<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, 2001

( ) 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.

                       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) and Annual Report on Form 10-K for the fiscal year ended
December 31, 2001 are incorporated by reference as Exhibits in Part IV of this
Report.


<PAGE>
                                     PART I

ITEM 1: BUSINESS

GENERAL

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

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

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

TYPES OF EQUIPMENT

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

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

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

                                                                               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. As of December 31, 2001, the Partnership has acquired a
diversified Equipment portfolio, which it has leased to 22 different companies
located throughout the United States. Approximately 47% of the Equipment
acquired by the Partnership consists of workstations, department servers and
enterprise servers. Approximately 9% of the Equipment acquired by the
Partnership consists of printers. Approximately 3% of the Equipment acquired by
the Partnership consists of communication controllers. Approximately 20% of the
Equipment acquired by the Partnership consists of Escon drivers. Approximately
another 3% of the Equipment acquired by the Partnership consists of telephone
switches. Approximately 18% of the Equipment acquired by the Partnership
consists of Routers.

During the operational stage of the Partnership, the Partnership may not at any
one point in time 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
on such investment. Under a Conditional Sales Contract, the seller reserves
title to, and retain a security interest in, the Equipment until the Purchase
Price of the Equipment is paid. As of December 31 2001, the Partnership has not
entered into any Full Payout Net Leases or Conditional Sales Contracts for
Equipment and does not presently intend to do so.

                                                                               4
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     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, 2001, all leases that have
been entered into are "triple net leases".

     The General Partner has not established any standards for lessees to whom
it will lease Equipment and, as a result, there is not an investment restriction
prohibiting the Partnership from doing business with any lessees. However, a
credit analysis of all potential lessees 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, 2001, the Partnership has not entered into any such agreements.

BORROWING POLICIES

     The General Partner, at its discretion, may cause the Partnership to incur
debt in the maximum aggregate amount of 30% of the aggregate cost of the
Equipment owned 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, 2001, the aggregate
non-recourse debt outstanding of $344,000 was approximately 9.7% of the
aggregate cost of Equipment owned.

                                                                               5
<PAGE>

     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, 2001, the Partnership has not exercised this
option.

     After the net proceeds of the Offering are fully invested in Equipment, the
General Partner plans to 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,
2001, no such agreements existed.

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

REFINANCING POLICIES

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

                                                                               6
<PAGE>

     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
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 which 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.

                                                                               7
<PAGE>

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

Investments

     As of March 29, 2002, 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
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           441,115        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
</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.

                                                                               8
<PAGE>
General Restrictions

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

         (a) invest in junior trust deeds unless received in connection with the
     sale of an item of Equipment in an aggregate amount which does not exceed
     30% of the assets of the Partnership on the date of the investment;

         (b) invest in or underwrite the securities of other issuers;

         (c) acquire any Equipment for Units;

         (d) issue senior securities (except that the issuance to lenders of
     notes or other evidences of indebtedness in connection with the financing
     or refinancing of Equipment or the Partnership's business shall not be
     deemed to be the issuance of senior securities);

         (e) make loans to any Person, including the General Partner or any of
     its Affiliates, except to the extent a Conditional Sales Contract
     constitutes a loan;

         (f) sell or lease any Equipment to, lease any Equipment from, or enter
     into any sale-leaseback transactions with, the General Partner or any of
     its Affiliates; or

         (g) give the General Partner or any of its Affiliates an exclusive
     right or employment to sell the Partnership's Equipment.

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

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

EMPLOYEES

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

ITEM 2: PROPERTIES

           NOT APPLICABLE

ITEM 3: LEGAL PROCEEDINGS

           NOT APPLICABLE



                                                                               9
<PAGE>

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

           NOT APPLICABLE

PART II



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

     There is no public market for the Units nor is it anticipated that one will
develop. 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, 2001, there were 166 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
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 request
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.

                                                                              10
<PAGE>

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

EXEMPT TRANSFERS

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

         (1) transfers in which the basis of the Unit in the hands of the
transferee is determined, in whole or in part, by reference to its basis in the
hands of the transferor (for example, Units acquired by corporations in certain
reorganizations, contributions to capital, gifts of Units, Units contributed to
another partnership, and 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
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.

                                                                              11
<PAGE>

     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 2001, 2000, and 1999.

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

         March 31                 $ 78,591         $ 69,051         $ 51,493

         June 30                    78,591           72,099           55,840

         September 30               78,591           79,592           68,987

         December 31                78,591           80,175           49,484
                                  --------         --------         --------

                                  $314,364         $299,217         $225,804
                                  ========         ========         ========

 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.

                                                                              12
<PAGE>

     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 four years ended December 31, 2001
2000, 1999, and 1998. 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
----------------------------------------------------------------------------------------------------------------
                                        2001                 2000                  1999                  1998
----------------------------------------------------------------------------------------------------------------
<S>                                   <C>                  <C>                      <C>                 <C>
       Lease Income                   $1,106,345           $1,250,857               $937,851            $306,249
----------------------------------------------------------------------------------------------------------------
     Net (Loss) income                  (270,627)            (179,877)              (308,734)             18,250
----------------------------------------------------------------------------------------------------------------
    Cash Distributions                   317,497              302,898                227,995             166,451
----------------------------------------------------------------------------------------------------------------
   Net (Loss) income per
   Limited Partner Unit                    (1.81)               (1.27)                 (2.60)               0.16
----------------------------------------------------------------------------------------------------------------

   Cash Distribution per
   Limited Partner Unit                     2.10                 2.08                   1.90                1.63
----------------------------------------------------------------------------------------------------------------



                                                           December 31
----------------------------------------------------------------------------------------------------------------
                                        2001                  2000                   1999               1998
----------------------------------------------------------------------------------------------------------------
       Total Assets                   $1,427,609           $2,335,831             $2,745,817          $1,860,336
----------------------------------------------------------------------------------------------------------------
       Notes Payable                     344,324              796,020                976,142               8,442
----------------------------------------------------------------------------------------------------------------
     Partners' Capital                   937,657            1,525,781              1,683,632           1,760,998
----------------------------------------------------------------------------------------------------------------
</TABLE>


                                                                              13
<PAGE>

   Net loss per unit is computed based upon net 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 Consolidated Financial Statements. The significant
accounting policies that we believe are the most critical to aid in fully
understanding our reported financial results include the following:

REVENUE RECOGNITION

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

LONG-LIVED ASSETS

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

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

LIQUIDITY AND CAPITAL RESOURCES

     The Partnership satisfied its minimum offering requirements and commenced
operations on January 27, 1998.

