<PAGE>   1
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

  [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
           ACT OF 1934 [NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996].

                   For the fiscal year ended December 31, 1997

                                       OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                          ACT OF 1934 [NO FEE REQUIRED]

            For the transition period from __________ to __________.

                         Commission file number 0-19770

                            IEA INCOME FUND XI, L.P.
             (Exact name of registrant as specified in its charter)

          California                                    94-3122430
(State or other jurisdiction of            (I.R.S. Employer Identification No.)
incorporation or organization)

         444 Market Street, 15th Floor, 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
           Not Applicable                              which registered
         -------------------                       --------------------------

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

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

                     UNITS OF LIMITED PARTNERSHIP INTERESTS
                ------------------------------------------------
                                (Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or 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 (Section229.405 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]

The aggregate market value of the voting stock held by non-affiliates of the
registrant is not applicable.

                       Documents Incorporated by Reference

<TABLE>
PART I
<S>                           <C>
Item 1 -  Business            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)

                              Certificate of Limited Partnership of IEA Income Fund XI, L.P., filed as
                              Exhibit 3.2 to the Registration Statement on Form S-1 (No. 33-36701)

                              Form of Leasing Agent Agreement with LPI Leasing Partners International
                              N.V., filed as Exhibit 10.2 to the Registration Statement on Form S-1
                              (No. 33-36701)
PART II
Item 9 - Changes in and Dis-  Current Report on Form 8-K of IEA Income Fund XI, L.P., filed
         agreements with      February 7, 1997 and April 14, 1997, respectively, and
         Accountants on       Amendment No. 1 to Current Report on Form 8-K filed
         Accounting and       February 26, 1997.
         Financial Disclosure
</TABLE>


<PAGE>   2

                         PART I - FINANCIAL INFORMATION


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:

<TABLE>
<CAPTION>
                                                        Percentage of
                                                       Amount      Gross Proceeds
                                                    -----------    --------------
        <S>                                         <C>                <C>
        Gross 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%
                                                    ===========      =======
</TABLE>





                                       2
<PAGE>   3


   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, which is in turn a wholly-owned subsidiary of The Cronos Group, a
Luxembourg company. These and other affiliated companies are ultimately
wholly-owned by The Cronos Group, a holding company registered in Luxembourg
("the Holding 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 or managed by the Group on its own behalf or on behalf of
third-party container owners, including all other programs organized by CCC.

   On January 1, 1991, Cronos Containers N.V., (formerly LPI Leasing Partners
International N.V.) entered into a Leasing Agent agreement with the Registrant
assuming the responsibility for all container leasing activities. On January 1,
1992, Cronos Containers N.V. entered into an Assignment of Leasing Agent
Agreement, whereby, Cronos Containers N.V. assigned and transferred to the
Leasing Company all of its rights, responsibilities and duties concerning the
Registrant's container leasing activities.

   For information concerning the containers acquired by the Registrant, see
Item 2, "Properties."

   As reported in the Registrant's Current Report on Form 8-K and Amendment No.
1 to Current Report on Form 8-K, filed with the Commission on February 7, 1997
and February 26, 1997, respectively, Arthur Andersen, London, England, resigned
as auditors of The Cronos Group, a Luxembourg Corporation headquartered in
Orchard Lea, England (the "Parent Company"), on February 3, 1997.

   The Parent Company is the indirect corporate parent of CCC, the General
Partner of the Partnership. In its letter of resignation to the Parent Company,
Arthur Andersen stated that it resigned as auditors of the Parent Company and
all other entities affiliated with the Parent Company. While its letter of
resignation was not addressed to CCC, Arthur Andersen confirmed to CCC that its
resignation as auditors of the entities referred to in its letter of resignation
included its resignation as auditors of CCC and the Registrant.

   CCC does not believe, based upon the information currently available to it,
that Arthur Andersen's resignation was triggered by any concern over the
accounting policies and procedures followed by the Registrant.

   Arthur Andersen's report on the financial statements of CCC and the
Registrant, for years preceding 1996, has not contained an adverse opinion or a
disclaimer of opinion, nor was any such report qualified or modified as to
uncertainty, audit scope, or accounting principles.

   During the Registrant's 1995 fiscal year and the subsequent interim period
preceding Arthur Andersen's resignation, there have been no disagreements
between CCC or the Registrant and Arthur Andersen on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure.

   The Registrant retained a new auditor, Moore Stephens, P.C. on April 10,
1997, as reported in its Current Report on Form 8-K, filed April 14, 1997.

   In connection with its resignation, Arthur Andersen also prepared a report
pursuant to the provisions of Section 10A(b)(2) of the Securities Exchange Act
of 1934, as amended, for filing by the Parent Company with the Securities and
Exchange Commission (the "SEC"). Following the report of Arthur Andersen, the
SEC, on February 10, 1997, commenced a private investigation of the Parent
Company for the purpose of investigating the matters discussed in such report
and related matters. The Registrant does not believe that the focus of the SEC's
investigation is upon the Registrant or CCC. CCC is unable to predict the
outcome of the SEC's ongoing private investigation of the Parent Company.





                                       3
<PAGE>   4

   In 1993, the Parent Company negotiated a credit facility (hereinafter, the
"Credit Facility") with several banks for the use of the Parent Company and its
affiliates, including CCC. At December 31, 1996, approximately $73,500,000 in
principal indebtedness was outstanding under the Credit Facility. As a party to
the Credit Facility, CCC is jointly and severally liable for the repayment of
all principal and interest owed under the Credit Facility. The obligations of
CCC, and the five other subsidiaries of the Parent Company that are borrowers
under the Credit Facility, are guaranteed by the Parent Company.

   Following negotiations in 1997 with the banks providing the Credit Facility,
an Amended and Restated Credit Agreement was executed in June 1997, subject to
various actions being taken by the Parent Company and its subsidiaries,
primarily relating to the provision of additional collateral. This Agreement was
further amended in July 1997 and the provisions of the Agreement and its
Amendment converted the facility to a term loan, payable in installments, with a
final maturity date of May 31, 1998. At December 31, 1997, approximately
$37,600,000 was outstanding under the Credit Facility.

   The terms of the Agreement and its Amendment also provide for additional
security over shares in the subsidiary of the Parent Company that owns the head
office of the Parent Company's container leasing operations. They also provided
for the loans to Stefan M. Palatin, the Chairman of the Parent Company (the
"Chairman") and its Chief Executive Officer (and a Director of CCC), of
approximately $5,990,000 and $3,700,000 (totaling approximately $9,690,000) to
be restructured as obligations of the Chairman to another subsidiary of the
Parent Company. These obligations have been collaterally assigned to the lending
banks, together with the pledge of 1,000,000 shares of the Parent Company's
Common Stock owned by the Chairman. These 1,000,000 shares represent 11% of the
issued and outstanding shares of Common Stock of the Parent Company as of
December 31, 1997. The shares of the Parent Company are traded on NASDAQ
(CRNSF). (The Chairman, including the 1,000,000 shares pledged to the banks,
owns approximately 55% of the issued and outstanding shares of Common Stock of
the Parent Company as of December 31, 1997). Additionally, CCC granted the
lending banks a security interest in the fees to which it is entitled for the
services it renders to the container leasing partnerships of which it acts as
general partner, including its fee income payable by the Partnership.

   The lending banks have indicated that they will not renew the Credit
Facility, and the Parent Company has yet to secure a source for repayment of the
balance due under the Credit Facility at May 31, 1998. CCC is currently in
discussions with the management of the Parent Company to provide assurance that
the management of the container leasing partnerships managed by CCC, including
the Registrant, is not disrupted pending a refinancing or reorganization of the
indebtedness of the Parent Company and its affiliates.

   The Registrant is not a borrower under the Credit Facility, and neither the
containers nor the other assets of the Registrant have been pledged as
collateral under the Credit Facility.

   The Registrant is unable to determine the impact, if any, these concerns may
have on the future operating results and financial condition of the Registrant
or CCC and the Leasing Company's ability to manage the Registrant's fleet in
subsequent periods.


   (b) Financial Information About Industry Segments

   Inapplicable.

   (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 container ship 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 effectively throughout the world. This standardization is
the foundation on which the container industry has developed.





                                       4
<PAGE>   5

   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 cargos ranging from heavy industrial raw materials to
light-weight finished goods. Specialized containers include, among others,
refrigerated containers for the transport of temperature-sensitive goods and
tank containers for the carriage of liquid cargo.

   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, railway 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
and reduces the transit time of freight moves.

   The logistical advantages and reduced freight rates brought about by
containerization have been a major catalyst for world trade growth during the
last twenty-five years, which in turn has generated increased demand for
containerization.

   The rapid growth of containerization began with the standardization of
equipment sizes by international agreement in the late 1960's. Initially
confined to the highly competitive trade routes among the industrialized
nations, containerization expanded into substantially all free-world trade
routes by the early 1970's.

   Throughout the decade of the 1970's, conversion from break bulk shipping
methods to containers gained momentum in an environment of generally robust
growth in world trade (except during the 1975-76 world-wide recession). Both
shipping lines and container leasing companies responded to this growing market
demand with major container purchases, while container manufacturers
substantially boosted production capacity.

   During the early and mid-1980's, the container industry encountered
alternating periods of slow trade growth, creating excess container capacity,
followed by periods of economic recovery. From the late 1980s to 1991, the
container industry generally experienced a balance in supply and demand for
equipment. In 1992, companies embarked on ambitious container production
programs encouraged by positive economic forecasts and the profitability of the
industry in previous years. This produced an oversupply of containers as some of
the major world economies slipped into recession and ocean carriers and leasing
companies built up large container inventories. During 1993, container
purchasing declined, generally helping to reduce the oversupply of containers.

   During 1994 and 1995, the world's major industrialized nations emerged from a
global economic recession. Consequently, excess equipment inventories that had
resulted from the sluggish growth in world trade during 1992 and 1993, as well
as increased production capacity, were absorbed. However, since 1995, the growth
of the industry's fleet, as well as containership tonnage, outpaced increases in
world containerized trade and resulted in a steady decline in container prices
to levels not seen in a decade. Consequently, ocean carriers reduced their
holding of leased container equipment and increased the number of containers
purchased for their own account. Additionally, ocean carriers, through the
efforts of strategic shipping alliances, were able to increase the efficiency of
utilizing owned containers, further reducing their reliance on leased
containers. As a result, the container leasing industry has, since mid - 1995,
experienced a decline in container utilization and per-diem rental rates.

