<PAGE>


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


                                    FORM 10-K

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

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

                        Commission File Number: 33-69996

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

         Pennsylvania                                   23-2735641
(State or other jurisdiction of          (I.R.S. Employer Identification Number)
incorporation or organization)

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

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

         Indicate by check mark whether the registrant (i) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (ii) has been subject to such filing
requirements for the past 90 days: YES [X] NO [ ]

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

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

                       DOCUMENTS INCORPORATED BY REFERENCE
(Specific sections incorporated are identified under applicable items herein)

         Certain exhibits to the Company's Registration Statement on Form S-1
(File No. 33-69996).


<PAGE>


                                     PART I

ITEM 1:  BUSINESS

GENERAL

     Commonwealth Income and Growth Fund III (the "Partnership") was formed on
April 17, 1997, 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 July 25, 1997 (the "Offerings"). On January 27, 1998,
the Partnership received and accepted subscription proceeds of $1,526,000, which
exceeded the minimum offering amount of $1,500,000 and the funds were released
from escrow. The partnership terminated its offering of units on July 31, 2000,
with 151,178 Units ($3,023,569) 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 will utilize the net proceeds of the Offering to purchase IBM
and IBM compatible computer peripheral and other similar capital equipment. The
Partnership will utilize 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 plans to acquire and lease Equipment
principally to U.S. corporations and other institutions pursuant to Operating
Leases. The Partnership retains the flexibility to enter into Full Payout Net
Leases and Conditional Sales Contracts, but has not done so.

The Partnership's principal investment objectives are to:

         (a) acquire, lease and sell Equipment to generate revenues from
         operations sufficient to provide quarterly cash distributions to
         Limited Partners;

         (b) preserve and protect Limited Partners' capital;

         (c) use a portion of Cash Flow and Net Disposition Proceeds derived
         from the sale, refinancing or other disposition of Equipment to
         purchase additional Equipment; and

         (d) refinance, sell or otherwise dispose of Equipment in a manner that
         will maximize the proceeds to the Partnership.

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

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

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

                                                                               2

<PAGE>

     As of December 31 2003, 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 or sold under
Conditional Sales Contracts at the time of acquisition or the Partnership may
enter into a Full Payout Net Lease or Conditional Sales Contract with a third
party when the Partnership acquires an item of Equipment.

     The Partnership may enter into arrangements with one or more manufacturers
pursuant to which the Partnership purchases from such manufacturers Equipment
that has previously been leased directly by the manufacturer to third parties
("vendor leasing agreements"). The Partnership and manufacturers may agree to
nonrecourse loans to the Partnership from the manufacturers to finance the
acquisition of Equipment secured by the Equipment and the receivables due to the
manufacturers from users of such Equipment. It is expected that the
manufacturers of Equipment will provide maintenance, remarketing and other
services for the Equipment subject to such agreements. As of December 31, 2003,
the Partnership has not entered into any such agreements.

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

TYPES OF EQUIPMENT

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

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

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

                                                                               3

<PAGE>

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

DIVERSIFICATION

Diversification is generally desirable to minimize the effects of changes in
specific industries, local economic conditions or similar risks. However, the
extent of the Partnership's diversification, in the aggregate and within each
category of Equipment, depends in part upon the financing which can be assumed
by the Partnership or borrowed from third parties on satisfactory terms. The
Partnership's policy not to borrow on a recourse basis will further limit its
financing options. Diversification also depends on the availability of various
types of Equipment. Through December 31, 2003, the Partnership has acquired a
diversified Equipment portfolio, which it has leased to 17 different companies
located throughout the United States. The allocations are as follows:

         --------------------------------------------------------------------
                          Equipment Type                     Approximate %
         --------------------------------------------------------------------
                           Workstations                           64%
         --------------------------------------------------------------------
                             Routers                              20%
         --------------------------------------------------------------------
                        High-End Printers                          9%
         --------------------------------------------------------------------
                    Communication Controllers                      4%
         --------------------------------------------------------------------
                          Scope Monitors                           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 intends 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 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

                                                                               4

<PAGE>

on such investment. Under a Conditional Sales Contract, the seller reserves
title to, and retain a security interest in, the Equipment until the Purchase
Price of the Equipment is paid. As of December 31 2003, the Partnership has not
entered into any Full Payout Net Leases or Conditional Sales Contracts for
Equipment and does not presently intend to do so.

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

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

     The Partnership's policy is to generally enter into "triple net leases" (or
the equivalent, in the case of a Conditional Sales Contract) which typically
provide that the lessee or some other party bear the risk of physical loss of
the Equipment; pay taxes relating to the lease or use of the Equipment; maintain
the Equipment; indemnify the Partnership-lessor against any liability suffered
by the Partnership as the result of any act or omission of the lessee or its
agents; maintain casualty insurance in an amount equal to the greater of the
full value of the Equipment and a specified amount set forth in the lease; and
maintain liability insurance naming the Partnership as an additional insured
with a minimum coverage which the General Partner deems appropriate. In
addition, the Partnership may purchase "umbrella" insurance policies to cover
excess liability and casualty losses, to the extent deemed practicable and
advisable by the General Partner. As of December 31, 2003, all leases that have
been entered into are "triple net leases".

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

     The terms and conditions of the Partnership's leases, or Conditional Sales
Contracts, are each determined by negotiation and may impose substantial
obligations upon the Partnership. Where the Partnership assumes maintenance or
service obligations, the General Partner generally causes the Partnership to
enter into separate maintenance or service agreements with manufacturers or
certified maintenance organizations to provide such services. Such agreements
generally require annual or more frequent adjustment of service fees. As of
December 31, 2003, the Partnership has not entered into any such agreements.

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

                                                                               5

<PAGE>

BORROWING POLICIES

     The General Partner, at its discretion, may cause the Partnership to incur
debt in the maximum aggregate amount of 30% of the aggregate cost of the
Equipment owned by the Partnership, 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 that
is secured by Equipment and lease income there from. Such leveraging permits the
Partnership to increase the aggregate amount of its depreciable assets, and, as
a result, potentially increases both its lease revenues and its federal income
tax deductions above those levels, which would be achieved without leveraging.
There is no limit on the amount of debt that may be incurred in connection with
the acquisition of any single item of Equipment. Any debt incurred is fully
amortized over the term of the initial lease or Conditional Sales Contract to
which the Equipment securing the debt is subject. The precise amount borrowed by
the Partnership depends on a number of factors, including the types of Equipment
acquired by the Partnership; the creditworthiness of the lessee; the
availability of suitable financing; and prevailing interest rates. The
Partnership is flexible in the degree of leverage it employs, within the
permissible limit. There can be no assurance that credit will be available to
the Partnership in the amount or at the time desired or on terms considered
reasonable by the General Partner. As of December 31, 2003, the aggregate
non-recourse debt outstanding of $91,000 was approximately 4.7% of the aggregate
cost of Equipment owned.

     The Partnership may purchase some items of Equipment without leverage. If
the Partnership purchases an item of Equipment without leverage and thereafter
suitable financing becomes available, it may then obtain the financing, secure
the financing with the purchased Equipment to the extent practicable and invest
any proceeds from such financing in additional items of Equipment, or it may
distribute some or all of such proceeds to the Limited Partners. Any such later
financing will be on terms consistent with the terms applicable to borrowings
generally. As of December 31, 2003, the Partnership has not exercised this
option.

