<PAGE>


                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-K

(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 (FEE REQUIRED) FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003

( ) 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                                 23-2785120
(State or other jurisdiction of          (I.R.S. Employer Identification Number)
incorporation or organization)

                               470 John Young Way
                                 Exton, PA 19341
          (Address, including zip code, of principal executive offices)

                                 (610) 594-9600
               (Registrant's telephone number including area code)

         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 filers pursuant to
Item 405 of Regulation S-K is not contained herein, to the best of Registrant's
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K: YES
[X] NO [ ]

         Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12c-2 of the Act): YES [ ] NO [X]

                       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).

<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, Direct
Financing Leases and Conditional Sales Contracts.

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.

                                                                               2
<PAGE>

As of December 31, 2003, substantially all Equipment purchased by the
Partnership is subject to an Operating Lease or an Operating Lease was already
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, Direct
Financing Leases or sold under Conditional Sales Contracts at the time of
acquisition or the Partnership may enter into a Full Payout Net Lease, Direct
Financing Leases or Conditional Sales Contract with a third party when the
Partnership acquires an item of Equipment.

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, 2003,
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.

                                                                               3
<PAGE>
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.

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, 2003, the Partnership has acquired a
diversified Equipment portfolio, which it has leased to 48 different companies
located throughout the United States. The allocations are as follows:

         -------------------------------------------------------------
                  Equipment Type                   Approximate %
         -------------------------------------------------------------
               Workstations/Servers                       48%
         -------------------------------------------------------------
                High-End Printers                         19%
         -------------------------------------------------------------
                 Tape Subsystems                          14%
         -------------------------------------------------------------
                 Escon Directors                          12%
         -------------------------------------------------------------
                     Routers                               4%
         -------------------------------------------------------------
            Communication Controllers                      2%
         -------------------------------------------------------------
                 Low-End Printers                          1%
         -------------------------------------------------------------
                      Total                               100%
         -------------------------------------------------------------

During the operational stage of the Partnership, the Partnership may not at any
one point in time 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, 2003, 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. The Equipment may also be leased pursuant to Capital Leases.
Capital Leases are leases under which the Equipment either transfers to the
lessee at the end of the lease term, contains a bargain purchase price option,
the lease term is equal to 75% or more of the estimated economic life of the
Equipment, or the present value at the beginning of the lease term of the
minimum lease payments is equal to or exceeds 90% of the excess of the fair
value of the Equipment. As of December 31, 2003, we have entered into seven
Capital Leases with two lessees.

                                                                               4
<PAGE>
In general, the terms of the Partnership's leases, whether the Equipment is
leased pursuant to an Operating lease, Capital 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, Capital Lease 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
Capital Lease or 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 Capital Lease or 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 Capital Lease or
Full Payout Net Lease. Also, the annual rental payments received under an
Operating Lease are ordinarily higher than those received under a Capital Lease
or Full Payout Net Lease.

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, 2003, 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, 2003, the Partnership has not entered into any such agreements.

Remarketing fees are paid to the leasing companies from which the Partnership
purchases leases. These are fees that are earned by the leasing companies when
the initial terms of the lease have been met. The General Partner believes that
this strategy adds value since it entices the leasing company to "stay with the
lease" for potential extensions, remarketing or sale of equipment. This strategy
potentially minimizes any conflicts the leasing company may have with a
potential new lease and will potentially assist in maximizing overall portfolio
performance. The remarketing fee is tied into lease performance thresholds and
is factored in the negotiation of the fee.

                                                                               5
<PAGE>
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, 2003, the aggregate non-recourse debt outstanding of $728,000 was
13.5% 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, 2003, 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
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,
2003, 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.

                                                                               6
<PAGE>
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. During
2002, the Partnership refinanced its notes payable for six existing Operating
Leases. The refinanced notes payable, originally set to expire between February,
2004 and December, 2004, had a balance of approximately $190,000 at the time of
refinancing. The Partnership received cash of approximately $46,000, net of
refinancing fees of approximately $3,000. The new notes payable, which was
approximately $239,000 at the time of refinancing, expire in June 2006.
Simultaneous, with the refinancing, the Partnership entered into Direct
Financing Capital Leases with the two lessees for this Equipment.

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.

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.

                                                                               7
<PAGE>
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 firms in the computer marketplace are Dell, IBM, Hewlett Packard,
Sun Systems and Cisco. Because of the substantial resources and dominant
position of these companies, revolutionary changes with respect to computer
systems, pricing, marketing practices, technological innovation and the
availability of new and attractive financing plans would occur at any time.
Significant action in any of these areas by these firms might materially
adversely affect the partnerships' business or the other manufacturer's with
whom the General Partner might negotiate purchase and other agreements. Any
adverse affect on these manufacturers could be reflected in the overall return
realized by the Partnership on equipment from those manufacturers.

INVESTMENTS
The Partnership, through Commonwealth Capital Corp ("CCC"), participates in the
purchase of equipment subject to associated debt obligations and lease
agreements. The purchase price, list price and monthly rentals presented below
are the Partnership's participation of the total amounts, based on CCC's
allocation of the equipment to the Partnership, and in some instances, other
affiliated partnerships.


Through March 11, 2004, 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
</TABLE>
                                                                               8
<PAGE>
<TABLE>
<CAPTION>
<S>                            <C>          <C>                         <C>             <C>           <C>       <C>
         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
   General Electric Medical     CISCO        Routers                        117,110         69,523      1,856     35
   General Electric Medical     CISCO        Routers                        100,000         65,491      1,762     36
           Thomson              Thermojet    SOP System                      27,430         18,189        710     24
   General Electric 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
   General Electric Medical     CISCO        24 Port Access Server           15,175         15,479        411     36
   General Electric Medical     CISCO        1 Port upgrade                   1,943          1,982         67     30
           Cap Tech             Various      Routers/Servers                458,504        347,833     10,685   25-37
        America Online          SUN          Servers                        836,026        836,026     22,799     35
           JC Penny             NCR          Router                          74,071         74,071      2,249     30
           JC Penny             NCR          Router                         120,767        120,767      3,896     30
       ITT Night Vision         DELL         Workstation                     24,486         24,486      1,084     22
        America Online          SUN          Server                         135,315        135,315      4,474     27
    Budnick Converting Inc      DELL         Workstation                     47,955         47,955      1,370     34
    Datapage Technologies       DELL         Workstations/Printer            10,160         10,160        280     36
  C. Hager & Sons Hinge Mfg     DELL         Workstations                    65,496         65,496      1,875     34
  C. Hager & Sons Hinge Mfg     DELL         Server                          19,036         19,036        549     34
      Paric Corporation         NEC          Monitors                        32,151         32,151      1,267     24
       Rogers Townsend          COMPAQ       Servers                         36,696         36,696      1,006     36
      Retex Corporation         COMPAQ       Workstation                      6,093          6,093        379     14
     Training A-La-Carte        COMPAQ       Workstation                      8,502          8,502        241     35
   General Electric Medical     SUN          Server                          20,000         20,000        521     36
           XTS Corp             COMPAQ       Workstation                     21,500         15,000        427     36
</TABLE>

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.

                                                                               9
<PAGE>
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, CCC, which has 28 employees as of December 31, 2003.


