<PAGE>




                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549


FORM 10-K

(X)      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 (FEE REQUIRED) FOR THE FISCAL YEAR ENDED
         DECEMBER 31, 2001

(  )     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934


Commission File Number:  33-89476

                      COMMONWEALTH INCOME & GROWTH FUND II
             (Exact name of registrant as specified in its charter)

         Pennsylvania                                  23-2795120
(State or other jurisdiction of          (I.R.S. Employer Identification Number)
incorporation or organization)

                               470 John Young Way
                                 Exton PA 19341
                                 (610) 494-9600


Indicate by check mark whether the registrant (I) 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, and (ii) has been subject to such filing requirements
for the past 90 days:

YES   [X]    NO  [  ]

Indicate by check mark if disclosure of delinquent fillers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the 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.



                       DOCUMENTS INCORPORATED BY REFERENCE

  (Specific Sections Incorporated are identified under applicable items herein)



         Certain exhibits to the Company's Registration Statement on Form S-1
(File No. 33-89476) and Annual Report on form 10-K for the fiscal year ended
December 31, 2001 are incorporated by reference as Exhibits in Part IV of this
Report.


<PAGE>



PART I

ITEM 1:           BUSINESS

GENERAL

Commonwealth Income and Growth Fund II (the "Partnership") was formed on January
13, 1995, under the Pennsylvania Revised Uniform Limited Partnership Act. The
Partnership began offering $15,000,000 of Units of Limited Partnership ("Units")
to the public on May 12, 1995 (the "Offerings"). On September 22, 1995, the
escrow agent released $2,521,380 in subscriptions from investors and 126,118
Units were admitted as Limited Partners of the Partnership. The Partnership
terminated its offering of Units on May 12, 1997, with 461,817 Units
($9,235,185) admitted as Limited Partners of the Partnership.

See "The Glossary" below for the definition of capitalized terms not otherwise
defined in the text of this report.


PRINCIPAL INVESTMENT OBJECTIVES

The Partnership was formed for the purpose of acquiring various types of
Equipment, including computer peripheral and other similar capital equipment.
The Partnership utilized the net proceeds of the Offering to purchase IBM and
IBM compatible computer peripheral and other similar capital equipment. The
Partnership utilizes Retained Proceeds and debt financing (not to exceed 30% of
the aggregate cost of the Equipment owned or subject to Conditional Sales
Contract by the Partnership at the time the debt is incurred) to purchase
additional Equipment. The Partnership acquires and leases Equipment principally
to U.S. corporations and other institutions pursuant to Operating Leases. The
Partnership retains the flexibility to enter into Full Payout Net Leases and
Conditional Sales Contracts, but has not done so.

The Partnership's principal investment objectives are to;

     (a) acquire, lease and sell Equipment to generate revenues from operations
         sufficient to provide quarterly cash distributions to Limited Partners;
     (b) preserve and protect Limited Partners' capital;
     (c) use a portion of Cash Flow and Net Disposition Proceeds derived from
         the sale, refinancing     or other disposition of Equipment to purchase
         additional Equipment; and
     (d) refinance, sell or otherwise dispose of Equipment in a manner that will
         maximize the proceeds to the Partnership.


THERE CAN BE NO ASSURANCE THAT ANY OF THESE OBJECTIVES WILL BE ATTAINED.

Limited Partners do not have the right to vote on or otherwise approve or
disapprove any particular investment to be made by the Partnership.

Although the Partnership has acquired predominately new Equipment, the
Partnership may purchase used Equipment. Generally, Equipment is acquired from
manufacturers, distributors, leasing companies, agents, owner-users,
owner-lessors, and other suppliers upon terms that vary depending upon the
Equipment and supplier involved. Manufacturers and distributors usually furnish
a limited warranty against defects in material and workmanship and some purchase
agreements for Equipment provide for service and replacement of parts during a
limited period. Equipment purchases are also made through lease brokers and on
an ad hoc basis to meet the needs of a particular lessee.

As of December 31, 2001, all Equipment purchased by the Partnership is subject
to an Operating Lease or an Operating Lease was entered into with a third party
when the Partnership acquired an item of Equipment. The Partnership may also
engage in sale/leaseback transactions, pursuant to which the Partnership would
purchase Equipment from companies that would then immediately lease the
Equipment from the Partnership. The Partnership may also purchase Equipment
which is leased under Full Payout Net Leases or sold under Conditional Sales
Contracts at the time of acquisition or the Partnership may enter into a Full
Payout Net Lease or Conditional Sales Contract with a third party when the
Partnership acquires an item of Equipment.


                                                                               2


<PAGE>


The Partnership may enter into arrangements with one or more manufacturers
pursuant to which the Partnership purchases from such manufacturers Equipment
that has previously been leased directly by the manufacturer to third parties
("vendor leasing agreements"). The Partnership and manufacturers may agree to
nonrecourse loans to the Partnership from the manufacturers to finance the
acquisition of Equipment secured by the Equipment and the receivables due to the
manufacturers from users of such Equipment. It is expected that the
manufacturers of Equipment will provide maintenance, remarketing and other
services for the Equipment subject to such agreements. As of December 31, 2001,
the Partnership has not entered into any such agreements.

The General Partner has the discretion consistent with its fiduciary duty to
change the investment objectives of the Partnership if it determines that such a
change is in the best interest of the Limited Partners and so long as such a
change is consistent with the Partnership Agreement. The General Partner will
notify the Limited Partners if it makes such a determination to change the
Partnership's investment objectives.


TYPES OF EQUIPMENT

Computer Peripheral Equipment. Computer peripheral equipment consists of devices
used to convey information into and out of a central processing unit (or
"mainframe") of a computer system, such as tape drives, disk drives, tape
controllers, disk controllers, printers, terminals and related control units,
all of which are in some way related to the process of storing, retrieving, and
processing information by computer.

The Partnership acquires primarily IBM manufactured or IBM compatible equipment.
The General Partner believes that dealing in IBM or IBM compatible equipment is
particularly advantageous because of the large IBM customer base, policy of
supporting users with software and maintenance services and the large amount of
IBM and IBM compatible equipment in the marketplace.

Computer technology has developed rapidly in recent years and is expected to
continue to do so. Technological advances have permitted continued reductions in
the cost of computer processing capacity, thereby permitting applications not
economically feasible a few years ago. Much of the older IBM and IBM compatible
computer peripheral equipment has not been retired from service, because
software is generally interchangeable between older and newer equipment, and
older equipment is capable of performing many of the same functions as newer
equipment. The General Partner believes that historically values of peripheral
equipment have been affected less dramatically by changes in technology than
have the values of central processing units. An equipment user who upgrades to a
more advanced central processor generally can continue to use his existing
peripheral equipment. Peripheral equipment nevertheless is subject to declines
in value as new, improved models are developed and become available.
Technological advances and other factors, discussed below in Management
Discussion and Analysis, have at times caused dramatic reduction in the market
prices of older models of IBM and IBM compatible computer peripheral equipment
from the prices at which they were originally introduced.

Other Equipment-Restrictions. The Partnership acquires computer peripheral
equipment, such as tape drives, disk drives, tape controllers, disk controllers,
printers, terminals and related control units, all of which are in some way
related to the process of storing, retrieving and processing information by
computer. The General Partner is also authorized, but does not presently intend,
to cause the Partnership to invest in non-IBM compatible computer peripheral,
data processing, telecommunication or medical technology equipment. The
Partnership may not invest in any of such other types of Equipment (i) to the
extent that the purchase price of such Equipment, together with the aggregate
Purchase Price of all such other types of Equipment then owned by the
Partnership, is in excess of 25% of the total cost of all of the assets of the
Partnership at the time of the Partnership's commitment to invest therein and
(ii) unless the General Partner determines that such purchase is in the best
economic interest of the Partnership at the time of the purchase and, in the
case of non-IBM compatible peripheral Equipment, that such Equipment is
comparable in quality to similar IBM or IBM compatible Equipment. There can be
no assurance that any Equipment investments can be found which meet this
standard. Accordingly, there can be no assurance that investments of this type
will be made by the Partnership.

                                                                               3


<PAGE>



DIVERSIFICATION

Diversification is generally desirable to minimize the effects of changes in
specific industries, local economic conditions or similar risks. However, the
extent of the Partnership's diversification, in the aggregate and within each
category of Equipment, depends in part upon the financing which can be assumed
by the Partnership or borrowed from third parties on satisfactory terms. The
Partnership's policy not to borrow on a recourse basis will further limit its
financing options. Diversification also depends on the availability of various
types of Equipment. As of December 31, 2001, the Partnership has acquired a
diversified Equipment portfolio, which it has leased to 22 different companies
located throughout the United States. Approximately 20% of the Equipment
acquired by the Partnership consists of Printers. Approximately another 39% of
the Equipment acquired by the Partnership consists of Server / Workstations.
Approximately 11% of the Equipment acquired by the Partnership consists of tape
storage. Approximately 18% of the Equipment acquired by the Partnership consists
of Escon drivers. Approximately 7% of the Equipment acquired by the Partnership
consists of communication controllers. Approximately 5% of the Equipment
acquired by the Partnership consists of routers. During the operational stage of
the Partnership, the Partnership may not at any one point in time to lease (or
sell pursuant to a Conditional Sales Contract) more than 25% of the Equipment to
a single Person or Affiliated group of Persons.


DESCRIPTION OF LEASES

The Partnership to date has purchased, and in the future intends to continue to
purchase only Equipment that is subject to a lease or for which a lease or
similar agreement will be entered into contemporaneously with the consummation
of the Partnership's acquisition of the Equipment. The General Partner to date
has leased and in the future intends to lease most of the Equipment purchased by
the Partnership to third parties pursuant to Operating Leases. Operating Leases
are relatively short-term (12 to 48 month) leases under which the aggregate
noncancellable rental payments during the original term of the lease are not
sufficient to permit the lessor to recover the purchase price of the subject
Equipment. The Equipment may also be leased pursuant to Full Payout Net Leases.
Full Payout Net Leases are leases under which the aggregate noncancellable
rental payments during the original term of the lease are at least sufficient to
recover the purchase price of the subject Equipment. It is anticipated that the
Partnership will enter into few, if any, Full Payout net Leases. The General
Partner may also enter into Conditional Sales Contracts for Equipment. A
Conditional Sales Contract generally provides that the noncancellable payments
to the seller over the term of the contract are sufficient to recover the
investment in such Equipment and to provide a return on such investment. Under a
Conditional Sales Contract, the seller reserves title to, and retain a security
interest in, the Equipment until the Purchase Price of the Equipment is paid. As
of December 31, 2001, the Partnership has not entered into any Full Payout Net
Leases or Conditional Sales Contracts for Equipment and does not presently
intend to do so.

In general, the terms of the Partnership's leases, whether the Equipment is
leased pursuant to an Operating lease or a Full Payout Net Lease, depend upon a
variety of factors, including: the desirability of each type of lease from both
an investment and a tax point of view; the relative demand among lessees for
Operating or Full Payout Net Leases; the type and use of Equipment and its
anticipated residual value; the business of the lessee and its credit rating;
the availability and cost of financing; regulatory considerations; the
accounting treatment of the lease sought by the lessee or the Partnership; and
competitive factors.

An Operating Lease generally represents a greater risk to the Partnership than a
Full Payout Net Lease, because in order to recover the purchase price of the
subject Equipment and earn a return on such investment, it is necessary to renew
or extend the Operating Lease, lease the Equipment to a third party at the end
of the original lease term, or sell the Equipment. On the other hand, the term
of an Operating Lease is generally much shorter than the term of a Full Payout
Net Lease, and the lessor is thus afforded an opportunity under an Operating
Lease to re-lease or sell the subject Equipment at an earlier stage of the
Equipment's life cycle than under a Full Payout Net Lease. Also, the annual
rental payments received under an Operating Lease are ordinarily higher than
those received under a Full Payout Net Lease.

                                                                               4


<PAGE>


The Partnership's policy is to generally enter into "triple net leases" (or the
equivalent, in the case of a Conditional Sales Contract) which typically provide
that the lessee or some other party bear the risk of physical loss of the
Equipment; pay taxes relating to the lease or use of the Equipment; maintain the
Equipment; indemnify the Partnership-lessor against any liability suffered by
the Partnership as the result of any act or omission of the lessee or its
agents; maintain casualty insurance in an amount equal to the greater of the
full value of the Equipment and a specified amount set forth in the lease; and
maintain liability insurance naming the Partnership as an additional insured
with a minimum coverage which the General Partner deems appropriate. In
addition, the Partnership may purchase "umbrella" insurance policies to cover
excess liability and casualty losses, to the extent deemed practicable and
advisable by the General Partner. As of December 31, 2001, all leases that have
been entered into are "triple net leases".

The General Partner has not established any standards for lessees to whom it
will lease Equipment and, as a result, there is not an investment restriction
prohibiting the Partnership from doing business with any lessees. However, a
credit analysis of all potential lessees is undertaken by the General Partner to
determine the lessee's ability to make payments under the proposed lease. The
General Partner may refuse to enter into an agreement with a potential lessee
based on the outcome of the credit analysis.

The terms and conditions of the Partnership's leases, or Conditional Sales
Contracts, are each determined by negotiation and may impose substantial
obligations upon the Partnership. Where the Partnership assumes maintenance or
service obligations, the General Partner generally causes the Partnership to
enter into separate maintenance or service agreements with manufacturers or
certified maintenance organizations to provide such services. Such agreements
generally require annual or more frequent adjustment of service fees. As of
December 31, 2001, the Partnership has not entered into any such agreements.


BORROWING POLICIES

The General Partner, at its discretion, may cause the Partnership to incur debt
in the maximum aggregate amount of 30% of the aggregate cost of the Equipment
owned, or subject to Conditional Sales Contract (except that the Partnership may
not incur any indebtedness to acquire Equipment until the net proceeds of the
Offering are fully invested, or committed to investment, in Equipment). The
Partnership will incur only non-recourse debt, which is secured by Equipment and
lease income there from. Such leveraging permits the Partnership to increase the
aggregate amount of its depreciable assets, and, as a result, potentially
increases both its lease revenues and its federal income tax deductions above
those levels, which would be achieved without leveraging. There is no limit on
the amount of debt that may be incurred in connection with the acquisition of
any single item of Equipment. Any debt incurred is fully amortized over the term
of the initial lease or Conditional Sales Contract to which the Equipment
securing the debt is subject. The precise amount borrowed by the Partnership
depends on a number of factors, including the types of Equipment acquired by the
Partnership; the creditworthiness of the lessee; the availability of suitable
financing; and prevailing interest rates. The Partnership is flexible in the
degree of leverage it employs, within the permissible limit. There can be no
assurance that credit will be available to the Partnership in the amount or at
the time desired or on terms considered reasonable by the General Partner. As of
December 31, 2001, the aggregate non-recourse debt outstanding of $2,380,000 was
20% of the aggregate cost of the Equipment owned.

The Partnership may continue to purchase some items of Equipment without
leverage. If the Partnership purchases an item of Equipment without leverage and
thereafter suitable financing becomes available, it may then obtain the
financing, secure the financing with the purchased Equipment to the extent
practicable and invest any proceeds from such financing in additional items of
Equipment, or it may distribute some or all of such proceeds to the Limited
Partners. Any such later financing will be on terms consistent with the terms
applicable to borrowings generally. As of December 31, 2001, the Partnership has
not exercised this option.

After the net proceeds of the offering are fully invested in Equipment, the
General Partner plans to continue to cause the Partnership to borrow funds, to
the fullest extent practicable, at interest rates fixed at the time of

                                                                               5

<PAGE>


borrowing. However, the Partnership may borrow funds at rates, which vary with
the "prime" or "base" rate. If lease revenues were fixed, a rise in the "prime"
or "base" rate would increase borrowing costs and reduce the amount of the
Partnership's income and cash available for distribution. Therefore, the General
Partner is permitted to borrow funds to purchase Equipment at fluctuating rates
only if the lease for such Equipment provides for fluctuating rental payments
calculated on a similar basis.

Any additional debt incurred by the Partnership must be non-recourse.
Non-recourse debt, in the context of the business to be conducted by the
Partnership, means that the lender providing the funds can look for security
only to the Equipment pledged as security and the proceeds derived from leasing
or selling such Equipment. Neither the Partnership nor any Partner (including
the General Partner) would be liable for repayment of any non-recourse debt.

Loan agreements may also require that the Partnership maintain certain reserves
or compensating balances and may impose other obligations upon the Partnership.
Moreover, since a significant portion of the Partnership's revenues from the
leasing of Equipment will be reserved for repayment of debt, the use of
financing reduces the cash, which might otherwise be available for distributions
until the debt has been repaid and may reduce the Partnership's Cash Flow over a
substantial portion of the Partnership's operating life. As of December 31,
2001, no such agreements existed.

The General Partner and any of its Affiliates may, but are not required to, make
loans to the Partnership on a short-term basis. If the General Partner or any of
its Affiliates makes such a short-term loan to the Partnership, the General
Partner of Affiliate may not charge interest at a rate greater that the interest
rate charged by unrelated lenders on comparable loans for the same purpose in
the same locality. In no event is the Partnership required to pay interest on
any such loan at an annual rate greater than three percent over the "prime rate'
from time to time announced by PNC Bank, Philadelphia, Pennsylvania ("PNC
Bank"). All payments of principal and interest on any financing provided by the
General Partner or any of its affiliates are due and payable by the Partnership
within 12 months after the date of the loan.


REFINANCING POLICIES

Subject to the limitations set forth in "Borrowing Policies" above, the
Partnership may refinance its debt from time to time. With respect to a
particular item of Equipment, the General Partner will take into consideration
such factors as the amount of appreciation in value, if any, to be realized, the
possible risks of continued ownership, and the anticipated advantages to be
obtained for the Partnership, as compared to selling such Equipment. As of
December 31, 2001, the Partnership has not refinanced any of its debt.

