<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 $ 250.00

                   For the fiscal year ended December 31, 1996

                                       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 0-16834

                              IEA INCOME FUND VII,
                        A California Limited Partnership
             (Exact name of registrant as specified in its charter)

              California                               94-2966976
    (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:

                                                 Name of each exchange on
           Title of each class                       which registered
             Not Applicable
           ------------------                    ------------------------

           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.


<TABLE>
<CAPTION>
                                                         Documents incorporated by Reference
<S>        <C>                            <C>
PART I
Item 1 -   Business                       Prospectus of IEA Income Fund VII, A California Limited Partnership dated December 3,
                                          1986 included as part of Registration Statement on Form S-1 (No. 33-9351)

                                          Certificate of Limited Partnership of IEA Income Fund VII, A California Limited
                                          Partnership filed as Exhibit 3.4 to the Registration Statement on Form S-1 (No. 33-9351)
PART II
Item 9 -   Changes in and Dis-            Current Report on Form 8-K of IEA Income Fund VII, A California Limited Partnership
           agreements with                filed February 7, 1997 and April 14, 1997, respectively, and Amendment No. 1 to
           Accountants on                 Current Report on Form 8-K filed February 26, 1997.
           Accounting and
           Financial Disclosure
</TABLE>





<PAGE>   2


                                     PART I


Item 1.                 Business

    (a) General Development of Business

    The Registrant is a California limited partnership formed on June 27, 1985
to engage in the business of leasing marine dry cargo containers to unaffiliated
third-party lessees. The Registrant was initially capitalized with $100, and
commenced offering its limited partnership interests to the public during the
week of December 3, 1986, pursuant to its Registration Statement on Form S-1
(File No. 33-9351). The offering terminated on August 31, 1987.

    The Registrant raised $4,657,100 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                     $4,657,100           100.0%

         Public Offering Expenses:
              Underwriting Commissions                   $  465,700            10.0%
              Offering and Organization Expenses         $  232,850             5.0%
                                                         ----------           -----

              Total Public Offering Expenses             $  698,550            15.0%
                                                         ----------           -----

         Net Proceeds                                    $3,958,550            85.0%

         Acquisition Fees                                $   38,705             0.8%

         Working Capital Reserve                         $   49,345             1.1%
                                                         ----------           -----

         Gross Proceeds Invested in Equipment            $3,870,500            83.1%
                                                         ==========           =====
</TABLE>









                                        2

<PAGE>   3


    The managing general partner of the Registrant is Cronos Capital Corp.
("CCC"), a wholly-owned subsidiary of Cronos Holdings/Investments (U.S.), Inc.,
a Delaware corporation. Cronos Holdings/Investments (U.S.), Inc. is 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 other third-party container owners, including all
other programs organized by CCC. The associate general partners are: Dennis J.
Tietz, President and Director of CCC; John M. Foy; Paul E. Jeremiassen; Paul W.
Botterill; James E. Hoelter; John A.
Maccarone; and Robert J. Corbolotti.

    Pursuant to the Limited Partnership Agreement of the Registrant, all
authority to administer the business of the Registrant is vested in CCC. CCC has
entered into a Leasing Agent Agreement, whereby the Leasing Company has assumed
the responsibility for the container leasing activities of CCC's managed
programs.

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

    (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.

    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. Dry cargo containers
constitute approximately 87% of the worldwide container fleet. Refrigerated and
tank containers constitute approximately 6% of the worldwide container fleet,
with open-tops and other specialized containers constituting the remainder.

    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 world container fleet has grown from an estimated 270
thousand TEU in 1969 to 10 million TEU in 1996, and according to industry data,
growth of containerized shipping since 1987 has generally averaged two to three
times that of average GDP growth in industrialized countries.

    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.







                                       3


<PAGE>   4


    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. Since 1995, the container
industry's fleet grew from a size of approximately nine million TEU to
approximately ten million TEU, equivalent to a growth of almost 11%,
representing one of the industry's largest fleet expansions to date. The primary
factor driving demand during 1995 and 1996 has been the steady introduction of
new containership tonnage, which grew at a rate comparable to the container
industry's fleet. However, the growth in the container industry's fleet, as well
as containership tonnage, outpaced increases in worldwide containerized trade,
estimated to be approximately 8%-10% during 1995 and 6-7% during 1996. As a
result, a general surplus capacity arose, in both containership tonnage and
containers, contributing to the current recession that has impacted the
container leasing industry. Additionally, during 1995 and 1996, container prices
steadily declined to levels not seen in a decade, resulting in ocean carriers
purchasing boxes for their own account, further reducing the demand for leased
containers and since mid-1995, contributing to a decline in container
utilization and per-diem rental rates throughout the container leasing industry.

    The Registrant believes that growth of containerization will continue in
subsequent years for the following reasons:

    -   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;

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

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

    -   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

    -   Recent 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, and, in 1996, had an approximately 46% share of the
total world container fleet with ocean carriers holding most of the remainder.
To an ocean carrier, the primary benefits of leasing rather than owning
containers are the following:

    -   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.






                                       4

<PAGE>   5


    -   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.

    -   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.

    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.

    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.

    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 rental
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 the
Registrant with 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.





                                       5

<PAGE>   6


    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. As the Registrant's fleet ages, a larger
proportion of its revenue will be derived from selling its containers.

    Of the 907 twenty-foot and 961 forty-foot dry cargo containers owned by the
Registrant as of December 31, 1996, 666 twenty-foot (or 73% thereof) and 704
forty-foot dry cargo containers (or 73% 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                                             62
             Master Leases                                          604
         40-Foot Dry Cargo Containers:
             Term Leases                                            114
             Master Leases                                          590
</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 CCC,
certain expense reimbursements to CCC, 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 16 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 40
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.







                                       6


<PAGE>   7


    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.

    (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 inflation and fluctuations in general business
conditions and fluctuations in supply and demand for equipment resulting from,
among other things, obsolescence, changes in the methods or economics of a
particular mode of transportation or changes in governmental regulations or
safety standards.

    (c)(1)(vi) The Registrant established an initial working capital reserve of
approximately $49,000 (approximately 1.1% 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 fiscal year ended December 31, 1996, 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.





