Form 10-K

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                         |X|  Annual  report  pursuant to section 13 or 15(d) of
                              the Securities Exchange Act of 1934 (fee required)
                              For the Year Ended December 31, 2001
                                       OR
                         |_|  Transition  report pursuant to section 13 or 15(d)
                              of the  Securities  Exchange  Act of 1934  (no fee
                              required) For the transition period from ____ to
                              ----

                        Commission File number 333-47196

                       ATEL Capital Equipment Fund IX, LLC

          California                                           94-3375584
          ----------                                           ----------
(State or other jurisdiction of                             (I. R. S. Employer
incorporation or organization)                              Identification No.)

           235 Pine Street, 6th Floor, San Francisco, California 94104
                    (Address of principal executive offices)

        Registrant's telephone number, including area code (415) 989-8800
        Securities registered pursuant to section 12(b) of the Act: None
        Securities registered pursuant to section 12(g) of the Act: None

Indicate  by a check  mark  whether  the  registrant  (1) 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  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|

State the aggregate market value of voting stock held by  non-affiliates  of the
registrant. Inapplicable


                       DOCUMENTS INCORPORATED BY REFERENCE

Prospectus  dated January 16, 2001,  filed  pursuant to Rule 424(b)  (Commission
File No. 333-47196) is hereby incorporated by reference into Part IV hereof.


Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of  Regulation  S-K  (ss.229.405)  is not  contained  herein,  and  will  not be
contained,  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. |X|

                          Index to Exhibits on Page 31



                                        1
<PAGE>

                                     PART I

Item 1:  BUSINESS

General Development of Business

ATEL Capital  Equipment  Fund IX, LLC (the Company) was formed under the laws of
the state of  California  in  September  2000.  The  Company  was formed for the
purpose  of  acquiring  equipment  to  engage  in  equipment  leasing  and sales
activities.  The Managing  Member of the Company is ATEL Financial  Services LLC
(ATEL), a California  limited  liability  corporation.  Prior to converting to a
limited liability company  structure,  the Managing Member was formerly known as
ATEL Financial Corporation.

The Company is  conducting a public  offering of  15,000,000  Limited  Liability
Company  Units  (Units),  at a price of $10 per  Unit.  On  February  21,  2001,
subscriptions for the minimum number of Units (120,000, representing $1,200,000)
had been received and ATEL requested that the  subscriptions  be released to the
Company. On that date, the Company commenced  operations in its primary business
(leasing   activities).   As  of  April  3,  2001,   the  Company  had  received
subscriptions  for  753,050  Units  ($7,530,500)  and  ATEL  requested  that the
remaining  funds in escrow  (from  Pennsylvania  investors)  be  released to the
Company.  As of December 31, 2001,  the Company had received  subscriptions  for
4,363,409  ($43,634,090) Units, including the Initial Members' Units. All of the
Units were issued and outstanding as of December 31, 2001.

The Company's principal  objectives are to invest in a diversified  portfolio of
equipment  which will (i) preserve,  protect and return the  Company's  invested
capital;  (ii)  generate  regular  distributions  to the  partners  of cash from
operations and cash from sales or refinancing,  with any balance remaining after
certain minimum distributions to be used to purchase additional equipment during
the reinvestment period, ending 72 months after the end of the year in which the
Final Closing occurs and (iii) provide  additional  distributions  following the
reinvestment  period  and until all  equipment  has been  sold.  The  Company is
governed  by  its  Limited  Liability  Company  Operating  Agreement  (Operating
Agreement).

Narrative Description of Business

The Company has acquired and intends to acquire  various  types of equipment and
to lease such equipment pursuant to "Operating" leases and "High Payout" leases,
where "Operating"  leases are defined as being leases in which the minimum lease
payments  during  the  initial  lease term do not  recover  the full cost of the
equipment and "High Payout"  leases recover at least 90% of such cost. It is the
intention of ATEL that a majority of the aggregate  purchase  price of equipment
will represent equipment leased under "High Payout" leases upon final investment
of the Net Proceeds of the  Offering and that no more than 20% of the  aggregate
purchase price of equipment will be invested in equipment acquired from a single
manufacturer.

The Company will only purchase equipment for which a lease exists or for which a
lease will be entered into at the time of the purchase.

As of  December  31,  2001,  the Company had  purchased  equipment  with a total
acquisition price of $22,844,529.