Refinancing, if achievable, may permit the Partnership to retain an item of
Equipment and at the same time to generate additional funds for reinvestment in
additional Equipment or for distribution to the Limited Partners.


LIQUIDATION POLICIES

The General Partner intends to cause the Partnership to begin disposing of its
Equipment in approximately January 2006. Notwithstanding the Partnership's
objective to sell all of its assets and dissolve by December 31, 2006, the
General Partner may at any time cause the Partnership to dispose of all its
Equipment and, dissolve the Partnership upon the approval of Limited Partners
holding a Majority in Interest of Units.

Particular items of Equipment may be sold at any time if, in the judgment of the
General Partner, it is in the best interest of the Partnership to do so. The
determination of whether particular items of Partnership Equipment should be
sold or otherwise disposed of is made by the General Partner after consideration
of all relevant factors (including prevailing general economic conditions,
lessee demand, the General Partner's views of current and future market
conditions, the cash requirements of the Partnership, potential capital
appreciation, cash flow and federal income tax considerations), with a view
toward achieving the principal investment objectives of the Partnership. As
partial payment for Equipment sold, the Partnership may receive purchase money
obligations secured by liens on such Equipment. Subject to the General Partner's
discretion the Partnership may extend beyond December 31, 2006, if deemed
beneficial to the Partnership.

                                                                               6

<PAGE>



MANAGEMENT OF EQUIPMENT

Equipment management services for the Partnership's Equipment is provided by the
General Partner and its Affiliates and by persons employed by the General
Partner. Such services will consist of collection of income from the Equipment,
negotiation and review of leases, Conditional Sales Contracts and sales
agreements, releasing and leasing-related services, payment of operating
expenses, periodic physical inspections and market surveys, servicing
indebtedness secured by Equipment, general supervision of lessees to assure that
they are properly utilizing and operating Equipment, providing related services
with respect to Equipment, supervising, monitoring and reviewing services
performed by others in respect to Equipment and preparing monthly Equipment
operating statements and related reports.


COMPETITION

The equipment leasing industry is highly competitive. The Partnership competes
with leasing companies, equipment manufacturers and their affiliated financing
companies, distributors and entities similar to the Partnership (including other
programs sponsored by the General Partner), some of which have greater financial
resources than the Partnership and more experience in the equipment leasing
business than the General Partner. Other leasing companies and equipment
manufacturers, their affiliated financing companies and distributors may be in a
position to offer equipment to prospective lessees on financial terms, which are
more favorable than those, which the Partnership can offer. They may also be in
a position to offer trade-in privileges, software, maintenance contracts and
other services, which the Partnership may not be able to offer. Equipment
manufacturers and distributors may offer to sell equipment on terms (such as
liberal financing terms and exchange privileges), which will afford benefits to
the purchaser similar to those obtained through leases. As a result of the
advantages, which certain of its competitors may have, the Partnership may find
it necessary to lease its Equipment on a less favorable basis than certain of
its competitors.

The computer peripheral equipment industry is extremely competitive. Competitive
factors include pricing, technological innovation and methods of financing.
Certain manufacturer-lessors maintain advantages through patent protection,
where applicable, and through a policy that combines service and hardware with
payment accomplished through a single periodic charge.

The dominant firm in the computer marketplace is International Business Machines
Corporation, and its subsidiary IBM Credit Corporation is the dominant force in
the leasing of IBM equipment. Because of IBM's substantial resources and
dominant position, revolutionary changes with respect to computer systems,
pricing, marketing practices, technological innovation and the availability of
new and attractive financing plans could occur at any time. Significant action
in any of these areas by IBM or IBM Credit Corporation might materially
adversely affect the Partnership's business or the other manufacturers with whom
the General Partner might negotiate purchase and other agreements. Any adverse
effect on these manufacturers could be reflected in the overall return realized
by the Partnership on equipment from those manufacturers of from IBM.

                                                                               7


<PAGE>



Investments

As of March 29, 2002, the Partnership has purchased, or has made the commitment
to purchase, the following Equipment:
<TABLE>
<CAPTION>

                                             EQUIPMENT                     LIST           PURCHASE     MONTHLY     LEASE
LESSEE                          MFG          DESCRIPTION                   PRICE            PRICE       RENT        TERM
<S>                             <C>           <C>                           <C>            <C>         <C>           <C>
Chrysler                        STK          (2) 9490-M34                   686,158        490,110     12,001        48
ADP                             IBM          (1) 3490-A20                   422,900        178,673      4,290        36
Household Intl.                 STK          (3) 9490-M34                   671,898        405,628      9,100        36
Timken                          DEC          (1) Alpha server               259,507        204,781      5,308        36
Timken                          DEC          (1) Alpha server                46,657         40,928      1,062        36
Johnson Control                 HP           (13) HP9000-C110               441,415        304,718      7,961        36
Honda R&D                       SGI          Onyx Infinite Reality          323,108        263,498      7,076        36
AT&T                            IBM          (1) 3900 DW1/DW2               746,485        477,466     10,205        36
Federated                       IBM          (38) 3130-020                  909,910        600,000     15,162        34
Lucent                          SUN          (1)E6000 server                642,452        461,207     12,042        36
Lucent upgrade                  SUN          Upgrade to server               97,000         69,559      2,046        34
AT&T                            STK          (9) 9490-M34                 2,015,694      1,268,909     31,144        36
Avon                            IBM          (75%( (8) 3900-OW1           2,002,710      1,542,485     37,058        36
Chrysler                        IBM          (2) ES3000                   1,146,500        778,454     22,844        24
Allied Signal                   HP           (20) C180 workstations         838,339        362,615     11,775        24
Transamerica                    SUN          (2) ES3000 servers             212,730        154,965      3,976        36
Computer Science Corp.          SGI          (50%) (141) workstations     2,055,893        822,455     20,174        36
Charles Schwab                  IBM          (2) 9032-003                   845,043        523,399     21,031        36
Charles Schwab                  IBM          (20%) (6) 9032-003           2,479,443        307,983      6,989        36
Equitable Life                  SUN          (2) E3000                      336,220        205,893      6,491        36
Chase                           SUN          (3) E45D                       358,562        244,584      8,386        24
Aetna                           STK          (2) 9490-M34                   535,932        194,272      4,395        36
Equitable Life                  SUN          6000 Server                    617,310        466,496     12,186        36
Chrysler                        STK          Redwood Tape Drives            466,140        275,094      6,313        36
Chrysler                        STK          Redwood Tape Drives            310,760        183,396      4,209        36
Depository Trust                ESCON        (4) 9032 Directors           1,644,436      1,312,867     33,376        31
Depository Trust                ESCON        (4) 9032 Directors           1,644,436      1,255,784     33,376        27
Pitney Bowes                    IBM          (1) 3590                     1,846,080      1,026,634     20,045        38
Lucent                          SUN          (1) 4500 Server                184,897        120,701      3,091        36
Kaiser                          IBM          (7) RS 6000                    770,611        560,621     14,928        36
Kaiser                          IBM          (2) RS 170                     209,445        138,149      3,666        36
Kaiser                          CISCO        Routers                         78,172         62,538      1,637        36
Thomson                         EPSON        (16) Powerlite Projectors      146,960         93,002      2,578        36
Thomson                         NORTEL       Network LLXR759                165,000        109,328      4,245        36
Great Lakes Chemical            CISCO        (100) Routers                  635,385        456,368     12,073        36
AT&T                            NM           Net Ports DS3                   16,288         15,229        435        36
Datapage Tech                   CISCO        Routers                         22,604         20,424        725        34
Digital Display Tech            ROLLO        Paper Roll System               18,422         16,785        567        36
Global Routing Tech             DELL         Workstations/Servers            46,698         42,452      1,434        36
Keller Group                    DELL         Workstations/Servers            59,680         53,481      2,016        32
Keller Group                    HP           Servers/Printers                34,210         30,487      1,203     30-31
Kennedy Assoc/Architects        DELL         Workstations/Servers            52,632         47,598      1,664     31-36
Missouri Farm Bureau Serv       DELL         Workstations/Servers           265,000        241,616      8,008     36-37
Missouri Farm Bureau Serv       HP           Workstations/Serv/Printers      12,084         11,817        354        37
Missouri Farm Bureau Serv       IBM          Servers                         11,034          9,971        364        33
Patients First Health Care      Micro Sys    Workstations                     2,863          2,605         88        36
Petnik & Smith Commun.          COMPAQ       Server                          19,215         17,523        642        33
Provident Counseling            DELL         Workstations                     4,725          4,260        156        33
The Gannon Company              IBM          Workstations/Server             14,502         11,608        463     24-31
Tonnercharge of St Louis        HP           Server/Printers                  9,927          7,790        332     20-27
Union Financial Group           DELL         Workstation                      7,332          5,427        234        22
Vatterott Educational Centers   DELL         Workstations                    43,191         39,084      1,381     34-35
Thomson                         NORTEL       (46) LAN Routers                74,480         49,106      1,369        36
GE Medical                      CISCO        Routers                        117,110         69,523      1,856        35
GE Medical                      CISCO        Routers                        100,000         65,491      1,762        36
Thomson                         Thermojet    SOP System                      27,430         18,189        710        24
GE Medical                      IBM          (15) 4320-001 InfoPrint         64,050         41,996      1,159        36
Thomson                         XEROX        8830 Printer/Plotter            41,280         27,391      1,064        24
Kaiser                          IBM          7017-S85                       147,308        150,254     11,655        36
Boeing                          SUN          280R Sparclil Model            555,663        566,776     14,892        36
Eq Pkg                          Various      Routers/Servers                454,096        454,096     15,940     16-36
GE Medical                      CISCO        24 Port Access Server           15,175         15,479        411        36
GE Medical                      CISCO        1 Port upgrade                   1,943           1,82         67        30
Cap Tech                        Various      Routers/Servers                458,504        347,833     10,685     25-37
AOL                             SUN          Servers                        836,026        836,026     22,799        35
</TABLE>





                                                                               7

<PAGE>



Reserves

Because the Partnership's leases are on a "triple-net" basis, no permanent
reserve for maintenance and repairs will be established from the Offering
proceeds. However, the General Partner, in its sole discretion, may retain a
portion of the Cash Flow and Net Disposition Proceeds available to the
Partnership for maintenance, repairs and working capital. There are no
limitations on the amount of Cash Flow and Net Disposition Proceeds that may be
retained as reserves. Since no reserve will be established if available Cash
Flow of the Partnership is insufficient to cover the Partnership's operating
expenses and liabilities, it may be necessary for the Partnership to obtain
additional funds by refinancing its Equipment or borrowing.

General Restrictions

     Under the Partnership Agreement, the Partnership is not permitted, among
other things, to:

     (a) invest in junior trust deeds unless received in connection with the
         sale of an item of Equipment in an aggregate amount which does not
         exceed 30% of the assets of the Partnership on the date of the
         investment;
     (b) invest in or underwrite the securities of other issuers;
     (c) acquire any Equipment for Units;
     (d) issue senior securities (except that the issuance to lenders of notes
         or other evidences of indebtedness in connection with the financing or
         refinancing of Equipment or the Partnership's business shall not be
         deemed to be the issuance of senior securities);
     (e) make loans to any Person, including the General Partner or any of its
         Affiliates, except to the extent a Conditional Sales Contract
         constitutes a loan;
     (f) sell or lease any Equipment to, lease any Equipment from, or enter into
         any sale-leaseback transactions with, the General Partner or any of its
         Affiliates; or
     (g) give the General Partner or any of its Affiliates an exclusive right or
         employment to sell the Partnership's Equipment.

The General Partner has also agreed in the Partnership Agreement to use its best
efforts to assure that the Partnership shall not be deemed an "investment
company" as such term is detained in the Investment Company Act of 1940.

The General Partner and its Affiliates may engage in other activities, whether
or not competitive with the Partnership. The Partnership Agreement provides,
however, that neither the General Partner nor any of its Affiliates may receive
any rebate or "give up" in connection with the Partnership's activities or
participate in reciprocal business arrangements that circumvent the restrictions
in the Partnership Agreement against dealings with Affiliates.


EMPLOYEES

The Partnership has no employees and receives administrative and other services
from a related party, Commonwealth Capital Corp ("Com Cap Corp"), which has 18
employees as of December 31, 2001.


ITEM 2:  PROPERTIES

NOT APPLICABLE

ITEM 3:  LEGAL PROCEEDINGS

         On or about December 21, 2001, a complaint captioned Commonwealth
         Capital Corp V. Avon Products, Inc. was filed by Commonwealth Capital
         Corp against Avon Products Inc. with the Federal District Court of the
         Eastern District of Pennsylvania, No. 01-C2-6915. The complaint
         alleges that the named defendant has failed to make monthly payments
         on the existing lease terms.

                                                                               9


<PAGE>



ITEM 4:  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

NOT APPLICABLE

PART II

ITEM 5:  MARKET FOR THE REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER
         MATTERS

There is no public market for the Units nor is it anticipated that one will
develop. As of December 31, 2001, there were 514 holders of Units. The Units are
not listed on any exchange or permitted to trade on any over-the-counter market.
In addition, there are substantial restrictions on the transferability of Units.


GENERAL LIMITATIONS

Units cannot be transferred without the consent of the General Partner, which
may be withheld in its absolute discretion. The General Partner monitors
transfers of Units in an effort to ensure that all transfers are within certain
safe harbors promulgated by the IRS to furnish guidance regarding publicly
traded partnerships. These safe harbors limit the number of transfers that can
occur in any one year. The General Partner intends to cause the Partnership to
comply with the safe harbor that permits nonexempt transfers and redemptions of
Units of up to five percent of the total outstanding interest in the
Partnership's capital or profits in any one year.


REDEMPTION PROVISION

Upon the conclusion of the 30-month period following the termination of the
Offering, the Partnership may, at the sole discretion of the General Partner,
repurchase a number of the outstanding Units. After such 30 month period, on a
semi-annual basis, the General Partner, at its discretion, will establish an
amount for redemption, generally not to exceed two percent of the outstanding
Units per year, subject to the General Partner's good faith determination that
such redemptions will not (a) cause the Partnership to be taxed as a corporation
under Section 7704 of the Code or (b) impair the capital or operations of the
Partnership. (The Partnership may redeem Units in excess of the two percent
limitation if, in the good faith judgment of the General Partner, the conditions
imposed in the preceding sentence would remain satisfied.) The redemption price
for Units will be 105% of the selling Limited Partner's Adjusted Capital
Contributions attributable to the Units for sale. Following the determination of
the annual redemption amount, redemptions will occur on a semi-annual basis and
all requests for redemption, which must be made in writing, must be on file as
of the Record Date in which the redemption is to occur. The General Partner will
maintain a master list of requests for redemption with priority being given to
Units owned by estates, followed by IRAs and Qualified Plans. All other requests
will be considered in the order received. Redemption requests made by or on
behalf of Limited Partners who are not affiliated with the General Partner or
its Affiliates will be given priority over those made by Limited Partners who
are affiliated with the General Partner or its Affiliates. All redemption
requests will remain in effect until and unless canceled, in writing, by the
requesting Limited Partner(s).

The Partnership will accept redemption requests beginning 30 months following
the termination of the Offering. There will be no limitations on the period of
time that a redemption request may be pending prior to its being granted.
Limited Partners will not be required to hold their interest in the Partnership
for any specified period prior to their making a redemption request.

In order to make a redemption request, Limited Partners will be required to
advise the General Partner in writing of such request. Upon receipt of such
notification, the Partnership will provide detailed forms and instructions to
complete the request.


                                                                              10


<PAGE>



EXEMPT TRANSFERS

The following six categories of transfers are exempt transfers for purposes of
calculating the volume limitations imposed by the IRS and will generally be
permitted by the General Partner:

     (1) transfers in which the basis of the Unit in the hands of the transferee
         is determined, in whole or in part, by reference to its basis in the
         hands of the transferor (for example, Units acquired by corporations in
         certain reorganizations, contributions to capital, gifts of Units,
         Units contributed to another partnership, and no liquidating as well as
         liquidating distributions by a parent partnership to its partners of
         interests in a sub partnership);
     (2) transfers at death;
     (3) transfers between members of a family (which include brothers and
         sisters, spouse, ancestors, and lineal descendants);
     (4) transfers resulting from the issuance of Units by the Partnership in
         exchange for cash, property, or services;
     (5) transfers resulting from distributions from Qualified Plans; and
     (6) any transfer by a Limited Partner in one or more transactions during
         any 30-day period of Units representing in the aggregate more than five
         percent of the total outstanding interests in capital or profits of the
         Partnership.

ADDITIONAL RESTRICTIONS ON TRANSFER

Limited Partners who wish to transfer their Units to a new beneficial owner are
required to pay the Partnership up to $50 for each transfer to cover the
Partnership's cost of processing the transfer application and take such other
actions and execute such other documents as may be reasonably requested by the
General Partner. There is no charge for re-registration of a certificate in the
event of a marriage, divorce, death, or trust so long as the transfer is not a
result of a sale of the Units.

In addition, the following restrictions apply to each transfer: (i) no transfer
may be made if it would cause 25% or more of the outstanding Units to be owned
by benefit plans; and (ii) no transfer is permitted unless the transferee
obtains such governmental approvals as may reasonably be required by the General
Partner, including without limitation, the written consents of the Pennsylvania
Securities Commissioner and of any other state securities agency or commission
having jurisdiction over the transfer.

