Exhibit 21













                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
                    ----------------------------------------


To the Board of Directors of
Phoenix Leasing Associates III, Inc.:

We have audited the accompanying  consolidated balance sheets of Phoenix Leasing
Associates III, Inc. (a Nevada  corporation)  and Subsidiary as of June 30, 1998
and 1997.  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 audits to obtain
reasonable  assurance  about  whether  the  balance  sheets are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the  amounts  and  disclosures  in the balance  sheets.  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 balance  sheets  referred to above present  fairly,  in all
material  respects,  the financial  position of Phoenix Leasing  Associates III,
Inc. and  Subsidiary as of June 30, 1998 and 1997, in conformity  with generally
accepted accounting principles.

                                                             ARTHUR ANDERSEN LLP

San Francisco, California
  September 9, 1998

                                  Page 1 of 9

<PAGE>

               PHOENIX LEASING ASSOCIATES III, INC. AND SUBSIDIARY

                           CONSOLIDATED BALANCE SHEETS

                                     ASSETS
<TABLE>
<CAPTION>

                                                                                 June 30,
                                                                           1998           1997
                                                                           ----           ----

<S>                                                                    <C>           <C>
Cash and cash equivalents ...........................................  $       546   $       870
Deferred organizational and syndication costs, net of amortization of
   $259,200 and $172,800 at June 30, 1998 and 1997, respectively ....      612,497       698,898
Due from Phoenix Leasing American Business Fund, L.P. ...............      212,578       171,423
Investment in American Business Fund, L.P. ..........................       44,302        20,493
                                                                       -----------   -----------
         Total Assets ...............................................  $   869,923   $   891,684
                                                                       ===========   ===========


                      LIABILITIES AND SHAREHOLDER'S EQUITY

Liabilities:

   Accounts payable and accrued expenses ............................  $       730   $     4,798
   Due to PLI .......................................................      319,335       431,535
                                                                       -----------   -----------
         Total Liabilities ..........................................      320,065       436,333
                                                                       -----------   -----------

Minority Interest in Consolidated Subsidiary ........................       26,881        78,139
                                                                       -----------   -----------


Shareholder's Equity:

   Common Stock, without par value, 100 shares
     authorized and outstanding .....................................    1,562,343     1,562,343
   Retained earnings ................................................      522,877       377,112
   Less:
     Note receivable from PLI .......................................   (1,562,243)   (1,562,243)
                                                                       -----------   -----------

         Total Shareholder's Equity .................................      522,977       377,212
                                                                       -----------   -----------

         Total Liabilities and Shareholder's Equity .................  $   869,923   $   891,684
                                                                       ===========   ===========
<FN>
      The accompaning notes are an integral part of these balance sheets.
</FN>
</TABLE>
                                       2
<PAGE>


               PHOENIX LEASING ASSOCIATES III, INC. AND SUBSIDIARY

                    NOTES TO THE CONSOLIDATED BALANCE SHEETS

                                  June 30, 1998


Note 1.  Organization:

         Phoenix Leasing Associates III, Inc. (the Company) was formed under the
laws of Nevada on November 12, 1992. The Company and its subsidiary have June 30
fiscal  year-ends.  The Company is a wholly owned  subsidiary of Phoenix Leasing
Incorporated (PLI), a California corporation, and was originally formed to serve
as the general  partner of Phoenix  Leasing  American  Business Fund,  L.P. (the
Program), a California limited partnership.

