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

                Annual Report Pursuant to Section 13 or 15(d) of
                       the Securities Exchange Act of 1934



                   For the fiscal year ended December 31, 1997
                          Commission File No. 0-15630


                    Hanover Lease Income Limited Partnership
             (Exact Name of Registrant as Specified in its Charter)


Massachusetts                                                         04-2923206
(State or other jurisdiction                   (IRS Employer Identification No.)
 of incorporation or organization)


One Financial Center, 21st Floor, Boston, MA                               02111
(Address of principal executive offices)                              (Zip Code)


Registrant's telephone number, including area code                (617) 482-8000

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

Securities registered pursuant to Section 12(b) of the Act                  None

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

Securities registered pursuant to
 Section 12(g) of the Act                 Units of Limited Partnership Interests

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


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

                              Yes  X              No
                                  ---                 ---

State the aggregate market value of the voting stock held by  non-affiliates  of
the  registrant  as of March 26, 1998:  Not  applicable,  since  securities  are
non-voting.

                   Documents incorporated by reference: None.

                            Exhibit Index on Page: 32

                                  Page 1 of 34



<PAGE>


Corporate organization as discussed in Part I, Item 1 Business is as follows:

TLP Holding LLC ("Holding")  controls TLP Leasing Programs,  Inc.  ("TLP"),  TLP
Management Services, Inc. ("TLPMS"),  and TLP Securities,  Inc. TLP controls TLP
Columbia  Management  Corp.  ("TCMC")  which  serves as  General  Partner to the
Columbia  Lease  Income  Funds.  Torchmark  Corporation  ("Torchmark")  controls
TMK/United,  Inc.  which  controls  Waddell and Reed  Financial  Services,  Inc.
("Waddell and Reed").

Through various  dealer-manager  arrangements,  TLP, TLPMS, and Waddell and Reed
serve  as  corporate  general  partners  to the  Wellesley  Leasing  Partnership
("Wellesley General Partner") and the Hanover Leasing Partnership. The Wellesley
General  Partner is the general  partner for the Wellesley  Lease Income Limited
Partnerships.  Hanover  Leasing  Partnership  serves as the General  Partner for
Hanover Lease Income Limited Partnership with BOT Financial  Corporation serving
as agent.




<PAGE>


                                     Part I
Item 1.  Business.

Hanover  Lease  Income  Limited  Partnership  (the  "Partnership")  is a limited
partnership  organized under the provisions of the Massachusetts Uniform Limited
Partnership Act on June 19, 1986. As set forth more fully at Item 10.  Directors
and Executive  Officers of the Partnership.  of this Report, the General Partner
is Hanover  Leasing  Partnership,  and the  General  Partner  has two  Corporate
General Partners (the "Corporate General Partners"):  TLP Leasing Programs, Inc.
("TLP") or the "Managing  General  Partner",  a Massachusetts  corporation,  and
Waddell  & Reed  Financial  Services,  Inc.  ("Waddell  &  Reed",  formerly  TUP
Services,  Inc., "TUPS"), a Missouri  corporation.  As of December 31, 1997, the
Partnership  consisted of a General  Partner and 3,362 Limited  Partners  owning
57,239 Units of Limited Partnership Interests of $500 each (the "Units"), except
that employees and securities  representatives of its affiliates purchased 1,011
Units  for a net  price  of $460  per  Unit,  and the  Partnership  incurred  no
obligation to pay any sales  commissions  with respect to such sales.  The Units
were sold commencing September 24, 1986, pursuant to a Registration Statement on
Form S-1 under the Securities Act of 1933.

The Partnership was organized to engage in the business of acquiring diversified
types of equipment  and lease such  equipment  to others on a  short-term  basis
under Operating Leases. The Partnership's principal objectives are as follows:

1.       To provide  quarterly  distributions  of cash  to the Limited  Partners
         from  leasing  revenues  and  from  the  proceeds  of  sales  or  other
         disposition of Partnership equipment; and

2.       To  maintain  equipment  residual  values  for  ultimate  sale or other
         disposition.

The Partnership was formed  primarily for investment  purposes and not as a "tax
shelter".

The Partnership shall terminate on December 31, 2005, unless sooner dissolved or
terminated  as  provided  in  Section  11 of the  Amended  Agreement  of Limited
Partnership.

The  Partnership  has had a total of six  closings.  The  closings  occurred  on
November 17, 1986,  February 17, 1987, April 27, 1987, July 7, 1987,  August 18,
1987, and October 7, 1987 with 8,501,  15,106,  7,992,  9,047, 5,457, and 11,136
units,   respectively.   Equipment  purchased  through  December  31,  1997  was
$48,419,527.  At the end of 1997,  there  were 5 leases in place with 2 lessees.
The acquisition of these leases and equipment is described more fully in Item 2.
Properties.  of  this  report  and  notes  3 and 4 to the  financial  statements
included in Item 8. Financial Statements and Supplementary Data.

On January 9, 1996,  TLP Holding LLC  purchased  all of the common  stock of TLP
from CMI Holding Co. Under the new  ownership,  TLP will  continue to operate in
the same manner of business as described below.

Under  the  Partnership   Agreement,   the  General  Partner,   Hanover  Leasing
Partnership,  is solely  responsible  for the  management  of the  Partnership's
business. TLP was formed in December,  1982 and is a wholly-owned  subsidiary of
TLP Holding LLC  ("Holding").  Waddell & Reed (formerly  TUPS) was formed in May
1986, and is an affiliate of Waddell & Reed, Inc., one of the Soliciting Brokers
for this offering. Both Waddell & Reed and Waddell & Reed, Inc. are wholly-owned
subsidiaries  of  TMK/United,  Inc.,  which  itself  is an  indirect  85%  owned
subsidiary of Torchmark.

The General  Partnership  Agreement between TLP and Waddell & Reed (the "General
Partnership Agreement"),  provides that TLP as the Managing General Partner will
manage and control all of the affairs of the  Partnership  except for  specified
services to be provided by Waddell & Reed relating primarily to the provision of
financial  advisory  services  for the  benefit  of the  Partnership  and to the
continuing  relationships  among the  Partnership,  the General  Partner and the
Partnership's Limited Partners.  The General Partnership Agreement also provides
Waddell & Reed with one member on the Investment Committee.

The Managing General Partner has also entered into an agreement dated as of June
1, 1986 (the "Agency  Agreement") with NEMLC Leasing  Corporation  ("Agent"),  a
wholly-owned  subsidiary  of New England  Merchants  Leasing  Corporation  and a
member  company of  BancNewEngland  Leasing Group.  In 1990, the  BancNewEngland
Leasing Group was acquired by the Bank of Tokyo;  however,  the Agency Agreement
remains unaffected.  Pursuant to the Agency Agreement, the Agent will assist the
Managing  General Partner in the performance of certain of its  responsibilities
on  behalf  of  the  Partnership,   including  identification,   evaluation  and
negotiation  of specific  equipment  investments  suitable for the  Partnership,
billing and collections, management of the equipment while it is under lease and
remarketing of equipment coming off lease.

The  Partnership's  investment  policy  was  intended  for  the  acquisition  of
diversified  types of equipment and the leasing of such equipment to others on a
short-term basis under operating  leases.  The Partnership  generally  purchased
equipment  for which a lease  existed,  or was  entered  into at the time of the
Partnership's  acquisition of the equipment.  Typically,  the acquisition of the
equipment  was  made  from  the   manufacturer,   although  in  some  instances,
acquisitions  were made by the General Partner,  or the Agent. This equipment is
recorded  and  depreciated  at the  Partnership  cost  (purchase  price plus the
acquisition  fee). If at any time the General  Partner deems the equipment to be
obsolete or related  maintenance and storage costs to be in excess of its value,
the equipment is scrapped or sold at the current fair market  value,  which ever
is most advantageous for the Partnership.

