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, 2004

|_| 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)

           Securities registered pursuant to Section 12(b) of the Act:

           Title of each class to             Name of exchange on
              be so registered                  which each class
                                             is to be registered

                  None                                N/A

           Securities registered pursuant to Section 12(g) of the Act:

                      Units of Limited Partnership Interest
                                (Title of Class)

      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|

<PAGE>

                                    FORM 10-K
                                DECEMBER 31, 2004

                                TABLE OF CONTENTS

                                     PART I
Item 1.   Business                                                             3
Item 2.   Properties                                                          11
Item 3.   Legal Proceedings                                                   11
Item 4.   Submission of Matters to a Vote of Security Holders                 11

                                   PART II
Item 5.   Market for Registrant's Common Equity, Related Stockholder
          Matters                                                             11
Item 6.   Selected Financial Data                                             14
          Management's Discussion and Analysis of Financial Condition and
Item 7.   Results of Operations                                               15
Item 7A.  Quantitative and Qualitative Disclosures About Market Risk          19
Item 8.   Financial Statements and Supplementary Data                         19
          Changes in and Disagreements with Accountants on Accounting and
Item 9.   Financial Disclosure                                                19
Item 9A.  Controls and Procedures                                             20
Item 9B.  Other Information                                                   20

                                  PART III
Item 10.  Directors and Executive Officers of the Registrant                  20
Item 11.  Executive Compensation                                              23
Item 12.  Security Ownership of Certain Beneficial Owners and Management      23
Item 13.  Certain Relationships and Related Transactions                      23
Item 14.  Principal Accountant Fees and Services                              30

                                   PART IV
Item 15.  Exhibits and Financial Statements                                   30

          Index to Exhibits

          Signatures

          Certifications


                                                                               2
<PAGE>

PART I

ITEM 1: BUSINESS

GENERAL

Commonwealth Income and Growth Fund II 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. 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.

As  of  December  31,  2004,   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


                                                                               3
<PAGE>

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, 2004,
the Partnership has not entered into any such agreements.

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

TYPES OF EQUIPMENT

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

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

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

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


                                                                               4
<PAGE>

DIVERSIFICATION

Diversification  is  generally  desirable  to minimize the effects of changes in
specific  industries,  local economic conditions or similar risks.  However, the
extent of the  Partnership's  diversification,  in the aggregate and within each
category of Equipment,  depends in part upon the financing  which can be assumed
by the  Partnership or borrowed from third parties on  satisfactory  terms.  The
Partnership's  policy not to borrow on a recourse  basis will further  limit its
financing options.  Diversification  also depends on the availability of various
types of  Equipment.  As of December 31, 2004,  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, 2004, 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,  2004,  we have entered into seven
Capital Leases with two lessees.

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.


                                                                               5
<PAGE>

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, 2004, 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, 2004, 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.

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


                                                                               6
<PAGE>

31, 2004, the aggregate  non-recourse  debt  outstanding of $116,000 was 4.0% 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, 2004, the Partnership has
not exercised this option.

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,
2004, no such agreements existed.

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

REFINANCING POLICIES

Subject  to the  limitations  set  forth  in  "Borrowing  Policies"  above,  the
Partnership  may  refinance  its debt  from  time to  time.  With  respect  to a
particular item of Equipment,  the General Partner will take into  consideration
such factors as the amount of appreciation in value, if any, to be realized, the
possible  risks of continued  ownership,  and the  anticipated  advantages to be
obtained  for the  Partnership,  as compared to selling such  Equipment.  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 were
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.


                                                                               7
<PAGE>

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.

MANAGEMENT OF EQUIPMENT

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

COMPETITION

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

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

The dominant 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.


                                                                               8
<PAGE>

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  29,  2005,  the  Partnership  has  purchased,  or has  made  the
commitment to purchase, the following Equipment:

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


                                                                               9
<PAGE>

<TABLE>
<S>                             <C>          <C>                         <C>            <C>           <C>       <C>
    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
         Aisin Brake            HP           Server                          21,139         21,139      1,267     14
</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.

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.


                                                                              10
<PAGE>

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

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

EMPLOYEES

The Partnership has no employees and receives  administrative and other services
from a related party,  Commonwealth  Capital Corp. (CCC), which has 34 employees
as of December 31, 2004.

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 alleged that the defendants illegally purchased/sold
                  leased  equipment  without  the  Partnership's  authorization,
                  and sought 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.

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, 2004,  there were 539 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


                                                                              11
<PAGE>

redemptions of Units of up to five percent of the total outstanding  interest in
the Partnership's capital or profits in any one year.

REDEMPTION PROVISION

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

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

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

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


                                                                              12
<PAGE>

General Partner.  There is no charge for re-registration of a certificate in the
event of a marriage,  divorce,  death, or trust so long as the transfer is not a
result of a sale of the Units.

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

ALLOCATION AND DISTRIBUTION BETWEEN THE GENERAL PARTNER AND THE LIMITED PARTNERS

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

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

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

Generally,  the  General  Partner is  allocated  Net  Profits  equal to its cash
distributions  (but not less than one percent of Net Profits) and the balance is
allocated to the Limited  Partners.  Net Profits  arising from  transactions  in
connection  with the termination or liquidation of the Partnership are allocated
in the  following  order:  (1) First,  to each Partner in an amount equal to the
negative amount, if any, of his Capital Account;  (2) Second, an amount equal to
the excess of the proceeds  which would be  distributed to the Partners based on
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 2004, 2003 and 2002.

