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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION  FORM 10-K [X]    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended December 31, 2003 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 0-19770 IEA INCOME FUND XI, L.P.  California
(State or other jurisdiction of
incorporation or organization)
    
    94-3122430
(I.R.S. Employer Identification No.)
 One Front Street, Suite 925, San Francisco, California 94111
(Address of principal executive offices)            (Zip Code)
 Registrants telephone number, including area code (415) 677-8990 Securities registered pursuant to Section 12(b) of the Act: Title of each class
    
    Name of each exchange on which registeredNot Applicable
 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  [   ]. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (§229.405 of this chapter) 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] Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes
[   ].  No [X]. The aggregate market value of the voting stock held by non-affiliates of the
registrant is not applicable. Documents incorporated by Reference Prospectus of IEA Income Fund XI, L.P., dated December 14, 1990 included as
part of Registration Statement on Form S-1 (No. 33-36701)




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IEA INCOME FUND XI, L.P. Report on Form 10-K for the Fiscal Year
Ended December 31, 2003 TABLE OF CONTENTS PAGEPART I
    
    
    3Item 1  Business
    
    
    3Item 2  Properties
    
    
    11Item 3  Legal Proceedings
    
    
    11Item 4  Submission of Matters to a Vote of Security Holders
    
    
    11PART II
    
    
    12Item 5  Market for the Registrants Common Equity and Related Stockholder Matters
    
    
    12Item 6  Selected Financial Data
    
    
    13Item 7  Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13Item 7A Quantitative and Qualitative Disclosures About Market Risk
    
    
    22Item 8  Financial Statements and Supplementary Data
    
    
    22Item 9  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    36Item 9A  Controls and Procedures
    
    
    36PART III
    
    
    37Item 10  Directors and Executive Officers of the Registrant
    
    
    37Item 11  Executive Compensation
    
    
    40Item 12  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    41Item 13  Certain Relationships and Related Transactions
    
    
    41Item 14  Principal Accountant Fees and Services
    
    
    41PART IV
    
    
    43Item 15  Exhibits, Financial Statement Schedules, and Reports on Form 8-K
    
    
    43EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32
 2




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PART I 
 Item 1. Business (a) General Development of Business The Registrant is a limited partnership organized under the laws of the
State of California on July 30, 1990, for the purpose of owning and leasing
marine cargo containers, special purpose containers and container related
equipment to unaffiliated third-party lessees. The Registrant was initially
capitalized with $100, and commenced offering its limited partnership interests
to the public subsequent to December 14, 1990, pursuant to its Registration
Statement on Form S-1 (File No. 33-36701). The offering terminated on November
30, 1991. The Registrant raised $39,996,240 in subscription proceeds. The following
table sets forth the use of said subscription proceeds: Percentage ofAmount
    
    Gross ProceedsGross Subscription Proceeds
    
    $
    39,996,240
    
    
    
    100.0
    %Public Offering Expenses:Underwriting Commissions
    
    $
    3,999,634
    
    
    
    10.0
    %Offering and Organization Expenses
    
    $
    703,234
    
    
    
    1.7
    %Total Public Offering Expenses
    
    $
    4,702,868
    
    
    
    11.7
    %Net Proceeds
    
    $
    35,293,372
    
    
    
    88.3
    %Acquisition Fees
    
    $
    345,466
    
    
    
    0.9
    %Working Capital Reserve
    
    $
    401,330
    
    
    
    1.0
    %Gross Proceeds Invested in Equipment
    
    $
    34,546,576
    
    
    
    86.4
    %
 The general partner of the Registrant is Cronos Capital Corp. (CCC), a
wholly-owned subsidiary of Cronos Holdings/Investments (U.S.), Inc., a Delaware
corporation. These and other affiliated companies are ultimately wholly-owned
by The Cronos Group, a holding company registered in Luxembourg (the Parent
Company) and are collectively referred to as the Group. The activities of
the container division of the Group are managed through the Groups subsidiary
in the United Kingdom, Cronos Containers Limited (the Leasing Company). The
Leasing Company manages the leasing operations of all equipment owned by the
Group on its behalf or on behalf of third-party container owners, including all
programs organized by CCC. For a discussion of recent developments in the Registrants business, see
Item 7, Managements Discussion and Analysis of Financial Condition and Result
of Operations. For information concerning the containers acquired by the Registrant, see
Item 2, Properties. 3




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(b) Financial Information About Segments An operating segment is a component of an enterprise that engages in
business activities from which it may earn revenues and incur expenses, whose
operating results are regularly reviewed by the enterprises chief operating
decision maker to make decisions about resources to be allocated to the segment
and assess its performance, and about which separate financial information is
available. The Leasing Companys management operates the Registrants
container fleet as a homogenous unit and has determined that as such it has a
single reportable operating segment. The Registrant derives revenues from dry cargo containers and refrigerated
containers. As of December 31, 2003, the Registrant operated 2,108
twenty-foot, 1,082 forty-foot and 60 forty-foot high-cube marine dry cargo
containers, as well as 60 twenty-foot and 19 forty-foot marine refrigerated
cargo containers. A summary of gross lease revenue earned by the Leasing
Company, on behalf of the Registrant, by product, for the years ended December
31, 2003, 2002 and 2001 follows: 2003
    
    2002
    
    2001Dry cargo containers
    
    $
    950,629
    
    
    $
    1,297,226
    
    
    $
    2,235,041Refrigerated containers
    
    
    141,891
    
    
    
    146,785
    
    
    
    259,923Total
    
    $
    1,092,520
    
    
    $
    1,444,011
    
    
    $
    2,494,964
 Due to the Registrants lack of information regarding the physical
location of its fleet of containers when on lease in the global shipping trade,
it is impracticable to provide the geographic area information. Any attempt to
separate foreign operations from domestic operations would be dependent on
definitions and assumptions that are so subjective as to render the information
meaningless and potentially misleading. Accordingly, the Registrant believes
that it does not possess discernible geographic reporting segments as defined
in SFAS 131 (SFAS 131), Disclosures about Segments of an Enterprise and
Related Information. One sub-lessee of the Leasing Company, Mediterranean Shipping Company S.A.
(MSC), generated approximately 24% or $265,098 of the Leasing Companys
rental revenue earned on behalf of the Registrant during 2003. During 2002 and
2001, one sub-lessee of the Leasing Company, MSC, generated approximately 13%
or $328,468 and 11% or $427,047, respectively, of the Leasing Companys rental
revenue earned on behalf of the Registrant. MSC is a private company located
in Switzerland and is ranked as the second largest container liner operator in
the world. (c) Narrative Description of Business (c)(1)(i) A marine cargo container is a reusable metal container designed
for the efficient carriage of cargo with a minimum of exposure to loss from
damage or theft. Containers are manufactured to conform to worldwide standards
of container dimensions and containership fittings adopted by the International
Standards Organization (ISO) in 1968. The standard
container is either 20'
long x 8' wide x 8'6" high (one twenty-foot equivalent unit (TEU), the
standard unit of physical measurement in the container industry) or
40' long x
8' wide x 8'6" high (two TEU). Standardization of the construction,
maintenance and handling of containers allows containers to be picked up,
dropped off, stored and repaired efficiently throughout the world. This
standardization is the foundation on which the container industry has
developed. Standard dry cargo containers are rectangular boxes with no moving parts,
other than doors, and are typically made of steel. They are constructed to
carry a wide variety of cargoes ranging from heavy industrial raw materials to
light-weight finished goods. Specialized containers such as refrigerated and
tank containers are utilized for the transport of temperature-sensitive goods
and for the carriage of liquid cargo. Cellular palletwide containers (CPCs)
provide shipping lines with a container with extra width for the carriage of
unitized or palletized cargoes. One of the primary benefits of containerization has been the ability of
the shipping industry to effectively lower freight rates due to the
efficiencies created by standardized intermodal containers. Containers can be
handled much more efficiently than loose cargo and are typically shipped via
several modes of transportation, including truck, rail and ship. Containers
require loading and unloading only once and remain sealed until arrival at the
final destination, significantly reducing transport time, labor and handling
costs and losses due to damage and theft. Efficient movement of containerized
cargo between ship and shore reduces the amount of time that a ship must spend
in port. The logistical advantages and reduced freight rates brought about by
containerization have been major catalysts for world trade growth since the
late 1960s, resulting in increased demand for containers. The worlds
container fleet has grown from an estimated 270,000 TEU in 1969 to
approximately 17 million TEU by the end of 2003. 4




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The container leasing business is cyclical, and depends largely upon the
rate of growth in the volume of world trade. Benefits of Leasing The container fleets of leasing companies represent approximately 46% of
the worlds container fleet with the balance owned predominantly by shipping
lines. Shipping lines, which traditionally operate on tight profit margins,
often supplement their owned fleet of containers by leasing a portion of their
equipment from container leasing companies and, in doing so, achieve the
following financial and operational benefits:  
    
    Leasing allows the shipping lines to utilize the equipment they need
without having to make large capital expenditures;
    
    Leasing offers a shipping line an alternative source of financing in a
traditionally capital-intensive industry;
    
    Leasing enables shipping lines to expand their routes and market shares at
a relatively low cost without making a permanent commitment to support
their new structure;
    
    Leasing allows shipping lines to respond to changing seasonal and trade
route demands, thereby optimizing their capital investment and storage
costs. Types of Leases On behalf of the Registrant, the Leasing Company leases the Registrants
containers primarily to shipping lines operating in major trade routes (see
Item 1(d)). Most if not all of the Registrants marine dry cargo containers
are leased pursuant to operating leases, whereby the containers are leased to
the ocean carrier on a daily basis for any desired length of time, with the
flexibility of picking up and dropping off containers at various agreed upon
locations around the world. Some of the Registrants containers may be leased
pursuant to term leases, which may have durations of one to five years.
Specialized containers are generally leased on longer-term leases because the
higher cost, value and complexity of this equipment makes it more expensive to
redeliver and lease out.  
    
    Master lease.Master leases are leases under which a customer may lease a
certain number of containers, as needed, under a general agreement between
the lessor and the lessee. Such leases provide customers with greater
flexibility by allowing customers to pick up and drop off containers where
and when needed, subject to restrictions and availability, on pre-agreed
terms. Master leases also define the number of containers that may be
returned within each calendar month, the return locations and applicable
drop-off charges. Due to the increased flexibility they offer, master
leases usually command higher per-diem rates and generate more ancillary
revenue (including pick-up, drop-off, handling and off-hire fees) than term
leases Ocean carriers generally use one-way leases to manage trade
imbalances (where more containerized cargo moves in one direction than
another) by picking up a container in one port and dropping it off at
another location after one or more legs of a voyage. The commercial terms
of master leases are usually negotiated annually.  
    
    Term lease.Term leases are for a fixed period of time and include both
long and short-term commitments, typically varying from three to five
years. Term lease agreements may contain early termination penalties that
apply in the event of early redelivery. In most cases, however, equipment
is not returned prior to the expiration of the lease. Term leases provide
greater revenue stability to the lessor, but at lower lease rates than
master leases. Ocean carriers use term leases to lower their operating
costs when they have a need for identified containers for a specified term.
They differ from master leases in that they define the number of
containers to be leased and the lease term. The percentage of equipment on term leases as compared to master leases
varies widely among leasing companies, depending upon each companys leasing
strategy regarding profit margins, operating costs and cash flows. Lease rates depend on several factors including a customers financial
strength, type of lease, length of term, type and age of the equipment,
equipment replacement costs, interest rates, maintenance provided, and market
conditions. 5




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The terms and conditions of the Leasing Companys leases provide that
customers are responsible for paying all taxes and service charges arising from
container use, maintaining the containers in good and safe operating condition
while on lease and paying for repairs, excluding ordinary wear and tear, upon
redelivery. Some leases provide for a damage protection plan whereby
lessees, for an additional payment (which may be in the form of a higher
per-diem rate), are relieved of the responsibility of paying some of the repair
costs upon redelivery of the containers. The Leasing Company provides this
service to selected customers. Repairs provided under such plans are carried
out by the same depots, under the same procedures, as are repairs to containers
not covered by such plans. Customers also are required to insure leased
containers against physical damage and loss, and against third party liability
for loss, damage, bodily injury or death. Customers The Registrant is not dependent upon any particular sub-lessee or group of
sub-lessees of the Leasing Company. Only one sub-lessee of the Leasing Company
accounted for more than 10% of the Leasing Companys rental revenue earned on
behalf of the Registrant. This sub-lessee, MSC, generated approximately 24% or
$265,098 of the Leasing Companys rental revenue earned during 2003 on behalf
of the Registrant. The majority of the Leasing Companys customers are billed
and pay in United States dollars. The Leasing Company sets maximum credit limits for the Registrants
customers, limiting the number of containers leased to each according to
established credit criteria. The Leasing Company continually tracks its credit
exposure to each customer. The Leasing Companys credit committee meets
quarterly to analyze the performance of the Registrants customers and to
recommend actions to be taken in order to minimize credit risks. The Leasing
Company uses specialist third party credit information services and reports
prepared by local staff to assess credit applications. The Registrant may be subject to unexpected loss in rental revenue from
sub-lessees of its containers that default under their container lease
agreements with the Leasing Company. The Registrant and Leasing Company
maintain insurance against loss or damage to the containers, loss of lease
revenue in certain cases and costs of container recovery and repair in the
event that a customer declares bankruptcy. Fleet Profile The Registrant acquired high-quality dry cargo containers manufactured to
specifications that exceed ISO standards and are designed to minimize repair
and operating costs. Dry cargo containers are the most commonly used type of container in the
shipping industry. The Registrants dry cargo container fleet is constructed
of all Corten® steel (i.e., Corten® roofs, walls, doors and undercarriage), which
is a high-tensile steel yielding greater strength, damage and corrosion
resistance than mild steel. Refrigerated containers are used to transport temperature-sensitive
products, such as meat, fruit, vegetables and photographic film. All of the
Registrants refrigerated containers have high-grade stainless steel interiors.
The majority of the Registrants 20-foot refrigerated containers have
high-grade stainless steel outer walls, while most of the Registrants 40-foot
refrigerated containers are steel framed with aluminum outer walls to reduce
weight. As with the dry cargo containers, all refrigerated containers are
designed to minimize repair and maintenance and maximize damage resistance. The Registrant purchased its dry containers from manufacturers in Korea
and Taiwan. The Registrants refrigerated containers were purchased mainly
from Korean manufacturers. The majority of its refrigeration units were
purchased from Carrier Transicold, one of the primary container refrigeration
unit suppliers in the United States. 6