   The Registrant believes that the favorable growth of containerization has
been and will be impacted in subsequent years for the following reasons:

   o    Lower freight rates resulting from containerization are generating new
        cargos that previously were not economical to export. Containerization
        provides inexpensive, timely and secure transport to manufacturers
        allowing them to take advantage of regional opportunities in technology
        or labor, and to move products to different locations at various stages
        of production;

   o    Intermodal traffic is expected to continue to grow, and industrialized
        countries are continuing to improve intermodal infrastructure (i.e.,
        railways, roads and ports);

   o    Shippers continue to demand transportation of cargo by containers rather
        than break-bulk;





                                       5
<PAGE>   6

   o    Countries with rapidly-growing economies in emerging markets are
        continuing to build new container port facilities that accommodate an
        increased flow of containerized trade; and

   o    Trade agreements, such as the North American Free Trade Agreement
        ("NAFTA") and the General Agreement on Tariffs and Trade ("GATT"),
        should further stimulate world trade, and, therefore containerized
        trade.

   The container leasing industry has been a significant contributor to the
growth of containerization. To an ocean carrier, the primary benefits of leasing
rather than owning containers are as follows:

   o    Reduced Capital Expenditures. Leasing is an attractive option to ocean
        carriers because ownership of containers requires significant capital
        expenditures. Carriers constantly evaluate their investment strategy,
        with container purchasing competing directly with other expenditure
        requirements, such as ship purchases, ship conversions and terminal
        improvements. Container leasing allows ocean carriers to invest capital
        in assets that are more central to their business.

   o    Improved Asset Management. Trade flow imbalances and seasonal demands
        frequently leave ocean carriers with regional surpluses or shortages of
        containers, requiring costly repositioning of empty containers. Leasing
        companies help ocean carriers manage these trade imbalances by providing
        the inventory to service demand, reducing the costs of maintaining local
        inventories and minimizing repositioning expenses. By matching different
        carriers' container needs, leasing companies can reduce their own risks
        of container inventory imbalances and seasonality through a portfolio of
        lessees as well as variations in lease terms.

   o    Increased Container Fleet Flexibility. Ocean carriers benefit from the
        variety of lease types offered by leasing companies such as the master
        lease, long-term and short-term lease and direct financing lease. These
        various leases give ocean carriers flexibility in sizing their fleets
        while minimizing capital costs. For example, master lease agreements
        give ocean carriers the option of adjusting the size of their fleets,
        with the flexibility to pick-up and drop-off containers at various
        locations around the world.

   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(R) steel (Corten(R) roofs, walls, doors and undercarriage), a
high-tensile steel yielding greater 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
Registrant's 20-foot refrigerated containers have high-grade stainless steel
walls, while 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's refrigerated containers are
designed and manufactured to include the latest generation refrigeration
equipment, with modular microprocessors controlling and monitoring the
container.

   The Registrant's containers are leased primarily to ocean-going steamship
companies 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, primarily master leases, where 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 and, secondarily, term leases (1-5 years) and one-way or round-trip
leases. Special purpose containers acquired by the Registrant, including
refrigerated containers, are generally committed to term leases, where the high
cost of interchanging the higher value specialized container makes master lease
agreements less attractive to customers.

   Master lease agreements. A master lease is designed to provide 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. The
commercial terms of master leases are generally negotiated annually. Master
leases also define the number of containers that may be returned within each
calendar month and the return locations and applicable drop-off charges. Because
of the increased flexibility they offer, master leases usually command higher
per-diem rates and generate more ancillary fees (including pick-up, drop-off,
handling and off-hire fees) than term leases.





                                       6
<PAGE>   7

   Term lease agreements. Term lease agreements include short-term and long-term
leases. Long-term lease agreements define the number of containers to be leased,
the pick-up and drop-off locations, the applicable per-diem rate for the
duration of the lease and the early termination penalties that may apply in the
event of early redelivery. Ocean carriers use long-term leases when they have a
need for identified containers for a specified term. Long-term leases usually
are not terminated early by the customer and provide stable and relatively
predictable sources of revenue, although per-diem rates and ancillary charges
are lower under long-term leases than under master lease agreements. Short-term
lease agreements have a duration of less than one year and include one-way,
repositioning and round-trip leases. They differ from master leases in that they
define the number and the term of containers to be leased. Ocean carriers 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 after one or more legs of a voyage. Except for direct
financing leases, lease rates typically are highest for short-term leases.

   Under these leases, 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 upon
redelivery, other than ordinary wear and tear. 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
has historically provided this service on a limited basis 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.

   All containers are inspected and repaired when redelivered by a customer, and
customers are obligated to pay for all damage repair, excluding wear and tear,
according to standardized industry guidelines. Depots in major port areas
perform repair and maintenance which is verified by 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 non-cancelable terms of the operating leases of the Registrant's
containers will not be sufficient to return to the Registrant as lessor the
purchase price of the equipment. In order to recover the original investment in
the equipment and achieve an adequate return thereon, it is necessary to renew
the lease, lease the equipment to another lessee at the end of the initial lease
term, or sell the equipment.

   The Registrant estimates that a dry cargo or refrigerated container may be
used as a leased marine cargo container for a period ranging from 10 to 15
years. The Registrant disposes of used containers in a worldwide market for used
containers in which buyers include wholesalers, mini-storage operators,
construction companies and others. The market for used refrigerated containers
is not as developed as the market for used dry cargo containers. Although a used
refrigerated container will command a higher price than a dry cargo container, a
dry cargo container will bring a higher percentage of its original price. As the
Registrant's fleet ages, a larger proportion of its revenues will be derived
from selling its containers.





                                       7
<PAGE>   8

   Of the 6,131 twenty-foot, 3,245 forty-foot and 195 forty-foot high-cube dry
cargo containers, 100 twenty-foot and 50 forty-foot refrigerated cargo
containers owned by the Registrant as of December 31, 1997, 4,730 twenty-foot
(or 77% thereof), 2,665 forty-foot (or 82% thereof) and 174 forty-foot high-cube
dry cargo containers (89% thereof), as well as 78 twenty-foot (or 78% thereof)
and 47 forty-foot refrigerated cargo containers (or 94% thereof) were on lease.
The following table sets forth the information on the lease terms with respect
to the containers on lease:

<TABLE>
<CAPTION>
                                                   Number of
                                                   Containers
                                                   ----------
        <S>                                         <C>
        20-Foot Dry Cargo Containers:
          Term Leases                                 637
          Master Leases                             4,093

        40-Foot Dry Cargo Containers:
          Term Leases                                 289
          Master Leases                             2,376

        40-Foot High-Cube Dry Cargo Containers:
          Term Leases                                  37
          Master Leases                               137

        20-Foot Refrigerated Cargo Containers:
          Term Leases                                  27
          Master Leases                                51

        40-Foot Refrigerated Cargo Containers:
          Term Leases                                   2
          Master Leases                                45
</TABLE>

   The Leasing Company will make payments to the Registrant based upon rentals
collected from ocean carriers after deducting certain operating expenses
associated with the containers, such as the base management fee payable to the
Leasing Company, certain expense reimbursements to CCC, the Leasing Company, and
its affiliates, 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.

   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, California; Iselin, New Jersey;
Windsor, England; Hamburg; Antwerp; Auckland; Genoa; Singapore; Hong Kong;
Sydney; Tokyo; Taipei; Seoul; Rio de Janeiro; and Shanghai. Each of the Leasing
Company's area offices and dedicated agents is staffed with local people
familiar with the customers and language of the region. The Leasing Company's
marketing directors have been employed in the container industry in their
respective regions for an average of 12 years, building direct personal
relationships with the local ocean carriers and locally-based representatives of
other ocean carriers.

   The Leasing Company also maintains agency relationships with over 45
independent agents around the world, who are generally paid a commission based
upon the amount of revenues they generate in the region or the number of
containers that are leased from their area on behalf of the Registrant. They 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. These agents
provide marketing support to the area offices covering the region, together with
limited operational support.





                                       8
<PAGE>   9

   In addition, the Leasing Company relies on the services of over 350
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
repair 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, and the point when the
Leasing Company's area offices report the container's movements onto the Leasing
Company's equipment tracking system. The Leasing Company's computer system has
the capability to accommodate future developments, such as allowing depots
access to record directly on the system the on-hire and off-hire activity of
containers delivered into the depot. It also has the capability of verifying the
terms of redelivery authorized by the area offices. These functions are
currently being performed by the Leasing Company's area offices.

   The Registrant relies upon the financial and operational systems provided by
the Leasing Company and its affiliates, as well as the systems provided by other
independent third parties. The Registrant has received assurances from the
Leasing Company and independent third parties, indicating that plans have been
developed and implemented to address issues related to the impact year 2000 will
have on these systems. The financial impact of making these required system
changes is not expected to be material to the Registrant's financial position,
results of operations or cash flows.

   (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 a 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 receipt. 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, 1997, no single lessee accounted
for 10% or more of the Registrant's rental income. 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 confidence in and professional relationship with 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. The Leasing Company believes
that it, on behalf of the Registrant, competes favorably on all of these
factors.





                                       9
<PAGE>   10

   The Leasing Company, on behalf of the Registrant, competes with various
container leasing companies in the markets in which it conducts business,
including Transamerica Leasing, GE-Seaco, Florens Container Corp., Textainer
Group, Triton Container International, Interpool Inc., Xtra Group, Container
Applications Inc. and others. During 1996 and 1997, two of the container leasing
industry's largest mergers transpired. The acquisition of Trans Ocean Ltd by
Transamerica Leasing in 1996, and the 1997 merger between the fleets of Genstar
Container Corp. and Sea Containers to form GE-Seaco, resulted in the creation of
the two largest leasing organizations in the container leasing industry. It is
estimated that, at the end of 1997, these two organizations controlled
approximately 45% of the worldwide leased container fleet. These and other
competitors of the Leasing Company may have greater financial resources and may
be capable of offering lower per-diem rates. Since 1996, the container leasing
industry has also experienced the formation of new leasing companies, which have
been able to compete at lower per-diem rates as a result of the decline in
container prices and cost of capital. 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. In
addition, not all container leasing companies compete in the same market, as
some supply only dry cargo containers and not specialized containers, while
others offer only long-term leasing.

   (c)(1)(xi) Inapplicable.

