  The Partnership  incurred  $102,840,  $89,270,  and
         $118,677  for the  years  ended  December  31,  1998,  1997,  and 1996,
         respectively, for such services.



<PAGE>


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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                  Years Ended December 31, 1998, 1997, and 1996


9.       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 affiliate had  purchased and  temporarily  held title to
         this property in order to facilitate the acquisition of the property by
         the Partnership. The purchase price paid by the Partnership represented
         the costs incurred by the affiliate to acquire the property,  including
         closing costs.

         The due to  related  parties at  December  31,  1998 and 1997  totalled
         $26,476 and $3,351, respectively.

10.      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  income from the joint venture and
         the properties held as  tenants-in-common  with affiliates) for each of
         the years ended December 31:
<TABLE>
<CAPTION>

                                                               1998                 1997                 1996
                                                          ----------------     ----------------     ----------------
<S> <C>
                  DenAmerica Corp.                             $1,164,160           $1,046,845           $1,051,328
                  Golden Corral Corporation                       971,344              979,009              954,476
                  Foodmaker, Inc.                                 558,466              556,610              556,610

</TABLE>


<PAGE>


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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                  Years Ended December 31, 1998, 1997, and 1996


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  income from the
         joint  venture  and  the  properties  held  as  tenants-in-common  with
         affiliates) for each of the years ended December 31:
<TABLE>
<CAPTION>

                                                               1998                 1997                 1996
                                                          ----------------     ----------------     ----------------
<S> <C>
                  Denny's                                      $1,164,160           $1,164,928           $1,163,621
                  Golden Corral Family
                      Steakhouse Restaurants                      971,344              979,009              954,476
                  Jack in the Box                                 558,466              556,610              556,610
                  Boston Market                                   467,043              329,300              260,756
</TABLE>

         Although  the  Partnership's   properties  are  geographically  diverse
         throughout the United States and the  Partnership's  lessees  operate a
         variety of restaurant concepts,  default by any one of these lessees or
         restaurant chains could significantly  impact the results of operations
         of the  Partnership  if the  Partnership  is not able to  re-lease  the
         properties in a timely manner.

         In October 1998, Finest Foodservice,  L.L.C. and Boston Chicken,  Inc.,
         the tenants of four Boston Market  properties  filed for bankruptcy and
         rejected the leases  relating to two properties.  The Partnership  will
         not recognize any rental and earned income from these  properties until
         new tenants for the properties are located, or until the properties are
         sold and the  proceeds  from such sales are  reinvested  in  additional
         properties.  While  the  tenants  have not  rejected  or  affirmed  the
         remaining two leases, there can be no assurance that some or all of the
         leases will not be rejected in the future.  The lost revenues resulting
         from the two leases that were  rejected,  as described  above,  and the
         possible  rejection of the  remaining  two leases could have an adverse
         effect  on  the  results  of  operations  of  the  Partnership  if  the
         Partnership  is not  able to  re-lease  these  properties  in a  timely
         manner.

11.      Subsequent Event:

         On March 11, 1999, the  Partnership  entered into an Agreement and Plan
         of Merger with CNL American Properties Fund, Inc. ("APF"),  pursuant to
         which the Partnership would be merged with and into a subsidiary of APF
         (the  "Merger").  As  consideration  for the Merger,  APF has agreed to
         issue 4,320,947  shares of its common stock, par value $0.01 per shares
         (the "APF  Shares")  which,  for the  purposes  of  valuing  the merger
         consideration,  have been  valued by APF at $10.00 per APF  Share,  the
         price paid by APF


<PAGE>


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

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                  Years Ended December 31, 1998, 1997, and 1996


