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

                                    FORM 10-K

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

                   For the fiscal year ended December 31, 1998

                                       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>
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 Disagreements      Current Report on Form 8-K of IEA Income Fund VII, A California
         with Accountants on               Limited Partnership filed February 7, 1997 and April 14, 1997,
         Accounting and Financial          respectively, and Amendment No. 1 to Current Report on Form 8-K
         Disclosure                        filed February 26, 1997.
</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>



   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 Parent Company") and are
collectively referred to as the "Group". The activities of the container
division of the Group are managed through the Group's subsidiary in the United
Kingdom, Cronos Containers Limited ("the Leasing Company"). The Leasing Company
manages the leasing operations of all equipment owned 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 a discussion of recent developments in the Registrant's business, see
Item 7, "Management's Discussion and Analysis of Financial Condition and Result
of Operations."

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


                                       2
<PAGE>   3

   (b)  Financial Information About Industry Segments

    The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards (SFAS) No. 131, "Disclosures about Segments of an
Enterprise and Related Information", which changes the way public business
enterprises report financial and descriptive information about reportable
operating segments. An operating segment is a component of an enterprise that
engages in business activities from which it may earn revenues and incur
expenses, whose operating results are regularly reviewed by the enterprise's
chief operating decision maker to make decisions about resources to be allocated
to the segment and assess its performance, and about which separate financial
information is available. Management operates the Registrant's container fleet
as a homogenous unit and has determined, after considering the requirements of
SFAS No. 131, that as such it has a single reportable operating segment.

   Due to the Registrant's lack of information regarding the physical location
of its fleet of containers when on lease in the global shipping trade, it is
impracticable to provide the geographic area information required by SFAS No.
131. 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.

   No single lessee contributed more than 10% of the rental revenue earned
during 1998, 1997 and 1996.

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

   Standard dry cargo containers are rectangular boxes with no moving parts,
other than doors, and are typically made of steel or aluminum. 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
currently constitute approximately 83% (in TEU) of the worldwide container
fleet. Refrigerated and tank containers currently constitute approximately 7%
(in TEU) of the worldwide container fleet, with 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 major catalysts for world trade growth during the
last twenty-five years, resulting in increased demand for containerization. The
world's container fleet has grown from an estimated 270,000 TEU in 1969 to
approximately 12.2 million TEU by mid-1998.


                                       3
<PAGE>   4

   BENEFITS OF LEASING

   Leasing companies own approximately 47% of the world's container fleet with
the balance owned predominantly by shipping lines. Shipping lines, which
traditionally operate on tight profit margins, often supplement their owned
fleet of containers by leasing a portion of their equipment from container
leasing companies and, in doing so, achieve the following financial and
operational benefits:

   o  Leasing allows the shipping lines to utilize the equipment they need
      without having to make large capital expenditures;

   o  Leasing offers a shipping line an alternative source of financing in a
      traditionally capital-intensive industry;

   o  Leasing enables shipping lines to expand their routes and market shares at
      a relatively inexpensive cost without making a permanent commitment to
      support their new structure;

   o  Leasing allows shipping lines to respond to changing seasonal and trade
      route demands, thereby optimizing their capital investment and storage
      costs.

   TYPES OF LEASES

   The Registrant's containers are leased primarily to shipping lines operating
in major trade routes (see Item 1(d)). Most if not all of the Registrant's
marine dry cargo containers are leased pursuant to operating leases, 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. Some
of the Registrant's containers may be leased pursuant to term leases, which may
have durations of less than one year to five years.

   o  Master lease.  Most short-term leases are "master leases," under which a 
      customer reserves the right to lease a certain number of containers, as
      needed, under a general agreement between the lessor and the lessee. Such
      leases provide customers with greater flexibility by allowing them to pick
      up and drop off containers where and when needed, subject to restrictions
      and availability, as specified in each lease. The commercial terms of
      master leases are negotiated annually. Master leases also define the
      number of containers that may be returned within each calendar month, the
      return locations and applicable drop-off charges. Due to the increased
      flexibility they offer, master leases usually command higher per-diem
      rates and generate more ancillary fees (including pick-up, drop-off,
      handling and off-hire fees) than term leases.

  o   Term lease.  Term leases are for a fixed period of time and include both
      long and short-term commitments, with most extending from three to five
      years. Term lease agreements may contain early termination penalties that
      apply in the event of early redelivery. In most cases, however, equipment
      is not returned prior to the expiration of the lease. Term leases provide
      greater revenue stability to the lessor, but at lower rates than master
      leases. Ocean carriers use long-term leases when they have a need for
      identified containers for a specified term. 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 the containers to be leased. Ocean carriers
      generally use one-way leases to manage trade imbalances (where more
      containerized cargo moves in one direction than another) by picking up a
      container in one port and dropping it off at another location after one or
      more legs of a voyage.

   The terms and conditions of the Registrant's leases provide that customers
 are responsible for paying all taxes and service charges arising from container
 use, maintaining the containers in good and safe operating condition while on
 lease and paying for repairs, excluding ordinary wear and tear, upon
 redelivery. Some leases provide for a "damage protection plan" whereby lessees,
 for an additional payment (which may be in the form of a higher per-diem rate),
 are relieved of the responsibility of paying some of the repair costs upon
 redelivery of the containers. The Leasing Company 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.


                                       4
<PAGE>   5

   Lease rates depend on several factors including the type of lease, length of
term, maintenance provided, type and age of the equipment, location and
availability, and market conditions.

   CUSTOMERS

   The Leasing Company, on behalf of the Registrant, leases the Registrant's
containers primarily to shipping lines operating in major trade routes. The
Leasing Company currently serves over 400 customers including the 20 largest
ocean carriers worldwide on behalf of the Group, the Registrant, and other third
party container owners. The Registrant is not dependent upon any particular
customer or group of customers and none of its customers accounts for more than
10% of its revenue. The Registrant's customers are billed and pay in United
States dollars. The Leasing Company sets maximum credit limits for the
Registrant's customers, limiting the number of containers leased to each
according to established credit criteria. The Leasing Company continually tracks
its credit exposure to each customer. The Leasing Company's credit committee
meets quarterly to analyze the performance of the Registrant's customers and to
recommend actions to be taken in order to minimize credit risks. The Leasing
Company uses specialist third party credit information services and reports
prepared by local staff to assess credit applications.

   FLEET PROFILE

   The Registrant acquired high-quality dry cargo containers manufactured to
specifications that exceed International Standards Organization (ISO) standards
and designed to minimize repair and operating costs.

   Dry cargo containers are the most commonly used type of container in the
shipping industry. The Registrant's dry cargo container fleet is constructed of
all Corten(R) steel (i.e., Corten(R) roofs, walls, doors and undercarriage),
which is a high-tensile steel yielding greater damage and corrosion resistance
than mild steel.

   The Registrant purchased its dry cargo containers from manufacturers in Korea
and India as part of a policy of sourcing container production in locations
where it can meet customer demands most effectively.