   (c)(1)(xii) Environmental Matters

   A portion of the Registrant's equipment portfolio consists of special purpose
containers, primarily 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 set various targets for the reduction in production and use of
CFCs starting as early as 1993, and their eventual elimination. There has been
substantial progress recently to determine a viable substitute for the
refrigerant used in containers, such that both the Leasing Company and the
container leasing industry association have selected a replacement refrigerant.
Production of new container refrigeration units operating with the replacement
refrigerant became generally available in 1993. All of the Registrant's
refrigerated containers use CFC refrigerated gas in the operation and insulation
of the containers. Depending on market pressures and future governmental
regulations, the Registrant's refrigerated containers may have to be retrofitted
with non-CFC refrigerants, the cost of which will be borne by the Registrant.
The Leasing Company's technical staff has cooperated with refrigeration
manufacturers in conducting investigations into the most effective and
economical retrofit plan. CCC and the Leasing Company believe that this expense,
should it be required, would not be material to the Registrant's financial
position or results of operations. In addition, refrigerated containers that are
not retrofitted may command lower prices in the used container market. Most of
the independent depot operators utilized by the Registrant currently have the
facilities to provide CFC recycling and disposal services to container owners
and lessors such as the Registrant.

   Under the state and Federal laws of the United States, and possibly under the
laws of other nations, the owner of a container may be liable for environmental
damage and/or cleanup 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.

   (c)(1)(xiii) The Registrant, as a limited partnership, is managed by CCC, the
general partner, and accordingly does not itself have any employees. CCC has 19
employees, consisting of 4 officers, 4 other managers and 11 clerical and staff
personnel.

   (d) Financial Information about Foreign and Domestic Operations and Export
Sales

   The Registrant's business is not divided between foreign or domestic
operations. The Registrant's business is the leasing of containers worldwide to
ocean-going steamship companies. To this extent, the Registrant's operations are
subject to the fluctuations of worldwide economic and political conditions that
may affect the pattern and levels of world trade.

   Rental income from leases to foreign customers exceeded 90% of the
Registrant's total rental income for the years 1997, 1996 and 1995. 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
<PAGE>   11

Item 2.  Properties

   As of December 31, 1997, the Registrant owned 6,131 twenty-foot, 3,245
forty-foot and 195 forty-foot high-cube marine dry cargo containers, as well as
100 twenty-foot and 50 forty-foot refrigerated containers suitable for
transporting cargo by rail, sea or highway. The average useful life and
manufacturers' invoice cost of the containers in the Registrant's fleet as of
December 31, 1997 were as follows:

<TABLE>
                                                      Estimated
                                                     Useful Life  Average Age    Average Cost
                                                     -----------  -----------    ------------
             <S>                                     <C>            <C>           <C>
             20-Foot Dry Cargo Containers            10-15 years    7 years       $  2,776
             40-Foot Dry Cargo Containers            10-15 years    7 years       $  4,571
             40-Foot High-Cube Dry Cargo Containers  10-15 years    7 years       $  4,988
             20-Foot Refrigerated Cargo Containers   10-15 years    7 years       $ 19,086
             40-Foot Refrigerated Cargo Containers   10-15 years    7 years       $ 21,734
</TABLE>


   During 1997, the Registrant invested a portion of its cash from sales
proceeds through the purchase of 66 new twenty-foot and 48 new forty-foot marine
dry cargo containers, at an aggregate manufacturer's cost of $313,588, as
replacement for containers which had been lost or damaged beyond repair. At
December 31, 1996, the Registrant committed to purchase an additional 41
twenty-foot and 48 forty-foot marine dry cargo containers, at an aggregate cost
of approximately $260,000.

   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 1997, utilization of the Registrant's containers
averaged 76% and 82% respectively, for the Registrant's dry cargo and
refrigerated container fleet.

   During 1997, the Registrant disposed of 74 twenty-foot, 38 forty-foot and
three forty-foot high-cube marine dry cargo containers at an average book loss
of $162 per container.


Item 3. Legal Proceedings

   As reported in the Registrant's Current Report on Form 8-K and Amendment No.
1 to Current Report on Form 8-K, filed with the Commission on February 7, 1997
and February 26, 1997, respectively, Arthur Andersen, London, England, resigned
as auditors of The Cronos Group, a Luxembourg Corporation headquartered in
Orchard Lea, England (the "Parent Company"), on February 3, 1997.

   The Parent Company is the indirect corporate parent of CCC, the General
Partner of the Partnership. In its letter of resignation to the Parent Company,
Arthur Andersen stated that it resigned as auditors of the Parent Company and
all other entities affiliated with the Parent Company. While its letter of
resignation was not addressed to CCC, Arthur Andersen confirmed to CCC that its
resignation as auditors of the entities referred to in its letter of resignation
included its resignation as auditors of CCC and the Registrant.

   CCC does not believe, based upon the information currently available to it,
that Arthur Andersen's resignation was triggered by any concern over the
accounting policies and procedures followed by the Registrant.

   Arthur Andersen's report on the financial statements of CCC and the
Registrant, for years preceding 1996, has not contained an adverse opinion or a
disclaimer of opinion, nor was any such report qualified or modified as to
uncertainty, audit scope, or accounting principles.

   During the Registrant's 1995 fiscal year and the subsequent interim period
preceding Arthur Andersen's resignation, there have been no disagreements
between CCC or the Registrant and Arthur Andersen on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure.





                                       11
<PAGE>   12

   The Registrant retained a new auditor, Moore Stephens, P.C. on April 10,
1997, as reported in its Current Report on Form 8-K, filed April 14, 1997.

   In connection with its resignation, Arthur Andersen also prepared a report
pursuant to the provisions of Section 10A(b)(2) of the Securities Exchange Act
of 1934, as amended, for filing by the Parent Company with the Securities and
Exchange Commission (the "SEC"). Following the report of Arthur Andersen, the
SEC, on February 10, 1997, commenced a private investigation of the Parent
Company for the purpose of investigating the matters discussed in such report
and related matters. The Registrant does not believe that the focus of the SEC's
investigation is upon the Registrant or CCC. CCC is unable to predict the
outcome of the SEC's ongoing private investigation of the Parent Company.

   In 1993, the Parent Company negotiated a credit facility (hereinafter, the
"Credit Facility") with several banks for the use of the Parent Company and its
affiliates, including CCC. At December 31, 1996, approximately $73,500,000 in
principal indebtedness was outstanding under the Credit Facility. As a party to
the Credit Facility, CCC is jointly and severally liable for the repayment of
all principal and interest owed under the Credit Facility. The obligations of
CCC, and the five other subsidiaries of the Parent Company that are borrowers
under the Credit Facility, are guaranteed by the Parent Company.

   Following negotiations in 1997 with the banks providing the Credit Facility,
an Amended and Restated Credit Agreement was executed in June 1997, subject to
various actions being taken by the Parent Company and its subsidiaries,
primarily relating to the provision of additional collateral. This Agreement was
further amended in July 1997 and the provisions of the Agreement and its
Amendment converted the facility to a term loan, payable in installments, with a
final maturity date of May 31, 1998. At December 31, 1997, approximately
$37,600,000 was outstanding under the Credit Facility.

   The terms of the Agreement and its Amendment also provide for additional
security over shares in the subsidiary of the Parent Company that owns the head
office of the Parent Company's container leasing operations. They also provided
for the loans to Stefan M. Palatin, the Chairman of the Parent Company (the
"Chairman") and its Chief Executive Officer (and a Director of CCC), of
approximately $5,990,000 and $3,700,000 (totaling approximately $9,690,000) to
be restructured as obligations of the Chairman to another subsidiary of the
Parent Company. These obligations have been collaterally assigned to the lending
banks, together with the pledge of 1,000,000 shares of the Parent Company's
Common Stock owned by the Chairman. These 1,000,000 shares represent 11% of the
issued and outstanding shares of Common Stock of the Parent Company as of
December 31, 1997. The shares of the Parent Company are traded on NASDAQ
(CRNSF). (The Chairman, including the 1,000,000 shares pledged to the banks,
owns approximately 55% of the issued and outstanding shares of Common Stock of
the Parent Company as of December 31, 1997). Additionally, CCC granted the
lending banks a security interest in the fees to which it is entitled for the
services it renders to the container leasing partnerships of which it acts as
general partner, including its fee income payable by the Partnership.

   The lending banks have indicated that they will not renew the Credit
Facility, and the Parent Company has yet to secure a source for repayment of the
balance due under the Credit Facility at May 31, 1998. CCC is currently in
discussions with the management of the Parent Company to provide assurance that
the management of the container leasing partnerships managed by CCC, including
the Registrant, is not disrupted pending a refinancing or reorganization of the
indebtedness of the Parent Company and its affiliates.

   The Registrant is not a borrower under the Credit Facility, and neither the
containers nor the other assets of the Registrant have been pledged as
collateral under the Credit Facility.

   The Registrant is unable to determine the impact, if any, these concerns may
have on the future operating results and financial condition of the Registrant
or CCC and the Leasing Company's ability to manage the Registrant's fleet in
subsequent periods.


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

   Inapplicable.





                                       12
<PAGE>   13

                                     PART II


Item 5. Market for the 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

                                               Number of Unit Holders
   (b)(1) Title                                as of December 31, 1997
          -----                                -----------------------
          Units of limited partnership
            interests                                    3,288

   (c) Dividends

   Inapplicable. For the distributions made by the Registrant to its limited
partners, see Item 6 below, "Selected Financial Data."





                                       13
<PAGE>   14

Item 6. Selected Financial Data

<TABLE>
<CAPTION>
                                                           Year Ended December 31,
                                   -----------------------------------------------------------------------
                                      1997            1996           1995           1994          1993
                                   -----------    -----------    -----------    -----------    -----------
<S>                                <C>            <C>            <C>            <C>            <C>
Net lease revenue                  $ 3,106,508    $ 3,781,622    $ 4,908,910    $ 4,802,127    $ 4,959,736
Net earnings                       $   950,404    $ 1,625,368    $ 2,758,007    $ 2,575,709    $ 2,686,507
Net earnings per unit of
   limited partnership interest    $      0.40    $      0.69    $      1.25    $      1.16    $      1.24

Cash distributions per unit of
   limited partnership interest    $      1.61    $      2.12    $      2.22    $      2.04    $      2.23
At year-end:
Total assets                       $24,650,329    $27,094,345    $30,040,568    $32,207,224    $34,276,395
Partners' capital                  $24,575,329    $27,019,345    $29,858,468    $31,784,230    $33,506,361
</TABLE>

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


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

Liquidity and Capital Resources

   The Registrant's primary objective is to generate cash flow from operations
for distribution to its limited partners and, during the initial years of
operation, reinvest excess cash flow in additional equipment. Aside from the
initial working capital reserve retained from gross subscription proceeds (equal
to approximately 1% of such proceeds), the Registrant relies 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.