11.      Subsequent Event - Continued:

         investors in APF's most recent public offering.  In order to assist the
         general partners in evaluating the proposed merger  consideration,  the
         general partners retained Valuation Associates, a nationally recognized
         real estate  appraisal firm, to appraise the  Partnership's  restaurant
         property  portfolio.  Based on  Valuation  Associates'  appraisal,  the
         Partnership's  property  portfolio  and other  assets  were valued on a
         going concern basis (meaning the  Partnership  continues  unchanged) at
         $42,519,005   as  of  December  31,  1998.   Legg  Mason  Wood  Walker,
         Incorporated  has  rendered  a  fairness  opinion  that  the APF  Share
         consideration,  payable  by  APF,  is fair  to the  Partnership  from a
         financial  point of view.  The APF Shares are expected to be listed for
         trading  on  the  New  York  Stock  Exchange   concurrently   with  the
         consummation of the Merger, and, therefore, would be freely tradable at
         the option of the former limited partners.  At a special meeting of the
         partners  that is  expected  to be held in the third  quarter  of 1999,
         limited  partners  holding  in  excess  of  50%  of  the  Partnership's
         outstanding limited partnership interests must approve the Merger prior
         to  consummation  of the  transaction.  The general  partners intend to
         recommend  that the  limited  partners of the  Partnership  approve the
         Merger. In connection with their  recommendation,  the general partners
         will  solicit  the  consent  of the  limited  partners  at the  special
         meeting.  If the limited  partners  reject the Merger,  the Partnership
         will  bear  the  portion  of  the  transaction  costs  based  upon  the
         percentage  of "For"  votes  and the  general  partners  will  bear the
         portion  of  such  transaction  costs  based  upon  the  percentage  of
         "Against" votes and abstentions.



<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 52, is a principal  stockholder of CNL Group,
Inc., a diversified  real estate company,  and has served as its Chairman of the
Board of Directors,  a director and Chief Executive  Officer since its formation
in 1980. Mr. Seneff has been Chairman of the Board of Directors,  director,  and
Chief Executive Officer of CNL Securities Corp. since its formation in 1979. Mr.
Seneff also has held the position of Chairman of the Board of  Directors,  Chief
Executive  Officer,   President  and  director  of  CNL  Management  Company,  a
registered investment advisor,  since its formation in 1976, has served as Chief
Executive  Officer,  Chairman  of the Board  and a  director  of CNL  Investment
Company,  has served as Chief Executive  Officer, a director and Chairman of the
Board of Directors of Commercial Net Lease Realty, Inc., a publicly-traded REIT,
listed on the NYSE, since 1992,  served as Chief Executive  Officer,  a director
and  Chairman of the Board of Directors of CNL Realty  Advisors,  Inc.  from its
inception in May 1992 through  December  1997, at which time such company merged
with  Commercial  Net Lease  Realty,  Inc.,  and has held the  position of Chief
Executive  Officer,  Chairman of the Board and a director  of CNL  Institutional
Advisors, Inc., a registered investment advisor, since its inception in December
1990.  Mr.  Seneff  has  served as  Chairman  of the Board of  Directors  of CNL
American  Properties  Fund, Inc. since December 1994 and as a director and Chief
Executive  Officer  since May 1994.  Mr.  Seneff has served as  Chairman  of the
Board,  Chief Executive Officer and a director of CNL Fund Advisors,  Inc. since
March 1994.  Mr.  Seneff has served as Chairman  of the Board,  Chief  Executive
Officer and a director of CNL Hospitality  Properties,  Inc. since June 1996 and
of CNL Hospitality Advisors, Inc. since January 1997. Mr. Seneff has also served
as Chairman of the Board,  Chief Executive  Officer and a director of CNL Health
Care  Properties,  Inc. since  December 1997 and CNL Health Care Advisors,  Inc.
since July 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 advises 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 then $60 billion of retirement  funds.
Mr.  Seneff  has  served as a member of the board of  directors  of First  Union
National  Bank of  Florida  since  May 1998 and has  served  as a member  of the
Orlando Advisory Board of First Union National Bank of Florida since March 1994.
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 restaurants,  office buildings,  apartment complexes,  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.