   As of December 31, 1998, the Registrant owned 742 twenty-foot and 732
forty-foot marine dry cargo containers. The following table sets forth the
number of containers on lease, by container type and lease term:

<TABLE>
<CAPTION>
                                                          Number of
                                                       Containers on
                                                            Lease
                                                       -------------
      <S>                                                 <C>      
      20-Foot Dry Cargo Containers:
         Term Leases                                         57
         Master Leases                                      479
                                                            ---
              Total on lease                                536
                                                            ===
      40-Foot Dry Cargo Containers:
         Term Leases                                         68
         Master Leases                                      517
                                                            ---
              Total on lease                                585
                                                            ===
</TABLE>

   The Leasing Company makes 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 and incentive fees payable 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.


                                       5
<PAGE>   6

   REPAIR AND MAINTENANCE

   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 that is verified by independent surveyors or the
Leasing Company's technical and operations staff. Before any repair or
refurbishment is authorized on older containers in the Registrant's fleet, the
Leasing Company's technical and operations staff reviews the age, condition and
type of container, and its suitability for continued leasing. The Leasing
Company compares the cost of such repair or refurbishment with the prevailing
market resale price that might be obtained for that container and makes the
appropriate decision whether to repair or sell the container.

   MARKET FOR USED CONTAINERS

   The Registrant estimates that the period for which a dry cargo container may
be used as a leased marine cargo container ranges from 10 to 15 years. The
Leasing Company, on behalf of the Registrant, disposes of used containers in a
worldwide market in which buyers include wholesalers, mini-storage operations,
construction companies and others. As the Registrant's fleet ages, a larger
proportion of its revenue will be derived from selling its containers.

   OPERATIONS

   The Registrant's container leasing 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; Gothenburg, Sweden;
Singapore; Hong Kong; Sydney; Tokyo; Taipei; Seoul; Rio de Janeiro; and
Shanghai.

   The Leasing Company also maintains agency relationships with over 20
independent agents around the world, to whom it pays commissions 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. The agents are located
in jurisdictions where the volume of the Leasing Company's business necessitates
a presence in the area but is not sufficient to justify a fully-functioning
Leasing Company office or dedicated agent. These agents provide marketing
support to the area offices covering the region, together with limited
operational support.

   In addition, the Leasing Company relies on the services of over 300
independently-owned and operated depots around the world to inspect, repair,
maintain and store containers while off-hire. The Leasing Company's area offices
authorize all container movements into and out of the depot and supervise all
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.

   The Leasing Company's global network is integrated with its computer system
and provides 24-hour communication between offices and agents. The system allows
the Leasing Company to manage and control the Registrant's fleet on a global
basis, providing it with the responsiveness and flexibility necessary to service
the master lease market effectively. This system is an integral part of the
Leasing Company's service, as it processes information received from the various
offices, generates billings to the Registrant's lessees and produces s a wide
range of reports on all aspects of the Registrant's leasing activities. The
system records the life history of each container, including the length of time
on and off lease and repair costs. It also traces port activity trends, leasing
activity and equipment data per customer. The operations and marketing data is
fully interfaced with the finance and accounting system to provide revenue, cost
and asset information to management and staff around the world.


                                       6
<PAGE>   7

   INSURANCE

   The Registrant's lease agreements typically require lessees to obtain
insurance to cover all risks of physical damage and loss of the equipment under
lease, as well as public liability and property damage insurance. However, the
precise nature and amount of the insurance carried by each ocean carrier varies
from lessee to lessee. In addition, the Registrant has purchased secondary
insurance effective in the event that a lessee fails to have adequate primary
coverage. This insurance covers liability arising out of bodily injury and/or
property damage as a result of the ownership and operation of the containers, as
well as insurance against loss or damage to the containers, loss of lease
revenues in certain cases and costs of container recovery and repair in the
event that a customer goes into bankruptcy. The Registrant believes that the
nature and the amounts of its insurance are customary in the container leasing
industry and subject to standard industry deductions and exclusions.

    (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, 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 billing. Past due penalties are not customarily collected from lessees,
and accordingly are not generally levied by the Leasing Company against lessees
of the Registrant's containers.

   (c)(1)(vii) For the fiscal year ended December 31, 1998, 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. 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 leases.


                                       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 Transamerica Leasing, GE-Seaco, Textainer Group, Triton Container
International Ltd. and others. In a series of recent consolidations, several
major leasing companies, as well as numerous smaller ones, have been acquired by
competitors. The Leasing Company believes that the current trend toward
consolidation in the container leasing industry will continue, making economies
of scale, worldwide operations, diversity, size of fleet and financial strength
increasingly important to the successful operation of a container leasing
business. Additionally, as containerization grows, customers may demand more
flexibility from leasing companies regarding per diem rates, pick-up and
drop-off locations, availability of containers and other terms. Some of the
Leasing Company's competitors may have greater financial resources than the
Leasing Company and may be more capable of offering lower per-diem rates. 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.

   (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 15 employees, consisting of 3 officers, 5 other managers and 7 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 carriers. To this extent, the Registrant's operations are subject to the
fluctuations of world economic and political conditions. Such factors may affect
the pattern and levels of world trade.

   The Registrant believes that the profitability of, and risks associated with,
leases to foreign customers is generally the same as those of leases to domestic
customers. The Registrant's leases generally require all payments to be made in
United States currency.


Item 2. Properties

   As of December 31, 1998, the Registrant owned 742 twenty-foot and 732
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, 1998 were as follows:


<TABLE>
<CAPTION>
                                            Estimated
                                            Useful Life      Average Age      Average Cost
                                            -----------      -----------      ------------ 
<S>                                         <C>               <C>               <C>   
      20-Foot Dry Cargo Containers         10-15 years       10 years          $2,273

      40-Foot Dry Cargo Containers         10-15 years       11 years          $2,765
</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 1998, utilization of the Registrant's containers
averaged 80%.

   During 1998, the Registrant disposed of 99 twenty-foot and 128 forty-foot
marine dry cargo containers at an average book gain of $613 per container.


                                       8
<PAGE>   9

Item 3. Legal Proceedings

   As reported in the Registrant's Current Report on Form 8-K and Amendment No.
1 to Current Report on Form 8-K, filed with the Commission on February 7, 1997
and February 26, 1997, respectively, Arthur Andersen, London, England, resigned
as auditors of The Cronos Group, the Parent Company, on February 3, 1997. See
Item 9, "Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure."

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


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
                                                     Number of Unit Holders 
   (b)(1)   Title of Class                           as of December 31, 1998
            --------------                           ----------------------- 
            Units of limited partnership interests                547
           

   (c)  Dividends

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


                                       10
<PAGE>   11

<TABLE>
<CAPTION>
                                                     Year Ended December 31,
                               --------------------------------------------------------------------
                                  1998           1997          1996          1995          1994
                               -----------    -----------   -----------   -----------   -----------

<S>                            <C>            <C>           <C>           <C>           <C>       
   Net lease revenue           $  473,605     $   476,181   $  619,504    $  864,468    $  870,781

   Net earnings                $  361,162     $   273,177   $  408,537    $  611,498    $  618,243

   Net earnings per unit of
       limited partnership
       interest                $    28.70     $    20.69    $    34.05    $    55.42    $    55.49

   Cash distributions per
       unit of limited
       partnership interest    $    75.94     $    73.13    $    84.06    $    88.75    $    97.50

   At year-end:

   Total assets                $1,801,481     $2,226,210    $2,709,813    $3,171,248    $3,478,236

   Partners' capital           $1,801,481     $2,226,210    $2,709,813    $3,171,248    $3,478,236
</TABLE>




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

LIQUIDITY AND CAPITAL RESOURCES

   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 operating needs. No credit lines
are maintained to finance working capital.