ALLOCATION AND DISTRIBUTION BETWEEN THE GENERAL PARTNER AND THE LIMITED PARTNERS

Cash distributions, if any, are made quarterly on March 31, June 30, September
30 and December 31, of each year. Distributions are made 99% to the Limited
Partners and one percent to the General Partner until the Limited Partners have
received an amount equal to their Capital Contributions plus the Priority
Return; thereafter, cash distributions will be made 90% to Limited Partners and
10% to the General Partner. Distributions made in connection with the
liquidation of the Partnership or a Partner's Units will be made in accordance
with the Partner's positive Capital Account balance as determined under the
Partnership Agreement and Treasury Regulations.

The Priority Return is calculated on the Limited Partners' Adjusted Capital
Contributions for their Units. The Adjusted Capital Contributions will initially
be equal to the amount paid by the Limited Partners for their Units. If
distributions at any time exceed the Priority Return, the excess will reduce the
Adjusted Capital Contributions, decreasing the base on which the Priority Return
is calculated.

If the proceeds resulting from the sale of any Equipment are reinvested in
Equipment, sufficient cash will be distributed to the Partners to pay the
additional federal income tax resulting from such sale for a Partner in a 39.6%
federal income tax bracket or, if lower, the maximum federal income tax rate in
effect for individuals for such taxable year.

Generally, the General Partner is allocated Net Profits equal to its cash
distributions (but not less than one percent of Net Profits) and the balance is
allocated to the Limited Partners. Net Profits arising from transactions in
connection with the termination or liquidation of the Partnership are allocated
in the following order: (1) First, to each Partner in an amount equal to the
negative amount, if any, of his Capital Account; (2) Second, an amount equal to
the excess of the proceeds which would be distributed to the Partners based on

                                                                              11

<PAGE>


the Operating Distributions to the Partners over the aggregate Capital Accounts
of all the Partners, to the Partners in proportion to their respective shares of
such excess, and (3) Third, with respect to any remaining Net Profits, to the
Partners in the same proportions as if the distributions were Operating
Distributions. Net Losses, if any, are in all cases allocated 99% to the Limited
Partners and one percent to the General Partner.

Net Profits and Net Losses are computed without taking into account, in each
taxable year of the Partnership, any items of income, gain, loss or deduction
required to be specially allocated pursuant to Section 704(b) of the Code and
the Treasury Regulation promulgated there under. No Limited Partner is required
to contribute cash to the capital of the Partnership in order to restore a
closing Capital Account deficit, and the General Partner has only a limited
deficit restoration obligation under the Partnership Agreement.




                                                                              12

<PAGE>




Quarterly distributions in the following amounts were declared and paid to the
Limited Partners during 2001, 2000, and 1999.

      Quarter Ended                 2001               2000             1999
      -------------------------------------------------------------------------

      March 31                   $228,600           $228,600          $230,908

      June 30                     228,600            228,599           230,908

      September 30                228,229            228,625           230,908

      December 31                       -            228,600           190,048
                              -------------------------------------------------

                                 $685,429           $914,424          $882,773
                                 ========           ========          ========


ALLOCATIONS AND DISTRIBUTIONS AMONG THE LIMITED PARTNERS

Except during the Offering Period, Cash Available for Distribution, which is
allocable to the Limited Partners, is apportioned among and distributed to them
solely with reference to the number of Units owned by each as of the Record Date
for each such distribution. During the Offering Period, Cash Available for
Distribution which is allocable to the Limited Partners was apportioned among
and distributed to them with reference to both (i) the number of Units owned by
each as of each Record Date and (ii) the number of days since the previous
Record Date (or, in the case of the first Record Date, the commencement of the
Offering Period) that the Limited Partner owned the Units.

After the Offering Period, Net Profits, Net Losses and Cash Available for
Distribution allocable to the Limited Partners is apportioned among them in
accordance with the number of Units owned by each. A different convention was
utilized during the Offering Period, whereby Net Profits and Net Losses
allocable to Limited Partners were apportioned among them in the ratio which the
product of the number of Units owned by a Limited Partner multiplied by the
number of days in which the Limited Partner owns such Units during the period
bears to the sum of such products for all Limited Partners.

In addition, where a Limited Partner transfers Units during a taxable year, the
Limited Partner may be allocated Net Profits for a period for which such Limited
Partner does not receive a corresponding cash distribution.


ITEM 6:  SELECTED FINANCIAL DATA

The following table sets forth, in summary form, selected financial data for the
Partnership for each of the five years ended December 31, 2001 This table is
qualified in its entirely by the more detailed information and financial
statements presented elsewhere in this report, and should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and related notes thereto included
herein.



                                                                              13

<PAGE>

<TABLE>
<CAPTION>
                            YEARS ENDED DECEMBER 31,

-------------------------------------------------------------------------------------------------------------
                         2001               2000              1999              1998              1997
----------------- ------------------- ----------------- ----------------- ----------------- -----------------
<S>                       <C>               <C>               <C>               <C>                <C>
  Lease Income            $3,014,643        $4,105,811        $4,598,009        $4,212,862         2,444,661
----------------- ------------------- ----------------- ----------------- ----------------- -----------------
   Net Income                422,762          (369,209)         (379,337)         (433,744)          (61,837)
     (loss)
----------------- ------------------- ----------------- ----------------- ----------------- -----------------
      Cash                   692,269           923,546           891,690           932,964           908,714
 Distributions
----------------- ------------------- ----------------- ----------------- ----------------- -----------------
   Net Income
   (loss) per
Limited Partner                 0.90             (0.82)            (0.84)            (0.96)            (0.08)
      Unit
----------------- ------------------- ----------------- ----------------- ----------------- -----------------
      Cash
  Distribution
  per Limited                   1.50              1.98              1.90              2.02              1.97
  Partner Unit
-------------------------------------------------------------------------------------------------------------


                            YEARS ENDED DECEMBER 31,

-------------------------------------------------------------------------------------------------------------
                          2001              2000              1999              1998              1997
------------------- ----------------- ----------------- ----------------- ----------------- -----------------
   Total Assets           $4,859,360        $4,387,648        $7,456,422       $10,232,970        $9,356,409
------------------- ----------------- ----------------- ----------------- ----------------- -----------------
  Notes Payable            2,380,383         1,665,816         3,326,191         4,769,529         1,954,120
------------------- ----------------- ----------------- ----------------- ----------------- -----------------
Partners' Capital          2,306,900         2,586,984         3,879,739         5,150,766         6,517,474
-------------------------------------------------------------------------------------------------------------
</TABLE>



Net income (loss) per unit is computed based upon net income (loss) allocated to
the Limited Partners and the weighted average number of equivalent Units
outstanding during the year. Cash distribution per Unit is computed based upon
distributions allocated to the Limited Partners and the weighted average number
of equivalent Units outstanding during the year.



                                                                              14


<PAGE>


ITEM 7: MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

CRITICAL ACCOUNTING POLICIES

         Financial Reporting Release No. 60, which was recently released by the
Securities and Exchange Commission, requires all companies to include a
discussion of critical accounting policies or methods used in the preparation of
financial statements. Our significant accounting policies are described in Note
1 of the Notes to the Consolidated Financial Statements. The significant
accounting policies that we believe are the most critical to aid in fully
understanding our reported financial results include the following:

REVENUE RECOGNITION

Through December 31, 2001, the Partnership has only entered into operating
leases. Lease revenue is recognized on a monthly basis in accordance with the
terms of the operating lease agreements.

LONG-LIVED ASSETS

The Partnership evaluates its long-lived assets when events or circumstances
indicate that the value of the asset may not be recoverable. The Partnership
determines whether an impairment exists by estimating the undiscounted cash
flows to be generated by each asset. If the estimated undiscounted cash flows
are less than the carrying value of the asset then an impairment exists. The
amount of the impairment is determined based on the difference between the
carrying value and the fair value. Fair value is determined based on estimated
discounted cash flows to be generated by the asset.

Depreciation on computer equipment for financial statement purposes is based on
the straight-line method over estimated useful lives of four years.

LIQUIDITY AND CAPITAL RESOURCES

The Partnership satisfied its minimum offering requirements and commenced
operations on September 22, 1995.

The Partnership's primary sources of capital for the years ended December 31,
2001, 2000, and 1999 were from cash from operations of $1,149,000, $857,000, and
$1,081,000, and proceeds from the sale of computer equipment of $409,000,
$431,000, and $50,000, respectively. The primary uses of cash for the years
ended December 31, 2001, 2000, and 1999, were for capital expenditures for new
equipment totaling $677,000, $98,000, and $255,000, the payment of acquisition
fees of $ 106,000, $33,000, and $57,000, an advance to CCC in the amount of
$315,000 in 2001, and the payment of preferred distributions to partners
totaling $692,000, $924,000, and $892,000, respectively.

Cash is invested in money market accounts that invest directly in treasury
obligations pending the Partnership's use of such funds to purchase additional
computer equipment, to pay Partnership expenses or to make distributions to the
Partners. At December 31, 2001, and 2000 the Partnership had approximately
$14,000, and $263,000, respectively, invested in these money market accounts.

For the period ended December 31, 2001, the Partnership has a receivable from
Commonwealth Capital Corp ("CCC"), a related party to the Partnership, in the
amount of approximately $315,000. CCC, through its indirect subsidiaries,
including the General Partner of the Partnership, earns fees based on revenues
and new lease purchases from this fund and other funds. This is a non-interest
bearing receivable that CCC intends to repay over the next three fiscal years
from acquisition and debt placement fees earned by the General Partner of the
Partnership. During the first quarter of 2002, CCC has paid approximately
$30,000 of this receivable.
                                                                              15


<PAGE>



The Partnership's investment strategy of acquiring computer equipment and
generally leasing it under triple-net leases to operators who generally meet
specified financial standards minimizes the Partnership's operating expenses.
Future minimum rentals on noncancellable operating leases increased by 14% in
December 31, 2001, from December 31, 2000, due to the purchase of new computer
equipment leases. As of December 31, 2001, the Partnership had future minimum
rentals on noncancellable operating leases of $1,289,000 for the year ended 2002
and $994,000 thereafter. During 2001 and 2000, the Partnership incurred debt in
connection with the purchase of computer equipment totaling $1,967,000 and
$721,000, respectively. At December 31, 2001, the outstanding debt was
$2,380,000, with interest rates ranging from 6.50% to 9.75% and will be payable
through December 2004. The Partnership intends to continue purchasing additional
computer equipment with existing cash, as well as when future cash becomes
available. In addition, the Partnership may incur debt in purchasing computer
equipment in the future.

Commonwealth Capital Corp, on behalf of the Partnership and other affiliated
partnerships, acquires computer equipment subject to associated debt obligations
and lease revenue and allocates a participation in the cost, debt and lease
revenue to the various partnerships based on certain risk factors.

The Partnership's share of the computer equipment in which they participate at
December 31, 2001 and 2000 was approximately $3,012,000 and $1,155,000,
respectively, which is included in the Partnership's fixed assets on their
balance sheet, and the total cost of the equipment shared by the Partnership
with other partnerships at December 31, 2001 and 2000 was approximately
$5,650,000 and $2,896,000, respectively. The Partnership's share of the
outstanding debt associated with this equipment at December 31, 2001 and 2000
was approximately $1,581,000 and $405,000, respectively, which is included in
the Partnership's liabilities on the balance sheet, and the total outstanding
debt at December 31, 2001 and 2000 related to the equipment shared by the
Partnership was approximately $2,406,000 and $1,021,000, respectively.


The Partnership's cash flow from operations is expected to continue to be
adequate to cover all operating expenses, liabilities, and preferred
distributions to Partners during the next 12-month period. If available Cash
Flow or Net Disposition Proceeds are insufficient to cover the Partnership
expenses and liabilities on a short and long term basis, the Partnership will
attempt to obtain additional funds by disposing of or refinancing Equipment, or
by borrowing within its permissible limits. The Partnership may also reduce the
distributions to its Partners if it deems necessary. Since the Partnership's
leases are on a "triple-net" basis, no reserve for maintenance and repairs are
deemed necessary.


RESULTS OF OPERATIONS

For the years ended December 31, 2001, 2000, and 1999, the Partnership
recognized income of $3,319,000, $4,117,000, and $4,625,000 and expenses of
$2,896,000, $4,486,000, and $5,004,000, resulting in net income for the year
ended December 31, 2001 of $423,000 and a net loss of $369,000 and $379,000, for
the years ended December 31, 2000 and 1999, respectively.

Lease income decreased by 26% in 2001 from 2000 primarily due to operating
leases that matured in 2001. In 2001 the partnership expended approximately
$677,000 in cash and assumed debt of $1,967,000 to acquire 33 new leases, which
generated $190,000 in additional revenue in 2001.

Interest income decreased to $9,000 for the year ended December 31, 2001 from
$11,000 for the year ended December 31, 2000, and $27,000 for the year ended
December 31, 1999 as a result of rental income being used to purchase additional
computer equipment.

Operating expenses, excluding depreciation, consist of accounting, legal,
outside service fees and reimbursement of expenses to Com Cap Corp. for
administration and operation of the Partnership. These expenses increased by 49
% to $360,000 from $241,000 during the year ended December 31, 2000 and $233,000
during the year ended December 31, 1999. This increase is primarily attributable
to reimbursable expenses in connection with the administration and operation of
the Partnership charged by Com Cap Corp. increasing by approximately $57,000,
remarketing fees paid to brokers increasing by approximately $27,000,
professional fees increasing by approximately $29,000, and an increase of
outside office services (printing, consulting fees, etc.) by approximately
$6,000.

The equipment management fee is approximately 5% of the gross lease revenue
attributable to equipment that is subject to operating leases. The equipment
management fee decreased to $151,000 during the year ended December 31, 2001
from $222,000 during the year ended December 31, 2000 and $230,000, during the
year ended December 31, 1999, which is consistent with the change in lease
income.

                                                                              16


<PAGE>


Depreciation and amortization expenses consist of depreciation on computer
equipment, amortization of organization costs (for 1999 only), equipment
acquisition fees and debt placement fees. The 38% decrease to $2,270,000 during
the year ended December 31, 2001 from $3,680,000 and $4,235,000 during the year
ended December 31, 2000 and 1999, respectively, is attributable to the decrease
in the computer equipment portfolio being leased.

The Partnership sold computer equipment during the year ended December 31, 2001,
2000, and 1999 with a net book value of $113,000, $569,000, and $57,000,
respectively, for a net gain of $295,000 in 2001, and a net loss of $138,000 in
2000 and $8,000 in 1999.

The Partnership has reserved $9,000 and $45,000 as allowances against accounts
receivable for the periods ending December 31, 2001, and 2000, respectively. No
reserve was established in 1999.

The Partnership identified specific computer equipment and associated equipment
acquisition costs, which were reevaluated due to technological changes. In 2001
and 1999, the Partnership determined that the carrying amount of certain assets
was greater than the undiscounted cash flows to be generated by these assets.
The Partnership recorded charges of $100,000 and $181,000 in the fourth quarter
of 2001 and 1999, respectively, to record the assets at their estimated fair
value. Such amounts have been included in depreciation expense in the
accompanying financial statements. In 2000, the Partnership determined that no
impairment had occurred.

For the period ended December 31, 2001, the Partnership has a receivable from
Commonwealth Capital Corp ("CCC"), a related party to the Partnership, in the
amount of approximately $315,000. CCC, through its indirect subsidiaries,
including the General Partner of the Partnership, earns fees based on revenues
and new lease purchases from this fund and other funds.


NET INCOME (LOSS)

         Net income increased to $423,000 in 2001, from a net (loss) of $369,000
and $379,000, in 2000 and 1999, respectively.

         The changes in net income (loss) were attributable to the changes in
revenues and expenses as discussed above.

CASH FLOWS

         For the year ended December 31, 2001, the Partnership generated cash
flow from operating activities of $1,149,000, which includes net income of
$423,000 and gain on the sale of computer equipment of $295,000, reduced by
depreciation and amortization expenses of $2,270,000. Other noncash activities
included in the determination of net income include direct payments of lease
income by lessees to banks of $1,252,000.


RECENT ACCOUNTING PRONOUNCEMENTS

                              Business Combinations

         In June 2001, the FASB issued Statement No. 141, "Business
Combinations." The Statement addresses financial accounting and reporting for
business combinations and supersedes APB Opinion No. 16, Business Combinations,
and FASB Statement No. 38, Accounting for Preacquisiton Contingencies of
Purchased Enterprises. All business combinations in the scope of the Statement
are to be accounted for using the purchase method. The provisions of the
Statement apply to all business combinations initiated after June 30, 2001. The
Statement also applies to all business combinations accounted for using the
purchase method for which the date of acquisition is July 1, 2001, or later.
There was no material, financial condition, or equity upon adoption of Statement
No. 141.

                                                                              17


<PAGE>


                      Goodwill and Other Intangible Assets

                  In June 2001, the FASB issued Statement No. 142, "Goodwill and
Other Intangible Assets." The Statement addresses financial accounting and
reporting for goodwill and other intangible assets and supersedes APB Opinion
No. 17, Intangible Assets. It addresses how tangible assets that are acquired
individually or with a group of other assets (but not those acquired in a
business combination) should be accounted for in financial statements upon their
acquisition. The Statement also addresses how goodwill and other intangible
assets should be accounted for after they have been initially recognized in the
financial statements.

                  The provisions of the Statement are required to be applied
starting with fiscal years beginning after December 15, 2001, except that
goodwill and intangible assets acquired after June 30, 2001, will be subject
immediately to the non-amortization and amortization provisions of the
Statement. Early application is permitted for entities with fiscal years
beginning after March 15, 2001, provided that the first interim financial
statements have not previously been issued. The Statement is required to be
applied at the beginning of an entity's fiscal year and to be applied to all
goodwill and other intangible assets recognized in its financial statements at
that date. There was no material impact on earnings, financial condition, or
equity upon adoption of Statement No. 142 at January 1, 2002.