                                       7

<PAGE>   8

    The Leasing Company, on behalf of the Registrant, competes with various
container leasing companies in the markets in which it conducts business,
including Genstar Container Corp., Transamerica Leasing, Triton Container
International Ltd., Textainer Corp. and others. In a series of recent
consolidations, one of the major leasing companies, as well as some smaller
ones, have been acquired by competitors. It is estimated that at the end of
1996, the ten largest leasing companies (including the Leasing Company)
represented 93% of the global leased fleet. Genstar Container Corp. and
Transamerica Leasing, the two largest container leasing companies, had
approximately 47% of the worldwide leased container fleet at the end of 1996.
Some of the Leasing Company's competitors have greater financial resources than
the Leasing Company and may be more capable of offering lower per-diem rates on
a larger fleet. In the Leasing Company's experience, however, ocean carriers
will generally lease containers from more than one leasing company in order to
minimize dependence on a single supplier. 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)  Inapplicable.

    (c)(1)(xiii) The Registrant, as a limited partnership, is managed by CCC,
the managing general partner, and accordingly does not itself have any
employees. CCC has 27 employees, consisting of 4 officers, 5 other managers and
18 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 1996, 1995 and 1994. 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 Registrant's leases generally require all payments to be made in
United States currency.


    Item 2. Properties

    As of December 31, 1996, the Registrant owned 907 twenty-foot and 961
forty-foot marine dry cargo containers suitable for transporting cargo by rail,
sea or highway. The Registrant's containers were originally acquired from four
container manufacturers located in Korea and India. The average age and
manufacturers' invoice cost of the containers in the Registrant's fleet as of
December 31, 1996 was as follows:

<TABLE>
<CAPTION>
                                                                Estimated
                                             Useful Life        Average Age     Average Cost
                                             -----------        -----------     ------------
         <S>                                 <C>                 <C>             <C>   
         20-Foot Dry Cargo Containers         10-15 years         9 years          $2,214
         40-Foot Dry Cargo Containers         10-15 years         10 years         $2,764
</TABLE>

    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 1996, utilization averaged 78%.

    During 1996, the Registrant disposed of 40 twenty-foot and 68 forty-foot
marine dry cargo containers at an average book gain of $582 per container.








                                       8

<PAGE>   9

Item 3. Legal Proceedings

    As reported by the Registrant in its Current Report on Form 8-K, filed with
the SEC on February 7, 1997, as amended February 26, 1997, on February 3, 1997,
Arthur Andersen, London, England, resigned as auditors of the Holding Company
(The Cronos Group). In its letter of resignation, Arthur Andersen states that it
was unable to obtain adequate information in response to inquiries it had made
in connection with its audit of the Holding Company for the year ended December
31, 1996. 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 Holding Company with the
SEC.

    Following the report of Arthur Andersen, the SEC, on February 10, 1997,
commenced a private investigation of the Holding Company for the purpose of
investigating the matters discussed in such report and related matters. CCC does
not believe that the focus of the SEC's investigation is upon the Registrant or
CCC. CCC is unable at this time to predict the outcome of the SEC's private
investigation of the Holding Company.


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

    Inapplicable.





                                       9

<PAGE>   10

                                     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

<TABLE>
<CAPTION>
                                                             Number of Unit Holders
    (b)(1)    Title of Class                                 as of December  31, 1996
              --------------                                 ------------------------
               <S>                                           <C>
              Units of limited partnership
                       interests                                          545
</TABLE>


    (c) Dividends

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




                                       10


<PAGE>   11

Item 6. Selected Financial Data

<TABLE>
<CAPTION>
                                                                      Year Ended December 31,
                                              ----------------------------------------------------------------------
                                                  1996          1995           1994           1993           1992
                                              ----------     ----------     ----------     ----------     ----------
         <S>                                  <C>            <C>            <C>            <C>            <C>       
         Net lease revenue                    $  619,504     $  864,468     $  870,781     $1,059,690     $1,273,280
         Net earnings                         $  408,537     $  611,498     $  618,243     $  772,199     $  971,131
         Net earnings per unit of
             limited partnership interest     $    34.05     $    55.42     $    55.49     $    71.48     $    94.98

         Cash distributions per unit of
             limited partnership interest     $    84.06     $    88.75     $    97.50     $   121.25     $   148.75
         At year-end:
         Total assets                         $2,709,813     $3,171,248     $3,478,236     $3,869,643     $4,347,305
         Long-term obligations                $        -     $        -     $        -     $        -     $    8,401
         Partners' capital                    $2,709,813     $3,171,248     $3,478,236     $3,861,242     $4,327,779
</TABLE>


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

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

Liquidity and Capital Resources

    At December 31, 1996, the Registrant had $331,167 in cash and cash
equivalents, a decrease of $52,538 and $36,022 from December 31, 1995 and 1994.
Contributing to the decline in cash was the Registrant's declining fleet size,
as well as a decline in operating results.

    The Registrant's primary objective is to generate cash from operations for
distribution to its limited partners. Aside from the initial working capital
reserve retained from gross subscription proceeds (equal to approximately 1.1%
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. Having just completed the 10th
year of operations, the Registrant will begin to focus its attention on the
disposition of its fleet in accordance with another of its original investment
objectives, realizing the residual value of its containers after the expiration
of their economic useful lives, estimated to be 10 to 15 years. During this
period, cash proceeds from equipment disposals, in addition to cash from
operations, will provide the cash flow for distributions to limited partners.
The decision to dispose of containers is influenced by various factors including
age, condition, suitability for continued leasing, as well as the geographical
location when disposed.

    Cash distributions from operations were originally allocated 5% to the
general partners and 95% to the limited partners. Distributions of sales
proceeds are allocated 100% to the limited partners. In 1991, pursuant to
Section 6.1(c) of the Partnership Agreement, the allocations of distributions
from operations among the general partners and limited partners were adjusted to
9% and 91%, respectively. The allocation of distributions of cash from sales
proceeds among the general partners and limited partners remained unchanged.
This sharing arrangement remained in place until the second quarter of 1994, at
which time the limited partners received from the Registrant aggregate
distributions in an amount equal to their adjusted capital contributions plus an
8% cumulative, annual return on their adjusted capital contributions.
Thereafter, all distributions have been allocated 19% to the general partners
and 81% to the limited partners, pursuant to Sections 6.1(b) and (c) of the
Partnership Agreement. Cash distributions from operations to the general
partners in excess of 9% of distributable cash are considered to be an incentive
fee and is compensation to the general partners.