The Company's  objective is to lease a minimum of 75% of the equipment  acquired
with the net  proceeds of the  offering to lessees  which (i) have an  aggregate
credit rating by Moody's Investor service,  Inc. of Baa or better, or the credit
equivalent as determined by ATEL, with the aggregate  rating weighted to account
for the  original  equipment  cost for each item leased or (ii) are  established
hospitals with histories of profitability or municipalities.  The balance of the
original  equipment  portfolio may include  equipment  leased to lessees  which,
although  deemed  creditworthy  by the  Managing  Member,  would not satisfy the
general  credit  rating  criteria  for the  portfolio.  In  excess of 75% of the
equipment  acquired  with the net  proceeds of the  offering  (based on original
purchase cost) has been leased to lessees with an aggregate credit rating of Baa
or better or to such hospitals or municipalities.



                                       2
<PAGE>

During 2001,  certain lessees  generated  significant  portions of the Company's
total lease revenues as follows:

     Lessee         Type of Equipment

Basin Electric      Walking dragline                             54%
Photuris, Inc.      Various lab, computer and office equipment   14%

These percentages are not expected to be comparable in future periods.

The equipment leasing industry is highly competitive.  Equipment  manufacturers,
corporations, partnerships and others offer users an alternative to the purchase
of most types of equipment with payment terms which vary widely depending on the
lease  term  and type of  equipment.  The  ability  of the  Company  to keep the
equipment leased and/or operating and the terms of the acquisitions,  leases and
dispositions  of equipment  depends on various factors (many of which are not in
the  control  of ATEL or the  Company),  such as  general  economic  conditions,
including the effects of inflation or recession,  and fluctuations in supply and
demand for various  types of  equipment  resulting  from,  among  other  things,
technological and economic obsolescence.

ATEL will seek to limit the amount invested in equipment to any single lessee to
not more than 20% of the aggregate purchase price of equipment owned at any time
during the reinvestment period.

The business of the Company is not seasonal.

The Company has no full time employees.

Equipment Leasing Activities

The Company has acquired a diversified portfolio of equipment. The equipment has
been leased to lessees in various industries. The following tables set forth the
types of  equipment  acquired by the Company  through  December 31, 2001 and the
industries  to which the assets have been  leased.  The  Company  has  purchased
certain assets subject to existing non-recourse debt.

                       Purchase Price Excluding              Percentage of Total
        Asset Types        Acquisition Fees                    Acquisitions
        -----------        ----------------                    ------------
Mining equipment               $13,421,218                            58.75%
Marine vessels                   5,712,000                            25.00%
Furniture and fixtures           1,817,665                             7.96%
Manufacturing                      989,709                             4.33%
Natural gas compressors            696,451                             3.05%
Materials handling                 207,486                             0.91%
                           ----------------                  ----------------
                               $22,844,529                           100.00%
                           ================                  ================

                       Purchase Price Excluding              Percentage of Total
     Industry of Lessee    Acquisition Fees                    Acquisitions
     ------------------    ----------------                    ------------
Electric utilities             $11,315,397                            49.53%
Marine transportation           5,712,000                             25.00%
Manufacturing                   2,807,374                             12.29%
Mining                          2,105,821                              9.22%
Oil and gas                        696,451                             3.05%
Retail                             207,486                             0.91%
                           ----------------                  ----------------
                               $22,844,529                           100.00%
                           ================                  ================

For further information  regarding the Company's equipment lease portfolio as of
December  31,  2001,  see Note 3 to the  financial  statements,  Investments  in
equipment  and  leases,   set  forth  in  Item  8,   Financial   Statements  and
Supplementary Data.




                                       3
<PAGE>

Item 2.  PROPERTIES

The Company does not own or lease any real property,  plant or material physical
properties other than the equipment held for lease as set forth in Item 1.

Item 3.  LEGAL PROCEEDINGS

None.

Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.


                                     PART II

Item 5.  MARKET FOR REGISTRANT'S LIMITED LIABILITY COMPANY UNITS
              AND RELATED MATTERS


Market Information

The Units are transferable  subject to restrictions on transfers which have been
imposed under the securities  laws of certain  states.  However,  as a result of
such  restrictions,  the size of the Company and its investment  objectives,  to
ATEL's knowledge,  no established  public secondary trading market has developed
and it is unlikely that a public trading market will develop in the future.

Holders

As of December 31, 2001, a total of 1,020 investors were record holders of Units
in the Company.

Dividends

The Company does not make dividend  distributions.  However,  the Members of the
Company are entitled to certain  distributions  as provided  under the Operating
Agreement.

ATEL shall have sole  discretion  in  determining  the amount of  distributions;
provided,  however, that the Managing Member will not reinvest in equipment, but
will  distribute,  subject to payment of any  obligations  of the Company,  such
available  cash from  operations  and cash from sales or  refinancing  as may be
necessary to cause total  distributions  to the Members for each year during the
reinvestment  period to equal an amount  between  $0.90 and $1.10 per Unit which
will be determined by the Managing Member.