     The Partnership's primary sources of capital for the years ended December
31, 2001, 2000, and 1999, were from Partners' contributions of $365,000 in 2000
and $516,000 in 1999, and cash from operations of $396,000, $333,000, and
$209,000, respectively. There were no partners' contributions in 2001. The
primary uses of cash for the years ended December 31, 2001, 2000, and 1999, were
for capital expenditures for new equipment totaling $171,000, $409,000, and
$730,000, the payment of acquisition fees of $13,000, $29,000, and $66,000, the
payment of preferred distributions to partners totaling $317,000, $303,000, and
$228,000, and the payment of offering costs totaling $40,000 in 2000 and $56,000
in 1999.

     Cash is invested in money market accounts that invest directly in treasury
obligations pending the Partnership's use of such funds to purchase additional
computer equipment, to pay Partnership expenses or to make distributions to the
Partners. At December 31, 2001 and 2000, the Partnership had approximately
$1,000 and $100,000, respectively, invested in these money market accounts.

                                                                              14
<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, 2001, the Partnership had future minimum rentals on
noncancellable operating leases of $482,000 for the year ended 2002, and
$196,000 thereafter. This particular industry has experienced a decrease in
lease rates during 2001 due to an ongoing decrease in interest rates. The
Partnership incurred debt in 2001, 2000, and 1999 in the amount of $139,000,
$304,000, and $1,239,000, respectively. At December 31, 2001, the outstanding
debt was $344,000, with interest rates ranging from 6.60% to 8.18%, and will be
payable through November 2004. The Partnership intends to continue purchasing
additional computer equipment with existing cash, as well as when future cash
becomes available. In addition, the Partnership may incur debt in purchasing
computer equipment in the future.

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

The Partnership's share of the computer equipment in which they participate at
December 31, 2001 and 2000 was approximately $862,000 and $700,000,
respectively, which is included in the Partnership's fixed assets on their
balance sheet, and the total cost of the equipment shared by the Partnership
with other partnerships at December 31, 2001 and 2000 was approximately
$3,327,000 and $1,798,000, respectively. The Partnership's share of the
outstanding debt associated with this equipment at December 31, 2001 and 2000
was approximately $181,000 and $281,000, respectively, which is included in the
Partnership's liabilities on the balance sheet, and the total outstanding debt
at December 31, 2001 and 2000 related to the equipment shared by the Partnership
was approximately $1,462,000 and $735,000, respectively.

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

RESULTS FROM OPERATIONS

          For the years ended December 31, 2001, 2000, and 1999, the Partnership
recognized income of $1,110,000, $1,263,000, and $954,000, and expenses of
$1,381,000, $1,443,000, and $1,263,000, resulting in net losses of $271,000,
$180,000 and $309,000, respectively.

         During 2001 the Partnership expended approximately $171,000 in cash to
acquire leases which generated approximately $84,000 in revenue for 2001.

         Lease income decreased to $1,106,000 in 2001, down from $1,251,000 and
$938,000 in 2000 and 1999 respectively, primarily due to the expiration of
leases and entering into newer, smaller leases during 2001.

          Interest income decreased 66% to $4,000 for the year ended December
31, 2001, from $12,000 and $16,000 for the years ended December 31, 2000 and
1999, respectively, as a result of capital contributions and rental income being
used to purchase additional equipment.

          Operating expenses, excluding depreciation, consist of accounting,
legal, outside service fees and reimbursement of expenses to Com Cap Corp. for
administration and operation of the Partnership. The increase to $234,000 during
the year ended December 31, 2001, up from $224,000 during the year ended
December 31, 2000, but down from $275,000 for the year ended December 31, 1999,
is attributable to an increase reimbursable expenses with the administration and
operation of the Partnership charged by Com Cap Corp. of approximately $45,000,
a decrease in professional fees of approximately $3,000, a decrease in
miscellaneous office expenses (comprising of supplies, postage, etc.) of
approximately $8,000, and a decrease in broker's fees/commission of
approximately $8,000

                                                                              15
<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 decreased to $55,000 for the year ended December 31,
2001, down from $63,000 in 2000 and $47,000 in 1999, which is consistent with
the fluctuation of revenue.

          Interest expense decreased to $45,000 for 2001, down from $64,000 for
2000, but up from $55,000 for 1999, as a result of certain notes being fully
paid during 2001.

         Depreciation and amortization expenses consist of depreciation on
computer equipment, amortization of organization costs (for 1999 only),
equipment acquisition fees and debt placement fees. Depreciation and
amortization during 2001 increased to $992,000 from 971,000 and $885,000 in 2000
and 1999 respectively, due to the purchase of equipment under lease.

         The Partnership identified specific computer equipment and associated
equipment acquisition costs, which were reevaluated due to technological
changes. The Partnership determined that no impairment had occurred for the year
ended December 31, 2001 and 2000. In 1999, the Partnership determined that the
carrying amount of certain assets was greater than the undiscounted cash flows
to be generated by these assets and therefore recorded a charge of $115,000 to
depreciation expense to record the assets at their estimated fair value in the
year ended December 31, 1999.

CASH FLOWS

          For the year ended December 31, 2001, the Partnership generated cash
flow from operating activities of $396,000, which includes net loss of $271,000
reduced by depreciation and amortization expenses of $992,000. Other noncash
activities included in the determination of net income include direct payments
of lease income by lessees to banks of $591,000.

         The Partnership sold computer equipment in 2001 with a net book value
of $56,000 for a net loss of $55,000.

NET (LOSS)

         Net (loss) increased to $271,000 for the year ended December 31, 2001
from $180,000 for the year ended December 31, 2000, and decreased from $309,000
for the year ended December 31, 1999. The changes in net (loss) were
attributable to the changes in revenues and expenses as discussed above.

RECENT ACCOUNTING PRONOUNCEMENTS

                              Business Combinations

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

                                                                              16
<PAGE>

                      Goodwill and Other Intangible Assets

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

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

                   Impairment or Disposal of Long-Lived Assets

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

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

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

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

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

ITEM 8: FINANCIAL STATEMENTS

                  See financial statements commencing in Part IV Item 14.

