Exhibit 21













                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
                    ----------------------------------------


To the Board of Directors of
Phoenix Leasing Associates II, Inc.:

We have audited the accompanying  consolidated balance sheets of Phoenix Leasing
Associates  II, Inc. (a Nevada  corporation)  and Subsidiary as of June 30, 1998
and 1997.  These financial  statements are the  responsibility  of the Company'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 audits to obtain
reasonable  assurance  about  whether  the  balance  sheets are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the  amounts  and  disclosures  in the balance  sheets.  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 balance  sheets  referred to above present  fairly,  in all
material respects, the financial position of Phoenix Leasing Associates II, Inc.
and  Subsidiary  as of June 30,  1998 and 1997,  in  conformity  with  generally
accepted accounting principles.

                                                             ARTHUR ANDERSEN LLP

San Francisco, California
  September 9, 1998


                                  Page 1 of 9
<PAGE>

               PHOENIX LEASING ASSOCIATES II, INC. AND SUBSIDIARY

                           CONSOLIDATED BALANCE SHEETS

                                     ASSETS

                                                               June 30,
                                                         1998           1997
                                                         ----           ----


Cash and cash equivalents ..........................  $       367   $       172
Due from PLI .......................................    1,569,493     1,357,879
Due from CDF V .....................................      268,759        69,225
                                                      -----------   -----------
         Total Assets ..............................  $ 1,838,619   $ 1,427,276
                                                      ===========   ===========


                      LIABILITIES AND SHAREHOLDER'S EQUITY

Liabilities:

   Accounts payable and accrued expenses ...........  $       729   $     4,798
   Deficit investment in CDF V .....................       20,766        58,197
                                                      -----------   -----------
         Total Liabilities .........................       21,495        62,995
                                                      -----------   -----------

Minority Interest in Consolidated Subsidiary .......       89,649        21,548
                                                      -----------   -----------


Shareholder's Equity:

   Common Stock, without par value, 100 shares
     authorized and outstanding ....................    4,000,100     4,000,100
   Retained earnings ...............................    1,727,375     1,342,633
   Less:
     Note receivable from affiliate ................   (4,000,000)   (4,000,000)
                                                      -----------   -----------

         Total Shareholder's Equity ................    1,727,475     1,342,733
                                                      -----------   -----------

         Total Liabilities and Shareholder's Equity   $ 1,838,619   $ 1,427,276
                                                      ===========   ===========

      The accompanying notes are an integral part of these balance sheets.


                                       2
<PAGE>


               PHOENIX LEASING ASSOCIATES II, INC. AND SUBSIDIARY

                    NOTES TO THE CONSOLIDATED BALANCE SHEETS

                                  June 30, 1998


Note 1.  Organization:

         Phoenix Leasing  Associates II, Inc.,  (the Company),  was formed under
the laws of Nevada on June 14, 1990. The Company has a June 30 fiscal  year-end.
The Company is a wholly-owned  subsidiary of Phoenix Leasing Incorporated (PLI),
a  California  corporation,  and was  originally  formed to serve as the general
partner of Phoenix Leasing Cash  Distribution Fund V, L.P. (CDF V), a California
limited partnership.

         On August 17, 1990, the Company organized Phoenix Leasing Associates II
L.P., a California limited  partnership  (PLAIILP) to replace the Company as the
general  partner in CDF V. The  limited  partner of PLAIILP is Lease  Management
Associates,  Inc., a Nevada corporation controlled by an officer of the Company,
who also owns the  parent  company  of PLI.  As the  general  partner  of CDF V,
PLAIILP earns  acquisition and management fees and receives the profits,  losses
and distributions which are to be allocated to the Company (Note 6). The Company
is the  general  partner of PLAIILP  and, as of June 30, 1998 and 1997 has a 50%
ownership  interest.  This ownership interest is subject to change in accordance
with the  PLAIILP  Partnership  Agreement.  Profits,  losses  and  distributions
attributable  to  acquisition  fees paid to  PLAIILP by CDF V are  allocated  in
proportion to the partners' ownership interests.  All other profits,  losses and
distributions  are allocated to the Company.  The balance  sheets as of June 30,
1998 and 1997 are presented on a consolidated basis as discussed in Note 2.

