TELECOMMUNICATIONS INCOME FUND XI LP - 10-K Annual Report

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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

For the fiscal year ended December 31, 2002

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

For the transition period from _____ to _____

Commission file number - 000-25593

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

Iowa 39-1904041
------------------------------ -----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

701 Tama Street, Marion, Iowa 52302
-------------------------------------- --------
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code 319-447-5700
------------

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

Securities pursuant to section 12 (g) of the Act:

Limited Partnership Interests (the "Units")
--------------
(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 (ss.229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K (X).

As of March 4, 2003, 12,369 units were issued and outstanding. Based on the book
value of $232.35 per unit at December 31, 2002, the aggregate market value at
March 4, 2003 was $2,873,937.

DOCUMENTS INCORPORATED BY REFERENCE. Portions of the Registration Statement on
Form S-1, dated November 26, 1997, are incorporated by reference into Part IV.

TELECOMMUNICATIONS INCOME FUND XI, L.P.
2002 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS

Page
PART I

Item 1. Business-------------------------------------------------------------3
Item 2. Properties-----------------------------------------------------------5
Item 3. Legal Proceedings----------------------------------------------------5
Item 4. Submission of Matters to a Vote of Unit Holders----------------------5

PART II

Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters----------------------------------5
Item 6. Selected Financial Data----------------------------------------------5
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations----------------------------------------6
Item 7A. Quantitative and Qualitative Disclosures About Market Risk----------10
Item 8. Financial Statements and Supplementary Data-------------------------10
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure--------------------------26

PART III

Item 10. Directors and Executive Officers of the Registrant------------------26
Item 11. Executive Compensation----------------------------------------------27
Item 12. Security Ownership of Certain Beneficial Owners and Management------28
Item 13. Certain Relationships and Related Transactions----------------------28
Item 14. Controls and Procedures---------------------------------------------28

PART IV

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.----29
Signatures----------------------------------------------------------30
Certifications------------------------------------------------------31

2

PART I

Item 1. Business
--------
Telecommunications Income Fund XI, L.P., an Iowa limited partnership (the
"Partnership"), was organized on August 26, 1997. The general partner is Berthel
Fisher & Company Leasing, Inc. (the "General Partner"), an Iowa corporation that
has been in operation since 1988. The Partnership's business and the executive
offices of the General Partner are located at 701 Tama Street, Marion, Iowa
52302. Substantially all of the voting stock of the General Partner is owned by
Berthel Fisher & Company ("Berthel Fisher").

The Partnership began offering units to the public on December 23, 1997. The
General Partner elected to extend the offering period and the closing date to
December 23, 1999. The business of the Partnership is the acquisition and
leasing of equipment, primarily telecommunications equipment such as pay
telephones and call processing equipment. The Partnership began its primary
business activities in February of 1998.

The Partnership will operate until December 31, 2012 unless dissolved sooner due
to the occurrence of any of the following events: (i) the vote by limited
partners owning a majority of the Partnership in accordance with the Partnership
Agreement; (ii) the withdrawal, bankruptcy, or dissolution and liquidation or
other cessation to exist as a legal entity of the General Partner (unless any
successor general partner elected in accordance with the provisions of the
Partnership Agreement elects to continue the business of the Partnership); (iii)
the final distribution of all liquidating distributions among the limited
partners pursuant to the Partnership Agreement; or (iv) the sale or disposition
of all or substantially all of the assets of the Partnership without the
subsequent reinvestment in equipment.

A significant portion of the Partnership's business is and is intended to be
with customers who are in the telecommunications industry. The
telecommunications industry, particularly the pay telephone and long distance
facets of the industry, is heavily regulated by the Federal Communications
Commission ("FCC") and by various state public utility commissions. Regulation
is not directed at the ownership or leasing of telecommunications equipment, but
is focused primarily on the business of the Partnership's customers that operate
in the telecommunications industry. Generally, regulation affects rates that can
be charged and the relationship of the regional Bell operating companies to the
rest of the pay telephone industry. Management does not expect regulation to
have any significant negative impact upon the business of the Partnership.

The principle investment objective of the Partnership is to obtain the maximum
available economic return from its investment in equipment leases to
unaffiliated third parties with a view toward: (i) generating cash flow from
operations, with the intent to make distributions during the Operating Phase
(the period which ends when the General Partner elects to begin the liquidation
of the Partnership assets); (ii) reinvesting (during the Operating Phase) any
undistributed cash flow from operations in additional equipment to be leased to
increase the Partnership's assets; (iii) obtaining the residual values of
equipment upon sale; (iv) obtaining value from sales of the Partnership's lease
portfolio upon entering the Liquidating Phase (the period during which the
General Partner will liquidate the Partnership assets); and (v) providing cash
distributions to the partners during the liquidating phase.

The Partnership intends to acquire primarily telecommunications equipment
(specifically pay telephones and call processing equipment) that is leased to
third parties. Other types of equipment have also been and will be acquired by
the Partnership and leased to customers. During 2002 the Partnership acquired
equipment subject to leases with a cost of $13,182. The Partnership also
provides financing to customers under note agreements.

3

Equipment acquired by the Partnership is installed in various locations by the
lessees. When the lessee installs the equipment in a location, a site location
agreement gives the lessee the right to have the equipment at this site for a
specified period of time. These site location agreements generally have a three
to five year term. The Partnership, in addition to its ownership of the
equipment, takes an assignment of and a first security interest in these site
location agreements. Therefore, if a lessee defaulted, the Partnership could
have the ability to re-sell or re-lease the equipment in place. This "in place"
value is generally much higher than the residual value of the equipment.
Telecommunications equipment generates revenue primarily through long distance
phone calls. The Partnership's lessee generally receives long distance revenue
from a contracted third party billing company. The Partnership also takes an
assignment of this revenue.

The General Partner acquires and approves leases on behalf of the Partnership.
The General Partner established guidelines to use in approving lessees.
Generally, before any lease is approved, there is a review of the potential
lessees' financial statements, credit references are checked, and outside
business and/or individual credit reports are obtained.

The equipment purchased by the Partnership consists of advanced technology pay
telephones and call processing systems to be used in hotels, hospitals,
colleges, universities, correctional institutions, and other locations. Although
the Partnership will concentrate its equipment acquisitions in
telecommunications equipment, it will also acquire other types of equipment that
meet the investment objectives of the Partnership.

The Partnership's equipment leases are concentrated in pay telephones and office
and computer equipment representing approximately 64% and 21% of the
Partnership's direct finance lease and notes receivable portfolio at December
31, 2002, respectively. For the year ended December 31, 2002, one customer
accounted for approximately 11% of the income from direct financing leases and
notes receivable. Two customers account for approximately 23% of the
Partnership's net investment in direct financing leases and notes receivable
portfolio at December 31, 2002.

The telecommunications industry has seen a significant downturn in recent years
that has adversely affected the Partnership. The value of payphones and payphone
routes has declined substantially in recent years and is due to various factors,
including but not limited to the following:

o Lack of sufficient dial around revenues for payphone operators
o Decrease in usage of payphones, due to the use of mobile phones, etc.
o Lack of economies of scale being achieved with the cost of lines
purchased from local exchange carriers
o Lack of available capital for payphone operators
o Decrease in the number of payphone operators

Management believes that these conditions may be overcome if current lobbying
efforts are successful and economic conditions become more favorable for
payphone operators. However, no assurance can be given that any of these
conditions may improve or that current values in the telecommunications industry
will not continue to decline.

The leasing industry is highly competitive and the Partnership has fewer assets
than some of its major competitors. The principal methods of competition include
service and price (interest rate). The Partnership operates in one segment.

The Partnership has no employees and utilizes the administrative services of the
General Partner for which it pays an administrative service fee.