                                       11

<PAGE>   12

    From inception through February 28, 1997, the Registrant has distributed
$8,276,519 in cash from operations and $401,674 in cash from sales proceeds to
its limited partners. This represents total distributions of $8,678,193, or 186%
of the Registrant's original limited partners' investment. Distributions to the
partners are determined and paid quarterly, based primarily on each quarter's
cash flow from operations and cash generated from container sales. Quarterly
distributions are also affected by periodic increases or decreases to working
capital reserves, as deemed appropriate by the managing general partner. The
Registrant's disposal activity should produce lower operating results and
consequently, lower distributions from operations to its partners in subsequent
periods. Sales proceeds distributed to its partners may increase in subsequent
periods, reflecting the level of container disposals.

    Indicative of the cyclical nature of the container leasing business, the
container lease market has followed a general downward trend since mid-1995.
This downturn can be attributed to a fall in growth of containerized export
trade from key markets in Asia and the impact resulting from a build-up of
surplus containers at former high-demand locations. Leasing companies purchased
record amounts of containers in 1994 and 1995, while purchasing a smaller number
than ocean carriers and transport companies in 1996. During 1996, ocean carriers
and other transport companies moved away from leasing containers outright, as
declining container prices, favorable interest rates and the abundance of
available capital resulted in ocean carriers and transport companies purchasing
a larger share of equipment for their own account. This situation has
characterized the latest industry downturn. Although these leasing market
conditions are expected to continue throughout 1997, the Registrant's liquidity
and capital resources will also be impacted by the disposition of its fleet.


Results of Operations

1996 - 1995

    A fall in growth of containerized export trade from key Asian markets
contributed to the container leasing market's downward trend during 1996. Also
contributing to the sluggish container leasing market conditions were declining
container prices, favorable interest rates and an abundance of available capital
which resulted in ocean carriers and transport companies purchasing a larger
share of containers for their own account, reducing the demand for leased
containers. Once the demand for leased containers began to fall, per-diem rental
rates were also adversely affected. In order to counter these market conditions,
the Leasing Company implemented various marketing strategies during 1996,
including but not limited to, offering incentives to shipping companies,
repositioning containers to high demand locations and focusing towards term
leases and other leasing opportunities, including the leasing of containers for
local storage.

    As the leasing industry's equipment moved into surplus, ocean carriers and
transport companies became increasingly 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 and is directly related
to the size, utilization and per-diem rental rates of the Registrant's fleet.
Accordingly, net lease revenue declined by approximately 28%, when compared to
1995. The Registrant expects net lease revenue to decline in subsequent periods
as it focuses on the disposal of its fleet and container leasing market
conditions continue.




                                       12

<PAGE>   13


    During 1996, utilization averaged 78%, as compared to 87% in the prior year,
while the Registrant's average fleet size (as measured in twenty-foot equivalent
units ("TEU")) declined from 3,042 TEU in 1995, to 2,916 TEU in 1996. These
declines, combined with a 4% reduction in average per-diem rental rates,
contributed to a 20% decline in gross rental revenue. Rental equipment operating
expenses, when measured as a percentage of rental revenue, increased due to
higher storage and handling costs associated with lower equipment utilization
and increased repositioning costs.

    At December 31, 1996, 89% of the original equipment remained in the
Registrant's fleet, and was comprised of the following:

<TABLE>
<CAPTION>
                                                       20-Foot    40-Foot
                                                       -------    -------
         <S>                                            <C>        <C>
         Containers on lease:
              Term leases                                62         114
              Master lease                              604         590
                                                        ---         ---
                   Subtotal                             666         704
         Containers off lease                           241         257
                                                        ---         ---
              Total container fleet                     907         961
                                                        ===         ===
</TABLE>


<TABLE>
<CAPTION>
                                                     20-Foot           40-Foot
                                                  -------------      ------------- 
                                                  Units     %        Units     %
                                                  -----   -----      -----   ----- 
         <S>                                      <C>       <C>      <C>       <C> 
         Total purchases                          1,001     100%     1,104     100%
              Less disposals                         94       9%       143      13%
                                                  -----   -----      -----   ----- 
         Remaining fleet at December 31, 1996       907      91%       961      87%
                                                  =====   =====      =====   ===== 
</TABLE>


    The Registrant disposed of 40 twenty-foot and 68 forty-foot marine dry cargo
containers during 1996, as compared to 20 twenty-foot and 30 forty-foot marine
dry cargo containers during 1995. As a result, approximately 15% of the
Registrant's net earnings for 1996 were from gain on disposal of equipment, as
compared to 6% for 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. As the Registrant focuses on the disposal of its containers
in subsequent periods, net gain on disposals should contribute significantly to
the Registrant's net earnings.

    The Registrant's declining fleet size contributed to a 3% decline in
depreciation expense during 1996. A reduction in the Registrant's average fleet
size and its related operating performance contributed to a decline in base
management fees of $19,796, or approximately 20% during 1996. Incentive fees,
which are based on the operating performance of the fleet and sales proceeds,
decreased $18,326, or approximately 17% during 1996. These management fees are
expected to decline in subsequent periods as the Registrant's disposed container
activities continue.

    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 Cronos Capital Corp.,
the Managing General Partner of the Registrant. In its letter of resignation to
the Parent Company, Arthur Andersen states 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 the Managing General Partner of
the Registrant, Arthur Andersen confirmed to the Managing General Partner that
its resignation as auditors of the entities referred to in its letter of
resignation included its resignation as auditors of Cronos Capital Corp. and the
Registrant.

    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.




                                       13


<PAGE>   14

    The Registrant does not, at this time, have sufficient information to
respond to the concerns raised by Arthur Andersen with respect to its 1996 audit
of the Parent Company or the impact, if any, these concerns may have on the
future operating results and financial condition of the Registrant or the
Managing General Partner's and Leasing Company's ability to manage the
Registrant's business and fleet in subsequent periods. However, the Managing
General Partner of the Registrant 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 Cronos Capital Corp.
and the Registrant, for either of the past two years, 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 two most recent fiscal years and the subsequent
interim period preceding Arthur Andersen's resignation, there have been no
disagreements between Cronos Capital Corp. or the Registrant and Arthur Andersen
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure.