            Quarter Ended              2004             2003             2002
            -------------------------------------------------------------------

            March 31                 $114,286         $114,286         $171,428

            June 30                   114,285          171,428          114,286

            September 30              114,285          171,428          114,286

            December 31                56,925          114,286          114,286
                                     ------------------------------------------

                                     $399,781         $571,428         $514,286
                                     ========         ========         ========


                                                                              13
<PAGE>

ALLOCATIONS AND DISTRIBUTIONS AMONG THE LIMITED PARTNERS

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

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

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

ITEM 6: SELECTED FINANCIAL DATA

The following table sets forth, in summary form, selected financial data for the
Partnership  for each of the five years in the period  ended  December 31, 2004.
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:          2004             2003               2002               2001                 2000
-------------------------------------------------------------------------------------------------------------
<S>                     <C>             <C>                <C>                <C>                 <C>
   Lease Income         $697,530        $1,515,990         $2,711,579         $3,014,643          $4,105,811
-------------------------------------------------------------------------------------------------------------

  Net Income
     (Loss)             (541,798)          129,629           (251,242)           422,762            (369,209)
-------------------------------------------------------------------------------------------------------------

      Cash
  Distributions          403,419           577,200            519,480            692,269             923,546
-------------------------------------------------------------------------------------------------------------

   Net Income
   (Loss) per
     Limited
   Partner Unit            (1.18)             0.28              (0.55)              0.90               (0.82)
-------------------------------------------------------------------------------------------------------------

       Cash
  Distribution
   per Limited
   Partner Unit             0.87              1.24               1.12               1.50                1.98
-------------------------------------------------------------------------------------------------------------
</TABLE>


                                       14
<PAGE>

<TABLE>
<CAPTION>

                                               AS OF DECEMBER 31,

-------------------------------------------------------------------------------------------------------------------
         Other Data:                 2004              2003            2002             2001            2000
-------------------------------------------------------------------------------------------------------------------
<S>                                   <C>               <C>             <C>            <C>               <C>
  Net cash provided by (used
   in) operating activities           $(102,527)        $ 61,782        $480,314       $1,148,982        $ 856,804
-------------------------------------------------------------------------------------------------------------------

  Net cash provided by (used
   in) investing activities             239,177          406,933          13,199         (374,359)         299,353
-------------------------------------------------------------------------------------------------------------------

   Net cash (used in)
  financing activities                 (173,323)        (464,318)       (474,577)      (1,037,917)        (930,761)
-------------------------------------------------------------------------------------------------------------------

<CAPTION>
                                               AS OF DECEMBER 31,

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

                                 2004             2003                 2002              2001            2000
------------------------------------------------------------------------------------------------------------------
<S>                            <C>             <C>                 <C>                <C>              <C>
        Total Assets           $522,871        $1,992,457          $3,592,482         $4,859,360       $4,387,648
------------------------------------------------------------------------------------------------------------------

       Notes Payable            115,967           728,365           1,780,299          2,380,383        1,665,816
------------------------------------------------------------------------------------------------------------------

    Partners' Capital           138,826         1,084,443           1,532,014          2,306,900        2,586,984
------------------------------------------------------------------------------------------------------------------
</TABLE>

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

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Partnership's discussion and analysis of its financial condition and results
of operations are based upon its financial  statements  which have been prepared
in  accordance  with  accounting  principles  generally  accepted  in the United
States. The preparation of these financial  statements  requires the Partnership
to make  estimates  and  judgments  that affect the reported  amounts of assets,
liabilities,  revenues and  expenses.  The  Partnership  bases its  estimates on
historical  experience and on various other  assumptions that are believed to be
reasonable  under the  circumstances,  the  results  of which form the basis for
making  judgments about the carrying  values of assets and liabilities  that are
not readily  apparent from other  sources.  Actual results may differ from these
estimates under different assumptions or conditions.

The Partnership  believes that its critical  accounting policies affect its more
significant  judgments and estimates  used in the  preparation  of its financial
statements.

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


                                                                              15
<PAGE>

Through  December  31,  2004,  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.

For the year  ended  December  31,  2004,  the  Partnership  used cash flow from
operating activities of $103,000,  which includes a net loss of $541,798, a loss
on the sale of computer equipment of $54,000,  and depreciation and amortization
expenses of $770,000.  Other noncash activities included in the determination of
net  loss  include  direct  payments  of lease  income  by  lessees  to banks of
$574,000.

The Partnership's primary source of capital for the year ended December 31, 2004
was  from  repayment  of  $231,000  made by CCC for the  outstanding  note,  and
proceeds  from the sale of computer  equipment  of $244,000.  The  Partnership's
primary  sources of capital for the years ended  December 31, 2003 and 2002 were
from cash from operations of $62,000 and $480,000, and proceeds from the sale of
computer equipment of $423,000, and $134,000  respectively.  The primary uses of
cash for the years ended  December  31,  2004,  2003 and 2002,  were for capital
expenditures  for new  equipment  totaling  $4,000,  $15,000,  and $97,000,  the
payment of acquisition fees of $1,000,  $1,000, and $24,000,  and the payment of
preferred  distributions to partners totaling $404,000,  $577,000, and $519,000,
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, 2004 and 2003 the  Partnership  had $0 and  $26,000,
respectively, invested in these money market accounts.

As of December 31, 2004, the Partnership had a non-interest  bearing  receivable
from CCC, a related  party to the  Partnership,  in the amount of  approximately
$16,000. CCC, through its indirect  subsidiaries,  including the General Partner
of the  Partnership,  earns fees based on revenues and new lease  purchases


                                                                              16
<PAGE>

from this fund.  This  receivable  has been  reduced by  approximately  $354,000
during the twelve months ended  December 31, 2004 by the offsetting of equipment
management and other fees and payments by CCC.