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

         NONE

                                                                              17
<PAGE>

ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

GENERAL

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

         The directors and officers of the General Partner and key employees of
Com Cap Corp. are as follows:
<TABLE>
<CAPTION>
NAME                       TITLE
----                       -----
<S>                       <C>
George S. Springsteen      Chairman of the Board of Directors and President of the General Partner and
                           Com Cap Corp.

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

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

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

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

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

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

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

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

                                                                              18
<PAGE>

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

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

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

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

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

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

ITEM 11: EXECUTIVE COMPENSATION

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

                                                                              19
<PAGE>
<TABLE>
<CAPTION>
                                                                  AMOUNT          AMOUNT           AMOUNT
ENTITY RECEIVING                                                  INCURRED        INCURRED         INCURRED
COMPENSATION            TYPE OF COMPENSATION                      DURING 2001     DURING 2000      DURING 1999
<S>                     <C>                                      <C>             <C>              <C>
                        OFFERING AND ORGANIZATION STAGE

The General Partner     Organizational Fee.  An Organization              $0          $11,000           $5,000
                        Fee equal to three percent of the first
                        $10,000,000 of Limited Partners' Capital
                        Contributions and two percent of the
                        Limited Partners' Capital Contribution in
                        excess of $10,000,000, as compensation
                        for the organization of the Partnership.
                        It is anticipated that all Organizational
                        and Offering Expenses which include
                        legal, accounting and printing expenses;
                        various registration and filing fees;
                        miscellaneous expenses related to the
                        organization and formation of the
                        Partnership; other costs of registration;
                        and costs incurred in connection with the
                        preparation, printing and distribution of
                        this Report and other sales literature.
                        The General Partner pays all
                        Organizational and Offering Expenses,
                        other than Underwriter's Commissions and
                        a non-accountable expense allowance
                        payable to the Dealer Manager that is
                        equal to the lesser of (i) one percent of
                        the Offering proceeds or (ii) $50,000.

                        OPERATIONAL AND SALE
                        OR LIQUIDATION STAGES

The General Partner     Reimbursement of Expenses. The General       $99,000          $54,000          $26,000
and its Affiliates      and its Affiliates Partner are entitled
                        to reimbursement by the Partnership for
                        the cost of goods, supplies or services
                        obtained and used by the General Partner
                        in connection with the administration and
                        operation of the Partnership from third
                        parties unaffiliated with the General
                        Partner. In addition, the General Partner
                        and its affiliates are entitled to
                        reimbursement of certain expenses
                        incurred by the General Partner and its
                        affiliates in connection with the
                        administration and operation of the
                        Partnership. The amounts set forth on
                        this table do not include expenses
                        incurred in the offering of Units.

The General Partner     Equipment Acquisition Fee. An Equipment      $13,000          $29,000          $66,000
                        Acquisition Fee of four percent of the
                        Purchase Price of each item of
                        Equipment purchased as compensation for
                        the negotiation of the acquisition of
                        the Equipment and the lease thereof or
                        sale under a Conditional Sales
                        Contract. The fee was paid upon each
                        closing of the Offering with respect to
                        the Equipment purchased by the
                        Partnership with the net proceeds of
                        the Offering available for investment
                        in Equipment. If the Partnership
                        acquires Equipment in an amount
                        exceeding the net proceeds of the
                        Offering available for investment in
                        Equipment, the fee will be paid when
                        such Equipment is acquired.
</TABLE>

                                                                              20
<PAGE>
<TABLE>
<CAPTION>
<S>                    <C>                                           <C>             <C>              <C>
The General Partner     Debt Placement Fee. As compensation for       $1,000          $3,000           $12,000
                        arranging Term Debt to finance the
                        acquisition of Equipment to the
                        Partnership, a fee equal to one percent
                        of such indebtedness; provided,
                        however, that such fee is reduced to
                        the extent the Partnership incurs such
                        fees to third Parties, un affiliated
                        with the General Partner or the lender,
                        with respect to such indebtedness and
                        no such fee is paid with respect to
                        borrowings from the General Partner or
                        its Affiliates.

The General Partner     Equipment Management Fee. A monthly fee      $55,000         $63,000           $47,000
                        equal to the lesser of (I) the fees
                        which would be charged by an
                        independent third party for similar
                        services for similar equipment or (ii)
                        the sum of (a) two percent of (1) the
                        Gross Lease Revenues attributable to
                        Equipment which is subject to Full
                        Payout Net Leases which contain net
                        lease provisions plus (2) the purchase
                        price paid on Conditional Sales
                        Contracts as received by the
                        Partnership and (b) five percent of the
                        Gross Lease Revenues attributable to
                        Equipment which is subject to Operating
                        Leases.

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

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

The General Partner     Partnership Interest. The General             $3,133          $2,981            $2,191
                        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>

                                                                              21
<PAGE>

ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         NOT APPLICABLE

ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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

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

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

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

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

ACQUISITIONS

         Com Cap Corp. and the General Partner or other Affiliates of the
General Partner may acquire Equipment for the Partnership provided that (i) the
Partnership has insufficient funds at the time the Equipment is acquired, (ii)
the acquisition is in the best interest of the partnership and (iii) no benefit
to the General Partner or its Affiliates arises from the acquisition except for
compensation paid to Com Cap Corp., the General Partner or such other Affiliate
as disclosed in this Report. Com Cap Corp., the General Partner or their
Affiliates will not hold Equipment for more than 60 days prior to transfer to
the Partnership. If sufficient funds become available to the Partnership within
such 60 day period, such Equipment may be resold to the Partnership for a price
not in excess of the sum of the cost of the Equipment to such entity and any
accountable Acquisition Expenses payable to third parties which are incurred by
such entity and interest on the Purchase Price from the date of purchase to the
date of transfer to the Partnership. Com Cap Corp., the General Partner or such
other Affiliate will retain any rent or other payments received for the
Equipment, and bear all expenses and liabilities, other than accountable
Acquisition Expenses payable to third parties with respect to such Equipment,
for all periods prior to the acquisition of the Equipment by the Partnership.
Except as described above, there will be no sales of Equipment to or from any
Affiliate of Com Cap Corp.