   At December 31, 1997, the Registrant had $1,394,672 in cash and cash
equivalents, a decrease of $210,885 and $629,912 from the December 31, 1996 and
1995 cash balances, respectively. During 1997, the Registrant expended $313,588
of cash generated from sales proceeds to purchase additional containers,
replacing containers which had been lost or damaged beyond repair. Approximately
$131,000 in cash generated from equipment sales has been reserved as part of the
Registrant's December 31, 1997 cash balances. Throughout the remainder of 1998,
the Registrant may use cash generated from equipment sales to purchase and
replace additional containers which have been lost or damaged beyond repair.
Amounts not used to purchase and replace containers may be distributed to its
partners.

   The Registrant's allowance for doubtful accounts declined from $166,016 at
December 31, 1996 to $83,363 at December 31, 1997. This decrease was a direct
result of the Leasing Company's decision, after exhausting all other
alternatives, to write-off $133,934 of outstanding receivable balances that were
specifically reserved for in prior years and considered to be uncollectable.

   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 Partnership Agreement. Cash distribution 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, 1998, the Registrant has distributed
$26,582,123 in cash from operations to its limited partners, or 66% of the
Registrant's original limited partners' investment. 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.





                                       14
<PAGE>   15

   Market conditions that existed during 1996 persisted throughout 1997. Low
container prices, favorable interest rates and the abundance of available
capital continued to discourage ocean carriers and other transport companies
from leasing containers at levels comparable to previous years. During the first
half of 1997, increasing cargo volumes and continuing equipment imbalances
within the container fleets of shipping lines and transport companies
contributed to a modest recovery in utilization rates. However, by the end of
1997, the volatility of the Hong Kong and other Asian financial markets began to
negatively impact trade, shipping and container leasing. Per-diem rental rates
continued to remain under pressure as a result of the following factors:
start-up leasing companies offering new containers and low rental rates in an
effort to break into the leasing market; established leasing companies reducing
rates to very low levels; and a continuing oversupply of containers. These
leasing market conditions may impact the Registrant's financial condition and
operating performance during 1998. Additionally, see the discussion regarding
The Cronos Group under Item 7., Management Discussion and Analysis of Financial
Condition and Results of Operations hereof.


Results of Operations

1997 - 1996

   During 1997, the container leasing industry continued to experience a decline
in the demand for its containers, as conditions existing since 1996 continued to
adversely impact world trade, shipping and container leasing. These conditions
include, but are not limited to, declining container prices, favorable interest
rates and an abundance of capital which resulted in ocean carriers and transport
companies purchasing a larger share of containers for their own account. The
addition of new, larger container ships also contributed to the growth in
container ship capacity. As capacity exceeded the growth rate of world
containerized trade, ocean carriers attempted to reduce operating costs, further
reducing the demand for leased containers.

   As the leasing industry's equipment remained in surplus, ocean carriers and
transport companies continued to be selective about the age and condition of
containers taken on-hire. Many have adopted a policy of only leasing containers
of a certain age or less. It has been the Registrant's experience that in
periods of weak demand, many lessees insist on equipment three to five years of
age. Such criteria currently serves as a barrier to older equipment being taken
on-hire, including those within the Registrant's fleet and contributed to the
decline in the Registrant's results of operations. 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 rental 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. Net lease revenue declined by approximately 18% when
compared to 1996. The Registrant expects net lease revenue to decline in
subsequent periods as current container leasing market conditions continue.

   Gross rental revenue, a component of net lease revenue, decreased from
$6,026,486 in 1996, to $5,123,149 in 1997. This decline was primarily a result
of lower per-diem rental rates and utilization levels. The Registrant's dry
cargo container utilization rate decreased from an average of 79% during 1996,
to an average of 76% during 1997. Refrigerated container utilization rates also
decreased from an average of 94% during 1996, to an average of 82% during 1997.
Dry cargo container per-diem rental rates decreased by 12% from 1996 levels.
Refrigerated container per-diem rental rates declined 9% from 1996 levels. The
Registrant's average fleet size (as measured in twenty-foot equipment units
("TEU")) was 13,246 TEU in 1997, as compared to 13,225 TEU in 1996.

   Rental equipment operating expenses, when measured as a percentage of rental
revenue, were approximately 27% during 1997, as compared to 25% during 1996.
This increase was largely attributable to an increase in costs associated with
lower utilization levels, including handling and storage. Base management fees,
dependent on the operating performance of the fleet, declined $56,656, or
approximately 14% during 1997.

   Other general and administrative expenses increased $16,370, or approximately
25% during 1997. Contributing to this change was an increase in the cost of the
Registrant's annual audit, as well as an increase in the costs of preparing and
processing the Registrant's regulatory filings.





                                       15
<PAGE>   16

   The Registrant disposed of 74 twenty-foot, 38 forty-foot and three forty-foot
high-cube marine dry cargo containers during 1997, as compared to 107
twenty-foot and 9 forty-foot marine dry cargo containers during 1996. These
disposals resulted in a loss of $18,685 for 1997, as compared to a gain of
$56,150 for 1996. The Registrant does not believe that the carrying amount of
its containers has been permanently impaired or that events or changes in
circumstances have indicated that the carrying amount of its containers may not
be fully recoverable. The Registrant believes that the 1997 loss on container
disposals 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 amount of
sales proceeds received and the related gain on container disposals, which may
fluctuate in subsequent periods.


1996 - 1995

   Net lease revenue is determined by deducting direct operating expenses,
management fees and reimbursed administrative expenses, from rental revenues
billed by the Leasing Company from the leasing of the Registrant's containers
and is directly related to the size, utilization and per-diem rental rates of
the Registrant's fleet. Net lease revenue declined by approximately 23% when
compared to 1995.

   Gross rental revenue, a component of net lease revenue, decreased from
$7,080,775 in 1995, to $6,026,486 in 1996. The Registrant's dry cargo container
utilization rate decreased from an average of 89% during 1995, to an average of
79% during 1996. Refrigerated container utilization rates also decreased from an
average of 99% during 1995, to an average of 94% during 1996. Dry cargo
container per-diem rental rates decreased by 4% from 1995 levels. Refrigerated
container per-diem rental rates declined 1% from 1995 levels. The Registrant's
average fleet size (as measured in twenty-foot equipment units ("TEU")) was
13,225 TEU, as compared to 13,282 TEU in 1995.

   Rental equipment operating expenses, when measured as a percentage of rental
revenue, were approximately 25% during 1996 as compared to 18% during 1995. This
increase was due to higher storage and handling costs associated with the lower
equipment utilization and increased repositioning costs. Base management fees
declined by $71,328, or approximately 15%, during 1996.

   The Registrant disposed of 107 twenty-foot and nine forty-foot marine dry
cargo containers during 1996, as compared to 77 twenty-foot and 22 forty-foot
and one forty-foot high-cube marine dry cargo containers during 1995. The
decision to repair or dispose of a container is made when it is returned by a
lessee. This decision is influenced by various factors including the age,
condition, suitability for continued leasing, as well as the geographical
location of the container when disposed. These factors also influence the amount
of sales proceeds received and the related gain on container disposals.


The Cronos Group

   As reported in the Registrant's Current Report on Form 8-K and Amendment No.
1 to Current Report on Form 8-K, filed with the Commission on February 7, 1997
and February 26, 1997, respectively, Arthur Andersen, London, England, resigned
as auditors of The Cronos Group, a Luxembourg Corporation headquartered in
Orchard Lea, England (the "Parent Company"), on February 3, 1997.

   The Parent Company is the indirect corporate parent of CCC, the General
Partner of the Partnership. In its letter of resignation to the Parent Company,
Arthur Andersen stated that it resigned as auditors of the Parent Company and
all other entities affiliated with the Parent Company. While its letter of
resignation was not addressed to CCC, Arthur Andersen confirmed to CCC that its
resignation as auditors of the entities referred to in its letter of resignation
included its resignation as auditors of CCC and the Registrant.

   CCC does not believe, based upon the information currently available to it,
that Arthur Andersen's resignation was triggered by any concern over the
accounting policies and procedures followed by the Registrant.

   Arthur Andersen's report on the financial statements of CCC and the
Registrant, for years preceding 1996, has not contained an adverse opinion or a
disclaimer of opinion, nor was any such report qualified or modified as to
uncertainty, audit scope, or accounting principles.





                                       16
<PAGE>   17

   During the Registrant's 1995 fiscal year and the subsequent interim period
preceding Arthur Andersen's resignation, there have been no disagreements
between CCC or the Registrant and Arthur Andersen on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure.

   The Registrant retained a new auditor, Moore Stephens, P.C. on April 10,
1997, as reported in its Current Report on Form 8-K, filed April 14, 1997.

   In connection with its resignation, Arthur Andersen also prepared a report
pursuant to the provisions of Section 10A(b)(2) of the Securities Exchange Act
of 1934, as amended, for filing by the Parent Company with the Securities and
Exchange Commission (the "SEC"). Following the report of Arthur Andersen, the
SEC, on February 10, 1997, commenced a private investigation of the Parent
Company for the purpose of investigating the matters discussed in such report
and related matters. The Registrant does not believe that the focus of the SEC's
investigation is upon the Registrant or CCC. CCC is unable to predict the
outcome of the SEC's ongoing private investigation of the Parent Company.

   In 1993, the Parent Company negotiated a credit facility (hereinafter, the
"Credit Facility") with several banks for the use of the Parent Company and its
affiliates, including CCC. At December 31, 1996, approximately $73,500,000 in
principal indebtedness was outstanding under the Credit Facility. As a party to
the Credit Facility, CCC is jointly and severally liable for the repayment of
all principal and interest owed under the Credit Facility. The obligations of
CCC, and the five other subsidiaries of the Parent Company that are borrowers
under the Credit Facility, are guaranteed by the Parent Company.

   Following negotiations in 1997 with the banks providing the Credit Facility,
an Amended and Restated Credit Agreement was executed in June 1997, subject to
various actions being taken by the Parent Company and its subsidiaries,
primarily relating to the provision of additional collateral. This Agreement was
further amended in July 1997 and the provisions of the Agreement and its
Amendment converted the facility to a term loan, payable in installments, with a
final maturity date of May 31, 1998. At December 31, 1997, approximately
$37,600,000 was outstanding under the Credit Facility.