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,  2004,  the   Partnership   had  future  minimum   rentals  on
noncancellable  operating  leases of $42,000  for the year ended 2005 and $7,000
thereafter.  As of December 31, 2004, the Partnership had future minimum rentals
on noncancellable  capital leases of $72,000 for the year ended 2005 and $32,000
thereafter.  At December 31,  2004,  the  outstanding  debt was  $116,000,  with
interest  rates  ranging  from 5.95% to 6.75% 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, 2004 and 2003 was
approximately $1,306,000 and $1,660,000,  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, 2004
and  2003  was  approximately  $2,249,000  and  $2,813,000,   respectively.  The
Partnership's  share of the  outstanding  debt associated with this equipment at
December 31, 2004 and 2003 was  approximately  $700 and $422,000,  respectively,
which is included in the Partnership's liabilities on the balance sheet, and the
total  outstanding  debt at December 31, 2004 and 2003 related to the  equipment
shared by the Partnership was approximately  $1,000 and $696,000,  respectively.
The  Partnership's  cash flow from  operations  is  expected  to  continue to be
adequate  to  cover  all   operating   expenses,   liabilities,   and  preferred
distributions  to Partners  during the next 12-month  period.  If available Cash
Flow or Net  Disposition  Proceeds  are  insufficient  to cover the  Partnership
expenses and liabilities on a short and long term basis,  the  Partnership  will
attempt to obtain additional funds by disposing of or refinancing Equipment,  or
by borrowing within its permissible  limits. The Partnership may also reduce the
distributions  to its Partners if it deems  necessary.  Since the  Partnership's
leases are on a "triple-net"  basis,  no reserve for maintenance and repairs are
deemed necessary.

RESULTS OF OPERATIONS

For the  year  ended  December  31,  2004,  the  Partnership  had a net  loss of
$542,000. In 2004,2003 and 2002, the Partnership  recognized income of $742,000,
$1,958,000 and $2,714,000 and expenses of $1,284,000, $1,828,000 and $2,965,000,
resulting in net loss of $542,000 and $251,000 for the years ended  December 31,
2004 and 2002, respectively, and net income for the year ended December 31, 2003
of $130,000.

Lease income  decreased to $698,000 in 2004, down from $1,516,000 and $2,712,000
in 2003 and  2002,  respectively,  primarily  due to the fact  that  more  lease
agreements terminated than new lease agreements were entered into since 2001.

The  Partnership  sold computer  equipment  during the years ended  December 31,
2004,  2003 and 2002 with a net book value of $298,000,  $143,000 and  $134,000,
respectively,  for a net  (loss)gain of  $(54,000),  439,000 and $1,000 in 2004,
2003 and 2002, 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 decreased by 35 % to $398,000,
down from  $608,000  and $571,000  during the years ended  December 31, 2003 and
2002, respectively.  This decrease is primarily attributable to remarketing fees
paid to brokers decreasing by approximately $53,000, a decrease in legal fees of
approximately  $77,000, a decrease in


                                                                              17
<PAGE>

postage/shipping   of   approximately   $17,000,   a  decrease  in  training  of
approximately  $13,000, a decrease in due diligence of approximately  $24,000, 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 53% to $36,000 during the year ended December
31, 2004,  down from $76,000 and  $136,000  during the years ended  December 31,
2003 and  2002,  respectively,  which is  consistent  with the  change  in lease
income.

Depreciation  and  amortization  expenses  consist of  depreciation  on computer
equipment,  impairment charges and equipment acquisition fees and debt placement
fees. The decrease of 27% to $770,000,  during the year ended December 31, 2004,
down from $1,055,000 and $1,704,000 during the years ended December 31, 2003 and
2002,  respectively,  is attributable to the decrease in the computer  equipment
portfolio being leased.

The Partnership  identified specific computer equipment and associated equipment
acquisition costs, which were reevaluated due to technological  changes. In 2004
and 2003, 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 $40,000 and $31,000,  respectively,  in the
fourth  quarters of 2004 and 2003 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 loss increased to $542,000 in 2004 from net income of $130,000 in 2003
and net loss of $252,000 in 2002.

      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,
2004:

                                                         Payments due by period

                                          Total           2005            2006
                                        --------        --------        --------
Installment notes payable
due 2005:

     Principal                          $ 19,685        $ 19,685        $     --

     Interest                              3,409           3,409              --

Installment notes payable
due 2006:

     Principal                            96,282          63,217          33,065

     Interest                              4,949           4,271             678
                                        ----------------------------------------

Total                                   $124,325        $ 90,582        $ 33,743
                                        ========================================


                                                                              18
<PAGE>

                        RECENT ACCOUNTING PRONOUNCEMENTS

                              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. In December 2003,
FASB  issued a  revision  to  Interpretation  46 ("FIN  46-R")  to  clarify  the
provisions  of FIN 46.  The  application  of FIN 46-R is  effective  for  public
companies,  other than small business issuers,  after March 15, 2004. Management
believes that the adoption of Interpretation  No. 46-R did not have an impact on
the 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

      Our financial  statements for the fiscal years ended December 31, 2004 and
2003, and the reports  thereon of Asher and Company,  Ltd. and BDO Seidman,  LLP
respectively, are included in this annual report.

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

      Effective  October  11,  2004,  the  registrant  dismissed  its  principal
independent accounting firm, BDO Seidman, LLP. BDO Seidman, LLP's reports on the
registrant's  financial  statements for the two most recently  completed  fiscal
years did not contain any adverse  opinion or a disclaimer of opinion,  nor were
they  qualified  or  modified  as to  uncertainty,  audit  scope  or  accounting
principles.  The  decision to change  accountants  was  approved by the board of
directors of the registrant's general partner.  During the registrant's two most
recent  fiscal  years  and the  interim  period  prior  to such  dismissal,  the
registrant  had  no  disagreements  with  BDO  Seidman,  LLP on  any  matter  of
accounting principles or practices,  financial statement disclosure, or auditing
scope or procedure, which disagreements,  if not resolved to the satisfaction of
BDO Seidman,  LLP,  would have caused BDO Seidman,  LLP to make reference to the
subject  matter of the  disagreements  in connection  with its report.  Further,
during the  registrant's  two most recent  fiscal  years and the interim  period
prior to such dismissal,  there occurred no reportable  events,  as set forth in
Item 304(a)(1)(v) of Regulation S-K.