                                                                              22
<PAGE>

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

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

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


GLOSSARY

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

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

                                                                              23
<PAGE>

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

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

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

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

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

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

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

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

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

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

                                                                              24
<PAGE>

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

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

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

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

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

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

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

     "Initial Closing " means January 27, 1998.

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

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

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

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

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

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

                                                                              25
<PAGE>

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

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

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

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

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

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

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

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

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

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

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

                                                                              26
<PAGE>

     "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

Reports of Independent Certified Public Accountants

Balance Sheets as of December 31, 2001 and 2000

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

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

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

Notes to Financial Statements

Commonwealth Income & Growth Fund, Inc.

Report of Independent Auditors

Balance sheet as of February 29, 2001

Notes to Balance Sheet

Commonwealth Capital Corp.

Report of Independent Auditors

Consolidated Balance Sheet as of February 29, 2001

Notes to Consolidated Balance Sheet

(a) (2) Schedules.

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

                                                                              27
<PAGE>

(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)

         **       Incorporated by reference from the Partnership's Annual Report
                  on 10-K for the year ended December 31, 1998.


      (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 29, 2002 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 29, 2002.

SIGNATURE                                   CAPACITY

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

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

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


                                                                              28
<PAGE>
                                                           Commonwealth Income &
                                                                 Growth Fund III


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



<PAGE>
                                           Commonwealth Income & Growth Fund III


                                                                        Contents


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

          Reports of Independent Certified Public Accountants          3-4

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

          Notes to financial statements                              10-23




                                                                               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, 2001 and 2000, and the related statements of
operations, partners' capital, and cash flows for the years ended December 31,
2001 and 2000. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

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



                                                            /s/ BDO Seidman, LLP

Philadelphia, Pennsylvania
March 8, 2002

                                                                               3
<PAGE>

                         Report of Independent Auditors

The Partners
Commonwealth Income & Growth Fund III

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

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

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

                                                        /s/ Ernst & Young LLP

Philadelphia, Pennsylvania
March 24, 2000

                                                                               4
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
December 31,                                                                             2001                2000
-----------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>                <C>
Assets

Cash and cash equivalents                                                         $     5,105        $    110,730
Lease income receivable                                                                42,297              94,492
Accounts receivable, General Partner                                                       --              16,683
Prepaid expenses                                                                           --              10,000
-----------------------------------------------------------------------------------------------------------------

                                                                                       47,402             231,905
-----------------------------------------------------------------------------------------------------------------

Computer equipment, at cost                                                         3,538,347           3,673,656
Accumulated depreciation                                                           (2,191,099)         (1,636,102)
-----------------------------------------------------------------------------------------------------------------

                                                                                    1,347,248           2,037,554
-----------------------------------------------------------------------------------------------------------------

Equipment acquisition costs and deferred expenses, net of
     accumulated amortization of $106,264 and $100,681,
     respectively                                                                      32,959              66,372
-----------------------------------------------------------------------------------------------------------------

Total assets                                                                      $ 1,427,609        $  2,335,831
=================================================================================================================
</TABLE>


<PAGE>
                                           Commonwealth Income & Growth Fund III


                                                                  Balance Sheets

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

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

Liabilities
     Accounts payable                                                             $    26,929        $     14,009
     Accounts payable, Commonwealth Capital Corp.                                      25,140                  21
     Accounts payable, General Partner                                                 91,446                  --
     Accounts payable, affiliated limited partnerships                                  2,113                  --
     Notes payable                                                                    344,324             796,020
-----------------------------------------------------------------------------------------------------------------

Total liabilities                                                                     489,952             810,050
-----------------------------------------------------------------------------------------------------------------

Partners' capital
     General Partner                                                                    1,000               1,000
     Limited partners                                                                 936,657           1,524,781
-----------------------------------------------------------------------------------------------------------------

Total partners' capital                                                               937,657           1,525,781
-----------------------------------------------------------------------------------------------------------------




Total liabilities and partners' capital                                           $ 1,427,609        $  2,335,831
=================================================================================================================
</TABLE>
                                 See accompanying notes to financial statements.

                                                                               5
<PAGE>

                                           Commonwealth Income & Growth Fund III


                                                        Statements of Operations

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended December 31,                                                  2001              2000              1999
-----------------------------------------------------------------------------------------------------------------
<S>                                                             <C>                <C>               <C>
Income
     Lease                                                       $  1,106,345       $ 1,250,857       $   937,851
     Interest and other                                                 4,136            12,132            16,107
-----------------------------------------------------------------------------------------------------------------

Total income                                                        1,110,481         1,262,989           953,958
-----------------------------------------------------------------------------------------------------------------

Expenses
     Operating, excluding depreciation                                233,577           223,838           275,066
     Equipment management fee, General Partner                         55,126            63,345            46,893
     Depreciation                                                     944,997           916,258           826,051
     Amortization of organization costs, equipment
         acquisition costs, and deferred expenses                      47,480            54,624            59,412
     Interest                                                          44,900            64,205            55,270
     Loss on sale of computer equipment                                55,028           120,596                --
-----------------------------------------------------------------------------------------------------------------

Total expenses                                                      1,381,108         1,442,866         1,262,692
-----------------------------------------------------------------------------------------------------------------

Net (loss)                                                       $   (270,627)      $  (179,877)      $  (308,734)
=================================================================================================================

Net (loss) per equivalent limited
     partnership unit                                            $      (1.81)      $     (1.27)      $     (2.60)

Weighted average number of equivalent
     limited partnership units outstanding
     during the year                                                  151,178           143,877           118,562
=================================================================================================================
</TABLE>

                                 See accompanying notes to financial statements.

                                                                               6
<PAGE>


                                           Commonwealth Income & Growth Fund III


                                                 Statements of Partners' Capital

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                         General       Limited
                                         Partner       Partner        General           Limited
                                           Units         Units        Partner          Partners              Total
------------------------------------------------------------------------------------------------------------------
<S>                                     <C>            <C>          <C>            <C>               <C>
Balance, December 31, 1998                    50       107,142       $  1,000       $ 1,759,998       $  1,760,998
Contributions                                 --        25,792             --           515,849            515,849
Offering costs                                --            --             --           (56,486)           (56,486)
Net income (loss)                             --            --          2,191          (310,925)          (308,734)
Distributions                                 --            --         (2,191)         (225,804)          (227,995)
------------------------------------------------------------------------------------------------------------------

Balance, December 31, 1999                    50       132,934          1,000         1,682,632          1,683,632
Contributions                                 --        18,244             --           364,878            364,878
Offering costs                                --            --             --           (39,954)           (39,954)
Net income (loss)                             --            --          2,981          (182,858)          (179,877)
Distributions                                 --            --         (2,981)         (299,917)          (302,898)
------------------------------------------------------------------------------------------------------------------

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
==================================================================================================================
</TABLE>
                                 See accompanying notes to financial statements.