   At December 31, 1998, the Registrant had $278,140 in cash and cash
equivalents, a decrease of $69,696 and $53,027, respectively, from the cash
balances at December 31, 1997 and December 31, 1996.

   Having just completed the 12th year of operations, the Registrant will
continue 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, conditions, 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 were allocated 100% to the limited partners. In 1992, pursuant to
Section 6.1(c) of the Partnership Agreement, the allocation of distributions
from operations among the general partners and limited partners was 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 had 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, 1999, the Registrant has distributed
$9,228,314 in cash from operations and $817,903 in cash from container sales
proceeds to its limited partners. This represents total distributions of
$10,046,217, or 216% of the limited partners' original invested capital.
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. Cash generated from sales proceeds totaled
$274,905, $240,885 and $158,098 for the years ended December 31, 1998, 1997 and
1996, respectively. Sales proceeds distributed to its partners may fluctuate in
subsequent periods, reflecting the level of container disposals.

   The year ended December 31, 1998 was a volatile period for the container
leasing market. Opinions on the outlook for the market ranged from optimism that
the fallout from the Asian crisis could be contained to concern that it would
more seriously affect the global economy. As worries about the global economy
intensified, expectations for world economic growth shifted downward. The
effects of global financial concerns also slowed the growth of world
containerized trade to 5%-6% during 1998 compared to 7%-8% in recent past years,
and limited the demand for leased containers by the ocean carriers. At the same
time, significant trade imbalances developed between Asia and the rest of the
world. The devalued currencies of many Asian countries gave rise to booming
exports while, together with restricted credit, curtailing the demand for
imports from the West. These trade imbalances prompted renewed requirements for
leased containers in many parts of Asia where equipment shortages developed amid
declining inventories. But, the increased demand resulting from the shortage of
containers in many areas of Asia must be viewed against the continuing large
surplus of off-hire units in Europe and the Americas resulting from the shifting
trade patterns. These leasing market conditions may impact the Registrant's
financial condition and operating performance during 1999. Additionally, see the
discussion regarding The Cronos Group under Item 7., Management Discussion and
Analysis of Financial Condition and Results of Operations hereof.

RESULTS OF OPERATIONS

1998 - 1997

   Amid this environment of global economic uncertainty, other key trends that
have been in evidence over the past few years continued to affect the container
leasing industry and the Registrant's operations during 1998. They include
consolidation both within the shipping industry and the container leasing
industry; greater efficiencies achieved by our customers through the use of
mega-size containerships and the pooling of owned equipment; and, the erosion of
per-diem rental rates.

   As the leasing industry's equipment remained in surplus, ocean carriers and
transport companies continued to be selective about the age and condition of
containers taken on-hire. Many have adopted a policy of only leasing containers
of a certain age or less. It has been the Registrant's experience that in
periods of weak demand, many lessees insist on equipment between three to five
years of age. Such criteria currently serves as a barrier to leasing older
containers including those within the Registrant's fleet and contributed to the
decline in the Registrant's results of operations. The primary component of the
Registrant's results of operations is net lease revenue. Net lease revenue is
determined by deducting direct operating expenses, management fees and
reimbursed administrative expenses, from rental revenues billed by the Leasing
Company from the leasing of the Registrant's containers. Net lease revenue is
directly related to the size, utilization and per-diem rental rates of the
Registrant's fleet. Net lease revenue for 1998 declined by approximately 1% when
compared to 1997. The Registrant expects net lease revenue to decline in
subsequent periods as current leasing market conditions continue and it
continues the disposal of its fleet.

   Despite the aforementioned market conditions, the Registrant's utilization
rates increased from an average of 78% during 1997, to an average of 80% during
1998, a direct result of the Registrant's policy to dispose of its off-hire
containers. The Registrant's average fleet size (as measured in twenty-foot
equivalent units ("TEU")) was 2,413 TEU, compared to 2,710 TEU in 1997. The
decline in the Registrant's fleet size, combined with a 4% reduction in average
per-diem rental rates, contributed to a 9% decline in gross rental revenue (a
component of net lease revenue) for 1998 when compared to the previous year.


                                       12
<PAGE>   13

   At December 31, 1998, 70% 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                          57                 68
           Master leases                       479                517
                                               ---                ---
              Subtotal                         536                585

      Containers off lease                     206                147
                                               ---                ---
           Total container fleet               742                732
                                               ===                ===



                                                20-Foot            40-Foot
                                              ------------       ------------   
                                              Units    %         Units     %
                                              ------------       ------------  
                                              
     Total purchases                          1,001    100%      1,104    100%
          Less disposals                        259     26%        372     34%  
                                              -----     --       -----    ---
                                                                         

      Remaining fleet at December 31, 1998      742     74%         732    66%
                                              =====     ==        =====   ===
</TABLE>
                                                                      

   Rental equipment operating expenses were approximately 21% of rental revenue
during 1998 as compared to 27% during 1997.

   The age and declining size of the Registrant's fleet both contributed to an
8% decline in depreciation expense during 1998 when compared with 1997. Base
management fees, dependent on the operating performance of the fleet, declined
$5,086, or approximately 8% during 1998 when compared with 1997. Incentive fees,
which are also based on the operating performance of the fleet as well as sales
proceeds, increased $1,438, or approximately 2%, during 1998 when compared with
1997.

   The Registrant disposed of 99 twenty-foot and 128 forty-foot marine dry cargo
containers during 1998, as compared to 66 twenty-foot and 101 forty-foot marine
dry cargo containers during 1997. As a result, approximately 39% of the
Registrant's net earnings for 1998 were from gain on disposal of equipment, as
compared to 25% for 1997. 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.

1997 - 1996

   The primary component of the Registrant's results of operations is net lease
revenue. Net lease revenue is directly related to the size, utilization and
per-diem rental rates of the Registrant's fleet. Accordingly, net lease revenue
declined by approximately 23% during 1997 when compared to 1996.

   The Registrant's utilization rates averaged 78% during 1997, consistent with
the prior year, a direct result of the Registrant's policy to dispose of its
off-hire containers. The Registrant's average fleet size (as measured in
twenty-foot equivalent units ("TEU")) was 2,710 TEU as compared to 2,916 TEU in
1996. This decline, combined with a 13% reduction in average per-diem rental
rates, contributed to a 20% decline in gross rental revenue (a component of net
lease revenue) for 1997 when compared to 1996.