The  General  Partner  has not  purchased  more than 30% of any  single  type of
equipment.  The  Partnership's  investments  in capital  equipment  are and will
continue to be subject to various risk  factors.  The  principal  business  risk
associated  with  ownership of the  equipment is the  inability to keep it fully
leased at rentals which, after payment of operating expenses and debt service on
Partnership borrowings, provide, together with any anticipated sales proceeds or
salvage value, an acceptable rate of return.
Other risk factors include:

1.       Technological   and   economic   equipment   obsolescence,     physical
         deterioration,  malfunction and risks attendant upon defaultsby lessees
         and credit losses.

2.       Residual  Values  of  Equipment.   The  Partnership's   return  on  its
         investment in equipment will depend in part upon the  continuing  value
         of such equipment which, in turn, depends upon, among other things: (1)
         the quality of the equipment;  (2) the condition of the equipment;  (3)
         the timing of the equipment's  acquisition;  (4) the cost of comparable
         new equipment; (5) the technological obsolescence of the equipment; (6)
         the General Partner's ability to forecast  technological  changes which
         may reduce the value of the equipment; and (7) market factors.

3.       Competition  from Full Payout  Lessors.  In connection  with  operating
         leases,  the Partnership will encounter  considerable  competition from
         those offering full payout leases,  which are written for a longer term
         and a lower rate than the Partnership's operating leases.


<PAGE>


4.       Competition from Manufacturers.  Leases offered by the Partnership will
         compete  with  operating  leases  and full  payout  leases  offered  by
         equipment  manufacturers  in their own lease  programs.  In addition to
         attractive  financial  terms,  manufacturers  may also provide  certain
         ancillary services which the Partnership cannot offer directly, such as
         maintenance service (including possible equipment substitution rights),
         warranty services and trade-in privileges.

5.       Other  Competition.  There  are  numerous  other  potential  investors,
         including limited  partnerships  organized and managed similarly to the
         Partnership,  seeking to purchase equipment subject to either operating
         leases or full payout leases, many of which will have greater financial
         resources than the  Partnership  and more  experience  than the General
         Partner.   The  Partnership   will  compete  in  the  computer  leasing
         marketplace  with  many   non-manufacturing   firms,   including  other
         equipment  dealers,  brokers  and  leasing  companies,  as well as with
         financial institutions.

6.       Defaults  by  Lessees.  Default by a lessee may cause  equipment  to be
         returned to the  Partnership at a time when the General  Partner may be
         unable to  promptly  arrange  for its  re-leasing  (at the rental  rate
         previously  received  or  otherwise)  or sale (with or without a loss),
         thus resulting in the loss of anticipated revenues and the inability to
         recover  the  Partnership's  investment  and repay  related  debt.  Any
         related  debt may be secured by the  returned  equipment  and,  in some
         cases, by the Partnership's other equipment. If the debt is not paid in
         a timely manner,  the lender may foreclose and acquire ownership of all
         equipment securing the debt, resulting in economic loss and adverse tax
         consequences  to  the  Partnership's   partners.   Two  lessees,   BASF
         Corporation  and  Federal  Paper  Board  Company,  Incorporated,  lease
         equipment  in which the  related  rental  payments  exceed 10% of total
         rental income.  The related rental payments comprise 32.06% and 42.26%,
         respectively,  of the total rental  income for the year ended  December
         31,  1997.   BASF   Corporation   and  Federal  Paper  Board   Company,
         Incorporated lease equipment comprising 2.13% and 4.56%,  respectively,
         of the total equipment portfolio at December 31, 1997.

7.       Changes in Technology.  The General  Partner intends to establish lease
         rates to the Partnership's  lessees which take into account the risk of
         technological  advances  which may reduce  the value of such  equipment
         owned by the Partnership.  However, the introduction of an entirely new
         technology  could lead to a radical  reduction in the fair market value
         of certain equipment and make such equipment difficult to re-lease.

         During 1997, the Partnership leased three main types of equipment:

         (1)  Aircraft:  Sikorsky S-76b helicopter.

         (2)  Construction  equipment:  Includes  lifter  loaders that perform a
              variety  of   applications   such  as  building   residential  and
              commercial civil engineering projects.

         (3)  Trucks and Trailers:  Trucks are generally used for local delivery
              products,  while trailers are generally used for longer  shipments
              and larger items.



<PAGE>


As of December 31, l997, the Partnership  owned $5,032,434 of capital  equipment
(including a 4.75% acquisition fee paid to the General Partner of $228,201). All
equipment is on lease and is summarized as follows:

<TABLE>
<CAPTION>

Year                                                     Initial                     Partnership
Acquired                  Equipment                     Lease Term                  Purchase Price

<S>                       <C>                           <C>                         <C>

l987                      Helicopter Aircraft           3 years                     $      4,678,826

1987-l988                 Lifters and Loaders           3-5 years                            277,390

1987-l988                 Heavy Duty Trucks             3-5 years                             76,218
                          and Trailers                                              ----------------

                          Total                                                     $      5,032,434
                                                                                    ================
</TABLE>

Pursuant to its leasing policies, the General Partner performs a credit analysis
of potential  lessees to  determine  creditworthiness.  The General  Partner has
leased all of its equipment to third  parties by means of operating  leases with
fixed base lease rates. Rents are payable monthly or quarterly. Operating leases
generally  do not  have  terms  greater  than  five  years in  duration  and the
aggregate  noncancelable  rental payments during the term of the lease (on a net
present  value  basis),  are not  sufficient to permit the lessor to recover the
purchase price of the equipment.

At the termination of the initial lease,  the General  Partner  arranges for the
equipment  to be  re-leased  (either to the same  lessee or a new  lessee) if it
determines that  re-leasing is in the  Partnership's  best interest.  Generally,
equipment  is  re-leased  at least once and  possibly  several  times during the
Partnership's   life,  unless  it  is  determined  that  the  equipment  is  not
remarketable  and  therefore  may be sold.  The  General  Partner  provides,  or
arranges for the  installation,  removal,  maintenance  and  modification of the
Partnership's  equipment.  Also, the General Partner will purchase and maintain,
or cause to be  purchased  and  maintained,  appropriate  insurance  coverage to
protect the interests of the Partnership.

Of the leases in place at  December  31,  1997,  the  average  lease term was 23
months and the average monthly lease rate as a percentage of original  equipment
cost was 1%.

During the fourth quarter of 1995, the General Partner  announced its intentions
of winding  down the  operations  of the  Partnership.  It is  anticipated  that
substantially all of the assets will be liquidated and the proceeds will be used
to settle  all  outstanding  liabilities  and make a final  distribution  to the
Partners in early 1998.


<PAGE>


Item 2.  Properties.

At December 31, 1997, the Partnership  owned capital equipment with a cost basis
of  $5,032,434,  subject to 5 existing  leases  with 2  different  lessees.  All
purchases of capital  equipment are subject to a 4.75%  acquisition  fee paid to
the General Partner.   Approximately  42% of the initial equipment portfolio was
financed.



<PAGE>


Item 3.  Legal Proceedings.

There are no material  pending legal  proceedings to which the  Partnership is a
party or of which any of its equipment or leases is the subject.


<PAGE>


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

None.