                   Impairment or Disposal of Long-Lived Assets

                  In August 2001, the FASB issued Statement No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets." This Statement addresses
financial accounting and reporting for the impairment or disposal of long-lived
assets and supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of. However, the Statement
retains the fundamental provisions of Statement 121 for (a) recognition and
measurement of the impairment of long-lived assets to be held and used and (b)
measurement of long-lived assets to be disposed of by sale.

                  This Statement supersedes the accounting and reporting
provisions of APB Opinion No. 30, Reporting the Results of Operations-Reporting
the Effects of Disposal of a Segment of a business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions, for the disposal of a
segment of a business. However, this Statement retains the requirement of
Opinion 30 to report discontinued operations separately from continuing
operations and extends that reporting to a component of an entity that either
has been disposed of (by sale, by abandonment, or in distribution to owners) or
is classified as held for sale. This Statement also amends ARB No. 51,
Consolidated Financial Statements, to eliminate the exception to consolidation
for a temporarily controlled subsidiary.

                  The provisions of this Statement are effective for financial
statements issued for fiscal years beginning after December 15, 2001, and
interim periods within those fiscal years, with earlier application encouraged.
The provisions of this Statement generally are to be applied prospectively. The
adoption of the Statement on January 1, 2002, did not have a material impact on
earnings, financial condition, or equity.


ITEM 7.A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         The Partnership believes its exposure to market risk is not material
due to the fixed interest rate of its long- term debt and its associated fixed
revenue streams.


ITEM 8: FINANCIAL STATEMENTS

         See financial statements commencing in Part IV Item 14.

                                                                              18



<PAGE>


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

GENERAL

         The General Partner, a wholly owned subsidiary of Commonwealth of
Delaware, Inc., a Delaware corporation, which is in turn a wholly-owned
subsidiary of Commonwealth Capital Corp., a Pennsylvania corporation, was
incorporated in Pennsylvania on August 26, 1993. The General Partner also acts
as the General Partner for Commonwealth Income and Growth Fund I and
Commonwealth Income and Growth Fund II. The principal business office of the
General Partner is 470 John Young Way, Suite 300, Exton, PA 19341, and its
telephone number is 610-594-9600. The General Partner manages and controls the
affairs of the Partnership and has sole responsibility for all aspects of the
Partnership's operations. The officers of the General Partner devote such time
to the affairs of the Partnership as in the opinion of the General Partner is
necessary to enable it to perform its function as General Partner. The officers
of the General Partner are not required to spend their full time in meeting
their obligations to the Partnership.


         The directors and officers of the General Partner and key employees of
Com Cap Corp. are as follows:

<TABLE>
<CAPTION>
NAME                       TITLE
----                       -----

<S>                        <C>
George S. Springsteen      Chairman of the Board of Directors and President of the General Partner and
                           Com Cap Corp.

Kimberly A. Springsteen    Executive Vice President, Chief Operating Officer and Secretary of the General
                           Partner and Com Cap Corp.

Henry J. Abbott            Vice President and Portfolio Manager of Com Cap Corp.

Salvatore R. Barila        Vice President and Controller of the General Partner and Com Cap Corp

John A. Conboy III         Assistant  Vice  President  and  Accounting  Manager of the General  Partner and Com Cap
                           Corp.

Lynn Franceshina           Accounting Manager of the General Partner and Com Cap Corp.

Dorothy A. Ferguson        Assistant Vice President of Com Cap Corp.
</TABLE>


         George S. Springsteen, age 67, is President of both Com Cap Corp. and
the General Partner. Mr. Springsteen is also President of the general partners
or controlling entities of several prior programs sponsored by Com Cap Corp.
with objectives similar to the Partnership's. He has been the sole shareholder
and director of Com Cap Corp. since its formation in 1978. From 1971 to 1978,
Mr. Springsteen was involved in the computer leasing business of Granite
Computer Corporation. Mr. Springsteen served as Vice President of Marketing, in
addition to other capacities, and managed a portfolio of approximately
$120,000,000 of IBM computers and peripherals. In 1978, Granite Computer
Corporation sold its equipment portfolio and left the equipment leasing
business. Mr. Springsteen acquired a portion of Granite's portfolio, client
base, employees and corporate offices in Jenkintown, Pennsylvania. The new
company began operations as Com Cap Corp. in May of 1978. Mr. Springsteen
received a Bachelor of Science degree from the University of Delaware in 1957.


                                                                              19


<PAGE>



         Kimberly A. Springsteen, age 42, is Executive Vice President, Chief
Operating Officer and Secretary of Com Cap Corp. and the General Partner and
joined Com Cap Corp. in 1997. She is also the President of Commonwealth Capital
Securities Corp. From 1980 to 1997, Ms. Springsteen was employed with Wheat
First Butcher Singer, a broker/dealer headquartered in Richmond, Virginia. While
at Wheat First Butcher Singer, Ms. Springsteen, Senior Vice President, served as
Marketing Manager for the Direct Investments Department, with over $450,000,000
of investments under management in real estate, equipment leasing and
energy-related industries. Ms. Springsteen holds Series 7, 63 and 39 NASD
licenses and is a member of the Equipment Leasing Association, Investment
Partnership Association, and International Association for Financial Planning.

         Henry J. Abbott, age 50, is Vice President and Portfolio Manager of Com
Cap Corp. and has been employed by Com Cap Corp. since 1998. Mr. Abbot has been
active in the commercial lending industry, working primarily on asset-backed
transactions for more than twenty-seven years. Prior to joining Com Cap Corp.
Mr. Abbott was a founding partner of Westwood Capital LLC, in New York. Prior to
that, as Senior Vice President for IBJ Schroder Leasing Corporation where Mr.
Abbott managed a group specializing in providing operating lease financing
programs in the high technology sector. Mr. Abbott brings extensive knowledge
and experience in all facets of asset-backed financing and has successfully
managed $1.5 billion of secured transactions. Mr. Abbott attended St. John's
University. Mr. Abbott is a member of the Equipment Leasing Association.

         Salvatore R. Barila, age 31, is Vice President and Controller of the
General Partner and Com Cap Corp. and certain of its subsidiaries where he has
been employed since 2000. From 1992 to 2000, Mr. Barila was employed as
Corporate Accounting Manager of RCG Information Technology, Inc. Mr. Barila
received a BS degree in Accounting from Pace University in 1992. Mr. Barila is a
member of the Equipment Leasing Association.

         John A. Conboy III, age 55, is Assistant Vice President and Accounting
Manager of the General Partner and Com Cap Corp. and certain of its subsidiaries
where he has been employed since 1999. From 1965 to 1996, Mr. Conboy was
employed as a Manager of Accounting Operations of Consolidated Rail Corporation.
Mr. Conboy received a BS/BA degree in Accounting and Business Administration
from the University of Phoenix in 1994. Mr. Conboy is a member of the Equipment
Leasing Association.

         Lynn A. Franceschina, age 29, is Accounting Manager of the General
Partner and Com Cap Corp. and certain of its subsidiaries where she has been
employed since 2001. From 1991 to 2001, Ms. Franceschina worked as an
Accountant, most recently as the Business Controls Manager at Liquent, Inc. Ms.
Franceschina received a B.S.B.A. degree from Robert Morris College. Ms.
Franceschina is a member of the Equipment Leasing Association.

         Dorothy A. Ferguson, age 59, is Assistant Vice President of Com Cap
Corp. and has been employed by Com Cap Corp. since 1995. She brought with her
over 20 years experience in commercial banking and finance. Prior to joining
Commonwealth, she held positions as a Banking Officer and Administrative
Assistant to the Chairman of a large Philadelphia based bank, as well as
Executive Secretary to the CEO of an international manufacturing management
group.

         The directors and officers of the General Partner are required to spend
only such time on the Partnership's affairs as is necessary in the sole
discretion of the directors of the General Partner for the proper conduct of the
Partnership's business. A substantial amount of time of such directors and
officers is expected to be spent on matters unrelated to the Partnership,
particularly after the Partnership's investments have been selected. Under
certain circumstances, such directors and officers are entitled to
indemnification from the Partnership.


                                                                              20


<PAGE>


ITEM 11: EXECUTIVE COMPENSATION

         The following table summarizes the types, amounts and recipients of
compensation to be paid by the Partnership directly or indirectly to the General
Partner and its Affiliates. Some of these fees are paid regardless of the
success or profitability of the Partnership's operations and investments. While
such compensation and fees were established by the General Partner and are not
based on arm's-length negotiations, the General Partner believes that such
compensation and fees are comparable to those which would be charged by an
unaffiliated entity or entities for similar services. The Partnership Agreement
limits the liability of the General Partner and its Affiliates to the
Partnership and the Limited Partners and provides indemnification to the General
Partner and its Affiliates under certain circumstances.






                                                                              21



<PAGE>


<TABLE>
<CAPTION>
                                                                                  AMOUNT          AMOUNT              AMOUNT
ENTITY RECEIVING                                                                  INCURRED        INCURRED            INCURRED
COMPENSATION            TYPE OF COMPENSATION                                      DURING 2001     DURING 2000         DURING 1999

                        OFFERING AND ORGANIZATION STAGE
<S>                     <C>                                                       <C>             <C>                 <C>
The General Partner     Organizational Fee.  An Organization                       $0               $0                  $0
                        Fee equal to three percent of the first
                        $10,000,000 of Limited Partners' Capital Contributions
                        and two percent of the Limited Partners' Capital
                        Contribution in excess of $10,000,000, as compensation
                        for the organization of the Partnership. It is
                        anticipated that all Organizational and Offering
                        Expenses which include legal, accounting and printing
                        expenses; various registration and filing fees;
                        miscellaneous expenses related to the organization and
                        formation of the Partnership; other costs of
                        registration; and costs incurred in connection with the
                        preparation, printing and distribution of this Report
                        and other sales literature. The General Partner pays all
                        Organizational and Offering Expenses, other than
                        Underwriter's Commissions and a non-accountable expense
                        allowance payable to the Dealer Manager that is equal to
                        the lesser of (i) one percent of the Offering proceeds
                        or (ii) $50,000.

                        OPERATIONAL AND SALE
                        OR LIQUIDATION STAGES

The General Partner     Reimbursement of Expenses. The General                     $148,000         $91,000             $84,000
and its Affiliates      and its Affiliates Partner are entitled
                        to reimbursement by the Partnership for the cost of
                        goods, supplies or services obtained and used by the
                        General Partner in connection with the administration
                        and operation of the Partnership from third parties
                        unaffiliated with the General Partner. In addition, the
                        General Partner and its affiliates are entitled to
                        reimbursement of certain expenses incurred by the
                        General Partner and its affiliates in connection with
                        the administration and operation of the Partnership. The
                        amounts set forth on this table do not include expenses
                        incurred in the offering of Units.

The General Partner     Equipment Acquisition Fee. An Equipment                    $106,000         $33,000             $57,000
                        Acquisition Fee of four percent of the
                        Purchase Price of each item of
                        Equipment purchased as compensation for
                        the negotiation of the acquisition of
                        the Equipment and the lease thereof or
                        sale under a Conditional Sales
                        Contract. The fee was paid upon each
                        closing of the Offering with respect to
                        the Equipment purchased by the
                        Partnership with the net proceeds of
                        the Offering available for investment
                        in Equipment. If the Partnership
                        acquires Equipment in an amount
                        exceeding the net proceeds of the
                        Offering available for investment in
                        Equipment, the fee will be paid when
                        such Equipment is acquired.
</TABLE>



                                                                              22


<PAGE>






<TABLE>
<CAPTION>
                                                                                  AMOUNT          AMOUNT           AMOUNT
ENTITY RECEIVING                                                                  INCURRED        INCURRED         INCURRED
COMPENSATION            TYPE OF COMPENSATION                                      DURING 2001     DURING 2000      DURING 1999
<S>                     <C>                                                       <C>              <C>              <C>
The General Partner     Debt Placement Fee. As compensation for                   $20,000          $7,000           $12,000
                        arranging Term Debt to finance the
                        acquisition of Equipment to the
                        Partnership, a fee equal to one percent
                        of such indebtedness; provided,
                        however, that such fee is reduced to
                        the extent the Partnership incurs such
                        fees to third Parties, un affiliated
                        with the General Partner or the lender,
                        with respect to such indebtedness and
                        no such fee is paid with respect to
                        borrowings from the General Partner or
                        its Affiliates.

The General Partner     Equipment Management Fee. A monthly fee                   $151,000        $222,000         $230,000
                        equal to the lesser of (I) the fees
                        which would be charged by an
                        independent third party for similar
                        services for similar equipment or (ii)
                        the sum of (a) two percent of (1) the
                        Gross Lease Revenues attributable to
                        Equipment which is subject to Full
                        Payout Net Leases which contain net
                        lease provisions plus (2) the purchase
                        price paid on Conditional Sales
                        Contracts as received by the
                        Partnership and (b) five percent of the
                        Gross Lease Revenues attributable to
                        Equipment which is subject to Operating
                        Leases.

The General Partner     Re-Lease Fee. As Compensation for                         $0              $0               $0
                        providing re-leasing services for any
                        Equipment for which the General Partner
                        has, following the expiration of, or
                        default under, the most recent lease of
                        Conditional Sales Contract, arranged a
                        subsequent lease of Conditional Sales
                        Contract for the use of such Equipment
                        to a lessee or other party, other than
                        the current or most recent lessee of
                        other operator of such equipment or its
                        Affiliates ("Re-lease"), the General
                        Partner will receive, on a monthly
                        basis, a Re3-lease Fee equal to the
                        lesser of (a) the  fees which would be
                        charged by an independent third party
                        of comparable services for comparable
                        equipment or (b) two percent of Gross
                        Lease Revenues  derived from such
                        Re-lease.

The General Partner     Equipment Liquidation Fee. With respect                   $0              $0               $0
                        to each item of Equipment sold by the
                        General Partner (other than in
                        connection with a Conditional Sales
                        Contract), a fee equal to the lesser of
                        (I) 50% of the Competitive Equipment
                        Sale Commission or (ii) three percent
                        of the sales price for such Equipment.
                        The payment of such fee is subordinated to the receipt
                        by the Limited Partners of (I) a return of their Capital
                        Contributions and 10% annum cumulative return,
                        compounded daily, on Adjusted Capital Contributions
                        ("Priority Return") and (ii) the Net Disposition
                        Proceeds from such sale in accordance with the
                        Partnership Agreement. Such fee is reduced to the extent
                        any liquidation or resale fees are paid to unaffiliated
                        parties.
</TABLE>




<PAGE>

<TABLE>
<CAPTION>
                                                                                  AMOUNT          AMOUNT           AMOUNT
ENTITY RECEIVING                                                                  INCURRED        INCURRED         INCURRED
COMPENSATION            TYPE OF COMPENSATION                                      DURING 2001     DURING 2000      DURING 1999

<S>                     <C>                                                       <C>             <C>              <C>
The General Partner     Partnership Interest. The General                         $6,840          $9,122           $8,917
                        Partner has a present and continuing
                        one percent interest of $1,000 in the
                        Partnership's item of income, gain,
                        loss, deduction, credit, and tax preference. In
                        addition, the General Partner receives one percent of
                        Cash Available for Distribution until the Limited
                        Partners have received distributions of Cash Available
                        for Distribution equal to their Capital Contributions
                        plus the 10% Priority Return and thereafter, the General
                        Partner will receive 10% of Cash Available for
                        Distribution.
</TABLE>


ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         NOT APPLICABLE

ITEM 13:  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The Partnership is subject to various conflicts of interest arising out
of its relationships with the General Partner and its Affiliates. These
conflicts include the following:

COMPETITION WITH GENERAL PARTNER AND AFFILIATES:  COMPETITION FOR MANAGEMENT'S
TIME

         The General Partner and its Affiliate sponsor other investor programs,
which are in potential competition with the Partnership in connection with the
purchase of Equipment as well as opportunities to lease and sell such Equipment.
Competition for Equipment has occurred and is likely to occur in the future. The
General Partner and its Affiliates may also form additional investor programs,
which may be competitive with the Partnership.

         If one or more investor programs and the Partnership are in a position
to acquire the same Equipment, the General Partner will determine which program
will purchase the Equipment based upon the objectives of each and the
suitability of the acquisition in light of those objectives. The General Partner
will generally afford priority to the program or entity that has had funds
available to purchase Equipment for the longest period of time. If one or more
investor programs and the Partnership are in a position to enter into lease with
the same lessee or sell Equipment to the same purchaser, the General Partner
will generally afford priority to the Equipment which has been available for
lease or sale for the longest period of time.

         Certain senior executives of the General Partner and its Affiliates
also serve as officers and directors of the other programs and are required to
apportion their time among these entities. The Partnership is, therefore, in
competition with the other programs for the attention and management time of the
General Partner and Affiliates. The officers and directors of the General
Partner are not required to devote all or substantially all of their time to the
affairs of the Partnership.

ACQUISITIONS

         Com Cap Corp. and the General Partner or other Affiliates of the
General Partner may acquire Equipment for the Partnership provided that (i) the
Partnership has insufficient funds at the time the Equipment is acquired, (ii)
the acquisition is in the best interest of the partnership and (iii) no benefit
to the General Partner or its Affiliates arises from the acquisition except for
compensation paid to Com Cap Corp., the General Partner or such other Affiliate
as disclosed in this Report. Com Cap Corp., the General Partner or their
Affiliates will not hold Equipment for more than 60 days prior to transfer to

                                                                              24

<PAGE>



the Partnership. If sufficient funds become available to the Partnership within
such 60 day period, such Equipment may be resold to the Partnership for a price
not in excess of the sum of the cost of the Equipment to such entity and any
accountable Acquisition Expenses payable to third parties which are incurred by
such entity and interest on the Purchase Price from the date of purchase to the
date of transfer to the Partnership. Com Cap Corp., the General Partner or such
other Affiliate will retain any rent or other payments received for the
Equipment, and bear all expenses and liabilities, other than accountable
Acquisition Expenses payable to third parties with respect to such Equipment,
for all periods prior to the acquisition of the Equipment by the Partnership.
Except as described above, there will be no sales of Equipment to or from any
Affiliate of Com Cap Corp.