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As of December 31, 2003, the Registrant owned 2,108 twenty-foot, 1,082
forty-foot, 60 forty-foot high-cube marine dry cargo containers and 60
twenty-foot and 19 forty-foot refrigerated cargo containers. The following
table sets forth the number of containers on lease, by container type and lease
type as of December 31, 2003: Number ofContainers on Lease20-Foot Dry Cargo Containers:Term Leases
    
    
    1,352Master Leases
    
    
    668Total on Lease
    
    
    2,02040-Foot Dry Cargo Containers:Term Leases
    
    
    474Master Leases
    
    
    380Total on Lease
    
    
    85440-Foot High-Cube Dry Cargo Containers:Term Leases
    
    
    13Master Leases
    
    
    27Total on Lease
    
    
    4020-Foot Refrigerated Cargo Containers:Term Leases
    
    
    13Master Leases
    
    
    22Total on Lease
    
    
    3540-Foot Refrigerated Cargo Containers:Term Leases
    
    
    10Master Leases
    
    
    5Total on Lease
    
    
    15
 The Leasing Company makes payments to the Registrant based upon rentals
collected from customers after deducting certain operating expenses associated
with the containers, such as the base management fee payable to the Leasing
Company, certain expense reimbursements payable to CCC and the Leasing Company,
the costs of maintenance and repairs not performed by lessees, independent
agent fees and expenses, depot expenses for handling, inspection and storage,
and additional insurance. Repair and Maintenance All containers are inspected and repaired when redelivered by customers,
who are obligated to pay for all damage repair, excluding wear and tear,
according to standardized industry guidelines. Some customers are relieved of
the responsibility of paying some repair costs upon redelivery of containers,
as described under Description of Business  Lease Profile. Depots in major
port areas perform repair and maintenance that is verified by either
independent surveyors or the Leasing Companys technical and operations staff. Before any repair or refurbishment is authorized on older containers in
the Registrants fleet, the Leasing Companys technical and operations staff
reviews the age, condition and type of container, and its suitability for
continued leasing. The Leasing Company compares the cost of such repair or
refurbishment with the prevailing market resale price that might be obtained
for that container and makes the appropriate decision whether to repair or sell
the container. The Leasing Company is authorized to make this decision on
behalf of the Registrant and makes this decision by applying the same standards
to the Registrants containers as to its own containers. 7




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Disposition of Used Containers The Leasing Company estimates that the period for which a container may be
used by the Registrant as a leased marine cargo container ranges from 12 to 15
years. On behalf of the Registrant, the Leasing Company disposes of used
containers in a worldwide market in which buyers include wholesalers,
mini-storage operations, construction companies and others. Although a used
refrigerated container will command a higher price than a used dry cargo
container, a dry cargo container will achieve a higher percentage of its
original price. The market for used containers generally depends on new
container prices, the quantity of containers targeted for disposal and the
overall lease market for containers at a particular location. As the
Registrants fleet ages, a larger proportion of its revenue and cash flow may
be derived from selling its containers. Operations The Registrants sales and marketing operations are conducted through the
Leasing Company in the United Kingdom, with support provided by area offices
and dedicated agents located in San Francisco; New Jersey; Antwerp; Genoa;
Gothenburg; Hamburg; Singapore; Hong Kong; Sydney; Tokyo; Taipei; Seoul; Rio de
Janeiro; Shanghai and Madras. The Leasing Company also maintains agency relationships with approximately
20 independent agents around the world, who are generally paid a commission
based upon the amount of revenues generated in the region or the number of
containers that are leased from their area. The agents are located in
jurisdictions where the volume of the Leasing Companys business necessitates a
presence in the area but is not sufficient to justify a fully-functioning
Leasing Company office or dedicated agent. Agents provide marketing support to
the area offices covering the region, together with limited operational
support. In addition, the Leasing Company relies on the services of approximately
300 independently-owned and operated depots around the world to inspect,
repair, maintain and store containers while off-hire. The Leasing Companys
area offices authorize all container movements into and out of the depot and
supervise all repairs and maintenance performed by the depot. The Leasing
Companys technical staff sets the standards for repair of its owned and
managed fleet throughout the world and monitors the quality of depot repair
work. The depots provide a vital link to the Leasing Companys operations, as
the redelivery of a container into a depot is the point at which the container
is off-hired from one customer and repaired in preparation for re-leasing to
the next customer. The Leasing Companys global network is integrated with its computer
system and provides 24-hour communication between offices, agents and depots.
The system allows the Leasing Company to manage and control the Registrants
fleet on a global basis, providing it with the responsiveness and flexibility
necessary to service the master lease market effectively. This system is an
integral part of the Leasing Companys service, as it processes information
received from the various offices, generates billings to the Leasing Companys
lessees and produces a wide range of reports on all aspects of the Leasing
Companys leasing activities. The system records the life history of each
container, including the length of time on and off-hire, repair costs, as well
as port activity trends, leasing activity and equipment data per customer. The
operations and marketing data is fully interfaced with the finance and
accounting system to provide revenue, cost and asset information to management
and staff around the world. In recent years, the Leasing Company and other lessors have developed
certain internet-based applications. For the Leasing Company, these
applications allow customers access to make on-line product inquiries. The
Leasing Company is continuing to develop its internet-based business and will
introduce other internet options as suitable applications are identified. Insurance The Leasing Companys lease agreements typically require lessees to obtain
insurance to cover all risks of physical damage and loss of the equipment under
lease, as well as public liability and property damage insurance. However, the
precise nature and amount of the insurance carried by each ocean carrier varies
from lessee to lessee. In addition, the Registrant has purchased secondary
insurance effective in the event that a lessee fails to have adequate primary
coverage. This insurance covers liability arising out of bodily injury and/or
property damage as a result of the ownership and operation of the containers,
as well as insurance against loss or damage to the containers, loss of lease
revenue in certain cases and cost of container recovery and repair in the event
that a customer goes into bankruptcy. The Registrant believes that the nature
and the amounts of its insurance are customary in the container leasing
industry and subject to standard industry deductions and exclusions. 8




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(c)(1)(ii)
Inapplicable.(c)(1)(iii)
Inapplicable.(c)(1)(iv)
Inapplicable. (c)(1)(v) The Registrants containers are leased globally; therefore,
seasonal fluctuations are minimal. Other economic and business factors to
which the transportation industry in general and the container leasing industry
in particular are subject, include fluctuations in supply and demand for
equipment resulting from, among other things, obsolescence, changes in the
methods or economics of a particular mode of transportation or changes in
governmental regulations or safety standards. (c)(1)(vi) The Registrant established an initial working capital reserve
of approximately 1% of subscription proceeds raised. In addition, the
Registrant may reserve additional amounts from anticipated cash distributions
to the partners to meet working capital requirements. Amounts due under master leases are calculated at the end of each month
and billed approximately six to eight days thereafter. Amounts due under
short-term and long-term leases are set forth in the respective lease
agreements and are generally payable monthly. However, payment is normally
received within 45-100 days of billing. Past due penalties are not customarily
collected from lessees and, accordingly, are not generally levied by the
Leasing Company against lessees of the Registrants containers. (c)(1)(vii) For the year ended December 31, 2003, one sub-lessee of the
Leasing Company, MSC, accounted for approximately 24% or $265,098 of the
Leasing Companys rental revenue earned on behalf of the Registrant. The
Registrant does not believe that its ongoing business is dependent upon a
single customer, although the loss of one or more of its largest customers
could have an adverse effect upon its business.  (c)(1)(viii)
Inapplicable.(c)(1)(ix)
Inapplicable. (c)(1)(x) Competition among container leasing companies is based upon
several factors, including the location and availability of inventory, lease
rates, the type, quality and condition of the containers, the quality and
flexibility of the service offered and the professional relationship between
the customer and the lessor. Other factors include the speed with which a
leasing company can prepare its containers for lease and the ease with which a
lessee believes it can do business with a lessor or its local area office. Not
all container leasing companies compete in the same market, as some supply only
dry cargo containers and not specialized containers. In addition to dry cargo
containers, refrigerated containers and tanks, the Leasing Company supplies a
wide range of dry freight special containers. The Leasing Company, on behalf of the Registrant, competes with various
container leasing companies in the markets in which it conducts business.
Mergers and acquisitions have been a feature of the container leasing industry
for over a decade and the leasing market is essentially comprised of three
broad groups: the very large companies (in TEU terms), GESeaCo, Textainer
Group, Transamerica Leasing, Triton Container International Ltd. and Interpool
Inc., which between them, with fleets of around 1 million TEU each in mid-2003,
control approximately 70% of the total leased fleet; a middle tier of
companies, which includes Cronos, possessing fleets in the 200,000 to 500,000
TEU range; and the smaller more specialized fleet operators. Ocean carriers
have a tendency to support a number of lessors simultaneously in order to
maximize competition and increase the number of available locations for
redelivery of containers. Economies of scale, worldwide operations, diversity,
size of fleet and financial strength are increasingly important to the
successful operation of a container leasing business. Additionally, as
containerization continues to grow, and as regions such as China, South America
and the Indian sub-continent generate an increasing volume of containerized
cargo, customers may demand more flexibility from leasing companies
particularly regarding the structure of leases, per-diem rates, pick-up and
drop-off locations, and the availability of containers. 9




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Some of the Leasing Companys competitors have greater financial resources
than the Leasing Company and may be more capable of offering lower per diem
rates on a larger fleet. In the Leasing Companys experience, however, ocean
carriers will generally lease containers from more than one leasing company in
order to minimize dependence on a single supplier. Furthermore, by having as
many suppliers as possible, the carrier is able to maximize the number of
off-hires and off-hire locations available, as typically each supplier may
limit the number of containers that can be off-hired by location. The
advantage to the carrier is that this prevents the carrier from being burdened
with an excess number of off-hired containers, which incur both storage and per
diem charges, in a low demand market. (c)(1)(xi) Inapplicable. (c)(1)(xii) Environmental Matters Countries that are signatories to the Montreal Protocol on the environment
agreed in November 1992 to restrict the use of environmentally-destructive
refrigerants, banning the production (but not use) of refrigerant gases that
are chlorofluorocarbon compounds (CFCs) beginning in January 1996. CFCs are
used in the operation, insulation and manufacture of refrigerated containers.
The environmental impact of CFCs has become increasingly prominent. On January
1, 2001, it became illegal for environmentally-destructive refrigerants to be
handled, other than for disposal, in most member countries of the European
Union. In the second quarter of 2001, the Leasing Company conducted a review
of the Registrants refrigerated container equipment, which resulted in the
recording of impairment charges on those containers using a CFC refrigerant,
affecting both containers on and off-hire. The Leasing Company has implemented
a disposal program for the Registrants impaired, refrigerated containers.
This program has targeted the off-hire containers for immediate disposal.
Those that are currently on lease will be disposed of when redelivered and
off-hired by the lessee. These impaired, refrigerated containers may command
lower prices in the used container market. In the past, the Leasing Company has retrofitted certain refrigerated
containers with non-CFC refrigerants. The Leasing Company has decided not to
retrofit any containers owned by the Registrant. In the unlikely event that
retrofitting expenses should be required, the Registrant believes they would
not be material to its results of operations. (c)(1)(xiii) The Registrant, as a limited partnership, is managed by CCC,
the general partner, and accordingly does not itself have any employees. At
February 28, 2004, CCC had 11 employees, consisting of 3 officers, 5 other
managers and 3 clerical and staff personnel and the Leasing Company had 30
employees, consisting of 2 officers, 13 other managers, and 15 clerical and
staff personnel. (d) Financial Information About Geographic Areas The Registrants business is not divided between foreign or domestic
operations. The Registrants business is the leasing of containers worldwide
to ocean carriers. To this extent, the Registrants operations are subject to
the fluctuations of world economic and political conditions. Such factors may
affect the pattern and levels of world trade. The Registrant believes that the profitability of, and risks associated
with, leases to foreign customers is generally the same as those of leases to
domestic customers. The Leasing Companys leases generally require all
payments to be made in United States currency. 10




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##### Table of Contents



Item 2. Properties As of December 31, 2003, the Registrant owned 2,108 twenty-foot, 1,082
forty-foot and 60 forty-foot high-cube marine dry cargo containers, as well as
60 twenty-foot and 19 forty-foot refrigerated containers suitable for
transporting cargo by rail, sea or highway. The average age, manufacturers
invoice cost and estimated useful life of the Registrants containers as of
December 31, 2003 were as follows: EstimatedUseful Life
    
    Average Age
    
    Average Cost20-Foot Dry Cargo Containers
    
    12-15 years
    
    
    12
    
    
    $
    2,75140-Foot Dry Cargo Containers
    
    12-15 years
    
    
    12
    
    
    $
    4,54840-Foot High-Cube Dry Cargo Containers
    
    12-15 years
    
    
    13
    
    
    $
    4,99120-Foot Refrigerated Cargo Containers
    
    12-15 years
    
    
    13
    
    
    $
    17,74840-Foot Refrigerated Cargo Containers
    
    12-15 years
    
    
    13
    
    
    $
    19,130
 Utilization by lessees of the Registrants containers fluctuates over time
depending on the supply of and demand for containers in the Registrants
inventory locations. During 2003, utilization of the Registrants containers
averaged 84% and 53% respectively, for the Registrants dry cargo and
refrigerated container fleet. During 2003, the Registrant disposed of 429 twenty-foot, 398 forty-foot
and 23 forty-foot high-cube marine dry cargo containers, as well as 26
twenty-foot and 9 forty-foot refrigerated cargo containers at an average book
loss of $444 per container. 
 Item 3. Legal Proceedings None 
 Item 4. Submission of Matters to a Vote of Security Holders Inapplicable. 11