                                       13
<PAGE>   14

   At December 31, 1997, 81% 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                          66                  94
           Master lease                        611                 618
                                               ---                 ---
              Subtotal                         677                 712

      Containers off lease                     164                 148
                                               ---                 ---
           Total container fleet               841                 860
                                               ===                 ===


                                            20-Foot               40-Foot
                                          ------------          ------------  
                                           Units    %            Units    %
                                          ------------          ------------  
      Total purchases                      1,001   100%         1,104    100%
          Less disposals                     160    16%           244     22%
                                           -------- ---         -------- ---

      Remaining fleet at December 31, 1997   841     84%         860      78%
                                           =====    ===         =====    ===
</TABLE>



   Rental equipment operating expenses were approximately 27% of rental revenue
during 1997, unchanged from the prior year.

   Other general and administrative expenses increased $13,441 or approximately
73% during 1997 when compared to 1996. This was due to an increase of
approximately $4,777 in the cost of the Registrant's annual audit, as well as an
increase of approximately $12,000 in the cost of preparing and processing the
Registrant's regulatory filings.

   The age and declining size of the Registrant's fleet both contributed to a 7%
decline in depreciation expense during 1997 when compared to 1996. Base
management fees, dependent on the operating performance of the fleet, declined
$14,152, or approximately 18% during 1997 when compared to 1996. Incentive fees,
which are also based on the operating performance of the fleet as well as sales
proceeds, decreased $6,109, or approximately 7%, during 1997 when compared to
1996.

   The Registrant disposed of 66 twenty-foot and 101 forty-foot marine dry cargo
containers during 1997, compared to 40 twenty-foot and 68 forty-foot marine dry
cargo containers during 1996. As a result, approximately 25% of the Registrant's
net earnings for 1997 were from gain on disposal of equipment, as compared to
15% for 1996. The decision to repair or dispose of a container is made when it
is returned by a lessee. This decision is influenced by various factors
including the age, condition, suitability for continued leasing as well as the
geographical location of the container when disposed. These factors also
influence the amount of sales proceeds received and the related gain on
container disposals.

THE CRONOS GROUP'S CREDIT FACILITY

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


                                       14
<PAGE>   15

   Following negotiations in 1997 with the banks providing the Credit Facility,
an Amended and Restated Credit Agreement was executed in June 1997, subject to
various actions being taken by the Parent Company and its subsidiaries,
primarily relating to the provision of additional collateral. This Agreement was
further amended in July 1997 and the provisions of the Agreement and its
Amendment converted the facility to a term loan, payable in installments, with a
final maturity date of May 31, 1998. The terms of the Agreement and its
Amendment also provided for additional security over shares in the subsidiary of
the Parent Company that owns the head office of the Parent Company's container
leasing operations. They also provided for the loans to the former Chairman of
$5,900,000 and $3,700,000 to be restructured as obligations of the former
Chairman to another subsidiary of the Parent Company (not CCC), together with
the pledge to this subsidiary company of 2,030,303 Common Shares beneficially
owned by him in the Parent Company as security for these loans. They further
provided for the assignment of these loans to the lending banks, together with
the pledge of 1,000,000 shares and the assignment of the rights of the Parent
Company in respect of the other 1,030,303 shares. Additionally, CCC granted the
lending banks a security interest in the fees to which it is entitled for the
services it renders to the container leasing partnerships of which it acts as
general partner, including its fee income payable by the Registrant. The Parent
Company did not repay the Credit Facility at the amended maturity date of May
31, 1998.

   On June 30, 1998, the Parent Company entered into a third amendment (the
"Third Amendment") to the Credit Facility. Under the Third Amendment, the
remaining principal amount of $36,800,000 was to be amortized in varying monthly
amounts commencing on July 31, 1998 with $26,950,000 due on September 30, 1998
and a final maturity date of January 8, 1999. The Parent Company did not repay
the amounts due on September 30, 1998 and January 8, 1999. The balance
outstanding on the Credit Facility at December 31, 1998 was $33,110,000.

   In March 1999, the Parent Company agreed to a proposal to extend the Credit
Facility until September 30, 1999 and expects that a fourth amendment (the
"Fourth Amendment"), with a final maturity date of September 30, 1999, will be
signed in April 1999.

   The directors of the Parent Company also are pursuing alternative sources of
financing to meet the amended repayment obligations anticipated under the Fourth
Amendment. Failure to meet revised lending terms would constitute an event of
default with the lenders. The declaration of an event of default would result in
further defaults with other lenders under loan agreement cross-default
provisions. Should a default of the term loans be enforced, the Parent Company
and CCC may be unable to continue as going concerns.

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

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


                                       15
<PAGE>   16

YEAR 2000

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

CAUTIONARY STATEMENT

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

Item 7A.   Quantitative and Qualitative Disclosures About Market Risk

   Inapplicable


Item 8. Financial Statements and Supplementary Data


                                       16
<PAGE>   17
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

The Partners
IEA Income Fund VII,
A California Limited Partnership


We have audited the accompanying balance sheets of IEA Income Fund VII, A
California Limited Partnership, as of December 31, 1998 and 1997, and the
related statements of operations, partners' capital, and cash flows for each of
the three years in the period ended December 31, 1998. 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, 1998 and 1997, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles.

As further discussed in Note 10 to the financial statements, The Cronos Group,
which is the indirect corporate parent of Cronos Capital Corp., the managing
general partner of the Partnership, is subject to an investigation, commenced on
February 10, 1997, by the United States Securities and Exchange Commission.
Furthermore, Cronos Capital Corp. and five other subsidiaries of The Cronos
Group are borrowers under a credit facility with several banks. The credit
facility is guaranteed by The Cronos Group. A substantial payment was due on
September 30, 1998, and the entire loan balance was due on January 8, 1999. The
Cronos Group did not repay the amount due on September 30, 1998 and January 8,
1999. As of the date of our report, The Cronos Group had not yet secured an
extension of the credit facility or obtained a source for repayment of the
balance due.

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

                                                   Moore Stephens, P.C.
                                                   Certified Public Accountants


New York, New York
March 5, 1999


                                       17
<PAGE>   18

                              IEA INCOME FUND VII,
                        A CALIFORNIA LIMITED PARTNERSHIP

                                 BALANCE SHEETS

                           DECEMBER 31, 1998 AND 1997


<TABLE>
<CAPTION>

                                                                      1998         1997
                                                                   ----------   ----------
                 Assets
                 ------
<S>                                                                <C>          <C>
Current assets:
   Cash and cash equivalents, includes $278,040 in 1998
      and $347,636 in 1997 in interest-bearing accounts (note 3)   $  278,140   $  347,836

   Net lease receivables due from Leasing Company
      (notes 1 and 4)                                                 134,960       56,777
                                                                   ----------   ----------

         Total current assets                                         413,100      404,613
                                                                   ----------   ----------

Container rental equipment, at cost                                 3,707,535    4,256,153
   Less accumulated depreciation                                    2,319,154    2,434,556
                                                                   ----------   ----------
      Net container rental equipment                                1,388,381    1,821,597
                                                                   ----------   ----------
                                                                   $1,801,481   $2,226,210
                                                                   ==========   ==========

            Partners' Capital
            -----------------
Partners' capital:
   General partners                                                $   29,386   $   14,143