The rate for monthly  distributions  from 2001 operations was $0.069167 per Unit
for February (partial month) through September 2001. The distributions were paid
in April  through  October  2001.  The rate for the  distributions  for  October
through  December  2001 was  $0.075.  The  distributions  were paid in  November
through December 2001 and in January 2002. The rates for quarterly distributions
paid in April and July 2001 and January  2002 were $0.09,  $0.2075,  $0.2075 and
$0.225,  respectively,  per Unit.  Distributions  were from 2001 cash flows from
operations.

The following table presents summarized  information regarding  distributions to
Other Members:

                                                                      2001

Distributions of net income                                            $ 0.2242
Return of investment                                                     0.3357
                                                                ----------------
Distributions per unit                                                   0.5599
Differences due to timing of distributions                               0.1668
                                                                ----------------
Nominal distribution rates from above                                  $ 0.7267
                                                                ================




                                       4
<PAGE>

Information provided pursuant to ss. 228.701 (Item 701(f)) (formerly included in
Form SR):

(1) Effective date of the offering:  January 16, 2001; File Number: 333-47196
(2) Offering commenced: January 16, 2001
(3) The offering did not terminate before any securities were sold.
(4) The offering has not been terminated prior to the sale of all of the
      securities.
(5) The managing underwriter is ATEL Securities Corporation.
(6) The title of the registered class of securities is "Units of Limited
Liability Company interest". (7) Aggregate amount and offering price of
securities registered and sold as of February 28, 2002:
<TABLE>
<CAPTION>

                                                                                    Aggregate                          Aggregate
                                                                                    price of                           price of
                                                                                    offering                           offering
                                                                    Amount           amount           Amount            amount
                                     Title of Security            Registered       registered          sold              sold
                                     -----------------            ----------       ----------          ----              ----

<S>                                                                  <C>          <C>                  <C>             <C>
                              Limited Company units                  15,000,000   $ 150,000,000        5,340,537       $53,405,370
</TABLE>


(8) Costs incurred for the issuers  account in connection  with the issuance and
distribution of the securities registered for each category listed below:

<TABLE>
<CAPTION>
                                                               Direct or indirect payments to
                                                                directors, officers, managing
                                                               members of the issuer or their
                                                                associates; to persons owning
                                                                   ten percent or more of any        Direct or
                                                                 class of equity securities of       indirect
                                                                the issuer; and to affiliates of    payments to
                                                                  the issuer                          others             Total
                                                                  ----------                          ------             -----

                              Underwriting discounts and
<S>                                                                   <C>                              <C>               <C>
                              commissions                             $ 801,081                        $4,272,430        $5,073,510

                              Other expenses                                  -                         2,653,242         2,653,242

                                                                ----------------                  ----------------  ----------------
                              Total expenses                          $ 801,081                        $6,925,671        $7,726,752
                                                                ================                  ================  ================

(9) Net offering proceeds to the issuer after the total expenses in item 8:                                             $45,678,618



                                       5
<PAGE>

(10) The amount of net  offering  proceeds  to the  issuer  used for each of the
purposes listed below:

                                                            Direct or indirect payments to
                                                             directors, officers, managing
                                                            members of the issuer or their
                                                             associates; to persons owning
                                                                   ten percent or more of any        Direct or
                                                                 class of equity securities of       indirect
                                                                the issuer; and to affiliates of    payments to
                                                                  the issuer                          others             Total
                                                                  ----------                          ------             -----

                              Purchase and installation of
                              machinery and equipment                       $ -                       $45,411,591       $45,411,591

                              Working capital                                 -                           267,027           267,027
                                                                ----------------                  ----------------  ----------------
                                                                            $ -                       $45,678,618       $45,678,618
                                                                ================                  ================  ================
</TABLE>

(11) The use of the proceeds in Item 10 does not represent a material  change in
the uses of proceeds described in the prospectus.


Item 6.  SELECTED FINANCIAL DATA

The following table presents selected  financial data of the Company at December
31, 2001 and 2000 and for the periods then ended.  This financial data should be
read in  conjunction  with the financial  statements  and related notes included
under Part II Item 8.

                                                     2001                2000
                                                     ----                ----
Gross revenues                                       $3,393,685             $ -
Net income                                            $ 584,176             $ -
Weighted average Units                                2,167,171              50
Net income allocated to Other Members                 $ 485,897             $ -
Net income per Unit, based on weighted
   average Units outstanding                             $ 0.22             $ -
Distributions per Unit, based on weighted average
   Units outstanding                                     $ 0.56             $ -
Total Assets                                        $36,828,411           $ 600
Non-recourse and long-term debt                             $ -             $ -
Total Members' Capital                              $36,550,603           $ 600


Item 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
              RESULTS OF OPERATIONS


Capital Resources and Liquidity

The Company  commenced  its offering on January 16, 2001.  On February 21, 2001,
the Company commenced  operations in its primary business (leasing  activities).
Until the Company's  initial  portfolio of equipment has been  purchased,  funds
which  have  been  received,  but  which  have not yet been  invested  in leased
equipment, are invested in interest-bearing accounts or  high-quality/short-term
commercial  paper.  The Company's  public offering  provides for a total maximum
capitalization of $150,000,000.