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##### Table of Contents



PART II 
 Item 5. Market for Registrants Common Equity and Related Stockholder Matters (a) Market Information (a)(1)(i) The Registrants outstanding units of limited partnership
interests are not traded on any market nor does an established public trading
market exist for such purposes. (a)(1)(ii) Inapplicable. (a)(1)(iii) Inapplicable. (a)(1)(iv) Inapplicable. (a)(1)(v) Inapplicable. (a)(2) Inapplicable. (b) Holders (b)(1)
    
    
    Number of Unit HoldersTitle of Class
    
    as of December 31, 2003Units of limited partnership interests
    
    3,232
 (c) Dividends Inapplicable. For the distributions made by the Registrant to its limited
partners, see Item 6, Selected Financial Data. (d) Securities authorized for issuance under equity compensation plans Inapplicable. 12




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##### Table of Contents



Item 6. Selected Financial Data Year Ended December 31,2003
    
    2002
    
    2001
    
    2000
    
    1999Net lease revenue
    
    $
    672,306
    
    
    $
    849,782
    
    
    $
    1,627,441
    
    
    $
    2,459,974
    
    
    $
    2,105,544Net (loss) income
    
    $
    (679,413
    )
    
    $
    (1,300,584
    )
    
    $
    (1,312,231
    )
    
    $
    (169,883
    )
    
    $
    (133,300
    )Net (loss) income per unit of
limited partnership interest
    
    $
    (0.34
    )
    
    $
    (0.64
    )
    
    $
    (0.69
    )
    
    $
    (0.13
    )
    
    $
    (0.12
    )Cash distributions per unit of
limited partnership interest
    
    $
    0.65
    
    
    $
    1.24
    
    
    $
    1.78
    
    
    $
    1.72
    
    
    $
    1.43At year-end:Total assets
    
    $
    4,356,917
    
    
    $
    6,381,139
    
    
    $
    10,225,430
    
    
    $
    15,211,956
    
    
    $
    19,013,837Partners capital
    
    $
    4,356,917
    
    
    $
    6,381,139
    
    
    $
    10,225,430
    
    
    $
    15,211,956
    
    
    $
    18,938,837
 
 Item 7. Managements Discussion and Analysis of Financial Condition and
Results of Operations The following discussion of the Registrants historical financial
condition and results of operations should be read in conjunction with the
historical consolidated financial statements and the notes thereto and the
other financial information appearing elsewhere in this report. The information in this Annual Report on Form 10-K (the Report) contains
certain forward-looking statements within the meaning of the securities law.
These forward-looking statements reflect the current view of the Registrant and
CCC, with respect to future events and financial performance and are subject to
a number of risks and uncertainties, many of which are beyond the control of
the Registrant and CCC. All statements other than statements of historical
facts included in this Report, including statements under Managements
Discussion and Analysis of Financial Condition and Results of Operations,
regarding the Registrants strategy, future operations, financial position,
estimated revenues, projected costs, prospects, plans and objectives of the
Registrant are forward-looking statements. All forward-looking statements speak only as of the date of this Report.
The Registrant does not undertake any obligation to update or revise publicly
any forward-looking statements, whether as a result of new information, future
events or otherwise. Although the Registrant and CCC believe that their plans,
intentions and expectations reflected in or suggested by the forward-looking
statements made in this report are reasonable, the Registrant and CCC can give
no assurance that these plans, intentions or expectations will be achieved.
Future economic, political and industry trends that could potentially impact
revenues and profitability are difficult to predict, as well as the risks and
uncertainties including, but not limited to, changes in demand for leased
containers, changes in global business conditions and their effect on world
trade, changes within the global shipping industry, the financial strength of
the shipping lines and other sub-lessees of the Registrants containers,
fluctuations in new container prices, changes in the costs of maintaining and
repairing used containers, changes in competition, changes in the ability of
the Leasing Company to maintain insurance on behalf of the Registrants
container fleet, as well as other risks detailed herein and from time to time
in the Registrants filings with the Securities and Exchange Commission. 13




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##### Table of Contents



Liquidity and Capital Resources During the Registrants first 10 years of operations, the Registrants
primary objective was to generate cash flow from operations for distribution to
its limited partners. Aside from the initial working capital reserve retained
from the gross subscription proceeds (equal to approximately 1% of such
proceeds), the Registrant relied primarily on container rental receipts to meet
this objective as well as to finance current operating needs. No credit lines
are maintained to finance working capital. Commencing in 2001, the
Registrants 11th year of operations, the Registrant began focusing its
attention on the disposition of its fleet in accordance with another of its
original investment objectives, realizing the residual value of its containers
after the expiration of their economic useful lives, estimated to be between 12
to 15 years after placement in leased service. During this period, the
Registrant began to actively dispose of its fleet, with cash proceeds from
equipment disposals, in addition to cash from operations, providing the cash
flow for distributions to the limited partners. The decision to dispose of
containers is influenced by various factors including age, condition,
suitability for continued leasing as well as the geographical location when
disposed. Cash distributions from operations are allocated 5% to the general partner
and 95% to the limited partners. Distributions of sales proceeds are allocated
1% to the general partner and 99% to the limited partners. This sharing
arrangement will remain in place until the limited partners receive aggregate
distributions in an amount equal to their capital contributions plus a 10%
cumulative, compounded (daily), annual return on their adjusted capital
contributions. Thereafter, all distributions will be allocated 15% to the
general partner and 85% to the limited partners, pursuant to section 6.1(b) of
the Registrants Partnership Agreement. Cash distributions from operations to
the general partner in excess of 5% of distributable cash will be considered an
incentive fee and compensation to the general partner. From inception through February 28, 2004, the Registrant has distributed
$36,981,148 in cash from operations and $5,924,439 in cash from container sales
proceeds to its limited partners. This represents total distributions of
$42,905,587 or approximately 107% of the limited partners original invested
capital. Distributions are paid monthly, based primarily on each quarters
cash flow from operations. Monthly distributions are also affected by periodic
increases or decreases to working capital reserves, as deemed appropriate by
the general partner. Sales proceeds distributed to its partners may fluctuate
in subsequent periods, reflecting the level of container disposals. At December 31, 2003, the Registrant had $790,330 in cash and cash
equivalents, a decrease of $33,883 and $414,755, respectively, from the cash
balances at December 31, 2002 and December 31, 2001. The Registrant invests
its working capital, as well as cash flows from operations and the sale of
containers that have not yet been distributed to CCC or its limited partners in
money market funds. Cash from Operating Activities: Net cash provided by operating activities
primarily generated from the billing and collection of net lease revenue was
$575,186 during 2003, compared to $851,020 during 2002. Cash from Investing Activities: Net cash provided by investing activities
was $735,743 and $1,311,814 in 2003 and 2002, respectively. These amounts
represent sales proceeds generated from the sale of container equipment. Cash from Financing Activities: Net cash used in financing activities was
$1,344,812 during 2003 compared to $2,543,707 during 2002. These amounts
represent distributions to the Registrants general and limited partners. The
Registrants continuing container disposals, as well as current market
conditions, may produce lower operating results and, consequently, lower
distributions to its partners in subsequent periods. Off-Balance Sheet Arrangements As part of the Registrants ongoing business, the Registrant does not
participate in transactions that generate relationships with unconsolidated
entities or financial partnerships, such as entities often referred to as
structured finance or special purpose entities (SPEs), which would have been
established for the purpose of facilitating off-balance sheet arrangements or
other contractually narrow or limited purposes. As of December 31, 2003, the
Registrant was not involved in any material unconsolidated SPE transactions. Contractual Obligations As of December 31, 2003, the Registrant did not have any contractual
obligations or commercial commitments. 14




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##### Table of Contents



Results of Operations Year Ended December 31, 2003 Compared to the Year Ended December 31, 2002 Pursuant to the Limited Partnership Agreement of the Registrant, all
authority to administer the business of the Registrant is vested in CCC. A
Leasing Agent Agreement (Agreement) exists between the Registrant and the
Leasing Company, whereby the Leasing Company has the responsibility to manage
the leasing operations of all equipment owned by the Registrant. Pursuant to
the Agreement, the Leasing Company is responsible for leasing, managing and
re-leasing the Registrants containers to ocean carriers, and has full
discretion over which ocean carriers and suppliers of goods and services it may
deal with. The Leasing Agent Agreement permits the Leasing Company to use the
containers owned by the Registrant, together with other containers owned or
managed by the Leasing Company and its affiliates, as part of a single fleet
operated without regard to ownership. The primary component of the Registrants results of operations is net
lease revenue. Net lease revenue is determined by deducting direct operating
expenses, management fees and reimbursed administrative expenses, from gross
lease revenues billed by the Leasing Company from the leasing of the
Registrants containers. Net lease revenue is directly related to the size,
utilization and per-diem rental rates of the Registrants fleet. Direct
operating expenses are direct costs associated with the Registrants
containers. Direct operating expenses may be categorized as follows:  
    
    Activity-related expenses include agents costs and depot costs such
as repairs, maintenance and handling.  
    
    Inventory-related expenses relate to off-hire containers and comprise
storage and repositioning costs. These costs are sensitive to the
quantity of off-hire containers as well as the frequency at which
containers are re-delivered.  
    
    Legal and other expenses include legal costs, insurance and
provisions for doubtful accounts. At December 31, 2003, approximately 33% of the original equipment remained
in the Registrants fleet, as compared to approximately 42% at December 31,
2002. The following chart summarizes the composition of the Registrants fleet
(based on container type) at December 31, 2003. Dry Cargo
    
    RefrigeratedContainers
    
    Containers40-Foot20-Foot
    
    40-Foot
    
    High-Cube
    
    20-Foot
    
    40-FootContainers on lease:Master lease
    
    
    668
    
    
    
    380
    
    
    
    27
    
    
    
    22
    
    
    
    5Term lease (1-5 years)
    
    
    1,352
    
    
    
    474
    
    
    
    13
    
    
    
    13
    
    
    
    10Subtotal
    
    
    2,020
    
    
    
    854
    
    
    
    40
    
    
    
    35
    
    
    
    15Containers off lease
    
    
    88
    
    
    
    228
    
    
    
    20
    
    
    
    25
    
    
    
    4Total container fleet
    
    
    2,108
    
    
    
    1,082
    
    
    
    60
    
    
    
    60
    
    
    
    19
 Dry Cargo
    
    RefrigeratedContainers
    
    Containers40-Foot20-Foot
    
    40-Foot
    
    High-Cube
    
    20-Foot
    
    40-FootUnits
    
    %
    
    Units
    
    %
    
    Units
    
    %
    
    Units
    
    %
    
    Units
    
    %Total purchases
    
    
    6,411
    
    
    
    100
    %
    
    
    3,342
    
    

    
    100
    %
    
    
    200
    
    
    
    100
    %
    
    
    103
    
    
    
    100
    %
    
    
    50
    
    
    
    100
    %Less disposals
    
    
    4,303
    
    
    
    67
    %
    
    
    2,260
    
    
    
    68
    %
    
    
    140
    
    
    
    70
    %
    
    
    43
    
    
    
    42
    %
    
    
    31
    
    
    
    62
    %Remaining fleet at December 31, 2003
    
    
    2,108
    
    
    
    33
    %
    
    
    1,082
    
    
    
    32
    %
    
    
    60
    
    
    
    30
    %
    
    
    60
    
    
    
    58
    %
    
    
    19
    
    
    
    38
    %
 Industry observers report that global container trade grew by an estimated
8% during 2003, contributing to favorable container leasing market conditions,
including high levels of demand for existing containers and a decline in
off-hire container inventories. As a result, the Registrant maintained a high
level of utilization for its dry cargo containers, with an average of 84%
during 2003 as compared to 76% and 75% in 2002 and 2001, respectively. The
current leasing market contrasts sharply with the container leasing market
conditions experienced during 2001, when the demand for dry cargo containers
was adversely affected by a slowdown in the global economy, contributing to
lower utilization rates and higher container inventories throughout the world. The demand for leased containers by the global container shipping industry
has contributed to reducing off-hire inventories primarily in Asia, and to a
lesser extent in Europe and North America. In many parts of Asia and
particularly in the southeastern ports, the demand for cargo containers
continued to exceed available supplies. The preference by shipping lines to
employ leased containers to meet their container requirements also contributed
to the strong demand for 15