                                                                               7
<PAGE>
                                           Commonwealth Income & Growth Fund III


                                                        Statements of Cash Flows

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended December 31,                                                  2001             2000             1999
---------------------------------------------------------------------------------------------------------------
<S>                                                              <C>             <C>              <C>
Cash flows from operating activities
     Net (loss)                                                   $  (270,627)    $   (179,877)    $   (308,734)
     Adjustments to reconcile net (loss) to
         net cash provided by operating activities
              Depreciation and amortization                           992,477          970,882          885,463
              Loss on sale of computer equipment                       55,028          120,596               --
              Other noncash activities included in
                  determination of net (loss)                        (591,158)        (497,772)        (318,386)
              Changes in assets and liabilities
                  Decrease (increase) in assets
                      Lease income receivable                          52,195           13,789          (42,552)
                      Accounts receivable, General
                           Partner                                         --          (13,116)          (3,916)
                      Prepaid expenses                                 10,000          (10,000)              --
                      Other receivables                                    --               37            1,875
                  Increase (decrease) in liabilities
                      Accounts payable                                 12,920          (12,776)         (11,570)
                      Accounts payable,
                           Commonwealth Capital Corp.                  25,140               21               --
                      Accounts receivable / payable,
                           General Partner                            108,129               --               --
                      Accounts payable, affiliated limited                                  --               --
                           partnerships                                 2,113
                      Unearned lease income                                --          (59,258)           7,066
---------------------------------------------------------------------------------------------------------------

Net cash provided by operating activities                             396,196          332,526          209,246
---------------------------------------------------------------------------------------------------------------

Cash flows from investing activities
     Capital expenditures                                            (170,943)        (408,770)        (730,316)
     Net proceeds from sale of computer equipment                         686           57,864               --
     Equipment acquisition fees paid to the
         General Partner                                              (12,672)         (28,531)         (66,279)
---------------------------------------------------------------------------------------------------------------

Net cash (used in) investing activities                              (182,929)        (379,437)        (796,595)
---------------------------------------------------------------------------------------------------------------
</TABLE>
                                                                               8

<PAGE>
                                           Commonwealth Income & Growth Fund III


                                                        Statements of Cash Flows

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended December 31,                                                  2001             2000             1999
---------------------------------------------------------------------------------------------------------------
<S>                                                              <C>             <C>              <C>
Cash flows from financing activities
     Partners contributions                                       $        --     $    364,878     $    515,849
     Offering costs paid to affiliate                                      --          (32,839)         (46,426)
     Offering costs paid to the General Partner                            --           (7,115)         (10,060)
     Distributions to partners                                       (317,497)        (302,898)        (227,995)
     Debt placement fee paid to the General
         Partner                                                       (1,395)          (3,211)         (12,386)
---------------------------------------------------------------------------------------------------------------

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

Net (decrease) in cash and cash
     equivalents                                                     (105,625)         (28,096)        (368,367)

Cash and cash equivalents at beginning of year                        110,730          138,826          507,193
---------------------------------------------------------------------------------------------------------------

Cash and cash equivalents at end of year                          $     5,105          110,730     $    138,826
===============================================================================================================
</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,
                       on behalf of the Partnership and other affiliated
                       partnerships, acquires computer equipment subject to
                       associated debt obligations and lease revenue and
                       allocates a participation in the cost, debt and lease
                       revenue to the various partnerships based on certain risk
                       factors. The Partnership's General Partner is
                       Commonwealth Income & Growth Fund, Inc. (the "General
                       Partner"), a Pennsylvania corporation which is an
                       indirect wholly owned subsidiary of Commonwealth Capital
                       Corp. Approximately ten years after the commencement of
                       operations, the Partnership intends to sell or otherwise
                       dispose of all of its computer equipment, make final
                       distributions to partners, and to dissolve. Unless sooner
                       terminated, the Partnership will continue until December
                       31, 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. For a limited
                       partner's unit outstanding for all of 2001, distributions
                       during 2001 reflect an annual return of original
                       contributed capital in the amount of approximately $2.10
                       per limited partnership unit. For a limited partner's
                       unit outstanding for all of 2000, distributions during
                       2000 reflect an annual return of original contributed
                       capital in the amount of approximately $2.08 per limited
                       partnership unit. For a limited partner's unit

                                                                              10
<PAGE>
                                           Commonwealth Income & Growth Fund III


                                                   Notes to Financial Statements

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

                       outstanding for all of 1999, distributions during 1999
                       reflect a return of original contributed capital in the
                       amount of approximately $1.90 per limited partnership
                       unit. Annual cash distributions to all partners in
                       subsequent years are expected to be made at a rate of 10%
                       of original contributed capital. In the event the
                       Partnership is unable to distribute sufficient cash to
                       meet the intended preferred distribution, such amounts
                       will be deferred with no interest until sufficient cash
                       flow is available, as determined by the General Partner
                       or until the liquidation of the Partnership. The
                       Partnership may also reduce distributions to its partners
                       if it deems necessary.

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

                       Use of Estimates

                       The preparation of financial statements in conformity
                       with generally accepted accounting principles requires
                       management to make estimates and assumptions that affect
                       the reported amounts of assets and liabilities and
                       disclosure of contingent assets and liabilities at the
                       date of the financial statements and the reported amounts
                       of revenues and expenses during the reporting period.
                       Actual results could differ from those estimates.

                       Long-Lived Assets

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

                                                                              11
<PAGE>
                                           Commonwealth Income & Growth Fund III


                                                   Notes to Financial Statements

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

                       During 2001, the Partnership identified specific computer
                       equipment and associated equipment acquisition costs,
                       which were reevaluated due to technological changes. In
                       2001 and 2000, the Partnership determined that no
                       impairment had occurred. In 1999, the Partnership
                       determined that the carrying amount of certain assets was
                       greater than the undiscounted cash flows to be generated
                       by these assets. The Partnership recorded charges of
                       $115,000 in the fourth quarter of 1999 to record the
                       assets at their estimated fair value. Such amounts have
                       been included in depreciation expense in the accompanying
                       financial statements.