     After the net proceeds of the Offering are fully invested in Equipment, the
General Partner plans to 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 that 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 nonrecourse.
Nonrecourse 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 that might otherwise be available for distributions
until the debt has been repaid and may reduce the Partnership's Cash Flow over a
substantial portion of the Partnership's operating life. As of December 31,
2003, no such agreements existed.

     The General Partner and any of its Affiliates may, but are not required to,
make loans to the Partnership on a short-term basis. If the General Partner or
any of its Affiliates makes such a short-term loan to the Partnership, the
General Partner of Affiliate may not charge interest at a rate greater that the
interest rate charged by unrelated lenders on comparable loans for the same
purpose in the same locality. In no event is the Partnership required to pay

                                                                               6

<PAGE>

interest on any such loan at an annual rate greater than three percent over the
"prime rate" from time to time announced by PNC Bank, Philadelphia, Pennsylvania
("PNC Bank"). All payments of principal and interest on any financing provided
by the General Partner or any of its affiliates are due and payable by the
Partnership within 12 months after the date of the loan.

REFINANCING POLICIES

     Subject to the limitations set forth in "Borrowing Policies" above, the
Partnership may refinance its debt from time to time. With respect to a
particular item of Equipment, the General Partner will take into consideration
such factors as the amount of appreciation in value, if any, to be realized, the
possible risks of continued ownership, and the anticipated advantages to be
obtained for the Partnership, as compared to selling such Equipment. As of
December 31, 2003, the Partnership has not refinanced any of its debt.

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

LIQUIDATION POLICIES

     The General Partner intends to cause the Partnership to begin disposing of
its Equipment in approximately January 2009. Notwithstanding the Partnership's
objective to sell all of its assets and dissolve in approximately by December
31, 2009, the General Partner may at any time cause the Partnership to dispose
of all its Equipment and, dissolve the Partnership upon the approval of Limited
Partners holding a Majority in Interest of Units.

     Particular items of Equipment may be sold at any time if, in the judgment
of the General Partner, it is in the best interest of the Partnership to do so.
The determination of whether particular items of Partnership Equipment should be
sold or otherwise disposed of is made by the General Partner after consideration
of all relevant factors (including prevailing general economic conditions,
lessee demand, the General Partner's views of current and future market
conditions, the cash requirements of the Partnership, potential capital
appreciation, cash flow and federal income tax considerations), with a view
toward achieving the principal investment objectives of the Partnership. As
partial payment for Equipment sold, the Partnership may receive purchase money
obligations secured by liens on such Equipment. Subject to the General Partner's
discretion the Partnership may extend beyond December 31, 2009, if deemed
beneficial to the Partnership.

MANAGEMENT OF EQUIPMENT

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

COMPETITION

     The equipment leasing industry is highly competitive. The Partnership
competes with leasing companies, equipment manufacturers and their affiliated
financing companies, distributors and entities similar to the Partnership
(including other programs sponsored by the General Partner), some of which have

                                                                               7

<PAGE>

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 that are more favorable than those that the Partnership can offer. They
may also be in a position to offer trade-in privileges, software, maintenance
contracts and other services that 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 that 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.

Investments

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

Through March 11, 2004, the Partnership has purchased, or has made the
commitment to purchase, the following Equipment:

<TABLE>
<CAPTION>
                                      EQUIPMENT          PURCHASE         LIST        MONTHLY    LEASE
LESSEE              MFG              DESCRIPTION           PRICE         PRICE         RENT       TERM


<S>                 <C>           <C>                   <C>           <C>            <C>           <C>
Lucent              SUN           (12) Workstations     $ 139,596     $ 239,340      $  3,857      32
Lucent              SUN           Server                  445,714       739,350        12,120      32
Chase               SUN           Server                  252,681       394,360         6,493      36
Cendant             SUN           Server                  131,470       221,095         3,216      36
Cendant             SUN           Server upgrade           40,382        39,590         1,425      31
Chase               STK           Timberline drive        407,908     1,134,830        12,346      24
Chrysler            IBM           Controller               19,496        24,200           731      24
Chrysler            IBM           Controller               18,392        24,200           731      24
Kaiser              IBM           (7) Workstations        373,747       513,741         9,952      36
Kaiser              IBM           (4) Workstations        187,398       271,949         4,983      36
Kaiser              CISCO         (26) Routers            153,093       258,778         3,929      36
International Paper DEC           (2) Servers             140,857       184,372         4,042      32
CMGI                CISCO         Server                  140,579       187,345         3,973      35
CMGI                SUN           Workstations             24,342        32,029           937      24
AT&T                ASX           Controllers              58,048        59,106         1,654      36
</TABLE>

                                                                               8

<PAGE>

<TABLE>
<CAPTION>
<S>                 <C>           <C>                   <C>           <C>            <C>           <C>
GE Medical          COMPAQ        Servers                  18,754        28,300           515      36
GE Medical          COMPAQ        Servers                  21,716        32,750           596      36
GE Medical          COMPAQ        Servers                  42,881        64,750         1,162      36
GE Medical          COMPAQ        Servers                  56,039        84,525         1,573      36
GE Medical          COMPAQ        Servers                  44,943        67,780         1,236      36
GE Medical          LEXMARK       Printers                 31,809        48,000           849      36
GE Medical          LEXMARK       Printers                 20,655        32,000           552      36
GE Medical          TEKRONIX      Monitors                 48,252        99,350         1,845      36
CMGI                CISCO         Routers                  88,103       115,168         2,495      36
Lennox              BayNetwork    Routers                 441,115       598,754         3,465      36
Thomson Consumer    Printronix    Printers                233,298       325,862         6,343      36
Thomson Consumer    NORTEL        Routers                 134,394       203,840         3,747      36
GE Medical          SUN           (32) Workstations       139,961       211,970         3,831      35
Thomson Consumer    XEROX         Printer/Scanner/Plotter  20,384        30,720           792      24
AOL                 SUN           Servers                  22,163        34,010           604      35
Morgan Stanley      SUN           Servers                 154,053       199,655         4,685      33
Hartford Insurance  IBM           Directors               744,597       901,500        19,800      36
Training A La       COMPAQ        Workstation               4,337         4,950           123      35
Vatterott Ed Ctr    DELL          Workstation              32,549        39,755           844      36
Vatterott Ed Ctr    DELL          Workstation              23,207        26,317           649      35
Vatterott Ed Ctr    DELL          Workstation              12,899        14,746           363      35
Vatterott Ed Ctr    DELL          Workstation              60,604        84,155         1,735      34
Triumph Pharm       DELL          Workstation              11,094        13,178           382      28
AOL                 SUN           Server                  110,713       116,754         3,661      27
GE Medical          SUN           Servers                  30,000        34,456           782      36
</TABLE>

   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
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.

                                                                               9

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

ITEM 2:  PROPERTIES

              NOT APPLICABLE

ITEM 3:  LEGAL PROCEEDINGS

              NOT APPLICABLE

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. 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. As of December 31, 2003, there were 164 holders of
Units.