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##### Table of Contents



leased containers during 2003. However, in response to a favorable
shipping market, there are indications of an increased willingness by the
shipping lines to purchase and finance the acquisition of new containers at
higher levels in the near future, which may impact the demand for leased
containers. Favorable shipping market conditions, combined with lower equipment costs
and short term leases for older containers, have also resulted in the shipping
lines diminishing discrimination against leasing older containers, a condition
that typically exists during periods of surplus container supply. The favorable
2003 shipping market, combined with the current shortfall of containers, has
resulted in an increase in the production of new containers during 2003 to a
level that is expected to surpass record levels of previous years. The level
of new container investment in 2004 is forecasted to equal or exceed the record
levels of 2003. The ultimate impact of the increase in new container
production on the Registrants operations is not immediately known, however, an
increase in new container availability may reduce the demand for the
Registrants older containers. Despite the benefits derived from favorable market conditions generated by
the growth in world trade and strong growth in trade volumes to and from China,
the uncertainty over the financial strength of the shipping industry remains a
concern. Shipping lines are faced with rising container imbalances in most
major trade routes and rising operating costs associated with repositioning
empty containers into high demand locations. In addition, freight rates,
despite recent increases, remaining at levels lower than those achieved during
previous years. The Registrant, CCC and the Leasing Company believe these
conditions favor the larger more established shipping lines, which have
witnessed strong recoveries in their performance over the last few years. The
Registrant, CCC and the Leasing Company continue to remain cautious, as some
shipping lines reported operating losses during 2002, while others became
insolvent during 2003. The financial impact of such losses for these shipping
lines may eventually influence the demand for leased containers as some
shipping lines may experience additional financial difficulties, consolidate or
become insolvent. Although the ultimate outcome, as well as its impact on the
container leasing industry and the Registrants results of operations, is
unknown, CCC, on behalf of the Registrant, will work closely with the Leasing
Company to monitor outstanding receivables, collections, and credit exposure to
various existing and new customers. Lastly, wide-ranging concerns remain regarding recovery of the worlds
major economies, performance of global stock markets, geopolitical concerns
arising from uncertainties within the Middle East and Asia, as well as the
recent increase in new container production, all of which may temper the
current demand for leased containers. The Registrants average fleet size and utilization rates for the years
ended December 31, 2003, 2002 and 2001 were as follows: 2003
    
    2002
    
    2001Fleet size (measured in
twenty-foot equivalent units (TEU))Dry cargo containers
    
    
    5,032
    
    
    
    6,724
    
    
    
    9,021Refrigerated containers
    
    
    126
    
    
    
    161
    
    
    
    193Average utilization ratesDry cargo containers
    
    
    84
    %
    
    
    76
    %
    
    
    75
    %Refrigerated containers
    
    
    53
    %
    
    
    45
    %
    
    
    56
    %
 Since December 2001, the combined per-diem rental rate for the
Registrants fleet of dry cargo containers declined by approximately 22% while
the combined per-diem rental rate for the Registrants fleet of refrigerated
containers declined by 31%. This decline is attributable to four main factors:  
    
    Per-diem rental rates decreased in correlation with the reduction in
new container prices;  
    
    The Leasing Company converted lease agreements with several shipping
lines from master to long-term leases, providing greater revenue
stability but at lower lease rates than those earned under master
leases;  
    
    The Leasing Company initiated new term leases for older equipment
resulting in lower per-diem rates, while significantly reducing off-hire
container inventory levels; and,  
    
    Interest rates, which influence per-diem rental rates, declined throughout the worlds economies. The decline in the aforementioned per-diem rates contributed to a decline
in gross lease revenue. However, higher utilization levels during the
year contributed significantly to lower direct
operating expenses due to the reduction in storage and other inventory-related
expenses. 16




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##### Table of Contents



Although per-diem rental rates have declined during the aforementioned
period, an increase in new container prices, as well as an increase in demand
for leased containers resulted in the stabilization of per-diem rental rates
during 2003. A significant improvement in lease per-diem rates is not expected
until new container prices increase to levels much higher than those
experienced during 2003. Net lease revenuewas $672,306 for the year ended December 31, 2003
compared to $849,782 for the prior year. The decrease was due to a $351,491
decline in gross rental revenue (a component of net lease revenue) from the
year December 31, 2002. Gross rental revenue was impacted by the Registrants
smaller fleet size and a 9% decline in the average dry cargo container per-diem
rental rates during 2003, partially offset by an increase in fleet utilization
rates. Other components of net lease revenue, including rental equipment
operating expenses, management fees, and reimbursed administrative expenses,
were lower by a combined $174,017 when compared to 2002, and partially offset
the decline in gross lease revenue. Contributing to the decline in direct
operating expenses were declines in repositioning, and handling and storage
costs. Depreciation expenseof $874,024 in 2003 declined by $270,079 when
compared to 2002, a direct result of the Registrants aging and declining fleet
size. Other general and administrative expensesamounted to $87,835 in 2003, a
decrease of $91,301 or 4% when compared to 2002. Net loss on disposal of equipmentwas a result of the Registrants
disposal of 885 containers in 2003, as compared to 1,734 containers during
2002. These disposals resulted in a net loss of $392,950 during 2003, compared
to a net loss of $927,487 during 2002. Fewer containers were disposed during
2003 compared to 2002 due to the high demand for leased containers which
reduced the number of containers available for disposal. The Registrant
believes that the net loss on container disposals in 2003 was a result of
various factors, including the age, condition, suitability for continued
leasing, as well as the geographical location of the containers when disposed.
These factors will continue to influence the decision to repair or dispose of a
container when it is returned by a lessee, as well as the amount of sales
proceeds received and the related gain or loss on container disposals. The
level of the Registrants container disposals in subsequent periods will also
contribute to fluctuations in the net gain or loss on disposals. Year Ended December 31, 2002 Compared to the Year Ended December 31, 2001 Net lease revenuewas $849,782 for the year 2002 compared to $1,627,441
for the prior year. The decrease was due to a $1,050,953 decline in gross
rental revenue (a component of net lease revenue) from the year 2001. Gross
rental revenue was impacted by the Registrants smaller fleet size and lower
per-diem rental rates. Other components of net lease revenue, including rental
equipment operating expenses, management fees, and reimbursed administrative
expenses, were lower by a combined $273,294 when compared to the year 2001, and
partially offset the decline in gross lease revenue. Contributing to the
decline in direct operating expenses were declines in repositioning, repair and
maintenance, and, handling and storage costs. Depreciation expenseof $1,144,103 in 2002 was $336,881 lower than 2001
due to a declining fleet size. Effective June 1, 2001, the Registrant changed
the estimated life of its rental container equipment from an estimated 12 year
life to a 15 year life, and its estimated salvage value from 30% to 10% of
original equipment cost. The effect of these changes was an increase in
depreciation expense of approximately $26,500 in the year 2002. Other general and administrative expenseswere $91,301 in 2002, a decrease
of $30,400 or 25% when compared to 2001. Contributing to this decrease were
declines in professional fees, costs related to investor communications and net
exchange rate losses. Net loss on disposal of equipmentwas a result of the Registrant disposing
of 1,734 containers during 2002, as compared to 1,616 containers during 2001.
These disposals resulted in a net loss of $927,487 for 2002 as compared to a
net loss of $934,924 for 2001. The Registrant believes that the net loss on
container disposals in 2002 was a result of various factors including the age,
condition, suitability for continued leasing, as well as the geographic
location of the containers when disposed. 17




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##### Table of Contents



Impairment chargeswere incurred by the Registrant relating to
refrigerated container equipment with R12 refrigerant gas (the R12
Containers). In the second quarter of 2001, the Leasing Company undertook a
review of the Registrants refrigerated container equipment. Due to the
environmental impact of the R12 refrigerant gas and other R12 Container
marketing considerations, the Leasing Company concluded that effective July 1,
2001, off-hire inventories of the Registrants R12 Containers would be targeted
for immediate sale. The Leasing Company also conducted a review of the
Registrants R12 Containers that were on lease at June 30, 2001.  Assets to be disposed of:In June 2001, the Leasing Company committed to a
plan to dispose of 31 R12 Containers with a carrying value of $271,506. It
was concluded that the carrying value of these R12 Containers exceeded fair
value and accordingly, an impairment charge of $193,256 was recorded to
operations under impairment losses. Fair value was determined by discounting
future expected cash flows. At December 31, 2002, 20 of the original 31 R12
refrigerated containers have been disposed. Although the 11 R12 refrigerated
containers were originally classified as held for sale after their impairment
in June 2001, the Registrant reclassified these containers as held and used
as of December 31, 2002. Of these 11 containers, there were eight R12
refrigerated containers on-hire under term and master leases, two R12
refrigerated containers off-hire and available for lease, and one R12
refrigerated container off-hire and available for disposal. Included in the
net loss on the disposal of equipment for the years 2002 and 2001 are gains
of $14,754 and $2,124 on the sale of 12 and eight refrigerated containers,
respectively, that were targeted for sale as of June 30, 2001.  Assets to be held and used:The Leasing Company conducted a review of 52 R12
Containers with a carrying value of $443,136 that were on lease at June 30,
2001. It was concluded that the carrying value of these R12 Containers
exceeded the future cash flows expected to result from the use of these
containers and their eventual disposition, and therefore was not recoverable.
Accordingly, a charge of $225,394 was recorded to operations under
impairment losses. Fair value was determined by discounting future expected
cash flows. Critical Accounting Policies Container equipment  depreciable lives: The Registrants container
rental equipment is depreciated over a useful life of 15 years to a residual
value of 10%. The Registrant and CCC evaluates the period of amortization and
residual values to determine whether subsequent events and circumstances
warrant revised estimates of useful lives and residual values. Container equipment  valuation:The Registrant and CCC review container
rental equipment when changes in circumstances require consideration as to
whether the carrying value of the equipment has become impaired, pursuant to
guidance established in SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. The Registrant and CCC consider assets to be
impaired if the carrying value of the asset exceeds the future projected cash
flows from related operations (undiscounted and without interest charges).
When impairment is deemed to exist, the assets are written down to fair value
or projected discounted cash flows from related operations. The Registrant and
CCC evaluate future cash flows and potential impairment of its fleet by
container type rather than for each individual container. Therefore, future
losses could result for individual container dispositions due to various
factors including age, condition, suitability for continued leasing, as well as
geographic location of the containers where disposed. Considerable judgment is
required in estimating future cash flows from container rental equipment
operations. Accordingly, the estimates may not be indicative of the amounts
that may be realized in future periods. As additional information becomes
available in subsequent periods, reserves for the impairment of the container
rental equipment carrying values may be necessary based upon changes in market
and economic conditions. Allowance for doubtful accounts:The Leasing Company continually tracks
the Registrants credit exposure to each of the sub-lessees of the Registrants
containers using specialist third-party credit information services and reports
prepared by its local staff to assess credit applications. The Leasing
Companys credit committee meets quarterly to analyze the performance of
existing customers and to recommend actions taken in order to minimize credit
risk. The Leasing Company derives an allowance for doubtful accounts from
specific amounts provided against known probable losses plus an additional
amount based on historical loss experience. However, the Registrants net
lease revenue may be subject to unexpected loss resulting from sub-lessees of
its containers that default under their container lease agreements with the
Leasing Company. 18




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New Accounting Pronouncements In November 2002, the Financial Accounting Standards Board issued
Interpretation No. 45 (FIN 45), Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others. FIN 45 elaborates on the disclosures to be made by a guarantor in
interim and annual financial statements about its obligations under certain
guarantees it has issued. The adoption of FIN 45 did not have a material
impact on the Registrants results of operations and financial condition. In January 2003, the Financial Accounting Standards Board issued
Interpretation No. 46 (FIN 46), Consolidation of Variable Interest
Entities. In December 2003, the Financial Accounting Standards Board issued
an Interpretation that clarified and modified FIN 46 (Revised
Interpretations). FIN 46 clarifies the application of Accounting Research
Bulletin No. 51, Consolidated Financial Statements (ARB 51), to certain
variable interest entities (VIEs) in which equity investors do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. The Registrant
does not expect FIN 46 to
have a material impact on its results of operations and financial condition. In May 2003, the Financial Accounting Standards Board issued SFAS No. 150,
Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity (SFAS 150). This statement establishes standards for
how an issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity. It requires that an issuer
classify a financial instrument that is within its scope as a liability (or an
asset in some circumstances). Many of those instruments were previously
classified as equity. This statement is effective for financial instruments
entered into or modified after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003. The
adoption of SFAS 150 did not have a material impact on its financial
statements. Inflation The Registrant believes inflation has not had a material adverse affect on the
results of its operations. Risk Factors That Could Affect Future Results Because of the following factors, as well as other variables affecting the
Registrants operating results, past financial performance may not be a
reliable indicator of future performance, and historical trends should not be
used to anticipate results or trends in future periods. Dependence of the Container Leasing Business on the Volume of World Trade
and Other Factors. Containers, particularly marine dry cargo containers, are
relatively simple, and fungible, items of capital equipment. While one
distinguishing characteristic of container leasing companies is the level of
service they provide to lessees, fundamentally the success of the container
leasing business depends upon the level of demand for leased containers. While
there is continuing demand from customers to transport their cargo in
containers rather than by break-bulk methods, this demand, in turn, largely
depends upon levels of world trade and the supply of containers relative to
demand. When the volume of world trade decreases, container leasing companies
are particularly apt to suffer since container lessees, most of which also have
their own fleets of containers, generally reduce the number of leased
containers in their fleets in favor of utilizing their fleet of owned
containers. In addition, average daily revenue per leased container unit can
decrease significantly as the volume of world trade decreases and the supply of
available containers exceeds the level of demand. Such factors can cause a
material reduction in a leasing companys revenues. Furthermore, the increased
availability of capital combined with low interest rates may provide an
incentive for shipping lines to reduce their demand for leased containers in
favor of purchasing them. As a result, the Registrants container leasing
operations could be negatively affected by future fluctuations in world trade
and other factors, including, without limitation, the supply and pricing of new
and used containers, economic conditions in the shipping industry, fluctuations
in interest rates and currency valuations, and other economic considerations
that are inherently unpredictable and beyond the control of the Registrant, CCC
and the Leasing Company. 19