   Limited partners (note 8)                                        1,772,095    2,212,067
                                                                   ----------   ----------
         Total partners' capital                                    1,801,481    2,226,210
                                                                   ----------   ----------
                                                                   $1,801,481   $2,226,210
                                                                   ==========   ==========
</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, 1998, 1997 AND 1996



<TABLE>
<CAPTION>
                                                         1998             1997              1996
                                                       --------        ---------         ---------
<S>                                                    <C>              <C>              <C>      
Net lease revenue (notes 1 and 6)                      $473,605         $476,181         $ 619,504

Other operating expenses:
  Depreciation (note 1)                                 233,190          253,090           271,902
  Other general and administrative expenses              31,834           31,840            18,399
                                                       --------        ---------         ---------

                                                        265,024          284,930           290,301
                                                       --------        ---------         ---------

    Earnings from operations                            208,581          191,251           329,203

Other income:
  Interest income                                        13,358           13,435            16,518
  Net gain on disposal of equipment                     139,223           68,491            62,816
                                                       --------        ---------         ---------
                                                        152,581           81,926            79,334
                                                       --------        ---------         ---------

    Net earnings                                       $361,162         $273,177          $408,537
                                                       ========         ========          ========

Allocation of net earnings:
  General partners                                     $ 93,836         $ 80,432          $ 91,361
  Limited partners                                      267,326          192,745           317,176
                                                       --------        ---------         ---------

                                                       $361,162         $273,177          $408,537
                                                       ========         ========          ========

Limited partners' per unit share of net earnings       $  28.70         $  20.69           $ 34.05
                                                       ========         ========          ========
</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, 1998, 1997 AND 1996


<TABLE>
<CAPTION>
                                    Limited
                                    Partners        General
                                    (Note 8)        Partners            Total
                                   ---------        --------          ---------
<S>                               <C>              <C>              <C>
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

Net earnings                          192,745           80,432          273,177

Cash distributions                   (681,101)         (75,679)        (756,780)
                                  -----------      -----------      -----------

Balances at December 31, 1997       2,212,067           14,143        2,226,210

Net earnings                          267,326           93,836          361,162

Cash distributions                   (707,298)         (78,593)        (785,891)
                                  -----------      -----------      -----------

Balances at December 31, 1998     $ 1,772,095      $    29,386      $ 1,801,481
                                  ===========      ===========      ===========
</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, 1998, 1997 AND 1996


<TABLE>
<CAPTION>
                                                         1998             1997             1996
                                                      ---------        ---------         ---------
<S>                                                   <C>               <C>               <C>
Cash flows from operating activities:
   Net earnings                                       $ 361,162        $ 273,177         $ 408,537
   Adjustments to reconcile net earnings to net
      cash provided by (used in)operating 
      activities:
         Depreciation                                   233,190          253,090           271,902
         Net gain on disposal of equipment             (139,223)         (68,491)          (62,816)
         Decrease (increase) in net lease
          receivables due from Leasing Company          (13,839)          74,788            41,713
                                                      ---------        ---------         ---------

           Total adjustments                             80,128          259,387           250,799
                                                      ---------        ---------         ---------
           Net cash provided by operating activities    441,290          532,564           659,336
                                                      ---------        ---------         ---------
Cash flows provided by(used in) investing activities:
   Proceeds from disposal of equipment                  274,905          240,885           158,098
                                                      ---------        ---------         ---------
Cash flows used in financing activities:
   Distributions to partners                           (785,891)        (756,780)         (869,972)
                                                      ---------        ---------         ---------
Net increase (decrease) in cash and cash equivalents    (69,696)          16,669           (52,538)

Cash and cash equivalents at beginning of year          347,836          331,167           383,705
                                                      ---------        ---------         ---------
Cash and cash equivalents at end of year              $ 278,140         $347,836          $331,167
                                                      =========         ========          ========
</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, 1998, 1997 AND 1996

(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 worldwide to ocean carriers. To this extent, the
         Partnership's operations are subject to the fluctuations of world
         economic and political conditions. Such factors may affect the pattern
         and levels of world trade. The Partnership believes that the
         profitability of, and risks associated with, leases to foreign
         customers is generally the same as those of leases to domestic
         customers. The Partnership's leases generally require all payments to
         be made in United States currency.

         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.

     (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, and rentals are based upon the number
         of containers used and the applicable per-diem rate. Accordingly,
         rentals under master leases are all variable and contingent upon the
         number of containers used. Most containers are leased to ocean carriers
         under master leases; leasing agreements with fixed payment terms are
         not material to the financial statements. Since there are no material
         minimum lease rentals, no disclosure of minimum lease rentals is
         provided in these financial statements.

         See note 10 for further discussion regarding CCC and the Leasing
         Company.


                                       22
<PAGE>   23

                              IEA INCOME FUND VII,
                        A CALIFORNIA LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS

     (c) Concentrations of Credit Risk

         The Partnership's financial instruments that are exposed to
         concentrations of credit risk consist primarily of cash, cash
         equivalents and net lease receivables due from the Leasing Company. See
         note 3 for further discussion regarding the credit risk associated with
         cash and cash equivalents.

         Net lease receivables due from the Leasing Company (see notes 1(b) and
         4 for discussion regarding net lease receivables) subject the
         Partnership to a significant concentration of credit risk. These net
         lease receivables, representing rentals collected from ocean carriers
         after deducting direct operating expenses and management fees to CCC
         and the Leasing Company, are remitted by the Leasing Company to the
         Partnership three to four times per month. The Partnership has
         historically never incurred a loss associated with the collectability
         of unremitted net lease receivables due from the Leasing Company.
         However, CCC and the Partnership are unable to predict the outcome of
         the events discussed in note 10 and their potential impact on the
         credit risk associated with these net lease receivables.

     (d) Basis of Accounting

         The Partnership utilizes the accrual method of accounting. Net lease
         revenue is recorded by the Partnership in each period based upon its
         leasing agent agreement with the Leasing Company. Net lease revenue is
         generally dependent upon operating lease rentals from operating lease
         agreements between the Leasing Company and its various lessees, less
         direct operating expenses and management fees due in respect of the
         containers specified in each operating lease agreement.

         The preparation of financial statements in conformity with generally
         accepted accounting principles (GAAP) requires the Partnership to make
         estimates and assumptions that affect the reported amounts of assets
         and liabilities and disclosure of contingent assets and liabilities at
         the date of the financial statements and the reported amounts of
         revenues and expenses during the reporting period. Actual results could
         differ from those estimates.

     (e) Allocation of Net Earnings and Partnership Distributions

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

         Actual cash distributions differ from the allocations of net earnings
         between the general and limited partners as presented in these
         financial statements. Partnership distributions are 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 were
         allocated 95% to the limited partners and 5% to the general partners.
         Distributions of sales proceeds were 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%.


                                       23
<PAGE>   24

                              IEA INCOME FUND VII,
                        A CALIFORNIA LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS

    (e)  Allocation of Net Earnings and Partnership Distributions - (continued)

         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 allocations of sales
         proceeds remained unchanged. These allocations remained in effect until
         1994, at which time the limited partners have received from the
         Partnership 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. 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.