4

Item 2. Properties
----------
The Partnership does not own or lease any real estate. The Partnership's
materially important assets consist entirely of equipment under lease, primarily
telecommunications equipment, industrial equipment, and computer equipment, as
described in Item 1.

Item 3. Legal Proceedings
-----------------
None.

Item 4. Submission of Matters to a Vote of Unit Holders
-----------------------------------------------
No matters were submitted to a vote of limited partners, through the
solicitation of proxies or otherwise during the year covered by this report.

PART II

Item 5. Market for the Registrant's Common Equity and Related Stockholder
-----------------------------------------------------------------
Matters
-------

The Registrant's units are not publicly traded. There is no market for the
Registrant's units and it is unlikely that any will develop. The General Partner
will resist the development of a public market for the units.

Number of Partners
Title of Class at March 4, 2003
-----------------------------------------------------------
Limited Partner 668
General Partner 1

Distributions are paid to Partners on a monthly basis. Through December 31, 2002
distributions paid or payable to Partners over the life of the Partnership have
been $4,811,703. As of December 31, 2002 the Partnership had accrued
distributions to Partners of $98,952.

Item 6. Selected Financial Data
-----------------------

Year Ended Year Ended Year Ended Year Ended Year Ended
Dec. 31, 2002 Dec. 31, 2001 Dec. 31, 2000 Dec. 31, 1999 Dec. 31, 1998
------------- ------------- ------------- ------------- -------------

Total revenue $ 454,822 $ 912,425 $ 1,378,819 $ 1,172,549 $ 377,483
Net income (loss) (1,015,105) (2,633,022) (399,728) 676,665 157,464
Total assets 3,124,698 6,399,122 11,991,088 13,196,905 5,053,409
Line of credit agreement -0- 898,873 2,374,423 1,973,142 -0-
Distributions to partners 1,189,352 1,202,320 1,208,928 886,545 324,559
Earnings (loss) per unit (81.92) (210.04) (31.74) 72.99 46.18
Distributions per unit 95.99 95.91 96.00 95.63 95.18

The above selected financial data should be read in connection with the
financial statements and related notes appearing elsewhere in this report.

5

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

Results of Operations

Year Ended Year Ended Year Ended
Dec. 31, 2002 Dec. 31, 2001 Dec. 31, 2000
------------- ------------- -------------

Lease and notes receivable income $ 516,009 $ 1,013,484 $ 1,229,141
Gain (loss) on lease terminations (87,784) (150,796) 70,238
Interest and other income 26,597 49,737 79,440
Management fees 58,390 74,249 124,738
Administrative service fees 194,500 156,000 144,000
Other general & administrative expenses 245,950 169,480 214,798
Interest expense 25,387 123,879 145,390
Depreciation expense -0- 394,481 -0-
Impairment loss -0- 1,299,457 584,966
Provision for possible losses 945,700 1,327,901 564,655

The decrease in lease and notes receivable income in 2002 compared to 2001 and
2000 is primarily due to a smaller portfolio of direct financing leases and
notes receivable. Income also decreased due to a significant number of lease and
note contracts that are past due over 90 days, at which time the Partnership
places these contracts on a non-accrual basis, as discussed below. The
Partnership's net investment in direct financing leases and notes receivable was
$10,480,086 at December 31, 2000, $8,247,891 at December 31, 2001, and
$3,617,605 at December 31, 2002. During 2001, the Partnership acquired equipment
for direct financing leases of $793,134 and issued notes receivable in the
amount of $532,249. During 2002, the Partnership acquired equipment for direct
financing leases of $13,182 and issued notes receivable in the amount of
$76,226. Given the current market in general as well as the specific
telecommunications market, the General Partner has determined to limit its
investment in new leases and notes receivable at this time. Interest and other
income of $26,597 in 2002 is primarily interest income on a money market account
and other investments, late charges on lease payments, and other income.

Certain lessees have requested early termination of their lease contracts with
the Partnership. As the payphone industry matures, the capital structure of
these lessees has reached a level whereby they are able to secure financing from
other sources. When this occurs, the Partnership will always quote an amount at
least equal to the Partnership's net investment and typically an amount
exceeding the net investment. In addition to some lessees improving capital
structure, some lessees have been acquired by other entities whose capital
structure is such that they also desire to refinance the equipment which was
under lease to the Partnership. In some cases, lessees may experience financial
difficulty and the Partnership may sell the equipment or enter into a new
agreement with another lessee at a loss. As such, the Partnership's gain or loss
on lease terminations can and will vary from year to year based on the number of
requests received to terminate leases as well as the size of the contract being
terminated. The Partnership uses the cash generated from these early
terminations for various activities, including investing in other direct
financing leases and notes receivable, paying off debt, or other operating or
financing activities. For 2002, the proceeds from early contract terminations
were $1,226,909, resulting in a loss of $87,784. For 2001, the proceeds from
early contract terminations were $1,634,435, resulting in a loss of $150,796.

Management fees are paid to the General Partner and represent 2% of the rental
and note payments received. Payments received in the years ended December 31 are
as follows:

2002 2001 2000
---- ---- ----
Rental and note payments received $ 2,919,500 $ 3,712,450 $ 6,236,900

The Partnership pays a monthly administrative service fee to the General
Partner, resulting in expense of $144,000 in 2000, $156,000 in 2001, and
$194,500 in 2002. The increase in administrative fees paid is due to an increase
in administrative costs incurred by the General Partner on behalf of the
Partnership.

6

Interest expense in 2002 was $25,387, compared to $123,879 in 2001 and $145,390
in 2000, and is the result of borrowings on the line of credit agreement. The
line of credit agreement was terminated and paid off entirely in June, 2002.

In November 2000, the Partnership exercised its right to manage the assets
leased to Alpha Telecommunications, Inc. ("ATI") due to nonpayment of
receivables. The Partnership engaged a company to oversee the operations of the
pay phone routes and to attempt to sell the equipment. Depreciation expense on
this equipment was $394,481 for 2001. In March of 2001 the Partnership signed an
agreement to sell a portion of these phones for $286,114. That sale resulted in
a loss of $115,476. In the fourth quarter of 2001, the Partnership agreed to
sell the remaining equipment to the company that was operating the phones for
$224,000. The Partnership wrote the equipment down to this sales price and
incurred an impairment loss of $1,124,457 on the equipment in 2001, in addition
to an impairment loss of $584,966 in 2000. During 2001, the additional losses on
this equipment were a result of a substantial loss in the number of operable
payphones and also due to the general decline in payphone equipment, as
described in item 1. Many payphone site owners signed contracts with other
payphone operators as a result of ATI's bankruptcy filing.

The Partnership repossessed equipment, primarily office furniture, from another
lessee during the third quarter of 2001. An impairment loss of $175,000 was
taken in 2001 to write this equipment down to its estimated value of $23,949 at
December 31, 2001. This equipment was sold in February, 2002 for $25,000.

The allowance for possible loan and lease losses is based upon a continuing
review of past lease loss experience, current economic conditions, and the
underlying lease asset value of the portfolio. At the end of each quarter a
review of the allowance account is conducted. The Partnership has a total
allowance of $1,045,951 or 28% of the portfolio of leases and notes and other
receivables as of December 31, 2002. The Partnership's provision for possible
loan and lease losses was $945,700 in 2002, $1,327,901 in 2001, and $564,655 in
2000, and is the result of various lease and note contract delinquencies and
bankruptcy filings by several customers. Management will continue to monitor the
portfolio of leases and notes adjust the allowance for possible loan and lease
losses accordingly.

At December 31, 2002, nine customers were past due over 90 days or had filed
bankruptcy through March 4, 2003. When a payment is past due more than 90 days,
the Partnership discontinues recognizing income on the contract. The
Partnership's net investment in the past due contracts was $988,448. The
provision for possible loan and lease losses is primarily the result of the
necessity to increase the allowance related to these customers and other
customers in which the contracts were terminated during 2002 and the equipment
sold to other lessees. Management will continue to monitor the past due
contracts and take the necessary steps to protect the Partnership's investment.

