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
September  30,  1999 and June  30,  1998.  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 balance sheets referred to above present fairly, in
all material respects, the financial position of Phoenix Leasing Associates III,
Inc. and  subsidiary  as of September  30, 1999 and June 30, 1998, in conformity
with generally accepted accounting principles.





San Francisco, California,                                   ARTHUR ANDERSEN LLP
December 28, 1999

                                  Page 1 of 9
<PAGE>


               PHOENIX LEASING ASSOCIATES III, INC. AND SUBSIDIARY

                           CONSOLIDATED BALANCE SHEETS

                                     ASSETS



                                                      September 30,   June 30,
                                                          1999          1998
                                                          ----          ----

Cash and cash equivalents                             $     7,480   $       546
Deferred organizational and syndication costs,
     net of amortization of $367,200 and $259,200
     as of September 30, 1999 and June 30, 1998,
     respectively                                         504,497       612,497
Due from Phoenix Leasing American Business
     Fund, L.P                                            126,326       212,578
Due from Phoenix Leasing Incorporated                      86,589          --
Investment in Phoenix Leasing American Business
     Fund, L.P.                                            57,943        44,302
                                                      -----------   -----------

         Total Assets                                 $   782,835   $   869,923
                                                      ===========   ===========



LIABILITIES AND SHAREHOLDER'S EQUITY

Liabilities:

     Accounts payable and accrued expenses            $     4,270   $       730
     Due to Phoenix Leasing Incorporated                     --         319,335
                                                      -----------   -----------

         Total Liabilities                                  4,270       320,065
                                                      -----------   -----------

Minority Interest in Consolidated Subsidiary               80,134        26,881
                                                      -----------   -----------


Shareholder's Equity:

     Common stock, without par value, 100 shares
       authorized and outstanding                       1,562,343     1,562,343
     Retained earnings                                    698,331       522,877
     Less:
       Note receivable from Phoenix Leasing
          Incorporated                                 (1,562,243)   (1,562,243)
                                                      -----------   -----------

         Total Shareholder's Equity                       698,431       522,977
                                                      -----------   -----------

         Total Liabilities and Shareholder's Equity   $   782,835   $   869,923
                                                      ===========   ===========

      The accompanying notes are an integral part of these balance sheets.

                                       2
<PAGE>

               PHOENIX LEASING ASSOCIATES III, INC. AND SUBSIDIARY

                    NOTES TO THE CONSOLIDATED BALANCE SHEETS

                               September 30, 1999


Note 1.  Organization:

         Phoenix Leasing Associates III, Inc. (the Company) was formed under the
laws of Nevada on November 12, 1992. 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 September 30,
and June 30, 1998 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  financial  statements  as of  September  30,  1999 and  June  30,  1998 are
presented on a consolidated basis as discussed in Note 2.

         Effective  July 1, 1998,  the  Company and its  subsidiary  changed its
fiscal year end from June 30 to September 30.


Note 2.  Principles of Consolidation:

         The consolidated financial statements as of September 30, 1999 and June
30, 1998 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 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 consolidated
financial statements. Actual results could differ from those estimates.


Note 4.  Note Receivable from Affiliate:

         PLI, the sole shareholder of the Company,  as of September 30, 1999 and
June 30,  1998  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


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

                    NOTES TO THE CONSOLIDATED BALANCE SHEETS

                               September 30, 1999

Note 4.  Note Receivable from Affiliate (continued):

York,  New York,  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:

         Effective  July 1,  1998,  the  Company  and its  subsidiaries  adopted
treatment  as a Subchapter  "S  Corporation  pursuant to the Federal  Income Tax
Regulations for tax reporting purposes. Federal and state income tax regulations
provide  that taxes on the income or loss of the Company are  reportable  on the
shareholder's individual income tax return.

         During the twelve months ended June 30, 1998,  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), which are prepared on the
accrual  basis  of  accounting.  In  accordance  with  a Tax  Sharing  Agreement
effective  July 1, 1991,  between the  Company and PAI,  PAI has assumed all tax
liabilities and benefits  arising from the Company's income or loss. The Company
computes and records its tax attributes and the related  benefit or provision is
transferred to PAI. The provision for income taxes,  for the year ended June 30,
1998 was $58,306.


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 September 30, 1999. 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 $39,261  and  $79,000  and  acquisition  fees of $94,633 and
$133,578 are included in Due from Phoenix Leasing  American  Business Fund, L.P.
on the balance sheet as of September 30, 1999 and June 30, 1998, respectively.


                                       4
<PAGE>
               PHOENIX LEASING ASSOCIATES III, INC. AND SUBSIDIARY

                    NOTES TO THE CONSOLIDATED BALANCE SHEETS

                               September 30, 1999

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.

         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 $442,290 and $635,581 for the twelve
months ended September 30, 1999, and June 30, 1998,  respectively,  and $101,027
for the three months ended September 30, 1998.