<PAGE>


                                     Part II

Item 5.  Market  for  the  Partnership's Securities and  Related Security Holder
         Matters.

(a)  Market Information

The  Partnership's   outstanding   securities  consist  of  Limited  Partnership
Interests in Units of $500 each. As of December 31, 1997,  57,239 Units had been
sold to the public at a price of $500 per Unit  (except  for 1,011  Units  which
were sold for a net price of $460 per Unit to employees of the General  Partners
of the General  Partner and  employees  and  securities  representatives  of its
affiliates).

There is no public market for the Units,  and it is not anticipated  that such a
public market will develop.

(b)  Approximate Number of Security Holders

<TABLE>
<CAPTION>
                                         Number of                              Number of Units
                                 Unit Holders on Record                              as of
Title of Class                         as of 12/31/97                               12/31/97



   <S>                                        <C>                                      <C>
   Units of
   Limited
   Partnership
   Interests                                  3,362                                    57,239

</TABLE>

(c)  Dividend History and Restrictions

During the year ended  December 31, 1987 and the period ended December 31, 1986,
the Partnership had six closings with 57,239 Units. Pursuant to Section 8 of the
Limited  Partnership  Agreement,  the  Partnership's  "Distributable  Cash  from
Operations"  for  each  year  will be  determined  and then  distributed  to the
Partners.  Upon  reaching  the  end  of  its  reinvestment  period  (the  second
anniversary of the Partnership's  final closing date), the Partnership will also
distribute to the Partners  "Distributable Cash From Sales or Refinancings",  if
any.  The  Partnership  distributed  $214,646 to the  Limited  Partners in 1997,
$643,939 in 1996 and $858,586 in 1995,  and  distributed  $11,297 to the General
Partner  in 1997,  $27,976  in 1996 and  $35,431 in 1995.  The  cumulative  cash
distributions  to the Limited  Partners through December 31, 1997 is $29,000,099
as compared with the Limited Partners' net contributed capital of $25,569,053.

"Cash From  Operations" and "Cash From Sales or Refinancing"  means the net cash
provided by the  Partnership's  normal  operations  or as a result of any sales,
refinancings or other dispositions of equipment, respectively, after the general
expenses and current  liabilities of the  Partnership  (other than the equipment
management  fee) are paid,  as reduced by any reserves  for working  capital and
contingent  liabilities to the extent deemed  reasonable by the General  Partner
and as  increased  by any  portion of such  reserves  then deemed by the General
Partner not to be required for Partnership operations.  "Distributable Cash From
Operations" and "Distributable  Cash From Sales or Refinancings" means Cash from
Operations or Cash From Sales or Refinancings,  respectively, reduced by amounts
which the General  Partner  determines  shall be reinvested  (through the second
anniversary of the  Partnership's  closing date) in additional  Equipment and by
payments of all accrued but unpaid equipment management fees.

For  rendering  services  in  connection  with  the  normal  operations  of  the
Partnership,  the  Partnership  will pay to the  General  Partner a  Partnership
management fee equal to 5% of the monthly rental billings.

Each distribution of Distributable Cash From Operations of the Partnership shall
be  allocated  95% to the Limited  Partners and 5% to the General  Partner.  Any
Distributable  Cash From Sales or  Refinancings  from gains and losses  shall be
allocated  99% to the  Limited  Partners  and 1% to the  General  Partner  until
"Payout" has occurred.  "Payout" means the time when the aggregate amount of all
distributions to the Limited Partners of Distributable  Cash From Operations and
of Distributable Cash From Sales or Refinancings  equals the aggregate amount of
the Limited  Partners'  original  invested  capital plus a cumulative  8% annual
return  (compounded  daily)  on  their  aggregate  unreturned  invested  capital
(calculated  from the beginning of the first full fiscal  quarter  following the
Partnership's closing date). The cumulative  distribution to date is $505.41 per
Unit.  This  cumulative  distribution  per  Unit  amount  represents  47.96%  of
"Payout".  After  Payout  has  occurred,  any  Distributable  Cash from Sales or
Refinancings will be distributed 15% (plus an additional 1% for each 1% by which
the total of all Limited Partners' original Capital Contributions  actually paid
or allocated to the Partnership's investment in equipment exceeds the greater of
(i) 80% if the gross proceeds of the Partnership's offering of Units, reduced by
0.0625% for each 1% of leverage encumbering  Partnership equipment,  or (ii) 75%
of the  gross  proceeds  of  such  offering)  to the  General  Partner,  and the
remainder to the Limited Partners.  It is not anticipated that Payout will occur
as of the liquidation of this Partnership.

Any Distributable  Cash will be distributed  within 60 days after the completion
of each of the first three fiscal quarters of each Partnership  fiscal year, and
within 120 days after the  completion of each fiscal year,  beginning  after the
first full fiscal quarter following the  Partnership's  first closing date. Each
such distribution will be described in a statement sent to the Limited Partners.


<PAGE>


Item 6.  Selected Financial Data.

The following  table sets forth  selected  financial  information  regarding the
Partnership's  financial position and operating results. This information should
be read in conjunction  with the financial  statements  and notes  thereto,  and
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations, which are included in Items 8. and 7. of this Report.

<TABLE>
<CAPTION>
                                                                  For the Years Ended December 31,
                                                 1997               1996            1995              1994             1993
                                          --------------------------------------------------------------------------------------


<S>                                       <C>               <C>              <C>               <C>              <C>
Operating Data
   Rental Income                          $         71,565  $       709,278  $        804,478  $     1,022,506  $      1,533,319
   Interest Income                                   2,438            7,238             7,252            7,700            26,249
   Net Income                                      122,098          649,566           853,698        1,170,524           994,075

   Per Limited Partnership Unit:
     Net Income Per Limited
       Partnership Unit                               2.06            10.88             14.31            19.69             15.13

Balance Sheet Data

   Cash and Cash Equivalents                         7,139          199,970            98,385          213,715            94,835
   Capital Equipment at Cost                     5,032,434        5,447,101         6,453,248        8,768,519        11,443,550
   Total Assets                                     25,194          262,011           146,572          232,475           277,961
   Long-term Debt                                        -                -                 -                -                 -
   Distributions to Partners                       225,943          671,915           894,017        1,178,033         3,562,609
   Distributions Per Limited
     Partnership Unit                                 3.75            11.25             15.00            20.00             60.00
   Partners' (Deficit) Equity                     (105,632)          (1,787)           20,562           60,881            68,390

</TABLE>



<PAGE>


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

General

As of October 7, 1987 the  Partnership  has received and accepted  subscriptions
for 57,239 Units,  which were offered under its public offering.  Total proceeds
from the offering,  adjusted to reflect selling commissions and organization and
offering costs, were $25,569,053.

Results of Operations

The following  discussion  relates to the Partnership's  operations for the year
ended  December 31, 1997, in comparison to the years ended December 31, 1996 and
1995.

The Partnership  realized net income of $122,098,  $649,566 and $853,698 for the
years ended  December  31,  1997,  1996 and 1995,  respectively.  Rental  income
decreased  $637,713 or 90% between 1996 and 1997 and $95,200 or 12% between 1995
and 1996.  The  decrease is  primarily  due to lower  rental  rates  obtained on
equipment lease  extensions and  remarketings  resulting after the initial lease
term  expires  and  due to a  decrease  in the  overall  size  of the  equipment
portfolio.  Interest  income  decreased in the current year as a result of lower
average  short-term  investment  balances held during 1997.  Other income in the
current year is the result of helicopter  inspection fees,  maintenance fees and
flight time charges. The decrease in net gain on sale of equipment each year can
be attributed to a reduction in equipment sales.