         In certain instances, the Partnership may find it necessary, in
connection with the ordering and acquisition of Equipment, to make advances to
manufacturers or vendors with funds borrowed from the General Partner for such
purpose. The Partnership does not borrow money from the General Partner or any
of its Affiliates with a term in excess of twelve months. Interest is paid on
loans or advances (in the form of deposits with manufacturers or vendors of
Equipment or otherwise) from the General Partner of its Affiliates from their
own funds at a rate equal to that which would be charged by third party
financing institutions on comparable loans from the same purpose in the same
geographic area, but in no event in excess of the General Partner's or
Affiliate's own cost of funds. In addition, if the General Partner or its
Affiliates borrow money and loan or advance it on a short-term basis to or on
behalf of the Partnership, the General Partnership than that which the General
Partner or such Affiliates are paying. The Partnership does not loan money to
any Person including the General Partner or its Affiliates except to the extent
that a Conditional Sales Contract constitutes a loan.

         If the General Partner or any of its Affiliates purchases Equipment in
its own name and with its own funds in order to facilitate ultimate purchase by
the Partnership, the purchaser is entitled to receive interest on the funds
expended for such purchase on behalf of the Partnership. Simple interest on any
such temporary purchases is charged on a floating rate basis not in excess of
three percent over the "prime rate" from time to time announced by PNC Bank,
from the date of initial acquisition to the date of repayment by the
Partnership/ownership transfer.

         The Partnership does not invest in equipment Limited Partnerships,
general partnerships or joint ventures, except that (a) the Partnership may
invest in general partnerships or joint ventures with persons other that
equipment Programs formed by the General Partner or its Affiliates, which
partnerships or joint ventures own specific equipment; provided that (i) the
Partnership has or acquires a controlling interest in such ventures or
partnerships, (ii) the non-controlling interest is owned by a non-Affiliated,
and (iii) the are no duplicate fees; and (b) the Partnership may invest in joint
venture arrangements with other equipment Programs formed by the General Partner
or its Affiliates if such action is in the best interest of all Programs and if
all the following conditions are met: (i) all the Programs have substantially
identical investment objectives; (ii) there are no duplicate fees; (iii) the
sponsor compensation is substantially identical in each Program; (iv) the
Partnership has a right of first refusal to buy another Program's interest in a
joint venture if the other Program wishes to sell equipment held in the joint
venture; (v) the investment of each Program is on substantially the same terms
and conditions; and (vi) the joint venture is formed either for the purpose of
effecting appropriated diversification for the Programs or for the purpose of
relieving the General Partner or its Affiliates from a commitment entered into
pursuant to certain provisions of the Partnership Agreement.

          GLOSSARY

     The following terms used in this Report shall (unless otherwise expressly
provided herein or unless the context otherwise requires) have the meanings set
forth below.

     "Acquisition Expenses" means expenses relating to the prospective selection
and acquisition of or investment in Equipment, whether or not actually acquired,
including, but not limited to, legal fees and expenses, travel and communication
expenses, costs of appraisals, accounting fees and expenses and miscellaneous
expenses.

                                                                              25


<PAGE>


     "Acquisition Fee" means the total of all fees and commissions paid by any
party in connection with the initial purchase of Equipment acquired by the
Partnership. Included in the computation of such fees or commissions shall be
the Equipment Acquisition Fee, any commission, selection fee, construction
supervision fee, finance fee, non-recurring management fee of a similar nature,
however designated.

     "Adjusted Capital Contributions" means Capital Contributions of the Limited
Partners reduced to not less than zero by any cash distribution received by the
Limited Partners pursuant to Sections 4/2 or 8/1, to the extent such
distributions exceed any unpaid Cumulative Return as of the date such
distributions were made.

     "Affiliate" means, when used with reference to a specified Person, (I) any
Person that directly or indirectly through one or more intermediaries controls
or is controlled by or is under common control with the specified Person, (ii)
any Person that is a director or an executive officer of, partner in, or serves
in a similar capacity to, the specified Person, or any Person which the
specified Person is an executive officer of partner or with respect to which the
specified Person serves in a similar capacity, (iii) any Person owning or
controlling 10% or more of the outstanding voting securities of such specified
Person, or (iv) if such Person is an officer, director or partner, any entity
for which such Person acts in such capacity.

     "Capital Account" means the separate account established for each Partner
pursuant to Section 4/.1.

     "Capital Contributions" means, in the case of the General partner, the
total amount of money contributed to the Partnership by the General Partner,
and, in the case of the Limited Partners, $20 for each Unit or where the context
requires, the total Capital Contributions of all the Partners.

     "Cash Available for Distribution" means Cash Flow plus net Disposition
Proceeds plus cash funds available for distribution from Partnership reserves,
less such amounts as the General Partner, in accordance with this Agreement,
causes the Partnership to reinvest in Equipment or interests therein, and less
such amounts as the General Partner, in its sole discretion, determines should
be set aside for the restoration or enhancement of Partnership reserves.

     "Cash Flow" for any fiscal period means the sum of (i) cash receipts from
operations, including, but not limited to, rents or other revenues arising from
the leasing or operation of the Equipment and interest, if any, earned on funds
on deposit for the Partnership, but not including Net Disposition Proceeds,
minus (ii) all cash expenses and costs incurred and paid in connection with the
ownership, lease, management, use and/or operation of the Equipment, including,
but not limited to, fees for handling and storage; all interest expenses paid
and all repayments of principal regarding borrowed funds; maintenance; repair
costs; insurance premiums; accounting and legal fees and expenses; debt
collection expenses; charges, assessments or levies imposed upon or against the
Equipment; ad valorem, gross receipts and other property taxes levied against
the Equipment; and all costs of repurchasing Units in accordance with this
Agreement; but not including depreciation or amortization of fees or capital
expenditures, or provisions for future expenditures, including, without
limitation, Organizational and Offering Expenses.

     "Closing Date" means the date, as designated by the General Partner, as of
which the Units shall cease being offered to the public pursuant to the
Offering, and shall be no later than the second anniversary of the Effective
Date.

     "Code" means the Internal Revenue Code of 1986, as amended, and as may be
amended from time to time by future federal tax statues. Any reference this
Agreement to a particular provision of the Code shall mean, where appropriate,
the corresponding provision of any successor statute.

     "Competitive Equipment Sale Commission" means that brokerage fee paid for
services rendered in connection with the purchase or sale of Equipment which is
reasonable, customary, and competitive in light of the size, type, and location
of the Equipment.


                                                                              26



<PAGE>


     "Conditional Sales Contract" means an agreement to sell Equipment to a
buyer in which the seller reserves title to, and retains a security interest in,
the Equipment until the Purchase Price of the Equipment is paid.

     "Cumulative Return" means an amount equal to a return at a rate of 10% per
annum, compounded daily, on the Adjusted Capital Contribution for all
outstanding Units, which amount shall begin accruing at the end of the calendar
quarter in which such Units are sold by the Partnership.

     "Effective Date" means the date on which the Partnership's registration
statement on Form S-1 with respect to the Units, as filed with the Securities
and Exchange Commission, becomes effective under the Securities Act of 1933, as
amended.

     "Equipment" means each item of and all of the computer peripheral and other
similar capital equipment purchased, owned, operated, and/or leased by the
Partnership or in which the Partnership has acquired a direct or indirect
interest, as more fully described in this Agreement, together with all
appliances, parts, instruments, accessories, furnishings, or other equipment
included therein and all substitutions, renewals, or replacements of, and all
additions, improvements, and accessions to, any and all thereof.

     "Full Payout Net Lease" means an initial Net Lease of the Equipment under
which the non-cancelable rental payments due (and which can be calculated at the
commencement of the Net Lease) during the initial noncancellable fixed term (not
including any renewal or extension period) of the lease or other contract for
the use of the Equipment are at least sufficient to recover the Purchase Price
of the Equipment.

     "General Partner" means Commonwealth Income & Growth Fund, Inc. and any
additional, substitute or successor general partner of the Partnership.

     "Gross Lease Revenues" means Partnership gross receipts from leasing or
other operation of the Equipment, except that, to the extent the Partnership has
leased the Equipment from an unaffiliated party, it shall mean such receipts
less any lease expense.

     "Initial Closing " means January 27, 1998.

     "IRA" means an Individual Retirement Account as described in Section 408 of
the Code.

     "Limited Partner" means a Person who acquires Units and who is admitted to
the Partnership as a limited partner in accordance with the terms of this
Agreement.

     "Majority in Interest" means, with respect to the Partnership, Limited
Partners holding more than 40% of the outstanding Units held by all Limited
Partners at the Record Date for any vote or consent of the Limited Partners.

     "Minimum Subscription Amount" means an aggregate of $1,500,000 in
subscriptions from Limited Partners.

     "Net Disposition Proceeds" means the net proceeds realized by the
Partnership from the refinancing, sale or other disposition of Equipment,
including insurance proceeds or lessee indemnity payments arising from the loss
or destruction of Equipment, less such amounts as are used to satisfy
Partnership liabilities.

     "Net Lease" means a lease or other contract under which the owner provides
equipment to a lessee or other operator in return for a payment, and the lessee
assumes all obligations and pays for the operation, repair, maintenance, taxes
and insuring of the Equipment, so that the non-cancelable rental payments under
the lease are absolutely net to the lessor.

                                                                              27

<PAGE>


     "Net Profits" or "Net Losses" shall be computed in accordance with Section
703(a) of the Code (including all items of income, gain, loss or deduction
required to be stated separately pursuant to Section 703(a) (1) of the Code) for
each taxable year of the Partnership or shorter period or subsequent to an
interim closing of the Partnership's books with the following adjustments: (I)
any income of the Partnership that is exempt from federal income tax and not
otherwise taken into account in computing Net Profits and Net Loss pursuant to
this definition shall be added to such taxable income of shall reduce such
taxable loss; (ii) any expenditure of the Partnership described in Code Section
705(a) (2) (B) or treated as Code Section 705(a) (2) (B) expenditures pursuant
to Treasury Regulations Section 1.704-1(b) (2) (iv) (I) and not otherwise taken
into account in computing Net Profits and Net Losses pursuant to this definition
shall be subtracted from such taxable income or loss; (iii) items of income,
gain, loss and deduction specially allocated pursuant to Section 7.3 of this
Agreement shall not be included in the computation of Net Profits or Net Loss;
and if property is reflected on the books of the Partnership at a book value
that differs from the adjusted tax basis of the property in accordance with
Treasury Regulation Section 1.704-1 (b) (2) (iv) (d) or (f), depreciation,
amortization, and gain or loss with respect to such property shall be determined
by reference to such book value in a manner consistent with Treasury Regulation
Section 1.704-1 (b) (2) (iv) (g). The terms "Net Profit" or "Net Losses" shall
include the Partnership's distributive share of the profit or loss of any
partnership or joint venture in which it is a partner or joint venturer.

     "Offering" means the initial public offering of the Units in the
Partnership, as described in the Prospectus.

    "Offering Period" means the period commencing the Effective Date and ending
the last day of the calendar month in which the Closing Date occurs.

     "Operating Lease" means a lease or other contractual arrangement under
which an unaffiliated party agrees to pay the Partnership, directly or
indirectly, for the use of the Equipment, and which is not a Full Payout Net
Lease.

     "Organizational and Offering Expenses" means the expenses incurred in
connection with the organization of the Partnership and in preparation of the
offering for registration and subsequently offering and distributing it to the
public, including Underwriting Commissions, listing fees and advertising
expenses except advertising expenses related to the leasing of the Program's
Equipment.

     "Partners" means any one or more of the General Partner and the Limited
Partners.

     "Partnership" means Commonwealth Income & Growth Fund III, a Pennsylvania
limited partnership.

    "Person" means an individual, partnership, joint venture, corporation,
trust, estate or other entity.

     "Program" means a limited or general partnership, joint venture,
unincorporated association or similar organization, other than a corporation
formed and operated for the primary purpose of investment in and the operation
of or gain from an interest in Equipment.

     "Purchase Price" means, with respect to any Equipment, an amount equal to
the sum of (I) the invoice cost of such Equipment or any other such amount paid
to the seller, (ii) any closing, delivery and installation charges associated
therewith not included in such invoice cost and paid by or on behalf of the
Partnership, (iii) the cost of any capitalized modifications or upgrades paid by
or on behalf of the Partnership in connection with its purchase of the
Equipment, and (iv) the amount of the Equipment Acquisition Fee and any other
Acquisition Fees, but excluding points and prepaid interest.

     "Term Debt" means debt of the Partnership with a term in excess of twelve
months, incurred with respect to acquiring or investing in Equipment, or
refinancing non-Term Debt, but not debt incurred with respect to refinancing
existing Partnership Term Debt.

     "Underwriting Commissions" mean selling commissions and dealer-manager fees
paid to broker-dealers by the Partnership in connection with the offer and sale
of Units.

     "Unit" means a limited partnership interest in the Partnership.

                                                                              28


<PAGE>




PART IV

ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 10-K


(a) (1)  Financial Statements.

         Commonwealth Income & Growth Fund II

         Reports of Independent Certified Public Accountants

         Balance Sheets as of December 31, 2001 and 2000

         Statements of Operations for each of the three years ended December 31,
         2001, 2000, and 1999.

         Statements of Partners' Capital for each of the three years ended
         December 31, 2001, 2000, and 1999.

         Statements of Cash Flows for each of the three years ended December 31,
         2001, 2000, and 1999.

         Notes to Financial Statements

         Commonwealth Income & Growth Fund, Inc.

         Report of Independent Auditors

         Balance Sheet as of February 29, 2001

         Notes to Balance Sheet

         Commonwealth Capital Corp.

         Report of Independent Auditors

         Consolidated Balance Sheet as of February 29, 2001

         Notes to Consolidated Balance Sheet



<PAGE>


(a) (2)  Schedules.

         Schedules are omitted because they are not applicable, not required, or
because the required information is included in the financial statements and
notes thereto.

(a) (3)  Exhibits.

         * 3.1  Certificate of Limited Partnership
         **3.2  Agreement of Limited Partnership
         **10.1 Agency Agreement dated as of May 12, 1995 by and among the
                Partnership, the General Partner and Wheat First
                Securities, Inc.

         27 Financial Data Schedule

         *    Incorporated by reference from the Partnership's Registration
              Statement on Form S-1 (Registration No. 33-89476)


         **   Incorporated by reference for the Partnership's Annual Report
              on Form 10-K for the year ended December 31, 1995.

SIGNATURES

         Pursuant to the requirements of Section 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf March 29, 2002 by the undersigned thereunto duly authorized.

                                     COMMONWEALTH INCOME & GROWTH FUND II
                                     By:    COMMONWEALTH INCOME &
                                            GROWTH FUND, INC., General Partner

                                     By:    /s/ George S. Springsteen
                                            ------------------------------------
                                            George S. Springsteen, President


         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 indicated on March 29, 2002

SIGNATURE                                     CAPACITY
---------                                     --------

/s/ GEORGE S. SPRINGSTEEN           Chairman, President and Sole Director of
-------------------------           Commonwealth Income & Growth Fund, Inc.
George S. Springsteen

/s/ KIMBERLY A. SPRINGSTEEN         Executive Vice President Chief Operating
---------------------------         Officer and Secretary
Kimberly A. Springsteen


/s/ Salvatore R. Barila             Controller of Commonwealth
-----------------------             Income & Growth Fund, Inc.
Salvatore R. Barila


<PAGE>

                                                             Commonwealth Income
                                                                & Growth Fund II








                                                            Financial Statements
                                    Years Ended December 31, 2001, 2000 and 1999



<PAGE>


                                            Commonwealth Income & Growth Fund II


                                                                        Contents

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

          Reports of Independent Certified Public Accountants           3-4

          Financial statements
              Balance sheets                                              5
              Statements of operations                                    6
              Statements of partners' capital                             7
              Statements of cash flows                                  8-9

          Notes to financial statements                               10-22












                                                                               2
<PAGE>




Report of Independent Certified Public Accountants



The Partners
Commonwealth Income & Growth Fund II
Exton, Pennsylvania

We have audited the accompanying balance sheets of Commonwealth Income & Growth
Fund II as of December 31, 2001 and 2000, and the related statements of
operations, partners' capital, and cash flows for the years ended December 31,
2001 and 2000. 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
in the United States. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Commonwealth Income & Growth
Fund II at December 31, 2001 and 2000, and the results of its operations and its
cash flows for the years ended December 31, 2001 and 2000, in conformity with
generally accepted accounting principles in the United States.



                                                            /s/ BDO Seidman, LLP

Philadelphia, Pennsylvania
March 8, 2002


                                                                               3
<PAGE>


Report of Independent Auditors

The Partners
Commonwealth Income & Growth Fund II

We have audited the accompanying statements of operations, partners' capital,
and cash flows of Commonwealth Income & Growth Fund II for the year ended
December 31, 1999. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Commonwealth
Income & Growth Fund II for the year ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States.