      The  registrant  has  provided  BDO  Seidman,  LLP  with  a copy  of  this
disclosure on or prior to the date hereof and has requested BDO Seidman,  LLP to
provide the  registrant  with a letter  addressed to the Securities and Exchange
Commission  stating whether it agrees with the statements  contained  herein.  A
copy of such letter will be filed by  amendment to this report when and if it is
received by the registrant.

      Also  effective  October 11, 2004,  the  registrant  has retained  Asher &
Company,  Ltd.  of  Philadelphia,  Pennsylvania  as  its  principal  independent
accounting  firm.  The  registrant  believes  that Asher


                                       19
<PAGE>

& Company,  Ltd. is an accounting firm of a size and scope of experience  better
suited to the registrant's current needs than the registrant's former accounting
firm.

      During our two most recent fiscal years,  we have not consulted with Asher
& Company,  Ltd. on any matter that (i) involved the  application  of accounting
principles to a specific completed or contemplated  transaction,  or the type of
audit opinion that might be rendered on our financial  statements,  in each case
where  written  or oral  advice  was  provided,  that  was an  important  factor
considered  by us in  reaching  a decision  as to the  accounting,  auditing  or
financial  reporting  issue; or (ii) was either the subject of a disagreement or
event, as that term is described in item 304(a)(1)(iv)(A) of Regulation S-X.

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, 2004,  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.

ITEM 9B: OTHER INFORMATION

      NO APPLICABLE

ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

GENERAL

      The Partnership does not have any Directors or executive officers.

      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.


                                                                              20
<PAGE>

      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

Lynn A. Franceschina       Vice President and Controller of the General  Partner
                           and CCC

Donald Bachmayer           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 70, 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.  (Mr.  Springsteen  is the spouse of Kimberly A.
Springsteen)

      Kimberly  A.  Springsteen,  age 45, 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. (Ms. Springsteen is the spouse
of George S. Springsteen)

      Henry J. Abbott, age 54, 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 56, 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.


                                                                              21
<PAGE>

      Lynn A.  Franceschina,  , age 33, is Vice  President and Controller of the
General Partner and CCC and certain of its  subsidiaries  after returning to the
organization  in 2004.  From the  period  of March  2004 to  October  2004,  Ms.
Franceschina  was employed at Wilmington  Trust Corp.  where she was part of the
policies & procedures team  responsible for Sarbanes Oxley  documentation.  From
November  2001 to  February  2004,  Ms.  Franceschina  was  Vice  President  and
Accounting   Manager  of  the  General  Partner  and  CCC  and  certain  of  its
subsidiaries.  Prior to that,  Ms.  Franceschina  served  as  Business  Controls
Manager for Liquent,  Inc.,  a regulatory  publishing  software  developer.  Ms.
Franceschina  received a Bachelor of Science  degree in  Accounting  from Robert
Morris University.  Ms.  Franceschina is a member of the Institute of Management
Accountants and the Equipment Leasing Association.

Donald Bachmayer,  age 40, is Assistant Vice President and Accounting Manager of
the General  Partner and CCC and certain of its  subsidiaries  where he has been
employed  since 2004.  From 1997 to 2001, Mr.  Bachmayer was an accountant  with
Fishbein  &  Company,  P.C.,  certified  public  accountants.  Prior to  joining
Commonwealth,  Mr.  Bachmayer  was employed as  Accounting  Supervisor  for LEAF
Financial, an equipment leasing sponsor. Mr. Bachmayer received a B.S. degree in
Accounting from LaSalle University.

      Dorothy A.  Ferguson,  age 62, 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 52,  Assistant Vice President & Marketing  Manger,
joined  Commonwealth  in 2000,  bringing 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.

      David Borham, age 27, 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.  (Mr. Borham is the
son of Kimberly A. Springsteen)

      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.

      The Partnership has no audit committee  financial expert, as defined under
Section 229.401 of the Exchange Act,  serving on its audit  committee.  An audit
committee is not required  because the  Partnership is not a listed  security as
defined by Section 240.10A-3;  therefore, no audit committee financial expert is
required.

CODE OF ETHICS

      In view of the fiduciary  obligation  that the General  Partner has to the
Partnership, the General Partner believes an adoption of a formal code of ethics
is unnecessary and would not benefit the Partnership,  particularly, in light of
Partnership's limited business activities.


                                                                              22
<PAGE>

ITEM 11: EXECUTIVE COMPENSATION

      NOT APPLICABLE

ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      NOT APPLICABLE

ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      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 2004      DURING 2003      DURING 2002
<S>                     <C>                                             <C>             <C>              <C>
The General Partner     Reimbursable  Expenses.  The General and     $331,000        $371,000         $491,000
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.

</TABLE>


                                                                              23
<PAGE>

<TABLE>
<S>                     <C>                                          <C>             <C>              <C>

The General Partner     Equipment  Acquisition Fee. An Equipment      $1,000          $1,000           $24,000
                        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              $0             $5,000
                        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     $36,000          $76,000         $136,000
                        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>


                                                                              24
<PAGE>

<TABLE>
<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 Partner    $4,038           $5,772           $5,194
                        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>

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

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

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

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

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

ACQUISITIONS

      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


                                                                              25
<PAGE>

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.

      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.


                                                                              26
<PAGE>

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

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

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

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

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

      "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.

      "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.


                                                                              27
<PAGE>

      "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.

      "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.


                                                                              28
<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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


                                                                              29
<PAGE>

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

ITEM 14: PRINCIPAL ACCOUNTING FEES AND SERVICES

AUDIT FEES

The aggregate fees billed for each of the fiscal years ended December 31, 2004
and 2003 for professional services rendered by the principal accountant for the
audit of our annual financial statements and review of the financial statements
included in our Form 10-Q or services that are normally provided by the
accountant in connection with statutory and regulatory filings or engagements
for those fiscal years were $32,000 and $25,000, respectively.