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Risks of Ownership and Leasing of Special Purpose Containers. A portion
of the Registrants container portfolio consists of special purpose containers,
including refrigerated and tank containers. Unlike dry cargo containers, these
containers are built for specific market demands. As such, the markets for the
leasing of special purpose containers are narrower than the market for dry
cargo containers. In the case of tank containers, the Leasing Company, on
behalf of the Registrant, will lease to specialist operators (NVOCCs
Non-Vessel Owning Common Carriers), companies that produce and ship their own
goods (such as chemical companies and distillers), as well as ocean-going
carriers. Lessors in these markets are thus more sensitive to fluctuations in
the demand for and supply of such containers. Moreover, the ownership of
refrigerated containers entails risks of mechanical breakdown and technological
obsolescence not otherwise present in the ownership of dry cargo containers,
and in the case of tank containers (which can transport hazardous materials)
includes additional risks of environmental and tort liability. Risk of Terrorism Attack Involving Containers. Since September 11, 2001,
the worlds governments, maritime authorities, and the maritime industry, have
devoted increasing attention to enhancing the security of the global container
transport chain. These efforts have included the Maritime Transportation
Security Act of 2002 passed by Congress, and initiatives by the United States
such as the Container Security Initiative and Customs-Trade Partnership Against
Terrorism Program. Efforts to date have focused on increasing port security
and container inspections, developing and implementing a program of sealing
containers with mechanical and electronic seals from the point of loading to
final delivery of the container, identifying shippers, storing cargo
information in electronic format, and related measures. The task is immense,
and the efforts undertaken to date are preliminary. The industry is well aware
of the dire consequences should a terrorism incident occur involving the use of
a cargo container. In any such event, the impact on global trade and the world
economy could be immediate and materially adverse, specifically
impacting the Registrant's operations with high insurance costs,
additional costs to implement or adopt container related security
devices and measures, and ultimately, a loss of container leasing
revenue. Other Risks of Container Leasing. In addition to the factors discussed
above, the ability of the Leasing Company, on behalf of the Registrant, to keep
the Registrants containers under leases yielding revenues which, after payment
of operating expenses, provide an acceptable return may be adversely affected
by other economic and business factors to which the transportation industry in
general and the container leasing industry in particular are subject. These
factors, which generally are beyond the control of the Registrant, CCC and the
Leasing Company, include:  
    
    general economic conditions, such as inflation and fluctuations in
general business conditions;  
    
    fluctuations in supply and demand for containers resulting from,
among other things, obsolescence, changes in the methods or economics of
a particular mode of transportation or changes in governmental
regulations or safety standards;  
    
    increases in maintenance expenses, taxes, insurance costs, third
party fees and other expenses attributable to the operation and the
maintenance of the containers that cannot be offset by increased lease
revenues from the containers;  
    
    the risk of uninsured losses with respect to the containers or
insured losses for which insurance proceeds are inadequate, resulting in
a possible loss of invested capital in and any profits anticipated from
such containers;  
    
    the effects of strikes, labor disputes and foreign political unrest
on the Registrants container leasing business;  
    
    bankruptcies, contract disputes, or defaults in payment by
sub-lessees of the Registrants containers resulting in uncollectible
amounts and the accumulation of expenses and off-lease time attributable
to the recovery of containers, or the inability to recover containers
from such lessees;  
    
    the possibility that sub-lessees of the Registrants containers will
elect to purchase and own equipment rather than lease it from third
parties, including the Leasing Company; and loss of revenues and
increases in storage expenses during periods when containers are not
being utilized. Effect of Operating Leases: Rental Payments are Insufficient to Return
the Original Investment in the Containers.A preponderance of the containers
acquired by the Registrant are leased pursuant to Operating Leases. Under an
Operating Lease, the lessor receives aggregate rental payments in an amount
that is insufficient to recover its original investment. In order for the
Registrant to recover its investment and earn an adequate return thereon, the
Leasing Company, on behalf of the Registrant, will, on termination of the
initial leases of the Registrants containers, have to obtain renewals from the
original lessees, find new lessees or sell the containers. Operating Leases
subject the Registrant to risks of fluctuation in rental rates and lack of
demand for a particular container at the expiration of its lease. The success
of the Leasing Company in leasing the Registrants containers and keeping the
Registrants containers on lease will depend upon market conditions in the
container and equipment leasing markets, the quality of maintenance of the
containers, and other factors. 20




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Residual Value of Containers. The ultimate cash return of the
Registrants investment in its containers will depend in part on the residual
value of the containers at the point at which CCC determines that it is in the
best interest of the Registrant to sell the containers. The amount realized on
the sale of the containers will be substantially less than the price that the
Registrant paid for the containers. Generally, used containers are sold in the
non-maritime secondary market for use as temporary or permanent storage
facilities. An additional use for refrigerated containers in the secondary
market is for the temporary storage of perishable products. To a lesser
extent, such containers are sold to shipping companies and container leasing
companies for use in the maritime market. The demand for used containers
depends on a variety of factors including the location of the container at the
time of disposition, foreign currency exchange rates, and the factors discussed
above that affect the market for marine cargo containers. One factor affecting
the residual value of the containers will be the quality of maintenance
provided by the Leasing Company and the sub-lessees of the Registrants
containers. There can be no assurance that CCC will be able to arrange, on
behalf of the Registrant, for adequate maintenance of the Registrants
containers throughout their economically useful lives. The containers
residual value will also depend upon factors beyond the control of the
Registrant, CCC, the Leasing Company, or the container lessees, such as the
cost of new containers, the quantity of used containers being supplied to the
secondary market, technological advances in container construction and in
techniques of ocean transportation, and developments in world trade. Competition. The Leasing Company, on behalf of the Registrant, will be in
competition with several large international container leasing companies and
numerous smaller leasing companies. Since 1997, the industry has witnessed
significant consolidation. As of mid-2003, five leasing companies, each of
which operates a fleet of approximately one million TEU, controlled
approximately 70% of the worldwide leased container fleet. While the container
leasing market is highly competitive, the large container leasing companies as
a group might be able to exploit their greater financial resources to maintain
or enhance their market share at the expense of the competitors such as the
Registrant and Leasing Company. Defaults by Lessees. The default by a sub-lessee under a lease with the
Leasing Company may cause the Registrants containers to be returned at a time
when the Leasing Company may be unable to arrange for the re-leasing or sale of
such containers. In such event, the Registrant would lose anticipated
revenues, incur additional operating expenses, and, consequently, may be unable
to recover its investment in such containers. In addition, because the
Registrants containers will be leased outside of the United States,
repossession of containers from sub-lessees who may default under a lease could
prove difficult. Effect of Environmental Regulation on Refrigerated Containers.
Historically, refrigerated containers have utilized a refrigerant gas, which is
a chlorofluorocarbon (CFC) compound. It is generally assumed that CFCs are
harmful to the Earths ozone layer when released into the atmosphere. Many
nations, including the United States, have taken action, both collectively and
individually, to regulate CFCs. These nations have set various targets for the
reduction in production and use of CFCs, and their eventual elimination. There
has been substantial progress in securing a viable substitute for the
refrigerant used in containers. Production of new container refrigeration
units operating with the replacement refrigerant became generally available in
1993. There can be no assurance that the new refrigerant will be as effective
or as cost efficient as CFC compounds. Environmental Liability Risks. Under state and Federal laws of the United
States, and under the laws of certain other nations, the owner of a container
may be liable for environmental damage and/or cleanup costs and/or other sums
in the event of actual or threatened discharge or other contamination by
material in a container. This liability may be imposed on a container owner,
such as the Registrant, even if the owner is not at fault. It is not possible
to predict the amount of liability. The Leasing Company, on behalf of the
Registrant, intends, subject to availability and prevailing market conditions,
to obtain insurance against these risks on such terms and in such amounts as
CCC and the Leasing Company deems reasonable. In addition, subject to
availability and applicable insurance and container industry market conditions,
the Leasing Company intends to require sub-lessees of the Registrants
containers to obtain insurance which protects against these risks and further
to compel lessees to indemnify and defend the Registrant in the case of an
occurrence giving rise to possible liability under applicable environmental
laws. There can, however, be no guarantee that insurance will be available to
fully protect against environmental risk, or that CCC and the Leasing Company
will be able to allocate the risk of environmental damage to lessees of the
Registrants containers. Reliance Upon CCC and the Leasing Company.The Registrants operations
are dependent upon the ability of CCC, and its affiliate, the Leasing Company,
to arrange for the leasing, maintenance and eventual sale of containers on
behalf of the Registrant. The Registrants limited partners have no right to
take part in the day-to-day management of the Registrant; all decisions with
respect to such management will be made exclusively by CCC. 21




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Conflicts of Interest. In managing the Registrant, CCC is subject to
conflicts of interest, meaning that it is confronted with decisions whereby it
has an economic incentive to place its interests above those of the Registrant.
CCC and its affiliates, including the Leasing Company, are in the business of
managing containers for third parties, for CCCs existing partnerships and
programs, and for their own account, and will be subject to a conflict of
interest in times of low demand for and excess supply of such containers. The
Registrants Partnership Agreement provides that neither CCC nor its affiliates
will be obligated to present any particular investment or leasing opportunity
to the Registrant, even if such opportunity is suitable for the Registrant. 
 Item 7A. Quantitative and Qualitative Disclosures About Market Risk Exchange rate risk:In 2003, over 95% of the Registrants revenues are
billed and paid in US dollars. The Leasing Company believes that the
proportion of US dollar revenues may decrease in future years, reflecting a
more diversified customer base and lease portfolio. Approximately 80% of the
Registrants direct operating expenses in 2003 were incurred and paid in US
dollars. Of the remaining costs, approximately 72% are individually small,
unpredictable and incurred in various denominations and thus are not suitable
for cost effective hedging. The Leasing Company may hedge a portion of the expenses that are
predictable and are principally in UK pounds sterling. As exchange rates are
outside of the control of the Registrant and Leasing Company, there can be no
assurance that such fluctuations will not adversely affect its results of
operations and financial condition. 
 Item 8. Financial Statements and Supplementary Data 22




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INDEPENDENT AUDITORS REPORT The Partners
IEA Income Fund XI, L.P. We have audited the accompanying balance sheets of IEA Income Fund XI, L.P.
(the Partnership) as of December 31, 2003 and 2002, and the related
statements of operations, partners capital, and cash flows for each of the
three years in the period ended December 31, 2003. 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 auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audits 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, such financial statements present fairly, in all material
respects, the financial position of the Partnership at December 31, 2003 and
2002, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2003, in conformity with
accounting principles generally accepted in the United States of America. /s/ Deloitte & Touche LLP San Francisco, California
February 13, 2004 23




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IEA INCOME FUND XI, L.P. Balance Sheets December 31, 2003 and 2002 2003
    
    2002AssetsCurrent assets:Cash and cash equivalents, includes $713,341 in 2003
and $710,625 in 2002 in interest-bearing accounts (note 3)
    
    $
    790,330
    
    
    $
    824,212Net lease receivables due from Leasing Company
(notes 1 and 4)
    
    
    32,418
    
    
    
    83,131Total current assets
    
    
    822,748
    
    
    
    907,343Container rental equipment, at cost
    
    
    12,369,579
    
    
    
    16,001,043Less accumulated depreciation
    
    
    8,835,409
    
    
    
    10,527,247Net container rental equipment (note 1)
    
    
    3,534,170
    
    
    
    5,473,796Total assets
    
    $
    4,356,918
    
    
    $
    6,381,139Partners CapitalPartners capital (deficit):General partner
    
    $
    (293,257
    )
    
    $
    (249,863
    )Limited partners (note 8)
    
    
    4,650,175
    
    
    
    6,631,002Total partners capital
    
    $
    4,356,918
    
    
    $
    6,381,139
 The accompanying notes are an integral part of these financial statements. 24




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##### Table of Contents



IEA INCOME FUND XI, L.P. Statements of Operations For the years ended December 31, 2003, 2002 and 2001 2003
    
    2002
    
    2001Net lease revenue (notes 1 and 6)
    
    $
    672,306
    
    
    $
    849,782
    
    
    $
    1,627,441Other operating expenses:Depreciation (note 1)
    
    
    874,024
    
    
    
    1,144,103
    
    
    
    1,510,984Other general and administrative expenses
    
    
    87,835
    
    
    
    91,301
    
    
    
    121,701Net loss on disposal of equipment
    
    
    392,950
    
    
    
    927,487
    
    
    
    934,924Impairment losses
    
    
    
    
    
    
    
    
    
    
    418,6501,354,809
    
    
    
    2,162,891
    
    
    
    2,986,259Loss from operations
    
    
    (682,503
    )
    
    
    (1,313,109
    )
    
    
    (1,358,818
    )Other income:Interest income
    
    
    3,090
    
    
    
    12,525
    
    
    
    46,587Net loss
    
    $
    (679,413
    )
    
    $
    (1,300,584
    )
    
    $
    (1,312,231
    )Allocation of net (loss) income:General partner
    
    $
    (6,795
    )
    
    $
    (13,006
    )
    
    $
    58,099Limited partners
    
    
    (672,618
    )
    
    
    (1,287,578
    )
    
    
    (1,370,330
    )$
    (679,413
    )
    
    $
    (1,300,584
    )
    
    $
    (1,312,231
    )Limited partners per unit share of net loss
    
    $
    (0.34
    )
    
    $
    (0.64
    )
    
    $
    (0.69
    )
 The accompanying notes are an integral part of these financial statements. 25




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##### Table of Contents



IEA INCOME FUND XI, L.P. Statements of Partners Capital For the years ended December 31, 2003, 2002 and 201 Limited
    
    GeneralPartners
    
    Partner
    
    TotalBalances at January 1, 2001
    
    $
    15,330,008
    
    
    $
    (118,052
    )
    
    $
    15,211,956Net (loss) income
    
    
    (1,370,330
    )
    
    
    58,099
    
    
    
    (1,312,231
    )Cash distributions
    
    
    (3,566,331
    )
    
    
    (107,964
    )
    
    
    (3,674,295
    )Balances at December 31, 2001
    
    
    10,393,347
    
    
    
    (167,917
    )
    
    
    10,225,430Net loss
    
    
    (1,287,578
    )
    
    
    (13,006
    )
    
    
    (1,300,584
    )Cash distributions
    
    
    (2,474,767
    )
    
    
    (68,940
    )
    