During the  funding  period,  the  Company's  primary  source of  liquidity  was
subscription  proceeds from the public  offering of Units.  The liquidity of the
Company will vary in the future, increasing to the extent cash flows from leases
and proceeds of asset sales exceed expenses,  and decreasing as lease assets are
acquired,  as  distributions  are made to the other  members  and to the  extent
expenses exceed cash flows from leases and proceeds from asset sales.



                                       6
<PAGE>

As another  source of  liquidity,  the Company is  expected to have  contractual
obligations  with a diversified  group of lessees for fixed lease terms at fixed
rental amounts.  As the initial lease terms expire, the Company will re-lease or
sell the equipment.  The future liquidity beyond the contractual minimum rentals
will depend on ATEL's success in re-leasing or selling the equipment as it comes
off lease.

The Company  participates with the Managing Member and certain of its affiliates
in a  $62,000,000  revolving  line of credit with a financial  institution  that
includes certain  financial  covenants.  The line of credit expires on April 12,
2002.  The  Managing  Member is currently  negotiating  a new line of credit and
anticipates  that the current  line of credit  will either be replaced  upon its
expiration or that the current line of credit will be extended until the new one
is  finalized.  As of December 31, 2001,  borrowings  under the facility were as
follows:
<TABLE>
<CAPTION>

<S>                                                                                               <C>
Amount  borrowed by the Company under the acquisition facility                                    $                -
Amounts borrowed by affiliated partnerships and limited liability companies under the acquisition
   facility                                                                                         17,600,000
                                                                                                 ----------------
Total borrowings under the acquisition facility                                                     17,600,000
Amounts borrowed by the Managing Member and its sister corporation under the warehouse facility *   10,999,501
                                                                                                 ----------------
Total outstanding balance                                                                         $28,599,501
                                                                                                 ================

Total available under the line of credit                                                          $62,000,000
Total outstanding balance                                                                         (28,599,501)
                                                                                                 ----------------
Remaining availability                                                                            $33,400,499
                                                                                                 ================
</TABLE>

*  (Unaudited)  The  carrying  value of the  assets  pledged as  collateral  and
financed at December 31, 2001 was $17,955,014.

Draws on the acquisition facility by any individual borrower are secured only by
that borrower's assets,  including  equipment and related leases.  Borrowings on
the  warehouse  facility  are  recourse  jointly to  certain  of the  affiliated
partnerships  and limited  liability  companies,  the  Company and the  Managing
Member.

The Company  anticipates  reinvesting  a portion of lease  payments  from assets
owned in new leasing  transactions.  Such reinvestment will occur only after the
payment  of  all  obligations,   including  debt  service  (both  principal  and
interest), the payment of management and acquisition fees to the Managing Member
and providing for cash distributions to the Other Members. At December 31, 2001,
the Company had  commitments  to purchase  lease assets  totaling  approximately
$528,000.

ATEL or an  affiliate  may purchase  equipment  in its own name,  the name of an
affiliate or the name of a nominee,  a trust or otherwise and hold title thereto
on a temporary or interim basis for the purpose of facilitating  the acquisition
of such  equipment or the  completion of manufacture of the equipment or for any
other purpose  related to the business of the Company,  provided,  however that:
(i) the transaction is in the best interest of the Company;  (ii) such equipment
is  purchased  by the Company for a purchase  price no greater  than the cost of
such  equipment  to ATEL or  affiliate  (including  any  out-of-pocket  carrying
costs),  except for  compensation  permitted by the Operating  Agreement;  (iii)
there is no difference  in interest  terms of the loans secured by the equipment
at the time  acquired by ATEL or affiliate and the time acquired by the Company;
(iv)  there  is no  benefit  arising  out of  such  transaction  to  ATEL or its
affiliate  apart from the  compensation  otherwise  permitted  by the  Operating
Agreement;  and (v) all income  generated by, and all expenses  associated with,
equipment so acquired shall be treated as belonging to the Company.



                                       7
<PAGE>

The Company currently has available adequate reserves to meet its immediate cash
requirements,  but in the event those reserves were found to be inadequate,  the
Company would likely be in a position to borrow against its current portfolio to
meet such  requirements.  ATEL  envisions  no such  requirements  for  operating
purposes.