The telecommunications industry has seen a significant downturn in recent years
that has adversely affected the Partnership. The net investment on the above
delinquencies of $988,448 represents approximately 27% of the Partnership's
total portfolio of leases and notes. Management believes its total allowance of
$1,045,951 is adequate for these customers and the remainder of the portfolio
and other receivables at December 31, 2002, based on the underlying collateral
values of the lease and note contracts for past due contracts and historical
loss ratios. However, no assurance can be given that future losses or increases
in the total allowance will not be necessary.

7

Other general and administrative expenses consists of legal and accounting, data
processing, insurance, office supplies, and other miscellaneous expenses. These
expenses totalled $214,798 in 2000, $169,480 in 2001, and $245,950 in 2002. The
increase is primarily due to increased legal and repossession expenses incurred
as a result of the past due customers mentioned previously.

The General Partner is engaged directly for its own account in the business of
acquiring and leasing equipment. The General Partner also serves as the general
partner of Telecommunications Income Fund IX, L.P. ("TIF IX") and
Telecommunications Income Fund X, L.P. ("TIF X"), publicly owned limited
partnerships that are engaged in the equipment leasing business. Also, an
affiliate of the General Partner is the general partner of a privately offered
active limited partnership. As of December 31, 2002, the net proceeds of the
private program, TIF IX, and TIF X have been invested in specific equipment. TIF
IX is in its liquidation phase and must be dissolved by December 31, 2005. TIF X
is in its liquidation phase and was scheduled to liquidate by December 31, 2002.
TIF X did not liquidate by December 31, 2002 and did not ask the limited
partners to vote via a proxy statement to extend the Partnership; therefore the
Partnership will be liquidated as soon as feasibly possible. The activities of
the General Partner, in regards to its other leasing activities, has had no
impact on the Partnership to date in management's opinion.

The equipment that the Partnership leases is maintained by the lessee, and the
lessee is responsible for keeping the equipment upgraded with any improvements
that may be developed. The Partnership generally establishes the equipment's
residual value at 10% of the equipment's original cost. The Partnership
generally expects to realize the residual value by the sale of the equipment at
the expiration of the original lease term. The General Partner monitors the
maintenance and upgrades to the equipment and expects the Partnership to realize
residual values of at least 10%.

The General Partner is not aware of any regulatory issues that may have a
substantial negative impact on the telecommunications businesses to whom the
Partnership leases equipment. There are and will continue to be regulatory
issues in the telecommunications industry that the General Partner will monitor.

The equipment leases or notes acquired by the Partnership have been financed to
yield rates of return between 8% and 17%. The lease terms vary from 36 months to
60 months. The rate charged on a particular lease or note depends on the size of
the transaction and the financial strength of the lessee. Generally, before any
lease or note is approved, there is a review of the potential lessees' financial
statements, credit references are checked, and outside business and/or
individual credit reports are obtained.

Inflation affects the cost of equipment purchased and the residual values
realized when leases terminate and equipment is sold. The impact of inflation is
mitigated as any increases in lease related expenses are passed on to the
lessees through corresponding increases in rental rates as new leases are
entered into.

Berthel Fisher & Company, Inc., the parent of the General Partner, has $2.2
million of unsecured debt that was due December 31, 2002. Berthel Fisher &
Company, Inc. has not paid this debt as of the filing of this report and is in
default. Since Berthel Fisher & Company, Inc. is in default, its creditors could
take legal action to enforce their right to repayment. Ultimately, this could
result in the bankruptcy of Berthel Fisher & Company, Inc. Since the General
Partner is a subsidiary and asset of Berthel Fisher & Company, Inc., the
bankruptcy of Berthel Fisher & Company, Inc. could cause the General Partner to
be unable to continue as a going concern. If this were to happen, the
Partnership would need to elect or appoint a new general partner. The new
general partner could require additional fees and charges that would have a
significant negative impact on the operations of the Partnership.

8

Liquidity and Capital Resources
Year Ended Year Ended Year Ended
Major Cash Sources (Uses): Dec. 31, 2002 Dec. 31, 2001 Dec. 31, 2000
------------- ------------- -------------

Net cash from operating activities $ 95,846 $ 320,471 $ 518,790
Proceeds from line of credit borrowings 1,146,090 2,604,209 6,734,105
Repayments/terminations of leases & notes 2,673,119 3,538,682 6,089,216
Acquisitions of equip for direct finance leases (13,182) (793,134) (4,155,148)
Issuance of Notes Receivable (76,226) (532,249) (1,752,939)
Repayments of line of credit borrowings (2,044,963) (4,079,759) (6,332,824)
Distributions & withdrawals paid to partners (1,206,616) (1,307,217) (1,205,711)

The Partnership is required to establish working capital reserves of no less
than 1% of the total capital raised to satisfy general liquidity requirements,
operating costs of equipment, and the maintenance and refurbishment of
equipment. At December 31, 2002, that working capital reserve, as defined, would
be $125,930, and the Partnership had $408,718 of cash and cash equivalents at
December 31, 2002.

In January 1999, the Partnership obtained financing under a line of credit
agreement with a bank. The amount available to borrow under the line of credit
was limited to $2,000,000 or 32% of qualified accounts, primarily leases and
notes receivable. On October 26, 1999, the agreement was amended, increasing the
available amount to $4,400,000 (limited by 32% of qualified accounts) and
extending the maturity from June 30, 2000 to June 30, 2002. The interest rate
was 1% over the prime rate, with a $4,000 minimum monthly interest charge which
began in July, 1999, and the line of credit was collateralized by substantially
all assets of the Partnership. The line of credit was guaranteed by the General
Partner and certain affiliates of the General Partner. This agreement was not
renewed and was paid in full in June, 2002.

Cash flow from operating activities was $95,846 for 2002 and is derived from the
leasing operations of the Partnership, resulting from the income from direct
financing leases and notes receivable, less operating expenses. During 2002, the
Partnership used proceeds from the repayment and termination of leases and notes
to pay off the line of credit and make distributions to the partners.

Given the current market in general as well as the specific telecommunications
market, the General Partner has determined to limit its investment in new leases
and notes receivable at this time. As cash is available, the General Partner
will continue to assess market conditions to determine whether to make
distributions or reinvest in new leases and notes receivable during the
remaining operating phase of the Partnership.

9

Item 7A. Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
Interest Rate Sensitivity
The table below presents the principal amounts due and related weighted average
interest rates by expected maturity dates pertaining to the Partnership's notes
receivable as of December 31, 2002.

Assets
---------------------------------
Expected Fixed Rate Average
Maturity Date Notes Receivable Interest Rate
------------- ---------------- -------------
2003 $ 401,258 13.66%
2004 375,955 13.79%
2005 286,470 14.48%
2006 134,343 16.77%
2007 and thereafter 193,611 16.97%
-------------
Total $ 1,391,637
=============

Fair Value $ 1,014,000
=============

The Partnership manages interest rate risk, its primary market risk exposure, by
limiting the terms of notes receivable to no more than five years and generally
requiring full repayment ratably over the term of the note.

Item 8. Financial Statements and Supplementary Data
-------------------------------------------
The following financial statements and related information as of and for the
years ended December 31, 2002, 2001, and 2000 are included in Item 8:

Independent Auditors' Report
Balance Sheets
Statements of Operations
Statements of Changes in Partners' Equity
Statements of Cash Flows
Notes to Financial Statements

10

INDEPENDENT AUDITORS' REPORT

To the Partners
Telecommunications Income Fund XI, L.P.