         Robert A.  Bourne,  age 51, is  President  and  Treasurer of CNL Group,
Inc.,  President,  Treasurer,  a director,  and a  registered  principal  of CNL
Securities  Corp.,  President,  Treasurer,  and a  director  of  CNL  Investment
Company,  and  Chief  Investment  Officer,  a  director  and  Treasurer  of  CNL
Institutional Advisors, Inc., a registered investment advisor. Mr. Bourne served
as President of CNL Institutional  Advisor,  Inc. from the date of its inception
through  July 1997.  Mr.  Bourne  served as President  of  Commercial  Net Lease
Realty,  Inc.  from July 1992 through  February  1996,  served as Secretary  and
Treasurer from February 1996 through December 1997, and has served as a director
since July 1992 and as Vice  Chairman of the Board of Directors  since  February
1996. In addition,  Mr. Bourne served as President of CNL Realty Advisors,  Inc.
from May 1992 through  February  1996,  served as Treasurer  from  February 1996
through  December 1997,  served as a director from May 1992 through December 31,
1997 and served as Vice Chairman from  February 1996 through  December  1997, at
which time such company merged with Commercial Net Lease Realty, Inc. Mr. Bourne
has served as a Vice  Chairman of the Board of  Directors  and  Treasurer of CNL
American  Properties  Fund,  Inc.  since February 1999, has served as a director
since May 1994 and previously served as President from May 1994 through February
1999. Mr. Bourne has served as a director of CNL Fund Advisors, Inc. since March
1994, has served as Treasurer and Vice Chairman of the Board of Directors  since
September  1997,  and  previously  served as  President  from March 1994 through
September  1997.  Mr.  Bourne has  served as  President  and a  director  of CNL
Hospitality  Properties,  Inc. since June 1996 and of CNL Hospitality  Advisors,
Inc.  since January 1997. Mr. Bourne has served as President and director of CNL
Health Care  Properties,  Inc. since December 1997 and CNL Health Care Advisors,
Inc. since July 1997. 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
restaurants,  office  buildings,  apartment  complexes,  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.  Mr.  Bourne  formerly  was a
certified public  accountant with Coopers & Lybrand and a partner in the firm of
Bourne & Rose, P.A. Mr. Bourne received a B.A. in Accounting,  with honors, from
Florida State University in 1970.

         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 majority 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.

         Curtis B. McWilliams,  age 43, joined CNL Group, Inc. in April 1997 and
currently serves as an Executive Vice President. In addition, Mr. McWilliams has
served  as  President  of  CNL  Fund  Advisors,  Inc.  and as  President  of the
Restaurant  and Financial  Services  Groups within CNL Group,  Inc.  since April
1997. Mr.  McWilliams has served as President of CNL American  Properties  Fund,
Inc. since February 1999 and previously  served as Executive Vice President from
February 1998 through February 1999. From September 1983 through March 1997, Mr.
McWilliams  was employed by Merrill  Lynch & Co.,  most  recently as Chairman of
Merrill  Lynch's  Private  Advisory  Services until March 1997.  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.



<PAGE>


         John T. Walker,  age 40, has served as Executive  Vice President of CNL
American  Properties  Fund, Inc. since January 1996, as Chief Operating  Officer
since March 1995, and previously  served as Senior Vice President since December
1994. In addition, Mr. Walker has served as Executive Vice President of CNL Fund
Advisors, Inc. since January 1996, Chief Operating Officer since April 1995, and
previously  served as Senior Vice President  from November 1994 through  January
1996. In addition,  Mr. Walker  previously served as Executive Vice President of
CNL Hospitality  Properties,  Inc. and CNL Hospitality  Advisors,  Inc. From May
1992 to May 1994, Mr. Walker, a certified public accountant,  was Executive Vice
President for Finance and Administration and Chief Financial Officer of Z Music,
Inc.,   a  cable   television   network   (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 50, a  certified  public  accountant,  has served as
Secretary of CNL American  Properties  Fund, Inc. since December 1994 and served
as Treasurer from December 1994 through  February 1999. Ms. Rose has served as a
director  and  Secretary of CNL Fund  Advisors,  Inc.  since March 1994,  and as
Treasurer  from the date of its  inception  through June 30, 1997.  Ms. Rose has
served as Secretary of CNL Group, Inc. since 1987, as Chief Financial Officer of
CNL Group, Inc. since December 1993, 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, as Treasurer of CNL Realty Advisors,  Inc. from 1991 to February 1996, and
as Secretary and a director of CNL Realty Advisors,  Inc. since its inception in
1991 until  December 31, 1997, at which time CNL Realty  Advisors,  Inc.  merged
with Commercial Net Lease Realty, Inc. In addition, Ms. Rose served as Secretary
and Treasurer of Commercial  Net Lease Realty,  Inc. from 1992 to February 1996.
Ms. Rose also serves as Secretary and Treasurer of CNL  Hospitality  Properties,
Inc. and CNL Health Care  Properties,  Inc. and as  Secretary,  Treasurer  and a
director of CNL Hospitality  Advisors,  Inc. and CNL Health Care Advisors,  Inc.
Ms. Rose also  currently  serves as Secretary  for  approximately  50 additional
corporations.  Ms.  Rose  oversees  the  legal  compliance,  accounting,  tenant
compliance,  and reporting  for over 250  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.