AUDIT-RELATED FEES

The aggregate fees billed in the fiscal years ended December 31, 2004 and 2003
for assurance and related services by the principal accountant that are
reasonably related to the performance of the audit or review of the registrant's
financial statements and are not reported under the paragraph captioned "Audit
Fees" above are $0 and $0, respectively.

TAX FEES

The aggregate fees billed in the fiscal years ended December 31, 2004 and 2003
for professional services rendered by the principal accountant for tax
compliance, tax advice and tax planning were $0 and $0, respectively.

ALL OTHER FEES The aggregate fees billed in the fiscal years ended December 31,
2004 and 2003 for products and services provided by the principal accountant,
other than the services reported above under other captions of this Item 14 are
$0 and $0, respectively.

PRE-APPROVAL POLICIES AND PROCEDURES

All audit related services, tax planning and other services were pre-approved by
the General Partner, which concluded that the provision of such services by the
Partnership's auditors was compatible with the maintenance of that firm's
independence in the conduct of its auditing functions. The policy of the General
Partner provides for pre-approval of these services and all audit related, tax
or other services not prohibited under Section 10A(g) of the Securities Exchange
Act of 1934, as amended to be performed for us by our independent auditors,
subject to the de minimus exception described in Section 10A(i)(1)(B) of the
Exchange Act. on an annual basis and on individual engagements if minimum
thresholds are exceeded.

The percentage of audit-related, tax and other services that were approved by
the board of directors is zero (-0-).

PART IV

ITEM 15: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 10-K

(a) (1)  Financial Statements

         Report of Independent Registered Public Accounting Firm             1

         Report of Independent Registered Public Accounting Firm             2


                                                                              30
<PAGE>

         Balance Sheets as of December 31, 2004 and 2003                     3-4

         Statements of Operations for the year ended December 31, 2002
           through the year ended December 31, 2004                            5

         Statements of Partners' Capital for the years ended
           December 31, 2004, 2003, and 2002                                   6

         Statements of Cash Flows for years ended December 31, 2002
           through the year ended December 31, 2004                          7-8

         Notes to Financial Statements                                      9-23


(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.

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

(b)   Reports on Form 8-K

(c)   Exhibits.

      31.1    Rule 13a-14(a)/15d-14(a) Certifications by the Principal Executive
              Officer

      31.2    Rule 13a-14(a)/15d-14(a) Certifications by the Principal Financial
              Officer

      32      Section 1350 Certifications by the Principal Executive Officer and
              Principal Financial Officer

                                   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, 2005 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


                                                                              31
<PAGE>

      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, 2005.

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


                                                                              32
<PAGE>

                                            Commonwealth Income & Growth Fund II

                                                                        Contents

================================================================================

      Report of Independent Registered Public Accounting Firm           1

      Report of Independent Registered Public Accounting Firm           2

      Financial statements
          Balance sheets                                              3-4
          Statements of operations                                      5
          Statements of partners' capital                               6
          Statements of cash flows                                    7-8

      Notes to financial statements                                  9-23



<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Partners
Commonwealth Income & Growth Fund II
Exton, Pennsylvania

We have audited the accompanying balance sheet of Commonwealth Income & Growth
Fund II (the "Partnership") as of December 31, 2004 and the related statements
of operations, Partners' capital and cash flows for the year then ended. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Commonwealth Income & Growth
Fund II as of December 31, 2004 and the results of its operations and its cash
flows for the year then ended, in conformity with accounting principles
generally accepted in the United States of America.


/s/ Asher & Company, Ltd.
Philadelphia, Pennsylvania
March 29, 2005


                                                                               1
<PAGE>


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



The Partners
Commonwealth Income & Growth Fund II
Exton, Pennsylvania

We have audited the accompanying balance sheet of Commonwealth Income & Growth
Fund II as of December 31, 2003 and the related statements of operations,
partners' capital, and cash flows for each of the two 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 the results of its operations and its cash
flows for each of the two 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

                                                                               2

<PAGE>

                                            Commonwealth Income & Growth Fund II

                                                                  Balance Sheets

================================================================================

<TABLE>
<CAPTION>
December 31,                                                         2004             2003
------------------------------------------------------------------------------------------
<S>                                                           <C>              <C>
Assets

Cash and cash equivalents                                     $     1,085      $    37,758
Lease income receivable                                             9,478            4,550
Net investment in direct financing leases                          86,487          146,478
Accounts receivable, affiliated limited partnerships               16,792            7,888
Deposits                                                               25               --
Prepaid fees                                                           --            3,200
------------------------------------------------------------------------------------------

                                                                  113,867          199,874
------------------------------------------------------------------------------------------

Computer equipment, at cost                                     2,850,669        5,409,223
Accumulated depreciation                                       (2,460,366)      (4,013,668)
------------------------------------------------------------------------------------------

                                                                  390,303        1,395,555
------------------------------------------------------------------------------------------

Equipment acquisition costs and deferred expenses, net of
     accumulated amortization of $64,953 and $109,250,
     respectively
                                                                    2,601           42,906
Accounts receivable, Commonwealth Capital Corp.                    16,100          354,122
------------------------------------------------------------------------------------------

Total assets                                                  $   522,871      $ 1,992,457
==========================================================================================
</TABLE>


                                                                               3
<PAGE>

                                            Commonwealth Income & Growth Fund II

                                                                  Balance Sheets

================================================================================

December 31,                                               2004             2003
--------------------------------------------------------------------------------

Liabilities and Partners' Capital

Liabilities
     Accounts payable                                $   51,515      $    53,606
     Accounts payable, General Partner                   79,488           20,065
     Accounts payable, Commonwealth Capital Corp         42,499               --
     Other accrued expenses                                  --            5,938
     Unearned lease income                               94,576          100,040
     Notes payable                                      115,967          728,365
--------------------------------------------------------------------------------

Total liabilities                                       384,045          908,014
--------------------------------------------------------------------------------

Partners' capital
     General Partner                                      1,000            1,000
     Limited Partners                                   137,826        1,083,443
--------------------------------------------------------------------------------

Total partners' capital                                 138,826        1,084,443
--------------------------------------------------------------------------------

Total liabilities and partners' capital              $  522,871      $ 1,992,457
================================================================================

                                 See accompanying notes to financial statements.