1995 - 1994

    In 1995, the Registrant's operations were impacted by its declining fleet
size, increasingly competitive market conditions, including, but not limited to,
the container leasing market's resistance to higher per-diem rental rates, an
expanding supply of containers within the container industry, as well as
increased efficiencies in the shipping industry. As a result, net lease revenue
decreased by approximately 1%, when compared to 1994.

    Utilization rates decreased slightly from an average of 88% during 1994, to
an average of 87% during 1995. At the same time, per-diem rental rates decreased
by less than 1% from 1994 levels, while the Registrant's average fleet size (as
measured in twenty-foot equivalent units ("TEU")) declined from 3,101 TEU in
1994, to 3,042 TEU in 1995. Despite these declines, gross rental revenue, a
component of net lease revenue, increased from $1,458,573 in 1994 to $1,446,407
in 1995. The impact on gross rental revenue arising from the decline in the
average fleet size, utilization and per-diem rental rates, was offset by a 35%
increase in ancillary revenue. Ancillary revenue contributed to approximately
16% and 12% of the Registrant's total gross rental revenue in 1995 and 1994,
respectively. Ancillary revenue is comprised of pick-up, drop-off , handling and
off-hire charges, as well as lease incentives such as drop-off and pick-up
credits. Rental equipment operating expenses, when measured as a percentage of
rental revenue, decreased slightly due to a decline in the provision for
doubtful accounts. Costs associated with utilization levels including storage,
handling and repositioning also declined, contributing to the slight decline in
rental equipment operating expenses, as a percentage of gross lease revenue.

    At December 31, 1995, 94% of the original equipment remained in the
Registrant's fleet, and was comprised of the following:


<TABLE>
<CAPTION>
                                                     20-Foot      40-Foot
                                                     -------      -------
        <S>                                          <C>          <C>
        Containers on lease:
              Term leases                              65           118
              Master lease                            682           752
                                                      ---         -----
                   Subtotal                           747           870
         Containers off lease                         200           159
                                                      ---         -----
              Total container fleet                   947         1,029
                                                      ===         =====
</TABLE>


<TABLE>
<CAPTION>
                                                      20-Foot           40-Foot
                                                  -------------      ------------- 
                                                  Units      %       Units      %
                                                  -----   -----      -----   ----- 
         <S>                                      <C>       <C>      <C>       <C> 
         Total purchases                          1,001     100%     1,104     100%
              Less disposals                         54       5%        75       7%
                                                  -----   -----      -----   ----- 
         Remaining fleet at December 31, 1995       947      95%     1,029      93%
                                                  =====   =====      =====   ===== 
</TABLE>






                                       14


<PAGE>   15


    The Registrant disposed of 20 twenty-foot and 30 forty-foot marine dry cargo
containers during 1995, as compared to 19 twenty-foot and 13 forty-foot marine
dry cargo containers during 1994. Approximately 6% of the Registrant's net
earnings for 1995 were from gain on disposal of equipment, as compared to 7% for
1994.

    The Registrant's slightly smaller fleet size contributed to a 2% decline in
depreciation expense during 1995. Base management fees decreased by $7,332, or
approximately 7%, during 1995. Cash distributions from operations to the general
partners in excess of 8% of distributable cash are considered to be incentive
fees and compensation to the general partners. Incentive fees, which are based
on the operating performance of the fleet and sales proceeds, are paid only
after the limited partners reach the aforementioned distribution levels. This
threshold was reached during 1994 and as a result, incentive fees increased from
$68,131 in 1994 to $108,161 in 1995, an increase of approximately 59%.

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 in the above 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








                                       15

<PAGE>   16

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



The Partners
IEA Income Fund VII,
A California Limited Partnership:


We have audited the accompanying balance sheet of IEA Income Fund VII, A
California Limited Partnership, as of December 31, 1996, and the related
statements of operations, partners' capital, and cash flows for the year 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 audit.

We conducted our audit 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 audit provides 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 VII, A
California Limited Partnership, as of December 31, 1996, and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.

Our audit was 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 year ended December 31, 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 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.

                                                 Moore Stephens, P.C.
                                                 Certified Public Accountants


New York, New York
  June 6, 1997



                                       16


<PAGE>   17


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



The Partners
IEA Income Fund VII,
A California Limited Partnership:


We have audited the accompanying balance sheet of IEA Income Fund VII, A
California Limited Partnership as of December 31, 1995, and the related
statements of operations, partners' capital and cash flows for each of the two
years in the period 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 financial position of IEA Income Fund VII, A
California Limited Partnership as of December 31, 1995, and the results of its
operations and its cash flows for each of the two years in the period 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






                                       17

<PAGE>   18

                              IEA INCOME FUND VII,
                        A CALIFORNIA LIMITED PARTNERSHIP

                                 BALANCE SHEETS

                           DECEMBER 31, 1996 AND 1995



<TABLE>
<CAPTION>
                       Assets                                              1996          1995
                                                                       ----------     ----------
<S>                                                                    <C>            <C>
Current assets:
    Cash and cash equivalents, includes $330,894 in 1996
        and $383,324 in 1995 in interest-bearing accounts (note 2)     $  331,167     $  383,705
    Net lease receivables due from Leasing Company
        (notes 1 and 3)                                                   126,589        153,232
                                                                       ----------     ----------

             Total current assets                                         457,756        536,937
                                                                       ----------     ----------

Container rental equipment, at cost                                     4,666,319      4,916,860
    Less accumulated depreciation                                       2,414,262      2,282,549
                                                                       ----------     ----------
        Net container rental equipment                                  2,252,057      2,634,311
                                                                       ----------     ----------

                                                                       $2,709,813     $3,171,248
                                                                       ==========     ==========

                  Partners' Capital

Partners' capital:
    General partners                                                   $    9,390     $    5,025
    Limited partners (note 7)                                           2,700,423      3,166,223
                                                                       ----------     ----------

             Total partners' capital                                    2,709,813      3,171,248
                                                                       ----------     ----------

                                                                       $2,709,813     $3,171,248
                                                                       ==========     ==========
</TABLE>



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


                                       18

<PAGE>   19


                              IEA INCOME FUND VII,
                        A CALIFORNIA LIMITED PARTNERSHIP

                            STATEMENTS OF OPERATIONS

              FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994



<TABLE>
<CAPTION>
                                                       1996         1995         1994
                                                     --------     --------     --------
<S>                                                  <C>          <C>          <C>     
Net lease revenue (notes 1 and 5)                    $619,504     $864,468     $870,781