Total costs and expenses  decreased 7% in 1997 and  increased  24% in 1996.  The
decrease in costs and expenses in 1997 is primarily a result of lower management
fees expense. Management fees expenses have decreased in relation to the decline
in  rental  income  for the  years  ended  December  31,  1997,  1996 and  1995,
respectively.  General  and  administrative  expenses  increased  $16,674 or 10%
mainly  due  to an  increase  in  the  allocable  salaries  of  the  partnership
accounting  and reporting  personnel of the General  Partner  during the current
year.

The  Partnership  recorded  net income per  Limited  Partnership  Unit of $2.06,
$10.88  and  $14.31  for the  years  ended  December  31,  1997,  1996 and 1995,
respectively.  The  allocation  for the year ended  December 31, 1997 includes a
cost  recovery  allocation  of profit and loss  among the  General  and  Limited
Partners. This cost recovery allocation is required to maintain capital accounts
consistent with the  distribution  provisions of the Partnership  Agreement.  In
certain  periods,  the  cost  recovery  of  profit  and loss  may  result  in an
allocation  of  net  loss  to  the  Limited   Partners  in  instances  when  the
Partnership's operations were profitable for the period.

Liquidity and Capital Resources

For the  year  ended  December  31,  1997,  rental  revenue  generated  from the
operating  leases and sales  proceeds  from  equipment  sales  were the  primary
sources of funds for the  Partnership.  As the equipment leases  terminate,  the
General Partner determines if the equipment will be extended to the same lessee,
remarketed to another  lessee,  or sold.  This  decision is made upon  analyzing
which option generates the most favorable results.



<PAGE>


Consistent with prior periods,  the Partnership's  operating activities resulted
in a decrease in rental revenue due to lease expirations and resulting equipment
sales,  and due to lower  rental rates  obtained on  remarketed  equipment.  The
helicopter lease with Sikorsky Aircraft Corporation expired in January, 1997. In
February of 1998, the Partnership sold the helicopter  formerly  associated with
the  Sikorsky  lease  for net  proceeds  of  $2,165,873.  The  helicopter  had a
depreciated  cost basis of $0, and  accordingly,  the Partnership  will record a
gain of $2,165,873 in 1998.

The  Partnership's  investing  activities  for the year ended  December 31, 1997
resulted in sales of fully depreciated  equipment,  generating  $43,000 in sales
proceeds.  The Partnership has no material capital commitments and will not have
any  in  the  future  due  to  the  Partnership  having  fulfilled  its  capital
expenditure commitments in prior years.

The  Partnership's  financing  activities  for the year ended  December 31, 1997
resulted in $13,000 of cash  proceeds  received  from the  borrowing of one note
payable - affiliate. The new debt was incurred during the fourth quarter of 1997
and bears interest at 9.50% with  installments  to be paid monthly,  maturing in
1998.

During the fourth quarter of 1995, the General Partner  announced its intentions
of winding  down the  operations  of the  Partnership.  It is  anticipated  that
substantially all of the assets will be liquidated and the proceeds will be used
to settle  all  outstanding  liabilities  and make a final  distribution  to the
Partners in early 1998.

Cash  distributions  are  currently  halted in an effort to  minimize  costs and
accumulate cash in anticipation of a final distribution to the Partners once the
Partnership  has  been  liquidated.  The  effects  of  inflation  have  not been
significant to the  Partnership and are not expected to have any material impact
in future periods.



<PAGE>


Item 8.       FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA






                          Independent Auditors' Report






To the Partners of Hanover Lease Income Limited Partnership:

We have audited the accompanying  balance sheets of Hanover Lease Income Limited
Partnership (a  Massachusetts  Limited  Partnership) as of December 31, 1997 and
1996, and the related  statements of operations,  partners' equity (deficit) and
cash flows for each of the years in the  three-year  period  ended  December 31,
1997. These financial  statements are the  responsibility  of the  Partnership's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the financial  position of Hanover Lease Income Limited
Partnership  as of December 31, 1997 and 1996, and the results of its operations
and its cash flows for each of the years in the three-year period ended December
31, 1997, in conformity with generally accepted accounting principles.

As discussed in note 1, in 1995 the General Partner  announced its intentions of
winding  down  the  operations  of  the  Partnership.  It  is  anticipated  that
substantially all of the assets will be liquidated and the proceeds will be used
to settle  all  outstanding  liabilities  and make a final  distribution  to the
Partners in early 1998.






                                                           KPMG Peat Marwick LLP



Boston, Massachusetts
March 20, 1998


<PAGE>

<TABLE>
<CAPTION>

                    HANOVER LEASE INCOME LIMITED PARTNERSHIP
                      (A Massachusetts Limited Partnership)

                                 Balance Sheets
                           December 31, 1997 and 1996

                                     Assets
                                                                                       1997                  1996
                                                                                 ----------------       ----------------

<S>                                                                              <C>                    <C>
Investment property, at cost (notes 3 and 4):
   Capital equipment                                                             $      5,032,434       $      5,447,101
     Less accumulated depreciation                                                      5,032,434              5,447,101
                                                                                 ----------------       ----------------
       Investment property, net                                                                 -                      -

Cash and cash equivalents                                                                   7,139                199,970
Rents receivable (note 4)                                                                  18,055                 62,041
                                                                                 ----------------       ----------------

     Total assets                                                                $         25,194       $        262,011
                                                                                 ================       ================

                        Liabilities and Partners' Deficit
Liabilities:
   Note payable - affiliate (note 6)                                             $         13,000        $             -
   Accounts payable and accrued
     expenses - affiliates (note 5)                                                        44,574                 10,747
   Accounts payable and accrued expenses                                                   71,787                230,551
   Unearned rental income                                                                   1,465                 22,500
                                                                                 ----------------       ----------------

     Total liabilities                                                                    130,826                263,798
                                                                                 ----------------       ----------------

Partners' deficit:
   General Partner:
     Capital contribution                                                                   1,000                  1,000
     Cumulative net income                                                              1,136,394              1,132,009
     Cumulative cash distributions                                                     (1,135,837)            (1,124,540)
                                                                                 ----------------       ----------------
                                                                                            1,557                  8,469
                                                                                 ----------------       ----------------
   Limited Partners (57,239 units):
     Capital contribution, net of
       offering costs                                                                  25,569,053             25,569,053
     Cumulative net income                                                              3,323,857              3,206,144
     Cumulative cash distributions                                                    (29,000,099)           (28,785,453)
                                                                                 ----------------       ----------------
                                                                                         (107,189)               (10,256)
                                                                                 ----------------       ----------------
     Total partners' deficit                                                             (105,632)                (1,787)
                                                                                 ----------------       ----------------

     Total liabilities and partners' deficit                                     $         25,194       $        262,011
                                                                                 ================       ================
</TABLE>

                 See accompanying notes to financial statements.