                                                                               4
<PAGE>

                                            Commonwealth Income & Growth Fund II

                                                        Statements of Operations

================================================================================

<TABLE>
<CAPTION>
Years ended December 31,                                                 2004             2003             2002
---------------------------------------------------------------------------------------------------------------
<S>                                                               <C>              <C>                <C>
Income
     Lease                                                        $   697,530      $ 1,515,990      $ 2,711,579
     Interest and other                                                44,781            2,466            2,054
     Gain on sale of equipment                                             --          439,124              828
---------------------------------------------------------------------------------------------------------------

Total income                                                          742,311        1,957,580        2,714,461
---------------------------------------------------------------------------------------------------------------

Expenses
     Operating, excluding depreciation                                398,197          608,439          571,038
     Equipment management fee, General Partner                         36,016           75,934          135,579
     Depreciation                                                     728,595          992,234        1,630,810
     Amortization of equipment acquisition costs and deferred
         expenses                                                      41,321           62,719           73,028
     Interest                                                          26,255           88,625          156,380
     Loss on sale of equipment                                         53,725               --               --
     Provision for uncollectible lease income receivable                   --               --          398,868
---------------------------------------------------------------------------------------------------------------

Total expenses                                                      1,284,109        1,827,951        2,965,703
---------------------------------------------------------------------------------------------------------------

Net income (loss)                                                 $  (541,798)     $   129,629         (251,242)
===============================================================================================================

Net income (loss) per equivalent limited partnership unit
                                                                  $     (1.18)     $      0.28      $     (0.55)

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

                                 See accompanying notes to financial statements.


                                                                               5
<PAGE>

                                            Commonwealth Income & Growth Fund II

                                                 Statements of Partners' Capital

================================================================================

<TABLE>
<CAPTION>
                                    General       Limited
                                    Partner       Partner          General         Limited
                                      Units         Units          Partner         Partners           Total
-------------------------------------------------------------------------------------------------------------
<S>                                     <C>        <C>          <C>              <C>                  <C>
Balance, December 31, 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        1,084,443

Net income (loss)                       --              --            4,038         (545,836)        (541,798)
Distributions                           --              --           (4,038)        (399,781)        (403,819)
-------------------------------------------------------------------------------------------------------------

Balance, December 31, 2004              50         460,067      $     1,000      $   137,826          138,826
=============================================================================================================
</TABLE>

                                 See accompanying notes to financial statements.


                                                                               6
<PAGE>

                                            Commonwealth Income & Growth Fund II

                                                        Statements of Cash Flows

================================================================================

<TABLE>
<CAPTION>
Years ended December 31,                                             2004             2003             2002
--------------------------------------------------------------------------------------------------------------
<S>                                                              <C>              <C>              <C>
Cash flows from operating activities
     Net income (loss)                                           $  (541,798)     $   129,629      $  (251,242)
     Adjustments to reconcile net income (loss) to
      net cash provided by (used in) operating activities
              Depreciation and amortization                          769,917        1,054,953        1,703,838
              Amortization of unearned lease income                       --          (10,945)         (19,111)
              (Gain) loss on sale of computer
                  equipment                                           53,725         (439,124)            (828)
              Other noncash activities included in
                  determination of net income (loss)                (574,117)        (995,568)      (1,149,810)
              Changes in assets and liabilities
                      Lease income receivable                         (4,928)         404,966           78,956
                      Minimum lease receivables                        4,620            3,881               --
                      Accounts receivable, affiliated
                           limited partnerships                       (8,904)             546           (5,673)
                      Deposits                                           (25)              --               --
                      Prepaid fees                                     3,200            3,019           (3,019)
                      Accounts payable                                (2,091)         (19,052)          32,186
                      Accounts payable, General Partner
                                                                     166,777           (7,392)         (28,218)
                      Accounts payable, Commonwealth Capital
                              Corp
                                                                      42,499               --               --
                      Other accrued expenses                          (5,938)          (1,424)           7,362
                      Unearned lease income                           (5,464)         (61,707)         115,873
--------------------------------------------------------------------------------------------------------------

Net cash provided by (used in) operating activities                 (102,527)          61,782          480,314
--------------------------------------------------------------------------------------------------------------
</TABLE>


                                                                               7
<PAGE>

                                            Commonwealth Income & Growth Fund II

                                                        Statements of Cash Flows

================================================================================

<TABLE>
<CAPTION>
Years ended December 31,                               2004         2003            2002
------------------------------------------------------------------------------------------
<S>                                                <C>            <C>            <C>
Cash flows from investing activities
     Capital expenditures                          $  (4,049)     $ (15,000)     $ (97,107)
     Net proceeds from sale of computer
         equipment                                   244,072        422,533        134,335
     Equipment acquisition fees paid to the
         General Partner                                (846)          (600)       (24,029)
------------------------------------------------------------------------------------------

     Net cash provided by investing activities       239,177        406,933         13,199
------------------------------------------------------------------------------------------

Cash flows from financing activities
     Proceeds from refinancing notes payable              --             --         46,103
     Distributions to partners                      (403,819)      (577,200)      (519,480)
     Accounts receivable - Commonwealth
         Capital Corp.                               230,667        112,882          8,000
     Redemption of limited partners                       --             --         (4,164)
     Debt placement fee paid to the General
        Partner                                         (171)            --         (5,036)
------------------------------------------------------------------------------------------

Net cash used in financing activities               (173,323)      (464,318)      (474,577)
------------------------------------------------------------------------------------------

Net increase (decrease) in cash and cash
     equivalents                                     (36,673)         4,397         18,936

Cash and cash equivalents at beginning of year        37,758         33,361         14,425
------------------------------------------------------------------------------------------

Cash and cash equivalents at end of year           $   1,085      $  37,758      $  33,361
==========================================================================================
</TABLE>

                                 See accompanying notes to financial statements.