         On December 14, 1992, the Company organized Phoenix Leasing  Associates
III, L.P., a California limited partnership (PLAIIILP) to replace the Company as
the general  partner in the  Program.  The limited  partner of PLAIIILP is Lease
Management  Associates,  Inc., a Nevada corporation  controlled by an officer of
the Company,  who also owns the parent company of PLI. As the general partner of
the Program,  PLAIIILP will earn the acquisition and management fees and receive
the profits,  losses and distributions which were to be allocated to the Company
(Note 7). The Company is the general partner of PLAIIILP and as of June 30, 1998
and 1997 has a 62.5% ownership  interest.  This ownership interest is subject to
change in  accordance  with the  PLAIIILP  Partnership  Agreement.  Profits  and
distributions  attributable to acquisition  fees paid to PLAIIILP by the Program
are to be allocated in  proportion  to the partners'  ownership  interests.  All
other profits,  losses and distributions shall be allocated to the Company.  The
balance  sheets as of June 30,  1998 and 1997 are  presented  on a  consolidated
basis as discussed in Note 2.

Note 2.  Principles of Consolidation:

         The  consolidated  balance  sheets as of June 30, 1998 and 1997 include
the  accounts  of the  Company  and its  subsidiary  PLAIIILP.  All  significant
intercompany  accounts and transactions  have been eliminated in  consolidation.
The  minority  interest  in  consolidated   subsidiary  represents  the  limited
partner's interest in PLAIIILP.

         PLAIIILP  will record its  investment  in the Program  under the equity
method of accounting.  As general partner of PLAIIILP,  the Company has complete
authority  in, and  responsibility  for, the overall  management of the Program,
which includes responsibility for supervising the Program's acquisition, leasing
and remarketing activities, and its sale of equipment.

Note 3.  Use of Estimates:

         The  preparation  of  consolidated  balance  sheets 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 consolidated
balance sheets.  Actual results could differ from those estimates.

Note 4.  Note Receivable from Affiliate:

         PLI, the sole shareholder of the Company,  as of June 30, 1998 and 1997
has issued a demand promissory note to the Company totaling $1,562,243. The note
provides that its principal  amount  automatically  increases to five percent of
the  aggregate  capital  contributions  to the Program by its limited  partners.
There are no  restrictions  or covenants  associated  with this note which would
preclude the Company from receiving the principal or interest  amounts under the
terms of the note.  The note bears interest at a rate equal to the lesser of ten
percent or the prime rate as determined by Citibank,  N.A.,  New York, New York,

                                       3
<PAGE>
               PHOENIX LEASING ASSOCIATES III, INC. AND SUBSIDIARY

                    NOTES TO THE CONSOLIDATED BALANCE SHEETS

                                  June 30, 1998


plus one percent.  Interest is payable by PLI on the first  business day of each
calendar  quarter.  The  principal  amount is due and payable upon demand by the
Company.

Note 5.  Income Taxes:

         The Company's income or loss for tax reporting  purposes is included in
the consolidated and combined tax returns filed by Phoenix American Incorporated
(PAI),  an  affiliated  Nevada  corporation.  These  returns are prepared on the
accrual basis of accounting.

         Under "Statement of Financial Accounting Standards No. 109 - Accounting
for  Income  Taxes",  the  Company  computes  taxes  as if it was a stand  alone
company.  The resulting tax  liabilities of $66,810 and $55,858,  as of June 30,
1998 and 1997,  respectively,  were  transferred to PAI in accordance with a Tax
Sharing Agreement between the Company and PAI.

Note 6.  Organization and Syndication Costs:

         Prior to the  organization of PLAIIILP,  the Company,  on behalf of the
Program,  paid certain  organization  and syndication  costs associated with the
formation and initial  equity  raising of the Program.  The Company funded these
reimbursable  costs  through an advance from PLI.  Beginning  December 14, 1992,
PLAIIILP  began  paying  these  reimbursable  costs  through  advances  from the
Company.  Any costs in excess of 15% of equity raised at the  termination of the
offering period will be paid by PLAIIILP through advances from the Company.  The
Company has funded these advances from PLI and earnings.