ITEM 2:  PROPERTIES

NOT APPLICABLE

ITEM 3:  LEGAL PROCEEDINGS

                           Commonwealth Capital Corp filed a complaint on
                           December 21, 2001 with Avon Products, Inc. with the
                           Federal District Court of the Eastern District of
                           Pennsylvania, No. 01-C2-6915. The complaint alleges
                           that the defendants illegally purchased/sold leased
                           equipment without the Partnership's authorization,
                           along with suing for late fees on various lease
                           payments.


                           In June 2003, the Partnership, through CCC, reached a
                           favorable settlement in the lawsuit. The settlement
                           did not have a material adverse impact to the
                           financial statements of the Partnership. As of
                           December 31, 2002, the Partnership had recorded a
                           receivable from the customer of approximately
                           $404,000, net of an allowance of approximately
                           $330,000. In July 2003, the Partnership received
                           approximately $405,000 in proceeds relating to this
                           receivable.

                                                                              10
<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, 2003, there were 527 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.

                                                                              11
<PAGE>
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.

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.

                                                                              12
<PAGE>
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
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.

Quarterly distributions in the following amounts were declared and paid to the
Limited Partners during 2003, 2002 and 2001.
<TABLE>
<CAPTION>
          Quarter Ended                           2003                  2002                 2001
          -----------------------------------------------------------------------------------------
<S>                                            <C>                   <C>                  <C>
          March 31                              $114,286              $171,428             $228,600

          June 30                                171,428               114,286              228,600

          September 30                           171,428               114,286              228,229

          December 31                            114,286               114,286                    -
                                          ---------------------------------------------------------

                                                $571,428              $514,286             $685,429
                                                ========              ========             ========
</TABLE>
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.

                                                                              13
<PAGE>

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 in the period ended December 31, 2003.
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.
<TABLE>
<CAPTION>
                                                      YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------------------------------------------------------------
Statements of
Operations
Data:                             2003                 2002                 2001                2000                 1999
------------------- ---------------------- -------------------- -------------------- ------------------- -------------------
<S>                            <C>                  <C>                  <C>                 <C>                  <C>
Lease Income                   $1,515,990           $2,711,579           $3,014,643          $4,105,811           $4,598,009
------------------- ---------------------- -------------------- -------------------- ------------------- -------------------

Net Income (Loss)                 129,629             (251,242)             422,762            (369,209)            (379,337)
------------------- ---------------------- -------------------- -------------------- ------------------- -------------------

Cash Distributions                577,200              519,480              692,269             923,546              891,690
------------------- ---------------------- -------------------- -------------------- ------------------- -------------------

Net Income (Loss)
   per Limited
   Partner Unit                      0.28                (0.55)                0.90               (0.82)               (0.84)
------------------- ---------------------- -------------------- -------------------- ------------------- -------------------

Cash Distribution
   per Limited
   Partner Unit                      1.24                 1.12                 1.50                1.98                 1.90
----------------------------------------------------------------------------------------------------------------------------

                                                           AS OF DECEMBER 31,
                                                           ------------------
----------------------------------------------------------------------------------------------------------------------------
         Other Data:                    2003               2002                 2001                2000             1999
------------------------------- --------------- ------------------ --------------------- ------------------ ----------------

     Net cash provided by
     operating activities              $61,782           $480,314            $1,148,982           $856,804        $1,081,396
------------------------------- --------------- ------------------ --------------------- ------------------ ----------------

  Net cash provided by (used
   in) investing activities            406,933             13,199              (374,359)           299,353          (262,088)
------------------------------- --------------- ------------------ --------------------- ------------------ ----------------

 Net cash (used in) financing
          activities                  (464,318)          (474,577)           (1,037,917)          (930,761)         (903,193)
----------------------------------------------------------------------------------------------------------------------------

                                                           AS OF DECEMBER 31,
                                                           ------------------
----------------------------------------------------------------------------------------------------------------------------
                                   2003                2002                 2001                2000                1999
---------------------- -------------------- ------------------- -------------------- ------------------- -------------------

         Total Assets           $1,992,457          $3,592,482           $4,859,360          $4,387,648           $7,456,422
---------------------- -------------------- ------------------- -------------------- ------------------- -------------------

        Notes Payable              728,365           1,780,299            2,380,383           1,665,816            3,326,191
---------------------- -------------------- ------------------- -------------------- ------------------- -------------------

    Partners' Capital            1,084,443           1,532,014            2,306,900           2,586,984            3,879,739
---------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                                                              14
<PAGE>
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.

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 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:

COMPUTER EQUIPMENT

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

REVENUE RECOGNITION

Through December 31, 2003, the Partnership's leasing operations consist
substantially of operating leases and seven direct financing leases. Operating
lease revenue is recognized on a monthly basis in accordance with the terms of
the lease agreement. Unearned revenue from direct financing agreements is
amortized to revenue over the lease term.

The Partnership reviews a customer's credit history before extending credit and
establishes a provision for uncollectible accounts receivable based upon the
credit risk of specific customers, historical trends and other information.

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 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 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.

REIMBURSABLE EXPENSES

Reimbursable expenses, which are charged to the Partnership by CCC in connection
with the administration and operation of the Partnership, are allocated to the
Partnership based upon several factors including, but not limited to, the number
of investors, compliance issues, and the number of existing leases.

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

                                                                              15
<PAGE>
For the year ended December 31, 2003, the Partnership generated cash flow from
operating activities of $62,000, which includes a net gain of $130,000 and gain
on the sale of computer equipment of $439,000, reduced by depreciation and
amortization expenses of $1,055,000. Other noncash activities included in the
determination of net income include direct payments of lease income by lessees
to banks of $996,000.

The Partnership's primary sources of capital for the years ended December 31,
2003, 2002 and 2001 were from cash from operations of $62,000, $480,000 and
$1,149,000, and proceeds from the sale of computer equipment of $423,000,
$134,000 and $409,000, respectively. The primary uses of cash for the years
ended December 31, 2003, 2002 and 2001, were for capital expenditures for new
equipment totaling $15,000, $97,000 and $677,000, the payment of acquisition
fees of $ 1,000, $24,000 and $106,000, an advance to CCC in the amount of
$315,000 for the year ended December 31, 2001, and the payment of preferred
distributions to partners totaling $577,000, $519,000 and $692,000,
respectively.

In June 2003, the Partnership, through CCC, reached a favorable settlement in
the lawsuit with Avon Products, Inc. As of December 31, 2002, the Partnership
had recorded a receivable from the customer of approximately $404,000, net of an
allowance of approximately $330,000. In July 2003, the Partnership received
approximately $405,000 in proceeds relating to this receivable.

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, 2003 and 2002 the Partnership had approximately
$26,000 and $24,000, respectively, invested in these money market accounts.

As of December 31, 2003, the Partnership has a non-interest bearing receivable
from CCC, a related party to the Partnership, in the amount of approximately
$354,000. CCC, through its indirect subsidiaries, including the General Partner
of the Partnership, earns fees based on revenues and new lease purchases from
this fund. This receivable has been reduced by approximately $106,000 during the
twelve months ended December 31, 2003 by the offsetting of equipment management
and other fees and payments by CCC. On December 30, 2003, CCC received
approximately $160,000 on behalf of the Partnership resulting from the sale of
equipment shared with an affiliated limited partnership. These sales proceeds
were not repaid to the Partnership by December 31, 2003, however, CCC intends to
repay $100,000 by March 31, 2004, with the remaining balance of $60,000 to be
repaid by June 30, 2004. CCC intends to repay the remaining balance of
approximately $194,000 through acquisition fees, debt placement fees and
reimbursement of expenses, over approximately the next three fiscal years, with
a minimum amount of $10,000 per month, commencing March 1, 2004.