GENERAL LIMITATIONS

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

REDEMPTION PROVISION

     Upon the conclusion of the 30-month period following the termination of the
Offering, the Partnership may, at the sole discretion of the General Partner,
repurchase a number of the outstanding Units. After such 30 month period, on a
semi-annual basis, the General Partner, at its discretion, will establish an
amount for redemption, generally not to exceed two percent of the outstanding
Units per year, subject to the General Partner's good faith determination that
such redemptions will not (a) cause the Partnership to be taxed as a corporation

                                                                              10

<PAGE>

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 non-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

                                                                              11

<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, will be 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
Cumulative 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 Cumulative 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 Cumulative Return, the Adjusted Capital
Contributions will be reduced by the excess, decreasing the base on which the
Cumulative 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 thereunder. No Limited Partner is
required to contribute cash to the capital of the Partnership in order to
restore a closing Capital Account deficit, and the General Partner has only a
limited deficit restoration obligation under the Partnership Agreement.

     Quarterly distributions in the following amounts were declared and paid to
the Limited Partners during 2003, 2002 and 2001.

                                                                              12

<PAGE>

Quarter Ended                     2003               2002                2001
------------------------------------------------------------------------------

March 31                     $  78,591          $  78,591           $  78,591

June 30                         78,592             78,591              78,591

September 30                    78,591             78,591              78,591

December 31                     78,594             78,591              78,591
                             ---------          ---------           ---------

                             $ 314,368          $ 314,364           $ 314,364
                             =========          =========           =========



 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 is 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 is
utilized during the Offering Period, whereby Net Profits and Net Losses
allocable to Limited Partners is 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 as of and for each of the five years in the period ended
December 31, 2003. This table is qualified in its entirety 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>
                                                       Year Ended December 31
                                                       ----------------------
------------------------------------------------------------------------------------------------------------------------------------

Statements of Operations
Data:                                    2003                 2002                  2001                  2000               1999
---------------------------- -------------------- -------------------- ---------------------- ------------------- ------------------

<S>                                    <C>                  <C>                  <C>                 <C>                  <C>
       Lease Income                    $ 391,419            $ 784,368            $ 1,106,345         $ 1,250,857          $ 937,851
---------------------------- -------------------- -------------------- ---------------------- ------------------- ------------------

        Net (Loss)                      (156,223)            (291,844)              (270,627)           (179,877)          (308,734)
---------------------------- -------------------- -------------------- ---------------------- ------------------- ------------------

    Cash Distributions                   317,500              317,498                317,497             302,898            227,995
---------------------------- -------------------- -------------------- ---------------------- ------------------- ------------------

  Net (Loss) per Limited
       Partner Unit                        (1.03)               (1.93)                 (1.81)              (1.27)             (2.60)
---------------------------- -------------------- -------------------- ---------------------- ------------------- ------------------

   Cash Distribution per
   Limited Partner Unit                     2.10                 2.10                   2.10                2.08               1.90
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                                                              13

<PAGE>
<TABLE>
<CAPTION>
                                                          As of December 31,
                                                          -----------------
------------------------------------------------------------------------------------------------------------------------------------

           Other Data:                       2003                2002                   2001                2000               1999
---------------------------------- --------------- ------------------- ---------------------- ------------------- ------------------

<S>                                    <C>                  <C>                  <C>                 <C>                  <C>
 Net cash provided by operating
           activities                     255,697             183,015                396,196             332,526            209,246
---------------------------------- --------------- ------------------- ---------------------- ------------------- ------------------

 Net cash provided by (used in)
      investing activities                 61,863             132,079               (182,929)           (379,437)          (796,595)
---------------------------------- --------------- ------------------- ---------------------- ------------------- ------------------

 Net cash (used in) provided by
      financing activities               (317,500)           (319,702)              (318,892)             18,815            218,982
------------------------------------------------------------------------------------------------------------------------------------


                                                          As of December 31
                                                          -----------------
------------------------------------------------------------------------------------------------------------------------------------

                                             2003                2002                   2001                2000               1999
------------------------------ ------------------- ------------------- ---------------------- ------------------- ------------------

        Total Assets                    $ 336,461           $ 766,233            $ 1,427,609         $ 2,335,831         $2,745,817
------------------------------ ------------------- ------------------- ---------------------- ------------------- ------------------

        Notes Payable                      91,436             253,767                344,324             796,020            976,142
------------------------------ ------------------- ------------------- ---------------------- ------------------- ------------------

      Partners' Capital                     2,748             328,315                937,657           1,525,781          1,683,632
------------------------------------------------------------------------------------------------------------------------------------
</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
Limited Partnership Units outstanding during the period. Cash distribution per
Unit is computed based upon distributions allocated to the Limited Partners and
the weighted average number of equivalent Limited Partnership Units outstanding
during the period.

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

CRITICAL ACCOUNTING POLICIES

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

COMPUTER EQUIPMENT

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

                                                                              14

<PAGE>

REVENUE RECOGNITION

Through December 31, 2003, the Partnership has only entered into operating
leases. Lease revenue is recognized on a monthly basis in accordance with the
terms of the operating lease agreements.

The Company reviews a customer's credit history extending credit and establishes
provisions for uncollectible accounts 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

For the year ended December 31, 2003, the Partnership generated cash flow from
operating activities of $256,000, which includes net loss of $156,000 reduced by
depreciation and amortization expenses of $380,000. Other noncash activities
included in the determination of net income include direct payments of lease
income by lessees to banks of $162,000.

The Partnership sold computer equipment in 2003 with a net book value of $45,000
for a net gain on sale of equipment of $17,000.

The Partnership's primary sources of capital for the years ended December 31,
2003, 2002 and 2001 were cash from operations of $256,000, $183,000 and
$396,000, respectively, and proceeds from the sale of computer equipment of
$62,000, $208,000 and $1,000 in 2003, 2002 and 2001, respectively. The primary
uses of cash for the years ended December 31, 2003, 2002 and 2001, were the
payment of preferred distributions to partners totaling $317,000 for each of the
periods, capital expenditures for new equipment totaling $65,000 and $171,000
for the years ended December 31, 2002 and 2001, respectively, the payment of
acquisition fees of $11,000, $13,000 for the years ended December 31, 2002 and
2001, respectively. There were no capital expenditures or acquisition fees for
the year ended December 31, 2003.

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.

                                                                              15

<PAGE>

The Partnership's investment strategy of acquiring computer equipment and
generally leasing it under triple-net leases to operators who generally meet
specified financial standards minimizes the Partnership's operating expenses. As
of December 31, 2003, the Partnership had future minimum rentals on
noncancellable operating leases of $108,000 for the year ended 2004 and $14,000
thereafter. The Partnership incurred debt in 2002 and 2001 in the amount of
$220,000 and $139,000, respectively. The Partnership did not incur any debt in
2003. At December 31, 2003, the outstanding debt was $91,000, with interest
rates ranging from 6.25% to 8.00%, and will be payable through April 2005. The
Partnership intends to continue purchasing additional computer equipment with
existing cash, as well as when future cash becomes available. In addition, the
Partnership may incur debt in purchasing computer equipment in the future.

CCC, on behalf of the Partnership and other affiliated partnerships, acquires
computer equipment subject to associated debt obligations and lease agreements
and allocates a participation in the cost, debt and lease revenue to the various
partnerships based on certain risk factors. The Partnership's share of the
computer equipment in which they participate at December 31, 2003 and 2002 was
approximately $277,000 for both periods which is included in the Partnership's
fixed assets on their balance sheet, and the total cost of the equipment shared
by the Partnership with other partnerships at December 31, 2003 and 2002 was
approximately $2,157,000 for both periods. The Partnership's share of the
outstanding debt associated with this equipment at December 31, 2003 and 2002
was approximately $37,000 and $129,000, respectively, which is included in the
Partnership's liabilities on the balance sheet, and the total outstanding debt
at December 31, 2003 and 2002 related to the equipment shared by the Partnership
was approximately $509,000 and $1,197,000, respectively.