   The terms of the Agreement and its Amendment also provide for additional
security over shares in the subsidiary of the Parent Company that owns the head
office of the Parent Company's container leasing operations. They also provided
for the loans to Stefan M. Palatin, the Chairman of the Parent Company (the
"Chairman") and its Chief Executive Officer (and a Director of CCC), of
approximately $5,990,000 and $3,700,000 (totaling approximately $9,690,000) to
be restructured as obligations of the Chairman to another subsidiary of the
Parent Company. These obligations have been collaterally assigned to the lending
banks, together with the pledge of 1,000,000 shares of the Parent Company's
Common Stock owned by the Chairman. These 1,000,000 shares represent 11% of the
issued and outstanding shares of Common Stock of the Parent Company as of
December 31, 1997. The shares of the Parent Company are traded on NASDAQ
(CRNSF). (The Chairman, including the 1,000,000 shares pledged to the banks,
owns approximately 55% of the issued and outstanding shares of Common Stock of
the Parent Company as of December 31, 1997). Additionally, CCC granted the
lending banks a security interest in the fees to which it is entitled for the
services it renders to the container leasing partnerships of which it acts as
general partner, including its fee income payable by the Partnership.

   The lending banks have indicated that they will not renew the Credit
Facility, and the Parent Company has yet to secure a source for repayment of the
balance due under the Credit Facility at May 31, 1998. CCC is currently in
discussions with the management of the Parent Company to provide assurance that
the management of the container leasing partnerships managed by CCC, including
the Registrant, is not disrupted pending a refinancing or reorganization of the
indebtedness of the Parent Company and its affiliates.

   The Registrant is not a borrower under the Credit Facility, and neither the
containers nor the other assets of the Registrant have been pledged as
collateral under the Credit Facility.

   The Registrant is unable to determine the impact, if any, these concerns may
have on the future operating results and financial condition of the Registrant
or CCC and the Leasing Company's ability to manage the Registrant's fleet in
subsequent periods.





                                       17
<PAGE>   18

Year 2000

   The Registrant relies upon the financial and operational systems provided by
the Leasing Company and its affiliates, as well as the systems provided by other
independent third parties to service the three primary areas of its business:
investor processing/maintenance; container leasing/asset tracking; and
accounting finance. The Registrant has received confirmation from its
third-party investor processing/maintenance vendor that their system is Year
2000 compliant. The Registrant does not expect a material increase in its vendor
servicing fee to reimburse Year 2000 costs. Container leasing/asset tracking and
accounting/finance services are provided to the Registrant by CCC and its
affiliate, Cronos Containers Limited (the "Leasing Company"), pursuant to the
respective Limited Partnership Agreement and Leasing Agent Agreement. In 1998,
CCC and the Leasing Company will initiate a program to prepare their systems and
applications for the Year 2000. Preliminary studies indicate that testing,
conversion and upgrading of system applications is expected to cost CCC and the
Leasing Company less than $500,000. The Registrant may reimburse CCC and the
Leasing Company for certain data processing expenses as outlined in the Limited
Partnership Agreement. The Registrant's reimbursement of data processing costs
associated with Year 2000 compliance are not expected to be material. The
financial impact of making these required system changes is not expected to be
material to the Registrant's financial position, results of operations or cash
flows.


Cautionary Statement

   This Annual Report on Form 10-K contains statements relating to future
results of the Registrant, including certain projections and business trends,
that are "forward-looking statements" as defined in the Private Securities
Litigation Reform Act of 1995. Actual results may differ materially from those
projected as a result of certain risks and uncertainties, including but not
limited to changes in: economic conditions; trade policies; demand for and
market acceptance of leased marine cargo containers; competitive utilization and
per-diem rental rate pressures; as well as other risks and uncertainties,
including but not limited to those described above in the discussion of the
marine container leasing business under Item 7., Management's Discussion and
Analysis of Financial Condition and Results of Operations; and those detailed
from time to time in the filings of the Registrant with the Securities and
Exchange Commission.


Item 8. Financial Statements and Supplementary Data











                                       18
<PAGE>   19


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



The Partners
IEA Income Fund XI, L.P.:


We have audited the accompanying balance sheets of IEA Income Fund XI, L.P., as
of December 31, 1997 and 1996, and the related statements of operations,
partners' capital, and cash flows for the years then ended . These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of IEA Income Fund XI, L.P. as of
December 31, 1997 and 1996, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.

As further discussed in Note 12 to the financial statements, The Cronos Group,
which is the indirect corporate parent of Cronos Capital Corp., the general
partner of the Partnership, is subject to an investigation, commenced on
February 10, 1997, by the United States Securities and Exchange Commission.
Furthermore, Cronos Capital Corp. and five other subsidiaries of The Cronos
Group are borrowers under a credit facility with several banks. The credit
facility is guaranteed by The Cronos Group and the entire loan balance is due on
May 31, 1998. The lending banks have indicated that they will not renew the
credit facility, and as of the date of our report, The Cronos Group has yet to
secure a source for repayment of the balance due.

Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplementary information included in
Schedule 1, for the years ended December 31, 1997 and 1996, is presented for
purposes of additional analysis and is not a required part of the basic
financial statements. Such information has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.



                                        Moore Stephens, P.C.
                                        Certified Public Accountants

New York, New York,
February 20, 1998






                                       19
<PAGE>   20

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



The Partners
IEA Income Fund XI, L.P.:


We have audited the accompanying statement of operations of IEA Income Fund XI,
L.P. as of December 31, 1995, and the related statements of partners' capital
and cash flows for the year ended December 31, 1995. These financial statements
are the responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations of IEA Income Fund XI, L.P. as
of December 31, 1995, and its cash flows for the year ended December 31, 1995,
in conformity with generally accepted accounting principles.

Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplementary information included in
Schedule 1 is presented for purposes of additional analysis and is not a
required part of the basic financial statements. This information has been
subjected to the auditing procedures applied in our audit of the basic financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.

                                        Arthur Andersen LLP


San Francisco, California,
March 15, 1996






                                       20
<PAGE>   21

                            IEA INCOME FUND XI, L.P.

                                 BALANCE SHEETS

                           DECEMBER 31, 1997 AND 1996


<TABLE>
<CAPTION>
                        Assets                                              1997               1996
                        ------                                          ------------       ------------
<S>                                                                     <C>                <C>
Current assets:
   Cash and cash equivalents, includes $1,394,472 in 1997
      and $1,605,226 in 1996 in interest-bearing accounts (note 2)      $  1,394,672       $  1,605,557
   Net lease receivables due from Leasing Company
      (notes 1 and 4)                                                        556,611            738,235
                                                                        ------------       ------------

         Total current assets                                              1,951,283          2,343,792
                                                                        ------------       ------------

Container rental equipment, at cost                                       35,812,722         35,888,165
   Less accumulated depreciation                                          13,113,676         11,163,236
                                                                        ------------       ------------
      Net container rental equipment                                      22,699,046         24,724,929
                                                                        ------------       ------------

Organization costs, net (note 3)                                        $          -             25,624
                                                                        ------------       ------------

                                                                        $ 24,650,329       $ 27,094,345
                                                                        ============       ============
  Liabilities and Partners' Capital

Current liabilities:
   Accrued expenses (note 5)                                            $     75,000       $     75,000
                                                                        ------------       ------------

         Total current liabilities                                      $     75,000       $     75,000
                                                                        ------------       ------------

Partners' capital (deficit):
   General partner                                                      $    (24,417)      $         24
   Limited partners (note 9)                                              24,599,746         27,019,321
                                                                        ------------       ------------
         Total partners' capital                                          24,575,329         27,019,345
                                                                        ------------       ------------
                                                                        $ 24,650,329       $ 27,094,345
                                                                        ============       ============
</TABLE>


   The accompanying notes are an integral part of these financial statements.




                                       21
<PAGE>   22


                            IEA INCOME FUND XI, L.P.

                            STATEMENTS OF OPERATIONS

              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995


<TABLE>
<CAPTION>
                                                          1997              1996            1995
                                                      -----------       -----------      -----------
<S>                                                   <C>               <C>              <C>
Net lease revenue (notes 1 and 7)                     $ 3,106,508       $ 3,781,622      $ 4,908,910

Other operating expenses:
   Depreciation and amortization (notes 1 and 3)        2,122,710         2,237,202        2,236,369
   Other general and administrative expenses               81,744            65,374           71,050
                                                      -----------       -----------      -----------
                                                        2,204,454         2,302,576        2,307,419
                                                      -----------       -----------      -----------

         Earnings from operations                         902,054         1,479,046        2,601,491

Other income:
   Interest income                                         67,035            90,172          110,637
   Net gain (loss) on disposal of equipment               (18,685)           56,150           45,879
                                                      -----------       -----------      -----------
                                                           48,350           146,322          156,516
                                                      -----------       -----------      -----------

         Net earnings                                 $   950,404       $ 1,625,368      $ 2,758,007
                                                      ===========       ===========      ===========

Allocation of net earnings:

   General partner                                    $   145,279       $   248,082      $   260,353
   Limited partners                                       805,125         1,377,286        2,497,654
                                                      -----------       -----------      -----------

                                                      $   950,404       $ 1,625,368      $ 2,758,007
                                                      ===========       ===========      ===========

Limited partners' per unit share of net earnings      $       .40       $      0.69      $      1.25
                                                      ===========       ===========      ===========
</TABLE>


   The accompanying notes are an integral part of these financial statements.




                                       22
<PAGE>   23

                            IEA INCOME FUND XI, L.P.

                         STATEMENTS OF PARTNERS' CAPITAL

              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995


<TABLE>
<CAPTION>
                                     Limited
                                     Partners            General
                                     (note 9)            Partner             Total
                                   ------------       ------------       ------------
<S>                                <C>                <C>                <C>
Balances at December 31, 1994      $ 31,835,224       $    (50,994)      $ 31,784,230

Net earnings                          2,497,654            260,353          2,758,007

Cash distributions                   (4,449,579)          (234,190)        (4,683,769)
                                   ------------       ------------       ------------

Balances at December 31, 1995        29,883,299            (24,831)        29,858,468

Net earnings                          1,377,286            248,082          1,625,368

Cash distributions                   (4,241,264)          (223,227)        (4,464,491)
                                   ------------       ------------       ------------

Balances at December 31, 1996        27,019,321                 24         27,019,345

Net earnings                            805,125            145,279            950,404

Cash distributions                   (3,224,700)          (169,720)        (3,394,420)
                                   ------------       ------------       ------------

Balances at December 31, 1997      $ 24,599,746       $    (24,417)      $ 24,575,329
                                   ============       ============       ============
</TABLE>


   The accompanying notes are an integral part of these financial statements.





                                       23
<PAGE>   24

                            IEA INCOME FUND XI, L.P.