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. As
of December 31, 2003, the Partnership had future minimum rentals on
noncancellable operating leases of $645,000 for the year ended 2004 and $41,000
thereafter. As of December 31, 2003, the Partnership had future minimum rentals
on noncancellable capital leases of $72,000 for the year ended 2004 and $104,000
thereafter. During 2002, the Partnership incurred debt in connection with the
purchase of computer equipment totaling $504,000. There was no debt incurred in
2003. At December 31, 2003, the outstanding debt was $728,000, with interest
rates ranging from 5.95% to 8.75% and will be payable through June 2006. 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.

CCC, on behalf of the Partnership and other affiliated partnerships, acquires
computer equipment subject to associated debt obligations and lease agreements
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, 2003 and 2002 was
approximately $1,660,000 and $1,645,000, 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, 2003
and 2002 was approximately $2,813,000 and $2,7650,000, respectively. The
Partnership's share of the outstanding debt associated with this equipment at
December 31, 2003 and 2002 was approximately $422,000 and $923,000,
respectively, which is included in the Partnership's liabilities on the balance
sheet, and the total outstanding debt at December 31, 2003 and 2002 related to
the equipment shared by the Partnership was approximately $696,000 and
$1,566,000, respectively.

                                                                              16
<PAGE>
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, 2003, 2002 and 2001, the Partnership recognized
income of $1,958,000, $2,714,000 and $3,319,000 and expenses of $1,828,000,
$2,965,000 and $2,896,000, resulting in net income of $130,000 and $423,000 for
the years ended December 31, 2003 and 2001, respectively, and a net loss for the
year ended December 31, 2002 of $251,000.

Lease income decreased to $1,516,000 in 2003, down from $2,712,000 and
$3,015,000 in 2002 and 2001, respectively, primarily due to the fact that more
lease agreements terminated than new lease agreements were entered into since
2001.

Interest income increased by 50% to $3,000 for the year ended December 31, 2003,
up from $2,000 for the year ended December 31, 2002, but down from $9,000 for
the year ended December 31, 2001 as a result of rental income being used to
purchase additional computer equipment as well as paying distributions to the
partners.

The Partnership sold computer equipment during the year ended December 31, 2003,
2002 and 2001 with a net book value of $143,000, $134,000 and $113,000,
respectively, for a net gain of $439,000, $1,000 and $295,000 in 2003, 2002 and
2001, respectively.

Operating expenses, excluding depreciation, consist of accounting, legal,
outside service fees and reimbursement of expenses to CCC, for administration
and operation of the Partnership. These expenses increased by 7 % to $608,000,
up from $571,000 and $360,000 during the years ended December 31, 2002 and 2001,
respectively. This increase is primarily attributable to remarketing fees paid
to brokers increasing by approximately $64,000, an increase in legal fees of
approximately $37,000, an increase in postage/shipping of approximately $3,000,
a decrease in recruiting fees of approximately $11,000, a decrease in due
diligence of approximately $8,000, a decrease in conventions of approximately
$4,000 and a decrease in reimbursable expenses in connection with the
administration and operation of the Partnership charged by CCC, of approximately
$40,000.

The equipment management fee is approximately 5% of the gross lease revenue
attributable to equipment that is subject to operating and capital leases. The
equipment management fee decreased 44% to $76,000 during the year ended December
31, 2003, down from $136,000 and $151,000 during the years ended December 31,
2002 and 2001, respectively, which is consistent with the change in lease
income.

Depreciation and amortization expenses consist of depreciation on computer
equipment, equipment acquisition fees and debt placement fees. The decrease of
38% to $1,055000, during the year ended December 31, 2003, down from $1,704,000
and $2,270,000 during the years ended December 31, 2002 and 2001, respectively,
is attributable to the decrease in the computer equipment portfolio being
leased.

The Partnership had recorded $399,000 and $9,000 as allowances against accounts
receivable for the periods ending December 31, 2002 and 2001, respectively. The
increase in 2002 is due to the Avon lawsuit discussed in Part I, Item 3. There
were no allowances recorded in 2003.

                                                                              17
<PAGE>
The Partnership identified specific computer equipment and associated equipment
acquisition costs, which were reevaluated due to technological changes. In 2003
and 2001, 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 $31,000 and $100,000, respectively, in the
fourth quarters of 2003 and 2001 to record the assets at their estimated fair
value. Such amounts have been included in depreciation expense in the
accompanying financial statements. In 2002, the Partnership determined that no
impairment had occurred.

NET INCOME/LOSS

         Net income increased to $130,000 in 2003 from a net loss of $251,000 in
2002, but decreased from net income of $423,000 in 2001.

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

COMMITMENTS AND CONTINGENCIES

         Contractual Cash Obligations

The following table presents our contractual cash obligations as of December 31,
2003:
<TABLE>
<CAPTION>
                                                                   Payments due by period

                                    Total                       2004                    2005-2006
                              -------------------------------------------------------------------
<S>                                <C>                       <C>                        <C>
Installment notes payable
due 2004:

     Principal                     $498,520                   $498,520                   $   ----

     Interest                        14,716                     14,716                       ----

Installment notes payable
due 2005:

     Principal                      $74,204                     60,885                     13,319

     Interest                         3,096                      2,961                        135

Installment notes payable
due 2006:

     Principal                      155,641                     59,449                     96,192

     Interest                        13,079                      8,129                      4,950
                              -------------------------------------------------------------------

Total                              $759,256                   $644,660                   $114,596
                              ===================================================================
</TABLE>

                        RECENT ACCOUNTING PRONOUNCEMENTS

                              Interpretation No. 45

In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, including Indirect Guarantees of
Indebtedness of Others" ("Interpretation No. 45"). Interpretation No. 45
elaborates on the existing disclosure requirements for most guarantees,
including loan guarantees such as standby letters of credit. It also clarifies
that at any time a company issues a guarantee, the company must recognize the
initial liability for the fair market value of the obligations it assumes under
the guarantee and must disclose that information in its interim and annual
financial statements. The initial recognition and measurement provisions of
Interpretation No. 45 apply on a prospective basis to guarantees issued or
modified after December 31, 2002. Interpretation No. 45 did not have an effect
on our financial statements.

                                                                              18
<PAGE>
                              Interpretation No. 46

In January 2003, FASB issued Interpretation No. 46, "Consolidation of Variable
Interest Entities" ("Interpretation No. 46"), which clarifies the application of
Accounting Research Bulletin No. 51, "Consolidated Financial Statements," to
certain entities in which equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated financial
support from the other parties. Interpretation No. 46 is applicable immediately
for variable interest entities created after January 31, 2003. For variable
interest entities created before January 31, 2003, the provisions of
Interpretation No. 46, the provisions of Interpretation No. 46 have been
deferred to the first quarter of 2004. The adoption of Interpretation No. 46 did
not have an impact on the financial position and results of operations.