During the year ended December 31, 2003, the General Partner and one of its
affiliates, CCC, forgave payables owed to them by the Partnership in the amount
of approximately $148,000. Such amount has been recorded as a contribution to
capital. The General Partner has forgiven sales fees of approximately $8,000.
Also, CCC has forgiven direct reimbursements of approximately $140,000.

The General Partner and CCC have forgiven amounts payable by the partnership to
them and have deferred payments on other amounts owing to allow for
distributions to limited partners.

The General Partner and CCC have committed to fund, either through cash
contributions and/or forgiveness of indebtedness, any necessary cash shortfalls
of the Partnership, including the amounts necessary to fund, if any,
distributions to limited partners, through March 31, 2005.

The Partnership intends to purchase additional equipment once funds become
available through either future rentals from existing leases, extensions from
those existing leases or through sale of equipment.

The General Partner intends to review and reassess the Partnership's business
plan annually.

The General Partner intends to review and reassess its business plan annually.

RESULTS FROM OPERATIONS

For the years ended December 31, 2003, 2002 and 2001, the Partnership recognized
income of $408,000, $789,000, and $1,110,000, and expenses of $564,000,
$1,081,000 and $1,381,000, resulting in net losses of $156,000, $292,000 and
$271,000, respectively.

Lease income decreased to $391,000 in 2003, down from $784,000 and $1,106,000 in
2002 and 2001, respectively, primarily due to the expiration of older leases and
not entering into any new leases during 2003.

The Partnership sold computer equipment with a net book value of $45,000,
$204,000 and $56,000 during the years ended December 31, 2003, 2002 and 2001,
respectively, for a net gain of $17,000 and $4,000 for the year ended December
31, 2003 and 2002, respectively, and a net loss of $55,000 for the year ended
December 31, 2001.

Operating expenses, excluding depreciation, consist of accounting, legal,
outside service fees and reimbursement of expenses to CCC for administration and
operation of the Partnership. The decrease to $153,000 during the year ended
December 31, 2003, down from $266,000 and $234,000 during the years ended
December 31, 2002 and 2001, respectively, is attributable to a decrease in
reimbursable expenses with the administration and operation of the Partnership
charged by CCC of approximately $34,000, a decrease in accounting fees of
approximately $26,000, a decrease in conventions of approximately $6,000, a
decrease in due diligence of approximately $15,000 and a decrease in
miscellaneous office expense of approximately $2,000.

                                                                              16

<PAGE>

The equipment management fee is equal to approximately 5% of the gross lease
revenue attributable to equipment that is subject to operating leases. The
equipment management fee was $20,000 for the year ended December 31, 2003, down
from $39,000 in 2002 and $55,000 in 2001, which is consistent with the decrease
in revenue.

Interest expense decreased to $12,000 for 2003, down from $22,000 for 2002 and
$45,000 for 2001, as a result of certain notes being fully paid during 2003.

Depreciation and amortization expenses consist of depreciation on computer
equipment and amortization of equipment acquisition fees and debt placement
fees. Depreciation and amortization during 2003 decreased to $380,000 from
$724,000 and $992,000 in 2002 and 2001, respectively. This is attributable to
the decrease in the computer equipment portfolio being leased.

NET LOSS

Net loss decreased to $156,000 for the year ended December 31, 2003 from
$292,000 and $271,000 for the years ended December 31, 2002 and 2001,
respectively. The changes in net loss were attributable to the changes in
revenues and expenses as discussed above.

COMMITMENTS AND CONTINGENCIES

         Contractual Cash Obligations

The following table presents our contractual cash obligations as of December 31,
2003:


<TABLE>
<CAPTION>
                                                                                   Payments due by period

                                                  Total                      2004                           2005
                                 -------------------------------------------------------------------------------------

Installment notes payable due 2004:

<S>                                                    <C>                      <C>                             <C>
     Principal                                         $38,222                  $38,222                         $----

     Interest                                              938                      938                          ----

Installment notes payable due 2005:

     Principal                                         $53,214                   42,913                        10,301

     Interest                                            2,242                    2,133                           109
                                 -------------------------------------------------------------------------------------

Total                                                  $94,616                  $84,206                       $10,410
                                 =====================================================================================
</TABLE>

                                                                              17

<PAGE>

RECENT ACCOUNTING PRONOUNCEMENTS

                              Interpretation No. 45

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

                              Interpretation No. 46

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

                                    SFAS 150

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

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

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

ITEM 8:  FINANCIAL STATEMENTS

         See financial statements commencing in Part IV Item 14.

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

         NONE

ITEM 9A: CONTROLS AND PROCEDURES

         Our management, under the supervision and with the participation of the
principal executive officer and principal financial offer, have evaluated the
effectiveness of our controls and procedures related to our reporting and
disclosure obligations as of December 31, 2003, which is the end of the period
covered by this Annual Report on Form 10-K. Based on that evaluation, the
principal executive officer and principal financial officer have concluded that
our disclosure controls and procedures are sufficient to provide that (a)
material information relating to us, including our consolidated subsidiaries, is
made known to these officers by our and our consolidated subsidiaries other
employees, particularly material information related to the period for which

                                                                              18

<PAGE>

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 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

GENERAL

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

The directors and officers of the General Partner and key employees of CCC are
as follows:

NAME                       TITLE
----                       -----

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

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

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

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

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

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

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

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

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

         George S. Springsteen, age 68, is President of both CCC and the General
Partner. Mr. Springsteen is also President of the general partners or
controlling entities of several prior programs sponsored by CCC with objectives
similar to the Partnership's. He has been the sole shareholder and director of
CCC since its formation in 1978. From 1971 to 1978, Mr. Springsteen was involved
in the computer leasing business of Granite Computer Corporation. Mr.
Springsteen served as Vice President of Marketing, in addition to other
capacities, and managed a portfolio of approximately $120,000,000 of IBM

                                                                              19

<PAGE>

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.

         Kimberly A. Springsteen, age 44, is Executive Vice President, Chief
Operating Officer and Secretary of CCC and the General Partner and joined CCC in
1997. She is also the President of Commonwealth Capital Securities Corp. From
1980 to 1997, Ms. Springsteen was employed with Wheat First Butcher Singer, a
broker/dealer headquartered in Richmond, Virginia. While at Wheat First Butcher
Singer, Ms. Springsteen, Senior Vice President, served as Marketing Manager for
the Direct Investments Department, with over $450,000,000 of investments under
management in real estate, equipment leasing and energy-related industries. Ms.
Springsteen holds Series 7, 63 and 39 NASD licenses and is a member of the
Equipment Leasing Association, Investment Partnership Association, and
International Association for Financial Planning.