Other operating expenses:
    Depreciation (note 1)                             271,902      281,452      286,867
    Other general and administrative expenses          18,399       25,402       23,605
                                                     --------     --------     --------
                                                      290,301      306,854      310,472
                                                     --------     --------     --------

             Earnings from operations                 329,203      557,614      560,309

Other income:
    Interest income                                    16,518       18,482       12,386
    Net gain on disposal of equipment                  62,816       35,402       45,548
                                                     --------     --------     --------
                                                       79,334       53,884       57,934
                                                     --------     --------     --------

             Net earnings                            $408,537     $611,498     $618,243
                                                     ========     ========     ========

Allocation of net earnings:

    General partners                                 $ 91,361     $ 95,347     $101,435
    Limited partners                                  317,176      516,151      516,808
                                                     --------     --------     --------

                                                     $408,537     $611,498     $618,243
                                                     ========     ========     ========

Limited partners' per unit share of net earnings     $  34.05     $  55.42     $  55.49
                                                     ========     ========     ========
</TABLE>


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






                                       19

<PAGE>   20


                              IEA INCOME FUND VII,
                        A CALIFORNIA LIMITED PARTNERSHIP

                         STATEMENTS OF PARTNERS' CAPITAL

              FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994




<TABLE>
<CAPTION>
                                    Limited
                                    Partners        General
                                    (Note 7)        Partners         Total
                                  -----------      ---------      -----------
<S>                               <C>              <C>            <C>        
Balances at December 31, 1993     $ 3,868,036      $  (6,794)     $ 3,861,242

Net earnings                          516,808        101,435          618,243

Cash distributions                   (908,136)       (93,113)      (1,001,249)
                                  -----------      ---------      -----------

Balances at December 31, 1994       3,476,708          1,528        3,478,236

Net earnings                          516,151         95,347          611,498

Cash distributions                   (826,636)       (91,850)        (918,486)
                                  -----------      ---------      -----------

Balances at December 31, 1995       3,166,223          5,025        3,171,248

Net earnings                          317,176         91,361          408,537

Cash distributions                   (782,976)       (86,996)        (869,972)
                                  -----------      ---------      -----------

Balances at December 31, 1996     $ 2,700,423      $   9,390      $ 2,709,813
                                  ===========      =========      ===========
</TABLE>






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



                                       20


<PAGE>   21

                              IEA INCOME FUND VII,
                        A CALIFORNIA LIMITED PARTNERSHIP

                            STATEMENTS OF CASH FLOWS

              FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994


<TABLE>
<CAPTION>
                                                                         1996           1995            1994
                                                                      ---------      ---------      -----------
<S>                                                                   <C>            <C>            <C>        
Cash flows from operating activities:
    Net earnings                                                      $ 408,537      $ 611,498      $   618,243
    Adjustments to reconcile net earnings to net cash
        provided by (used in) operating activities:
            Depreciation                                                271,902        281,452          286,867
            Net gain on disposal of equipment                           (62,816)       (35,402)         (45,548)
            Decrease (increase) in net lease receivables due from
                Leasing Company                                          41,713         66,260          (11,594)
                                                                      ---------      ---------      -----------

                Total adjustments                                       250,799        312,310          229,725
                                                                      ---------      ---------      -----------

                Net cash provided by operating activities               659,336        923,808          847,968
                                                                      ---------      ---------      -----------

Cash flows from (used in) investing activities:
    Proceeds from disposal of equipment                                 158,098         83,238           66,911
    Acquisition fees paid to managing general partner                         -              -           (8,401)
                                                                      ---------      ---------      -----------

                Net cash provided by investing activities               158,098         83,238           58,510
                                                                      ---------      ---------      -----------

Cash flows used in financing activities:
    Distributions to partners                                          (869,972)      (918,486)      (1,001,249)
                                                                      ---------      ---------      -----------

Net increase (decrease) in cash and cash equivalents                    (52,538)        88,560          (94,771)

Cash and cash equivalents at beginning at year                          383,705        295,145          389,916
                                                                      ---------      ---------      -----------

Cash and cash equivalents at end of year                              $ 331,167      $ 383,705      $   295,145
                                                                      =========      =========      ===========
</TABLE>



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




                                       21


<PAGE>   22

                              IEA INCOME FUND VII,
                        A CALIFORNIA LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS

                        DECEMBER 31, 1996, 1995 AND 1994


(1)    Summary of Significant Accounting Policies


       (a)   Nature of Operations

             IEA Income Fund VII, A California Limited Partnership (the
             "Partnership") was organized under the laws of the State of
             California on June 27, 1985 for the purpose of owning and leasing
             marine cargo containers. The managing general partner is Cronos
             Capital Corp. ("CCC"); the associate general partners include seven
             individuals, one is an officer of CCC. CCC, with its affiliate
             Cronos Containers Limited (the "Leasing Company"), manages the
             business of the Partnership. The Partnership shall continue until
             December 31, 2007, unless sooner terminated upon the occurrence of
             certain events.

             The Partnership commenced operations on February 2, 1987, when the
             minimum subscription proceeds of $1,000,000 were obtained. The
             Partnership offered 40,000 units of limited partnership interest at
             $500 per unit, or $20,000,000. The offering terminated on August
             31, 1987, at which time 9,314 limited partnership units had been
             purchased.

             As of December 31, 1996, the Partnership owned and operated 907
             twenty-foot and 961 forty-foot marine dry cargo containers.


       (b)   Leasing Company and Leasing Agent Agreement
             Pursuant to the Limited Partnership Agreement of the Partnership,
             all authority to administer the business of the Partnership is
             vested in CCC. CCC 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. 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.




                                       22

<PAGE>   23

                              IEA INCOME FUND VII,
                        A CALIFORNIA LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


       (c)   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.