         Jeanne A. Wall,  age 40, has served as Executive  Vice President of CNL
American  Properties  Fund,  Inc.  since  December  1994. Ms. Wall has served as
Executive  Vice  President of CNL Fund  Advisors,  Inc. since November 1994, and
previously  served as Vice President from March 1994 through  November 1994. Ms.
Wall 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.  Ms. Wall joined CNL  Securities
Corp. in 1984. 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 its  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 until  December 31, 1997,  at which time CNL Realty  Advisors,
Inc. merged with Commercial Net Lease Realty, Inc., and served as Vice President
of  Commercial  Net Lease Realty,  Inc. from 1992 through  December 31, 1997. In
addition,  Ms.  Wall  serves as  Executive  Vice  President  of CNL  Hospitality
Properties,  Inc., CNL Hospitality  Advisors,  Inc., CNL Health Care Properties,
Inc.  and CNL Health  Care  Advisors,  Inc.  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).



<PAGE>


         Steven D.  Shackelford,  age 35, a  certified  public  accountant,  has
served as Chief Financial  Officer of CNL American  Properties  Fund, Inc. since
January 1997 and as Chief  Financial  Officer of CNL Fund  Advisors,  Inc. since
September  1996.  From  March 1995 to July 1996,  Mr.  Shackelford  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.


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 11,  1999,  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 11, 1999,  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.  On March 11,  1999,  the
Registrant  entered  into an  Agreement  and Plan of  Merger  with CNL  American
Properties  Fund, Inc.  ("APF") pursuant to which the Registrant would be merged
with and into a subsidiary of APF (the "Merger").  For further  discussion,  see
Item 8. Financial Statements and Supplementary Data -- Note 11.
Subsequent Event.




<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, 1998,  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, 1998
      -----------------------                        ---------------------                 ------------------------
<S> <C>
Reimbursement to affiliates for              Operating  expenses are  reimbursed  at   Operating  expenses
operating expenses                           the lower of cost or 90  percent of the   incurred   on   behalf   of  the
                                             prevailing  rate  at  which  comparable   Partnership:      $125,080
                                             services  could have been  obtained  in
                                             the same  geographic  area.  Affiliates   Accounting and
                                             of the  General  Partners  from time to   administrative
                                             time incur certain  operating  expenses   services:  $102,840
                                             on behalf of the  Partnership for which
                                             the    Partnership    reimburses    the
                                             affiliates without interest.

Annual management fee to affiliates          One   percent   of  the  sum  of  gross      $38,570
                                             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>


<PAGE>


<TABLE>
<CAPTION>

                                                                                                Amount Incurred
       Type of Compensation                                                                      For the Year
            and Recipient                            Method of Computation                  Ended December 31, 1998
      -----------------------                        ---------------------                 ------------------------
<S> <C>
Deferred,   subordinated  real  estate       A  deferred,  subordinated  real estate      $ -0-
disposition fee payable to affiliates        disposition  fee,  payable 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,       A  deferred,  subordinated  share equal      $ -0-
sub-ordinated   share  of  Partnership       to   one    percent   of    Partnership
net cash flow                                distributions   of   net   cash   flow,
                                             subordinated    to   certain    minimum
                                             returns to the Limited Partners.