We have audited the accompanying balance sheets of Telecommunications Income
Fund XI, L.P. (the "Partnership") as of December 31, 2002 and 2001, and the
related statements of operations, changes in partners' equity and cash flows for
each of the three years in the period ended December 31, 2002. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the 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, such financial statements present fairly, in all material
respects, the financial position of Telecommunications Income Fund XI, L.P. at
December 31, 2002 and 2001, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 2002, in conformity
with accounting principles generally accepted in the United States of America.

/s/ DELOITE & TOUCHE LLP
- -----------------------------
DELOITE & TOUCHE LLP

Cedar Rapids, Iowa
March 10, 2003

-11-

TELECOMMUNICATIONS INCOME FUND XI, L.P.

BALANCE SHEETS
DECEMBER 31, 2002 AND 2001
- ----------------------------------------------------------------------------------------

ASSETS (Note 6) 2002 2001

Cash and cash equivalents $ 408,718 $ 520
Net investment in direct financing leases
and notes receivable (Note 2) 3,617,605 8,247,891
Allowance for possible loan and lease losses (Note 3) (984,556) (2,059,034)
----------- -----------
Direct financing leases and notes receivable, net 2,633,049 6,188,857
Other receivables 82,931 185,796
Equipment under operating lease (Note 4) 23,949
----------- -----------

TOTAL $ 3,124,698 $ 6,399,122
=========== ===========

LIABILITIES AND PARTNERS' EQUITY

LIABILITIES:

Line-of-credit agreement (Note 6) $ 898,873
Outstanding checks in excess of bank balance 12,586
Due to affiliates $ 2,065 2,981
Distributions payable to partners 98,952 99,296
Accounts payable and accrued expenses 113,371 63,880
Lease security deposits 36,392 226,211
----------- -----------
Total liabilities 250,780 1,303,827
----------- -----------

CONTINGENCY (Note 11)

PARTNERS' EQUITY, 25,000 units authorized (Note 5):
General partner, 10 units issued and outstanding 2,914 4,693
Limited partners, 12,359 units issued and outstanding at
December 31, 2002 and 12,402 units issued and
outstanding at December 31, 2001 2,871,004 5,090,602
----------- -----------
Total partners' equity 2,873,918 5,095,295
----------- -----------

TOTAL $ 3,124,698 $ 6,399,122
=========== ===========

See notes to financial statements.

-12-

TELECOMMUNICATIONS INCOME FUND XI, L.P.

STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
- ---------------------------------------------------------------------------------------------------

2002 2001 2000
REVENUES:

Income from direct financing leases
and notes receivable $ 516,009 $ 1,013,484 $ 1,229,141
Gain (loss) on lease terminations (87,784) (150,796) 70,238
Interest and other income 26,597 49,737 79,440
----------- ----------- -----------
Total revenues 454,822 912,425 1,378,819
----------- ----------- -----------

EXPENSES:
Management and administrative fees (Note 7) 252,890 230,249 268,738
Other general and administrative expenses 245,950 169,480 214,798
Interest expense 25,387 123,879 145,390
Depreciation expense (Note 4) 394,481
Impairment loss (Note 4) 1,299,457 584,966
Provision for possible loan and lease losses (Note 3) 945,700 1,327,901 564,655
----------- ----------- -----------
Total expenses 1,469,927 3,545,447 1,778,547
----------- ----------- -----------

NET LOSS $(1,015,105) $(2,633,022) $ (399,728)
=========== =========== ===========

NET LOSS ALLOCATED TO:
General partner $ (819) $ (2,094) $ (317)
Limited partners (1,014,286) (2,630,928) (399,411)
----------- ----------- -----------
$(1,015,105) $(2,633,022) $ (399,728)
----------- ----------- -----------

NET LOSS PER PARTNERSHIP UNIT $ (81.92) $ (210.04) $ (31.74)
----------- ----------- -----------

WEIGHTED AVERAGE PARTNERSHIP UNITS
OUTSTANDING 12,391 12,536 12,593
----------- ----------- -----------

See notes to financial statements.

-13-

TELECOMMUNICATIONS INCOME FUND XI, L.P.

STATEMENTS OF CHANGES IN PARTNERS' EQUITY
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
- --------------------------------------------------------------------------------------------------------------------------

GENERAL LIMITED PARTNERS TOTAL
PARTNER ---------------------------- PARTNERS'
(10 UNITS) UNITS AMOUNT EQUITY

BALANCE AT DECEMBER 31, 1999 $ 9,024 12,583 $ 10,633,719 $ 10,642,743

Distributions to partners ($96.00 per unit) (Note 5) (960) (1,207,968) (1,208,928)

Net loss (317) (399,411) (399,728)
------------ ------------ ------------ ------------

BALANCE AT DECEMBER 31, 2000 7,747 12,583 9,026,340 9,034,087

Distributions to partners ($95.91 per unit) (Note 5) (960) (1,201,360) (1,202,320)

Withdrawal of limited partners (181) (103,450) (103,450)

Net loss (2,094) (2,630,928) (2,633,022)
------------ ------------ ------------ ------------

BALANCE AT DECEMBER 31, 2001 4,693 12,402 5,090,602 5,095,295

Distributions to partners ($95.99 per unit) (Note 5) (960) (1,188,392) (1,189,352)

Withdrawal of limited partners (43) (16,920) (16,920)

Net loss (819) (1,014,286) (1,015,105)
------------ ------------ ------------ ------------

BALANCE AT DECEMBER 31, 2002 $ 2,914 12,359 $ 2,871,004 $ 2,873,918
============ ============ ============ ============

See notes to financial statements

-14-

TELECOMMUNICATIONS INCOME FUND XI, L.P.

STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
- -----------------------------------------------------------------------------------------------------------------------

2002 2001 2000
OPERATING ACTIVITIES:

Net loss $(1,015,105) $(2,633,022) $ (399,728)
Adjustments to reconcile net loss to net cash from operating activities:
(Gain) loss on lease terminations 87,784 150,796 (70,238)
Amortization of intangibles 8 63 545
Provision for possible loan and lease losses 945,700 1,327,901 564,655
Impairment loss 1,299,457 584,966
Depreciation 394,481
Changes in operating assets and liabilities:
Other receivables 41,470 (118,054) (56,663)
Outstanding checks in excess of bank balance (12,586) (33,615) (150,658)
Due to affiliates (916) (3,556) (35,376)
Accounts payable and accrued expenses 49,491 (63,980) 81,287
----------- ----------- -----------
Net cash from operating activities 95,846 320,471 518,790
----------- ----------- -----------

INVESTING ACTIVITIES:
Acquisitions of, and purchases of equipment for, direct financing leases (13,182) (793,134) (4,155,148)
Repayments of direct financing leases 1,006,583 1,719,419 1,819,409
Proceeds from termination of direct financing leases 1,226,909 1,634,435 3,948,093
Proceeds from sale of equipment under operating lease 23,949 324,040
Repayments of notes receivable 439,627 184,828 321,714
Issuance of notes receivable (76,226) (532,249) (1,752,939)
Net lease security deposits collected (paid) (189,819) (75,025) 103,088
----------- ----------- -----------
Net cash from investing activities 2,417,841 2,462,314 284,217
----------- ----------- -----------
FINANCING ACTIVITIES:
Proceeds from borrowings 1,146,090 2,604,209 6,734,105
Repayment of borrowings (2,044,963) (4,079,759) (6,332,824)
Distributions and withdrawals paid to partners (1,206,616) (1,307,218) (1,205,711)
----------- ----------- -----------
Net cash from financing activities (2,105,489) (2,782,768) (804,430)
----------- ----------- -----------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 408,198 17 (1,423)

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 520 503 1,926
----------- ----------- -----------

CASH AND CASH EQUIVALENTS AT END OF YEAR $ 408,718 $ 520 $ 503
=========== =========== ===========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 30,066 $ 141,979 $ 139,425
Noncash investing activities:
Conversion of leases to equipment under operating lease 198,947 2,767,422
Conversion of equipment under operating leases to note receivable 224,000
Conversion of leases to notes receivable 428,749
Reclassification of a portion of the allowance to other receivables 61,395

See notes to financial statements

-15-

TELECOMMUNICATIONS INCOME FUND XI, L.P.

NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
- --------------------------------------------------------------------------------

1. SIGNIFICANT ACCOUNTING POLICIES

Organization and Nature of Operations- Telecommunications Income Fund XI,
L.P. (the "Partnership") was formed on August 26, 1997 under the Iowa
Limited Partnership Act. The general partner of the Partnership is Berthel
Fisher & Company Leasing, Inc. (the "General Partner"), an Iowa
corporation. During its offering period, the Partnership sold 12,583
limited partnership units at a price per unit of $1,000.

The Partnership operates in one segment. The Partnership's operations are
conducted throughout the United States. The Partnership primarily acquires
equipment for lease to third parties under a direct finance arrangement.
The Partnership will also provide financing to customers under a note
agreement. Certain agreements exceed 10% of the Partnership's direct
finance lease and notes receivable portfolio. On December 23, 2004 (or
earlier if the General Partner determines it to be in the Partnership's
best interest), the Partnership will cease reinvestment in equipment and
notes receivable and will begin the orderly liquidation of Partnership
assets. The Partnership must dissolve on December 31, 2012, or earlier,
upon the occurrence of certain events (see Note 5).

Use of Estimates - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ significantly from those estimated. Material
estimates that are particularly susceptible to significant change in the
near-term relate to the determination of the allowance for possible loan
and lease losses and the estimated unguaranteed residual values of the
Partnership's leased equipment.

Most of the Partnership's leases and notes receivable are with customers
that are in the entrepreneurial stage, are highly leveraged and require
financing in place of or to supplement financing from banks. Although the
Partnership attempts to mitigate its credit risk through the use of a
variety of commercial credit reporting agencies when processing the
applications of its customers, failure of the Partnership's customers to
make scheduled payments under their equipment leases and notes receivable
could have a material near-term impact on the allowance for possible loan
and lease losses.

Realization of residual values depends on many factors, several of which
are not within the Partnership's control, including general market
conditions at the time of the lease contract's expiration, whether there
has been unusual wear and tear on, or use of, the equipment, the cost of
comparable new equipment, the extent, if any, to which the equipment has
become technologically or economically obsolete during the contract term
and the effects of any additional or amended government regulations. Also,
the used equipment market, particularly the telecommunications market, can
be volatile. These factors, among others, could have a material near-term
impact on the estimated unguaranteed residual values.

-16-

Certain Risk Concentrations - The Partnership's portfolio of leases and
notes receivable are concentrated in pay telephones, industrial equipment
and office and computer equipment representing approximately 64%, 8%, and
21% of the portfolio at December 31, 2002 and 49%, 18% and 23% of the
portfolio at December 31, 2001, respectively.

Two customers account for approximately 23% of the Partnership's net
investment in direct financing leases and notes receivable portfolio at
December 31, 2002. (Three customers represented 34% at December 31, 2001).

Related Party Transactions - In fulfilling its role as general partner,
Berthel Fisher & Company Leasing, Inc. enters into transactions with the
Partnership in the normal course of business. Further, the Partnership
enters into transactions with affiliates of Berthel Fisher & Company
Leasing, Inc. These transactions are set forth in the notes that follow.
Management is of the opinion that these transactions are in accordance with
the terms of the Agreement of Limited Partnership.

Cash and Cash Equivalents - The Partnership considers all highly liquid
investments with a maturity of three months or less when purchased to be
cash equivalents.

Net Investment in Direct Financing Leases - The Partnership's primary
activity consists of leasing equipment under direct financing leases
generally over a period of three to five years. At the time of closing a
direct financing lease, the Partnership records the gross lease contract
receivable, the estimated unguaranteed residual value and unearned lease
income. The unearned lease income represents the excess of the gross lease
receivable plus the estimated unguaranteed residual value over the cost of
the equipment leased. In addition, the Partnership capitalizes all initial
direct costs associated with originating the direct financing lease. The
unearned income and initial direct costs are amortized to income over the
lease term so as to produce a constant periodic rate-of-return on the net
investment in the lease. Lessees are responsible for all taxes, insurance,
and maintenance costs.

The realization of the estimated unguaranteed residual value of leased
equipment depends on the value of the leased equipment at the end of the
lease term and is not a part of the contractual agreement with the lessee.
Estimated residual values are based on estimates of amounts historically
realized by the Partnership for similar equipment and are periodically
reviewed by management for possible impairment.

Notes Receivable - Notes receivable are carried at the principal balance
outstanding. Interest income on notes receivable is accrued based on the
principal amount outstanding.

Allowance for Possible Loan and Lease Losses - The Partnership performs
credit evaluations prior to approval of a loan and lease. Subsequently, the
creditworthiness of the customer and the value of the underlying assets are
monitored on an ongoing basis. Under its lease agreements, the Partnership
retains legal ownership of the leased asset. The Partnership maintains an
allowance for possible loan and lease losses which could arise should
customers become unable to discharge their obligations under the loan and
lease agreements. The allowance for possible loan and lease losses is
maintained at a level deemed appropriate by management to provide for known
and inherent risks in the loan and lease portfolio. The allowance is based
upon a continuing review of past loss experience, current economic
conditions, delinquent loans and leases, an estimate of potential loss
exposure on significant customers in adverse situations, and the underlying
asset value. The consideration of such future probable losses also includes
an evaluation for other than temporary declines in value of the underlying
assets. Loans and leases, which are deemed uncollectible, are charged off
and deducted from the allowance. The provision for possible loan and lease
losses and recoveries are added to the allowance.

-17-

Tax Status - Under present income tax laws, the Partnership is not liable
for income taxes, as each partner recognizes a proportionate share of the
Partnership income or loss in their income tax return. Accordingly, no
provision for income taxes is made in the financial statements of the
Partnership.

Net Loss Per Partnership Unit - Net loss per partnership unit is based on
the weighted average number of units outstanding (including both general
and limited partners' units).

Impact of New Accounting Pronouncements - In June, 1998, the Financial
Accounting Standard Board ("FASB") issued Statement of Financial Accounting
Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and
Hedging Activities". SFAS No. 133 establishes standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, (collectively referred to as derivatives) and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure
those instruments at fair value. The recognition of gains or losses
resulting from changes in the values of derivatives is based on the use of
each derivative instrument and whether it qualifies for hedge accounting.
The Partnership adopted SFAS No. 133 in the first quarter of 2001. The
adoption of this standard did not have any impact on the Partnership's
results of operations, financial position or cash flows.

2. NET INVESTMENT IN DIRECT FINANCING LEASES AND NOTES RECEIVABLE

The Partnership's net investment in direct financing leases and notes
receivable consists of the following at December 31, 2002 and 2001:

2002 2001

Minimum lease payments receivable $ 2,343,231 $ 5,768,242
Estimated unguaranteed residual values 242,762 455,000
Unamortized initial direct costs 1 9
Unearned income (360,026) (940,067)
Notes receivable, collateralized primarily by pay telephone
equipment and related site agreements, 8% to 17.2%,
maturing through 2007 1,391,637 2,964,707
----------- -----------
Net investment in direct financing leases and notes receivable $ 3,617,605 $ 8,247,891
=========== ===========

-18-

At December 31, 2002, the contractual principal maturities of notes
receivable, the future minimum payments to be received under direct
financing leases and the estimated unguaranteed residuals to be realized at
the expiration of direct financing leases are as follows:

Minimum Estimated
Contractual Lease Unguaranteed
Principal Payments Residual
Maturities Receivable Values
Years ending December 31:
2003 $ 401,258 $1,609,426 $ 72,426
2004 375,955 596,293 140,472
2005 286,470 115,686 28,364
2006 134,343 21,826 1,500
2007 193,611
---------- ---------- ----------
Total $1,391,637 $2,343,231 $ 242,762
========== ========== ==========

The Partnership leases equipment to certain companies for which the General
Partner or its affiliates have an ownership interest in, provide financing
to, or provide investment advisory services for such companies. The
Partnership's net investment in direct financing leases with these
companies approximated $127,978 and $184,390 at December 31, 2002 and 2001,
respectively.