       (d)   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 based on
             "distributable cash" and are paid to the general and limited
             partners on a quarterly basis, in accordance with the provisions of
             the Partnership Agreement. Partnership distributions from
             operations are allocated 95% to the limited partners and 5% to the
             general partners. Sales proceeds are allocated 100% to the limited
             partners. However, if the amount of the limited partners' capital
             contributions invested in equipment exceeds the minimum percentage
             required by Section 3.5 of the Partnership Agreement, and the
             limited partners have received cumulative distributions equal to
             their capital contributions, the general partners' interest in
             distributions from operations will be increased by one percentage
             point for each 1% of the limited partners' capital contribution
             invested in equipment in excess of 80%.


             During 1992, this threshold was reached and, accordingly,
             distributions from distributable cash (allocated 91% to the limited
             partners and 9% to the general partners) were adjusted. These
             allocations will be maintained until such time as the limited
             partners have received from the Partnership aggregate distributions
             in an amount equal to their capital contributions plus an 8%
             cumulative, compounded (daily), annual return on their adjusted
             capital contributions. Thereafter, all Partnership distributions
             will be allocated 81% to the limited partners and 19% to the
             general partners.


       (e)   Acquisition Fees

             Pursuant to Article IV Section 4.2 of the Partnership Agreement,
             acquisition fees paid to CCC were based on 5% of the equipment
             purchase price. These fees were capitalized and included in the
             cost of the rental equipment. The fees were payable in five equal
             annual installments commencing in the year of purchase.






                                       23

<PAGE>   24

                              IEA INCOME FUND VII,
                        A CALIFORNIA LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


       (f)   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. In accordance with SFAS 121,
             container rental equipment is carried at the lower of the container
             rental equipment's original equipment cost, including capitalized
             acquisition fees, or the estimated recoverable value of such
             equipment. There were no reductions to the carrying value of
             container rental equipment during 1996.

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


       (g)   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.


       (h)   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.


       (i)   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. Accordingly, 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.







                                       24

<PAGE>   25

                              IEA INCOME FUND VII,
                        A CALIFORNIA LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


(3)    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, reimbursed administrative expenses, and incentive fees
       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, 1996 and December 31, 1995 were as follows:

<TABLE>
<CAPTION>
                                                                 December 31,    December 31,
                                                                   1996              1995
                                                                 --------          --------
         <S>                                                     <C>               <C>   
         Lease receivables, net of  doubtful accounts
            of $87,523 in 1996 and $89,590 in 1995               $287,953          $348,445
         Less:
         Direct operating payables and accrued expenses            67,041            81,993
         Damage protection reserve (note 4)                        40,733            42,177
         Base management fees                                      26,630            35,812
         Reimbursed administrative expenses                         4,681             6,124
         Incentive fees                                            22,279            29,107
                                                                 --------          --------
                                                                 $126,589          $153,232
                                                                 ========          ========
</TABLE>


(4)    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 3).
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.


(5)    Net Lease Revenue

       Net lease revenue is determined by deducting direct operating expenses,
base management and incentive fees and reimbursed administrative expenses to CCC
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, 1996, 1995 and 1994, was as follows:

<TABLE>
<CAPTION>
                                                                 1996                1995                1994
                                                              ----------          ----------          ----------
         <S>                                                  <C>                 <C>                 <C>       
         Rental revenue (note 9)                              $1,170,639          $1,458,573          $1,446,407
         Less:
         Rental equipment operating expenses                     317,404             307,732             318,417
         Base management fees (note 6)                            78,665              98,461             105,793
         Reimbursed administrative expenses (note 6)              65,231              79,751              83,285
         Incentive fees (note 6)                                  89,835             108,161              68,131
                                                              ----------          ----------          ----------
                                                              $  619,504          $  864,468          $  870,781
                                                              ==========          ==========          ==========
</TABLE>





                                       25

<PAGE>   26

                              IEA INCOME FUND VII,
                        A CALIFORNIA LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS



(6)    Compensation to Managing General Partner

       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.
       Incentive management fees are equal to 10% of cash distributions from
       operations and sales proceeds after the limited partners receive
       aggregate distributions in an amount equal to their adjusted capital
       contribution plus an 8% cumulative, compounded (daily), annual return on
       their adjusted capital contributions pursuant to Section 6.1 of the
       Partnership Agreement. The following compensation was paid or will be
       paid by the Partnership to CCC:


<TABLE>
<CAPTION>
                                                       1996              1995              1994
                                                     --------          --------          --------
         <S>                                         <C>               <C>               <C>     
         Base management fees                        $ 78,665          $ 98,461          $105,793
         Reimbursed administrative expenses            65,231            79,751            83,285
         Incentive fees                                89,835           108,161            68,131
                                                     --------          --------          --------
                                                     $233,731          $286,373          $257,209
                                                     ========          ========          ========
</TABLE>

(7)    Limited Partners' Capital

       Cash distributions made to the limited partners during 1996, 1995 and
       1994 included distributions of proceeds from equipment sales in the
       amount of $122,249, $46,571 and $58,215, respectively. These
       distributions, as well as cash distributions from operations, are used in
       determining "Adjusted Capital Contributions" as defined by the
       Partnership Agreement.

       The limited partners' per unit share of capital at December 31, 1996,
       1995 and 1994 was $290, $340 and $373, respectively. This is calculated
       by dividing the limited partners' capital at the end of the year by
       9,314, the total number of limited partnership units.


(8)    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, 1996, 1995 and 1994 are as follows:

<TABLE>
<CAPTION>
                                                                              1996               1995              1994
                                                                           ---------           --------          --------
       <S>                                                                 <C>                 <C>               <C>   
       Net earnings per statement of operations                            $ 408,537           $611,498          $618,243
       Depreciation for income tax purposes less than
          depreciation for financial statement purposes                      200,631             98,666            96,281
       Gain on disposition of assets for tax purposes in excess
          of gain on disposition for financial statement purposes            109,356             66,525            42,267
       Other expenses not deductible for tax purposes                         28,466             20,410                 -
       Bad debt expense for tax purposes (in excess of) less than
           bad debt expense for financial statement purposes                  (2,068)            14,770            39,821
                                                                           ---------           --------          --------

       Net earnings for federal tax purposes                               $ 744,922           $811,869          $796,612
                                                                           =========           ========          ========
</TABLE>


       At December 31, 1996, the tax basis of total partners' capital was
       $1,243,829.





                                       26

<PAGE>   27

                              IEA INCOME FUND VII,
                        A CALIFORNIA LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS



(9)    Major Lessees

       No single lessee contributed more than 10% of the rental revenue earned
       during 1996, 1995 and 1994. 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.