         Henry J. Abbott, age 53, is Senior Vice President and Portfolio Manager
of CCC and has been employed by CCC since 1998. Mr. Abbot has been active in the
commercial lending industry, working primarily on asset-backed transactions for
more than twenty-seven years. Prior to joining CCC Mr. Abbott was a founding
partner of Westwood Capital LLC, in New York. Prior to that, as Senior Vice
President for IBJ Schroder Leasing Corporation where Mr. Abbott managed a group
specializing in providing operating lease financing programs in the high
technology sector. Mr. Abbott brings extensive knowledge and experience in all
facets of asset-backed financing and has successfully managed $1.5 billion of
secured transactions. Mr. Abbott attended St. John's University. Mr. Abbott is a
member of the Equipment Leasing Association.

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

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

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

         Dorothy A. Ferguson, age 61, is Assistant Vice President of CCC and has
been employed by CCC since 1995. She brought with her over 20 years experience
in commercial banking and finance. Prior to joining Commonwealth, she held
positions as a Banking Officer and Administrative Assistant to the Chairman of a
large Philadelphia based bank, as well as Executive Secretary to the CEO of an
international manufacturing management group.

                                                                              20

<PAGE>

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

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


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

ITEM 11: EXECUTIVE COMPENSATION

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

<TABLE>
<CAPTION>
                                                                      AMOUNT          AMOUNT           AMOUNT
   ENTITY RECEIVING                                                  INCURRED        INCURRED         INCURRED
     COMPENSATION                 TYPE OF COMPENSATION             DURING 2003      DURING 2002      DURING 2001

                            OFFERING AND ORGANIZATION STAGE

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


                                                                              21

<PAGE>

<TABLE>
<CAPTION>
                                  OPERATIONAL AND SALE
                                 OR LIQUIDATION STAGES
<S>                     <C>                                             <C>             <C>              <C>
The General Partner     Reimbursable  Expenses.  The General and     $62,000         $363,000         $193,000
and its Affiliates      its Affiliates are entitled to reimbursement
                        by the Partnership for the cost of goods,
                        supplies or services obtained and used by the
                        General Partner in connection with the
                        administration and operation of the
                        Partnership from third parties unaffiliated
                        with the General Partner. In addition, the
                        General Partner and its affiliates are
                        entitled to reimbursement of certain expenses
                        incurred by the General Partner and its
                        affiliates in connection with the
                        administration and operation of the
                        Partnership. The amounts set forth on this
                        table do not include expenses incurred in the
                        offering of Units.

The General Partner     Equipment  Acquisition Fee. An Equipment        $0            $11,000          $13,000
                        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            $2,000           $1,000
                        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     $20,000          $40,000          $55,000
                        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>

                                                                              22

<PAGE>

<TABLE>
<CAPTION>
<S>                     <C>                                             <C>             <C>              <C>
The General Partner     Equipment  Liquidation Fee. With respect      $2,000          $7,000             $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             $3,132          $3,134           $3,133
                        Partner has a present and continuing one
                        percent interest of $1,000 in the
                        Partnership's item of income, gain, loss,
                        deduction, credit, and tax preference. In
                        addition, the General Partner receives one
                        percent of Cash Available for Distribution
                        until the Limited Partners have received
                        distributions of Cash Available for
                        Distribution equal to their Capital
                        Contributions plus the 10% Priority Return
                        and thereafter, the General Partner will
                        receive 10% of Cash Available for
                        Distribution.
</TABLE>

ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         NOT APPLICABLE

ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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

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

         The General Partner and its Affiliate sponsor other investor programs
that 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
that 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.

                                                                              23

<PAGE>

         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 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 Partner or such affiliates shall receive
no greater interest rate and financing charges from the Partnership than that
which unrelated lender charge on comparable loans. The Partnership will not
borrow money from the General Partner or any of its affiliates for a term in
excess of twelve months.

         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

                                                                              24

<PAGE>

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.

     "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

                                                                              25

<PAGE>

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

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

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

     "Competitive Equipment Sale Commission" means that brokerage fee paid for
services rendered in connection with the purchase or sale of Equipment 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.

                                                                              26

<PAGE>

     "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.

     "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.

                                                                              27

<PAGE>

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

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

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

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

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

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

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

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

          PART IV

ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON

            FORM 10-K

(a) (1)  Financial Statements

         Commonwealth Income & Growth Fund III

         Report of Independent Certified Public Accountant

         Balance Sheets as of December 31, 2003 and 2002

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

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

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

         Notes to Financial Statements

(a) (2) Schedules.

                                                                              28

<PAGE>

         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

         27       Financial Data Schedule

* Incorporated by reference from the Partnership's Registration Statement on
Form S-1 (Registration No. 333-26933)

         (c) Exhibits.

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 on March 30, 2004 by the undersigned thereunto duly authorized.

                                      COMMONWEALTH INCOME & GROWTH FUND III

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

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

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on March 30, 2004.

SIGNATURE                      CAPACITY

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

/s/ Kimberly A. Springsteen    Executive Vice President, Chief Operating Officer
---------------------------
Kimberly A. Springsteen

                                                                              29
<PAGE>


                                                             Commonwealth Income
                                                               & Growth Fund III




                                    Years Ended December 31, 2003, 2002 and 2001

<PAGE>


                                                             Commonwealth Income
                                                               & Growth Fund III


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

<PAGE>

                                           Commonwealth Income & Growth Fund III


                                                                        Contents
--------------------------------------------------------------------------------




Report of Independent Certified Public Accountants                             3

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

Notes to financial statements                                              10-23


                                                                               2
<PAGE>


Report of Independent Certified Public Accountants

The Partners
Commonwealth Income & Growth Fund III
Exton, Pennsylvania

We have audited the accompanying balance sheets of Commonwealth Income & Growth
Fund III as of December 31, 2003 and 2002, and the related statements of
operations, partners' capital, and cash flows for each of the three years 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 III at December 31, 2003 and 2002, and the results of its operations and
its cash flows for each of the three years ended December 31, 2003, in
conformity with accounting principles generally accepted in the United States.




                                                    /s/ BDO Seidman, LLP

Philadelphia, Pennsylvania
March 12, 2004

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

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

Cash and cash equivalents                                                         $       557        $        497
Lease income receivable, net of reserve of $0 in 2003
   and $28,000 in 2002                                                                  9,181              14,161
-----------------------------------------------------------------------------------------------------------------

                                                                                        9,738              14,658
-----------------------------------------------------------------------------------------------------------------

Computer equipment, at cost                                                         1,955,197           2,840,949
Accumulated depreciation                                                           (1,635,341)         (2,108,544)
-----------------------------------------------------------------------------------------------------------------

                                                                                      319,856             732,405
-----------------------------------------------------------------------------------------------------------------

Equipment acquisition costs and deferred expenses, net of
     accumulated amortization of $20,820 and $49,701, respectively
                                                                                        6,867              19,170
-----------------------------------------------------------------------------------------------------------------

Total assets                                                                      $   336,461        $    766,233
=================================================================================================================
</TABLE>


                                                                               4
<PAGE>
<TABLE>
<CAPTION>
                                                                            Commonwealth Income & Growth Fund III


                                                                                                   Balance Sheets

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


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

Liabilities
     Accounts payable                                                             $    26,762        $     31,149
     Accounts payable, Commonwealth Capital Corp.                                      53,648              54,451
     Accounts payable, General Partner                                                134,524              59,116
     Accounts payable, affiliated limited partnerships                                 25,707               2,173
     Unearned lease income                                                              1,636              37,262
     Notes payable                                                                     91,436             253,767
-----------------------------------------------------------------------------------------------------------------

Total liabilities                                                                     333,713             437,918
-----------------------------------------------------------------------------------------------------------------

Partners' capital
     General Partner                                                                    1,000               1,000
     Limited partners                                                                   1,748             327,315
-----------------------------------------------------------------------------------------------------------------

Total partners' capital                                                                 2,748             328,315
-----------------------------------------------------------------------------------------------------------------

Total liabilities and partners' capital                                           $   336,461        $    766,233
=================================================================================================================
</TABLE>

                                 See accompanying notes to financial statements.