General      Partners'       deferred,       A  deferred,  subordinated  share equal      $ -0-
sub-ordinated   share  of  Partnership       to   five   percent   of    Partnership
net  sales  proceeds  from a  sale  or       distributions   of   such   net   sales
sales    of    Properties    not    in       proceeds,   subordi-nated   to  certain
liquidation of the Partnership               minimum    returns   to   the   Limited
                                             Partners.

</TABLE>


<PAGE>
<TABLE>
<CAPTION>



                                                                                                Amount Incurred
       Type of Compensation                                                                      For the Year
            and Recipient                            Method of Computation                  Ended December 31, 1998
      -----------------------                        ---------------------                 ------------------------
<S> <C>
General     Partners'     share     of       Distributions  of  net  sales  proceeds      $ -0-
Partnership  net sales proceeds from a       from a sale or sales  of  substantially
sale or  sales in  liquidation  of the       all of the  Partnership's  assets  will
Partnership                                  be distributed  in the following  order
                                             or priority:  (i) first, to pay all
                                             debts   and   liabilities   of  the
                                             Partnership    and   to   establish
                                             reserves;  (ii) second, to Partners
                                             with   positive   capital   account
                                             balances,   determined   after  the
                                             allocation of net income, net loss,
                                             gain and  loss,  in  proportion  to
                                             such   balances,   up  to   amounts
                                             sufficient  to reduce such balances
                                             to zero; and (iii) thereafter,  95%
                                             to the Limited  Partners  and 5% to
                                             the General Partners.
</TABLE>

         As discussed  above in Item 8. Financial  Statements and  Supplementary
Data -- Note 11.  Subsequent Event, the Registrant has entered into an Agreement
and Plan of  Merger,  dated  March  11,  1999,  with APF  pursuant  to which the
Registrant would be merged with and into a subsidiary of APF in exchange for the
issuance of APF Shares.  The APF Shares are expected to be listed for trading on
the New York Stock Exchange concurrently with the consummation of the Merger. If
the Merger is approved by Limited Partners holding units greater than 50% of the
outstanding  units of the  Registrant,  the General  Partners of the  Registrant
would receive certain  benefits.  For instance,  following the Merger,  James M.
Seneff, Jr. and Robert A. Bourne, the individual General Partners, will continue
to serve as directors of APF, with Mr. Seneff serving as Chairman and Mr. Bourne
serving as Vice Chairman. As APF directors, they may also be entitled to receive
stock options under any stock option plan adopted by APF.


<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, 1998 and 1997

                  Statements  of Income for the years ended  December  31, 1998,
                  1997, and 1996

                  Statements of Partners'  Capital for the years ended  December
                  31, 1998, 1997, and 1996

                  Statements  of Cash  Flows for the years  ended  December  31,
                  1998, 1997, and 1996

                  Notes to Financial Statements

          2.  Financial Statement Schedules

                  Schedule II - Valuation and Qualifying  Accounts for the years
                  ended December 31, 1998, 1997, and 1996

                  Schedule  III - Real Estate and  Accumulated  Depreciation  at
                  December 31, 1998

                  Notes  to  Schedule   III  -  Real   Estate  and   Accumulated
                  Depreciation at December 31, 1998

                  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.)



<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, 1998 through December 31, 1998.

          (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, 1998.  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.