Note 2.  Principles of Consolidation:

         The consolidated  balance sheets as of June 30, 1998 and 1997,  include
the accounts of the Company and its subsidiary,  PLAIILP, over which the Company
exerts significant control and influence.  All significant intercompany accounts
and transactions  have been eliminated in  consolidation.  The minority interest
represents the limited partner's interest in PLAIILP.

         The Company  records its investment in CDF V under the equity method of
accounting.  As general  partner,  the Company has  complete  authority  in, and
responsibility   for,  the  overall   management   of  CDF  V,  which   includes
responsibility  for  supervising  CDF  V's  acquisition,   leasing,  remarketing
activities and its sale of equipment.

Note 3.  Use of Estimates:

         The  preparation  of  consolidated  balance  sheets in conformity  with
generally accepted  accounting  principles 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 consolidated
balance sheets.  Actual results could differ from those estimates.

Note 4.  Notes Receivable from Affiliate:

         PLI, the sole shareholder of the Company, as of June 30, 1998 and 1997,
has issued demand promissory notes to the Company totaling $4,000,000. There are
no restrictions or covenants  associated with this note which would preclude the
Company from receiving the principal or interest  amounts under the terms of the
notes.  The notes  bear  interest  at a rate equal to the lesser of 10% or prime
rate plus 1%, as determined by Citibank,  N.A., New York, New York.  Interest is
payable by PLI on the first business day of each calendar quarter. The principal
amount is due and payable upon demand by the Company.

                                       3
<PAGE>
               PHOENIX LEASING ASSOCIATES II, INC. AND SUBSIDIARY

                    NOTES TO THE CONSOLIDATED BALANCE SHEETS

                                  June 30, 1998


Note 5.  Income Taxes:

         The Company's income or loss for tax reporting  purposes is included in
the consolidated and combined tax returns filed by Phoenix American Incorporated
(PAI),  an  affiliated  Nevada  corporation.  These  returns are prepared on the
accrual basis of accounting.

         Under "Statement of Financial Accounting Standards No. 109 - Accounting
for  Income  Taxes",  the  Company  computes  taxes  as if it was a stand  alone
company.  The resulting tax  liabilities of $165,356 and $160,448 as of June 30,
1998 and 1997,  respectively,  were  transferred to PAI in accordance with a Tax
Sharing Agreement between the Company and PAI.

Note 6.  Compensation and Fees:

         PLAIILP  receives  acquisition  fees  equal  to  three  percent  of the
purchase  price of assets  acquired or financed by CDF V in connection  with the
analysis,  selection and acquisition or financing of assets,  and the continuing
analysis of the overall  portfolio of the CDF V's assets,  and  management  fees
equal to three percent of CDF V's gross revenues in connection with managing the
operations  of CDF V. In  addition,  PLAIILP  receives  an  interest  in CDF V's
profits,  losses and  distributions.  Management fees of $91,441 and $32,599 and
acquisition  fees of $177,318  and $36,626 are  included in Due from CDF V as of
June 30, 1998 and 1997, respectively.

Note 7.  Related Parties:

         Phoenix Securities,  Inc., an affiliate of the Company,  received a fee
for  wholesaling  activities  performed in  connection  with the offering of the
limited partnership units of CDF V.

         The Company has entered  into an agreement  with PLI,  whereby PLI will
provide  management  services to PLAIILP in connection  with the  operations and
administration  of CDF V. In consideration for the services and activities to be
performed  by PLI  pursuant to this  agreement,  the Company pays PLI fees in an
amount equal to: Three  percent of CDF V's  cumulative  gross  revenues plus the
lesser of three  percent of the  purchase  price of  equipment  acquired  by and
financing  provided to businesses by CDF V or 100% of the net cash  attributable
to the  acquisition  fee which has been  distributed to the Company plus 100% of
all other net cash from operations of PLAIILP. Management fees paid to PLI equal
$753,849 and $704,067 for the years ended June 30, 1998 and 1997, respectively.