                            STATEMENTS OF CASH FLOWS

              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995


<TABLE>
<CAPTION>
                                                                 1997              1996             1995
                                                             -----------       -----------       -----------
<S>                                                          <C>               <C>               <C>
Cash flows from operating activities:
   Net earnings                                              $   950,404       $ 1,625,368       $ 2,758,007
   Adjustments to reconcile net earnings to net cash
      provided by (used in) operating activities:
         Depreciation and amortization                         2,122,710         2,237,202         2,236,369
         Net (gain) loss on disposal of equipment                 18,685           (56,150)          (45,879)
         Decrease in net lease receivables
           due from Leasing Company                              208,391           170,095           380,499
                                                             -----------       -----------       -----------

           Total adjustments                                   2,349,786         2,351,147         2,570,989
                                                             -----------       -----------       -----------

           Net cash provided by operating activities           3,300,190         3,976,515         5,328,996
                                                             -----------       -----------       -----------

Cash flows from (used in) investing activities:
   Proceeds from sale of container rental equipment              212,612           287,307           208,469
   Purchases of container rental equipment                      (313,588)         (207,960)          (51,975)
   Acquisition fees paid to general partner                      (15,679)          (10,398)         (347,994)
                                                             -----------       -----------       -----------

           Net cash from (used in) investing activities         (116,655)           68,949          (191,500)
                                                             -----------       -----------       -----------

Cash flows used in financing activities:
   Distributions to partners                                  (3,394,420)       (4,464,491)       (4,683,769)
                                                             -----------       -----------       -----------

           Net cash used in financing activities              (3,394,420)       (4,464,491)       (4,683,769)
                                                             -----------       -----------       -----------

Net increase (decrease) in cash and cash equivalents            (210,885)         (419,027)          453,727

Cash and cash equivalents at beginning of year                 1,605,557         2,024,584         1,570,857
                                                             -----------       -----------       -----------

Cash and cash equivalents at end of year                     $ 1,394,672       $ 1,605,557       $ 2,024,584
                                                             ===========       ===========       ===========
</TABLE>


   The accompanying notes are an integral part of these financial statements.





                                       24
<PAGE>   25

                            IEA INCOME FUND XI, L.P.

                          NOTES TO FINANCIAL STATEMENTS

                        DECEMBER 31, 1997, 1996 AND 1995



(1)  Summary of Significant Accounting Policies


     (a) Nature of Operations

         IEA 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. Cronos
         Capital Corp. ("CCC") is the general partner and, with its affiliate
         Cronos Containers Limited (the "Leasing Company"), manages the business
         of the Partnership. The Partnership shall continue until December 31,
         2010, unless sooner terminated 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. As of
         December 31, 1997, the Partnership operated 6,131 twenty-foot, 3,245
         forty-foot and 195 forty-foot high-cube marine dry cargo containers, as
         well as 100 twenty-foot and 50 forty-foot marine refrigerated cargo
         containers.

         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
         purchased.


     (b) Leasing Company and Leasing Agent Agreement

         The 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; 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.


         See footnote 12 for further discussion regarding CCC and the Leasing
         Company.





                                       25
<PAGE>   26

                            IEA INCOME FUND XI, L.P.

                          NOTES TO FINANCIAL STATEMENTS



     (c) Concentrations of Credit Risk

         The 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 2 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 collected 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 collectability
         of unremitted net lease receivables due from the Leasing Company.
         However, CCC and the Partnership are unable to predict the outcome of
         the events discussed in note 12 and their potential impact on the
         credit risk associated with these net lease receivables.


     (d) Basis of Accounting

         The 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.

         The preparation of financial statements in conformity with generally
         accepted accounting principles (GAAP) 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 reporting period. Actual results could
         differ from those estimates.


     (e) Allocation of Net Earnings and Partnership Distributions

         Net earnings have been allocated between general and limited partners
         in accordance with the Partnership Agreement.

         Actual cash distributions differ from the allocations of net earnings
         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.
         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 distribution 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.






                                       26
<PAGE>   27

                            IEA INCOME FUND XI, L.P.

                          NOTES TO FINANCIAL STATEMENTS



     (f) Acquisition Fees

         Pursuant to Article IV Section 4.2 of 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. The fees are payable in two or more installments
         commencing in the year of purchase.


     (g) Container Rental Equipment

         In March 1995, the Financial Accounting Standards Board issued SFAS No.
         121, "Accounting for the Impairment of Long-Lived Assets and for
         Long-Lived Assets to Be Disposed Of." The Statement requires that
         long-lived assets and certain identifiable intangibles to be held and
         used by an entity be reviewed for impairment whenever events or changes
         in circumstances indicate that the carrying amount of an asset may not
         be fully recoverable. The Partnership adopted SFAS No. 121 during 1996.
         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.
         Depreciation policies are also evaluated to determine whether
         subsequent events and circumstances warrant revised estimates of useful
         lives. There were no reductions to the carrying value of container
         rental equipment during 1997 and 1996.

         Container rental equipment is depreciated over a twelve-year life on a
         straight line basis to its salvage value, estimated to be 30%.


     (h) Amortization

         The Partnership's organization costs were amortized over 60 months on a
         straight-line basis.


     (i) Income Taxes

         The Partnership is not subject to income taxes, consequently no
         provision for income taxes has been made. The Partnership files an
         annual information tax return, prepared on the accrual basis of
         accounting.


     (j) Foreign Operations

         The Partnership's business is not divided between foreign or domestic
         operations. The Partnership's business is the leasing of containers
         worldwide to ocean-going steamship companies and does not fit the
         definition of reportable foreign operations within Financial Accounting
         Standards Board Statement No. 14 "Financial Reporting for Segments of a
         Business Enterprise." 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.





                                       27
<PAGE>   28

                            IEA INCOME FUND XI, L.P.

                          NOTES TO FINANCIAL STATEMENTS



     (k) New Pronouncements

         In June 1997, the Financial Accounting Standards Board ("FASB") issued
         Statement of Financial Accounting Standards ("SFAS") No. 130,
         "Reporting Comprehensive Income". SFAS No. 130 establishes standards
         for reporting and display of comprehensive income and its components in
         the financial statements. SFAS No. 130 is effective for fiscal years
         beginning after December 15, 1997. Reclassification of financial
         statements for earlier periods for comparative purposes is required.
         The Partnership is in the process of determining its preferred format.
         The adoption of SFAS No. 130 will have no impact on the Partnership's
         results of operations, financial position or cash flows.

         The FASB issued SFAS No. 131, "Disclosures about Segments of an
         Enterprise and Related Information", in June 1997. SFAS No. 131
         establishes standards for the way that public business enterprises
         report information about operating segments in annual financial
         statements and requires that those enterprises report selected
         information about operating segments in interim financial reports
         issued to shareholders. It also establishes standards for related
         disclosures about products and services, geographic areas, and major
         customers. SFAS No. 131 is effective for financial statements for
         fiscal years beginning after December 15, 1997. Financial statement
         disclosures for prior years are required to be restated. The
         Partnership is in the process of evaluating the disclosure
         requirements. The adoption of SFAS No. 131 will have no impact on the
         Partnership's financial position, results of operations or cash flows.


     (l) Financial Statement Presentation

         The 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.


(2)  Cash and Cash Equivalents

     Cash equivalents include highly liquid investments with a maturity of three
     months or less on their acquisition date. Cash equivalents are carried at
     cost which approximates fair value. The Partnership maintains its cash and
     cash equivalents in accounts which, 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. The Partnership
     places its cash equivalents in investment grade, short term debt
     instruments and limits the amount of credit exposure to any one commercial
     issuer.


(3)  Organization Costs

     The Partnership incurred $703,234 in offering and organizational costs
     during its offering period. Amortization of these costs was $25,624 for
     1997 and $140,647 for 1996 and 1995.





                                       28
<PAGE>   29

                            IEA INCOME FUND XI, L.P.

                          NOTES TO FINANCIAL STATEMENTS



(4)  Net Lease Receivables Due from Leasing Company

     Net 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 payable by the Leasing Company to the
     Partnership under operating leases to ocean carriers for the containers
     owned by the Partnership. Net lease receivables at December 31, 1997 and
     December 31, 1996 were as follows:

<TABLE>
<CAPTION>
                                                            December 31,    December 31,
                                                                1997            1996
                                                            ------------    ------------
         <S>                                                 <C>             <C>
         Lease receivables, net of  doubtful accounts
            of $83,363 in 1997 and $166,016 in 1996          $1,150,909      $1,375,901
         Less:
         Direct operating payables and accrued expenses         335,684         296,859
         Damage protection reserve (note 6)                     124,216         193,112
         Base management fees                                   112,209         122,447
         Reimbursed administrative expenses                      22,189          25,248
                                                             ----------      ----------
                                                             $  556,611      $  738,235
                                                             ==========      ==========
</TABLE>


(5)  Accrued Expenses

     Accrued expenses consist of $75,000 for the expected cost of retrofitting
     the Partnership's refrigerated containers with non-CFC refrigerants.


(6)  Damage Protection Plan

     The 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. A reserve has been
     established to provide for the estimated costs incurred by this service.
     This reserve 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.



(7)  Net Lease Revenue

     Net 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 billed 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, 1997, 1996
     and 1995, was as follows:

<TABLE>
<CAPTION>
                                                              1997            1996            1995
                                                           ----------      ----------      ----------
         <S>                                               <C>             <C>             <C>
         Rental revenue (note 11)                          $5,123,149      $6,026,486      $7,080,775
         Less:
          Rental equipment operating expenses               1,385,415       1,503,339       1,304,301
          Base management fees (note 8)                       354,579         411,235         482,563
          Reimbursed administrative expenses (note 8)         276,647         330,290         385,001
                                                           ----------      ----------      ----------
                                                           $3,106,508      $3,781,622      $4,908,910
                                                           ==========      ==========      ==========
</TABLE>





                                       29
<PAGE>   30

                            IEA INCOME FUND XI, L.P.

                          NOTES TO FINANCIAL STATEMENTS



(8)  Compensation to General Partner and its Affiliates

     Base management fees are equal to 7% of gross lease revenues attributable
     to operating leases pursuant to Section 4.3 of the Partnership Agreement.
     Reimbursed administrative expenses are equal to the costs expended by CCC
     and its affiliates for services necessary to the prudent operation of the
     Partnership pursuant to Section 4.4 of the Partnership Agreement. The
     following compensation was paid or will be paid by the Partnership to CCC
     or its affiliates:

<TABLE>
<CAPTION>
                                                   1997          1996          1995
                                                 --------      --------      --------
         <S>                                     <C>           <C>           <C>
         Base management fees                    $354,579      $411,235      $482,563
         Reimbursed administrative expenses       276,647       330,290       385,001
         Acquisition fees                          15,679         5,298         7,699
                                                 --------      --------      --------
                                                 $646,905      $746,823      $875,263
                                                 ========      ========      ========
</TABLE>

(9)  Limited Partners' Capital

     The limited partners' per unit share of capital at December 31, 1997, 1996
     and 1995 was $12 , $14 and $15, respectively. This is calculated by
     dividing the limited partners' capital at the end of the year by 1,999,812,
     the total number of limited partnership units.