         On a  consolidated  basis,  the  Company  has paid  unreimbursed  costs
totaling $871,697,  as of June 30, 1998.  Management has determined that the 15%
cap on total  organization  and  syndication  costs  has been  exceeded  and the
$871,697 was not reimbursed  from the Program at the termination of the offering
period.  The Company does expect to recover the $871,697 over the remaining life
of the Program  through  earnings  and  management  fees.  In order to match the
offering  expenses  with the  resulting  earnings,  the  Company  has elected to
amortize the $871,697 excess  organization  and syndication  costs on a straight
line basis over the remaining life of the Program.

Note 7.  Compensation and Fees:

         PLAIIILP  receives  acquisition  fees  equal  to  four  percent  of the
purchase price of assets acquired for financed by the Program in connection with
the  analysis,  selection  and  acquisition  or  financing  of  assets,  and the
continuing  analysis of the  overall  portfolio  of the  Program's  assets,  and
management  fees  equal  to two  percent  of the  Program's  gross  revenues  in
connection  with managing the operations of the Program.  In addition,  PLAIIILP
will receive an interest in the  Program's  profits,  losses and  distributions.
Management  fees of $79,000  and $27,637 and  acquisition  fees of $133,578  and
$143,786 are included in Due from Phoenix Leasing  American  Business Fund, L.P.
as of June 30, 1998 and 1997, respectively.

Note 8.  Related Parties:

         Phoenix Securities,  Inc., an affiliate of the Company,  received a fee
for  wholesaling  activities  performed in  connection  with the offering of the
limited partnership units of the Program.

                                       4
<PAGE>

               PHOENIX LEASING ASSOCIATES III, INC. AND SUBSIDIARY

                    NOTES TO THE CONSOLIDATED BALANCE SHEETS

                                  June 30, 1998


         The Company has entered  into an agreement  with PLI,  whereby PLI will
provide  management  services to PLAIIILP in  connection  with the operation and
administration of the Program.  In consideration for the services and activities
to be  performed by PLI pursuant to this  agreement,  the Company  shall pay PLI
fees in an amount  equal to:  two  percent  of the  Program's  cumulative  gross
revenues  plus the lesser of two and one half percent of the  purchase  price of
equipment  acquired by and  financing  provided to  businesses by the Program or
100%  of the net  cash  attributable  to the  acquisition  fee  which  has  been
distributed  to the Company plus 100% of all other net cash from  operations  of
PLAIIILP.  Management fees paid to PLI equal $635,581 and $759,338 for the years
ended June 30, 1998 and 1997, respectively.

Note 9.  Commitments and Contingencies:

         On October 28, 1997 a Class Action  Complaint was filed against Phoenix
Leasing  Incorporated,  Phoenix  Leasing  Associates  II L.P.,  Phoenix  Leasing
Associates III L.P., Phoenix  Securities Inc. and Phoenix American  Incorporated
(the  "Companies") in California  Superior Court for the County of Sacramento by
eleven  individuals on behalf of investors in Phoenix Leasing Cash  Distribution
Funds I through V (the  "Partnerships").  The  Companies  were  served  with the
Complaint on December 9, 1997. The Complaint seeks  declaratory and other relief
including  accounting,  receivership,   imposition  of  constructive  trust  and
judicial  dissolution and winding up of the  Partnerships,  and damages based on
fraud,  breach of  fiduciary  duty and breach of  contract by the  Companies  as
general partners of the Partnerships.  Plaintiffs served an amended complaint on
August 17, 1998. Discovery has not commenced. The Companies intend to vigorously
defend the Complaint.


                                       5
<PAGE>





                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
                    ----------------------------------------


To the Partners of
Phoenix Leasing Associates III, L.P.:

We have audited the  accompanying  balance sheets of Phoenix Leasing  Associates
III, L.P. (a California limited partnership) as of June 30, 1998 and 1997. 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. Those standards require that we plan and perform the audits to obtain
reasonable  assurance  about  whether  the  balance  sheets are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the  amounts  and  disclosures  in the balance  sheets.  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 balance  sheets  referred to above present  fairly,  in all
material  respects,  the financial  position of Phoenix Leasing  Associates III,
L.P.  as of June 30,  1998 and  1997,  in  conformity  with  generally  accepted
accounting principles.