In 2002,  the Company  expects to establish a $100 million  receivables  funding
program with a receivables  financing company that issues commercial paper rated
A1 from  Standard  and  Poors and P1 from  Moody's  Investor  Services.  In this
receivables  funding  program,  the  lenders  would  receive  liens  against the
Company's  assets.  The  lender  will be in a  first  position  against  certain
specified assets and will be in either a subordinated or shared position against
the  remaining  assets.  The program  would  provide for borrowing at a variable
interest rate and would require the Managing  Member,  on behalf of the Company,
to enter into interest rate swap  agreements  with certain hedge  counterparties
(also rated A1/P1) to mitigate the interest rate risk associated with a variable
interest rate note. The Managing Member anticipates that this program will allow
the Company to have a more cost effective means of abtaining debt financing than
available for individual non-recourse debt transactions.

It is the intention of the Company to use the receivables funding program as its
primary source of debt  financing.  The Company will continue to use its sources
of  non-recourse  secured debt  financing on a  transaction  basis as a means of
mitigating credit risk.

ATEL expects that aggregate  borrowings in the future will be approximately  50%
of aggregate  equipment cost. In any event, the Operating  Agreement limits such
borrowings to 50% of the total cost of equipment, in aggregate.

The  Company  commenced  regular   distributions,   based  on  cash  flows  from
operations, beginning with the month of February 2001. The distribution was made
in April 2001.

If  inflation  in the general  economy  becomes  significant,  it may affect the
Company  inasmuch as the residual  (resale) values and rates on re-leases of the
Company's  leased assets may increase as the costs of similar  assets  increase.
However, the Company's revenues from existing leases would not increase, as such
rates are generally  fixed for the terms of the leases  without  adjustment  for
inflation.

If interest rates increase  significantly,  the lease rates that the Company can
obtain on future leases will be expected to increase as the cost of capital is a
significant  factor in the pricing of lease financing.  Leases already in place,
for the most part, would not be affected by changes in interest rates.

Cash Flows

In 2001,  operating  lease  rents  were the  primary  source of cash  flows from
operations. The Company's primary source of cash in 2001 was the proceeds of its
offering of Limited Liability Company Units.

Sources of cash from  investing  activities  consisted  of amounts  received for
notes receivable principal payments and direct finance lease payments.

Cash was used to purchase  assets on operating and direct finance  leases.  Cash
was also used to pay initial  direct  lease costs and to pay  syndication  costs
(associated with the offering) to the Managing Member and one of its affiliates.

Results of Operations

As of February 21, 2001,  subscriptions  for the minimum  amount of the offering
($1,200,000) had been received and accepted by the Company. As of that date, the
Company commenced operations in its primary business (leasing activities). There
were no  operations  in 2000.  Because  of the  timing  of the  commencement  of
operations and the fact that the initial  portfolio  acquisitions  were not been
completed  at  December  31,  2001,  the results of  operations  in 2001 are not
expected to be comparable to future periods. After the Company's public offering
and its initial asset acquisition stage terminate, the results of operations are
expected to change significantly.



                                       8
<PAGE>

Substantially   all   employees  of  ATEL  track  time  incurred  in  performing
administrative  services on behalf of the Company.  ATEL believes that the costs
reimbursed  are the lower of (i) actual costs  incurred on behalf of the Company
or (ii) the amount the Company would be required to pay independent  parties for
comparable administrative services in the same geographic location.

Operations  in 2001  resulted in net income of $584,176.  The primary  source of
revenues was rents from operating  leases.  The Company is continuing to acquire
significant  amounts of lease  assets.  As a result,  results of  operations  in
future periods is not expected to be comparable to 2001.

Derivative Financial Instruments

In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial  Accounting  Standards ("SFAS") No. 133,  Accounting for Derivative
Instruments  and  Hedging  Activities,  which  established  new  accounting  and
reporting standards for derivative instruments. SFAS No. 133 has been amended by
SFAS No. 137, issued in June 1999, and by SFAS No. 138, issued in June 2000.

SFAS No. 133, as amended,  requires the Company to recognize all  derivatives as
either assets or liabilities in the balance sheet and measure those  instruments
at fair value.  It further  provides  criteria for derivative  instruments to be
designated as fair value, cash flow, or foreign currency hedges, and establishes
accounting  standards for reporting  changes in the fair value of the derivative
instruments.  If derivative financial instruments are utilized, the Company will
be required to record derivative  instruments at fair value in the balance sheet
and recognize the  offsetting  gains or losses as  adjustments  to net income or
other comprehensive income, as appropriate.

The Company adopted SFAS No. 133, as amended,  on January 1, 2001,  which had no
impact as the Company did not utilize derivatives in 2001.