<PAGE>

<TABLE>
<CAPTION>

                    HANOVER LEASE INCOME LIMITED PARTNERSHIP
                      (A Massachusetts Limited Partnership)

                            Statements of Operations
                  Years Ended December 31, 1997, 1996 and 1995


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

<S>                                                        <C>                      <C>                   <C>
Revenue:
   Rental income (note 4)                                  $         71,565         $       709,278       $       804,478
   Interest income                                                    2,438                   7,238                 7,252
   Other income                                                     193,654                     750                     -
   Net gain on sale of equipment                                     43,000                 136,000               206,727
                                                           ----------------         ---------------       ---------------

       Total revenue                                                310,657                 853,266             1,018,457
                                                           ----------------         ---------------       ---------------

Costs and expenses:
   Interest                                                              72                       -                     -
   Depreciation                                                           -                       -                   927
   Related party expenses (note 5):
     Management fees                                                  3,578                  35,465                37,807
     General and administrative                                     184,909                 168,235               126,025
                                                           ----------------         ---------------       ---------------

       Total costs and expenses                                     188,559                 203,700               164,759
                                                           ----------------         ---------------       ---------------

Net income                                                 $        122,098         $       649,566       $       853,698
                                                           ================         ===============       ===============

   Net income per
     Limited Partnership Unit                              $           2.06         $         10.88       $         14.31
                                                           ================         ===============       ===============
</TABLE>


                 See accompanying notes to financial statements.


<PAGE>

<TABLE>
<CAPTION>

                    HANOVER LEASE INCOME LIMITED PARTNERSHIP
                      (A Massachusetts Limited Partnership)

                    Statements of Partners' Equity (Deficit)
                  Years Ended December 31, 1997, 1996 and 1995


                                                              General             Limited
                                                              Partner             Partners                 Total



<S>                                                        <C>                <C>                    <C>
Equity at
    December 31, 1994                                      $      10,422      $          50,459      $          60,881

Net income                                                        34,416                819,282                853,698

Cash distributions                                               (35,431)              (858,586)              (894,017)
                                                           -------------      -----------------      -----------------

Equity at
    December 31, 1995                                              9,407                 11,155                 20,562

Net income                                                        27,038                622,528                649,566

Cash distributions                                               (27,976)              (643,939)              (671,915)
                                                           -------------      -----------------      -----------------

Equity (deficit) at
    December 31, 1996                                              8,469                (10,256)                (1,787)

Net income                                                         4,385                117,713                122,098

Cash distributions                                               (11,297)              (214,646)              (225,943)
                                                           -------------      -----------------      -----------------

Equity (deficit) at
    December 31, 1997                                      $       1,557      $        (107,189)     $        (105,632)
                                                           =============      =================      =================
</TABLE>


                 See accompanying notes to financial statements.


<PAGE>

<TABLE>
<CAPTION>

                    HANOVER LEASE INCOME LIMITED PARTNERSHIP
                      (A Massachusetts Limited Partnership)

                            Statements of Cash Flows
                  Years Ended December 31, 1997, 1996 and 1995

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

<S>                                                                   <C>                 <C>                 <C>
Cash flows from operating activities:
   Net income                                                         $       122,098     $       649,566     $       853,698
                                                                      ---------------     ---------------     ---------------

   Adjustments  to  reconcile  net  income  to net cash  (used in)
     provided  by operating activities:
       Depreciation                                                                 -                   -                 927
       Net gain on sale of equipment                                          (43,000)           (136,000)           (206,727)
       Net decrease (increase) in current assets                               43,986             (13,854)            (30,354)
       Net (decrease) increase in current liabilities                        (145,972)            137,788             (45,584)
                                                                      ---------------     ---------------     ---------------

         Total adjustments                                                   (144,986)            (12,066)           (281,738)
                                                                      ---------------     ---------------     ---------------

         Net cash (used in) provided by
           operating activities                                               (22,888)            637,500             571,960
                                                                      ---------------     ---------------     ---------------

Cash flows from investing activities:
   Proceeds from sales of investment property                                  43,000             136,000             206,727
                                                                      ---------------     ---------------     ---------------

         Net cash provided by investing activities                             43,000             136,000             206,727
                                                                      ---------------     ---------------     ---------------

Cash flows from financing activities:
   Proceeds from borrowings on note payable - affiliate                        13,000                   -                   -
   Cash distributions to partners                                            (225,943)           (671,915)           (894,017)
                                                                      ---------------     ---------------     ---------------

         Net cash used in financing activities                               (212,943)           (671,915)           (894,017)
                                                                      ---------------     ---------------     ---------------

Net (decrease) increase in cash and cash equivalents                         (192,831)            101,585            (115,330)

Cash and cash equivalents at beginning of year                                199,970              98,385             213,715
                                                                      ---------------     ---------------     ---------------

Cash and cash equivalents at end of year                              $         7,139     $       199,970     $        98,385
                                                                      ===============     ===============     ===============
</TABLE>

                 See accompanying notes to financial statements.


<PAGE>


                    HANOVER LEASE INCOME LIMITED PARTNERSHIP
                      (A Massachusetts Limited Partnership)

                          Notes to Financial Statements
                        December 31, 1997, 1996 and 1995

(1)   Organization and Partnership Matters

The  Partnership  was  organized   under  the   Massachusetts   Uniform  Limited
Partnership Act on June 19, 1986. The Amended  Agreement of Limited  Partnership
authorized the issuance of up to 60,000 Limited  Partnership Units at a per unit
gross  price of $500  and up to  20,000  additional  units  to  affiliates.  The
Partnership has had in total six closings. The closings occurred on November 17,
1986,  February 17,  1987,  April 27,  1987,  July 7, 1987,  August 18, 1987 and
October 7, 1987 with  8,501,  15,106,  7,992,  9,047,  5,457 and  11,136  units,
respectively.  The  General  Partner  has  contributed  $1,000 in respect of its
General Partnership interest.

Pursuant  to the terms of the Amended  Agreement  of Limited  Partnership,  each
distribution  of  Distributable  Cash From  Operations  and  profits for federal
income tax and  financial  reporting  purposes  from  normal  operations  of the
Partnership shall be allocated 95% to the Limited Partners and 5% to the General
Partner.  Losses for federal  income tax and financial  reporting  purposes from
normal  operations and any  Distributable  Cash From Sales or  Refinancing  from
gains and losses  shall be allocated  99% to the Limited  Partners and 1% to the
General Partner until "Payout" has occurred, and 85% to the Limited Partners and
15% to the General Partner thereafter.  In addition,  special income allocations
may be required to reflect the differing  initial capital  contributions  of the
General  Partner  and the  Limited  Partners.  Payout  means  the time  when the
aggregate  amount of all  distributions to the Limited Partners of Distributable
Cash From Operations and of Distributable  Cash From Sales or Refinancing equals
the aggregate amount of the Limited  Partners'  original invested capital plus a
cumulative  8% annual  return on their  aggregate  unreturned  invested  capital
(calculated  from the beginning of the first full fiscal quarter  following each
Limited Partner's admission to the Partnership).  The cumulative distribution to
date  is  $505.41  per  Unit.  This  cumulative  distribution  per  Unit  amount
represents  47.96% of Payout. It is not anticipated that Payout will occur as of
the liquidation of this Partnership.

During the fourth quarter of 1995, the General Partner  announced its intentions
of winding  down the  operations  of the  Partnership.  It is  anticipated  that
substantially all of the assets will be liquidated and the proceeds will be used
to settle  all  outstanding  liabilities  and make a final  distribution  to the
Partners in early 1998.



<PAGE>


                    HANOVER LEASE INCOME LIMITED PARTNERSHIP
                      (A Massachusetts Limited Partnership)

                          Notes to Financial Statements

(2)   Significant Accounting Policies

The  Partnership's  records are maintained on the accrual basis of accounting so
that revenues are  recognized as earned and expenses are recognized as incurred.
Assets and  liabilities  are those of the  Partnership  and do not  include  any
assets and liabilities of the individual partners.  The preparation of financial
statements in conformity with generally accepted accounting  principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and  liabilities  and disclosure of contingent  assets and liabilities at
the date of the financial  statements  and the reported  amounts of revenues and
expenses  during the reporting  period.  Actual  results could differ from those
estimates.