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

                       Intangible Assets

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

                       Cash and Cash Equivalents

                       The Company considers all highly liquid investments with
                       a maturity of three months or less to be cash
                       equivalents. At December 31, 2001 and 2000, cash
                       equivalents were invested in a money market fund
                       investing directly in Treasury obligations.

                       Income Taxes

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

                                                                              12
<PAGE>
                                           Commonwealth Income & Growth Fund III


                                                   Notes to Financial Statements

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

                       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
                       are 7% of the partners' contributed capital and dealer
                       manager fees are 2% of partners' contributed capital.
                       These costs have been deducted from partnership capital
                       in the accompanying financial statements.

                       Net Income (Loss) Per Equivalent Limited Partnership Unit

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

3. Computer            The Partnership is the lessor of equipment under
   Equipment           operating leases with periods ranging from 24 to 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, 2001 and 2000 was
                       approximately $862,000 and $700,000, respectively, which
                       is included in the Partnership's fixed assets on their
                       balance sheet, and the total cost of the equipment shared
                       by the Partnership with other partnerships at December
                       31, 2001 and 2000 was approximately $3,327,000 and
                       $1,798,000, respectively. The Partnership's share of the
                       outstanding debt associated with this equipment at
                       December 31, 2001 and 2000 was approximately $181,000 and
                       $281,000, respectively, which is included in the
                       Partnership's liabilities on the balance sheet, and the
                       total outstanding debt at December 31, 2001 and 2000
                       related to the equipment shared by the Partnership was
                       approximately $1,462,000 and $735,000, respectively.

                                                                              13
<PAGE>
                                           Commonwealth Income & Growth Fund III


                                                   Notes to Financial Statements

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

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

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

                           2002                                       $ 482,000
                           2003                                         185,000
                           2004                                          11,000
                       ---------------------------------------------------------

                                                                      $ 678,000
                       =========================================================

                       Lease income from two lessees, each exceeding 10% of
                       lease revenue, aggregated 32% of lease income for the
                       year ended December 31, 2001. Lease income from two
                       lessees, each exceeding 10% of total lease income,
                       aggregated 30% of lease income for the year ended
                       December 31, 2000. Lease income from four lessees, each
                       exceeding 10% of total lease income, aggregated 80% of
                       lease income for the December 31, 1999.

                       As of December 31, 2001, three lessees comprised
                       approximately 91% of the Partnership's accounts
                       receivable.

4. Related Party       Organizational Fee
   Transactions
                       The General Partner is entitled to be paid an
                       Organizational Fee equal to three percent of the first
                       $10,000,000 of Limited Partners' Capital Contributions
                       and two percent of the Limited Partners' Capital
                       Contributions in excess of $10,000,000, as compensation
                       for the organization of the Partnership. During 2000 and
                       1999, such organizational fees of approximately $11,000
                       and $5,000, respectively, were paid to the General
                       Partner. There were no fees paid to the General Partner
                       in 2001.

                                                                              14
<PAGE>
                                           Commonwealth Income & Growth Fund III


                                                   Notes to Financial Statements

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

                       Selling Commission and Dealer Manager Fees

                       The Partnership will pay 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, after the required $1,500,000 minimum
                       subscription amount has been sold. During 2000 and 1999,
                       selling commissions and dealer manager fees of
                       approximately $33,000 and $46,000, respectively, were
                       paid to CCSC. There were no fees paid to the General
                       Partner in 2001.

                       Reimbursement of Expenses

                       The General Partner and its affiliates are entitled to
                       reimbursement by the Partnership for the cost of goods,
                       supplies or services obtained and used by the General
                       Partner in connection with the administration and
                       operation of the Partnership from third parties
                       unaffiliated with the General Partner. In addition, the
                       General Partner and its affiliates are entitled to
                       reimbursement for certain expenses incurred by the
                       General Partner and its affiliates in connection with the
                       administration and operation of the Partnership. During
                       2001, 2000 and 1999, $99,000, $54,000 and $26,000,
                       respectively, of expenses were reimbursed to the General
                       Partner. During 1999, the General Partner also received
                       reimbursement of $21,000 of expenses relating to 1998.

                       Equipment Acquisition Fee

                       The General Partner is entitled to be paid an equipment
                       acquisition fee of 4% of the purchase price of each item
                       of equipment purchased as compensation for the
                       negotiation of the acquisition of the equipment and lease
                       thereof or sale under a conditional sales contract. The
                       fee was paid upon each closing of the Offering with
                       respect to the equipment to be purchased by the
                       Partnership with the net proceeds for the Offering
                       available for investment in equipment. If the Partnership
                       acquires equipment in an amount exceeding the net
                       proceeds of the Offering available for investment in
                       equipment, the fee will be paid when such equipment is
                       acquired. During 2001, 2000 and 1999, equipment
                       acquisition fees of approximately $13,000, $29,000 and
                       $66,000, respectively, were earned by the General
                       Partner.

                                                                              15
<PAGE>
                                           Commonwealth Income & Growth Fund III


                                                   Notes to Financial Statements

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

                       Debt Placement Fee

                       As compensation for arranging term debt to finance the
                       acquisition of equipment by the Partnership, the General
                       Partner is paid a fee equal to 1% of such indebtedness;
                       provided, however, that such fee shall be reduced to the
                       extent the Partnership incurs such fees to third parties,
                       unaffiliated with the General Partner or the lender, with
                       respect to such indebtedness and no such fee will be paid
                       with respect to borrowings from the General Partner or
                       its affiliates. During 2001, 2000, and 1999, debt
                       placement fees of approximately $1,000, $3,000, and
                       $12,000, respectively, were earned to the General
                       Partner.

                       Equipment Management Fee

                       The General Partner is entitled to be paid a monthly fee
                       equal to the lesser of (i) the fees which would be
                       charged by an independent third party for similar
                       services for similar equipment or (ii) the sum of (a) two
                       percent of (1) the gross lease revenues attributable to
                       equipment which is subject to full payout net leases
                       which contain net lease provisions plus (2) the purchase
                       price paid on conditional sales contracts as received by
                       the Partnership and (b) 5% of the gross lease revenues
                       attributable to equipment which is subject to operating
                       leases. During 2001, 2000 and 1999, equipment management
                       fees of approximately $55,000, $63,000 and $47,000,
                       respectively, were earned to 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. There were no such
                       fees paid to the General Partner in 2001, 2000 and 1999.