(10)   Subsequent Events

       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 "Holding
       Company") on February 3, 1997.

       The Cronos Group is the indirect corporate parent of CCC. In its letter
       of resignation to The Cronos Group, Arthur Andersen states that it
       resigned as auditors of The Cronos Group and all other entities
       affiliated with The Cronos Group. 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. In its
       letter of resignation, Arthur Andersen states that it was unable to
       obtain adequate information in response to inquiries it had made in
       connection with its audit of the Holding Company for the year ended
       December 31, 1996.

       The Partnership does not, at this time, have sufficient information to
       determine the impact, if any, that the concerns expressed by Arthur
       Andersen in its letter of resignation may have on the future operating
       results and financial condition of the Partnership or the Leasing
       Company's ability to manage the Partnership's fleet in subsequent
       periods. However, 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 the previous two years, 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 previous two fiscal years 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 Holding 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 Holding 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
       private investigation of the Holding Company.






                                       27

<PAGE>   28

                                   Schedule 1

                              IEA INCOME FUND VII,
                        A CALIFORNIA LIMITED PARTNERSHIP

                 SCHEDULE OF REIMBURSED ADMINISTRATIVE EXPENSES
                       PURSUANT TO ARTICLE IV SECTION 4.4
                          OF THE PARTNERSHIP AGREEMENT

              FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994



<TABLE>
<CAPTION>
                                                       1996             1995             1994
                                                      -------          -------          -------
<S>                                                   <C>              <C>             <C>   
Salaries                                              $31,122          $40,563          $39,004
Other payroll related expenses                          5,386            6,253           10,951
General and administrative expenses                    28,723           32,935           33,330
                                                      -------          -------          -------
    Total reimbursed administrative expenses          $65,231          $79,751          $83,285
                                                      =======          =======          =======
</TABLE>













                  See report of independent public accountants

                                       28


<PAGE>   29

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.

















                                       29


<PAGE>   30

                                    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 managing general partner. The officers and directors of CCC at June 4,
1997, are as follows:

<TABLE>
<CAPTION>
             Name                                 Office
       -------------------     ------------------------------------------------
       <S>                     <C>
       Dennis J. Tietz         President, Chief Executive Officer, and Director
       John P. McDonald        Vice President/Sales
       Elinor Wexler           Vice President/Administration and Secretary
       John Kallas             Vice President/Treasurer, Principal Finance and
                               Accounting Officer
       Laurence P. Sargent     Director
       Stefan M. Palatin       Director
</TABLE>


    DENNIS J. TIETZ Mr. Tietz, 44, 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.

    JOHN P. MCDONALD Mr. McDonald, 35, 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.

    ELINOR A. WEXLER Ms. Wexler, 48, 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 KALLAS Mr. Kallas, 34, was elected Vice President/Treasurer, Principal
Finance and Accounting Officer of CCC in December 1993 and is directly
responsible for CCC's accounting operations and reporting activities. Mr. Kallas
has held various accounting positions since joining CCC in 1989, including
Controller, Director of Accounting and Corporate Accounting Manager. From 1985
to 1989, Mr. Kallas was an accountant with KPMG Peat Marwick, San Francisco,
California.

    Mr. Kallas holds a B.S. degree in Business Administration from the
University of San Francisco and is a certified public accountant. Mr. Kallas is
also Treasurer of Cronos Securities Corp.




                                       30


<PAGE>   31


    LAURENCE P. SARGENT Mr. Sargent, 67, joined the Board of Directors of CCC in
1991. Mr. Sargent was a founder of Leasing Partners International ("LPI") and
served as its Managing Director from 1983 until 1991. From 1977 to 1983, Mr.
Sargent held a number of positions with Trans Ocean Leasing Corporation, the
last of which was as a director of its refrigerated container leasing
activities. From 1971 to 1977, Mr. Sargent was employed by SSI Container
Corporation (later Itel Container International), ultimately serving as Vice
President / Far East. Prior to that, Mr. Sargent was a Vice President of Pacific
Intermountain Express, a major U.S. motor carrier, responsible for its bulk
container division. Mr. Sargent holds a B.A. degree from Stanford University.
Mr. Sargent also serves as a director of the Institute of International
Container Lessors ("IICL"), an industry trade association. Mr. Sargent is also a
director of Cronos Securities Corp.

    Mr. Sargent retired as Deputy Chairman of the Group as of January 1, 1996.
He will remain a director of CCC, The Cronos Group, as well as other various
subsidiaries of The Cronos Group.

    STEFAN M. PALATIN Mr. Palatin, 43, 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.


    The key management personnel of the Leasing Company at June 4, 1997, were as
follows:

             Name                                 Title
      -------------------       ----------------------------------------------
      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


    STEVE BROCATO Mr. Brocato, 44, was elected President of the Leasing
Company's container division in June 1997, replacing Mr. Nigel J. Stribley, 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, 40, was elected Chief Financial Officer of The
Cronos Group in March, 1997, replacing Mr. A. Darrell Ponniah, 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.






                                       31

<PAGE>   32


    JOHN M. FOY Mr. Foy, 51, 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, 47, was elected Vice President - Europe,
Middle East and Africa in June 1997, replacing Mr. Geoffrey Mornard. 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, replacing Mr. Danny Wong. 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.

    DAVID HEATHER Mr. Heather, 49, 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, 43, 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, 64, 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.





                                       32

<PAGE>   33


Item 11. Executive Compensation

    The Registrant pays a management fee and will reimburse the managing general
partner as set forth in the table below.

    The Registrant also makes quarterly distributions to its partners (general
and limited) from distributable cash from operations (allocated 95% to the
limited partners and 5% to the general partners) or sales proceeds (allocated
100% to the limited partners). However, if the amount of the limited partners'
capital contributions invested in equipment exceeds the minimum percentage
required by Section 3.5 of the Limited Partnership Agreement, and the limited
partners have received cumulative distributions equal to their capital
contributions, the general partners' interest in distributions from operations
will be increased by one percentage point for each 1% of the limited partners'
capital contribution invested in equipment in excess of 80%.