Effective  January 1, 1990,  depreciation on capital  equipment is provided on a
double-declining balance method over the economic useful lives of the equipment.
No salvage value is assumed.  The Partnership's policy is to periodically review
the estimated fair market value of its equipment to assess the recoverability of
its undepreciated  cost. In accordance with this policy, the Partnership records
a charge  to  depreciation  expense  in  instances  when  the net book  value of
equipment exceeds its net realizable value.  Routine maintenance and repairs are
expensed as incurred.  Major  betterments and  enhancements  are capitalized and
depreciated in accordance with the Partnership's depreciation policy.

Income Taxes

No provision  for federal  income taxes has been made as the  liability for such
taxes is that of the  Partners  rather  than  that of the  Partnership.  Taxable
income,  as reported  in Schedule  K-1,  Form 1065  "Partner's  Share of Income,
Credits,  Deductions,  etc.", was $122,098,  $649,566 and $854,625 in 1997, 1996
and 1995, respectively (see note 7).

Cash and Cash Equivalents

The  Partnership  considers cash and short-term  investments  with maturities of
less than three months to be cash and cash equivalents.

(3)   Investment Property

At December 31, 1997, the Partnership  owned capital equipment with a cost basis
of  $5,032,434.  All  purchases  of  capital  equipment  are  subject to a 4.75%
acquisition fee paid to the General Partner.



<PAGE>


                    HANOVER LEASE INCOME LIMITED PARTNERSHIP
                      (A Massachusetts Limited Partnership)

                          Notes to Financial Statements

(4)   Leases

Operations consist primarily of leasing computer equipment. All equipment leases
are classified as operating leases and expire over the next year.  Minimum lease
payments  scheduled  to be  received  in the first  three  months of 1998  under
existing noncancelable operating leases amount to $13,298.

The following  schedule provides an analysis of the cost of capital equipment by
major classes as of December 31, 1997:

           Helicopter aircraft                         $     4,678,826
           Heavy duty equipment                                328,500
           Other                                                25,108
                                                       ---------------

                    Total                              $     5,032,434
                                                       ===============

Two lessees,  BASF  Corporation  and Federal Paper Board Company,  Incorporated,
lease  equipment in which the related rental payments exceed 10% of total rental
income. The related rental payments comprise 32.06% and 42.26%, respectively, of
the total rental income for the year ended December 31, 1997.  BASF  Corporation
and Federal Paper Board Company,  Incorporated lease equipment  comprising 2.13%
and 4.56%, respectively, of the total equipment portfolio at December 31, 1997.

In February of 1998, the  Partnership  sold the helicopter  formerly  associated
with the Sikorsky  lease for net proceeds of  $2,165,873.  The  helicopter had a
depreciated  cost basis of $0, and  accordingly,  the Partnership  will record a
gain of $2,165,873 in 1998.

(5)   Related Party Transactions

Fees,  commissions  and other expenses paid or accrued by the Partnership to the
General  Partner  or  affiliates  of the  General  Partner  for the years  ended
December 31, 1997, 1996 and 1995 are as follows:

<TABLE>
<CAPTION>
                                                    1997                1996              1995
                                                    ----                ----              ----

<S>                                              <C>                <C>                <C>
Management fees                                  $       3,578      $     35,465       $     37,807
Reimbursable expenses paid                             137,465           114,851             84,444
                                                 -------------      ------------       ------------

                                                 $     141,043      $    150,316       $    122,251
                                                 =============      ============       ============
</TABLE>

Under the terms of the Partnership Agreement, the General Partner is entitled to
an  Equipment  Acquisition  Fee of  4.75%  of the  purchase  price  paid  by the
Partnership  for the  equipment.  The  General  Partner  is also  entitled  to a
management fee equal to 5% of the monthly rental billings. Also, the Partnership
reimburses  the  General  Partner  and their  affiliates  for  certain  expenses
incurred by them in connection with the operation of the Partnership.



<PAGE>


                    HANOVER LEASE INCOME LIMITED PARTNERSHIP
                      (A Massachusetts Limited Partnership)

                          Notes to Financial Statements

(6)   Note Payable - Affiliate

Note  payable - affiliate  at December  31,  1997,  consist of one  non-recourse
promissory note payable to TLP Leasing Programs,  Inc. in the amount of $13,000,
bearing interest at the rate of 9.50%. The note payable matures in 1998.

(7)   Reconciliation  of  Financial  Statement  Net  Income  to  Taxable  Income
      to  Partners

A reconciliation of financial statement net income to taxable income to partners
is as follows for the years ended December 31, 1997, 1996 and 1995:

<TABLE>
<CAPTION>
                                                                                  1997               1996                1995
                                                                                  ----               ----                ----

<S>                                                                           <C>                 <C>                <C>
      Net income per financial statements                                     $      122,098      $     649,566      $     853,698

      Depreciation expense for financial statement purposes
           in excess of depreciation expense for tax purposes                              -                  -                927
                                                                              --------------      -------------      -------------

      Taxable income to partners                                              $      122,098      $     649,566      $     854,625
                                                                              ==============      =============      =============
</TABLE>

Losses for federal tax purposes from normal  operations are allocated 99% to the
Limited Partners and 1% to the General Partner. Profits for federal tax purposes
from normal  operations are allocated 95% to the Limited  Partners and 5% to the
General Partner. In addition,  special cost recovery allocations may be required
to reflect the differing initial capital contribution of the General Partner and
the Limited Partners.



<PAGE>


                    HANOVER LEASE INCOME LIMITED PARTNERSHIP
                      (A Massachusetts Limited Partnership)

                         Equipment Portfolio (Unaudited)
                                December 31, 1997

Lessee

BASF Corporation
Federal Paper Board Company, Incorporated

Equipment Description                                          Acquisition Price

Helicopter aircraft                                             $      4,678,826
Heavy duty equipment                                                     328,500
Other                                                                     25,108
                                                                ----------------

                                                                $      5,032,434
                                                                ================


<PAGE>


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

None.


<PAGE>


                                    Part III

Item 10.  Directors and Executive Officers of the Partnership.

(a-b) Identification of Directors and Executive Officers

The  Partnership  has no Directors or Officers.  As indicated in Item 1. of this
report,  the General Partner of the Partnership is Hanover Leasing  Partnership.
Under the Partnership  Agreement,  the General Partner is solely responsible for
the operation of the Partnership's properties,  and the Limited Partners have no
right to participate in the control of such operations.  The General Partner has
two  Corporate  General  Partners (the  "Corporate  General  Partners"):  TLP, a
Massachusetts  corporation  and  Waddell  & Reed  (formerly  TUPS),  a  Missouri
corporation.  The names and ages of the Directors and Executive  Officers of the
General Partner are as follows:

<TABLE>
<CAPTION>

TLP
          Name                                                       Title                                             Age

<S>                                                <C>                                                                 <C>
Nicholas C. Bogard                                 Director                                                            52
Arthur P. Beecher                                  Director, President, and Clerk                                      60
Nancy E. Malone                                    Vice President, Lease Financing                                     39
Irene V. King                                      Vice President, Satellite Operations                                50
Joseph P. Colonna                                  Vice President, Marketing                                           39

Waddell & Reed
          Name                                                       Title                                             Age

Keith A. Tucker                                    President, Chief Executive Officer                                  53
                                                      and Director
Robert L. Hechler                                  Vice President, Chief Operations Officer,                           61
                                                      Treasurer and Director
Henry J. Herrmann                                  Vice President, Chief Investment Officer                            55
                                                      and Director
Robert J. Williams, Jr.                            Vice President and National Sales Manager                           53
Sharon K. Pappas                                   Vice President, Secretary                                           39
                                                      and General Counsel
</TABLE>


(c) Identification of certain significant persons

See Item 10. (a-b)

(d) Family relationship

No  family  relationship  exists  between  any of  the  foregoing  Directors  or
Officers.