Note 8.  Commitments and Contingencies:

         On October 28, 1997 a Class Action  Complaint was filed against Phoenix
Leasing  Incorporated,  Phoenix  Leasing  Associates  II L.P.,  Phoenix  Leasing
Associates III L.P., Phoenix  Securities Inc. and Phoenix American  Incorporated
(the  "Companies") in California  Superior Court for the County of Sacramento by
eleven  individuals on behalf of investors in Phoenix Leasing Cash  Distribution
Funds I through V (the  "Partnerships").  The  Companies  were  served  with the
Complaint on December 9, 1997. The Complaint seeks  declaratory and other relief
including  accounting,  receivership,   imposition  of  constructive  trust  and
judicial  dissolution and winding up of the  Partnerships,  and damages based on
fraud,  breach of  fiduciary  duty and breach of  contract by the  Companies  as

                                       4
<PAGE>
               PHOENIX LEASING ASSOCIATES II, INC. AND SUBSIDIARY

                    NOTES TO THE CONSOLIDATED BALANCE SHEETS

                                  June 30, 1998

general partners of the Partnerships.  Plaintiffs served an amended complaint on
August 17, 1998. Discovery has not commenced. The Companies intend to vigorously
defend the Complaint.



                                       5
<PAGE>




                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
                    ----------------------------------------


To the Partners of
Phoenix Leasing Associates II L.P.:

We have audited the accompanying balance sheets of Phoenix Leasing Associates II
L.P. (a  California  limited  partnership)  as of June 30, 1998 and 1997.  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  balance  sheets are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the  amounts  and  disclosures  in the balance  sheets.  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 balance  sheets  referred to above present  fairly,  in all
material respects,  the financial position of Phoenix Leasing Associates II L.P.
as of June 30, 1998 and 1997, in conformity with generally  accepted  accounting
principles.

                                                             ARTHUR ANDERSEN LLP

San Francisco, California
  September 9, 1998



                                       6
<PAGE>


                       PHOENIX LEASING ASSOCIATES II L.P.

                                 BALANCE SHEETS

                                     ASSETS

                                                                   June 30,
                                                               1998       1997
                                                               ----       ----


Cash and cash equivalents ..............................    $    343    $     77
Due from CDF V .........................................     268,759      69,225
Due from General Partner ...............................        --        13,832
                                                            --------    --------

         Total Assets ..................................    $269,102    $ 83,134
                                                            ========    ========


                        LIABILITIES AND PARTNERS' CAPITAL

Liabilities:

   Accounts payable and accrued expenses ...............    $    365    $  2,399
   Due to General Partner ..............................     157,332        --
   Deficit investment in CDF V .........................      20,766      58,197
                                                            --------    --------

         Total Liabilities .............................     178,463      60,596
                                                            --------    --------


Partners' Capital:

   General Partner (99 partnership units) ..............         990         990
   Limited Partner (99 partnership units) ..............      89,649      21,548
                                                            --------    --------

         Total Partners' Capital .......................      90,639      22,538
                                                            --------    --------

         Total Liabilities and Partners' Capital .......    $269,102    $ 83,134
                                                            ========    ========

      The accompanying notes are an integral part of these balance sheets.

                                       7
<PAGE>


                       PHOENIX LEASING ASSOCIATES II L.P.

                           NOTES TO THE BALANCE SHEETS

                                  June 30, 1998


Note 1.  Organization:

        Phoenix  Leasing  Associates II L.P., a California  limited  partnership
(the  Partnership),  was  formed  under the laws of the State of  California  on
August  17,  1990,  to  act as the  general  partner  of  Phoenix  Leasing  Cash
Distribution  Fund  V,  L.P.(CDF  V),  a  California  limited  partnership.  The
Partnership's  fiscal year ends on June 30 of each year. The general  partner of
the  Partnership  is Phoenix  Leasing  Associates  II,  Inc.  (PLAII),  a Nevada
corporation and wholly-owned subsidiary of Phoenix Leasing Incorporated (PLI), a
California  corporation.  The  limited  partner  of  the  partnership  is  Lease
Management  Associates,  Inc., a Nevada corporation  controlled by an officer of
PLAII, who owns the ultimate parent of PLAII.