                                                                              16

<PAGE>
                                           Commonwealth Income & Growth Fund III


                                                   Notes to Financial Statements

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




5. Notes Payable       Notes payable consisted of the following:

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

                       Installment note payable to a
                       bank; interest at 6.60%; due in
                       monthly installments of $4,983
                       including interest through
                       January 2002                     $  4,956       $  62,352

                       Installment note payable to a
                       bank; interest at 6.60%; due in
                       monthly installments of $9,951
                       including interest through
                       January 2002                        9,897         124,525

                       Installment note payable to a
                       bank; interest at 7.12%; due in
                       monthly installments of $4,685
                       including interest through
                       March 2002                         13,892          67,058

                       Installment note payable to a
                       bank; interest at 6.75%; due in
                       monthly installments of $19,800
                       including interest through
                       April 2002                         78,099         302,151

                       Installment note payable to a
                       bank; interest at 7.42% due in
                       monthly installments of $515
                       including interest through
                       November 2002                       5,460          11,010

                                                                              17
<PAGE>
                                           Commonwealth Income & Growth Fund III


                                                   Notes to Financial Statements

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

                       Installment note payable to a
                       bank; interest at 7.6% due in
                       monthly installments of $596
                       including interest through
                       December 2002                       6,866          13,231

                       Installment note payable to a
                       bank; interest at 7.6% due in
                       monthly installments of $1,573
                       including interest through
                       February 2003                      21,010          37,598

                       Installment note payable to a
                       bank; interest at 7.35% due in
                       monthly installments of $1,162
                       including interest through
                       January 2003                       14,478          26,860

                       Installment note payable to a
                       bank; interest at 7.55% due in
                       monthly installments of $1,236
                       including interest through
                       February 2003                      16,514          29,560

                       Installment note payable to a
                       bank; interest at 8.18% due in
                       monthly installments of $1,845
                       including interest through
                       April 2002                          7,256          27,877

                       Installment note payable to a
                       bank; interest at 7.60% due in
                       monthly installments of $3,465
                       including interest through June
                       2003                               58,501          93,798

                                                                              18
<PAGE>
                                           Commonwealth Income & Growth Fund III


                                                   Notes to Financial Statements

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

                       Installment note payable to a
                       bank; interest at 6.75% due in
                       monthly installments of $604
                       including interest through
                       November 2004                      19,261              --



                                                                              19
<PAGE>
                                           Commonwealth Income & Growth Fund III


                                                   Notes to Financial Statements

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

                       Installment note payable to a
                       bank; interest at 7.80% due in
                       monthly installments of $3,831
                       including interest through
                       January 2004                       88,134              --
                       ---------------------------------------------------------

                                                      $  344,324      $  796,020
                       =========================================================

                       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, 2001 are as follows:

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

                           2002                                       $ 256,742
                           2003                                          77,346
                           2004                                          10,236
                       ---------------------------------------------------------

                                                                      $ 344,324
                       ========================================================

6. Supplemental        Other noncash activities included in the determination of
   Cash Flow           net income are as follows:
   Information
<TABLE>
<CAPTION>
Year ended December 31,                                        2001         2000         1999
---------------------------------------------------------------------------------------------
<S>                                                      <C>          <C>          <C>
Lease income, net of interest expense on
     notes payable realized as a result of direct
     payment of principal by lessee to bank               $ 587,327    $ 483,911    $ 270,908
</TABLE>

                                                                              20
<PAGE>
                                           Commonwealth Income & Growth Fund III


                                                   Notes to Financial Statements

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S>                                                      <C>          <C>          <C>
Lease income paid to original lessor in lieu
     of cash payment for computer equipment acquired          3,831       13,861       47,478
---------------------------------------------------------------------------------------------

Total adjustment to net (loss) from other
     noncash activities                                   $ 591,158      497,772    $ 318,386
=============================================================================================
</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,                                        2001         2000           1999
-----------------------------------------------------------------------------------------------
<S>                                                      <C>          <C>          <C>
Debt assumed in connection with
     purchase of computer equipment                     $   139,462    $ 303,789    $ 1,238,608
===============================================================================================
</TABLE>


                                                                              21
<PAGE>
                                           Commonwealth Income & Growth Fund III


                                                   Notes to Financial Statements

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

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

<TABLE>
<CAPTION>
Year ended December 31,                                        2001         2000           1999
-----------------------------------------------------------------------------------------------
<S>                                                      <C>          <C>          <C>
Net (loss) for financial reporting
     Purposes to taxable income (loss)                    $ (207,627)  $ (179,877)  $  (308,734)
         Adjustments
              (Loss) on sale of computer
                   equipment                                (129,701)     (76,073)           --
              Depreciation                                    98,791      304,446       316,429
              Amortization                                    38,155       64,098        37,766
              Unearned lease income                               --       (7,029)      (14,316)
              Other                                           91,505     (146,733)      (10,838)
-----------------------------------------------------------------------------------------------

Taxable (loss) income on the Federal
     Partnership Return                                   $ (108,877)  $  (41,168)  $    20,307
===============================================================================================
</TABLE>

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

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


                                                                              22
<PAGE>
                                           Commonwealth Income & Growth Fund III


                                                   Notes to Financial Statements

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

8. Quarterly Results   Summarized quarterly financial data for the years ended
   of Operation        December 31, 2001 and 2000 is as follows:
   (Unaudited)
<TABLE>
<CAPTION>
                                                                        Quarter ended
                                               ---------------------------------------------------------------
                                                 March 31          June 30        September 30     December 31
--------------------------------------------------------------------------------------------------------------
<S>                                           <C>              <C>               <C>              <C>
2001

Revenues
     Lease and other                           $  321,054       $  254,327        $  313,599       $   221,501

Costs and expenses                                360,345          320,395           330,621           369,747

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

Net (loss)                                     $  (39,291)      $  (66,068)       $  (17,022)      $  (148,246)
==============================================================================================================