                                    SFAS 150

         In May 2003, the FASB issued FASB Statement No. 150, Accounting for
Certain Financial Instruments with Characteristics of both Liabilities and
Equity, which establishes standards on how an issuer classifies and measures
certain financial instruments with characteristics of liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). Many of those instruments
entered into or modified after May 31, 2003 and otherwise shall be effective at
the beginning of the first interim period beginning after June 15, 2003. The
adoption of SFAS 150 did not have an impact on its financial position and
results of operations.

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.

ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

        NONE

ITEM 9A: CONTROLS AND PROCEDURES

         Our management, under the supervision and with the participation of the
principal executive officer and principal financial offer, have evaluated the
effectiveness of our controls and procedures related to our reporting and
disclosure obligations as of December 31, 2003, which is the end of the period
covered by this Annual Report on Form 10-K. Based on that evaluation, the
principal executive officer and principal financial officer have concluded that
our disclosure controls and procedures are sufficient to provide that (a)
material information relating to us, including our consolidated subsidiaries, is
made known to these officers by our and our consolidated subsidiaries other
employees, particularly material information related to the period for which
this periodic report is being prepared; and (b) this information is recorded,
processed, summarized, evaluated and reported, as applicable, within the time
periods specified in the rules and forms promulgated by the Securities and
Exchange Commission.

                                                                              19
<PAGE>
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 CCC, 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, Commonwealth Income and Growth Fund III
and Commonwealth Income and Growth Fund IV. 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
CCC are as follows:

NAME                       TITLE
----                       -----

George S. Springsteen      Chairman of the Board of Directors and President of
                           the General Partner and CCC

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

Henry J. Abbott            Senior Vice President, Director and Portfolio Manager
                           of the General Partner & CCC

Jay Dugan                  Senior Vice President & IT Manager of the General
                           Partner & CCC

Salvatore R. Barila        Vice President and Controller of the General Partner
                           and CCC

Michelle Onuffer           Assistant Vice President and Accounting Manager of
                           the General Partner and CCC

Dorothy A. Ferguson        Assistant Vice President & Compliance Manager of the
                           General Partner & CCC

Karen Tramontano           Assistant Vice President & Marketing Manager of the
                           General Partner & CCC

David Borham               Assistant Vice President & Investor Relations Manager
                           of the General Partner & CCC

         George S. Springsteen, age 68, is President of both CCC and the General
Partner. Mr. Springsteen is also President of the general partners or
controlling entities of several prior programs sponsored by CCC with objectives
similar to the Partnership's. He has been the sole shareholder and director of
CCC 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 CCC in
May of 1978. Mr. Springsteen received a Bachelor of Science degree from the
University of Delaware in 1957.

                                                                              20
<PAGE>
         Kimberly A. Springsteen, age 44, is Executive Vice President, Chief
Operating Officer and Secretary of CCC and the General Partner and joined CCC 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 53, is Senior Vice President and Portfolio Manager
of CCC and has been employed by CCC 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 CCC 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.

         Jay Dugan, age 55, is Senior Vice President and Information Technology
Manager of the General Partner and CCC and has been employed by CCC since 2002.
Mr. Dugan is responsible for computer network and information systems for the
General Partner and its affiliates. Mr. Dugan was a registered securities
representative from 1988 until 1998. During that period, Mr. Dugan founded First
Securities USA, a NASD member firm, and operated that firm through 1998. From
1999 until joining CCC in 2002, Mr. Dugan was an independent due diligence
consultant.

         Salvatore R. Barila, age 33, is Vice President and Controller of the
General Partner and CCC and certain of its subsidiaries where he has been
employed since 2001. From 1992 to 2001, Mr. Barila was employed as Corporate
Accounting Manager of RCG Information Technology, Inc., whereby he was
responsible for the preparation of the monthly financial statements, budgeting
and forecasting for multiple divisions and the consolidated entity. Mr. Barila
received a B.B.A. degree in Accounting from Pace University in 1992. Mr. Barila
is a member of the Equipment Leasing Association.

         Michelle Onuffer, age 32, is Assistant Vice President and Accounting
Manager of the General Partner and CCC and certain of its subsidiaries where she
has been employed since 2004. Prior to CCC, she was employed by Dutch State
Minds as an Accounting Manager, whereby she was responsible for month-end
reporting, monthly financial statements, budgeting, and cash management. Ms.
Onuffer was a registered securities representative from 1995 to 1999. She brings
4 years of securities experience and over 5 years of accounting experience. Ms.
Onuffer has a B.B. in Financial Management from Goldey-Beacon College and an MBA
in Accounting from the University of Phoenix.

         Dorothy A. Ferguson, age 61, is Assistant Vice President of CCC and has
been employed by CCC 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.

         Karen Tramontano, age 51, Assistant Vice President & Marketing Manger,
joined Commonwealth in 2000, brining with her over a decade of experience of
international marketing and customer relations. Ms. Tramontano is responsible
for the generation and distribution of all marketing materials for the Manager's
investment programs. Prior to joining Commonwealth, Ms. Tramontano served from
1973 to 1983 as executive liaison to the President of V&V Noordland, Inc., an
international commercial company, and served as an office manager for a small
business in Florida from 1998 to 2000. Ms. Tramontano coordinates Commonwealth's
home office marketing department, which serves our broker dealer community and
registered representatives across the country. Ms. Tramontano attended Suffolk
College in New York, with a Major in Advertising/Promotion.

                                                                              21
<PAGE>
         David Borham, age 26, Assistant Vice President & Marketing Manager,
joined Commonwealth in 2000, bringing with him 2 years of Customer Service
experience. Mr. Borham holds a Series 22 NASD license and is responsible for the
management of investor database maintenance and all investor inquiries and
correspondence. Prior to joining Commonwealth, Mr. Borham served as a Customer
Relations Representative in the food service industry for Dilworth Town Inn from
1996 to 2000. Mr. Borham attended Delaware County Community College

     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.

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 that 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.
<TABLE>
<CAPTION>
                                                                      AMOUNT          AMOUNT           AMOUNT
   ENTITY RECEIVING                                                  INCURRED        INCURRED         INCURRED
     COMPENSATION                 TYPE OF COMPENSATION             DURING 2003      DURING 2002      DURING 2001
<S>                     <C>                                       <C>              <C>              <C>
                            OFFERING AND ORGANIZATION STAGE
The General Partner     Organizational Fee. An Organization Fee         $0              $0               $0
                        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.
</TABLE>

                                                                              22
<PAGE>
<TABLE>
<CAPTION>
                                  OPERATIONAL AND SALE
                                 OR LIQUIDATION STAGES
<S>                      <C>                                              <C>                <C>                 <C>
The General Partner      Reimbursable Expenses. The General and            $371,000           $491,000            $403,000
and its Affiliates       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 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             $1,000            $24,000            $106,000
                         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.

The General Partner      Debt Placement Fee. As compensation for                 $0             $5,000             $20,000
                         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            $76,000           $136,000            $151,000
                         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 Re-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.
</TABLE>
                                                                              23
<PAGE>
<TABLE>
<CAPTION>
<S>                     <C>                                                  <C>               <C>                 <C>
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.