<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 27th day of
March, 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             March 27, 1999
---------------------------
Robert A. Bourne                           (Principal  Financial and  Accounting
                                           Officer)


/s/ James M. Seneff, Jr.                   Chief Executive  Officer and Director             March 27, 1999
---------------------------
James M. Seneff, Jr.                       (Principal Executive Officer)

</TABLE>

<PAGE>






                                                        

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

                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

                  Years Ended December 31, 1998, 1997, and 1996

<TABLE>
<CAPTION>

                                                               Additions                         Deductions
                                                     -------------------------------     ----------------------------
                                                                                                          Collected
                                                                                                          or Deter-
                                    Balance at       Charged to       Charged to          Deemed          mined to       Balance
                                     Beginning        Costs and          Other          Uncollec-          be Col-       at End
    Year         Description          of Year         Expenses         Accounts           tible           lectible       of Year
   --------    -----------------   --------------   --------------   ---------------    ------------     ------------  -----------
<S> <C>
   1996        Allowance for
                   doubtful
                   accounts (a)        $   2,962         $    --         $   6,913  (b)     $   --  (c)       $   --      $  9,875
                                   ==============   ==============   ===============    ============     ============  ===========

   1997        Allowance for
                   doubtful
                   accounts (a)        $   9,875         $    --         $   7,918  (b)   $ 16,693  (c)      $   221       $   879
                                   ==============   ==============   ===============    ============     ============  ===========

   1998        Allowance for
                   doubtful
                   accounts (a)         $    879         $    --         $  89,822  (b)    $   879  (c)       $   --      $ 89,822
                                   ==============   ==============   ===============    ============     ============  ===========
</TABLE>


(a)      Deducted from receivables on the balance sheet.

(b)      Reduction of rental and other income.

(c)      Amounts written off as uncollectible.


<PAGE>
<TABLE>
<CAPTION>



                                                            CNL INCOME FUND XVI, LTD.
                                                          (A Florida Limited Partnership)
                                                 SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
                                                               December 31, 1998
<S> <C>

                                                                                        Costs Capitalized      
                                                                                          Subsequent To        
                                                            Initial Cost                   Acquisition         
                                                    -------------------------       -------------------------  
                                          Encum-                Buildings and         Improve-       Carrying  
                                         brances      Land       Improvements          ments           Costs   
                                         -------    --------    -------------        ---------       --------  

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               -               -    
     Lawrence, Kansas (i)                    -        343,367       435,813               -               -    

    Checkers Drive-In Restaurants:
     Conyers, Georgia                        -        363,553            -                -               -    
     Lake Worth, Florida                     -        325,301            -                -               -    
     Ocala, Florida                          -        289,578            -                -               -    
     Pompano Beach, Florida                  -        373,491            -                -               -    
     Tampa, Florida                          -        372,176            -                -               -    
     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                          -        261,154            -                -               -    
     Moab, Utah                              -        435,927            -                -               -    
     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              -        523,584            -           870,136              -    

    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              -    

    Long John Silver's Restaurants:
     Celina, Ohio (l)                        -        109,130            -           425,145              -    
     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               -               -    
                                                  -----------    ----------      -----------           -----   

                                                  $15,378,217    $6,421,485      $10,624,296              -    
                                                  ===========    ==========      ===========           =====   

Property in Which the Partnership
  has an 80.44% Interest as
  Tenants-in-Common and has
  Invested in Under an Operating
  Lease:

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

Property in Which the Partnership
  has a 40.42%  Interest as Tenants-
  in-Common and has Invested in Under
  an Operating Lease:

   IHOP Restaurant:
     Memphis, Tennessee                      -       $678,890      $825,076               -               -    
                                                   ==========     =========      ===========           =====   


Property of Joint Venture in
  Which the Partnership has a
  32.35% Interest

   Arby's Restaurant:
     Columbus, Ohio                          -       $406,976            -          $468,725              -    
                                                   ==========     =========      ===========           =====   

Properties the Partnership has
  Invested in Under Direct
  Financing Leases:

   Boston Market Restaurant:
     Indianapolis, Indiana                   -       $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                          -             -             -           677,539              -    
     Moab, Utah                              -             -             -           718,578              -    

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

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

                                                     $450,624    $2,595,193       $2,446,014              -
                                                     ========    ==========      ===========           =====


                                                                                                       
           Gross Amount at Which                                                            Life on Which            
       Carried at Close of Period (g)                                                      Depreciation in                  
   -------------------------------------                          Date                      Latest Income                           
               Buildings and                   Accumulated       of Con-        Date         Statement is                     
     Land      Improvements      Total         Depreciation     struction     Acquired         Computed                     
   --------    -------------    --------       ------------     ---------     ---------    ----------------                        
 