                                                             ARTHUR ANDERSEN LLP

San Francisco, California
  September 9, 1998


                                       6
<PAGE>


                      PHOENIX LEASING ASSOCIATES III, L.P.

                                 BALANCE SHEETS

                                     ASSETS

<TABLE>
<CAPTION>
                                                                             June 30,
                                                                          1998      1997
                                                                          ----      ----

<S>                                                                    <C>       <C>

Cash and cash equivalents ...........................................  $    412  $    646
Deferred organizational and syndication costs, net of amortization of
   $259,200 and $172,800 as of June 30, 1998 and 1997, respectively .   612,497   698,897
Investment in American Business Fund, L.P. ..........................    44,303    20,493
Due from Phoenix Leasing American Business Fund, L.P. ...............   212,578   171,423
                                                                       --------  --------

         Total Assets ...............................................  $869,790  $891,459
                                                                       ========  ========


                        LIABILITIES AND PARTNERS' CAPITAL

Liabilities:

   Accounts payable and accrued expenses ............................  $    365  $  2,399
   Due to General Partner ...........................................   841,844   810,221
                                                                       --------  --------

         Total Liabilities ..........................................   842,209   812,620
                                                                       --------  --------


Partners' Capital:

   General Partner (70 partnership units) ...........................       700       700
   Limited Partner (42 partnership units) ...........................    26,881    78,139

         Total Partners' Capital ....................................    27,581    78,839
                                                                       --------  --------

         Total Liabilities and Partners' Capital ....................  $869,790  $891,459
                                                                       ========  ========
<FN>
      The accompanying notes are an integral part of these balance sheets.
</FN>
</TABLE>

                                       7
<PAGE>


                      PHOENIX LEASING ASSOCIATES III, L.P.

                           NOTES TO THE BALANCE SHEETS

                                  June 30, 1998


Note 1.  Organization:

        Phoenix Leasing Associates III, L.P., a California  limited  partnership
(the  Partnership),  was  formed  under the laws of the State of  California  on
December 14, 1992,  to act as the general  partner of Phoenix  Leasing  American
Business  Fund,  L.P.  (the  Program),  a California  limited  partnership.  The
Partnership  has  a  June  30  fiscal  year-end.  The  general  partner  of  the
Partnership  is  Phoenix  Leasing  Associates  III,  Inc.  (PLAIII),   a  Nevada
corporation  and wholly owned  subsidiary  of Phoenix  Leasing  Incorporated,  a
California  corporation.  The  limited  partner  of  the  Partnership  is  Lease
Management  Associates,  Inc., a Nevada corporation  controlled by an officer of
PLAIII, who owns the ultimate parent of PLAIII.

        The  Partnership  records its investment in the Program under the equity
method of accounting. As general partner, the Partnership has complete authority
in, and  responsibility  for,  the  overall  management  of the  Program,  which
includes  responsibility for supervising the Program's acquisition,  leasing and
remarketing activities, and its sale of equipment.

Note 2.  Income Taxes:

        The  Partnership is not subject to federal and state income taxes on its
income.  Federal and state income tax regulations  provide that items of income,
gain,  loss  and  deductions,  credits  and  tax  preference  items  of  limited
partnerships  are  reportable  by the  individual  partners in their  respective
income tax returns. Accordingly, no liability for such taxes will be recorded on
the Partnership's balance sheets.

Note 3.  Use of Estimates:

        The preparation of balance sheets 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 balance  sheets.  Actual
results could differ from those estimates.