The General Partner      Partnership Interest. The General                   $5,772             $5,194              $6,840
                         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.

                                                                              24
<PAGE>
ACQUISITIONS

         CCC 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 CCC, the General Partner or such other Affiliate as disclosed in this
Report. CCC, the General Partner or their Affiliates will not hold Equipment for
more than 60 days prior to transfer to 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. CCC, 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 CCC.

         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 than
equipment Programs formed by the General Partner or its Affiliates, which
partnerships or joint ventures its 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-Affiliate, and
(iii) there 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.

                                                                              25
<PAGE>
     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.

     "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.

     "Capital Leases" are leases under which the Equipment either transfers to
the lessee at the end of the lease term, contains a bargain purchase price
option, the lease term is equal to 75% or more of the estimated economic life of
the Equipment, or the present value at the beginning of the lease term of the
minimum lease payments is equal to or exceeds 90% of the excess of the fair
value of the Equipment.

     "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.

                                                                              26
<PAGE>
     "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 that is
reasonable, customary, and competitive in light of the size, type, and location
of the Equipment.

     "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.

                                                                              27
<PAGE>
     "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.

     "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 II, a Pennsylvania
limited partnership.

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

                                                                              28
<PAGE>
     "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.

PART IV

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

(a) (1) Financial Statements.

        Commonwealth Income & Growth Fund II

        Report of Independent Certified Public Accountant

        Balance Sheets as of December 31, 2003 and 2002

        Statements of Operations for each of the three years ended December 31,
         2003, 2002 and 2001

        Statements of Partners' Capital for each of the three years ended
        December 31, 2003, 2002 and 2001

        Statements of Cash Flows for each of the three years ended December 31,
        2003, 2002 and 2001

        Notes to Financial Statements

(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

                                                                              29
<PAGE>

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


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 30, 2004 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 30, 2004.


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


                                                                              30
<PAGE>

                                                             Commonwealth Income
                                                                & Growth Fund II




                                    Years Ended December 31, 2003, 2002 and 2001

<PAGE>
                                                             Commonwealth Income
                                                                & Growth Fund II




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

                                                            Financial Statements
                                    Years Ended December 31, 2003, 2002 and 2001





<PAGE>
                                            Commonwealth Income & Growth Fund II

                                                                        Contents

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

        Report of Independent Certified Public Accountants                     3

        Financial statements
            Balance sheets                                                   4-5
            Statements of operations                                           6
            Statements of partners' capital                                    7
            Statements of cash flows                                         8-9

        Notes to financial statements                                      10-24


                                                                               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, 2003 and 2002, and the related statements of
operations, partners' capital, and cash flows for each of the three years in the
period ended December 31, 2003. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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, 2003 and 2002, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 2003, in
conformity with accounting principles generally accepted in the United States.



                                                            /s/ BDO Seidman, LLP

Philadelphia, Pennsylvania
March 12, 2004


                                                                               3
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------

December 31,                                                                             2003                2002
-----------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>                <C>
Assets

Cash and cash equivalents                                                         $    37,758        $     33,361
Lease income receivable, net of reserve of $0 in 2003, and $421,000 in
     2002                                                                               4,550             409,516
Net investment in direct financing leases                                             146,478             191,426
Accounts receivable, affiliated limited partnerships                                    7,888               8,434
Prepaid fees                                                                            3,200               6,219
-----------------------------------------------------------------------------------------------------------------

                                                                                      199,874             648,956
-----------------------------------------------------------------------------------------------------------------

Computer equipment, at cost                                                         5,409,223          10,350,520
Accumulated depreciation                                                           (4,013,668)         (7,819,423)
-----------------------------------------------------------------------------------------------------------------

                                                                                    1,395,555           2,531,097
-----------------------------------------------------------------------------------------------------------------

Equipment acquisition costs and deferred expenses, net of
     accumulated amortization of $109,250 and $91,604, respectively                    42,906             105,025
Accounts receivable, Commonwealth Capital Corp.                                       354,122             307,404
-----------------------------------------------------------------------------------------------------------------

                                                                                      397,028             412,429
-----------------------------------------------------------------------------------------------------------------

Total assets                                                                      $ 1,992,457        $  3,592,482
=================================================================================================================
</TABLE>

                                                                               4

<PAGE>
<TABLE>
<CAPTION>
                                                                             Commonwealth Income & Growth Fund II


                                                                                                   Balance Sheets

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

December 31,                                                                             2003                2002
-----------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>                <C>
Liabilities and Partners' Capital

Liabilities
     Accounts payable                                                             $    53,606        $     72,658
     Accounts payable, General Partner                                                 20,065              27,457
     Other accrued expenses                                                             5,938               7,362
     Unearned lease income                                                            100,040             172,692
     Notes payable                                                                    728,365           1,780,299
-----------------------------------------------------------------------------------------------------------------

Total liabilities                                                                     908,014           2,060,468
-----------------------------------------------------------------------------------------------------------------

Partners' capital
     General Partner                                                                    1,000               1,000
     Limited Partners                                                               1,083,443           1,531,014
-----------------------------------------------------------------------------------------------------------------

Total partners' capital                                                             1,084,443           1,532,014
-----------------------------------------------------------------------------------------------------------------


Total liabilities and partners' capital                                           $ 1,992,457        $  3,592,482
=================================================================================================================
</TABLE>

                                 See accompanying notes to financial statements.

                                                                               5
<PAGE>
<TABLE>
<CAPTION>
                                                                               Commonwealth Income & Growth Fund II


                                                                                           Statements of Operations

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

Year ended December 31,                                                 2003                 2002              2001
-------------------------------------------------------------------------------------------------------------------
<S>                                                             <C>                  <C>               <C>
Income
     Lease                                                       $ 1,515,990          $ 2,711,579       $ 3,014,643
     Interest and other                                                2,466                2,054             9,248
     Gain on sale of equipment                                       439,124                  828           295,135
-------------------------------------------------------------------------------------------------------------------

Total income                                                       1,957,580            2,714,461         3,319,026
-------------------------------------------------------------------------------------------------------------------

Expenses
     Operating, excluding depreciation                               608,439              571,038           360,293
     Equipment management fee, General Partner                        75,934              135,579           151,046
     Depreciation                                                    992,234            1,630,810         2,183,171
     Amortization of equipment acquisition costs, and
         deferred expenses                                            62,719               73,028            87,058
     Interest                                                         88,625              156,380           105,496
     Provision for uncollectible accounts receivable                      --              398,868             9,200
-------------------------------------------------------------------------------------------------------------------

Total expenses                                                     1,827,951            2,965,703         2,896,264
-------------------------------------------------------------------------------------------------------------------

Net income (loss)                                                $   129,629          $  (251,242)          422,762
===================================================================================================================

Net income (loss) per equivalent limited partnership unit
                                                                 $      0.28          $     (0.55)             0.92

Weighted average number of equivalent
     limited partnership units outstanding during the year           460,067              460,126           461,400
===================================================================================================================
</TABLE>

                                 See accompanying notes to financial statements.