   $315,276       $591,993      $907,269          $66,511         1978          08/95             (c)                          
                                                                                        
                                                                                        
    502,786        645,127     1,147,913           70,832         1995          09/95             (c)                      
    277,576        725,953     1,003,529           73,590         1995          12/95             (c)                           
    343,367        435,813       779,180           10,430         1997          05/98             (c)                          
                                                                                        
                                                                                        
    363,553             -        363,553              (b)           -           12/94             (b)                          
    325,301             -        325,301              (b)           -           12/94             (b)                          
    289,578             -        289,578              (b)           -           12/94             (b)                          
    373,491             -        373,491              (b)           -           12/94             (b)                          
    372,176             -        372,176              (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           81,210         1995          01/95             (c)                          
  1,160,979      1,010,688     2,171,667          102,361         1995          03/95             (c)                          
    266,829            (d)       266,829              (e)         1971          03/95             (e)                          
    261,154            (d)       261,154              (e)         1995          04/95             (e)                          
    435,927            (d)       435,927              (e)         1995          06/95             (e)                          
    403,548        650,659     1,054,207           72,330         1995          08/95             (c)                          
    306,866        677,659       984,525           75,332         1975          08/95             (c)                           
                                                                                        
                                                                                        
                                                                                        
    566,943      1,122,500     1,689,443          142,260         1995          10/94             (c)                           
    761,108      1,001,893     1,763,001          133,677         1994          11/94             (c)                           
    781,761      1,147,538     1,929,299          153,110         1994          11/94             (c)                           
    446,240        971,766     1,418,006          121,156         1995          01/95             (c)                          
    320,133        804,428     1,124,561           91,909         1995          05/95             (c)                          
    523,584        870,136     1,393,720           81,119         1996          01/96             (c)                          
                                                                                        
                                                                                        
    364,634        554,302       918,936           52,178         1994          03/96             (c)                          
                                                                                        
                                                                                        
    553,671        658,282     1,211,953           87,095         1995          10/94             (c)                           
    439,950        636,524     1,076,474           80,205         1995          10/94             (c)                          
    401,302        595,722       997,024           82,803         1985          10/94             (c)                           
    744,493        225,404       969,897           31,330         1984          10/94             (c)                          
    403,476        568,053       971,529           78,957         1991          10/94             (c)                          
                                                                                        
                                                                                        
    188,759        434,369       623,128           45,460         1995          09/95             (c)                           
                                                                                        
                                                                                        
    109,130        425,145       534,275            7,326         1995          10/94             (k)                          
    313,200        415,695       728,895           51,155         1995          12/94             (c)                           
    162,000            (d)       162,000              (e)         1994          12/94             (e)                          
    370,204        433,058       803,262           54,607         1995          12/94             (c)                          
    116,767        183,174       299,941           18,736         1982          12/95             (c)                          
                                                                                        
                                                                                        
                                                                                        
    426,238            (d)       426,238              (e)         1992          05/95             (e)                          
                                                                                        
                                                                                        
                                                                                        
                                                                                        
    393,963        567,626       961,589           76,513         1983          12/94             (c)                          
-----------    -----------   -----------          -------                                                
                                                                                        
$15,378,217    $17,045,781   $32,423,998       $1,942,192                                             
===========    ===========   ===========       ==========                                                
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        
   $377,800       $587,700      $965,500          $43,948        1996           10/96              (c)                          
===========     ==========    ==========          =======                                               
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        
   $678,890       $825,076    $1,503,966          $26,642        1997           01/98              (c)
===========     ==========    ==========          =======                                               
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        
   $406,976       $468,725      $875,701              (n)        (m)            08/98              (n)                         
===========      =========    ==========                                                           
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        
      (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)        1976           12/94              (f)
       -               (d)          (d)               (e)        1994           12/94              (e)
                                                                                        
                                                                                        
       -               (d)          (d)               (e)        1992           05/95              (e)

</TABLE>
<PAGE>



                                                        