                                                           /s/ Ernst & Young LLP


Philadelphia, Pennsylvania
March 24, 2000






                                                                               4
<PAGE>

<TABLE>
<CAPTION>

--------------------------------------------------------------------------------------------------------------------
December 31,                                                                            2001               2000
--------------------------------------------------------------------------------------------------------------------
<S>                                                                                <C>                <C>
Assets

Cash and cash equivalents                                                          $    14,425        $   277,719
Lease income receivable, net of reserve of $54,200 in 2001, and $45,000
     in 2000                                                                           488,472            457,245
Accounts receivable, Commonwealth Capital Corp.                                        315,404                 --
Accounts receivable, affiliated limited partnerships                                     2,761                 --
Prepaid fees                                                                             3,200              3,200
--------------------------------------------------------------------------------------------------------------------

                                                                                       824,262            738,164
--------------------------------------------------------------------------------------------------------------------

Computer equipment, at cost                                                         11,656,085         12,308,364
Accumulated depreciation                                                            (7,769,975)        (8,769,499)
--------------------------------------------------------------------------------------------------------------------

                                                                                     3,886,110          3,538,865
--------------------------------------------------------------------------------------------------------------------

Equipment acquisition costs and deferred expenses, net of
     accumulated amortization of $85,025 and $475,304, respectively                    148,988            110,619
--------------------------------------------------------------------------------------------------------------------

Total assets                                                                       $ 4,859,360        $ 4,387,648
====================================================================================================================
</TABLE>

<PAGE>


                                            Commonwealth Income & Growth Fund II


                                                                  Balance Sheets

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

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
December 31,                                                                             2001                2000
--------------------------------------------------------------------------------------------------------------------
<S>                                                                                <C>                 <C>
Liabilities and Partners' Capital

Liabilities
     Accounts payable                                                              $   40,472          $   91,570
     Accounts payable, General Partner                                                 55,675               5,501
     Accounts payable, Commonwealth Capital Corp.                                          --                  62
     Accounts payable, affiliated limited partnerships                                     --               4,329
     Unearned lease income                                                             75,930              33,386
     Notes payable                                                                  2,380,383           1,665,816
--------------------------------------------------------------------------------------------------------------------

Total liabilities                                                                   2,552,460           1,800,664
--------------------------------------------------------------------------------------------------------------------

Partners' capital
     General Partner                                                                    1,000               1,000
     Limited partners                                                               2,305,900           2,585,984
--------------------------------------------------------------------------------------------------------------------

Total partners' capital                                                             2,306,900           2,586,984
--------------------------------------------------------------------------------------------------------------------


Total liabilities and partners' capital                                            $4,859,360          $4,387,648
====================================================================================================================
</TABLE>

                                 See accompanying notes to financial statements

                                                                               5
<PAGE>


                                            Commonwealth Income & Growth Fund II


                                                        Statements of Operations

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

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
Year ended December 31,                                               2001              2000              1999
------------------------------------------------------------------------------------------------------------------
<S>                                                               <C>               <C>              <C>
Income
     Lease                                                         $3,014,643        $4,105,811       $4,598,009
     Interest and other                                                 9,248            11,359           26,894
     Gain on sale of equipment                                        295,135                --               --
------------------------------------------------------------------------------------------------------------------

Total income                                                        3,319,026         4,117,170        4,624,903
------------------------------------------------------------------------------------------------------------------

Expenses
     Operating, excluding depreciation                                360,293           241,150          232,565
     Equipment management fee, General Partner                        151,046           221,768          229,900
     Depreciation                                                   2,183,171         3,516,828        3,976,511
     Amortization of organization costs, equipment
         acquisition costs, and deferred expenses                      87,058           162,722          258,696
     Interest                                                         105,496           160,897          298,121
     Uncollectible accounts receivable                                  9,200            45,000               --
     Loss on sale of computer equipment                                    --           138,014            8,447
------------------------------------------------------------------------------------------------------------------

Total expenses                                                      2,896,264         4,486,379        5,004,240
------------------------------------------------------------------------------------------------------------------

Net income (loss)                                                  $  422,762        $ (369,209)      $ (379,337)
==================================================================================================================

Net income (loss) per equivalent limited partnership unit          $     0.90        $     (.82)      $     (.84)

Weighted average number of equivalent
     limited partnership units outstanding during the year            461,400           461,817          461,817
==================================================================================================================
</TABLE>

                                 See accompanying notes to financial statements
                                                                               6
<PAGE>


                                            Commonwealth Income & Growth Fund II


                                                 Statements of Partners' Capital

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

<TABLE>
<CAPTION>
                                         General       Limited
                                         Partner       Partner        General           Limited
                                           Units         Units        Partner          Partners           Total
---------------------------------------------------------------------------------------------------------------------

<S>                                          <C>      <C>         <C>            <C>               <C>
Balance, December 31, 1998                    50       461,817       $ 1,000       $5,149,766        $5,150,766

Net income (loss)                             --            --         8,917         (388,254)         (379,337)
Distributions                                 --            --        (8,917)        (882,773)         (891,690)
---------------------------------------------------------------------------------------------------------------------

Balance, December 31, 1999                    50       461,817         1,000        3,878,739         3,879,739

Net income (loss)                             --            --         9,122         (378,331)         (369,209)
Distributions                                 --            --        (9,122)        (914,424)         (923,546)
---------------------------------------------------------------------------------------------------------------------

Balance, December 31, 2000                    50       461,817         1,000        2,585,984         2,586,984

Net income                                    --            --         6,840          415,922           422,762
Redemption                                    --        (1,250)           --          (10,577)          (10,577)
Distributions                                 --            --        (6,840)        (685,429)         (692,269)
---------------------------------------------------------------------------------------------------------------------

Balance, December 31, 2001                    50       460,567       $ 1,000       $2,305,900        $2,306,900
=====================================================================================================================
</TABLE>

                                 See accompanying notes to financial statements.

                                                                               7


<PAGE>


                                            Commonwealth Income & Growth Fund II


                                                        Statements of Cash Flows

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

<TABLE>
<CAPTION>
Year ended December 31,                                                  2001            2000             1999
-------------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>             <C>              <C>
Cash flows from operating activities
     Net income (loss)                                              $   422,762     $  (369,209)     $  (379,337)

     Adjustments to reconcile net income (loss) to net cash
         provided by operating activities
              Depreciation and amortization                           2,270,229       3,679,550        4,235,207
              (Gain) loss on sale of computer
                  equipment                                            (295,135)        138,014            8,447
              Other noncash activities included in
                  determination of net income (loss)                 (1,252,115)     (2,381,576)      (2,626,791)
              Changes in assets and liabilities
                  (Increase) decrease in assets
                      Lease income receivable                           (31,227)       (156,738)         (53,577)
                      Interest and other receivables                         --          30,689          (19,962)
                      Prepaid fees                                           --          (3,200)              --
                  Increase (decrease) in liabilities
                      Accounts payable                                  (51,098)          4,012           (5,505)
                      Accounts payable,
                           Commonwealth Capital Corp.                       (62)             62               --
                           Accounts payable, General Partner             50,174          40,419          (20,408)
                      Accounts receivable / payable,
                            affiliated limited partnerships              (7,090)          4,329               --
                      Other accrued expenses                                 --              --          (42,000)
                      Unearned lease income                              42,544        (129,548)         (14,678)
-------------------------------------------------------------------------------------------------------------------

Net cash provided by operating activities                             1,148,982         856,804        1,081,396
===================================================================================================================
</TABLE>

                                                                               8

<PAGE>


                                            Commonwealth Income & Growth Fund II


                                                        Statements of Cash Flows

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

<TABLE>
<CAPTION>
Year ended December 31,                                                  2001            2000            1999
-------------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>             <C>             <C>
Cash flows from investing activities
     Capital expenditures                                          $  (677,233)      $ (98,453)        $ (254,78)

     Net proceeds from sale of computer
         equipment                                                     408,634         431,394            50,106
     Equipment acquisition fees paid to the
         General Partner                                              (105,760)        (33,588)          (57,407)
--------------------------------------------------------------------------------------------------------------------

Net cash (used in) provided by investing
     activities                                                       (374,359)        299,353          (262,088)
--------------------------------------------------------------------------------------------------------------------

Cash flows from financing activities
     Distributions to partners                                        (692,269)       (923,546)         (891,690)
     Accounts receivables - Commonwealth
              Capital Corp.                                           (315,404)             --                --
     Redemption of limited partners                                    (10,577)             --                --
     Debt placement fee paid to the General
              Partner                                                  (19,667)         (7,215)          (11,503)
--------------------------------------------------------------------------------------------------------------------

Net cash (used in) financing activities                             (1,037,917)       (930,761)         (903,193)
--------------------------------------------------------------------------------------------------------------------

Net (decrease) increase in cash and cash
     equivalents                                                      (263,294)        225,396           (83,885)

Cash and cash equivalents at beginning of year                         277,719          52,323           136,208
--------------------------------------------------------------------------------------------------------------------

Cash and cash equivalents at end of year                           $    14,425       $ 277,719         $  52,323
====================================================================================================================
</TABLE>

                                 See accompanying notes to financial statements

                                                                               9

<PAGE>


                                            Commonwealth Income & Growth Fund II


                                                   Notes to Financial Statements

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

1. Business             Commonwealth Income & Growth Fund II (the "Partnership")
                        is a limited partnership organized in the Commonwealth
                        of Pennsylvania to acquire, own and lease various types
                        of computer peripheral equipment and other similar
                        capital equipment, which will be leased primarily to
                        U.S. corporations and institutions. Commonwealth Capital
                        Corp, on behalf of the Partnership and other affiliated
                        partnerships, acquires computer equipment subject to
                        associated debt obligations and lease revenue and
                        allocates a participation in the cost, debt and lease
                        revenue to the various partnerships based on certain
                        risk factors. The Partnership's General Partner is
                        Commonwealth Income & Growth Fund, Inc. (the "General
                        Partner"), a Pennsylvania corporation which is an
                        indirect wholly owned subsidiary of Commonwealth Capital
                        Corp. Approximately ten years after the commencement of
                        operations, the Partnership intends to sell or otherwise
                        dispose of all of its computer equipment, make final
                        distributions to partners, and to dissolve. Unless
                        sooner terminated, the Partnership will continue until
                        December 31, 2006.

                        Allocations of income and distributions of cash are
                        based on the Partnership's Limited Partnership Agreement
                        (the "Agreement"). The various allocations under the
                        Agreement prevent any limited partner's capital account
                        from being reduced below zero and ensure the capital
                        accounts reflect the anticipated sharing ratios of cash
                        distributions, as defined in the Agreement. During 2001,
                        annual cash distributions to limited partners were made
                        at a rate of 7.4% of their original contributed capital.
                        During 2000, annual cash distributions to limited
                        partners were made at a rate of 9.9% of their original
                        contributed capital. During 1999, annual cash
                        distributions to limited partners were made at a rate of
                        9.5% of their original contributed capital.
                        Distributions during 2001 reflect an annual return of
                        capital in the amount of approximately $1.49 per
                        weighted average number of limited partnership units
                        outstanding during the year. Distributions during 2000
                        reflect an annual return of capital in the amount of
                        approximately $1.98 per limited partnership unit for
                        units, which were outstanding for the entire year.
                        Distributions during 1999 reflect an annual return of
                        capital in the amount of approximately $1.90 per limited
                        partnership unit for units, which were outstanding for
                        the entire year.

                                                                              10
<PAGE>


                                            Commonwealth Income & Growth Fund II


                                                   Notes to Financial Statements

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

2.  Summary of          Revenue Recognition
    Significant
    Accounting          Through December 31, 2001, the Partnership has only
    Policies            entered into operating leases. Lease revenue is
                        recognized on a monthly basis in accordance with the
                        terms of the operating lease agreements.

                        Use of Estimates

                        The preparation of financial statements 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 financial statements and the reported
                        amounts of revenues and expenses during the reporting
                        period. Actual results could differ from those
                        estimates.

                        Long-Lived Assets

                        The Partnership evaluates its long-lived assets when
                        events or circumstances indicate that the value of the
                        asset may not be recoverable. The Partnership determines
                        whether an impairment exists by estimating the
                        undiscounted cash flows to be generated by each asset.
                        If the estimated undiscounted cash flows are less than
                        the carrying value of the asset then an impairment
                        exists. The amount of the impairment is determined based
                        on the difference between the carrying value and the
                        fair value. The fair value is determined based on
                        estimated discounted cash flows to be generated by the
                        asset.

                        During 2001, 2000 and 1999, the Partnership identified
                        specific computer equipment and associated equipment
                        acquisition costs, which were reevaluated due to
                        technological changes. In 2001 and 1999, the Partnership
                        determined that the carrying amount of certain assets
                        was greater than the undiscounted cash flows to be
                        generated by these assets. The Partnership recorded
                        charges of $100,000 and $181,000 in the fourth quarter

                                                                              11
<PAGE>


                                            Commonwealth Income & Growth Fund II


                                                   Notes to Financial Statements

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

                        of 2001 and 1999, respectively, to record the assets at
                        their estimated fair value. Such amounts have been
                        included in depreciation expense in the accompanying
                        financial statements. In 2000, the Partnership
                        determined that no impairment had occurred.

                        Depreciation on computer equipment for financial
                        statement purposes is based on the straight-line method
                        over estimated useful lives of four years.

                        Intangible Assets

                        Equipment acquisition costs and deferred expenses, are
                        amortized on a straight-line basis over two- to-four
                        year lives. Unamortized acquisition fees are charged to
                        amortization expense when the associated leased
                        equipment is sold.

                        Cash and Cash Equivalents

                        The Company considers all highly liquid investments with
                        a maturity of three months or less to be cash
                        equivalents. Cash equivalents have been invested in a
                        money market fund investing directly in Treasury
                        obligations.

                        Income Taxes

                        The Partnership is not subject to federal income taxes;
                        instead, any taxable income (loss) is passed through to
                        the partners and included on their respective income tax
                        returns.

                        Taxable income differs from financial statement net
                        income as a result of reporting certain income and
                        expense items for tax purposes in periods other than
                        those used for financial statement purposes, principally
                        relating to depreciation, amortization, and lease
                        income.

                                                                              12
<PAGE>


                                            Commonwealth Income & Growth Fund II


                                                   Notes to Financial Statements

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

                        Offering Costs

                        Offering costs are payments for selling commissions,
                        dealer manager fees, professional fees and other
                        offering expenses relating to the syndication. Selling
                        commissions are 7% of the partners' contributed capital
                        and dealer manager fees are 2% of the partners'
                        contributed capital. These costs have been deducted from
                        partnership capital in the accompanying financial
                        statements.

                        Net Income (Loss) Per Equivalent Limited Partnership
                        Unit

                        The net income (loss) per equivalent limited partnership
                        unit is computed based upon net income (loss) allocated
                        to the limited partners and the weighted average number
                        of equivalent limited partner units outstanding during
                        the year.

3. Computer             The Partnership is the lessor of equipment under
   Equipment            operating leases with periods ranging from 24 to 37
                        months. In general, associated costs such as repairs
                        and maintenance, insurance and property taxes are paid
                        by the lessee.

                        The Partnership's share of the computer equipment in
                        which they participate at December 31, 2001 and 2000 was
                        approximately $3,012,000 and $1,155,000, respectively,
                        which is included in the Partnership's fixed assets on
                        their balance sheet, and the total cost of the equipment
                        shared by the Partnership with other partnerships at
                        December 31, 2001 and 2000 was approximately $5,650,000
                        and $2,896,000, respectively. The Partnership's share of
                        the outstanding debt associated with this equipment at
                        December 31, 2001 and 2000 was approximately $1,581,000
                        and $405,000, respectively, which is included in the
                        Partnership's liabilities on the balance sheet, and the
                        total outstanding debt at December 31, 2001 and 2000
                        related to the equipment shared by the Partnership was
                        approximately $2,406,000 and $1,021,000, respectively.

                                                                              13

<PAGE>


                                            Commonwealth Income & Growth Fund II


                                                   Notes to Financial Statements

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

                        The following is a schedule of future minimum rentals on
                        noncancelable operating leases at December 31, 2001:

                        Year ending December 31,                        Amount
                        --------------------------------------------------------

                            2002                                    $1,563,000
                            2003                                       997,000
                            2004                                       521,000
                        --------------------------------------------------------

                                                                    $3,081,000
                        --------------------------------------------------------

                        Lease income from three lessees, exceeding 10% of lease
                        revenue, represented 40% of lease income for the year
                        ended December 31, 2001. Lease income from one lessee
                        approximated 11% of lease income for the year ended
                        December 31, 2000. Lease income from three lessees, each
                        exceeding 10% of total lease income, aggregated 40% of
                        lease income for the year ended December 31, 1999.

                        As of December 31, 2001, three lessees comprised
                        approximately 95% of the Partnership's accounts
                        receivable.

4. Related Party        Organizational Fee
   Transactions
                        The General Partner is entitled to be paid an
                        Organizational Fee equal to three percent of the first
                        $10,000,000 of Limited Partners' Capital Contributions
                        and two percent of the Limited Partners' Capital
                        Contributions in excess of $10,000,000, as compensation
                        for the organization of the Partnership. No
                        organizational fees were paid during 2001, 2000 and
                        1999.

                                                                              14
<PAGE>


                                            Commonwealth Income & Growth Fund II


                                                   Notes to Financial Statements

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

                        Reimbursement of Expenses

                        The General Partner and its affiliates are entitled to
                        reimbursement by the Partnership for the cost of goods,
                        supplies or services obtained and used by the General
                        Partner in connection with the administration and
                        operation of the Partnership from third parties
                        unaffiliated with the General Partner. In addition, the
                        General Partner and its affiliates are entitled to
                        reimbursement for certain expenses incurred by the
                        General Partner and its affiliates in connection with
                        the administration and operation of the Partnership.
                        During 2001, 2000 and 1999, the Partnership recorded
                        $148,000, $91,000 and $84,000, respectively, for
                        reimbursement of expenses to the General Partner.