(Loss) per limited
     partner unit                              $    (0.27)      $    (0.44)       $    (0.12)      $     (0.99)
==============================================================================================================
</TABLE>

                                                                              23
<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>
2000

Revenues
     Lease and other                           $  303,217       $  300,264        $  361,780       $   297,728

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

Costs and expenses
     Costs and expenses                           338,110          309,778           372,365           302,017
     Loss on sale of computer
         equipment                                     --               --           120,596                --
--------------------------------------------------------------------------------------------------------------

Total costs and expenses                          338,110          309,778           492,961           302,017
--------------------------------------------------------------------------------------------------------------

Net (loss)                                     $  (34,893)      $   (9,514)       $ (131,181)      $    (4,289)
==============================================================================================================

(Loss) per limited
     partner unit                              $    (0.27)      $    (0.07)       $    (0.92)      $     (0.03)
==============================================================================================================
</TABLE>
                       The cumulative gain or loss on sale of equipment is
                       included in revenue or cost, as appropriate.


                                                                              24
<PAGE>

[GRAPHIC OMITTED]















COMMONWEALTH INCOME & GROWTH FUND, INC.

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

                                  BALANCE SHEET

                                FEBRUARY 28, 2001




<PAGE>


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

                                FEBRUARY 28, 2001




                                TABLE OF CONTENTS

                                                                      PAGE
                                                                      ----
INDEPENDENT AUDITOR'S REPORT                                            1

BALANCE SHEET                                                           2

NOTES TO BALANCE SHEET                                                  3


<PAGE>


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



                          INDEPENDENT AUDITOR'S REPORT

Stockholder
Commonwealth Income & Growth Fund, Inc.

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

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

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



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


April 5, 2001

<PAGE>


                                                                          Page 2

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

                                  BALANCE SHEET

                                FEBRUARY 28, 2001




                                     ASSETS

Cash                                                                $     9,732

Due from parent                                                          84,203

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


                      LIABILITIES AND STOCKHOLDER'S EQUITY

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

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

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

See notes to balance sheet


<PAGE>

                                                                          Page 3

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

                             NOTES TO BALANCE SHEET

                                FEBRUARY 28, 2001


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     a.   Nature of Business

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

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

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

     b.   Use of Estimates

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

2.   INVESTMENT IN PARTNERSHIPS

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

3.   RELATED PARTY TRANSACTIONS

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


<PAGE>


[GRAPHIC OMITTED]



                   COMMONWEALTH CAPITAL CORP. AND SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS

                                FEBRUARY 28, 2001




<PAGE>

                   COMMONWEALTH CAPITAL CORP. AND SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS

                                FEBRUARY 28, 2001



                                             TABLE OF CONTENTS

                                                                    PAGE
                                                                    ----
INDEPENDENT AUDITOR'S REPORT

CONSOLIDATED FINANCIAL STATEMENTS                                     1

   Balance sheets                                                     2

   Statements of operations and retained earnings                     3

   Statements of cash flows                                           4

   Notes to financial statements                                    5 - 11



<PAGE>


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


                          INDEPENDENT AUDITOR'S REPORT


Stockholder

Commonwealth Capital Corp.


     We have audited the accompanying consolidated balance sheets of
COMMONWEALTH CAPITAL CORP. AND SUBSIDIARIES as of February 28, 2001 and February
29, 2000, and the related consolidated statements of operations and retained
earnings and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

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

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



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



<PAGE>

                                                                          Page 2

                   COMMONWEALTH CAPITAL CORP. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS



                                     ASSETS

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


Receivables from Income Funds                          317,577          255,035

Other receivables                                       60,423           59,736

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

Investment in income funds                              11,666           12,666

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

Deferred offering costs                                                   8,192

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



                      LIABILITIES AND STOCKHOLDER'S EQUITY

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


 See notes to consolidated financial statements


<PAGE>


                                                                          Page 3

                     COMMONWEALTH CAPITAL CORP. AND SUBSIDIARIES

          CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS


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

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

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

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


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


See notes to consolidated financial statements.



<PAGE>

                                                                          Page 4

                   COMMONWEALTH CAPITAL CORP. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS



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

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

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


CASH FLOWS FROM FINANCING ACTIVITIES - None


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


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


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


See notes to consolidated financial statements.


<PAGE>

                                                                          Page 5

                   COMMONWEALTH CAPITAL CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                FEBRUARY 28, 2001

1.   NATURE OF BUSINESS

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

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

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

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

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     a.   Principles of Consolidation

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


<PAGE>

                                                                          Page 6

                   COMMONWEALTH CAPITAL CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                FEBRUARY 28, 2001


2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     b.   Use of Estimates

          The preparation of financial statements in conformity with generally
          accepted accounting principles requires management to make estimates
          and assumptions that affect the reported amounts of assets and
          liabilities and disclosure of contingent assets and liabilities at the
          date of the financial statements and the reported amounts of revenues
          and expenses during the reporting period. Actual results could differ
          from those estimates.

     c.   Cash and Cash Equivalents

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

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

     d.   Investment in Income Funds

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

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


<PAGE>
                                                                          Page 7

                   COMMONWEALTH CAPITAL CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                FEBRUARY 28, 2001


2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     d.   Investment in Income Funds (Continued)

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

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

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

     e.   Office Furniture and Equipment

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

     f.   Deferred Offering Costs

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

     g.   Revenue Recognition

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


<PAGE>

                                                                          Page 8

                   COMMONWEALTH CAPITAL CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                FEBRUARY 28, 2001


2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     (h)  Income Taxes

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

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

3.   EASE COMMITMENTS

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


<PAGE>

                                                                          Page 9

                   COMMONWEALTH CAPITAL CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                FEBRUARY 28, 2001



3.   EASE COMMITMENTS (Continued)

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

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

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

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

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

4.   PROFIT SHARING PLAN

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


<PAGE>

                                                                         Page 10

                   COMMONWEALTH CAPITAL CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                FEBRUARY 28, 2001


5.   INCOME TAXES

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

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

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

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

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

<PAGE>

                                                                         Page 11

                   COMMONWEALTH CAPITAL CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                FEBRUARY 28, 2001


5.   INCOME TAXES (Continued)

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

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

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

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

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

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

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


6.   SUPPLEMENTAL CASH FLOW INFORMATION

     Other noncash activities associated with lease transactions

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

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