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

        NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION

                                December 31, 1998



(a)      Transactions in real estate and accumulated  depreciation  during 1998,
         1997 and 1996, are summarized as follows:
<TABLE>
<CAPTION>

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

                   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
                   Reclassified from direct financing leases                            534,275              --
                   Acquisitions                                                           3,545
                   Reimbursement of construction costs (o)                             (210,259)        (48,611 )
                   Depreciation expense                                                       --         553,360
                                                                              -----------------  ---------------

                   Balance, December 31, 1998                                     $  32,423,998     $ 1,942,192
                                                                              =================  ===============

              Property  in Which  the  Partnership has an
                80.44%  Interest  as Tenants-in-Common and
                has Invested in Under an 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
                   Depreciation expense                                                      --          19,590
                                                                              -----------------  ---------------

                   Balance, December 31, 1998                                       $   965,500      $   43,948
                                                                              =================  ===============

</TABLE>


<PAGE>


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

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

                                December 31, 1998

<TABLE>
<CAPTION>


                                                                                                     Accumulated
                                                                                      Cost             Depreciation
                                                                                  -------------      -----------------
<S> <C>
             Property  in  Which  the  Partnership
               has  a  40.42%  Interest  as
               Tenants-in-Common and has Invested
               in Under an Operating Lease:

                  Balance, December 31, 1997                                            $   --                $     --
                  Acquisition                                                        1,503,966                      --
                  Depreciation expense                                                      --                  26,642
                                                                                  -------------      -----------------

                  Balance, December 31, 1998                                       $ 1,503,966             $    26,642
                                                                                  =============      =================

             Property of Joint  Venture  in Which the
               Partnership  has a 32.35% Interest and
               has Invested in Under an Operating Lease:

                  Balance, December 31, 1997                                            $   --                $     --
                  Acquisition                                                          875,701                      --
                  Depreciation (n)                                                          --                      --
                                                                                  -------------      -----------------

                  Balance, December 31, 1998                                         $ 875,701                $     --
                                                                                  =============      =================
</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)        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, 1998, the aggregate cost of the Properties owned
             by the  Partnership  and the joint  venture for federal  income tax
             purposes was $37,887,606 and $3,344,166,  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.


<PAGE>


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

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

                                December 31, 1998


  (i)        This Property was exchanged for a Boston Market Property previously
             owned and located in Madison, Tennessee, during 1998.

  (j)        This Property was exchanged for a Boston Market Property previously
             owned and located in Chattanooga, Tennessee.

  (k)        Effective  June 1998,  the lease for this Property was  terminated,
             resulting in the  reclassification  of the building  portion of the
             lease as an operating  lease. The building was recorded at net book
             value  as of June  11,  1998 and  depreciated  over  its  remaining
             estimated life of approximately 26 years.

  (l)        For  financial  reporting  purposes the  undepreciated  cost of the
             Property in Celina,  Ohio, was written down to net realizable value
             due  to  an  anticipated   impairment  in  value.  The  Partnership
             recognized  the  impairment  by recording an allowance  for loss on
             building in the amount of $266,257 at December 31, 1998. The tenant
             of this  Property  experienced  financial  difficulties  and ceased
             payments  of rents  under  the terms of its  lease  agreement.  The
             impairment at December 31, 1998  represents the difference  between
             the  Property's  carrying  value  at  December  31,  1998,  and the
             estimated net  realizable  value of the  Property.  The cost of the
             Property  presented  on this  schedule is the gross amount at which
             the  Property  was  carried at December  31,  1998,  excluding  the
             allowance for loss on building.

  (m)        Scheduled for completion in 1999.

  (n)        Property  was not  placed  in  service  as of  December  31,  1998;
             therefore, no depreciation was taken.

  (o)        During the year ended December 31, 1998, the  Partnership  received
             reimbursements  from the developer  upon final  construction  costs
             reconciliation.  In  connection  therewith,  the land and  building
             values were adjusted down accordingly.


<PAGE>






                                    EXHIBITS


<PAGE>







                                  EXHIBIT INDEX


Exhibit Number

      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.)