Note 4.  Organization and Syndication Costs:

        The Partnership on behalf of the Program pays certain  organization  and
syndication  costs  associated  with the formation and initial equity raising of
the Program.  The Partnership  funded these reimbursable costs primarily through
advances  from  PLAIII.  Any  costs in  excess  of 15% of  equity  raised at the
termination of the offering period will be paid by the  Partnership.  As of June
30, 1998 the Partnership has paid unreimbursed costs of $871,697. Management has
determined that the 15% cap on total organization and syndication costs has been
exceeded  and that the  $871,697  was not  reimbursed  from the  Program  at the
termination  of the  offering  period.  The  Company  does expect to recover the
$871,697 over the remaining life of the Program through  earnings and management
fees. In order to match the offering expenses with the resulting  earnings,  the
Company has elected to amortize the $871,697 excess organization and syndication
costs on a straight line basis over the remaining life of the Program.


                                       8
<PAGE>

                      PHOENIX LEASING ASSOCIATES III, L.P.

                           NOTES TO THE BALANCE SHEETS

                                  June 30, 1998


Note 5.  Compensation and Fees:

        The Partnership  receives  acquisition fees equal to four percent of the
purchase price of assets  acquired or financed by the Program in connection with
the  analysis,  selection  and  acquisition  or  financing  of  assets,  and the
continuing  analysis of the  overall  portfolio  of the  Program's  assets,  and
management  fees  equal  to two  percent  of the  Program's  gross  revenues  in
connection  with  managing  the  operations  of the Program.  In  addition,  the
Partnership  will  receive an  interest  in the  Program's  profits,  losses and
distributions.  Management fees of $79,000 and $27,637 and  acquisition  fees of
$133,578 and $143,786 are included in Due from Phoenix Leasing American Business
Fund, L.P. as of June 30, 1998 and 1997, respectively.

Note 6.  Allocation of Profits, Losses and Distributions:

        Profits  and  losses  attributable  to  acquisition  fees  paid  to  the
Partnership  by the Program  shall be allocated to the partners in proportion to
their  ownership  interests.  All other profits and losses shall be allocated to
PLAIII.  Distributions  are made in accordance with the terms of the partnership
agreement.

Note 7.  Related Parties:

        Phoenix  Securities,  Inc., an affiliate of the Partnership,  received a
fee for wholesaling  activities performed in connection with the offering of the
limited partnership units of the Program.

        PLAIII has entered into an agreement with Phoenix  Leasing  Incorporated
(PLI),  whereby  PLI will  provide  management  services to the  Partnership  in
connection  with  the  operations  and   administration   of  the  Program.   In
consideration for the services and activities to be performed by PLI pursuant to
this agreement,  PLAIII shall pay PLI fees in an amount equal to: two percent of
the  Program's  cumulative  gross  revenues  plus the lesser of two and one half
percent of the purchase price of equipment acquired by and financing provided to
businesses  by  the  Program  or  100%  of  the  net  cash  attributable  to the
acquisition fee which has been  distributed to PLAIII plus 100% of all other net
cash  from  operations  of the  Partnership.  Management  fees paid to PLI equal
$635,581 and $758,833 for the years ended June 30, 1998 and 1997, respectively.

Note 8.  Commitments and Contingencies:

        On October 28, 1997 a Class Action  Complaint was filed against  Phoenix
Leasing  Incorporated,  Phoenix  Leasing  Associates  II L.P.,  Phoenix  Leasing
Associates III L.P., Phoenix  Securities Inc. and Phoenix American  Incorporated
(the  "Companies") in California  Superior Court for the County of Sacramento by
eleven  individuals on behalf of investors in Phoenix Leasing Cash  Distribution
Funds I through V (the  "Partnerships").  The  Companies  were  served  with the
Complaint on December 9, 1997. The Complaint seeks  declaratory and other relief
including  accounting,  receivership,   imposition  of  constructive  trust  and
judicial  dissolution and winding up of the  Partnerships,  and damages based on
fraud,  breach of  fiduciary  duty and breach of  contract by the  Companies  as
general partners of the Partnerships.  Plaintiffs served an amended complaint on
August 17, 1998. Discovery has not commenced. The Companies intend to vigorously
defend the Complaint.


                                       9