Recent Accounting Pronouncements

In August 2001, the Financial  Accounting  Standards  Board issued  Statement of
Financial  Accounting  Standards  No.  144,  Accounting  for the  Impairment  or
Disposal of Long-Lived Assets (SFAS 144), which 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, and the accounting and reporting provisions
of APB Opinion No. 30,  Reporting the Results of Operations  for a disposal of a
segment of a business.  SFAS 144 is effective for fiscal years  beginning  after
December 15, 2001, with earlier application  encouraged.  The Company expects to
adopt SFAS 144 as of January 1, 2002 and it does not expect that the adoption of
the Statement will have a significant impact on the Company's financial position
and results of operations.


Item 7a.  QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

The Company,  like most other  companies,  is exposed to certain  market  risks,
including primarily changes in interest rates. The Company believes its exposure
to other market risks,  including foreign currency exchange rate risk, commodity
risk and equity price risk, are insignificant to both its financial position and
results of operations.

In general,  the Company expects to manage its exposure to interest rate risk by
obtaining  fixed rate debt. The fixed rate debt is structured so as to match the
cash flows required to service the debt to the payment  streams under fixed rate
lease receivables.  The payments under the leases are assigned to the lenders in
satisfaction of the debt. Furthermore, the Managing Member has historically been
able to maintain a stable  spread  between its cost of funds and lease yields in
both periods of rising and falling  interest  rates.  Nevertheless,  the Company
expects to frequently fund leases with its floating interest rate line of credit
and will, therefore, be exposed to interest rate risk until fixed rate financing
is  arranged,  or the  floating  interest  rate line of credit is repaid.  As of
December 31, 2001,  there was no  outstanding  balance on the floating  interest
rate line of credit.



                                       9
<PAGE>

Also, as described in the caption "Capital Resources and Liquidity," the Company
expects to enter into a receivables  funding facility in 2002. Since interest on
the  outstanding  balances  under the  facility  will vary,  the Company will be
exposed to market risks  associated  with changing  interest rates. To hedge its
interest rate risk, the Company expects to enter into interest rate swaps, which
will effectively convert the underlying interest  characteristic on the facility
from floating to fixed.  Under the swap agreements,  the Company expects to make
or receive variable  interest  payments to or from the  counterparty  based on a
notional  principal amount. The net differential paid or received by the Company
is  recognized  as an  adjustment  to interest  expense  related to the facility
balances.  The amount paid or received will represent the difference between the
payments  required under the variable interest rate facility and the amounts due
under the facility at the fixed (hedged) interest rate.

In general,  it is  anticipated  that these swap  agreements  will eliminate the
Company's interest rate risk associated with variable rate borrowings.  However,
the Company would be exposed to and would manage credit risk associated with the
counterparty by dealing only with institutions it considers financially sound.


Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See the  Report  of  Independent  Auditors,  Financial  Statements  and Notes to
Financial Statements attached hereto at pages 11 through 23.



                                       10
<PAGE>








                REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS



The Members
ATEL Capital Equipment Fund IX, LLC

We have audited the accompanying  balance sheets of ATEL Capital  Equipment Fund
IX, LLC  (Company)  as of December 31, 2001 and 2000,  the related  statement of
income for the year ended  December  31,  2001,  and the related  statements  of
changes in members'  capital and cash flows for the period  from  September  27,
2000  (inception)  through December 31, 2000 and for the year ended December 31,
2001.  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 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
from  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 ATEL Capital Equipment Fund IX,
LLC at December 31, 2001 and 2000,  the results of its  operations  for the year
ended  December 31, 2001,  and its cash flows for the period from  September 27,
2000  (inception)  through December 31, 2000 and for the year ended December 31,
2001, in conformity with accounting  principles generally accepted in the United
States.

                                                           /s/ ERNST & YOUNG LLP

San Francisco, California
February 1, 2002





                                       11
<PAGE>

                       ATEL CAPITAL EQUIPMENT FUND IX, LLC

                                 BALANCE SHEETS

                           DECEMBER 31, 2001 AND 2000



                                                       2001              2000
                                                       ----              ----
                                     ASSETS


Cash                                              $13,568,058             $ 600

Accounts receivable                                 1,186,719                 -

Notes receivable                                      982,262                 -

Investment in equipment and leases                 21,091,372                 -
                                              ----------------  ----------------
                                                  $36,828,411             $ 600
                                              ================  ================


                        LIABILITIES AND MEMBERS' CAPITAL


Accounts payable:
   Managing Member                                  $ 157,719               $ -
   Other                                               24,471                 -

Unearned operating lease income                        95,618                 -
                                              ----------------  ----------------
Total liabilities                                     277,808                 -

Total members' capital                             36,550,603               600
                                              ----------------  ----------------
Total liabilities and members' capital            $36,828,411             $ 600
                                              ================  ================


                             See accompanying notes.