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


                                                                                         Statements of Operations


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

Year ended December 31,                                                  2003              2002              2001
-----------------------------------------------------------------------------------------------------------------
<S>                                                               <C>              <C>              <C>
Income
     Lease                                                         $  391,419       $   784,368      $  1,106,345
     Interest and other                                                    80               352             4,136
     Gain on sale of computer equipment                                16,865             4,343                --
-----------------------------------------------------------------------------------------------------------------

Total income                                                          408,364           789,063         1,110,481
-----------------------------------------------------------------------------------------------------------------

Expenses
     Operating, excluding depreciation                                153,142           265,918           233,577
     Equipment management fee, General Partner                         19,571            39,218            55,126
     Depreciation                                                     367,551           696,104           944,997
     Amortization of equipment acquisition costs and
         deferred expenses                                             12,303            27,409            47,480
     Interest                                                          12,020            22,247            44,900
     Uncollectible accounts receivable                                     --            30,011                --
     Loss on sale of computer equipment                                    --                --            55,028
-----------------------------------------------------------------------------------------------------------------

Total expenses                                                        564,587         1,080,907         1,381,108
-----------------------------------------------------------------------------------------------------------------

Net (loss)                                                         $ (156,223)      $  (291,844)     $   (270,627)
=================================================================================================================

Net (loss) per equivalent limited
     partnership unit                                              $    (1.03)      $     (1.93)     $      (1.79)

Weighted average number of equivalent
     limited partnership units outstanding during the year
                                                                      151,178           151,178           151,178
=================================================================================================================
</TABLE>

                                 See accompanying notes to financial statements.

                                                                               6
<PAGE>
<TABLE>
<CAPTION>
                                                                             Commonwealth Income & Growth Fund III


                                                                                   Statements of Partners' Capital


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



                                         General       Limited
                                         Partner       Partner        General           Limited
                                           Units         Units        Partner          Partners              Total
------------------------------------------------------------------------------------------------------------------
<S>                                     <C>          <C>           <C>            <C>                <C>
Balance, December 31, 2000                    50       151,178      $   1,000      $  1,524,781       $  1,525,781
Net income (loss)                             --            --          3,133          (273,760)          (270,627)
Distributions                                 --            --         (3,133)         (314,364)          (317,497)
------------------------------------------------------------------------------------------------------------------

Balance, December 31, 2001                    50       151,178          1,000           936,657            937,657
Net income (loss)                             --            --          3,134          (294,978)          (291,844)
Distributions                                 --            --         (3,134)         (314,364)          (317,498)
------------------------------------------------------------------------------------------------------------------

Balance, December 31, 2002                    50       151,178          1,000           327,315            328,315
Net income (loss)                             --            --          3,132          (159,355)          (156,223)
Forgiveness of payables recorded as
   capital contributions
                                              --            --        148,156                --            148,156
Transfer of partners' capital                 --            --       (148,156)          148,156                 --
Distributions                                 --            --         (3,132)         (314,368)          (317,500)
------------------------------------------------------------------------------------------------------------------

Balance, December 31, 2003                    50       151,178      $   1,000      $      1,748       $      2,748
==================================================================================================================
</TABLE>

                                 See accompanying notes to financial statements.


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


                                                                                       Statements of Cash Flows


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


Year ended December 31,                                                  2003             2002             2001
---------------------------------------------------------------------------------------------------------------
<S>                                                               <C>             <C>               <C>
Cash flows from operating activities
     Net (loss)                                                    $ (156,223)     $  (291,844)      $ (270,627)
     Adjustments to reconcile net (loss) to
         net cash provided by operating activities
              Depreciation and amortization                           379,854          723,513          992,477
              (Gain) loss on sale of computer equipment               (16,865)          (4,343)          55,028
              Other noncash activities included in
                  determination of net (loss)                        (162,331)        (310,970)        (591,158)
              Changes in assets and liabilities
                  Decrease (increase) in assets
                      Lease income receivable                           4,980           28,136           52,195
                      Prepaid expenses                                     --               --           10,000
                  Increase (decrease) in liabilities
                      Accounts payable                                 (4,387)           4,220           12,920
                      Accounts payable,
                           Commonwealth Capital Corp.                 138,848           29,311           25,119
                      Accounts receivable / payable,
                           General Partner                             83,913          (32,330)         108,129
                      Accounts payable, affiliated limited
                           partnerships                                23,534               60            2,113
                      Unearned lease income                           (35,626)          37,262               --
---------------------------------------------------------------------------------------------------------------

Net cash provided by operating activities                             255,697          183,015          396,196
---------------------------------------------------------------------------------------------------------------

Cash flows from investing activities
     Capital expenditures                                                  --          (64,989)        (170,943)
     Net proceeds from sale of computer equipment                      61,863          208,484              686
     Equipment acquisition fees to the
         General Partner                                                   --          (11,416)         (12,672)
---------------------------------------------------------------------------------------------------------------

Net cash provided by (used in) investing activities                    61,863          132,079         (182,929)
---------------------------------------------------------------------------------------------------------------
</TABLE>

                                                                               8
<PAGE>
<TABLE>
<CAPTION>


Year ended December 31,                                                  2003             2002             2001
---------------------------------------------------------------------------------------------------------------
<S>                                                               <C>             <C>               <C>
Cash flows from financing activities
     Distributions to partners                                       (317,500)        (317,498)        (317,497)
     Debt placement fee to the General
         Partner                                                           --           (2,204)          (1,395)
---------------------------------------------------------------------------------------------------------------

Net cash (used in) financing activities                              (317,500)        (319,702)        (318,892)
---------------------------------------------------------------------------------------------------------------

Net increase (decrease) in cash and cash
     equivalents                                                           60           (4,608)        (105,625)

Cash and cash equivalents at beginning of year                            497            5,105          110,730
---------------------------------------------------------------------------------------------------------------

Cash and cash equivalents at end of year                           $      557      $       497       $    5,105
===============================================================================================================
</TABLE>

                                 See accompanying notes to financial statements.


                                                                               9
<PAGE>
                                           Commonwealth Income & Growth Fund III


                                                   Notes to Financial Statements

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

1. The Partnership      Commonwealth Income & Growth Fund III (the
                        "Partnership") is a limited partnership organized in the
                        Commonwealth of Pennsylvania. The Partnership offered
                        for sale up to 750,000 Units of the limited partnership
                        at the purchase price of $20 per unit (the "Offering").
                        The Offering was terminated at the close of business on
                        July 31, 2000 by the General Partner. The Partnership
                        uses the proceeds of the Offering 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 that is an indirect wholly
                        owned subsidiary of CCC. 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, 2009.