    (f)  Container Rental Equipment

         In accordance with SFAS No. 121, "Accounting for the Impairment of
         Long-Lived Assets and for Long-Lived Assets to Be Disposed Of",
         container rental equipment is considered to be impaired if the carrying
         value of the asset exceeds the expected future cash flows from related
         operations (undiscounted and without interest charges). If impairment
         is deemed to exist, the assets are written down to fair value.
         Depreciation policies are also evaluated to determine whether
         subsequent events and circumstances warrant revised estimates of useful
         lives. There were no reductions to the carrying value of container
         rental equipment during 1998, 1997 and 1996.

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

    (g)  Income Taxes

         The Partnership is not subject to income taxes, consequently no
         provision for income taxes has been made. The Partnership files federal
         and state annual information tax returns, prepared on the accrual basis
         of accounting. Taxable income or loss is reportable by the partners
         individually.


    (h)  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) Operating Segment

    The Financial Accounting Standards Board has issued SFAS No. 131,
    "Disclosures about Segments of an Enterprise and Related Information", which
    changes the way public business enterprises report financial and descriptive
    information about reportable operating segments. An operating segment is a
    component of an enterprise that engages in business activities from which it
    may earn revenues and incur expenses, whose operating results are regularly
    reviewed by the enterprise's chief operating decision maker to make
    decisions about resources to be allocated to the segment and assess its
    performance, and about which separate financial information is available.
    Management operates the Partnership's container fleet as a homogenous unit
    and has determined, after considering the requirements of SFAS No. 131, that
    as such it has a single reportable operating segment.


                                       24
<PAGE>   25

                              IEA INCOME FUND VII,
                        A CALIFORNIA LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS

(2) Operating Segment - (continued)

    The Partnership derives revenues from dry cargo containers. As of December
    31, 1998, the Partnership operated 742 twenty-foot and 732 forty-foot marine
    dry cargo containers.

    Due to the Partnership's lack of information regarding the physical location
    of its fleet of containers when on lease in the global shipping trade, it is
    impracticable to provide the geographic area information required by SFAS
    No. 131. 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.

    No single lessee contributed more than 10% of the rental revenue earned
    during 1998, 1997 and 1996.

(3)  Cash and Cash Equivalents

     Cash equivalents include highly-liquid investments with a maturity of three
     months or less on their acquisition date. Cash equivalents are carried at
     cost which approximates fair value. The Partnership maintains its cash and
     cash equivalents in accounts which, at times, may exceed federally insured
     limits. The Partnership has not experienced any losses in such accounts and
     believes it is not exposed to any significant credit risk. The Partnership
     places its cash equivalents in investment grade, short-term debt
     instruments and limits the amount of credit exposure with any one
     commercial issuer.


(4)  Net Lease Receivables Due from Leasing Company

     Net lease receivables due from the Leasing Company are determined by
     deducting direct operating payables and accrued expenses, base management
     fees payable, 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, 1998 and December 31, 1997 were as follows:


<TABLE>
<CAPTION>
                                                                   December 31,     December 31,
                                                                      1998             1997
                                                                   -----------      ------------  
         <S>                                                       <C>            <C>
         Lease receivables, net of doubtful accounts of
            $22,438 in 1998 and $22,298 in 1997                    $286,993          $214,636
         Less:
         Direct operating payables and accrued expenses              74,866            79,696
         Damage protection reserve (note 5)                          20,870            23,056
         Base management fees                                        32,974            28,980
         Reimbursed administrative expenses                           3,559             4,207
         Incentive fees                                              19,764            21,920
                                                                   --------          ---------  
                                                                   $134,960          $ 56,777
                                                                   ========          =========
</TABLE>


                                       25
<PAGE>   26

                              IEA INCOME FUND VII,
                        A CALIFORNIA LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS

(5)  Damage Protection Plan

     The Leasing Company offers a repair service to several lessees of the
     Partnership's containers, whereby the lessee pays an additional rental fee
     for the convenience of having the Partnership incur the repair expense for
     containers damaged while on lease. This fee is recorded as revenue when
     earned according to the terms of the rental contract. A reserve has been
     established to provide for the estimated costs incurred by this service.
     This reserve is a component of net lease receivables due from the Leasing
     Company (see note 4). The Partnership is not responsible in the event
     repair costs exceed predetermined limits, or for repairs that are required
     for damages not defined by the damage protection plan agreement.

 (6) 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, 1998, 1997
     and 1996, was as follows:

<TABLE>
<CAPTION>
                                                        1998             1997             1996
                                                     ---------         --------        ----------

<S>                                                  <C>               <C>            <C>       
         Rental revenue (note 2)                      $847,713         $931,869       $1,170,639
         Less:
         Rental equipment operating expenses           179,260          256,206          317,404
         Base management fees (note 7)                  59,427           64,513           78,665
         Reimbursed administrative expenses (note 7)    50,257           51,243           65,231
         Incentive fees (note 7)                        85,164           83,726           89,835
                                                      --------          --------       ----------
                                                      $473,605          $476,181       $  619,504
                                                      ========          ========       ==========
</TABLE>


(7)  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 for 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>
                                                        1998             1997              1996
                                                      --------         --------          --------

<S>                                                  <C>               <C>             <C>       
         Base management fees                         $ 59,427         $ 64,513         $ 78,665
         Reimbursed administrative expenses             50,257           51,243           65,231
         Incentive fees                                 85,164           83,726           89,835
                                                      --------         --------          --------
                                                      $194,848         $199,482          $233,731
                                                      ========         ========          ========
</TABLE>


                                       26
<PAGE>   27

                              IEA INCOME FUND VII,
                        A CALIFORNIA LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS

(8)  Limited Partners' Capital

     Cash distributions made to the limited partners during 1998, 1997 and 1996
     included distributions of proceeds from equipment sales in the amount of
     $232,856, $171,730 and $122,249, 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, 1998, 1997
     and 1996 was $190, $237 and $290, 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.


(9)  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, 1998, 1997 and 1996 are as follows:

<TABLE>
<CAPTION>
                                                          1998          1997           1996
                                                        --------     --------        --------
        <S>                                             <C>           <C>            <C>
         Net earnings per statement of operations       $361,162      $273,177       $408,537
         Depreciation for income tax purposes less
            than depreciation for financial
            statement purposes                           233,190       253,090        200,631

         Gain on disposition of assets for tax
            purposes in excess of gain on
            disposition for financial statement          200,026       177,370        109,356
            purposes
         Other expenses not deductible for tax
            purposes                                      17,463        16,816         28,466
         Bad debt expense for tax purposes less
            than (in excess of) bad debt expense
            for financial statement purposes                 533       (65,225)        (2,068)
                                                        --------     --------        --------
         Net earnings for federal tax purposes          $812,374     $655,228        $744,922
                                                        ========     ========        ========
</TABLE>


     At December 1998 the tax basis of total partners' capital was $1,134,481.