                                                                               6
<PAGE>
<TABLE>
<CAPTION>


                                                                              Commonwealth Income & Growth Fund II


                                                                                   Statements of Partners' Capital

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

                                         General       Limited
                                         Partner       Partner        General           Limited
                                           Units         Units        Partner          Partners              Total
------------------------------------------------------------------------------------------------------------------
<S>                                      <C>         <C>             <C>            <C>                <C>
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

Net income (loss)                             --            --          5,194          (256,436)          (251,242)
Redemption                                    --          (500)            --            (4,164)            (4,164)
Distributions                                 --            --         (5,194)         (514,286)          (519,480)
------------------------------------------------------------------------------------------------------------------

Balance, December 31, 2002                    50       460,067          1,000         1,531,014          1,532,014

Net income                                    --            --          5,772           123,857            129,629
Distributions                                 --            --         (5,772)         (571,428)          (577,200)
------------------------------------------------------------------------------------------------------------------

Balance, December 31, 2003                    50       460,067       $  1,000       $ 1,083,443        $ 1,084,044
==================================================================================================================
</TABLE>

                                 See accompanying notes to financial statements.

                                                                               7
<PAGE>
<TABLE>
<CAPTION>
                                                                           Commonwealth Income & Growth Fund II


                                                                                       Statements of Cash Flows

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


Year ended December 31,                                                   2003             2002            2001
---------------------------------------------------------------------------------------------------------------
<S>                                                               <C>              <C>             <C>
Cash flows from operating activities
     Net income (loss)                                             $   129,629      $  (251,242)    $   422,762

     Adjustments to reconcile net income (loss) to
      net cash provided by operating activities
              Depreciation and amortization                          1,054,953        1,703,838       2,270,229
              Amortization of unearned lease income                    (10,945)         (19,111)             --
              (Gain) on sale of computer
                  equipment                                           (439,124)            (828)       (295,135)
              Other noncash activities included in
                  determination of net income (loss)                  (995,568)      (1,149,810)     (1,252,115)
              Changes in assets and liabilities
                  (Increase) decrease in assets
                      Lease income receivable                          404,966           78,956         (31,227)
                      Minimum lease receivables                          3,881               --              --
                      Accounts receivable , affiliated
                           limited partnerships                            546           (5,673)         (7,090)
                      Prepaid fees                                       3,019           (3,019)             --
                  Increase (decrease) in liabilities
                      Accounts payable                                 (19,052)          32,186         (51,098)
                      Accounts payable,
                           Commonwealth Capital Corp.                       --               --             (62)
                           Accounts payable, General Partner            (7,392)         (28,218)         50,174
                      Other accrued expenses                            (1,424)           7,362              --
                      Unearned lease income                            (61,707)         115,873          42,544
---------------------------------------------------------------------------------------------------------------

Net cash provided by operating activities                               61,782          480,314       1,148,982
---------------------------------------------------------------------------------------------------------------
</TABLE>

                                                                               8

<PAGE>
<TABLE>
<CAPTION>
                                                                           Commonwealth Income & Growth Fund II


                                                                                       Statements of Cash Flows

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


Year ended December 31,                                                   2003             2002            2001
---------------------------------------------------------------------------------------------------------------
<S>                                                               <C>              <C>             <C>
Cash flows from investing activities
     Capital expenditures                                          $   (15,000)     $   (97,107)    $  (677,233)
     Net proceeds from sale of computer
         equipment                                                     422,533          134,335         408,634
     Equipment acquisition fees paid to the
         General Partner                                                  (600)         (24,029)       (105,760)
---------------------------------------------------------------------------------------------------------------

Net cash provided by (used in) investing
     activities                                                        406,933           13,199        (374,359)
---------------------------------------------------------------------------------------------------------------

Cash flows from financing activities
     Proceeds from refinancing notes payable                                --           46,103              --
     Distributions to partners                                        (577,200)        (519,480)       (692,269)
     Accounts receivables - Commonwealth
         Capital Corp.                                                 112,882            8,000        (315,404)
     Redemption of limited partners                                         --           (4,164)        (10,577)
     Debt placement fee paid to the General
              Partner                                                       --           (5,036)        (19,667)
---------------------------------------------------------------------------------------------------------------

Net cash (used in) financing activities                               (464,318)        (474,577)     (1,037,917)
---------------------------------------------------------------------------------------------------------------

Net increase (decrease) in cash and cash
     equivalents                                                         4,397           18,936        (263,294)

Cash and cash equivalents at beginning of year                          33,361           14,425         277,719
---------------------------------------------------------------------------------------------------------------

Cash and cash equivalents at end of year                           $    37,758      $    33,361     $    14,425
===============================================================================================================
</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 ("CCC"), on behalf
                  of the Partnership and other affiliated partnerships, acquires
                  computer equipment subject to associated debt obligations and
                  lease agreements 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 CCC. CCC is a member of the
                  Investment Program Association (IPA), Financial Planning
                  Association (FPA), and the Equipment Leasing Association
                  (ELA). 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 2003, annual cash distributions to
                  limited partners were made at a rate of 6.2% of their original
                  contributed capital. During 2002, annual cash distributions to
                  limited partners were made at a rate of 5.6% of their original
                  contributed capital. During 2001, annual cash distributions to
                  limited partners were made at a rate of 7.4% of their original
                  contributed capital. Distributions during 2003 reflect an
                  annual return of capital in the amount of approximately $1.25
                  per weighted average number of limited partnership units
                  outstanding during the year. Distributions during 2002 reflect
                  an annual return of capital in the amount of approximately
                  $1.12 per weighted average number of limited partnership units
                  outstanding during the year. Distributions during 2001 reflect
                  an annual return of capital in the amount of approximately
                  $1.49 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, 2003 the Partnership's leasing operations
   Policies       consist substantially of operating leases and seven
                  direct-financing leases. Operating lease revenue is recognized
                  on a monthly basis in accordance with the terms of the lease
                  agreement. Unearned revenue from direct financing agreements
                  is amortized to revenue over the lease term.

                  The Partnership reviews a customer's credit history before
                  extending credit and establishes a provision for uncollectible
                  accounts receivable based upon the credit risk of specific
                  customers, historical trends and other information.

                  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 impairment
                  exists by estimating the undiscounted cash flows to be
                  generated by each asset, including cash flows from lease
                  revenues and proceeds from the sale of equipment. If the
                  estimated undiscounted cash flows are less than the carrying
                  value of the asset then 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. In 2003 and 2001, 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 $31,000 and
                  $100,000 in the fourth quarters of 2003 and 2001, respectively
                  to record the assets at their estimated fair value. Such
                  amounts have been included in depreciation expense in the
                  accompanying financial statements. In 2002, the Partnership
                  determined that no impairment had occurred.



                                                                              11
<PAGE>
                                            Commonwealth Income & Growth Fund II


                                                   Notes to Financial Statements

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

                  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 and deferred expenses are
                  charged to amortization expense when the associated leased
                  equipment is sold.

                  Cash and Cash Equivalents

                  The Partnership 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.

                  Offering Costs

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

                                                                              12
<PAGE>
                                            Commonwealth Income & Growth Fund II


                                                   Notes to 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.

                  Reimbursable Expenses

                  Reimbursable expenses, which are charged to the Partnership by
                  CCC in connection with the administration and operation of the
                  Partnership, are allocated to the Partnership based upon
                  several factors including, but not limited to, the number of
                  investors, compliance issues, and the number of existing
                  leases.