    
    (2,543,707
    )Balances at December 31, 2002
    
    
    6,631,002
    
    
    
    (249,863
    )
    
    
    6,381,139Net loss
    
    
    (672,618
    )
    
    
    (6,795
    )
    
    
    (679,413
    )Cash distributions
    
    
    (1,308,209
    )
    
    
    (36,599
    )
    
    
    (1,344,808
    )Balances at December 31, 2003
    
    $
    4,650,175
    
    
    $
    (293,257
    )
    
    $
    4,356,918
 The accompanying notes are an integral part of these financial statements. 26




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##### Table of Contents



IEA INCOME FUND XI, L.P. Statements of Cash Flows For the years ended December 31, 2003, 2002 and 2001 2003
    
    2002
    
    2001Cash flows from operating activities:Net loss
    
    $
    (679,413
    )
    
    $
    (1,300,584
    )
    
    $
    (1,312,231
    )Adjustments to reconcile net loss to net cash from
operating activities:Depreciation
    
    
    874,024
    
    
    
    1,144,103
    
    
    
    1,510,984Loss on impairment
    
    
    
    
    
    
    
    
    
    
    418,650Net loss on disposal of equipment
    
    
    392,950
    
    
    
    927,487
    
    
    
    934,924(Increase) decrease in net lease receivables
due from Leasing Company
    
    
    (12,377
    )
    
    
    80,014
    
    
    
    171,843Total adjustments
    
    
    1,254,597
    
    
    
    2,151,604
    
    
    
    3,036,401Net cash provided by operating activities
    
    
    575,184
    
    
    
    851,020
    
    
    
    1,724,170Cash flows from investing activities:Proceeds from sale of container rental equipment
    
    
    735,742
    
    
    
    1,311,814
    
    
    
    1,524,419Cash flows from financing activitiesDistributions to partners
    
    
    (1,344,808
    )
    
    
    (2,543,707
    )
    
    
    (3,674,295
    )Net decrease in cash and cash equivalents
    
    
    (33,882
    )
    
    
    (380,873
    )
    
    
    (425,706
    )Cash and cash equivalents at beginning of year
    
    
    824,212
    
    
    
    1,205,085
    
    
    
    1,630,791Cash and cash equivalents at end of year
    
    $
    790,330
    
    
    $
    824,212
    
    
    $
    1,205,085
 The accompanying notes are an integral part of these financial statements. 27




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IEA INCOME FUND XI, L.P. Notes to Financial Statements December 31, 2003, 2002 and 2001  (1)
    
    Summary of Significant Accounting Policies  (a)
    
    Nature of OperationsIEA Income Fund XI, L.P. (the Partnership) is a limited partnership
organized under the laws of the State of California on July 30, 1990 for
the purpose of owning and leasing marine cargo containers worldwide to
ocean carriers. To this extent, the Partnerships operations are
subject to the fluctuations of world economic and political conditions.
Such factors may affect the pattern and levels of world trade. The
Partnership believes that the profitability of, and risks associated
with, leases to foreign customers is generally the same as those of
leases to domestic customers. The Partnerships leases generally
require all payments to be made in United States currency.Cronos Capital Corp. (CCC) is the general partner and, with its
affiliate Cronos Containers Limited (the Leasing Company), manages the
business of the partnership. CCC and the Leasing Company also manage
the container leasing business for other partnerships affiliated with
CCC. The Partnership shall continue until December 31, 2010, unless
terminated sooner upon the occurrence of certain events.The Partnership commenced operations on January 31, 1991, when the
minimum subscription proceeds of $1,000,000 were obtained. The
Partnership offered 2,000,000 units of limited partnership interest at
$20 per unit, or $40,000,000. The offering terminated on November 30,
1991, at which time 1,999,812 limited partnership units had been sold.(b)
    
    Leasing Company and Leasing Agent AgreementThe Partnership has entered into a Leasing Agent Agreement whereby the
Leasing Company has the responsibility to manage the leasing operations
of all equipment owned by the Partnership. Pursuant to the Agreement,
the Leasing Company is responsible for leasing, managing and re-leasing
the Partnerships containers to ocean carriers and has full discretion
over which ocean carriers and suppliers of goods and services it may
deal with. The Leasing Agent Agreement permits the Leasing Company to
use the containers owned by the Partnership, together with other
containers owned or managed by the Leasing Company and its affiliates,
as part of a single fleet operated without regard to ownership. Since
the Leasing Agent Agreement meets the definition of an operating lease
in Statement of Financial Accounting Standards (SFAS) No. 13, it is
accounted for as a lease under which the Partnership is lessor and the
Leasing Company is lessee.The Leasing Agent Agreement generally provides that the Leasing Company
will make payments to the Partnership based upon rentals collected from
ocean carriers after deducting direct operating expenses and management
fees to CCC and the Leasing Company. The Leasing Company leases
containers to ocean carriers, generally under operating leases which are
either master leases or term leases (mostly one to five years). Master
leases do not specify the exact number of containers to be leased or the
term that each container will remain on hire but allow the ocean carrier
to pick up and drop off containers at various locations, and rentals are
based upon the number of containers used and the applicable per-diem
rate. Accordingly, rentals under master leases are all variable and
contingent upon the number of containers used. Most containers are
leased to ocean carriers under master leases; leasing agreements with
fixed payment terms are not material to the financial statements. Since
there are no material minimum lease rentals, no disclosure of minimum
lease rentals is provided in these financial statements. 28




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##### Table of Contents



IEA INCOME FUND XI, L.P. Notes to Financial Statements  (c)
    
    Concentrations of Credit RiskThe Partnerships financial instruments that are exposed to
concentrations of credit risk consist primarily of cash, cash
equivalents and net lease receivables due from the Leasing Company. See
note 3 for further discussion regarding the credit risk associated with
cash and cash equivalents.Net lease receivables due from the Leasing Company (see notes 1(b) and 4
for discussion regarding net lease receivables) subject the Partnership
to a significant concentration of credit risk. These net lease
receivables, representing rentals earned by the Leasing Company, on
behalf of the Partnership, from ocean carriers after deducting direct
operating expenses and management fees to CCC and the Leasing Company,
are remitted by the Leasing Company to the Partnership three to four
times per month. The Partnership has historically never incurred a loss
associated with the collectibility of unremitted net lease receivables
due from the Leasing Company.(d)
    
    Basis of AccountingThe Partnership utilizes the accrual method of accounting. Net lease
revenue is recorded by the Partnership in each period based upon its
leasing agent agreement with the Leasing Company. Net lease revenue is
generally dependent upon operating lease rentals from operating lease
agreements between the Leasing Company and its various lessees, less
direct operating expenses and management fees due in respect of the
containers specified in each operating lease agreement.(e)
    
    Use of EstimatesThe financial statements are prepared in conformity with accounting
principles generally accepted in the United States of America (GAAP),
which requires the Partnership 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
reported period. Actual results could differ from those estimates.The most significant estimates included within the financial statements
are the container rental equipment estimated useful lives and residual
values, and the estimate of future cash flows from container rental
equipment operations, used to determine the adequacy of the carrying
value of container rental equipment in accordance with SFAS No. 144.
Considerable judgment is required in estimating future cash flows from
container rental equipment operations. Accordingly, the estimates may
not be indicative of the amounts that may be realized in future periods.
As additional information becomes available in subsequent periods,
reserves for the impairment of the container rental equipment carrying
values may be necessary based upon changes in market and economic
conditions. 29




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IEA INCOME FUND XI, L.P. Notes to Financial Statements  (f)
    
    Allocation of Net Income or Loss and Partnership DistributionsNet income or loss has been allocated between the general and limited
partners in accordance with the Partnership Agreement.Actual cash distributions differ from the allocations of net income or
loss between the general and limited partners as presented in these
financial statements. Partnership distributions are paid to its
partners (general and limited) from distributable cash from operations,
allocated 95% to the limited partners and 5% to the general partner.
Distributions of sales proceeds are allocated 99% to the limited
partners and 1% to the general partner. These allocations remain in
effect until such time as the limited partners have received from the
Partnership aggregate distributions in an amount equal to their capital
contributions plus a 10% cumulative, compounded (daily), annual return
on their adjusted capital contributions. Thereafter, all Partnership
distributions will be allocated 85% to the limited partners and 15% to
the general partner. Cash distributions from operations to the general
partner in excess of 5% of distributable cash will be considered an
incentive fee and will be recorded as compensation to the general
partner, with the remaining distributions from operations charged to
partners capital.(g)
    
    Acquisition FeesPursuant to the Partnership Agreement, acquisition fees paid to CCC are
based on 5% of the equipment purchase price. These fees are capitalized
and included in the cost of the rental equipment.(h)
    
    Container Rental EquipmentContainer rental equipment is depreciated using the straight-line
method. Depreciation policies are also evaluated to determine whether
subsequent events and circumstances warrant revised estimates of useful
lives. Effective June 1, 2001, the estimated depreciable life was
changed from a twelve-year life to a fifteen-year life and the estimated
salvage value was changed from 30% to 10% of the original equipment
cost. The effect of these changes were increases to depreciation
expense of approximately $26,500 and $39,000 for 2002 and 2001,
respectively.SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets, was adopted by the Partnership effective January 1, 2003,
without a significant impact on its financial statements. In accordance
with SFAS No. 144, container rental equipment is considered to be
impaired if the carrying value of the asset exceeds the expected future
cash flows from related operations (undiscounted and without interest
charges). If impairment is deemed to exist, the assets are written down
to fair value. An analysis is prepared each quarter projecting future
cash flows from container rental equipment operations. Current and
projected utilization rates, per-diem rental rates, direct operating
expenses, fleet size and container disposals are the primary variables
utilized by the analysis. Additionally, the Partnership evaluates
future cash flows and potential impairment by container type rather than
for each individual container, and as a result, future losses could
result for individual container dispositions due to various factors,
including age, condition, suitability for continued leasing, as well as
the geographical location of containers when disposed. 30




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IEA INCOME FUND XI, L.P. Notes to Financial Statements  (h)
    
    Container Rental Equipment (continued)In June 2001, the Partnership recorded impairment charges relating to
refrigerated container equipment which reduced results of operations by
$418,650 or $0.21 per limited partnership unit. The impairment charges
were a result of CCCs and the Leasing Companys review of the
Partnerships refrigerated container equipment. The purpose of the
review was to consider recent changes in the marketplace and economic
environment and to identify the consequences, if any, from an accounting
perspective. The Leasing Company identified a number of issues that
have had an impact on the carrying value of certain equipment at June
30, 2001.  i.
    
    In 1992, the Montreal Protocol outlawed the production
of the R12 refrigerant gas by developed countries. Since that
date, shipping lines and leasing companies have operated fleets
including refrigerated container equipment with the R12
refrigerant gas (the R12 Containers). However, the
environmental impact of refrigerant gases has become increasingly
prominent. On January 1, 2001, it became illegal for R12 to be
handled, other than for disposal, in most member countries of the
European Union.ii.
    
    Several of the major shipping lines that lease from the
Leasing Company, as well as other leasing companies, have
committed to eliminating R12 Containers from their fleets in
2001. Inventories consisting of R12 Containers will continue to
increase as shipping lines redeliver the containers from existing
leases.iii.
    
    During 2000, the Leasing Company completed a number of
term leases for R12 Containers. However, over the course of
2001, the factors outlined above, together with the deteriorating
economic environment, have resulted in a very slow leasing market
for R12 Containers. In addition, it is probable that residual
prices for R12 Containers will decrease as R12 Containers are
redelivered from existing leases.  The Leasing Company considered the impact of these factors in June 2001
and decided to change the current marketing strategy for R12 Containers.
The Leasing Company concluded that, effective July 1, 2001, inventories
of R12 Containers would be targeted for immediate sale. The Leasing
Company also conducted a review of R12 Containers that were on lease at
June 30, 2001.Assets to be disposed of:In June 2001, the Leasing Company committed to
a plan to dispose of 31 R12 Containers with a carrying value of
$271,506. It was concluded that the carrying value of these R12
containers exceeded fair value and accordingly, an impairment charge of
$193,256 was recorded to operations under impairment losses. At
December 31, 2002, 20 of the original 31 R12 refrigerated containers
have been disposed. Although the remaining 11 R12 refrigerated
containers were originally classified as held for sale after their
impairment in June 2001, the Partnership reclassified these containers
as held and used as of December 31, 2002. Of these 11 containers, there
were eight R12 refrigerated containers on-hire under term and master
leases, two R12 refrigerated containers off-hire and available for lease
and one R12 refrigerated container off-hire and available for disposal.
Included in the net loss on the disposal of equipment for the years 2002
and 2001 are gains of $14,754 and $2,124 on the sale of 12 and eight
refrigerated containers, respectively, that were targeted for sale as of
June 30, 2001.Assets to be held and used:The Leasing Company conducted a review of 52
R12 Containers with a carrying value of $443,136 that were on lease at
June 30, 2001. It was concluded that the carrying value of these R12
Containers exceeded the future cash flows expected to result from the
use of these containers and their eventual disposition, and therefore
was not recoverable. Accordingly, a charge of $225,394 was recorded to
operations under impairment losses. Fair value was determined by
discounting future expected cash flows.There were no impairment charges to the carrying value of container
rental equipment during 2003 and 2002. 31




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IEA INCOME FUND XI, L.P. Notes to Financial Statements  (i)
    
    Income TaxesThe Partnership is not subject to income taxes, consequently no
provision for income taxes has been made. The Partnership files federal
and state annual information tax returns, prepared on the accrual basis
of accounting. Taxable income or loss is reportable by the partners
individually.(j)
    
    Financial Statement PresentationThe Partnership has determined that, for accounting purposes, the
Leasing Agent Agreement is a lease, and the receivables, payables, gross
revenues and operating expenses attributable to the containers managed
by the Leasing Company are, for accounting purposes, those of the
Leasing Company and not of the Partnership. Consequently, the
Partnerships balance sheets and statements of operations display the
payments to be received by the Partnership from the Leasing Company as
the Partnerships receivables and revenues.(k)
    