    During 1992, this threshold was reached and, accordingly, distributions from
distributable cash (allocated 91% to the limited partners and 9% to the general
partners) were adjusted. The allocation of sales proceeds remained unchanged.
These allocations remained in effect until 1994, at which time the limited
partners received from the Registrant aggregate distributions in an amount equal
to their adjusted capital contributions plus an 8% cumulative, compounded
(daily), annual return on their adjusted capital contributions; thereafter, all
partnership distributions have been allocated 81% to the limited partners and
19% to the general partners.

    The Registrant does not pay or reimburse CCC or the associate general
partners for any remuneration payable by them to their executive officers,
directors or any other controlling persons. However, the Registrant does
reimburse the managing general partner 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.












                                       33

<PAGE>   34


    The following table sets forth the fees the Registrant paid (on a cash
basis) to CCC and the associate general partners of the Registrant, for the
fiscal year 1996.


<TABLE>
<CAPTION>
                                                                                                                  Cash Fees and
                    Name                                         Description                                       Distributions
                    ----                                         -----------                                       -------------
        <S>    <C>                             <C>                                                                 <C>          
         1)    CCC                             Base management fees - equal to 7% of gross                         $      87,847
                                                 lease revenues attributable to operating
                                                 leases pursuant to Section 4.3 of the Limited
                                                 Partnership Agreement

         2)    CCC                             Reimbursed administrative expenses - equal to                       $      66,673
                                                 the costs expended by CCC and its affiliates for
                                                 services necessary to the prudent operation of
                                                 the Registrant pursuant to Section 4.4 of the
                                                 Limited Partnership Agreement

         3)    CCC                             Interest in Fund - percentage of distributable                       $     58,731
                                                 cash for any quarter prior to receipt of the
               Associate General                 incentive management fee, pursuant to
                 Partners                        Section 6.1 of the Limited Partnership                             $     14,682
                                                 Agreement

         4)    CCC                             Interest in Fund - percentage of sales proceeds                      $     10,866
                                                 for any quarter pursuant to Section 6.1 of
               Associate General                 the Limited Partnership Agreement
                 Partners                                                                                           $      2,717

         5)    CCC                             Incentive management fee - 10% of cash                               $     77,331
                                                 distributed from operations and sales
               Associate General                 proceeds after a cumulative return to the
                 Partners                        Limited Partners of 8% cumulative, compounded                      $     19,332
                                                 (daily), annual return of their adjusted capital
                                                 contributions pursuant to Section 6.1 of the
                                                 Limited Partnership Agreement
</TABLE>







                                       34

<PAGE>   35

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. Ownership
of units of limited partnership interests of the Registrant by CCC, its officers
and/or directors of CCC is as follows:

<TABLE>
<CAPTION>
                                                   Number            Percent of
         Name of Beneficial Owner                 of Units           All Units
         ------------------------                 --------           ---------
         <S>                                      <C>                <C>  
         Dennis J. Tietz                            20.0              .215%
         John P. McDonald                           80.0              .859%
         Laurence P. Sargent                        10.0              .107%
         Elinor Wexler                              15.0              .161%
         Cronos Capital Corp.                       39.2              .421%

         Officers, Directors and CCC as a Group    164.2             1.763%
                                                   =====             =====
</TABLE>


    (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 1996 were limited to those fees paid or amounts committed to be paid (on
an annual basis) to CCC, the managing general partner, and the associate general
partners. See Item 11, "Executive Compensation," herein.

    (b) Certain Business Relationships

    Inapplicable.

    (c) Indebtedness of Management

    Inapplicable.

    (d) Transactions with Promoters

    Inapplicable.





                                       35

<PAGE>   36


                                     PART IV


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

    (a) 1. Financial Statements

<TABLE>
<CAPTION>
                                                                        Page
    The following financial statements of the Registrant are
included in Part II, Item 8:


          <S>                                                           <C> 
         Reports of Independent Public Accountants ...........          16, 17

         Balance sheets - December 31, 1996 and 1995 .........          18

         Statements of operations - for the years ended
             December 31, 1996, 1995 and 1994 ................          19

         Statements of partners' capital - for the years ended
             December 31, 1996, 1995 and 1994 ................          20

         Statements of cash flows - for the years ended
             December 31, 1996, 1995 and 1994 ................          21

         Notes to financial statements .......................          22

         Schedule of Reimbursed Administrative Expenses ......          28
</TABLE>






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



                                       36


<PAGE>   37

(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 1, 1986

  3(b)      Certificate of Limited Partnership of the Registrant                         **

  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 3, 1986, included as part of Registration Statement on Form
    S-1 (No. 33-9351)

**  Incorporated by reference to Exhibit 3.2 to the Registration Statement on
    Form S-1 (No. 33-9351)







                                       37



<PAGE>   38


                                   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 VII,
                                             A California Limited Partnership

                                             By   Cronos Capital Corp.
                                                  The Managing General Partner



                                             By   /s/  John Kallas
                                               -------------------------------
                                                  John Kallas
                                                  Vice President/Treasurer
                                                  Principal Finance and
                                                  Accounting Officer

Date:          June 16, 1997


    Pursuant to the requirement of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of Cronos
Capital Corp., the managing general partner of the Registrant, in the capacities
and on the dates indicated:


<TABLE>
<CAPTION>
          Signature                        Title                      Date
<S>                                 <C>                           <C> 
   /s/  Dennis J. Tietz            President and Director of     June 16, 1997
------------------------------       Cronos Capital Corp.
Dennis J. Tietz                  ("CCC") (Principal Executive
                                        Officer of CCC)
                                   

   /s/  John Kallas                  Vice President/Treasurer    June 16, 1997
------------------------------        (Principal Finance and    
John Kallas                          Accounting Officer of CCC)
                             

   /s/  Laurence P. Sargent               Director of CCC        June 16, 1997
------------------------------
Laurence P. Sargent
</TABLE>




                            SUPPLEMENTAL INFORMATION

    The Registrant's annual report will be furnished to its limited partners on
or about July 18, 1997. 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.



<PAGE>   39

                                  EXHIBIT INDEX


(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 1, 1986

   3(b)           Certificate of Limited Partnership of the Registrant                         **

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















________________

*   Incorporated by reference to Exhibit "A" to the Prospectus of the Registrant
    dated December 3, 1986, included as part of Registration Statement on Form
    S-1 (No. 33-9351)

**  Incorporated by reference to Exhibit 3.2 to the Registration Statement on
    Form S-1 (No. 33-9351)