        The Partnership  records its investment in CDF V under the equity method
of accounting.  As general partner,  the Partnership has complete  authority in,
and  responsibility  for,  the  overall  management  of  CDF V,  which  includes
responsibility  for supervising CDF V's  acquisition,  leasing,  remarketing and
sale of equipment.

Note 2.  Income Taxes:

        The  Partnership is not subject to federal and state income taxes on its
income.  Federal and state income tax regulations  provide that items of income,
gain,  loss  and  deductions,  credits  and  tax  preference  items  of  limited
partnerships  are  reportable  by the  individual  partners in their  respective
income tax returns.  Accordingly,  no liability for such taxes has been recorded
on the Partnership's balance sheets.

Note 3.  Use of Estimates:

        The preparation of balance sheets in conformity with generally  accepted
accounting  principles  requires  management to makes  estimates and assumptions
that affect the reported  amounts of assets and  liabilities  and  disclosure of
contingent assets and liabilities at the date of the balance sheets.
Actual results could differ from those estimates.

Note 4.  Compensation and Fees:

        The Partnership  receives acquisition fees equal to three percent of the
purchase  price of assets  acquired or financed by CDF V in connection  with the
analysis,  selection and acquisition or financing of assets,  and the continuing
analysis of the overall  portfolio of CDF V's assets,  and management fees equal
to three  percent of CDF V's gross  revenues in  connection  with  managing  the
operations of CDF V. In addition,  the  Partnership  receives an interest in CDF
V's profits,  losses and  distributions.  Management fees of $91,441 and $32,599
and  acquisition  fees of $177,318 and $36,626 are included in Due from CDF V as
of June 30, 1998 and 1997, respectively.

Note 5.  Allocation of Profits, Losses and Distributions:

        Profits  and  losses  attributable  to  acquisition  fees  paid  to  the
Partnership  by CDF V are  allocated  to the  partners  in  proportion  to their
ownership  interests.  All other  profits  and  losses are  allocated  to PLAII.
Distributions  are  made  in  accordance  with  the  terms  of  the  partnership
agreement.

                                       8
<PAGE>
                       PHOENIX LEASING ASSOCIATES II L.P.

                           NOTES TO THE BALANCE SHEETS

                                  June 30, 1998


Note 6.  Related Parties:

        Phoenix  Securities,  Inc., an affiliate of the Partnership,  received a
fee for wholesaling  activities performed in connection with the offering of the
limited partnership units of CDF V.

        PLAII has entered  into an  agreement  with PLI whereby PLI will provide
management  services to the  Partnership  in connection  with the operations and
administration  of CDF V. In consideration for the services and activities to be
performed  by PLI pursuant to this  agreement,  PLAII pays PLI fees in an amount
equal to: Three percent of CDF V's cumulative  gross revenues plus the lesser of
three  percent of the  purchase  price of  equipment  acquired by and  financing
provided  to  businesses  by CDF V or  100% of the net  cash  attributed  to the
acquisition  fee which has been  distributed to PLAII plus 100% of all other net
cash  from  operations  of the  Partnership.  Management  fees paid to PLI equal
$753,849 and $704,067 for the years ended June 30, 1998 and 1997, respectively.

Note 7.  Commitments and Contingencies:

         On October 28, 1997 a Class Action  Complaint was filed against Phoenix
Leasing  Incorporated,  Phoenix  Leasing  Associates  II L.P.,  Phoenix  Leasing
Associates III L.P., Phoenix  Securities Inc. and Phoenix American  Incorporated
(the  "Companies") in California  Superior Court for the County of Sacramento by
eleven  individuals on behalf of investors in Phoenix Leasing Cash  Distribution
Funds I through V (the  "Partnerships").  The  Companies  were  served  with the
Complaint on December 9, 1997. The Complaint seeks  declaratory and other relief
including  accounting,  receivership,   imposition  of  constructive  trust  and
judicial  dissolution and winding up of the  Partnerships,  and damages based on
fraud,  breach of  fiduciary  duty and breach of  contract by the  Companies  as
general partners of the Partnerships.  Plaintiffs served an amended complaint on
August 17, 1998. Discovery has not commenced. The Companies intend to vigorously
defend the Complaint.


                                       9