                        Allocations of income and distributions of cash are
                        based on the Partnership's Limited Partnership Agreement
                        (the "Agreement"). The various allocations under the
                        Agreement prevent any limited partner's capital account
                        from being reduced below zero and ensure the capital
                        accounts reflect the anticipated sharing ratios of cash
                        distributions, as defined in the Agreement. During 2003,
                        2002 and 2001, the Partnership distributed to the
                        limited partners $314,368, $314,364 and $314,364,
                        respectively. The 2003, 2002 and 2001 distributions were
                        at an annual rate of 10.4% of the limited partners'
                        original contributed capital. Distributions during 2003,
                        2002 and 2001 reflect an annual return of capital in the
                        amount of approximately $2.08 per limited partnership
                        unit, for units that were outstanding for the entire
                        year, respectively.

2. Business Plan

                        The General Partner and CCC have forgiven amounts
                        payable by the partnership to them and have deferred
                        payments on other amounts owing to allow for
                        distributions to limited partners.

                                                                              10
<PAGE>
                                           Commonwealth Income & Growth Fund III


                                                   Notes to Financial Statements

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

                        The General Partner and CCC have committed to fund,
                        either through cash contributions and/or forgiveness of
                        indebtedness, any necessary cash shortfalls of the
                        Partnership, including the amounts necessary to fund, if
                        any, distributions to limited partners, through March
                        31, 2005.

                        The Partnership intends to purchase additional equipment
                        once funds become available through either future
                        rentals from existing leases, extensions from those
                        existing leases or through sale of equipment.

                        The General Partner intends to review and reassess the
                        Partnership's business plan annually.

3. Summary of           Long-Lived Assets
   Significant
   Accounting           The Partnership evaluates its long-lived assets when
   Policies             events or circumstances indicate that the value of the
                        asset may not be recoverable. The Partnership determines
                        whether impairment exists by estimating the undiscounted
                        cash flows to be generated by each asset, including cash
                        flows from lease revenues and proceeds from the sale of
                        equipment. If the estimated undiscounted cash flows are
                        less than the carrying value of the asset then
                        impairment exists. The amount of the impairment is
                        determined based on the difference between the carrying
                        value and the fair value. Fair value is determined based
                        on estimated discounted cash flows to be generated by
                        the asset. The Partnership determined that no impairment
                        had occurred during 2003, 2002, and 2001.

                        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.

                                                                              11
<PAGE>
                                           Commonwealth Income & Growth Fund III


                                                   Notes to Financial Statements

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

                        Cash and Cash Equivalents

                        The Partnership considers all highly liquid investments
                        with a maturity of three months or less to be cash
                        equivalents.

                        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 partners' contributed
                        capital. These costs were deducted from partnership
                        capital in the accompanying financial statements.

                        Net Income (Loss) Per Equivalent Limited Partnership
                        Unit

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

                        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.


                                                                              12
<PAGE>
                                           Commonwealth Income & Growth Fund III


                                                   Notes to Financial Statements

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

                        Recent Accounting Pronouncements

                                       Interpretation No. 45

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

                                       Interpretation No. 46

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

                                                                              13
<PAGE>
                                           Commonwealth Income & Growth Fund III


                                                   Notes to Financial Statements

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

                                              SFAS 150

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

4. Computer             The Partnership is the lessor of equipment under
   Equipment            operating leases with periods ranging from 24 to 36
                        months. In general, associated costs such as repairs and
                        maintenance, insurance and property taxes are paid by
                        the lessee.

                        The Partnership's share of the computer equipment in
                        which they participate at December 31, 2003 and 2002 was
                        approximately $277,000 for both periods, which is
                        included in the Partnership's fixed assets on their
                        balance sheet, and the total cost of the equipment
                        shared by the Partnership with other partnerships at
                        December 31, 2003 and 2002 was approximately $2,157,000
                        for both periods. The Partnership's share of the
                        outstanding debt associated with this equipment at
                        December 31, 2003 and 2002 was approximately $37,000 and
                        $129,000, respectively, which is included in the
                        Partnership's liabilities on the balance sheet, and the
                        total outstanding debt at December 31, 2003 and 2002
                        related to the equipment shared by the Partnership was
                        approximately $509,000 and $1,197,000, respectively.

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

                                                                              14
<PAGE>
                                           Commonwealth Income & Growth Fund III


                                                   Notes to Financial Statements

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

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

                               2004                                  $ 108,000
                               2005                                     14,000
                        --------------------------------------------------------
                                                                     $ 122,000
                        ========================================================

                        Lease income from five lessees, each exceeding 10% of
                        lease revenue, aggregated 88% of lease income for the
                        year ended December 31, 2003. Lease income from three
                        lessees, each exceeding 10% of lease revenue, aggregated
                        31% of lease income for the year ended December 31,
                        2002. Lease income from two lessees, each exceeding 10%
                        of lease revenue, aggregated 32% of lease income for the
                        year ended December 31, 2001.

5. Related Party        Organizational Fee
   Transactions
                        The General Partner is entitled to be paid an
                        Organizational Fee equal to three percent of the first
                        $10,000,000 of Limited Partners' Capital Contributions
                        and two percent of the Limited Partners' Capital
                        Contributions in excess of $10,000,000, as compensation
                        for the organization of the Partnership. There were no
                        fees paid to the General Partner in 2003, 2002 and 2001.

                        Forgiveness of Related Party Payables

                        During the year ended December 31, 2003, the General
                        Partner and one of its affiliates, CCC, forgave payables
                        owed to them by the Partnership in the amount of
                        approximately $148,000. Such amount has been recorded as
                        a contribution to capital. The General Partner has
                        forgiven sales fees of approximately $8,000. Also, CCC
                        has forgiven direct reimbursements of approximately
                        $140,000.

                        Selling Commission and Dealer Manager Fees

                        The Partnership paid to Commonwealth Capital Securities
                        Corp. (CCSC), an affiliate of Commonwealth Capital
                        Corp., an aggregate of up to 9% of the partners'
                        contributed capital as selling commissions and dealer
                        manager fees, and after the required $1,500,000 minimum
                        subscription amount has been sold. There were no fees
                        paid to the General Partner in 2003, 2002 and 2001.


                                                                              15
<PAGE>
                                           Commonwealth Income & Growth Fund III


                                                   Notes to Financial Statements

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

                        Reimbursable Expenses

                        The General Partner and its affiliates are entitled to
                        reimbursement by the Partnership for the cost of
                        supplies and services obtained and used by the General
                        Partner in connection with the administration and
                        operation of the Partnership from third parties
                        unaffiliated with the General Partner. In addition, the
                        General Partner and its affiliates are entitled to
                        reimbursement for certain expenses incurred by the
                        General Partner and its affiliates in connection with
                        the administration and operation of the Partnership.
                        During 2003, 2002 and 2001, $62,000, $363,000, and
                        $193,000, respectively, of expenses were incurred by the
                        General Partner and its affiliates on behalf of the
                        Partnership.

                        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 2002 and 2001, equipment
                        acquisition fees of approximately $11,000 and $13,000,
                        respectively, were earned by the General Partner. There
                        were no acquisitions fees paid to the General Partner
                        during 2003.

                        Debt Placement Fee

                        As compensation for arranging term debt to finance the
                        acquisition of equipment by the Partnership, the General
                        Partner is paid a fee equal to 1% of such indebtedness;
                        provided, however, that such fee shall be reduced to the
                        extent the Partnership incurs such fees to third
                        parties, unaffiliated with the General Partner or the
                        lender, with respect to such indebtedness and no such
                        fee will be paid with respect to borrowings from the
                        General Partner or its affiliates. During 2002 and 2001,
                        debt placement fees of approximately $2,000 and $1,000,
                        respectively, were earned to the General Partner. There
                        were no finance fees paid to the General Partner during
                        2003.