(e) Business experience



<PAGE>


Nicholas C.  Bogard is  Director of TLP.  Mr.  Bogard  served as  President  and
Director of TLP from 1982 - 1992, and served as Director of CS First Boston from
1992 - 1994. He has been working as an  independent  consultant  since 1994. Mr.
Bogard  holds a B.A.  from  Princeton  University  and an  M.B.A.  from  Harvard
University.

Arthur P. Beecher is President, Director and Clerk of TLP. Prior to joining TLP,
he was an officer of CSA Financial Corp. of Boston, Massachusetts, most recently
as Vice President,  Finance and  Administration  since 1975. Mr. Beecher holds a
B.S. from Boston University and is a Certified Public Accountant.

Nancy E. Malone is Vice President, Lease Financing of TLP. Prior to joining TLP,
she was Manager,  Lease Financing for 11 years at CSA Financial Corp. of Boston,
Massachusetts. Ms. Malone holds a B.A. from The College of the Holy Cross.

Irene V. King is Vice President,  Satellite Operations for TLP. Prior to joining
TLP in April 1994,  she was  Director of Public  Income  Funds at CSA  Financial
Corp. of Boston,  Massachusetts  and was previously Vice President of Finance at
First  Alliance  Corp. of Wellesley,  Massachusetts.  Ms. King holds a B.A. from
Barat College of the Sacred Heart, Lake Forest, Illinois.

Joseph P. Colonna is Vice President,  Marketing of TLP. Prior to joining TLP, he
was Associate Counsel at CSA Financial Corp. of Boston,  Massachusetts in charge
of Domestic and International  Leasing  Transactions.  He received his B.A. from
Rutgers  University,  J.D. from Suffolk  University  Law School and M.S.L.  from
Vermont Law School.

Keith A. Tucker is President,  Chief Executive Officer and Director of Waddell &
Reed;  Chairman  of the Board of  Directors  of  WRIMCO,  Waddell & Reed,  Inc.,
Waddell & Reed Services  Company,  Waddell & Reed Asset  Management  Company and
Torchmark  Distributors,  Inc.,  an  affiliate  of  Waddell & Reed,  Inc.;  Vice
Chairman of the Board of  Directors,  Chief  Executive  Officer and President of
United Investors Management Company;  Vice Chairman of the Board of Directors of
Torchmark Corporation; and President of each of the funds in the United, Waddell
& Reed and TMK/United  mutual fund groups.  He is also Director of  Southwestern
Life Corporation. Prior to joining Torchmark Corporation in 1991, Mr. Tucker was
with Trivest,  Inc. and Trivest Securities  Corporation in Miami,  Florida since
1987,  most recently as the Senior Vice President and  President,  respectively.
Prior to Trivest,  Inc., he was Director of Atlantis Group,  Inc., a diversified
company.  Mr.  Tucker  holds a B.B.A.  and a J. D. both from the  University  of
Texas.

Robert L. Hechler is Vice  President,  Chief  Operations  Officer,  Director and
Treasurer  of Waddell & Reed;  Executive  Vice  President,  Principal  Financial
Officer, Director and Treasurer of WRIMCO;  President,  Chief Executive Officer,
Principal  Financial  Officer,  Director and Treasurer of Waddell & Reed,  Inc.;
Director  and  Treasurer of Waddell & Reed  Services  Company;  Vice  President,
Treasurer and Director of Torchmark  Distributors,  Inc.; and Vice President and
Principal  Financial Officer of each of the funds in the United,  Waddell & Reed
and  TMK/United  mutual fund groups.  He has been employed by Waddell & Reed and
its  affiliates  since 1977.  Mr.  Hechler holds a B.S.  from the  University of
Illinois and an M.B.A. from the University of Chicago.


<PAGE>


Henry J. Herrmann is Vice President,  Chief  Investment  Officer and Director of
Waddell & Reed;  Director of Waddell & Reed,  Inc.;  President,  Chief Executive
Officer,  Chief  Investment  Officer  and  Director of WRIMCO and Waddell & Reed
Asset Management Company;  Senior Vice President and Chief Investment Officer of
United Investors  Management Company; and Vice President of each of the funds in
the  United,  Waddell & Reed and  TMK/United  mutual  fund  groups.  He has been
employed by Waddell & Reed and its affiliates  since 1971. Mr.  Herrmann holds a
B.S. from New York University.

Robert J. Williams,  Jr. is Vice President and National Sales Manager of Waddell
& Reed and  Executive  Vice  President  and National  Sales Manager of Waddell &
Reed,  Inc. He has been employed by Waddell & Reed, Inc. since July 1996. He was
employed with Charles  Schwab & Company from  November  1991 to July 1995.  From
August 1984 to October  1991,  he was  employed by  American  Express  Financial
Advisors or its  affiliates.  Mr.  Williams  holds a B.S. from the University of
Utah and an M.B.A. from California State-Humbolt.

Sharon K. Pappas is Vice  President,  Secretary and General Counsel of Waddell &
Reed; Senior Vice President, Secretary and General Counsel of WRIMCO and Waddell
& Reed, Inc.; Director, Senior Vice President,  Secretary and General Counsel of
Waddell & Reed Services  Company;  Director,  Secretary  and General  Counsel of
Waddell & Reed Asset Management Company;  Vice President,  Secretary and General
Counsel of Torchmark Distributors,  Inc.; formerly, Assistant General Counsel of
WRIMCO, Waddell & Reed Financial Services, Inc., Waddell & Reed, Inc., Waddell &
Reed Asset Management  Company and Waddell & Reed Services Company.  She is Vice
President,  Secretary  and  General  Counsel of each of the funds in the United,
Waddell & Reed and  TMK/United  mutual fund groups.  Prior to joining  Waddell &
Reed and its  affiliates in 1989,  Ms.  Pappas was employed with Stinson,  Mag &
Fizzell in Kansas City,  Missouri.  Ms.  Pappas  holds a B.S.  from Kansas State
University and a J.D. from the University of Kansas.

(f) Involvement in certain legal proceedings

The  Partnership is not aware of any legal  proceedings  against any Director or
Executive  Officer of the Corporate  General Partners which may be important for
the evaluation of any such person's ability and integrity.


<PAGE>


Item 11.  Management Remuneration and Transactions.

(a), (b), (c), (d), and (e): The Officers and Directors of the Corporate General
Partners receive no current or proposed direct  remuneration in such capacities,
pursuant to any standard  arrangements or otherwise,  from the  Partnership.  In
addition,  the Partnership has not paid and does not propose to pay any options,
warrants  or rights to the  Officers  and  Directors  of the  Corporate  General
Partners.  There exists no remuneration  plan or arrangement with any Officer or
Director of the  Corporate  General  Partners  resulting  from the  resignation,
retirement  or any other  termination.  See note 5 to the  financial  statements
included in Item 8. of this report for a description of the remuneration paid by
the Partnership to the General Partner and its affiliates  during 1997, 1996 and
1995.


<PAGE>


Item 12.  Security Ownership of Certain Owners and Management.