(10) The Cronos Group

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

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

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


                                       27
<PAGE>   28

                              IEA INCOME FUND VII,
                        A CALIFORNIA LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS


 (10) The Cronos Group - (continued)

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

     During the Partnership's fiscal year ended December 31, 1995 and the
     subsequent interim period preceding Arthur Andersen's resignation, there
     were 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.

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

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

     Following negotiations in 1997 with the banks providing the Credit
     Facility, an Amended and Restated Credit Agreement was executed in June
     1997, subject to various actions being taken by the Parent Company and its
     subsidiaries, primarily relating to the provision of additional collateral.
     This Agreement was further amended in July 1997 and the provisions of the
     Agreement and its Amendment converted the facility to a term loan, payable
     in installments, with a final maturity date of May 31, 1998. The terms of
     the Agreement and its Amendment also provided for additional security over
     shares in the subsidiary of the Parent Company that owns the head office of
     the Parent Company's container leasing operations. They also provided for
     the loans to the former Chairman of $5,900,000 and $3,700,000 to be
     restructured as obligations of the former Chairman to another subsidiary of
     the Parent Company (not CCC), together with the pledge to this subsidiary
     company of 2,030,303 Common Shares beneficially owned by him in the Parent
     Company as security for these loans. They further provided for the
     assignment of these loans to the lending banks, together with the pledge of
     1,000,000 shares and the assignment of the rights of the Parent Company in
     respect of the other 1,030,303 shares. Additionally, CCC granted the
     lending banks a security interest in the fees to which it is entitled for
     the services it renders to the container leasing partnerships of which it
     acts as general partner, including its fee income payable by the
     Partnership. The Parent Company did not repay the Credit Facility at the
     amended maturity date of May 31, 1998.

     On June 30, 1998, the Parent Company entered into a third amendment (the
     "Third Amendment") to the Credit Facility. Under the Third Amendment, the
     remaining principal amount of $36,800,000 was to be amortized in varying
     monthly amounts commencing on July 31, 1998 with $26,950,000 due on
     September 30, 1998 and a final maturity date of January 8, 1999. The Parent
     Company did not repay the amounts due on September 30, 1998 and January 8,
     1999. The balance outstanding on the Credit Facility at December 31, 1998
     was $33,110,000.

     In March 1999, the Parent Company agreed to a proposal to extend the Credit
     Facility until September 30, 1999 and expects that a fourth amendment (the
     "Fourth Amendment"), with a final maturity date of September 30, 1999, will
     be signed in April 1999.


                                       28
<PAGE>   29

                              IEA INCOME FUND VII,
                        A CALIFORNIA LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS

(10) The Cronos Group - (continued)

     The directors of the Parent Company also are pursuing alternative sources
     of financing to meet the amended repayment obligations anticipated under
     the Fourth Amendment. Failure to meet revised lending terms would
     constitute an event of default with the lenders. The declaration of an
     event of default would result in further defaults with other lenders under
     loan agreement cross-default provisions. Should a default of the term loans
     be enforced, the Parent Company and CCC may be unable to continue as going
     concerns.

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

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


                                       29
<PAGE>   30

                                                                      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, 1998, 1997 AND 1996



<TABLE>
<CAPTION>
                                                       1998             1997             1996
                                                      -------          -------          -------
<S>                                                   <C>              <C>              <C>    
     Salaries                                         $23,909          $23,664          $31,122
     Other payroll related expenses                     4,137            4,354            5,386
     General and administrative expenses               22,211           23,225           28,723
                                                      -------          -------          -------

     Total reimbursed administrative expenses        $ 50,257          $51,243          $65,231
                                                     ========          =======          =======
</TABLE>



                  See report of independent public accountants


                                       30
<PAGE>   31

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

   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, the Parent Company, on February 3, 1997.

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

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

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

   During the Registrant's fiscal year ended December 31, 1995 and the
subsequent interim period preceding Arthur Andersen's resignation, there were no
disagreements between CCC or the Registrant and Arthur Andersen on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure.

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

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


                                       31
<PAGE>   32

                                    PART III


Item 10.  Directors and Executive Officers of the Registrant

   The Registrant, as such, has no officers or directors, but is managed by CCC,
the general partner. The officers and directors of CCC at March 31, 1999, are as
follows:

<TABLE>
<CAPTION>
                 Name                                         Office
          -------------------             --------------------------------------------------------
<S>       <C>                              <C>
          Dennis J. Tietz                 President, Chief Executive Officer, and Director
          Peter J. Younger                Treasurer, Principal Accounting Officer, and Director
          Elinor A. Wexler                Vice President/Administration and Secretary, and Director
          John P. McDonald                Vice President/Sales, and Director
</TABLE>


   DENNIS J. TIETZ  Mr. Tietz, 46, as President and Chief Executive Officer, is
responsible for the general management of CCC. Mr. Tietz was elected Chief
Executive Officer of The Cronos Group, parent company of CCC, in December 1998.
Mr. Tietz is also President and a director of Cronos Securities Corp. From 1986
until August 1992, Mr. Tietz was responsible for the organization, marketing and
after-market support of CCC's investment programs. Mr. Tietz was a regional
manager for CCC, responsible for various container leasing activities in the
U.S. and Europe from 1981 to 1986. Prior to joining CCC in December 1981, Mr.
Tietz was employed by Trans Ocean Leasing Corporation as Regional Manager based
in Houston, with responsibility for all leasing and operational activities in
the U.S. Gulf.

   Mr. Tietz holds a B.S. degree in Business Administration from San Jose State
University and is a Registered Securities Principal with the NASD.

   PETER J. YOUNGER  Mr. Younger, 42, was elected Treasurer and Principal
Accounting Officer in 1998. Mr. Younger joined the Board of Directors of CCC in
June 1997. See key management personnel of the Leasing Company for further
information.

   ELINOR A. WEXLER  Ms. Wexler, 50, was elected Vice President - Administration
and Secretary of CCC in August 1992. Ms. Wexler joined the Board of Directors of
CCC in June 1997. Ms. Wexler has been employed by the General Partner since
1987, and is responsible for investor services, compliance and securities
registration. From 1983 to 1987, Ms. Wexler was Manager of Investor Services for
The Robert A. McNeil Corporation, a real estate syndication company, in San
Mateo, California. From 1971 to 1983, Ms. Wexler held various positions,
including securities trader and international research editor, with Nikko
Securities Co., International, based in San Francisco.

   Ms. Wexler attended the University of Oregon, Portland State University and
the Hebrew University of Jerusalem, Israel. Ms. Wexler is also Vice President
and Secretary of Cronos Securities Corp. and a Registered Principal with the
NASD.

   JOHN P. MCDONALD  Mr. McDonald, 38, was elected Vice President - National
Sales Manager of CCC in August 1992, with responsibility for marketing CCC's
investment programs. Mr. McDonald joined the Board of Directors of CCC in
October 1997. 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.