                  Recent Accounting Pronouncements

                                     Interpretation No. 45

                  In November 2002, the FASB issued Interpretation No. 45,
                  "Guarantor's Accounting and Disclosure Requirements for
                  Guarantees, including Indirect Guarantees of Indebtedness of
                  Others" ("Interpretation No. 45"). Interpretation No. 45
                  elaborates on the existing disclosure requirements for most
                  guarantees, including loan guarantees such as standby letters
                  of credit. It also clarifies that at any time a company issues
                  a guarantee, the company must recognize the initial liability
                  for the fair market value of the obligations it assumes under
                  the guarantee and must disclose that information in its
                  interim and annual financial statements. The initial
                  recognition and measurement provisions of Interpretation No.
                  45 apply on a prospective basis to guarantees issued or
                  modified after December 31, 2002. Interpretation No. 45 did
                  not have an effect on our financial statements.

                                                                              13
<PAGE>
                                            Commonwealth Income & Growth Fund II


                                                   Notes to Financial Statements

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

                                       Interpretation No. 46

                      In January 2003, FASB issued Interpretation No. 46,
                      "Consolidation of Variable Interest Entities"
                      ("Interpretation No. 46"), which clarifies the application
                      of Accounting Research Bulletin No. 51, "Consolidated
                      Financial Statements," to certain entities in which equity
                      investors do not have the characteristics of a controlling
                      financial interest or do not have sufficient equity at
                      risk for the entity to finance its activities without
                      additional subordinated financial support from the other
                      parties. Interpretation No. 46 is applicable immediately
                      for variable interest entities created after January 31,
                      2003. For variable interest entities created before
                      January 31, 2003, the provisions of Interpretation No. 46,
                      the provisions of Interpretation No. 46 have been deferred
                      to the first quarter of 2004. The adoption of
                      Interpretation No. 46 did not have an impact on the
                      financial position and results of operations.

                                             SFAS 150

                      In May 2003, the FASB issued FASB Statement No. 150,
                      Accounting for Certain Financial Instruments with
                      Characteristics of both Liabilities and Equity, which
                      establishes standards on how an issuer classifies and
                      measures certain financial instruments with
                      characteristics of liabilities and equity. It requires
                      that an issuer classify a financial instrument that is
                      within its scope as a liability (or an asset in some
                      circumstances). Many of those instruments entered into or
                      modified after May 31, 2003 and otherwise shall be
                      effective at the beginning of the first interim period
                      beginning after June 15, 2003. The adoption of SFAS 150
                      did not have an impact on its financial position and
                      results of operations.

3. Net Investment in  The following lists the components of the net investment
   Direct Financing   in direct financing leases as of December 31, 2003 and
   Leases             2002:
<TABLE>
<CAPTION>
                      December 31,                                           2003            2002
                      ------------------------------------------------------------------------------
<S>                                                                        <C>             <C>
                      Minimum lease payments receivable                    $ 176,035       $ 236,208
                      Less: Unearned Revenue                                  29,557          44,782
                      ------------------------------------------------------------------------------
                      Net investment in direct financing leases            $ 146,478       $ 191,426
                      ==============================================================================
</TABLE>
                                                                              14
<PAGE>
                                            Commonwealth Income & Growth Fund II


                                                   Notes to Financial Statements

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

                      The following is a schedule of future minimum rentals on
                      noncancellable direct financing leases at December 31,
                      2003:

                      Year ending December 31,

                                                                       Amount


                      2004                                            $ 72,108

                      2005                                            $ 70,183

                      2006                                            $ 33,744

                                                                      $176,035



                      There are two lessees involved with the seven direct
                      financing leases.

                                                                              15
<PAGE>
                                            Commonwealth Income & Growth Fund II


                                                   Notes to Financial Statements

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

4. Computer           The Partnership is the lessor of equipment under operating
   Equipment          and capital leases with periods ranging from 24 to 48
                      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, 2003 and 2002 was
                      approximately $1,660,000 and $1,645,000, 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, 2003 and 2002 was approximately $2,813,000
                      and $2,765,000, respectively. The Partnership's share of
                      the outstanding debt associated with this equipment at
                      December 31, 2003 and 2002 was approximately $422,000 and
                      $923,000, respectively, which is included in the
                      Partnership's liabilities on the balance sheet, and the
                      total outstanding debt at December 31, 2003 and 2002
                      related to the equipment shared by the Partnership was
                      approximately $696,000 and $1,566,000, respectively.

                      The following is a schedule of future minimum rentals on
                      noncancelable operating leases at December 31, 2003:

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

                          2004                                      $  645,000
                          2005                                          34,000
                          2006                                           7,000
                      --------------------------------------------------------

                                                                    $  686,000
                      ========================================================

                      Lease income from three lessees, each exceeding 10% of
                      lease revenue, represented approximately 49% of lease
                      income for the year ended December 31, 2003. Lease income
                      from three lessees approximated 50% of lease income for
                      the year ended December 31, 2002. Lease income from two
                      lessees approximated 40% of lease income for the year
                      ended December 31, 2001.

                                                                              16
<PAGE>
                                            Commonwealth Income & Growth Fund II


                                                   Notes to Financial Statements

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

5. 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 2003, 2002 and 2001.

                      Reimbursable 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
                      2003, 2002 and 2001, the Partnership recorded $371,000,
                      $491,000 and $403,000, 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 2003, 2002
                      and 2001, equipment acquisition fees of approximately
                      $1,000, $24,000 and $106,000, respectively, were paid to
                      the General Partner.

                                                                              17
<PAGE>
                                            Commonwealth Income & Growth Fund II


                                                   Notes to Financial Statements

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

                      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 2002 and 2001, debt placement fees of
                      approximately $5,000 and $20,000, respectively, were paid
                      to the General Partner. There were no debt placement fees
                      paid to the General Partner in 2003.

                      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
                      2003, 2002 and 2001, equipment management fees of
                      approximately $76,000, $136,000 and $151,000,
                      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 2003, 2002 and 2001.

                                                                              18
<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 2003, 2002 and 2001.

                                                                              19
<PAGE>
                                            Commonwealth Income & Growth Fund II


                                                   Notes to Financial Statements

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

                      Accounts Receivable - Commonwealth Capital Corp

                      As of December 31, 2003, the Partnership has a
                      non-interest bearing receivable from CCC, a related party
                      to the Partnership, in the amount of approximately
                      $354,000. CCC, through its indirect subsidiaries,
                      including the General Partner of the Partnership, earns
                      fees based on revenues and new lease purchases from this
                      fund. This receivable has been reduced by approximately
                      $106,000 during the twelve months ended December 31, 2003
                      by the offsetting of equipment management and other fees
                      and payments by CCC. On December 30, 2003, CCC received
                      approximately $160,000 on behalf of the Partnership
                      resulting from the sale of equipment shared with an
                      affiliated limited partnership. These sales proceeds were
                      not repaid to the Partnership by December 31, 2003,
                      however, CCC intends to repay $100,000 by March 31, 2004,
                      with the remaining balance of $60,000 to be repaid by June
                      30, 2004. CCC intends to repay the remaining balance of
                      approximately $194,000 through acquisition fees, debt
                      placement fees and reimbursement of expenses, with a
                      minimum amount of $10,000 per month, commencing March 1,
                      2004.