                                                                               8
<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 2004,
                        annual cash  distributions to limited partners were made
                        at rate of 4.3% of their original  contributed  capital.
                        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.
                        Distributions  during 2004  reflect an annual  return of
                        capital  in  the  amount  of  approximately   $0.87  per
                        weighted  average  number of limited  partnership  units
                        outstanding during the year.  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.


                                                                               9
<PAGE>

                                            Commonwealth Income & Growth Fund II

                                                   Notes to Financial Statements

================================================================================

2. Summary of           Revenue Recognition
   Significant
   Accounting           Through  December  31,  2004 the  Partnership's  leasing
   Policies             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.

                        Use of Estimates

                        The  preparation  of financial  statements in conformity
                        with  U.S.  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.

                        Fair Value of Financial Instruments

                        Statement of  Financial  Accounting  Standards  ("SFAS")
                        No.107,   Disclosures  About  Fair  Value  of  Financial
                        Instruments,  requires  disclosure  of the fair value of
                        certain  instruments.   The  carrying  values  of  cash,
                        receivables and payables  approximate  fair value due to
                        the short term maturity of these instruments.  For debt,
                        the carrying amounts  approximate fair value because the
                        interest rates approximate current market rates.

                        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


                                                                              10
<PAGE>

                                            Commonwealth Income & Growth Fund II

                                                   Notes to Financial Statements

================================================================================

                        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.  The fair value is  determined
                        based on estimated discounted cash flows to be generated
                        by  the  asset.   In  2004  and  2003,  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 $40,000 and $31,000 in the fourth  quarter of
                        2004 and  2003,  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.

                        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. Cash at December 31, 2004 and 2003 was held
                        in the custody of one financial  institution.  At times,
                        the balances may exceed  federally  insured limits.  The
                        Partnership mitigates this risk by depositing funds with
                        a major financial  institution.  The Partnership has not
                        experienced any losses in such accounts, and believes it
                        is not exposed to any significant credit risk.


                                                                              11
<PAGE>

                                            Commonwealth Income & Growth Fund II

                                                   Notes to Financial Statements

================================================================================

                        Accounts Receivable

                        Accounts    receivable    includes    current   accounts
                        receivable,  net of allowances and other  accruals.  The
                        Partnership  regularly reviews the collectability of its
                        receivables  and the credit  worthiness of its customers
                        and  adjusts  its   allowance   for  doubtful   accounts
                        accordingly.   The   Partnership   determined   that  no
                        allowance was necessary at December 31, 2004 and 2003.

                        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. 46 & 46-R

                        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.  In December
                        2003,  a revision  was issued  (46-R) to clarify some of
                        the original provisions.  Management has determined that
                        the adoption of Interpretation  No. 46-R did not have an
                        impact  on  the   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, 2004 and
   Leases               2003:

<TABLE>
<CAPTION>
                        December 31,                                                2004        2003
                        -------------------------------------------------------------------------------
<S>                                                                              <C>         <C>
                        Minimum lease payments receivable                        $ 103,927   $  176,035
                        Less: Unearned Revenue                                      17,440       29,557
                        -------------------------------------------------------------------------------
                        Net investment in direct financing leases                $  86,487   $  146,478
                        -------------------------------------------------------------------------------
</TABLE>


                                                                              13
<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,
                        2004:

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

                              2005                                      $ 70,183

                              2006                                        33,744
                        --------------------------------------------------------
                                                                        $103,927
                        ========================================================

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

4. Computer             The   Partnership  is  the  lessor  of  equipment  under
   Equipment            operating 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  participates in leases that are shared
                        with other affiliated  Partnerships.  The  Partnership's
                        share  of  the   computer   equipment   in  which   they
                        participate   at   December   31,   2004  and  2003  was
                        approximately  $1,306,000 and $1,660,000,  respectively,
                        which is included in the  Partnership's  fixed assets on
                        their  balance  sheet.  The total cost of the  equipment
                        shared  by  the   Partnership   with  other   affiliated
                        partnerships   at   December   31,  2004  and  2003  was
                        approximately  $2,249,000 and $2,813,000,  respectively.
                        The   Partnership's   share  of  the  outstanding   debt
                        associated  with this equipment at December 31, 2004 and
                        2003 was approximately $700 and $422,000,  respectively,
                        which is included in the  Partnership's  liabilities  on
                        the  balance  sheet.  The  total   outstanding  debt  at
                        December  31,  2004 and 2003  related  to the  equipment
                        shared by the Partnership was  approximately  $1,100 and
                        $696,000, respectively.


                                                                              14
<PAGE>

                                            Commonwealth Income & Growth Fund II

                                                   Notes to Financial Statements

================================================================================

                        The following is a schedule of future minimum rentals on
                        noncancelable operating leases at December 31, 2004:

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

                            2005                                  $      42,000
                            2006                                          7,000
                        --------------------------------------------------------

                                                                  $      49,000
                        ========================================================

  Significant           Lessees  exceeding  10% of lease  income  for the  years
  Customers             ended:

                        Lessee                           2004       2003    2002
                        --------------------------------------------------------

                        Lessee A                          41%        22%     10%
                        Lessee B                          --         --      16%
                        Lessee C                          --         16%     23%
                        Lessee D                          19%        12%     --
                        Lessee E                          11%        --      --
                        --------------------------------------------------------

                        Total % of Lease Income           71%        50%     49%
                        ========================================================

                        Lessees exceeding 10% of accounts receivable at December
                        31:

                        Lessee                            2004      2003
                        --------------------------------------------------
                        Lessee A                           23%       --
                        Lessee E                           11%       --
                        Lessee F                           --        65%
                        Lessee G                           --        24%
                        Lessee I                           49%       --
                        --------------------------------------------------

                        Total % of Accounts Receivable     83%       89%
                        ==================================================

5. Related Party        Organizational Fee
   Transactions
                        The   General   Partner  is   entitled  to  be  paid  an
                        Organizational Fee equal


                                                                              15
<PAGE>

                                            Commonwealth Income & Growth Fund II

                                                   Notes to Financial Statements

================================================================================

                        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
                        2004, 2003 and 2002.