                                       12
<PAGE>

                       ATEL CAPITAL EQUIPMENT FUND IX, LLC

                               STATEMENT OF INCOME

                               FOR THE YEAR ENDED
                                DECEMBER 31, 2001


Revenues:
   Leasing activities:
      Operating leases                                            $3,102,265
      Direct financing leases                                         53,589
Interest                                                             232,116
Other                                                                  5,715
                                                             ----------------
                                                                   3,393,685
Expenses:
Depreciation and amortization                                      2,078,895
Cost reimbursements to Managing Member                               374,507
Interest expense                                                     199,230
Asset management fees to Managing Member                              83,341
Professional fees                                                     39,384
Other                                                                 34,152
                                                             ----------------
                                                                   2,809,509
                                                             ----------------
Net income                                                         $ 584,176
                                                             ================

Net income:
   Managing member                                                  $ 98,279
   Other members                                                     485,897
                                                             ----------------
                                                                   $ 584,176
                                                             ================

Net income per Limited Liability Company Unit (other members)         $ 0.22
Weighted average number of Units outstanding                       2,167,171





                             See accompanying notes.



                                       13
<PAGE>

                       ATEL CAPITAL EQUIPMENT FUND IX, LLC

                    STATEMENTS OF CHANGES IN MEMBERS' CAPITAL

               FOR THE PERIOD FROM SEPTEMBER 27, 2000 (INCEPTION)
                            THROUGH DECEMBER 31, 2000
                             AND FOR THE YEAR ENDED
                                DECEMBER 31, 2001


<TABLE>
<CAPTION>
                                                                         Other Members               Managing
                                                                         -------------
                                                                     Units           Amount           Member             Total
                                                                     -----           ------           ------             -----

<S>                                                                   <C>            <C>                   <C>          <C>
Initial capital contributions, September 2000                                50            $ 500            $ 100             $ 600
                                                                ---------------- ---------------- ----------------  ----------------
Balance December 31, 2000                                                    50              500              100               600
Capital contributions                                                 4,363,359       43,633,590                -        43,633,590
Less selling commissions to affiliates                                                (4,145,191)               -        (4,145,191)
Other syndication costs to affiliates                                                 (2,210,852)               -        (2,210,852)
Distributions to other members ($0.56 per Unit)                                       (1,213,341)               -        (1,213,341)
Distributions to managing member                                                               -          (98,379)          (98,379)
Net income                                                                               485,897           98,279           584,176
                                                                ---------------- ---------------- ----------------  ----------------
Balance December 31, 2001                                             4,363,409      $36,550,603              $ -       $36,550,603
                                                                ================ ================ ================  ================
</TABLE>




                             See accompanying notes.



                                       14
<PAGE>

                       ATEL CAPITAL EQUIPMENT FUND IX, LLC

                            STATEMENTS OF CASH FLOWS

               FOR THE PERIOD FROM SEPTEMBER 27, 2000 (INCEPTION)
                            THROUGH DECEMBER 31, 2000
                             AND FOR THE YEAR ENDED
                                DECEMBER 31, 2001




<TABLE>
<CAPTION>
Operating activities:                                      2001              2000
                                                           ----              ----
<S>                                                         <C>                     <C>
Net income                                                  $ 584,176               $ -
Adjustments to reconcile net income to cash provided
   by operating activities:
   Depreciation and amortization                            2,078,895                 -
   Residual value income                                       (9,890)                -
   Changes in operating assets and liabilities:
      Accounts receivable                                  (1,186,719)                -
      Accounts payable, Managing Member                       157,719                 -
      Accounts payable, other                                  24,471                 -
      Unearned operating lease income                          95,618                 -
                                                      ----------------  ----------------
Net cash provided by operations                             1,744,270                 -
                                                      ----------------  ----------------

Investing activities:
Purchases of equipment on operating leases                (22,025,405)                -
Note receivable advances                                   (1,587,939)                -
Purchases of equipment on direct financing leases            (819,124)                -
Payments received on notes receivable                         605,677                 -
Investment in residuals                                       (66,093)                -
Payments of initial direct costs to managing member          (317,985)                -
Reduction of net investment in direct financing leases         68,230                 -
                                                      ----------------  ----------------
Net cash used in investing activities                     (24,142,639)                -
                                                      ----------------  ----------------

Financing activities:
Capital contributions received                             43,633,590               600
Payment of syndication costs to managing member            (6,356,043)                -
Distributions to other members                             (1,213,341)                -
Distributions to managing member                              (98,379)                -
                                                      ----------------  ----------------
Net cash provided by financing activities                  35,965,827               600
                                                      ----------------  ----------------

Net increase in cash and cash equivalents                  13,567,458               600

Cash and cash equivalents at beginning of period                  600                 -
                                                      ----------------  ----------------
Cash and cash equivalents at end of period                $13,568,058             $ 600
                                                      ================  ================

Supplemental disclosures of cash flow information:
Cash paid during the period for interest                    $ 199,230               $ -
                                                      ================  ================
</TABLE>




                             See accompanying notes.