Two customers accounted for 10% or more of the amount of income from direct
financing leases and notes receivable during one or more of the periods
presented, as follows:

2002 2001 2000

Customer A 11 % 4 % 14 %
Customer B 6 10

3. ALLOWANCE FOR POSSIBLE LOAN AND LEASE LOSSES

The changes in the allowance for possible loan and lease losses for the
years ended December 31, 2002, 2001 and 2000 is as follows:

2002 2001 2000

Balance at beginning of year $ 2,059,034 $ 739,699 $ 239,857
Provision 945,700 1,327,901 564,655
Charge-offs (1,958,783) (8,566) (64,813)
Reclassification to other receivables (61,395)
----------- ----------- -----------
Balance at end of year $ 984,556 $ 2,059,034 $ 739,699
=========== =========== ===========

The allowance for possible loan and lease losses consisted of specific
allowances for leases and notes receivable of $733,370, $1,706,000 and
$586,760 and a general unallocated allowance of $251,186, $353,034 and
$152,939, respectively, at December 31, 2002, 2001 and 2000.

-19-

At December 31, 2002, the Partnership had nine customers with payments over
90 days past due or that have filed bankruptcy. The Partnership's net
investment in lease contracts or notes receivable with these customers
totaled $988,448. Management has provided a specific allowance of $553,000
at December 31, 2002 related to these customers. Management believes that
the underlying collateral is adequate to recover the Partnership's net
investment for the remaining balances. At December 31, 2001, the
Partnership had eight customers with payments over 90 days past due or that
have filed bankruptcy subsequent to year end through March 1, 2002. The
Partnership's net investment in lease contracts or notes receivable with
these customers totaled $3,209,236. Management has provided a specific
allowance of $1,706,000 at December 31, 2001 related to these customers. At
December 31, 2000, the Partnership had five customers with payments over 90
days past due or that had filed bankruptcy. The Partnership's net
investment in lease contracts or notes receivable with these customers
totaled $1,178,818. Management provided a specific allowance of $523,000 at
December 31, 2000 related to these customers. If a lease or note receivable
is past due more than 90 days, the Partnership discontinues recognizing
income on the contract.

4. EQUIPMENT UNDER OPERATING LEASE

In November 2000, the Partnership exercised its right to manage the assets
leased to Alpha Telecommunications, Inc. due to nonpayment of lease
receivables. The remaining net equipment cost, representing primarily pay
phones, was expected by management to be recovered through the operation
and/or sale of the equipment at December 31, 2000. Such equipment cost was
adjusted for an impairment loss of $584,966, to reflect management's
estimated fair market value of the equipment. In March 2001, a portion of
the equipment was sold for $286,114 and the Partnership recorded a loss of
$115,476. The equipment was depreciated in the amount of $394,481 during
2001 and additional impairments were recorded during the second and third
quarters totaling $1,124,457 to the expected sales price. The remainder of
the equipment was sold for $224,000 in 2001 at no gain or loss to the
Partnership.

The significant impairment loss in 2001 discussed above resulted because
the payphone site lease contracts were not accepted by the trustee during
the bankruptcy of Alpha Telecommunications, Inc. Without the contracts in
place, the value of the payphones decreased significantly. Additionally,
the market value of payphones decreased due to the general decline
experienced in the industry.

In September 2001, the Partnership exercised its right to repossess the
assets leased to a lessee due to nonpayment of lease receivables. Such
equipment cost was adjusted for an impairment loss of $175,000, to reflect
management's estimated fair market value of the equipment of $23,949 at
December 31, 2001. This equipment was sold in February 2002 for $25,000.

5. LIMITED PARTNERSHIP AGREEMENT

The Partnership was formed pursuant to an Agreement of Limited Partnership
dated as of August 26, 1997 (the "Agreement"). The Agreement outlines
capital contributions to be made by the partners and the allocation of cash
distributions, net income, and net loss to the partners. Capital
contributions by the partners to the partnership will consist of the
$10,000 contributed by the General Partner and the amounts contributed by
limited partners for the purchase of their units ($1,000 per unit).

Net income or net loss allocated to the limited partners (and to the
General Partner) is apportioned among them based on the number of units
held and on the number of days within the fiscal year that they were
limited partners. Any Partnership net loss will first be allocated to the
partners to the extent of their positive capital accounts. Any additional
Partnership net loss will be allocated to the General Partner. Any
Partnership net income will first be allocated to partners with negative
capital accounts in proportion to, and to the extent of, such negative
capital accounts. Except as provided below, any Partnership net income will
then be allocated to the partners. During the liquidating phase of the
Partnership, net income earned that results in Partnership assets to be
distributed 80% to the limited partners and 20% to the General Partner will
be allocated 80% to the limited partners and 20% to the General Partner.

-20-

A partner's share of profits, losses and operating distributions to
partners (distributions of up to 9.6% annually made during the operating
phase) is based upon the amount of each partner's adjusted capital
contribution (a partner's capital contribution, reduced by all payments to
the partner that qualify as a liquidating distribution or return of
capital) and each limited partner's admission date (the date a limited
partner is admitted to the Partnership).

During the Partnership's operating phase, to the extent there is cash
available for distribution, cash distributions will be made on a monthly
basis in the following order of priority: first, to reimburse the General
Partner for administrative services it provides to the Partnership, as
further described in the Agreement (see Note 7); second, to the limited
partners up to amounts representing a 9.6% cumulative annual return on
their adjusted capital contribution (as defined); and, third, to the
General Partner, representing a monthly equipment management fee of 2% of
the gross rental payments received by the Partnership (see Note 7). To the
extent that cash is not available to pay all or a portion of the equipment
management fee pursuant to the above priority distributions, such fee will
accrue and accumulate. Any remaining cash distributions after payment of
the above (including arrearages) will be paid, at the discretion of the
General Partner, to the limited partners.

The Partnership will cease reinvesting in assets and will not enter into
additional leases during the liquidating phase. The liquidating phase shall
begin at any time after June 23, 2003 (or earlier if the General Partner
determines it to be in the Partnership's best interest), but no later than
December 23, 2004. During the liquidating phase, the Partnership will
proceed with all due and deliberate speed and care to wind up the
Partnership's affairs and to convert all of the Partnership's assets into
cash. Operating distributions will not be paid during the liquidating
phase.

During the liquidating phase, amounts available to be distributed among the
partners after satisfaction of all Partnership liabilities and obligations
and/or the provision of reserves for future or contingent Partnership
liabilities will be distributed in order of priority as follows:

o First, payment of the General Partner's expense reimbursement;

o Second, payment to the partners, to the extent necessary to pay to the
partners during the term of their investment in the Partnership,
operating distributions of 8% annually (on a cumulative, compounded
daily basis) on their adjusted capital contributions;

o Third, payment to the partners of 100% of their adjusted capital
contributions to the Partnership;

o Fourth, payment to the partners to the extent they have not received,
during the term of their investment in the Partnership, distributions
totaling 9.6% annually (calculated only through the end of the
operating phase), noncompounded, on their adjusted capital
contributions;

o Fifth, payment to the General Partner of any unpaid arrearages in its
management fee; and

o Sixth, payment of any remaining amounts will be made 80% to the
limited partners and 20% to the General Partner; provided, however,
the General Partner will not receive its share of these remaining
amounts until such time as the limited partners have received
operating distributions and liquidating distributions equal to their
capital contributions plus 9.6% annually (calculated only through the
end of the operating phase) noncompounded, on their adjusted capital
contributions.