    New Accounting PronouncementsIn November 2002, the Financial Accounting Standards Board issued
Interpretation No. 45 (FIN 45), Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others. FIN 45 elaborates on the disclosures to be
made by a guarantor in interim and annual financial statements about its
obligations under certain guarantees it has issued. The adoption of FIN
45 did not have a material impact on the Partnerships results of
operations and financial condition.In January 2003, the Financial Accounting Standards Board issued
Interpretation No. 46 (FIN 46), Consolidation of Variable Interest
Entities. In December 2003, the Financial Accounting Standards Board
issued an Interpretation that clarified and modified FIN 46 (Revised
Interpretations). FIN 46 clarifies the application of Accounting
Research Bulletin No. 51, Consolidated Financial Statements (ARB 51),
to certain variable interest entities (VIEs) in which equity investors
do not have the characteristics of a controlling financial interest or
do not have sufficient equity at risk for the entity to finance its
activities without additional subordinated financial support from other
parties. The Partnership has not entered into any material arrangements
with VIEs and does not expect FIN 46 to have a material impact on its
results of operations and financial condition.In May 2003, the Financial Accounting Standards Board issued SFAS No.
150, Accounting for Certain Financial Instruments with Characteristics
of both Liabilities and Equity (SFAS 150). This statement
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and
equity. It requires that an issuer classify a financial instrument that
is within its scope as a liability (or an asset in some circumstances).
Many of those instruments were previously classified as equity. This
statement is effective for financial instruments entered into or
modified after May 31, 2003, and otherwise is effective at the beginning
of the first interim period beginning after June 15, 2003. The adoption
of SFAS 150 did not have a material impact on its financial statements. 32




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IEA INCOME FUND XI, L.P. Notes to Financial Statements    (2)
    
    Operating SegmentAn operating segment is a component of an enterprise that engages in
business activities from which it may earn revenues and incur expenses,
whose operating results are regularly reviewed by the enterprises chief
operating decision maker to make decisions about resources to be allocated
to the segment and assess its performance, and about which separate
financial information is available. Management operates the Partnerships
container fleet as a homogenous unit and has determined that as such it has
a single reportable operating segment.The Partnership derives revenues from dry cargo containers and refrigerated
containers used by its customers in global trade routes. As of December 31,
2003, the Partnership owned 2,108 twenty-foot, 1,082 forty-foot and 60
forty-foot high-cube marine dry cargo containers, as well as 60 twenty-foot
and 19 forty-foot marine refrigerated cargo containers. A summary of gross
lease revenue earned by the Leasing Company, on behalf of the Partnership,
by product, for the years ended December 31, 2003, 2002 and 2001 follows: 2003
    
    2002
    
    2001Dry cargo containers
    
    $
    950,629
    
    
    $
    1,297,226
    
    
    $
    2,235,041Refrigerated containers
    
    
    141,891
    
    
    
    146,785
    
    
    
    259,923Total
    
    $
    1,092,520
    
    
    $
    1,444,011
    
    
    $
    2,494,964
  Due to the Partnerships lack of information regarding the physical location
of its fleet of containers when on lease in the global shipping trade. The
Partnership believes that is does not possess discernible geographic
segments as defined in SFAS No. 131 (SFAS 131), Disclosures about
Segments of an Enterprise and Related Information.The Partnership is not dependent upon any particular customer or group of
customers of the Leasing Company. Only one sub-lessee of the Leasing
Company accounts for more than 10% of the Partnerships revenue. This
customer, Mediterranean Shipping Company S. A. (MSC), generated
approximately 24% or $265,098 of the Leasing Companys rental revenue earned
during 2003 on behalf of the Partnership. One sub-lessee of the Leasing
Company, MSC, generated approximately 13% or $328,468, and 11% or $427,047
of the Leasing Companys rental revenue earned during 2002 and 2001,
respectively, on behalf of the Partnership.(3)
    
    Cash and Cash EquivalentsCash equivalents include money market funds that invest in highly-liquid
first-tier securities, such as U.S. Treasury obligations, repurchase
agreements secured by U.S. Treasury obligations, and obligations whose
principal and interest are backed by the U.S. Government. Cash equivalents
are carried at cost which approximates fair value, and at times, may exceed
federally insured limits. The Partnership has not experienced any losses in
such accounts and believes it is not exposed to any significant credit risk. 33




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IEA INCOME FUND XI, L.P. Notes to Financial Statements  (4)
    
    Net Lease Receivables Due from Leasing CompanyNet lease receivables due from the Leasing Company are determined by
deducting direct operating payables and accrued expenses, base management
fees payable, and reimbursed administrative expenses payable to CCC and its
affiliates from the rental billings earned by the Leasing Company under
operating leases to ocean carriers for the containers owned by the
Partnership as well as proceeds earned from container disposals. Net lease
receivables at December 31, 2003 and December 31, 2002 were as follows: December 31,
    
    December 31,2003
    
    2002Gross lease receivables
    
    $
    263,536
    
    
    $
    388,269Less:Direct operating payables and accrued expenses
    
    
    141,645
    
    
    
    199,723Damage protection reserve (note 5)
    
    
    19,442
    
    
    
    11,091Base management fees payable
    
    
    12,449
    
    
    
    41,911Reimbursed administrative expenses
    
    
    5,716
    
    
    
    7,415Allowance for doubtful accounts
    
    
    51,866
    
    
    
    44,998Net lease receivables
    
    $
    32,418
    
    
    $
    83,131
  (5)
    
    Damage Protection PlanThe Leasing Company offers a repair service to several lessees of the
Partnerships containers, whereby the lessee pays an additional rental fee
for the convenience of having the Partnership incur the repair expense for
containers damaged while on lease. This fee is recorded as revenue when
earned according to the terms of the rental contract. An accrual has been
recorded to provide for the estimated costs incurred by this service. This
accrual is a component of net lease receivables due from the Leasing Company
(see note 4). The Partnership is not responsible in the event repair costs
exceed predetermined limits, or for repairs that are required for damages
not defined by the damage protection plan agreement.(6)
    
    Net Lease RevenueNet lease revenue is determined by deducting direct operating expenses, base
management fees and reimbursed administrative expenses to CCC and its
affiliates from the rental revenue earned by the Leasing Company under
operating leases to ocean carriers for the containers owned by the
Partnership. Net lease revenue for the years ended December 31, 2003, 2002
and 2001, was as follows: 2003
    
    2002
    
    2001Rental revenue
    
    $
    1,092,520
    
    
    $
    1,444,011
    
    
    $
    2,494,964Less:Rental equipment operating expenses
    
    
    269,770
    
    
    
    396,712
    
    
    
    562,800Base management fees (note 7)
    
    
    74,568
    
    
    
    99,994
    
    
    
    173,112Reimbursed administrative expenses (note 7):Salaries
    
    
    53,428
    
    
    
    68,206
    
    
    
    88,646Other payroll related expenses
    
    
    5,732
    
    
    
    7,610
    
    
    
    8,969General and administrative expenses
    
    
    16,716
    
    
    
    21,707
    
    
    
    33,996Net lease revenue
    
    $
    672,306
    
    
    $
    849,782
    
    
    $
    1,627,441
 34




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IEA INCOME FUND XI, L.P. Notes to Financial Statements  (7)
    
    Compensation to General Partner and its AffiliatesBase management fees are equal to 7% of gross lease revenues attributable to
operating leases pursuant to the Partnership Agreement. Reimbursed
administrative expenses are equal to the costs expended by CCC and its
affiliates for services necessary for the prudent operation of the
Partnership pursuant to the Partnership Agreement. The following
compensation was paid or will be paid by the Partnership to CCC or its
affiliates: 2003
    
    2002
    
    2001Base management fees
    
    $
    74,568
    
    
    $
    99,994
    
    
    $
    173,112Reimbursed administrative expenses
    
    
    75,876
    
    
    
    97,523
    
    
    
    131,611$
    150,444
    
    
    $
    197,517
    
    
    $
    304,723
  (8)
    
    Limited Partners CapitalCash distributions made to the limited partners during 2003, 2002 and 2001
included distributions of proceeds from equipment sales in the amount of
$758,262, $1,441,532 and $1,874,822, respectively. These distributions, as
well as cash distributions from operations, are used in determining
Adjusted Capital Contributions as defined by the Partnership Agreement.The limited partners per unit share of capital at December 31, 2003, 2002
and 2001 was $2, $3 and $5, respectively. This is calculated by dividing
the limited partners capital at the end of each year by 1,999,812, the
total number of limited partnership units. ************************ 35




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Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure Inapplicable. 
 Item 9A. Controls and Procedures The principal executive and principal financial officers of CCC have
evaluated the disclosure controls and procedures of the Registrant
as of the end of the period covered by this report. As used herein, the term
disclosure controls and procedures has the meaning given to the term by Rule
13a-15 under the Securities Exchange Act of 1934, as amended (Exchange Act),
and includes the controls and other procedures of the Registrant that are
designed to ensure that information required to be disclosed by the Registrant
in the reports that it files with the SEC under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
SECs rules and forms. Based upon their evaluation, the principal executive
and principal financial officers of CCC have concluded that the Registrants
disclosure controls and were effective such that the
information required to be disclosed by the Registrant in this report is
recorded, processed, summarized and reported within the time periods specified
in the SECs rules and forms applicable to the preparation of
this report and is accumulated and communicated to CCC's management,
including CCCs principal
executive officer and principal financial
officer, as appropriate to allow timely decisions regarding required
disclosures. There have been no significant changes in the Registrants internal
controls or in other factors that could significantly affect the Registrants
internal controls subsequent to the evaluation described above conducted by
CCCs principal executive and financial officers. 36




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PART III 
 Item 10. Directors and Executive Officers of the Registrant The Registrant, as such, has no officers or directors, but is managed by
CCC, the general partner. The officers and directors of CCC at February 29,
2004, are as follows: Name
    
    OfficeDennis J. Tietz
    
    President, Chief Executive Officer and DirectorJohn Kallas
    
    Vice President, Chief Financial Officer and DirectorElinor A. Wexler
    
    Vice President/Administration, Secretary and DirectorJohn M. Foy
    
    Director
 Dennis J. TietzMr. Tietz, 51, as President and Chief Executive Officer,
is responsible for the general management of CCC. Mr. Tietz was appointed
Chief Executive Officer of The Cronos Group, indirect corporate parent of CCC,
in December 1998 and elected Chairman of the Board of Directors in March 1999.
Mr. Tietz is also President and a director of Cronos Securities Corp. From
1986 until August 1992, Mr. Tietz was responsible for the organization,
marketing and after-market support of CCCs investment programs. Mr. Tietz was
a regional manager for CCC, responsible for various container leasing
activities in the U.S. and Europe from 1981 to 1986. Prior to joining CCC in
December 1981, Mr. Tietz was employed by Trans Ocean Leasing Corporation as
Regional Manager based in Houston, with responsibility for all leasing and
operational activities in the U.S. Gulf. Mr. Tietz holds a B.S. degree in Business Administration from San Jose
State University and is a Registered Securities Principal with the NASD. John KallasMr. Kallas, 41, was elected Vice President, Chief Financial
Officer of CCC in November, 2000. Mr. Kallas also joined the Board of
Directors of CCC in November, 2000. Mr. Kallas has been employed by CCC since
1989, and is responsible for managed container investment programs, treasury,
and CCCs financial operations. Mr. Kallas has held various accounting
positions since joining Cronos including Controller, Director of Accounting and
Corporate Accounting Manager. From 1985 to 1989, Mr. Kallas was an accountant
with KPMG Peat Marwick, San Francisco. Mr. Kallas holds a Masters degree in Finance and Business Administration
from St. Marys College, a B.S. degree in Business Administration/Accounting
from the University of San Francisco and is a certified public accountant. Elinor A. WexlerMs. Wexler, 55, was elected Vice President -
Administration and Secretary of CCC in August 1992. Ms. Wexler joined the
Board of Directors of CCC in June 1997. Ms. Wexler has been employed by CCC
since 1987, and is responsible for investor services, compliance and securities
registration. From 1983 to 1987, Ms. Wexler was Manager of Investor Services
for The Robert A. McNeil Corporation, a real estate syndication company, in San
Mateo, California. From 1971 to 1983, Ms. Wexler held various positions,
including securities trader and international research editor, with Nikko
Securities Co., International, based in San Francisco. Ms. Wexler attended the University of Oregon, Portland State University
and the Hebrew University of Jerusalem, Israel. Ms. Wexler is also Vice
President and Secretary of Cronos Securities Corp. and a Registered Principal
with the NASD. John M. FoyMr. Foy, 58, was elected to the Board of Directors of CCC in
April 1999. See key management personnel of the Leasing Company for further
information. 37




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The key management personnel of the Leasing Company and its affiliates at
February 29, 2004, were as follows: Name
    