                                                                              16
<PAGE>
                                           Commonwealth Income & Growth Fund III


                                                   Notes to Financial Statements

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

                        Equipment Management Fee

                        The General Partner is entitled to be paid a monthly fee
                        equal to the lesser of (i) the fees which would be
                        charged by an independent third party for similar
                        services for similar equipment or (ii) the sum of (a)
                        two percent of (1) the gross lease revenues attributable
                        to equipment which is subject to full payout net leases
                        which contain net lease provisions plus (2) the purchase
                        price paid on conditional sales contracts as received by
                        the Partnership and (b) 5% of the gross lease revenues
                        attributable to equipment which is subject to operating
                        leases. During 2003, 2002 and 2001, equipment management
                        fees of approximately $20,000, $40,000 and $55,000,
                        respectively, were earned by the General Partner as
                        determined pursuant to section (ii) above.

                        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. During
                        2003 and 2002, equipment liquidation fees of
                        approximately $2,000 and $7,000, respectively, were
                        earned by the General Partner. There were no equipment
                        liquidation fees earned in 2001.

                                                                              17
<PAGE>
                                           Commonwealth Income & Growth Fund III


                                                   Notes to Financial Statements

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

6. Notes Payable        Notes payable consisted of the following:
<TABLE>
<CAPTION>
                        December 31,                                              2003         2002
                        ---------------------------------------------------------------------------
<S>                                                                         <C>           <C>
                        Installment notes payable to banks; interest
                        ranging from 7.35% to 8.10%, were due in monthly
                        installments ranging from $1,162 to $3,465,
                        including interest, with final payments from
                        January through June 2003.                           $     ---    $  26,968


                        Installment notes payable to banks; interest
                        ranging from 6.75% to 8.00%, due in monthly
                        installments ranging from $382 to $3,831, including
                        interest, with final payments from January through
                        November 2004.                                          38,222      133,292

                        Installment notes payable to banks; interest
                        ranging from 6.25% to 6.75%, due in monthly
                        installments ranging from $123 to $1,735, including
                        interest, with final payments from February through
                        April 2005.                                             53,214       93,507

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

                                                                             $  91,436    $ 253,767
                        ===========================================================================
</TABLE>

                        These notes are secured by specific computer equipment
                        and are nonrecourse liabilities of the Partnership.
                        Aggregate maturities of notes payable for each of the
                        years subsequent to December 31, 2003 are as follows:


                                                                              18
<PAGE>
                                           Commonwealth Income & Growth Fund III


                                                   Notes to Financial Statements

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

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

                            2004                                      $  81,135
                            2005                                         10,301
                        --------------------------------------------------------
                                                                      $  91,436
                        ========================================================

7.      Supplemental    Other noncash activities included in the determination
        Cash Flow       of net income are as follows:
        Information
<TABLE>
<CAPTION>
Year ended December 31,                                        2003         2002         2001
---------------------------------------------------------------------------------------------
<S>                                                      <C>          <C>          <C>
Lease income, net of interest expense on
     notes payable realized as a result of direct
     payment of principal by lessee to bank               $ 162,331    $ 310,970    $ 587,327

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

Total adjustment to net (loss) from other
     noncash activities                                   $ 162,331    $ 310,970    $ 591,158
=============================================================================================
</TABLE>

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

                        Noncash investing and financing activities include the
                        following:
<TABLE>
<CAPTION>
Year ended December 31,                                        2003         2002         2001
---------------------------------------------------------------------------------------------
<S>                                                      <C>          <C>          <C>
Forgiveness of payables by related parties recorded
     as capital contributions (see Note 5)                $ 148,156    $      --    $      --
---------------------------------------------------------------------------------------------
Debt assumed in connection with
     purchase of computer equipment                       $      --    $ 220,413    $ 139,462
=============================================================================================
</TABLE>

                                                                              19

<PAGE>
                                           Commonwealth Income & Growth Fund III


                                                   Notes to Financial Statements

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

8. Reconciliation of
   Net (Loss) Reported
   for Financial
   Reporting Purposes
   to Taxable (Loss) on
   the Federal
   Partnership Return
<TABLE>
<CAPTION>
Year ended December 31,                                      2003             2002            2001
--------------------------------------------------------------------------------------------------
<S>                                                   <C>             <C>             <C>
Net (loss) for financial reporting
     Purposes to taxable (loss)                        $ (156,223)     $  (291,844)    $  (207,627)
         Adjustments
              (Loss) on sale of computer equipment       (174,813)        (197,112)       (129,701)
              Depreciation                                (79,198)          (9,592)         98,791
              Amortization                                  9,886           19,000          38,155
              Bad debt expense                            (28,096)          28,096              --
              Unearned lease income                       (35,627)          37,262              --
              Other                                       (16,265)        (100,016)         91,505

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

Taxable (loss) on the Federal
     Partnership Return                                $ (480,336)     $  (514,206)    $  (108,877)
==================================================================================================
</TABLE>
                        The "Adjustments - Other" includes financial statement
                        adjustments reflected on the tax return in the
                        subsequent year.

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

                                                                              20

<PAGE>
                                           Commonwealth Income & Growth Fund III


                                                   Notes to Financial Statements

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

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

 Revenues
      Lease and other                          $  139,517         $ 107,493         $   77,461          $  67,028
      (Loss) gain on sale of computer
          equipment                                (2,982)            6,299             13,861               (313)
-----------------------------------------------------------------------------------------------------------------

 Total revenues                                   136,535           113,792             91,322             66,715


 Total costs and expenses                         205,692           153,873            115,402             89,620
-----------------------------------------------------------------------------------------------------------------

 Net (loss)                                    $  (69,157)        $ (40,081)        $  (24,080)         $ (22,905)
=================================================================================================================

 (Loss) per limited
      partner unit                             $    (0.46)        $   (0.27)        $    (0.16)         $   (0.14)
=================================================================================================================
</TABLE>

                                                                              21


<PAGE>
                                           Commonwealth Income & Growth Fund III


                                                   Notes to Financial Statements

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                        Quarter ended
                                             --------------------------------------------------------------------
                                                 March 31           June 30       September 30        December 31
-----------------------------------------------------------------------------------------------------------------
<S>                                            <C>                <C>               <C>                 <C>
 2002

 Revenues
      Lease and other                          $  274,634         $ 182,459         $  178,670          $ 148,957
      Gain (loss) on sale of computer
          equipment                                 4,994             4,123             (4,505)              (269)
-----------------------------------------------------------------------------------------------------------------

 Total revenues                                   279,628           186,582            174,165            148,688

 Total costs and expenses                         303,721           271,288            267,584            238,314
-----------------------------------------------------------------------------------------------------------------

 Net (loss)                                    $  (24,093)        $ (84,706)        $  (93,419)         $ (89,626)
=================================================================================================================

 (Loss) per limited
      partner unit                             $    (0.16)        $   (0.56)        $    (0.62)         $   (0.59)
=================================================================================================================
</TABLE>

                        The cumulative gain or loss on sale of equipment is
                        included in revenue or cost, as appropriate.

                                                                              22