-21-

6. BORROWING AGREEMENTS

In January 1999, the Partnership obtained financing under a line of credit
agreement with a bank. The amount available to borrow under the line of
credit was limited to $2,000,000 or 32% of qualified accounts, primarily
leases, and notes receivable. On October 26, 1999, the agreement was
amended to increase the available amount from $2,000,000 to $4,400,000
(limited by 32% of qualified accounts) and extend the maturity from June
30, 2000 to June 30, 2002. At December 31, 2001 the borrowing limit was
$1,114,000. The line of credit agreement bore interest at 1% over the prime
rate (combined rate of 5.75% at December 31, 2001), with a $4,000 minimum
monthly interest charge, and was collateralized by substantially all assets
of the Partnership. The line of credit was guaranteed by the General
Partner and certain affiliates of the General Partner. The line of credit
was terminated in June 2002.

7. MANAGEMENT AND SERVICE AGREEMENTS

The Partnership paid the General Partner acquisition fees of 5% of the cost
of equipment financing provided by the Partnership, which was $1,033,
$34,714 and $265,066 for the years ended December 31, 2002, 2001 and 2000,
respectively.

The Partnership also pays an equipment management fee equal to 2% of the
amount of gross rental payments received, to the General Partner. During
the years ended December 31, 2002, 2001 and 2000, those management fees
aggregated $58,390, $74,249 and $124,738, respectively.

In addition, the General Partner is reimbursed for certain other costs
under an administrative services agreement. Amounts incurred by the
Partnership pursuant to this agreement amounted to $194,500, $156,000 and
$144,000 for the years ended December 31, 2002, 2001 and 2000,
respectively.

-22-

8. RECONCILIATION OF FINANCIAL AND INCOME TAX REPORTING BASIS

A reconciliation of net loss for financial reporting purposes with the
related amount reported for income tax purposes for the years ended
December 31, 2002, 2001 and 2000 is as follows:

2002 2001 2000
-------------------------- -------------------------- --------------------------
Per Per Per
Amount Unit Amount Unit Amount Unit

Net loss for financial
reporting purposes $(1,015,105) $ (81.92) $(2,633,022) $ (210.04) $ (399,728) $ (31.74)
Adjustment to convert
direct financing
leases to operating
leases for income
tax purposes (136,703) (11.03) (1,792,061) (142.95) (1,463,116) (116.19)
Net change in
allowance for
possible loan and
lease losses (1,074,478) (86.71) 1,319,335 105.24 499,842 39.69
Impairment loss on
equipment 1,299,457 103.66 584,966 46.45
Gain on lease
terminations 1,132,407 91.38 19,016 1.52 1,556,215 123.58
----------- ----------- ----------- ----------- ----------- -----------
Net income (loss) for
income tax
reporting purposes $(1,093,879) $ (88.28) $(1,787,275) $ (142.57) $ 778,179 $ 61.79
=========== =========== =========== =========== =========== ===========

9. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value amounts disclosed below are based on estimates prepared by
management based on valuation methods appropriate in the circumstances.
Accounting principles generally accepted in the United States of America do
not require disclosure for lease contracts. The carrying amount for
financial instruments included among cash and cash equivalents, other
receivables and short-term payables approximates their fair value because
of the short maturity of those instruments. The carrying value of the
Partnership's line of credit agreement approximates its fair value due to
the variable rate on the debt. The estimated fair value of notes receivable
is based principally on discounted future cash flows at rates commensurate
with the credit and interest rate risk involved.

-23-

The estimated fair values of the Partnership's other significant financial
instruments are as follows at December 31, 2002 and 2001:

2002 2001
----------------------- -----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value

Notes receivable $1,391,637 $1,014,000 $2,964,707 $2,612,000

10. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

2002 Quarters
------------------------------------------------------------------------
First Second Third Fourth 2002

Revenues $ 188,088 $ 174,022 $ 105,529 $ (12,817) $ 454,822
Expenses 328,147 748,483 207,037 186,260 1,469,927
Net loss (140,059) (574,461) (101,508) (199,077) (1,015,105)

Net loss per
partnership unit $ (11.29) $ (46.35) $ (8.19) $ (16.09) $ (81.92)

Expenses for the second quarter of 2002 include a provision for possible
loan and lease losses of $575,000, primarily the result of a significantly
deteriorated value of the phones and other equipment under certain lease
and note contracts.

2001 Quarters
------------------------------------------------------------------------
First Second Third Fourth 2001

Revenues $ 217,029 $ 176,010 $ 263,968 $ 255,418 $ 912,425
Expenses 336,434 1,232,077 665,227 1,311,709 3,545,447
Net loss (119,405) (1,056,067) (401,259) (1,056,291) (2,633,022)

Net loss per
partnership unit $ (9.48) $ (83.90) $ (31.99) $ (84.67) $ (210.04)

Expenses for the first quarter of 2001 include depreciation of $181,887 on
equipment held under operating leases (see Note 4 related to such
equipment). Expenses for the second quarter include depreciation, loss on
sale and impairment loss on equipment held under operating leases of
$145,410, $115,476 and $703,785, respectively, (see Note 4). Expenses for
the third quarter include depreciation and impairment loss on equipment
held under operating leases of $67,199 and $380,800, respectively. Expenses
for the fourth quarter include an impairment loss on equipment held under
operating leases of $39,872 and an increase in the provision for possible
loan and lease losses of $952,000 due primarily to the significant increase
in amounts that were past due or related to customers who had filed for
bankruptcy (see Note 3).

-24-

11. CONTINGENCY

The General Partner's parent has approximately $2.2 million of unsecured
subordinated debt which was due on December 31, 2002 and does not have
sufficient liquid assets to repay such amounts. The General Partner's
parent is pursuing additional financing, refinancing, and asset sales to
meet its obligations. No assurance can be provided that the General
Partner's parent will be successful in its efforts. The inability of the
General Partner to continue as a going concern as a result of the parent's
inability to restructure its debts would require the Partnership to elect a
successor general partner. The new general partner could require additional
fees and charges that would have a significant negative impact on the
Partnership's operations.

* * * * *

-25-

Item 9. Changes in and Disagreements with Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure
--------------------
None.

Part III

Item 10. Directors and Executive Officers of the Registrant
--------------------------------------------------
A. The General Partner of the registrant:

Berthel Fisher & Company Leasing, Inc., an Iowa corporation.

B. Executive officers of the General Partner of the Registrant:

Thomas J. Berthel (age 51) - Mr. Berthel is the Chief Executive Officer,
President, and Director of the General Partner, a position he has held since the
General Partner's inception in 1988. Mr. Berthel is also President and a
Director of the General Partner's parent, Berthel Fisher & Company, Inc.
("Berthel Fisher"), which he founded in 1985, and Berthel Fisher's other
subsidiaries, Berthel Fisher & Company Financial Services, Inc.; Berthel Fisher
& Company Management Corp.; Berthel Fisher & Company Planning, Inc.; and one
other corporation which acts as general partner of a separate private program.
He also serves as the Chairman of the Board and Director of Amana Colonies Golf
Course, Inc. Mr. Berthel holds a bachelor's degree from St. Ambrose College in
Davenport, Iowa (1974). From 1974 to 1982, Mr. Berthel was President and
majority shareholder of Insurance Planning Services Corporation in Maquoketa,
Iowa, which was engaged in the operation of a securities and insurance business.
Mr. Berthel holds a Financial and Operation Principal license issued by the
National Association of Securities Dealers, Inc. Mr. Berthel is also a Certified
Life Underwriter. Mr. Berthel also serves as an individual general partner of
the limited partnership referred to above. Mr. Berthel received a MBA degree
from the University of Iowa in 1993.