6. Notes Payable      Notes payable consisted of the following:
<TABLE>
<CAPTION>
                      December 31,                                             2003            2002
                      ----------------------------------------------------------------------------------
<S>                                                                        <C>             <C>
                      Installment notes payable to banks; interest
                      ranging from 7.25% to 9.75%, were due in
                      monthly installments ranging from $72 to
                      $5,975, including interest, with final
                      payments due from February through December
                      2003.                                                  $      --       $   224,172
</TABLE>

                                                                              20
<PAGE>
                                            Commonwealth Income & Growth Fund II


                                                   Notes to Financial Statements

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S>                                                                        <C>             <C>
                      Installment notes payable to banks; interest
                      ranging from 6.50% to 8.75%, due in monthly
                      installments ranging from $96 to $22,799,
                      including interest, with final payments due
                      from February through November 2004.                     498,520         1,213,397

                      Installment notes payable to banks; interest
                      ranging from 6.25% to 6.75%, due in monthly
                      installments ranging from $241 to $1,875,
                      including interest, with final payments due
                      from February through April 2005.                         74,204           131,353

                      Installment notes payable to banks; interest
                      ranging from 5.95% to 6.50%, due in monthly
                      installments ranging from $507 to $1,892,
                      including interest, with final payments due
                      June 2006.                                               155,641           211,377
                      ----------------------------------------------------------------------------------

                                                                             $ 728,365       $ 1,780,299
                      ==================================================================================
</TABLE>
                      These notes are secured by specific computer equipment and
                      are nonrecourse liabilities of the Partnership. Aggregate
                      maturities of notes payable for each of the years
                      subsequent to December 31, 2003 are as follows:

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

                          2004                                      $  618,764
                          2005                                          76,536
                          2006                                          33,065
                      --------------------------------------------------------

                                                                    $  728,365
                      ========================================================

                                                                              21
<PAGE>
                                            Commonwealth Income & Growth Fund II


                                                   Notes to Financial Statements

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

7. Supplemental       Other noncash activities included in the determination of
   Cash Flow          net loss are as follows:
   Information
<TABLE>
<CAPTION>
Year ended December 31,                                               2003               2002                2001
-----------------------------------------------------------------------------------------------------------------
<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                     $  995,568        $ 1,149,810         $ 1,250,353

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

Total adjustment to net loss from other
     noncash activities                                         $  995,568        $ 1,149,810         $ 1,252,115
=================================================================================================================
</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.

                      Noncash investing and financing activities include the
                      following:
<TABLE>
<CAPTION>
Year ended December 31,                                               2003               2002                2001
-----------------------------------------------------------------------------------------------------------------
<S>                                                            <C>               <C>                 <C>
Debt assumed in connection with purchase
     of computer equipment                                      $       --        $   503,623         $ 1,966,682
-----------------------------------------------------------------------------------------------------------------

Proceeds from sales received by CCC on behalf
     of the Partnership                                         $  159,600        $        --         $        --
-----------------------------------------------------------------------------------------------------------------

Net book value of equipment converted to direct
     financing leases                                           $   15,299        $   226,581         $        --
-----------------------------------------------------------------------------------------------------------------

Notes payable refinanced                                        $       --        $   189,909         $        --
-----------------------------------------------------------------------------------------------------------------
</TABLE>
                                                                              22
<PAGE>
                                            Commonwealth Income & Growth Fund II


                                                   Notes to Financial Statements

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

8. Litigation         In June 2003, the Partnership, through CCC, reached a
                      favorable settlement in a lawsuit against a customer for
                      failure to make monthly lease payments based on the
                      existing lease terms. The settlement did not have a
                      material adverse impact to the financial statements of the
                      Partnership. As of December 31, 2002, the Partnership had
                      recorded a receivable from the customer of approximately
                      $404,000, net of an allowance of approximately $330,000.
                      In July 2003, the Partnership received approximately
                      $405,000 in proceeds relating to this receivable.

9. Reconciliation of
   Net Income (Loss)
   Reported for
   Financial Reporting
   Purposes to Taxable
   (Loss) on the
   Federal Partnership
   Return
<TABLE>
<CAPTION>
Year ended December 31,                                                  2003              2002              2001
-----------------------------------------------------------------------------------------------------------------
<S>                                                               <C>               <C>               <C>
Net income (loss) for financial
         reporting purposes                                        $  129,629        $ (251,242)       $  422,762
     Adjustments
         Depreciation                                                (107,236)         (747,721)             (626)
         Amortization                                                  52,324            60,869            69,077
         Unearned lease income                                       (248,685)          251,553             4,176
         Bad debt (recovery) expense                                 (326,008)          281,008                --
         Loss on sale of computer equipment                          (260,312)         (318,453)         (921,318)
         Other                                                        (55,856)          186,706          (112,207)
-----------------------------------------------------------------------------------------------------------------

Taxable (loss) on the Federal Partnership
     Return                                                        $ (816,144)       $ (537,280)       $ (538,136)
=================================================================================================================
</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
                      longer useful lives for tax reporting purposes.

                                                                              23
<PAGE>
                                            Commonwealth Income & Growth Fund II


                                                   Notes to Financial Statements

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

10. Quarterly Results Summarized quarterly financial data for the years ended
    of Operation      December 31, 2003 and 2002 is as follows:
    (Unaudited)
<TABLE>
<CAPTION>
                                                                        Quarter ended
                                             -------------------------------------------------------------------
                                                 March 31         June 30         September 30       December 31
----------------------------------------------------------------------------------------------------------------
<S>                                            <C>             <C>                  <C>               <C>
2003

Revenues
     Lease and other                            $ 542,701       $ 410,632            $ 301,133         $ 263,990
     (Loss) gain on sale of computer
       equipment                                   (5,192)        323,511              (13,414)          134,219
----------------------------------------------------------------------------------------------------------------

Total revenues                                    537,509         734,143              287,719           398,209

Total costs and expenses                          533,580         438,915              370,171           485,285
----------------------------------------------------------------------------------------------------------------

Net income (loss)                               $   3,929       $ 295,228            $ (82,452)        $ (87,076)
================================================================================================================

Income (loss) per limited
     partner unit                               $    0.01       $    0.64            $   (0.18)        $   (0.19)
================================================================================================================
</TABLE>
                      Total costs and expenses includes an impairment adjustment
                      of approximately $31,000 that was recorded in the fourth
                      quarter of 2003.

                                                                              24
<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>
2002

Revenues
     Lease and other                            $ 703,717       $ 686,154            $ 668,151         $ 655,611
     Gain (loss) on sale of computer
         equipment                                  1,842          (1,539)                (611)            1,136
----------------------------------------------------------------------------------------------------------------

Total revenues                                    705,559         684,615              667,540           656,747

Total costs and expenses                          782,877         717,176              720,191           745,459
----------------------------------------------------------------------------------------------------------------

Net (loss)                                      $ (77,318)      $ (32,561)           $ (52,651)        $ (88,712)
----------------------------------------------------------------------------------------------------------------

(Loss) per limited
     partner unit                               $    (.17)      $    (.07)           $    (.11)        $    (.19)
================================================================================================================
</TABLE>
                      The cumulative gain or loss on sale of equipment is
                      included in revenues or costs as appropriate.

                                                                              26