    TitlePeter J. Younger
    
    Chief Operating Officer/Chief Financial OfficerJohn M. Foy
    
    Senior Vice President/AmericasNico Sciacovelli
    
    Senior Vice President/Europe, Middle East and AfricaJohn C. Kirby
    
    Senior Vice President/Operations
 Peter J. YoungerMr. Younger, 47, was elected to the Board of Directors of
The Cronos Group on January 13, 2000. Mr. Younger will serve as a director
until the 2004 annual meeting and his successor is elected and takes office.
Mr. Younger was appointed as Chief Operating Officer of The Cronos Group on
August 4, 2000, and its Chief Financial Officer in March 1997. From 1991 to
1997, Mr. Younger served as Vice President of Finance for the Leasing Company,
located in the UK. From 1987 to 1991 Mr. Younger served as Vice President and
Controller for CCC in San Francisco. Prior to 1987, Mr. Younger was a
certified public accountant and a principal with the accounting firm of
Johnson, Glaze and Co. in Salem, Oregon. Mr. Younger holds a B.S. degree in
Business Administration from Western Baptist College, Salem, Oregon. John M. FoyMr. Foy, 58, is directly responsible for the Leasing Companys
lease marketing and operations in North America, Central America, and South
America, and is based in San Francisco. From 1985 to 1993, Mr. Foy was Vice
President/Pacific with responsibility for dry cargo container lease marketing
and operations in the Pacific Basin. From 1977 to 1985 Mr. Foy was Vice
President of Marketing for Nautilus Leasing Services in San Francisco with
responsibility for worldwide leasing activities. From 1974 to 1977, Mr. Foy
was Regional Manager for Flexi-Van Leasing, a container lessor, with
responsibility for container leasing activities in the Western United States.
Mr. Foy holds a B.A. degree in Political Science from University of the
Pacific, and a Bachelor of Foreign Trade from Thunderbird Graduate School of
International Management. Nico SciacovelliMr. Sciacovelli, 54, was elected Senior Vice President -
Europe, Middle East and Africa in June 1997. Mr. Sciacovelli is directly
responsible for the Leasing Companys lease marketing and operations in Europe,
the Middle East and Africa and is based in Italy. Since joining Cronos in
1983, Mr. Sciacovelli served as Area Director and Area Manager for Southern
Europe. Prior to joining Cronos, Mr. Sciacovelli was a Sales Manager at
Interpool Ltd. John C. KirbyMr. Kirby, 50, is responsible for container purchasing,
contract and billing administration, container repairs and leasing-related
systems, and is based in the United Kingdom. Mr. Kirby joined CCC in 1985 as
European Technical Manager and advanced to Director of European Operations in
1986, a position he held with CCC, and later the Leasing Company, until his
promotion to Senior Vice President/Operations of the Leasing Company in 1992.
From 1982 to 1985, Mr. Kirby was employed by CLOU Containers, a container
leasing company, as Technical Manager based in Hamburg, Germany. Mr. Kirby
acquired a professional engineering qualification from the Mid-Essex Technical
College in England. Audit Committee The Registrant is governed by CCC pursuant to the terms and provisions of
its Partnership Agreement. The business of CCC, in turn, is supervised by its
board of directors, consisting of Dennis J. Tietz, John Kallas, Elinor A.
Wexler and John M. Foy. All of the members of CCCs board of directors are
officers of CCC and therefore are not independent as defined by the rules of
the SEC. The board of directors of CCC oversees the accounting and financial
reporting processes of the Registrant and the audits of the financial
statements of the Registrant. Audit Committee Financial Expert The board of directors of CCC has determined that John Kallas, a member of
CCCs board, qualifies as an audit committee financial expert within the
meaning of the rules of the SEC. CCCs board has made this judgment by reason
of Mr. Kallas experience and training, described above in Mr. Kallas
biography, under the listing of officers and directors of CCC. Because Mr.
Kallas is an officer of CCC, he is not considered independent within the
meaning of the rules of the SEC. 38




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Code of Ethics CCC has adopted a Code of Ethics (the Code) that applies to the senior
officers of CCC, including the officers identified above. The Code is designed
to promote honest and ethical conduct by such officers in their management of
the business of CCC, including its activities as general partner of the
Registrant; the full and fair disclosure in the reports and documents CCC
prepares for and on behalf of the Registrant; and compliance with applicable
governmental laws, rules, and regulations. The Code provides a mechanism for
the reporting of violations of the Code and measures to enforce adherence to
the Code. A copy of the Code may be requested, without charge, from:  Cronos Capital Corp.
The General Partner
Attention: Corporate Secretary
One Front Street, Suite 925
San Francisco, CA 94111
(415) 677-8990
ir@cronos.com Section 16(a) Beneficial Ownership Reporting Compliance The Registrant has followed the practice of reporting acquisitions and
dispositions of the Registrants units of limited partnership interests by CCC,
its general partner. As CCC did not acquire or dispose of any of the
Registrants units of limited partnership interests during the fiscal year
ended December 31, 2003, no reports of beneficial ownership under Section 16(a)
of the Securities Exchange Act of 1934, as amended, were filed with the SEC. 39




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Item 11. Executive Compensation Partnership distributions are paid to its partners (general and limited)
from distributable cash from operations, allocated 95% to the limited partners
and 5% to the general partner. Distributions of sales proceeds are allocated
99% to the limited partners and 1% to the general partner. These allocations
remain in effect until such time as the limited partners have received from the
Partnership aggregate distributions in an amount equal to their capital
contributions plus a 10% cumulative, compounded (daily), annual return on their
adjusted capital contributions. Thereafter, all Partnership distributions will
be allocated 85% to the limited partners and 15% to the general partner. The Registrant will not pay or reimburse CCC or the Leasing Company for
any remuneration payable by them to their executive officers, directors or any
other controlling persons. However, the Registrant will reimburse the general
partner and the Leasing Company for certain services pursuant to the
Partnership Agreement. These services include but are not limited to (i)
salaries and related salary expenses for services which could be performed
directly for the Registrant by independent parties, such as legal, accounting,
transfer agent, data processing, operations, communications, duplicating and
other such services; (ii) performing administrative services necessary to the
prudent operations of the Registrant. The following table sets forth the fees the Registrant paid (on a cash
basis) to CCC or the Leasing Company (CCL) for the year ended December 31,
2003. Cash Fees andName
    
    Description
    
    Distributions1)
    
    CCL
    
    Base management fees - equal to 7% of
gross lease revenues attributable to
operating leases pursuant to Section 4.3
of the Limited Partnership Agreement
    
    $
    104,0312)
    
    CCC
CCL
    
    Reimbursed administrative expenses -
equal to the costs expended by CCC and
its affiliates for services necessary to
the prudent operation of the Registrant
pursuant to Section 4.4 of the Limited
Partnership Agreement
    
    $
$
    9,074
68,5013)
    
    CCC
    
    Interest in Fund - 5% of distributions of
distributable cash for any quarter
pursuant to Section 6.1 of the Limited
Partnership Agreement
    
    $
    36,602
 40




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Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters (a) Security Ownership of Certain Beneficial Owners There is no person or group of persons known to the management of CCC to
be the beneficial owner of more than five percent of the outstanding units of
limited partnership interests of the Registrant. (b) Security Ownership of Management The Registrant has no directors or officers. It is managed by CCC. CCC
owns 6,791 units, representing 0.34% of the total amount of units outstanding. (c) Changes in Control Inapplicable. 
 Item 13. Certain Relationships and Related Transactions (a) Transactions with Management and Others The Registrants only transactions with management and other related parties
during 2003 were limited to those fees paid or amounts committed to be paid (on
an annual basis) to CCC, the general partner, and its affiliates. See Item 11,
Executive Compensation, herein. (b) Certain Business Relationships Inapplicable. (c) Indebtedness of Management Inapplicable. (d) Transactions with Promoters Inapplicable. 
 Item 14. Principal Accountant Fees and Services CCC, on behalf of the Registrant has appointed Deloitte & Touche LLP as
the Registrants independent auditor for the fiscal year ending December 31,
2003. CCCs board of directors has the authority to pre-approve audit related
and non-audit services on behalf of the Registrant, that are not prohibited by
law, to be performed by the Registrants independent auditors. Audit Fees Audit fees represent fees for professional services provided in connection
with the audit of the Registrants financial statements and review of its
quarterly financial statements and audit services provided in connection with
its statutory or regulatory filings. The Registrant incurred fees of $16,361
and $18,228 during the fiscal years ending December 31, 2003 and 2002,
respectively, for these audit services. Audit-Related Fees The Registrant did not incur audit-related fees during the fiscal years
ending December 31, 2003 and 2002. Typically, audit-related fees, if incurred,
would consist of fees for accounting consultations and other attestation
services. 41




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Tax Fees The Registrant did not incur tax fees during the fiscal years ending
December 31, 2003 and 2002. Typically, tax fees, if incurred, would consist of
fees for compliance services, tax advice and tax planning. All Other Fees The Registrant did not incur any other fees for services provided by its
independent auditor during the fiscal years ending December 31, 2003 and 2002. 42




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##### Table of Contents



PART IV 
 Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K Page(a)1.
    
    Financial StatementsIndependent Auditors' Report
    
    
    23(a)2.
    
    The following financial statements of the Registrant are included in Part II, Item 8:Balance Sheets  as of December 31, 2003 and 2002
    
    
    24Statements of Operations  for the years ended December 31, 2003, 2002 and 2001
    
    
    25Statements of Partners Capital  for the years ended December 31, 2003, 2002 and 2001
    
    
    26Statements of Cash Flows  for the years ended December 31, 2003, 2002 and 2001
    
    
    27Notes to Financial Statements
    
    
    28
 All schedules are omitted as the information is not required or the
information is included in the financial statements or notes thereto. (a)3. Exhibits ExhibitNo.
    
    Description
    
    Method of Filing3(a)
    
    Limited Partnership Agreement of the Registrant,
amended and restated as of December 14, 1990
    
    *3(b)
    
    Certificate of Limited Partnership of the Registrant
    
    **10(a)
    
    Form of Leasing Agent Agreement with LPI Leasing
Partners International N.V.
    
    ***10(b)
    
    Assignment of Leasing Agent Agreement dated January
1, 1992 between the Registrant, CCC (formerly
Intermodal Equipment Associates), Cronos Containers
N.V. (formerly LPI Leasing Partners International
N.V.) and Cronos Containers Limited
    
    ****31.1
    
    Rule 13a-14 Certification
    
    Filed with this document31.2
    
    Rule 13a-14 Certification
    
    Filed with this document32
    
    Section 1350 Certifications
    
    Filed with this document
*****
  (b)
    
    Reports on Form 8-KNo reports on Form 8-K were filed by the Registrant during the quarter
ended December 31, 2003.   *
    
    Incorporated by reference to Exhibit A to the Prospectus of the
Registrant dated December 14, 1990, included as part of Registration
Statement on Form S-1 (No. 33-36701)**
    
    Incorporated by reference to Exhibit 3.2 to the Registration Statement on
Form S-1 (No. 33-36701)***
    
    Incorporated by reference to Exhibit 10.2 to the Registration Statement
on Form S-1 (No. 33-36701)****
    
    Incorporated by reference to Exhibit 10(b) to the Report on Form 10-K for
the fiscal year ended December 31, 1999*****
    
    This certification, required by Section 906 of the Sarbanes-Oxley Act of
2002, other than as required by Section 906, is not to be deemed filed
with the Commission or subject to the rules and regulations promulgated by
the Commission under the Securities Exchange Act of 1934, as amended, or
to the liabilities of Section 18 of said Act.
 43




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##### Table of Contents



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. IEA INCOME FUND XI, L.P.By
    Cronos Capital Corp.The General PartnerBy

    /s/ Dennis J. TietzDennis J. Tietz
President and Director of Cronos Capital Corp. (CCC)
Principal Executive Officer of CCC Date: March 26, 2004 Pursuant to the requirement of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of Cronos
Capital Corp., the managing general partner of the Registrant, in the
capacities and on the dates indicated: Signature
    
    Title
    
    Date/s/ Dennis J. Tietz
Dennis J. Tietz
    
    President and Director of
Cronos Capital Corp.
(CCC)(Principal Executive
Officer of CCC)
    
    March 26, 2004/s/ John Kallas
John Kallas
    
    Chief Financial Officer and
Director of
Cronos Capital Corp. (CCC)
(Principal Financial and
Accounting Officer of CCC)
    
    March 26, 2004/s/ Elinor A.
Wexler
Elinor A. Wexler
    
    Vice President-Administration,
Secretary and Director of
Cronos Capital Corp.
    
    March 26, 2004
 Supplemental Information The Registrants annual report will be furnished to its limited partners
on or about April 30, 2004. Copies of the annual report will be concurrently
furnished to the Commission for information purposes only, and shall not be
deemed to be filed with the Commission.




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##### Table of Contents



Exhibit Index ExhibitNo.
    
    Description
    
    Method of Filing3(a)
    
    Limited Partnership Agreement of the Registrant,
amended and restated as of December 14, 1990
    
    *3(b)
    
    Certificate of Limited Partnership of the Registrant
    
    **10(a)
    
    Form of Leasing Agent Agreement with LPI Leasing Partners International N.V.
    
    ***10(b)
    
    Assignment of Leasing Agent Agreement dated January
1, 1992 between the Registrant, CCC (formerly
Intermodal Equipment Associates), Cronos Containers
N.V. (formerly LPI Leasing Partners International N.V.) and Cronos Containers Limited
    
    ****31.1
    
    Rule 13a-14 Certification
    
    Filed with this document31.2
    
    Rule 13a-14 Certification
    
    Filed with this document32
    
    Section 1350 Certifications
    
    Filed with this document
*****
  (b)
    
    Reports on Form 8-KNo reports on Form 8-K were filed by the Registrant during the quarter
ended December 31, 2003.   *
    
    Incorporated by reference to Exhibit A to the Prospectus of the
Registrant dated December 14, 1990, included as part of Registration
Statement on Form S-1 (No. 33-36701)**
    
    Incorporated by reference to Exhibit 3.2 to the Registration Statement on
Form S-1 (No. 33-36701)***
    
    Incorporated by reference to Exhibit 10.2 to the Registration Statement
on Form S-1 (No. 33-36701)****
    
    Incorporated by reference to Exhibit 10(b) to the Report on Form 10-K for
the fiscal year ended December 31, 1999*****
    
    This certification, required by Section 906 of the Sarbanes-Oxley Act of
2002, other than as required by Section 906, is not to be deemed filed
with the Commission or subject to the rules and regulations promulgated by
the Commission under the Securities Exchange Act of 1934, as amended, or
to the liabilities of Section 18 of said Act.