By virtue of its  organization  as a limited  partnership,  the  Partnership has
outstanding no securities  possessing  traditional  voting rights.  However,  as
provided  for in Section 13.2 of the Amended  Agreement  of Limited  Partnership
(subject to Section  13.3),  a majority  interest of the Limited  Partners  have
voting rights with respect to:

1.  Amendment of the Limited Partnership Agreement;

2.  Termination of the Partnership;

3.  Removal of the General Partner; and

4.  Approval or disapproval of the sale of substantially all the assets
    of the Partnership.

No person or group is known by the General Partner to own beneficially more than
5% of the  Partnership's  57,239  outstanding  Limited  Partnership  Units as of
December 31, 1997.

By virtue of its organization as a limited  partnership,  the Partnership has no
Officers or Directors.  See also note 1 to the financial  statements included in
Item 8. and Item 10. of this report.


<PAGE>


Item 13.  Certain Relationships and Related Transactions.

(a), (b), and (c): The General  Partner of the  Partnership  is Hanover  Leasing
Partnership,  having  two  Corporate  General  Partners:  TLP,  a  Massachusetts
corporation  and Waddell & Reed  (formerly  TUPS), a Missouri  corporation.  The
identification  of the  Corporate  General  Partners'  Directors  and  Executive
Officers  is  indicated  in Item 10. of this  report.  The  Partnership  was not
involved in any transaction  involving any of these Directors or Officers of the
Corporation or any member of the immediate family of these individuals,  nor did
any of these persons provide services to the Partnership for which they received
direct  or  indirect   remuneration.   Similarly,   there   exists  no  business
relationship between the Partnership and any of the Directors or Officers of the
Corporate  General  Partners,  nor were any of the  individuals  indebted to the
Partnership.

The General  Partnership  Agreement between TLP and Waddell & Reed (the "General
Partnership  Agreement")  provides that TLP as the Managing General Partner will
manage and control all of the affairs of the  Partnership  except for  specified
services to be provided by Waddell & Reed relating primarily to the provision of
financial  advisory  services  for the  benefit  of the  Partnership  and to the
continuing  relationships  among the  Partnership,  the General  Partner and the
Partnership's Limited Partners.  The General Partnership agreement also provides
Waddell & Reed with one member of the Investment Committee.

The Managing General Partner has also entered into an agreement dated as of June
1, 1986 (the "Agency  Agreement") with NEMLC Leasing  Corporation  ("Agent"),  a
wholly-owned  subsidiary  of New England  Merchants  Leasing  Corporation  and a
member  company of  BancNewEngland  Leasing Group.  In 1990, the  BancNewEngland
Leasing  Corporation  was acquired by the Bank of Tokyo  ("BOT"),  however,  the
Agency Agreement remains unaffected. Pursuant to the Agency Agreement, the Agent
will assist the Managing  General  Partner in the  performance of certain of its
responsibilities  on  behalf  of  the  Partnership,   including  identification,
evaluation and negotiation of specific  equipment  investments  suitable for the
Partnership,  billing and  collections,  management of the equipment while it is
under lease and remarketing of equipment coming off lease.

In consideration of such services and capital commitments, TLP will receive 30%,
Waddell  &  Reed  will  receive  3.33%  and  BOT  will  receive  66.67%  of  all
compensation  received by the General  Partner in connection  with the formation
and operation of the Partnership (including Equipment Management and Acquisition
Fees,  Subordinated   Remarketing  Fees  and  the  General  Partner's  share  of
Distributable Cash from Sales or Refinancing).  The General Partner will also be
reimbursed  an  amount  equal to up to 3% of the  total  gross  proceeds  of the
Partnership's  offerings for  organizational  and offering expenses in excess of
that amount will be borne by TLP.




<PAGE>

<TABLE>
<CAPTION>

Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K: None.

<S>     <C>   <C>                                                                                                 <C>
  (a)   1.    Financial Statements                                                                                Page No.

              Independent Auditors' Report - KPMG Peat Marwick LLP                                                15
              Balance Sheets at December 31, 1997 and 1996                                                        16
              Statements of Operations
                 Years Ended December 31, 1997, 1996 and 1995                                                     17
              Statements of Partners' Equity (Deficit)
                 Years Ended December 31, 1997, 1996 and 1995                                                     18
              Statements of Cash  Flows
                 Years Ended December 31, 1997, 1996 and 1995                                                     19
              Notes to Financial Statements                                                                       20 -23

        2.    Financial Statement Schedules

              All financial statement schedules are omitted because they are not
              applicable,   the  data  is  not  significant,   or  the  required
              information is shown elsewhere in this report.

              Equipment Portfolio (Unaudited)                                                                     24

  (b)   Reports on Form 8-K

              None

</TABLE>


<PAGE>


(c)           Exhibit Index

Exhibits

        4.    (a)   Agreement  of  Limited   Partnership  is   incorporated   by
                    reference    to    Amendment    No.   1   to    Form    S-1,
                    Registration No. 33-7004,  filed  with  the  Securities  and
                    Exchange Commission on September 24, 1986.

              (b)   Amendment  to  Agreement  of  the  Limited  Partnership  and
                    Schedule A dated March 8, 1991, is incorporated by reference
                    to the  exhibits  on Form  10-K for the  fiscal  year  ended
                    December 31, 1990 ("1990 Form 10-K").

              (c)   New  Assignment  and Amendment  Agreement with Bank of Tokyo
                    dated May 31,  1990,  is  incorporated  by  reference to the
                    exhibits on the 1990 Form 10-K.

              (d)   Amendment  to Agreement  of the Limited  Partnership,  dated
                    March 10, 1992 is  incorporated by reference to the exhibits
                    on Form 10-K for the fiscal  year ended  December  31,  1991
                    ("1991 Form 10-K").

        10.   (a)   Material  Lease  Agreement  with  Central  Ohio  Coal  dated
                    July  1,  1988,   is  incorporated   by  reference   to  the
                    exhibits on the 1990 Form 10-K. *

              (b)   Rental  Schedule  A-1  and  Certificate  of  Inspection  and
                    Acceptance with United Technologies,  dated May 29, 1987, is
                    incorporated  by  reference to the exhibits on the 1990 Form
                    10-K.

              (c)   Rental  Schedule  A-1  and  Certificate  of  Inspection  and
                    Acceptance  with  Storage  Technology   Corporation,   dated
                    November  11,  1991,  is  incorporated  by  reference to the
                    exhibits on the 1991 Form 10-K.

              (d)   Lease   Supplement   with  Northwest  Aircraft,  Inc.  dated
                    December 30, 1988,  is  incorporated  by  reference  to  the
                    exhibits on Form 10-K for the fiscal year ended December 31,
                    1992 ("1992 Form 10-K"). **

              (e)   Lease Schedule with Federal Paper Board Company, Inc., dated
                    January  22,  1987,  is  incorporated  by  reference  to the
                    exhibits on the 1992 Form 10-K.

        18.   (a)   KPMG Peat Marwick  Letter  Regarding  Changes in  Accounting
                    Principles,  dated  February  15, 1991  is  incorporated  by
                    reference to the exhibits on the 1990 Form 10-K.

        28.   (a)   Form  of   Standard  Lease  Agreement  is  incorporated   by
                    reference to the exhibits on the 1990 Form 10-K.


*  Lease terminated during 1992.
**  Lease terminated during 1993.




<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.

HANOVER LEASE INCOME LIMITED PARTNERSHIP
(Registrant)

By:    Hanover Leasing Partnership,
       its General Partner

By:    TLP Leasing Programs, Inc.,
       one of its Corporate General Partners


Date:  March 27, 1998

By:    Arthur P. Beecher,
       President