                        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 2004,  2003 and 2002,  the  Partnership  recorded
                        $331,000,  $371,000,  and  $491,000,  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  2004,  2003 and  2002,
                        equipment  acquisition  fees  of  approximately  $1,000,
                        $1,000  and  $24,000,  respectively,  were  paid  to the
                        General Partner.

                        Debt Placement Fee

                        As  compensation  for arranging term debt to finance the
                        acquisition of equipment by the Partnership, the General
                        Partner is paid a fee equal to 1% of such  indebtedness;
                        provided, however, that such fee shall be


                                                                              16
<PAGE>

                                            Commonwealth Income & Growth Fund II

                                                   Notes to Financial Statements

================================================================================

                        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, debt
                        placement fees of approximately  $5,000 were paid to the
                        General Partner.  There were no debt placement fees paid
                        to the General Partner in 2003 and 2004.

                        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 2004, 2003 and 2002, equipment management
                        fees of  approximately  $36,000,  $76,000 and  $136,000,
                        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 2004, 2003 and 2002.


                                                                              17
<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 2004,
                        2003 and 2002.

                        Accounts Receivable - Commonwealth Capital Corp

                        The Partnership had an unsecured,  non-interest  bearing
                        receivable from CCC, a related party to the Partnership.
                        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 was reduced by approximately  $354,000 during
                        2004  to  zero  at  December  31,  2004  by   offsetting
                        equipment management and other fees and payments by CCC.

6. Notes Payable        Notes payable consisted of the following:

<TABLE>
<CAPTION>
                        December 31,                                                 2004            2003
                        ---------------------------------------------------------------------------------
<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
</TABLE>


                                                                              18
<PAGE>

                                            Commonwealth Income & Growth Fund II

                                                   Notes to Financial Statements

================================================================================

<TABLE>
<S>                                                                            <C>             <C>
                        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.

                                                                                   82,902          74,204

                        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.
                                                                                   33,065         155,641
                        ---------------------------------------------------------------------------------

                                                                               $  115,967      $  728,365
                        =================================================================================
</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,
                        2004 are as follows:

<TABLE>
<CAPTION>
                         Year ending December 31,                                               Amount
                         -----------------------------------------------------------------------------
<S>                                                                                      <C>
                             2005                                                               19,685
                             2006                                                               96,282
                         -----------------------------------------------------------------------------

                                                                                         $     115,967
                         =============================================================================
</TABLE>

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

<TABLE>
<CAPTION>
Year ended December 31,                                               2004               2003                2002
--------------------------------------------------------------------------------------------------------------------
<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                  $     574,117      $     995,568       $   1,149,810
</TABLE>


                                                                              19
<PAGE>

                                            Commonwealth Income & Growth Fund II

                                                   Notes to Financial Statements

================================================================================

                        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,                                       2004           2003           2002
------------------------------------------------------------------------------------------------
<S>                                                     <C>            <C>            <C>
Debt assumed in connection with purchase
     of computer equipment                              $       --     $       --     $  503,623
------------------------------------------------------------------------------------------------

Proceeds from sale 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>

8. Commitments and      In June 2003, the  Partnership,  through CCC,  reached a
   Contingencies        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.


                                                                              20
<PAGE>

                                            Commonwealth Income & Growth Fund II

                                                   Notes to Financial Statements

================================================================================

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,                               2004            2003            2002
------------------------------------------------------------------------------------------
<S>                                             <C>             <C>             <C>
Net income (loss) for financial
   reporting purposes                           $ (541,798)     $  129,629      $ (251,242)
     Adjustments
         Depreciation                              195,721        (107,236)       (747,721)
         Amortization                               34,496          52,324          60,869
         Unearned lease income                      (5,464)       (248,685)        251,553
         Bad debt (recovery) expense                    --        (326,008)        281,008
         Loss on sale of computer equipment       (227,770)       (260,312)       (318,453)
         Other                                     (78,311)        (55,856)        186,706
------------------------------------------------------------------------------------------

Taxable (loss) on the Federal Partnership
     Return                                     $ (623,126)     $ (816,144)     $ (537,280)
==========================================================================================
</TABLE>


                                                                              21
<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, 2004 and 2003 is as follows:
    (Unaudited)

<TABLE>
<CAPTION>
                                                              Quarter ended
                                        -----------------------------------------------------------
                                          March 31         June 30     September 30     December 31
---------------------------------------------------------------------------------------------------
<S>                                      <C>             <C>             <C>             <C>
2004

Revenues
     Lease and other                     $  232,911      $  217,347      $  171,611      $  120,442
     (Loss) gain on sale of computer
       equipment                             (9,891)        (13,861)         (6,746)        (23,227)

---------------------------------------------------------------------------------------------------
Total revenues                              223,020         203,486         164,865          97,215

Total costs and expenses                    338,059         270,196         309,698         312,431
---------------------------------------------------------------------------------------------------

Net income (loss)                        $ (115,039)     $  (66,710)     $ (144,833)     $ (215,216)
===================================================================================================

Income (loss) per limited
     partner unit                        $    (0.25)     $    (0.15)     $    (0.31)     $    (0.47)
===================================================================================================
</TABLE>

                        Total  costs  and   expenses   includes  an   impairment
                        adjustment of approximately $40,000 that was recorded in
                        the fourth quarter of 2004.


                                                                              22
<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>
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.


                                                                              23