(10) Income Taxes

     The reconciliation of net earnings as reported in the statement of
     operations and as would be reported for federal tax purposes for the years
     ended December 31, 1997, 1996 and 1995 are as follows:

<TABLE>
<CAPTION>
                                                                         1997              1996              1995
                                                                     -----------       -----------       -----------
     <S>                                                             <C>               <C>               <C>
     Net earnings per statement of operations                        $   950,404       $ 1,625,368       $ 2,758,007
     Depreciation for income tax purposes in excess of
        depreciation for financial statement purposes                 (1,598,396)       (3,871,495)
                                                                                                          (3,890,779)
     Gain on disposition of assets for tax purposes in excess
        of gain on disposition for financial statement purposes          233,494            36,659           216,447
     Amortization expense for tax purposes less than
        amortization for financial statement purposes                     25,624           140,646           140,646
     Bad debt expense for tax purposes (in excess of) less than
         bad debt expense for financial statement purposes               (82,655)          (26,439)           11,193
                                                                     -----------       -----------       -----------
     Net loss for federal tax purposes                               $  (471,529)      $(2,095,261)      $  (764,486)
                                                                     ===========       ===========       ===========
</TABLE>

     At December 31, 1997, the tax basis of total partners' capital was
     $7,297,732.

(11) Major Lessees

     No single lessee contributed more than 10% of the rental revenue earned
     during 1997, 1996 and 1995. 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 operating lease
     agreements generally require all payments to be made in United States
     currency. The Partnership's operations are subject to the fluctuations of
     worldwide economic and political conditions that may affect the pattern and
     levels of world trade.





                                       30
<PAGE>   31

                            IEA INCOME FUND XI, L.P.

                          NOTES TO FINANCIAL STATEMENTS


(12) The Cronos Group

     As reported in the Partnership's Current Report on Form 8-K and Amendment
     No. 1 to Current Report on Form 8-K, filed with the Commission on February
     7, 1997 and February 26, 1997, respectively, Arthur Andersen, London,
     England, resigned as auditors of The Cronos Group (the "Parent Company") on
     February 3, 1997.

     The Parent Company is the indirect corporate parent of CCC, the General
     Partner of the Partnership. In its letter of resignation to The Parent
     Company, Arthur Andersen stated that it resigned as auditors of The Parent
     Company and all other entities affiliated with The Parent Company. While
     its letter of resignation was not addressed to CCC, Arthur Andersen
     confirmed to CCC that its resignation as auditors of the entities referred
     to in its letter of resignation included its resignation as auditors of CCC
     and the Partnership.

     CCC does not believe, based upon the information currently available to it,
     that Arthur Andersen's resignation was triggered by any concern over the
     accounting policies and procedures followed by the Partnership.

     Arthur Andersen's report on the financial statements of CCC and the
     Partnership, for years preceding 1996, has not contained an adverse opinion
     or a disclaimer of opinion, nor was any such report qualified or modified
     as to uncertainty, audit scope, or accounting principles.

     During the Partnership's 1995 fiscal year and the subsequent interim period
     preceding Arthur Andersen's resignation, there have been no disagreements
     between CCC or the Partnership and Arthur Andersen on any matter of
     accounting principles or practices, financial statement disclosure, or
     auditing scope or procedure.

     The Partnership retained a new auditor, Moore Stephens, P.C., on April 10,
     1997, as reported in its current report on Form 8-K, filed April 14, 1997.

     In connection with its resignation, Arthur Andersen also prepared a report
     pursuant to the provisions of Section 10A(b)(2) of the Securities Exchange
     Act of 1934, as amended, for filing by the Parent Company with the
     Securities and Exchange Commission (the "SEC"). Following the report of
     Arthur Andersen, the SEC, on February 10, 1997, commenced a private
     investigation of the Parent Company for the purpose of investigating the
     matters discussed in such report and related matters. The Partnership does
     not believe that the focus of the SEC's investigation is upon the
     Partnership or CCC. CCC is unable to predict the outcome of the SEC's
     ongoing private investigation of the Parent Company.

     In 1993, the Parent Company negotiated a credit facility (hereinafter, the
     "Credit Facility") with several banks for the use of the Parent Company and
     its affiliates, including CCC. At December 31, 1996, approximately
     $73,500,000 in principal indebtedness was outstanding under the Credit
     Facility. As a party to the Credit Facility, CCC is jointly and severally
     liable for the repayment of all principal and interest owed under the
     Credit Facility. The obligations of CCC, and the five other subsidiaries of
     the Parent Company that are borrowers under the Credit Facility, are
     guaranteed by the Parent Company.

     Following negotiations in 1997 with the banks providing the Credit
     Facility, an Amended and Restated Credit Agreement was executed in June
     1997, subject to various actions being taken by the Parent Company and its
     subsidiaries, primarily relating to the provision of additional collateral.
     This Agreement was further amended in July 1997 and the provisions of the
     Agreement and its Amendment converted the facility to a term loan, payable
     in installments, with a final maturity date of May 31, 1998. At December
     31, 1997, approximately $37,600,000 was outstanding under the Credit
     Facility.





                                       31
<PAGE>   32

                            IEA INCOME FUND XI, L.P.

                          NOTES TO FINANCIAL STATEMENTS


(12) The Cronos Group - (Continued)

     The terms of the Agreement and its Amendment also provide for additional
     security over shares in the subsidiary of the Parent Company that owns the
     head office of the Parent Company's container leasing operations. They also
     provided for the loans to Stefan M. Palatin, the Chairman of the Parent
     Company (the "Chairman") and its Chief Executive Officer (and a Director of
     CCC), of approximately $5,990,000 and $3,700,000 (totaling approximately
     $9,690,000) to be restructured as obligations of the Chairman to another
     subsidiary of the Parent Company. These obligations have been collaterally
     assigned to the lending banks, together with the pledge of 1,000,000 shares
     of the Parent Company's Common Stock owned by the Chairman. These 1,000,000
     shares represent 11% of the issued and outstanding shares of Common Stock
     of the Parent Company as of December 31, 1997. The shares of the Parent
     Company are traded on NASDAQ (CRNSF). (The Chairman, including the
     1,000,000 shares pledged to the banks, owns approximately 55% of the issued
     and outstanding shares of Common Stock of the Parent Company as of
     December 31, 1997). Additionally, CCC granted the lending banks a security
     interest in the fees to which it is entitled for the services it renders to
     the container leasing partnerships of which it acts as general partner,
     including its fee income payable by the Partnership.

     The lending banks have indicated that they will not renew the Credit
     Facility, and the Parent Company has yet to secure a source for repayment
     of the balance due under the Credit Facility at May 31, 1998. CCC is
     currently in discussions with the management of the Parent Company to
     provide assurance that the management of the container leasing partnerships
     managed by CCC, including the Partnership, is not disrupted pending a
     refinancing or reorganization of the indebtedness of the Parent Company and
     its affiliates.

     The Partnership is not a borrower under the Credit Facility, and neither
     the containers nor the other assets of the Partnership have been pledged as
     collateral under the Credit Facility.

     The Partnership is unable to determine the impact, if any, these concerns
     may have on the future operating results and financial condition of the
     Partnership or CCC and the Leasing Company's ability to manage the
     Partnership's fleet in subsequent periods.


















                                       32

<PAGE>   33

                                                                      Schedule 1



                            IEA INCOME FUND XI, L.P.

                 SCHEDULE OF REIMBURSED ADMINISTRATIVE EXPENSES
                       PURSUANT TO ARTICLE IV SECTION 4.5
                          OF THE PARTNERSHIP AGREEMENT

              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995


<TABLE>
<CAPTION>
                                                   1997          1996          1995
                                                 --------      --------      --------
<S>                                              <C>           <C>           <C>
Salaries                                         $127,598      $157,490      $195,348
Other payroll related expenses                     23,518        27,308        30,692
General and administrative expenses               125,531       145,491       158,961
                                                 --------      --------      --------

   Total reimbursed administrative expenses      $276,647      $330,289      $385,001
                                                 ========      ========      ========
</TABLE>



                  See report of independent public accountants














                                       33
<PAGE>   34



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

   The Registrant's discussion regarding the resignation of its certifying
accountant is included in the Registrant's Report on Form 8-K, dated February 3,
1997 and filed February 7, 1997 and Amendment No. 1 to the Registrant's Report
on Form 8-K, dated February 3, 1997 and filed February 26, 1997, incorporated
herein by reference.

   The Registrant retained a new auditor, Moore Stephens, P.C., on April 10,
1997, as reported in its Current Report on Form 8-K, filed April 14, 1997.






















                                       34

<PAGE>   35

                                    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 March 18, 1998, are as
follows:

<TABLE>
<CAPTION>
                        Name                                     Office
                ----------------------      -------------------------------------------------
                <S>                         <C>
                Dennis J. Tietz             President, Chief Executive Officer, and Director

                Elinor Wexler               Vice President/Administration and Secretary,
                                            and Director

                John P. McDonald            Vice President/Sales, and Director

                Stefan M. Palatin           Director

                Peter J. Younger            Director
</TABLE>

   DENNIS J. TIETZ Mr. Tietz, 45, as President and Chief Executive Officer, is
responsible for the general management of CCC. From 1986 until August 1992, Mr.
Tietz was responsible for the organization, marketing and after-market support
of CCC's investment programs. Mr. Tietz is also President and a director of
Cronos Securities Corp. 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.

   ELINOR A. WEXLER Ms. Wexler, 49, was elected Vice President - Administration
and Secretary of CCC in August 1992. Ms. Wexler has been employed by the General
Partner 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 P. MCDONALD Mr. McDonald, 36, was elected Vice President - National
Sales Manager of CCC in August 1992, with responsibility for marketing CCC's
investment programs. Since 1988, Mr. McDonald had been Regional Marketing
Manager for the Southwestern U.S. From 1983 to 1988, Mr. McDonald held a number
of container leasing positions with CCC, the most recent of which was as Area
Manager for Belgium and the Netherlands, based in Antwerp.

   Mr. McDonald holds a B.S. degree in Business Administration from Bryant
College, Rhode Island. Mr. McDonald is also a Vice President of Cronos
Securities Corp.