                        Equipment Acquisition Fee

                        The General Partner is entitled to be paid an equipment
                        acquisition fee of 4% of the purchase price of each item
                        of equipment purchased as compensation for the
                        negotiation of the acquisition of the equipment and
                        lease thereof or sale under a conditional sales
                        contract. The fee was paid upon each closing of the
                        Offering with respect to the equipment to be purchased
                        by the Partnership with the net proceeds for the
                        Offering available for investment in equipment. If the
                        Partnership acquires equipment in an amount exceeding
                        the net proceeds of the Offering available for
                        investment in equipment, the fee will be paid when such
                        equipment is acquired. During 2001, 2000 and 1999,
                        equipment acquisition fees of approximately $106,000,
                        $33,000 and $57,000, respectively, were paid to the
                        General Partner.

                        Debt Placement Fee

                        As compensation for arranging term debt to finance the
                        acquisition of equipment by the Partnership, the General
                        Partner is paid a fee equal to 1% of such indebtedness;
                        provided, however, that such fee shall be reduced to the
                        extent the Partnership incurs such fees to third
                        parties, unaffiliated with the General Partner or the
                        lender, with respect to such indebtedness and no such
                        fee will be paid with respect to borrowings from the
                        General Partner or its affiliates. During 2001, 2000 and
                        1999, debt placement fees of approximately $20,000,
                        $7,000 and $12,000, respectively, were paid to the
                        General Partner.

                                                                              15
<PAGE>


                                            Commonwealth Income & Growth Fund II


                                                   Notes to Financial Statements

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

                        Equipment Management Fee

                        The General Partner is entitled to be paid a monthly fee
                        equal to the lesser of (i) the fees which would be
                        charged by an independent third party for similar
                        services for similar equipment or (ii) the sum of (a)
                        two percent of (1) the gross lease revenues attributable
                        to equipment which is subject to full payout net leases
                        which contain net lease provisions plus (2) the purchase
                        price paid on conditional sales contracts as received by
                        the Partnership and (b) 5% of the gross lease revenues
                        attributable to equipment which is subject to operating
                        leases. During 2001, 2000 and 1999, equipment management
                        fees of approximately $151,000, $222,000 and $230,000,
                        respectively, were paid to the General Partner as
                        determined pursuant to section (ii) above.

                        Release Fee

                        As compensation for providing releasing services for any
                        equipment for which the General Partner has, following
                        the expiration of, or default under, the most recent
                        lease or conditional sales contract, arranged a
                        subsequent lease or conditional sales contract for the
                        use of such equipment to a lessee or other party, other
                        than the current or most recent lessee or other operator
                        of such equipment or its affiliates ("Release"), the
                        General Partner shall receive, on a monthly basis, a
                        Release Fee equal to the lesser of (a) the fees which
                        would be charged by an independent third party for
                        comparable services for comparable equipment or (b) two
                        percent of gross lease revenues derived from such
                        Release. There were no such fees paid to the General
                        Partner in 2001, 2000 and 1999.

                                                                              16
<PAGE>


                                            Commonwealth Income & Growth Fund II


                                                   Notes to Financial Statements

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

                        Equipment Liquidation Fee

                        With respect to each item of equipment sold by the
                        General Partner (other than in connection with a
                        conditional sales contract), a fee equal to the lesser
                        of (i) 50% of the competitive equipment sale commission
                        or (ii) three percent of the sales price for such
                        equipment is payable to the General Partner. The payment
                        of such fee is subordinated to the receipt by the
                        limited partners of the net disposition proceeds from
                        such sale in accordance with the Partnership Agreement.
                        Such fee will be reduced to the extent any liquidation
                        or resale fees are paid to unaffiliated parties. There
                        were no such fees paid to the General Partner in 2001,
                        2000 and 1999.

                        Accounts Receivable - Related Parties

                        For the period ended December 31, 2001, the Partnership
                        has a receivable from Commonwealth Capital Corp ("CCC"),
                        a related party to the Partnership, in the amount of
                        approximately $315,000. CCC, through its indirect
                        subsidiaries, including the General Partner of the
                        Partnership, earns fees based on revenues and new lease
                        purchases from this fund and other funds. This is a
                        non-interest bearing receivable that CCC plans to repay
                        over the next three fiscal years from acquisition and
                        debt placement fees earned by the General Partner of the
                        Partnership.

5. Notes Payable        Notes payable consisted of the following:

                        December 31,                       2001           2000
                        --------------------------------------------------------

                        Installment notes payable
                        to banks; interest
                        ranging from 6.35% to
                        8.5%, due in monthly
                        installments ranging from
                        $4,209 to $33,736,
                        including interest, with
                        final payments due from
                        February through December
                        2001.                          $       --    $   538,059

                                                                              17

<PAGE>


                                            Commonwealth Income & Growth Fund II


                                                   Notes to Financial Statements

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

                        Installment notes payable
                        to banks; interest
                        ranging from 6.6% to
                        9.25%, due in monthly
                        installments ranging from
                        $108 to $14,928,
                        including interest, with
                        final payments due from
                        January through November
                        2002.                              81,833        465,991

                        Installment notes payable
                        to banks; interest
                        ranging from 7.75% to
                        9.75%, due in monthly
                        installments ranging from
                        $72 to $5,975, including
                        interest, with final
                        payments due from
                        February through December
                        2003.                             490,762        661,766

                        Installment notes payable
                        to banks; interest
                        ranging from 6.50% to
                        8.75%, due in monthly
                        installments ranging from
                        $96 to $22,672, including
                        interest, with final
                        payments due from
                        February through December
                        2004.                           1,807,788             --
                        --------------------------------------------------------

                                                       $2,380,383    $ 1,665,816
                        ========================================================

                        These notes are secured by specific computer equipment
                        and are nonrecourse liabilities of the Partnership.
                        Aggregate maturities of notes payable for each of the
                        three years subsequent to December 31, 2001 are as
                        follows:

                                                                              18
<PAGE>


                                            Commonwealth Income & Growth Fund II


                                                   Notes to Financial Statements

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

                        Year ending December 31,                         Amount
                        --------------------------------------------------------

                            2002                                     $1,017,027
                            2003                                        884,442
                            2004                                        478,914
                        --------------------------------------------------------

                                                                     $2,380,383
                        ========================================================


6. Supplemental         Other noncash activities included in the determination
   Cash Flow            of net loss are as follows:
   Information

<TABLE>
<CAPTION>
Year ended December 31,                                               2001               2000                1999
--------------------------------------------------------------------------------------------------------------------
<S>                                                             <C>                <C>                 <C>
Lease income, net of interest expense on
     notes payable realized as a result of direct
     payment of principal by lessee to bank                     $1,250,353         $2,381,576          $2,593,673

Lease income paid to original lessor in lieu
     of cash payment for computer equipment acquired                 1,762                 --              33,118
--------------------------------------------------------------------------------------------------------------------

Total adjustment to net loss from other
     noncash activities                                         $1,252,115          2,381,576          $2,626,791
====================================================================================================================
</TABLE>

                        No interest or principal on notes payable was paid by
                        the Partnership because direct payment was made by
                        lessee to the bank in lieu of collection of lease income
                        and payment of interest and principal by the
                        Partnership.

                                                                              19
<PAGE>


                                            Commonwealth Income & Growth Fund II


                                                   Notes to Financial Statements

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

                        Noncash investing and financing activities include the
                        following:

<TABLE>
<CAPTION>
Year ended December 31,                                               2001               2000                1999
--------------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>                <C>                 <C>
Debt assumed in connection with purchase
     of computer equipment                                      $1,966,682         $  721,296          $1,150,335
</TABLE>

7. Litigation           The Partnership, through Commonwealth Capital Corp, has
                        initiated a lawsuit against a customer for failure to
                        make monthly lease payments on the existing terms.
                        Management believes that the Partnership will prevail in
                        this matter; the outcome of this uncertainty will not
                        have a material adverse impact to the financial
                        statements of the Partnership.


8. Reconciliation of
   Net Income (Loss)
   Reported for
   Financial Reporting
   Purposes to Taxable
   (Loss) Income on
   the Federal
   Partnership Return

<TABLE>
<CAPTION>
Year ended December 31,                                                  2001              2000              1999
-------------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>                <C>                 <C>
Net income (loss) for financial
     reporting purposes                                             $ 422,762         $(369,209)        $(379,337)
       Adjustments
         Depreciation                                                    (626)          748,607           860,760
         Amortization                                                  69,077           150,046           181,893
         Unearned lease income                                          4,176            (3,276)          (25,485)
         Loss on sale of computer equipment                          (921,318)         (707,768)          (49,424)
         Other                                                       (112,207)          (15,357)         (144,487)
-------------------------------------------------------------------------------------------------------------------

Taxable (loss) income on the Federal Partnership
     Return                                                         $(536,884)        $(196,957)        $ 443,920
===================================================================================================================
</TABLE>

                        The "Adjustments - Other" includes financial statement
                        adjustments reflected on the tax return in the
                        subsequent year.

                        Adjustment for (loss) on sale of equipment is due to
                        larger depreciation lives for tax reporting purposes.


                                                                              20
<PAGE>

                                            Commonwealth Income & Growth Fund II


                                                   Notes to Financial Statements

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

9. Quarterly Results    Summarized quarterly financial data for the years ended
   of Operation         December 31, 2001 and 2000 is as follows:
   (Unaudited)

<TABLE>
<CAPTION>
                                                                        Quarter ended
                                             ----------------------------------------------------------------------
                                                 March 31          June 30        September 30       December 31
-------------------------------------------------------------------------------------------------------------------
<S>                                            <C>                <C>                 <C>               <C>
2001

Revenues
     Lease and other                           $  832,208         $748,966            $750,903          $691,814
     Gain on sale of computer
         equipment                                     --           95,628             182,389            40,363
-------------------------------------------------------------------------------------------------------------------

Total revenues                                    832,208          844,594             933,292           732,177
-------------------------------------------------------------------------------------------------------------------

Costs and expenses
     Costs and expenses                           938,892          627,545             546,334           783,493
     Loss on sale of computer
         equipment                                 23,245               --                  --                --
-------------------------------------------------------------------------------------------------------------------

Total costs and expenses                          962,137          627,545             546,334           783,493
-------------------------------------------------------------------------------------------------------------------

Net income (loss)                               $(129,929)        $217,049            $386,958          $(51,316)
===================================================================================================================

Income (loss) per limited
     partner unit                              $   (0.29)         $   0.47            $   0.84          $  (0.08)
===================================================================================================================
</TABLE>


                                                                              21
<PAGE>


                                            Commonwealth Income & Growth Fund II


                                                   Notes to Financial Statements

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

<TABLE>
<CAPTION>
                                                                        Quarter ended
                                             ----------------------------------------------------------------------
                                                 March 31          June 30        September 30       December 31
-------------------------------------------------------------------------------------------------------------------
<S>                                            <C>                <C>                 <C>               <C>
2000

Revenues
     Lease and other                           $1,126,872       $1,084,003          $1,001,721        $  904,574
-------------------------------------------------------------------------------------------------------------------

Costs and expenses
     Costs and expenses                         1,167,462        1,126,882           1,004,417         1,049,604
     Loss on sale of computer
         equipment                                  7,504           18,507              58,535            53,468
-------------------------------------------------------------------------------------------------------------------

Total costs and expenses                        1,174,966        1,145,389           1,062,952         1,103,072
-------------------------------------------------------------------------------------------------------------------

Net (loss)                                     $  (48,094)      $  (61,386)         $  (61,231)       $ (198,498)
===================================================================================================================

(Loss) per limited
     partner unit                              $    (0.11)      $    (0.14)         $    (0.14)       $    (0.43)
===================================================================================================================
</TABLE>

                        The cumulative gain or loss on sale of equipment is
                        included in revenues or costs as appropriate.


10. Fourth Quarter      The Partnership recorded additional depreciation expense
    Adjustments         of $100,000 in the fourth quarter of 2001 due to the
                        impairment of certain long-lived assets.



                                                                              22
<PAGE>

[GRAPHIC OMITTED]















COMMONWEALTH INCOME & GROWTH FUND, INC.

(An Indirect Wholly-Owned Subsidiary of Commonwealth Capital Corp.)

                                  BALANCE SHEET

                                FEBRUARY 28, 2001




<PAGE>


                     COMMONWEALTH INCOME & GROWTH FUND, INC.
                      (An Indirect Wholly-Owned Subsidiary
                         of Commonwealth Capital Corp.)

                                FEBRUARY 28, 2001




                                TABLE OF CONTENTS

                                                                      PAGE
                                                                      ----
INDEPENDENT AUDITOR'S REPORT                                            1

BALANCE SHEET                                                           2

NOTES TO BALANCE SHEET                                                  3


<PAGE>


[GRAPHIC OMITTED]                                Elkins Park Square -- Suite 200
                                                              8080 Old York Road
                                                      Elkins Park, PA 19027-1455
                                                                    215-635-3100
                                                               Fax: 215-635-5788



                          INDEPENDENT AUDITOR'S REPORT

Stockholder
Commonwealth Income & Growth Fund, Inc.

     We have audited the accompanying balance sheet of COMMONWEALTH INCOME &
GROWTH FUND, INC. (An indirect wholly-owned subsidiary of Commonwealth Capital
Corp.) as of February 28, 2001. This balance sheet is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
balance sheet based on our audit.

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

     In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Commonwealth Income & Growth Fund,
Inc. as of February 28, 2001, in conformity with generally accepted accounting
principles.



                                         /s/ FISHBEIN & COMPANY, P.C.
                                         -------------------------------
                                         FISHBEIN & COMPANY, P.C.


April 5, 2001

<PAGE>


                                                                          Page 2

                     COMMONWEALTH INCOME & GROWTH FUND, INC.
                      (An Indirect Wholly-Owned Subsidiary
                         of Commonwealth Capital Corp.)

                                  BALANCE SHEET

                                FEBRUARY 28, 2001




                                     ASSETS

Cash                                                                $     9,732

Due from parent                                                          84,203

Investment in Partnerships                                                3,000
                                                                    -----------
                                                                    $    96,935
                                                                    ===========


                      LIABILITIES AND STOCKHOLDER'S EQUITY

LIABILITIES
    Due to income funds                                             $    95,835
                                                                    -----------
STOCKHOLDER'S EQUITY
    Common stock - No par value
    Authorized 1,000 shares
      Issued and outstanding 100 shares                                   1,000
    Additional paid-in capital                                        1,000,100
                                                                    -----------
                                                                      1,001,100
    Less note receivable                                             (1,000,000)
                                                                    -----------

                                                                          1,100
                                                                    -----------

                                                                    $    96,935
                                                                    ===========

See notes to balance sheet


<PAGE>

                                                                          Page 3

                     COMMONWEALTH INCOME & GROWTH FUND, INC.
                      (An Indirect Wholly-Owned Subsidiary
                         of Commonwealth Capital Corp.)

                             NOTES TO BALANCE SHEET

                                FEBRUARY 28, 2001


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     a.   Nature of Business

          Commonwealth Income & Growth Fund, Inc. (the Company) is a
          wholly-owned subsidiary of Commonwealth of Delaware, Inc. which is a
          wholly-owned subsidiary of Commonwealth Capital Corp. (CCC). The
          Company, through its wholly-owned subsidiaries, primarily leases
          various types of computer peripheral equipment and related equipment
          to U.S. corporations and institutions. The Company is the sole General
          Partner of Commonwealth Income & Growth Fund I, Commonwealth Income &
          Growth Fund II, and Commonwealth Income & Growth Fund III, all
          Pennsylvania limited partnerships (the "Partnerships").

          CCC has provided additional capital by means of a noninterest-bearing
          demand note in the amount of $1,000,000, so that the Company will at
          all times have a net worth (which includes the net equity of the
          Company and the demand note receivable from CCC) of at least
          $1,000,000. The note receivable is reflected on the accompanying
          balance sheet as a reduction of the Company's equity.

          The Company's operations are included in the consolidated federal
          income tax return of CCC.

     b.   Use of Estimates

          The preparation of the balance sheet 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 financial statements. Actual results could differ from
          those estimates.

2.   INVESTMENT IN PARTNERSHIPS

     The Company contributed $3,000 in cash to the Partnerships for its general
     partner interests. The Company may, at its sole discretion, purchase a
     limited partnership interest in the Partnerships ("Units") for an
     additional capital contribution of $20 per Unit with a minimum investment
     of 125 units.

3.   RELATED PARTY TRANSACTIONS

     The Company and its affiliates receive substantial fees and compensation in
     connection with the offering of Units and the management of the
     Partnerships' assets. The Company pays expenses to CCC equal to the fees
     collected from the Partnerships.


<PAGE>


[GRAPHIC OMITTED]



                   COMMONWEALTH CAPITAL CORP. AND SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS

                                FEBRUARY 28, 2001




<PAGE>

                   COMMONWEALTH CAPITAL CORP. AND SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS

                                FEBRUARY 28, 2001



                                             TABLE OF CONTENTS

                                                                    PAGE
                                                                    ----
INDEPENDENT AUDITOR'S REPORT

CONSOLIDATED FINANCIAL STATEMENTS                                     1

   Balance sheets                                                     2

   Statements of operations and retained earnings                     3

   Statements of cash flows                                           4

   Notes to financial statements                                    5 - 11



<PAGE>


[GRAPHIC OMITTED]                                Elkins Park Square -- Suite 200
                                                              8080 Old York Road
                                                      Elkins Park, PA 19027-1455
                                                                    215-635-3100
                                                               Fax: 215-635-5788


                          INDEPENDENT AUDITOR'S REPORT


Stockholder

Commonwealth Capital Corp.


     We have audited the accompanying consolidated balance sheets of
COMMONWEALTH CAPITAL CORP. AND SUBSIDIARIES as of February 28, 2001 and February
29, 2000, and the related consolidated statements of operations and retained
earnings and cash flows for the years then ended. 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 audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Commonwealth
Capital Corp. and Subsidiaries as of February 28, 2001 and February 29, 2000,
and the consolidated results of their operations and their consolidated cash
flows for the years then ended in conformity with generally accepted accounting
principles.