Ronald O. Brendengen (age 48) - Mr. Brendengen is the Treasurer, Chief Operating
Officer, Chief Financial Officer, and a Director (1988 to present) of the
General Partner. He was elected to his current offices in October 1996. He
served as Treasurer and Chief Financial Officer since October 1996. He has also
served as Secretary (1994 - March, 1995), Treasurer (1988-August 1995) and Chief
Financial Officer (1994 - August 1995) of the General Partner. He served as
Controller (1985-1993), Treasurer (1987-present), Chief Financial Officer,
Secretary and a Director (1987-present), and was also elected Chief Operating
Officer in January 1998, of Berthel Fisher & Company, the parent company of the
General Partner. Mr. Brendengen serves as the Treasurer, Chief Financial Officer
and a Director of Berthel Fisher & Company Planning, Inc., the trust advisor of
Berthel Growth & Income Trust I, a company required to file reports pursuant to
the Securities Exchange Act of 1934. He also serves in various offices and as a
Director of each subsidiary of Berthel Fisher & Company. Mr. Brendengen holds a
certified public accounting certificate and worked in public accounting during
1984 and 1985. From 1979 to 1984, Mr. Brendengen worked in various capacities
for Morris Plan and MorAmerica Financial Corp., Cedar Rapids, Iowa. Mr.
Brendengen attended the University of Iowa before receiving a bachelor's degree
in Accounting and Business Administration with a minor in Economics from Mt.
Mercy College, Cedar Rapids, Iowa, in 1978.

26

Item 11. Executive Compensation
----------------------

Set forth is the information relating to all direct remuneration paid or accrued
by the Registrant during the last three years to the General Partner:

(A) (B) (C) (C1) (C2) (D)
Securities of
property
insurance Aggregate
benefits or of
Cash and cash reimbursement contingent
Name of individual Year equivalent forms personal or forms of
and capacities served Ended of remuneration Fees benefits remuneration
- -------------------------------------------------------------------------------------------------------------------

Berthel Fisher & Co. Leasing, Inc. 2002 $ -0- $ 252,890 $ -0- $ -0-
(General Partner) 2001 $ -0- $ 230,249 $ -0- $ -0-
2000 $ -0- $ 268,738 $ -0- $ -0-

27

Item 12. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
(a) No person owns of record, or is known by the Registrant to own
beneficially, more than five percent of the Partnership Units.

(b) The General Partner of the Registrant owns Units of the Registrant
set forth in the following table.

(1) (2) (3) (4)
Name and Address of Amount and Nature of
Title of Class Beneficial Ownership Beneficial Ownership Percent of Class
- -------------- -------------------- -------------------- ----------------

Units Berthel Fisher & Co. Leasing, Inc. Ten (10) Units; .08%
701 Tama Street sole owner.
Marion, IA 52302

Item 13. Certain Relationships and Related Transactions
----------------------------------------------
Related party transactions are described in Notes 2 and 7 of the notes to the
financial statements.

Item 14. Controls and Procedures
-----------------------
An evaluation was performed under the supervision and with the participation of
the Partnership's management, including the Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of the
Partnership's disclosure controls and procedures within 90 days before the
filing date of this annual report. Based on that evaluation, the Partnership's
management, including the Chief Executive Officer and Chief Financial Officer,
concluded that the Partnership's disclosure controls and procedures were
effective in timely alerting them to material information relating to the
Partnership required to be included in the Partnership's periodic SEC filings.
There have been no significant changes in the Company's internal controls or
other factors that could significantly affect these controls subsequent to the
date of their evaluation, and no corrective actions with regards to significant
deficiencies and material weaknesses, of which none were noted, were required.

28

Part IV

Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
----------------------------------------------------------------
(a) 1. Financial Statements
Page No.
Balance Sheets as of December 31, 2002 and 2001 12

Statements of Operations for the years ended
December 31, 2002, 2001, and 2000 13

Statements of Changes in Partners' Equity for
the years ended December 31, 2002, 2001, and 2000 14

Statements of Cash Flows for the years ended
December 31, 2002, 2001, and 2000 15

Notes to Financial Statements 16

2. Financial Statements Schedules
Information pursuant to Rule 12-09 (Schedule II) is included
in the financial statements and notes thereto.

3. Exhibits
3,4 Amended and Restated Agreement of Telecommunications Income
Fund XI, L.P. currently in effect dated as of November 26, 1997
(1)

10.3 Revolving Loan and Security Agreement incorporated herein
by reference to the Partnership's Form 10-Q filed on May 13,
1999

99.1 Certification of Chief Executive Officer Pursuant to 18
U.S.C. Section 1350

99.2 Certification of Chief Financial Officer Pursuant to 18
U.S.C. Section 1350

(b) Reports on Form 8-K
No reports on Form 8-K were filed in the fourth quarter of 2002.

------------------------
(1) Incorporated herein by reference to Exhibit A in the Partnership's
registration statement on Form S-1, effective November 26,1997

29

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

TELECOMMUNICATIONS INCOME FUND XI, L.P.
---------------------------------------
(Registrant)

By Berthel Fisher & Company Leasing, Inc.

By: /s/ Thomas J. Berthel Date: March 25, 2003
------------------------------
Thomas J. Berthel
President, Chief Executive Officer

By Berthel Fisher & Company Leasing, Inc.

By: /s/ Ronald O. Brendengen Date: March 25, 2003
------------------------------
Ronald O. Brendengen
Chief Operating Officer,
Chief Financial Officer, Treasurer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.

/s/ Thomas J. Berthel Date: March 25, 2003
- ----------------------------------
Thomas J. Berthel
Chief Executive Officer
President, Director
Berthel Fisher & Company Leasing, Inc.
Corporate General Partner

/s/ Ronald O. Brendengen Date: March 25, 2003
- ----------------------------------
Ronald O. Brendengen
Chief Operating Officer,
Chief Financial Officer,
Treasurer, Director
Berthel Fisher & Company Leasing, Inc.
Corporate General Partner

/s/ Daniel P. Wegmann Date: March 25, 2003
- ----------------------------------
Daniel P. Wegmann
Controller
Berthel Fisher & Company Leasing, Inc.
Corporate General Partner

/s/ Leslie D. Smith Date: March 25, 2003
- ----------------------------------
Leslie D. Smith
Director
Berthel Fisher & Company Leasing, Inc.
Corporate General Partner

30

FORM OF SECTION 302 CERTIFICATION

I, Thomas J. Berthel, President and Chief Executive Officer of Berthel Fisher &
Company Leasing, Inc., the General Partner of Telecommunications Income Fund XI,
L.P., certify that:

1. I have reviewed this annual report on Form 10-K of Telecommunications
Income Fund XI, L.P.;

2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant is made known to us by
others, particularly during the period in which this annual report is
being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

March 25, 2003 /s/ Thomas J. Berthel
-----------------------------------
Thomas J. Berthel
President and
Chief Executive Officer
Berthel Fisher & Company
Leasing, Inc.
General Partner
Telecommunications Income Fund
XI, L.P.

31

FORM OF SECTION 302 CERTIFICATION

I, Ronald O. Brendengen, Chief Financial Officer of Berthel Fisher & Company
Leasing, Inc., the General Partner of Telecommunications Income Fund XI, L.P.,
certify that:

1. I have reviewed this annual report on Form 10-K of Telecommunications
Income Fund XI, L.P.;

2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant is made known to us by
others, particularly during the period in which this annual report is
being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

March 25, 2003 /s/ Ronald O. Brendengen
-----------------------------------
Ronald O. Brendengen
Chief Financial Officer
Berthel Fisher & Company
Leasing, Inc.
General Partner
Telecommunications Income Fund
XI, L.P.

32