   STEFAN M. PALATIN Mr. Palatin, 44, joined the Board of Directors of CCC in
January 1993. Mr. Palatin is Chairman and CEO of The Cronos Group, and was a
founder of LPI in 1983. From 1980 to 1991, Mr. Palatin was an executive director
of the Contrin Group, which has provided financing to the container leasing
industry, as well as other business ventures, and has sponsored limited
partnerships organized in Austria. From 1977 to 1980, Mr. Palatin was a
consultant to a number of companies in Austria, including Contrin. From 1973 to
1977, Mr. Palatin was a sales manager for Generali AG, the largest insurance
group in Austria.

   Mr. Palatin, who is based in Austria, holds a Doctorate in Business
Administration from the University of Economics and World Trade in Vienna. Mr.
Palatin is also a director of The Cronos Group.





                                       35
<PAGE>   36

   PETER J. YOUNGER Mr. Younger, 41, joined the Board of Directors of CCC in
June 1997. See key management personnel of the Leasing Company for further
information.

   JOHN KALLAS Mr. Kallas, 35, was elected Vice President/Treasurer and Chief
Financial Officer of CCC in December 1993 and was directly responsible for CCC's
accounting operations and reporting activities. Mr. Kallas resigned from Cronos
Capital Corp. on March 18, 1998.


   The key management personnel of the Leasing Company at March 18, 1998, were
as follows:


<TABLE>
<CAPTION>
                        Name                                   Title
                ----------------------      --------------------------------------
                <S>                         <C>
                Steve Brocato               President

                Peter J. Younger            Vice President/Chief Financial Officer

                John M. Foy                 Vice President/Americas

                Nico Sciacovelli            Vice President/Europe, Middle East and
                                            Africa

                Harris H. T. Ho             Vice President/Asia Pacific

                David Heather               Vice President/Technical Services

                John C. Kirby               Vice President/Operations

                J. Gordon Steel             Vice President/Tank Container Division
</TABLE>

   STEVE BROCATO Mr. Brocato, 45, was elected President of the Leasing Company's
container division in June 1997, and is based in the United Kingdom. Mr. Brocato
has held various positions since joining Cronos including, Vice President -
Corporate Affairs and Director of Marketing - Refrigerated Containers for Cronos
in North and South America. Prior to joining Cronos, Mr. Brocato was a Vice
President for ICCU Containers from 1983 to 1985 and was responsible for dry
cargo container marketing and operations for the Americas. From 1981 to 1983, he
was Regional Manager for Trans Ocean Leasing Ltd.

   PETER J. YOUNGER Mr. Younger, 41, was elected Chief Financial Officer of The
Cronos Group in March, 1997, and is based in the United Kingdom. Mr. Younger was
appointed Vice President and Controller of Cronos in 1991. He joined IEA in 1987
and served as Director of Accounting and the Vice President and Controller,
based 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.

   JOHN M. FOY Mr. Foy, 52, 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 SCIACOVELLI Mr. Sciacovelli, 48, was elected 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.

   HARRIS H. T. HO Mr. Ho, 39, was elected Vice President - Asia Pacific in June
1997. Mr. Ho is directly responsible for the Leasing Company's lease marketing
and operations in Asia, Australia and the Indian sub-continent and is based in
Hong Kong. Since joining Cronos in 1990, Mr. Ho served as Area Director, Hong
Kong and China. Prior to joining Cronos, Mr. Ho was a Manager at Sea Containers
Pacific Ltd and Sea Containers Hong Kong Limited from 1981 to 1990, responsible
for container marketing within Asia. From 1978 to 1981, Mr. Ho was Senior
Equipment Controller for Hong Kong Container Line. Mr. Ho holds a Diploma of
Management Studies in Marketing from The Hong Kong Polytechnic and The Hong Kong
Management Association.





                                       36
<PAGE>   37

   DAVID HEATHER Mr. Heather, 50, is responsible for all technical and
engineering activities of the fleet managed by the Leasing Company. Mr. Heather
was Technical Director for LPI, based in the United Kingdom, from 1986 to 1991.
From 1980 to 1986, Mr. Heather was employed by ABC Containerline NV as Technical
Manager with technical responsibility for the shipping line's fleet of dry
cargo, refrigerated and other specialized container equipment. From 1974 to
1980, Mr. Heather was Technical Supervisor for ACT Services Ltd., a shipping
line, with responsibility for technical activities related to refrigerated
containers. Mr. Heather holds a Marine Engineering Certificate from Riversdale
Marine Technical College in England.

   JOHN C. KIRBY Mr. Kirby, 44, 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 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.

   J. GORDON STEEL Mr. Steel, 65, is directly responsible for the overall lease
marketing activity for the Leasing Company's Tank Container Division. From 1990
to 1992, Mr. Steel held the position of Director/General Manager for Tiphook
Container's Tank Division. From 1977 to 1990, Mr. Steel held various managerial
positions, involving manufacturing and transportation of hazardous materials,
with Laporte Industries and ICI, major chemical distribution companies. Mr.
Steel is a qualified Chemical Engineer and attended the Associate Royal
Technical College in Scotland.























                                       37

<PAGE>   38

Item 11. Executive Compensation

   Beginning with the first quarter of 1991, the Registrant commenced monthly
distributions to its partners (general and limited) from distributable cash from
operations, allocated 95% to the limited partners and 5% to the general partner.
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 Registrant 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 Section 4.4 of 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, 1997.

<TABLE>
<CAPTION>
                                                                                         Cash Fees and
             Name                           Description                                  Distributions
             ----                           -----------                                  -------------
       <S>                       <C>                                                       <C>
       1) CCC                    Acquisition fee - equal to 5% of the purchase             $  15,679
                                   price of containers acquired by the Registrant
                                   pursuant to Section 4.2 of the Limited
                                   Partnership Agreement

       2) CCL                    Base management fees - equal to 7% of gross               $ 364,818
                                   lease revenues attributable to operating
                                   leases pursuant to Section 4.3 of the
                                   Limited Partnership Agreement

       3) CCC                    Reimbursed administrative expenses - equal to             $  25,506
                                   the costs expended by CCC and its affiliates
          CCL                      for services necessary to the prudent operation         $ 254,200
                                   of the Registrant pursuant to Section 4.4 of the
                                   Limited Partnership Agreement

       4) CCC                    Interest in Fund - 5% of distributions of                 $ 169,720
                                   distributable cash for any quarter pursuant
                                   to Section 6.1 of the Limited Partnership
                                   Agreement
</TABLE>




                                       38

<PAGE>   39

Item 12. Security Ownership of Certain Beneficial Owners and Management

   (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 1997 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.






                                       39
<PAGE>   40

                                     PART IV


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

   (a)1. Financial Statements


   The following financial statements of the Registrant are included in Part II,
Item 8:

<TABLE>
<CAPTION>
                                                                                    Page
                                                                                    ----
         <S>                                                                       <C>
         Reports of Independent Public Accountants............................     19, 20

         Balance sheets - December 31, 1997 and 1996..........................      21

         Statements of operations - for the years ended
            December 31, 1997, 1996 and 1995..................................      22

         Statements of partners' capital - for the years ended
            December 31, 1997, 1996 and 1995..................................      23

         Statements of cash flows - for the years ended
            December 31, 1997, 1996 and 1995..................................      24

         Notes to financial statements........................................      25

         Schedule of Reimbursed Administrative Expenses.......................      33
</TABLE>



   All other schedules are omitted as the information is not required or the
information is included in the financial statements or notes thereto.















                                       40
<PAGE>   41




(a)3.  Exhibits

<TABLE>
<CAPTION>
   Exhibit
     No.                            Description                              Method of Filing
   -------                          -----------                              ----------------
     <S>     <C>                                                             <C>
     3(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,        Filed with this document
             1992 between the  Registrant,  CCC (formerly  Intermodal
             Equipment Associates),  Cronos Containers N.V. (formerly
             LPI  Leasing  Partners  International  N.V.) and  Cronos
             Containers Limited

     27      Financial Data Schedule                                         Filed with this document
</TABLE>



(b)        Reports on Form 8-K

           The Registrant filed a Report on Form 8-K, February 7, 1997 and
           Amendment No. 1 to Report on Form 8-K, February 26, 1997, reporting
           the resignation of the Registrant's certifying accountant.

           The Registrant filed a Report on Form 8-K, April 14, 1997, reporting
           the appointment of the Registrant's successor certifying accountant.










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

*      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)






                                       41
<PAGE>   42


                                   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 Partner


                                        By   /s/  Dennis J. Tietz
                                           -------------------------------------
                                             Dennis J. Tietz
                                             President and Director of
                                             Cronos Capital Corp. ("CCC")
                                             Principal Executive Officer of CCC

Date:  March 31, 1998


   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 general partner of the Registrant, in the capacities and on
the dates indicated:


<TABLE>
<CAPTION>
          Signature                            Title                            Date
          ---------                            -----                            ----
<S>                                  <C>                                 <C>


   /s/  Dennis J. Tietz              President and Director of
-----------------------------           Cronos Capital Corp.             March 31, 1998
Dennis J. Tietz                          ("CCC") (Principal
                                              Executive
                                           Officer of CCC)


   /s/  John McDonald                 National Sales Manager
-----------------------------            and Director of
John McDonald                           Cronos Capital Corp.               March 31, 1998



   /s/  Peter Younger                       Director of
-----------------------------           Cronos Capital Corp.               March 31, 1998
Peter Younger
</TABLE>



                            SUPPLEMENTAL INFORMATION

   The Registrant's annual report will be furnished to its limited partners on
or about April 30, 1998. 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.







                                       42
<PAGE>   43

                                  EXHIBIT INDEX



<TABLE>
<CAPTION>
   Exhibit
     No.                            Description                              Method of Filing
   -------                          -----------                              ----------------
     <S>     <C>                                                             <C>
     3(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,        Filed with this document
             1992 between the  Registrant,  CCC (formerly  Intermodal
             Equipment Associates),  Cronos Containers N.V. (formerly
             LPI  Leasing  Partners  International  N.V.) and  Cronos
             Containers Limited

     27      Financial Data Schedule                                         Filed with this document
</TABLE>









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

1     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)

2     Incorporated by reference to Exhibit 3.2 to the Registration Statement on
      Form S-1 (No. 33-36701)

3     Incorporated by reference to Exhibit 10.2 to the Registration Statement on
      Form S-1 (No. 33-36701)

4     Incorporated by reference to Exhibit 10(b) to the Report on Form 10-K for
      the fiscal year ended December 31, 1995.