/s/ Fishbein & Company, P.C.
------------------------------------
Elkins Park, Pennsylvania
April 5, 2001



<PAGE>

                                                                          Page 2

                   COMMONWEALTH CAPITAL CORP. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS



                                     ASSETS

                                                   February 28,     February 29,
                                                       2001             2000
                                                    ----------       ----------
Cash and cash equivalents                           $  145,343       $   27,162


Receivables from Income Funds                          317,577          255,035

Other receivables                                       60,423           59,736

Minimum lease payments receivable - Net of
  unearned interest income of $1,404,050 - 2001
  and $1,725,985 - 2000                              4,130,000        4,715,000

Investment in income funds                              11,666           12,666

Office furniture and equipment - Net of
  accumulated depreciation of $115,407 - 2001
  and $112,918 - 2000                                    4,031            6,520

Deferred offering costs                                                   8,192

Other assets                                             6,127            6,890
                                                    ----------       ----------
                                                    $4,675,167       $5,091,201
                                                    ==========       ==========



                      LIABILITIES AND STOCKHOLDER'S EQUITY

LIABILITIES
   Accounts payable and accrued expenses            $  285,790       $   75,713
   Due to Income Funds                                                   61,255
   Nonrecourse obligations                           4,130,000        4,715,000
                                                    ----------       ----------
                                                     4,415,790        4,851,968
                                                    ==========       ==========
STOCKHOLDER'S EQUITY
   Common stock - Par value $1
     Authorized 1,000 shares
      Issued and outstanding 10 shares                      10               10
   Retained earnings                                   259,367          239,223
                                                    ----------       ----------
                                                       259,377          239,233
                                                    ----------       ----------
                                                    $4,675,167       $5,091,201
                                                    ==========       ==========


 See notes to consolidated financial statements


<PAGE>


                                                                          Page 3

                     COMMONWEALTH CAPITAL CORP. AND SUBSIDIARIES

          CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS


                                                         Year Ended
                                              --------------------------------
                                              February 28,        February 29,
                                                  2001                2000
                                              ------------        ------------

INCOME
  Fee income from Income Funds                 $  928,913          $  972,246
  Commission income                                24,576              49,432
  Interest income on minimum lease
   payments receivable                            321,935             358,828
  Equity in income of Income Funds                 93,207              43,832
  Interest and miscellaneous                       92,252              21,822
                                               ----------          ----------
                                                1,460,883           1,446,160
                                               ----------          ----------

EXPENSES
  Personnel                                       587,067             669,538
  General and administrative                      429,640             534,984
  Selling                                          99,608             167,935
  Interest expense on nonrecourse
   obligations                                    321,935             358,828
  Depreciation                                      2,489               4,129
                                               ----------          ----------
                                                1,440,739           1,735,414
                                               ----------          ----------

NET INCOME (LOSS)                                  20,144            (289,254)


RETAINED EARNINGS - BEGINNING                     239,223             528,477
                                               ----------          ----------
RETAINED EARNINGS - ENDING                     $  259,367          $  239,223
                                               ==========          ==========


See notes to consolidated financial statements.



<PAGE>

                                                                          Page 4

                   COMMONWEALTH CAPITAL CORP. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS



<TABLE>
<CAPTION>
                                                                                 Year Ended
                                                                      --------------------------------
                                                                      February 28,        February 29,
                                                                          2001                2000
                                                                      ------------        ------------
<S>                                                                     <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income (loss)                                                     $ 20,144            $289,254
  Adjustments to reconcile net income (loss) to net
   cash provided by (used in) operating activities
    Equity in income of Income Funds                                     (93,207)            (43,832)
    Depreciation                                                           2,489               4,129
    Changes in operating assets and liabilities:
      Receivables from Income Funds                                      (62,542)             91,237
      Other receivables                                                     (687)              5,018
      Deferred offering costs                                             (8,192)            249,481
      Other assets                                                           763               2,152
      Accounts payable and accrued expenses                              210,077             (65,552)
                                                                        --------            --------

        Net cash provided by (used in) operating
         activities                                                       85,229             (46,621)
                                                                        --------            --------

CASH FLOWS FROM INVESTING ACTIVITIES
  Distributions from Income Funds - Net cash
   provided by investing activities                                       32,952              45,239
                                                                        --------            --------


CASH FLOWS FROM FINANCING ACTIVITIES - None


NET INCREASE (DECREASE) IN CASH AND
  CASH EQUIVALENTS                                                       118,181              (1,382)


CASH AND CASH EQUIVALENTS - BEGINNING                                     27,162              28,544
                                                                        --------            --------


CASH AND CASH EQUIVALENTS - ENDING                                      $145,343            $ 27,162
                                                                        ========            ========
</TABLE>


See notes to consolidated financial statements.


<PAGE>

                                                                          Page 5

                   COMMONWEALTH CAPITAL CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                FEBRUARY 28, 2001

1.   NATURE OF BUSINESS

     Commonwealth Capital Corp., through its wholly-owned subsidiary,
     Commonwealth of Delaware, Inc. (CDI), primarily leases various types of
     computer peripheral equipment and related equipment to U.S. corporations
     and institutions. Certain wholly-owned subsidiaries of CDI were formed for
     the purpose of functioning as general partners/managing trustees which own
     a 1% interest in limited partnerships/trusts (the "Income Funds") which
     were organized to acquire, own, and act as lessor with respect to certain
     computer equipment. CDI's subsidiaries include Commonwealth Capital Fund
     1987-I, Inc., Commonwealth Capital Fund 1988-I, Inc., Commonwealth Capital
     Fund No. 3, Inc., Commonwealth Capital Fund No. 4, Inc., Commonwealth
     Capital Fund V, Inc., Commonwealth Capital Private Fund-I, Inc.,
     Commonwealth Capital Fund VI, Inc., Commonwealth Capital Fund VII, Inc.,
     Commonwealth Capital Private Fund - II, Inc., Commonwealth Capital Trustee
     VIII, Inc., Commonwealth Capital Trustee IX, Inc., Commonwealth Capital
     Trustee X, Inc., Commonwealth Capital Private Fund-III, Inc., Commonwealth
     Income & Growth Fund, Inc., Commonwealth Capital Private Fund IV, Inc.,
     Commonwealth Capital Private Fund V, Inc., and Commonwealth Capital Private
     Fund VI, Inc. (collectively the "General Partner Subsidiaries"),
     Commonwealth Capital Securities Corp., Garden State Facilities Funding,
     Inc. (GSFF), and Commonwealth Capital Delaware Trustee, Inc.

     Certain limited partnerships/trusts have been liquidated during the years
     ended February 28, 2001 (four entities) and February 29, 2000 (one entity).

     The Company is dependent on the compensation it receives from the Income
     Funds. This compensation may be reduced due to the financial performance of
     each Income Fund. There are certain Income Funds that have deferred the
     payment of fees to the Company, because distributions to the limited
     partners were reduced because of their financial performance. If the
     financial performance of additional Income Funds deteriorates and the
     distributions to the limited partners are reduced, there is no assurance
     that the Company would be able to continue to collect fees for services
     provided. No fees were waived or forgiven for the years ended February 28,
     2001 or February 29, 2000.

     Commission income is earned by Commonwealth Capital Securities Corp., which
     sells units of its affiliated partnerships through broker-dealer firms to
     their respective customers throughout the United States.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     a.   Principles of Consolidation

          The accompanying consolidated financial statements include the
          accounts of the Company, CDI, and CDI's subsidiaries (the Company)
          (see Note 1). All significant intercompany transactions and balances
          have been eliminated. The balance sheets are presented on an
          unclassified basis in accordance with leasing industry practice.


<PAGE>

                                                                          Page 6

                   COMMONWEALTH CAPITAL CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                FEBRUARY 28, 2001


2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     b.   Use of Estimates

          The preparation of financial statements 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 financial statements and the reported amounts of revenues
          and expenses during the reporting period. Actual results could differ
          from those estimates.

     c.   Cash and Cash Equivalents

          The Company maintains its cash balances in several financial
          institutions. The balances in each institution are insured (up to
          $100,000) by the Federal Deposit Insurance Corporation or the
          Securities Investor Protection Corporation. At times, the balances may
          exceed federally insured limits. The Company has not experienced any
          losses in such accounts, and believes it is not exposed to any
          significant credit risk on cash.

          The Company considers all highly-liquid investments purchased with a
          maturity of three months or less to be cash equivalents. At February
          28, 2001 and February 29, 2000, cash equivalents consist of a money
          market fund which invests in U.S. Treasury obligations.

     d.   Investment in Income Funds

          The Company accounts for its 1% interests in the Income Funds by the
          equity method. At February 29, 2000, certain Income Funds had
          liabilities in excess of their assets. As the Company is obligated to
          fund any liabilities in excess of assets, the Company reduced its
          investment in Income Funds and recorded a Due to Income Funds of
          $61,255 at February 29, 2000, which was restored during the year ended
          February 28, 2001. Financial information of the Income Funds as of
          December 31, 2000 and 1999, is as follows:

                                                        December 31,
                                              ------------------------------
                                                  2000               1999
                                              -----------        -----------
               Total assets                   $11,742,000        $18,025,000
               Nonrecourse debt                 4,524,000          7,214,000
               Other liabilities                  846,000          2,216,000
               Partnership capital              6,371,000          8,595,000
               Net loss                          (921,757)        (1,692,000)


<PAGE>
                                                                          Page 7

                   COMMONWEALTH CAPITAL CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                FEBRUARY 28, 2001


2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     d.   Investment in Income Funds (Continued)

          The Company has guaranteed the performance of certain nonmonetary
          obligations of the General Partner Subsidiaries to the respective
          Income Funds, primarily the responsibility for management of the
          Income Funds. In addition, the Company is responsible for certain
          capital funding requirements of the General Partner Subsidiaries which
          it satisfies through noninterest-bearing demand notes. Such notes
          total approximately $4,166,000 at February 28, 2001 and February 29,
          2000, and have been eliminated in consolidation.

          Fee income earned by the Company from the Income Funds consists of:
          (1) equipment acquisition fees (4% (as defined) of the purchase price
          of all equipment purchased by the Income Funds), (2) debt placement
          fees (1% of the cost of equipment financed by the Income Funds), (3)
          sales fees (3% of the gross proceeds of equipment sold by the Income
          Funds), and (4) equipment management fees (3% - 5% as defined) of the
          gross operating lease revenues of the Income Funds). Ongoing
          acquisition fees and equipment management fees may be increased as an
          indirect result of company loans.

          Approximately 79% and 58% of fee income for the years ended February
          28, 2001 and February 29, 2001, was from three Income Funds.

     e.   Office Furniture and Equipment

          Office furniture and equipment are stated at cost. Depreciation is
          provided using the declining balance method over the estimated useful
          lives of the assets (ranging from 5 to 7 years).

     f.   Deferred Offering Costs

          Deferred offering costs represented amounts incurred by the Company
          for the organization of an Income Fund. These costs were recovered
          from the Income Fund through fees as cash proceeds were raised through
          the sale of Limited Partnership Units during the offering period or,
          if necessary, the future operations of the Income Fund. Deferred
          offering costs at February 29, 2000 relating to an Income Fund,
          expired in July, 2000.

     g.   Revenue Recognition

          The Company recognizes fees as earned in accordance with the various
          Limited Partnership and Trust Agreements. The Company recognizes
          commission income and brokerage fee expense on an accrual basis based
          on the trade date of the underlying customer transactions. Interest
          income on minimum lease payments receivable is recognized as earned.


<PAGE>

                                                                          Page 8

                   COMMONWEALTH CAPITAL CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                FEBRUARY 28, 2001


2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     (h)  Income Taxes

          Deferred income taxes are provided as necessary for temporary
          differences between the financial and tax bases of investment in
          Income Funds and office furniture and equipment. The tax basis of
          investment in income funds differs from financial reporting due to
          temporary differences associated with ownership of general partnership
          interests in the various Income Funds. Also, for income tax reporting,
          the cost of property and equipment is being recovered using the
          methods and lives prescribed by the Internal Revenue Code.

          Deferred income tax assets are also recognized for net operating
          losses and investment tax credit carryforwards that are available to
          offset future income taxes. A valuation allowance is provided as
          necessary to reduce the deferred income tax assets to the amount that
          is more likely than not to be realized.

3.   EASE COMMITMENTS

     GSFF acted as lessor in a series of lease purchase transactions whereby the
     underlying assets were funded by investors through certificates of
     participation in the lease payments. All of GSFF's rights as lessor were
     assigned to a third-party agent which administers the collection of rentals
     paid by the lessee. The obligations under the certificates are nonrecourse
     to GSFF. Accordingly, any reduction in the minimum lease payments
     receivable for uncollectible accounts would result in an equal reduction of
     the nonrecourse obligations. Amounts outstanding at February 28, 2001 and
     February 29, 2000, under these leases and certificates of participation are
     $4,130,000 and $4,715,000, respectively, and are reflected as minimum lease
     payments receivable and nonrecourse obligations in the accompanying balance
     sheets. The certificates mature at various dates through 2011. The Company
     recognized interest income and interest expense in connection with these
     leases of $321,935 and $358,828 for the years ended February 28, 2001 and
     February 29, 2000, respectively.


<PAGE>

                                                                          Page 9

                   COMMONWEALTH CAPITAL CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                FEBRUARY 28, 2001



3.   EASE COMMITMENTS (Continued)

     Future minimum lease payments to be received as of February 28, 2001, are
     as follows:

            Year Ending February 28,
            ------------------------
                      2002                                  $  683,324
                      2003                                     684,490
                      2004                                     678,794
                      2005                                     676,097
                      2006                                     680,759
                   Thereafter                                2,130,586
                                                            ----------

                                                             5,534,050
                          amount representing interest       1,404,050
                                                            ----------
                                                            $4,130,000
                                                            ==========

     The Company leases an automobile, certain office equipment and office space
     under noncancelable operating leases expiring in various dates through
     2006. Rent expense under all operating leases was approximately $149,000
     and $155,000 for the years ended February 28, 2001 and February 29, 2000,
     respectively. Future minimum lease payments under noncancelable operating
     leases as of February 28, 2001, are as follows:

            Year Ending February 28,
            ------------------------
                      2002                                  $   89,955
                      2003                                      78,866
                      2004                                      58,539
                      2005                                      61,620
                      2006                                      63,161
                                                            ----------
                                                            $  352,141
                                                            ==========

4.   PROFIT SHARING PLAN

     The Company has a profit sharing plan which covers substantially all of its
     employees. Contributions to the plan may be made at the discretion of
     management. Profit sharing plan contributions were $20,615 for the year
     ended February 28, 2001 and no contributions to the plan were made or
     accrued for the year ended February 29, 2000.


<PAGE>

                                                                         Page 10

                   COMMONWEALTH CAPITAL CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                FEBRUARY 28, 2001


5.   INCOME TAXES

     The Company and its subsidiaries file a consolidated federal income tax
     return.

     The Company has net operating loss carryforwards of approximately $537,000
     and investment tax credit carryforwards of approximately $52,000 available
     to reduce future federal income taxes. If not used, the carryforwards will
     expire as follows:

                                             Net Operating         Investment
            Year Ending February 28,             Losses            Tax Credits
            ------------------------         -------------         -----------
                      2002                     $                     $52,000
                      2019                      135,000
                      2020                      452,000
                                               --------
                                               $587,000              $52,000
                                               ========              =======

     The Company also has net operating loss carryforwards of approximately
     $4,325,000 available to reduce future Pennsylvania state income taxes. If
     not used, the carryforwards will expire as follows:

            Year Ending February 28,
            ------------------------
                      2006                                  $  108,000
                      2007                                     638,000
                      2008                                     962,000
                      2009                                     899,000
                      2010                                   1,086,000
                      2011                                     632,000
                                                            ----------
                                                            $4,325,000
                                                            ==========

<PAGE>

                                                                         Page 11

                   COMMONWEALTH CAPITAL CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                FEBRUARY 28, 2001


5.   INCOME TAXES (Continued)

     At February 28, 2001 and February 29, 2000, the cumulative temporary
     differences resulted in net deferred tax assets or liabilities consisting
     primarily of:

                                                    February 28,    February 29,
                                                        2001            2000
                                                     ----------      ----------
         Deferred tax assets:
           Other                                     $    3,000      $    4,500
           Investment tax credit carryforwards           52,000         109,000
           Net operating loss carryforwards             485,000         465,000

           Less valuation allowance                    (463,300)       (483,900)
                                                     ----------      ----------

             Deferred tax assets, net                    76,700          94,600
                                                     ----------      ----------
         Deferred tax liabilities:
           Investment in Income Funds                   (76,000)        (94,200)
           Office furniture and equipment                  (700)           (400)
                                                     ----------      ----------

         Deferred tax liabilities, net                  (76,700)        (94,600)
                                                     ----------      ----------

         Net deferred tax assets (liabilities)       $       --      $
                                                     ==========      ==========

     The valuation allowance was increased (decreased) by ($20,600) and
     $146,000, respectively, for the years ended February 28, 2001 and February
     29, 2000.


6.   SUPPLEMENTAL CASH FLOW INFORMATION

     Other noncash activities associated with lease transactions

                                                     Year Ended      Year Ended
                                                    February 28,    February 29,
                                                        2001            2000
                                                     ----------      ----------
         Reduction of minimum lease receivable
          and repayment of nonrecourse obligation
          associated with direct payment made by
          lessee to bank                             $  585,000      $  545,000
                                                     ==========      ==========

     Other noncash activities associated with
      investment in income funds
        Increase (decrease) in due to
         income funds                                $  (61,255)     $   (2,127)
                                                     ==========      ==========