Note 9.  Commitments and Contingencies:

         On October 28, 1997, a Class Action Complaint was filed against Phoenix
Leasing  Incorporated,  Phoenix  Leasing  Associates,  II and III  LP.,  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 sought  declaratory and other relief  including  accounting,
receivership,  imposition of a 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  severed  one cause of action  from the  Complaint,  a claim
related to the marketing and sale of CDF V, and  transferred  it to Marin County
Superior Court (the "Berger  Action").  Plaintiffs  then dismissed the remaining
claims in  Sacramento  Superior  Court and  refiled  them in a separate  lawsuit
making similar  allegations (the "Ash Action").  That complaint was subsequently
transferred to Marin County as well.

         Plaintiffs  have amended the Berger Action twice.  Defendants  recently
answered the complaint.  Discovery has recently commenced.  The Companies intend
to vigorously defend the Complaint.

         Defendants have filed a demurrer to the Ash Complaint, which plaintiffs
amended three times.  Discovery has not yet 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 September 30, 1999
and June 30, 1998.  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 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 balance sheets referred to above present fairly, in
all material respects,  the financial position of Phoenix Leasing Associates III
L.P. as of September 30, 1999 and June 30, 1998, in  conformity  with  generally
accepted accounting principles.





San Francisco, California,                                   ARTHUR ANDERSEN LLP
December 28, 1999


                                       6
<PAGE>

                       PHOENIX LEASING ASSOCIATES III L.P.

                                 BALANCE SHEETS

                                     ASSETS


                                                        September 30,  June 30,
                                                             1999        1998
                                                             ----        ----


Cash and cash equivalents                                  $    547    $    412
Deferred organizational and syndication costs,
     net of amortization of $367,200 and $259,200
     as of September 30, 1999 and June 30, 1998,
     respectively                                           504,497     612,497
Investment in Phoenix Leasing American Business
     Fund, L.P.                                              57,944      44,303
Due from Phoenix Leasing American Business Fund, L.P.       133,894     212,578
                                                           --------    --------

         Total Assets                                      $696,882    $869,790
                                                           ========    ========


                        LIABILITIES AND PARTNERS' CAPITAL

Liabilities:

     Accounts payable and accrued expenses                 $  2,135    $    365
     Due to General Partner                                 613,913     841,844
                                                           --------    --------

         Total Liabilities                                  616,048     842,209
                                                           --------    --------


Partners' Capital:

     General Partner (70 partnership units)                     700         700
     Limited Partner (42 partnership units)                  80,134      26,881
                                                           --------    --------

         Total Partners' Capital                             80,834      27,581
                                                           --------    --------

         Total Liabilities and Partners' Capital           $696,882    $869,790
                                                           ========    ========

      The accompanying notes are an integral part of these balance sheets.

                                       7
<PAGE>

                       PHOENIX LEASING ASSOCIATES III L.P.

                           NOTES TO THE BALANCE SHEETS

                               September 30, 1999


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 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.

         Effective  July 1, 1998,  the  Partnership  changed its fiscal year end
from June 30 to September 30.

         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 financial statements.


Note 3.  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. 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
September  30, 1999 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.


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


                                       8
<PAGE>
                       PHOENIX LEASING ASSOCIATES III L.P.

                           NOTES TO THE BALANCE SHEETS

                               September 30, 1999

Note 5.  Compensation and Fees (continued):

distributions.  Management fees of $39,261 and $79,000 and  acquisition  fees of
$94,633 and $133,578 are included in Due from Phoenix Leasing American  Business
Fund,  L.P. on the Balance  Sheet as of  September  30, 1999 and June 30,  1998,
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
$442,290 and $635,581,  for the twelve months ended  September 30, 1999 and June
30, 1998 ,  respectively,  and $101,027 for the three months ended September 30,
1998.


Note 8.  Commitments and Contingencies:

         On October 28, 1997, a Class Action Complaint was filed against Phoenix
Leasing  Incorporated,  Phoenix  Leasing  Associates,  II and III  LP.,  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 sought  declaratory and other relief  including  accounting,
receivership,  imposition of a 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  severed  one cause of action  from the  Complaint,  a claim
related to the marketing and sale of CDF V, and  transferred  it to Marin County
Superior Court (the "Berger  Action").  Plaintiffs  then dismissed the remaining
claims in  Sacramento  Superior  Court and  refiled  them in a separate  lawsuit
making similar  allegations  (the"Ash Action").  That complaint was subsequently
transferred to Marin County as well.

         Plaintiffs  have amended the Berger Action twice.  Defendants  recently
answered the complaint.  Discovery has recently commenced.  The Companies intend
to vigorously defend the Complaint.

         Defendants have filed a demurrer to the Ash Complaint, which plaintiffs
amended three times.  Discovery has not yet commenced.  The Companies  intend to
vigorously defend the complaint.


                                       9