                                       32
<PAGE>   33

   The key management personnel of the Leasing Company at March 31, 1999, were
as follows:

<TABLE>
<CAPTION>
                       Name                                  Title
             -------------------------    ---------------------------------------------
<S>          <C>                          <C>
             Steve Brocato                President
             Peter J. Younger             Vice President/Chief Financial Officer
             John M. Foy                  Vice President/Americas
             Nico Sciacovelli             Vice President/Europe, Middle East and
                                          Africa
             Harris H. T. Ho              Vice President/Asia Pacific
             David Heather                Vice President/Technical Services
             John C. Kirby                Vice President/Operations
             J. Gordon Steel              Vice President/Tank Container Division
</TABLE>


   STEVE BROCATO  Mr. Brocato, 46, was elected President of the Leasing
Company's container division in June 1997, and is based in the United Kingdom.
Mr. Brocato has held various positions since joining Cronos including, Vice
President - Corporate Affairs and Director of Marketing - Refrigerated
Containers for Cronos in North and South America. Prior to joining Cronos, Mr.
Brocato was a Vice President for ICCU Containers from 1983 to 1985 and was
responsible for dry cargo container marketing and operations for the Americas.
From 1981 to 1983, he was Regional Manager for Trans Ocean Leasing Ltd.

   PETER J. YOUNGER  Mr. Younger, 42, was elected Chief Financial Officer of The
Cronos Group in March, 1997, and is based in the United Kingdom. Mr. Younger was
appointed Vice President and Controller of Cronos in 1991. He joined IEA in 1987
and served as Director of Accounting and the Vice President and Controller,
based in San Francisco. Prior to 1987, Mr. Younger was a certified public
accountant and a principal with the accounting firm of Johnson, Glaze and Co. in
Salem, Oregon. Mr. Younger holds a B.S. degree in Business Administration from
Western Baptist College.

   JOHN M. FOY  Mr. Foy, 53, 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, 49, was elected Vice President - Europe,
Middle East and Africa in June 1997. Mr. Sciacovelli is directly responsible for
the Leasing Company's lease marketing and operations in Europe, the Middle East
and Africa and is based in Italy. Since joining Cronos in 1983, Mr. Sciacovelli
served as Area Director and Area Manager for Southern Europe. Prior to joining
Cronos, Mr. Sciacovelli was a Sales Manager at Interpool Ltd.

   HARRIS H. T. HO  Mr. Ho, 41, was elected Vice President - Asia Pacific in
June 1997. Mr. Ho is directly responsible for the Leasing Company's lease
marketing and operations in Asia, Australia and the Indian sub-continent and is
based in Hong Kong. Since joining Cronos in 1990, Mr. Ho served as Area
Director, Hong Kong and China. Prior to joining Cronos, Mr. Ho was a Manager at
Sea Containers Pacific Ltd and Sea Containers Hong Kong Limited from 1981 to
1990, responsible for container marketing within Asia. From 1978 to 1981, Mr. Ho
was Senior Equipment Controller for Hong Kong Container Line. Mr. Ho holds a
Diploma of Management Studies in Marketing from The Hong Kong Polytechnic and
The Hong Kong Management Association.


                                       33
<PAGE>   34

   DAVID HEATHER  Mr. Heather, 51, 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, 45, 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, 66, 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.


                                       34
<PAGE>   35

Item 11. Executive Compensation

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

   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. 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.

   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.


                                       35
<PAGE>   36

   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
1998.

<TABLE>
<CAPTION>
                                                                                      Cash Fees and
                 Name                             Description                         Distributions
          -------------------   -------------------------------------------------    ----------------

<S>                             <C>                                                   <C>
   1)                           Base management fees - equal to 7% of gross
                                lease revenues attributable to operating leases
                                pursuant to Section 4.3 of the Limited
          CCC                   Partnership Agreement                                $55,434


   2)                           Reimbursed administrative expenses - equal to
                                the costs expended by CCC and its affiliates for
                                services necessary to the prudent operation of
                                the Registrant pursuant to Section 4.4 of
          CCC                   the Limited Partnership Agreement                    $50,905


   3)                           Interest in Fund - percentage of distributable
                                cash for any quarter prior to receipt of the
                                incentive management fee, pursuant Section 6.1
          CCC                   of the Limited Partnership Agreement                 $42,173
          Associate General
          Partners
                                                                                     $10,544


   4)                           Interest in Fund - percentage of sales  proceeds
                                for any  quarter  pursuant to Section 6.1 of the
                                Limited Partnership Agreement
          CCC                                                                        $20,700
          Associate General
          Partners
                                                                                     $ 5,176


   5)                           Incentive management fee - 10% of cash
                                distributed from operations and sales proceeds
                                after a cumulative return to the Limited
                                Partners of 8% cumulative, compounded (daily),
                                annual return of their adjusted capital
                                contributions pursuant to Section 6.1 of the
          CCC                   Limited Partnership Agreement                        $69,857
          Associate General
          Partners
                                                                                     $17,463
</TABLE>


                                       36
<PAGE>   37

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                          39.0            .421%
                                                   -----           -----

       Officers, Directors, and CCC as a 
        Group                                      164.0           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 1998 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.


                                       37
<PAGE>   38

                                     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>
        Report of Independent Public Accountants................................................17


        Balance Sheets -December 31, 1998 and 1997..............................................18


        Statements of Operations - for the years ended December 31, 1998, 1997 and 1996.........19


        Statements of Partners' Capital - for the years ended December 31, 1998, 1997 and 1996..20


        Statements of Cash Flows - for the years ended December 31, 1998, 1997 and 1996.........21


        Notes to Financial Statements...........................................................22


        Schedule of Reimbursed Administrative Expenses - for the years ended December 31,
        1998, 1997 and 1996.....................................................................30
</TABLE>


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


                                       38
<PAGE>   39

   (a)3.  Exhibits

<TABLE>
<CAPTION>
            Exhibit
              No.                       Description                            Method of Filing
            -------                     -----------                            ----------------
<S>          <C>       <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

        No reports on Form 8-K were filed by the Registrant during the quarter
        ended December 31, 1998.

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

*   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)


                                       39
<PAGE>   40

                                   SIGNATURES



        Pursuant to the requirements 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/  Dennis J. Tietz
                                ------------------------------------
                                Dennis J. Tietz
                                President and Director of Cronos Capital Corp. 
                                 ("CCC")
                                Principal Executive Officer of CCC




Date:  March 31, 1999


   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
--------------------------                Cronos Capital Corp.                March 31, 1999
Dennis J. Tietz                      ("CCC") (Principal Executive
                                           Officer of CCC)
                                    
                                 

 /s/  Peter Younger                     Treasurer and Director of             March 31, 1999
--------------------------            Cronos Capital Corp. ("CCC")
Peter Younger                          (Principal Financial and 
                                      Accounting Officer of CCC)

 /s/ John McDonald                     National Sales Manager
--------------------------                and Director of                     March 31, 1999
John McDonald                           Cronos Capital Corp.
</TABLE>




                            SUPPLEMENTAL INFORMATION

   The Registrant's annual report will be furnished to its limited partners on
or about April 30, 1999. 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>   41

                                         EXHIBIT INDEX

<TABLE>
<CAPTION>

            Exhibit
              No.                       Description                            Method of Filing
            -------                     -----------                            ----------------
<S>          <C>       <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)