                                       15
<PAGE>

                       ATEL CAPITAL EQUIPMENT FUND IX, LLC

                          NOTES TO FINANCIAL STATEMENTS

                                DECEMBER 31, 2001


1.  Organization and Limited Liability Company matters:

ATEL Capital  Equipment  Fund IX, LLC (the Company) was formed under the laws of
the state of  California  on  September  27, 2000 for the  purpose of  acquiring
equipment to engage in equipment leasing and sales  activities.  The Company may
continue  until  December  31,  2019.  Contributions  in the amount of $600 were
received  as of  December  31,  2000,  $100 of which  represented  the  Managing
Member's continuing interest, and $500 of which represented the Initial Member's
capital  investment.  The  Managing  Member  of the  Company  is ATEL  Financial
Services  LLC (ATEL),  a  California  limited  liability  corporation.  Prior to
converting to a limited  liability  company  structure,  the Managing Member was
formerly known as ATEL Financial Corporation.

The Company is  conducting a public  offering of  15,000,000  Limited  Liability
Company  Units  (Units),  at a price of $10 per  Unit.  On  February  21,  2001,
subscriptions for the minimum number of Units (120,000, representing $1,200,000)
had been received and ATEL requested that the  subscriptions  be released to the
Company. On that date, the Company commenced  operations in its primary business
(leasing   activities).   As  of  April  3,  2001,   the  Company  had  received
subscriptions  for  753,050  Units  ($7,530,500)  and  ATEL  requested  that the
remaining  funds in escrow  (from  Pennsylvania  investors)  be  released to the
Company.  As of December 31, 2001,  the Company had received  subscriptions  for
4,363,409  ($43,634,090) Units, including the Initial Members' Units. All of the
Units were issued and outstanding as of December 31, 2001.

The Company's principal  objectives are to invest in a diversified  portfolio of
equipment  which will (i) preserve,  protect and return the  Company's  invested
capital;  (ii)  generate  regular  distributions  to the  partners  of cash from
operations and cash from sales or refinancing,  with any balance remaining after
certain minimum distributions to be used to purchase additional equipment during
the reinvestment period, ending 72 months after the end of the year in which the
Final Closing occurs and (iii) provide  additional  distributions  following the
reinvestment  period  and until all  equipment  has been  sold.  The  Company is
governed  by  its  Limited  Liability  Company  Operating  Agreement  (Operating
Agreement).


2.  Summary of significant accounting policies:

Equipment on operating leases:

Equipment on operating leases is stated at cost.  Depreciation is being provided
by use of the  straight-line  method over the terms of the related leases to the
equipment's estimated residual values at the end of the leases.

Revenues  from  operating  leases are  recognized  evenly  over the lives of the
related leases.

Direct financing leases:

Income from direct financing lease  transactions is reported using the financing
method of accounting,  in which the Company's  investment in the leased property
is reported  as a  receivable  from the lessee to be  recovered  through  future
rentals.  The income  portion of each  rental  payment  is  calculated  so as to
generate a constant rate of return on the net receivable outstanding.



                                       16
<PAGE>

                       ATEL CAPITAL EQUIPMENT FUND IX, LLC

                          NOTES TO FINANCIAL STATEMENTS

                                DECEMBER 31, 2001


2.  Summary of significant accounting policies (continued):

Statements of cash flows:

For purposes of the Statements of Cash Flows, cash and cash equivalents includes
cash in banks and cash equivalent investments with original maturities of ninety
days or less.

Income taxes:

The Company  does not  provide for income  taxes since all income and losses are
the  liability of the  individual  members and are  allocated to the members for
inclusion in their individual tax returns.

The tax basis of the  Company's  net  assets  and  liabilities  varies  from the
amounts presented in these financial statements (unaudited):

                                                 2001             2000
                                                 ----             ----
   Financial statement basis of net assets      $36,550,603     $        600
   Tax basis of net assets                       42,430,089              600
                                            ---------------- ----------------
   Difference                                  $  5,879,486     $          -
                                            ================ ================

The  primary  differences  between  the tax basis of net assets and the  amounts
recorded in the financial statements are the result of differences in accounting
for syndication costs and differences  between the depreciation  methods used in
the financial statements and the Company's tax returns.

The following  reconciles the net income reported in these financial  statements
to the loss reported on the Company's federal tax return (unaudited):

                                               2001             2000
                                               ----             ----
    Net income per financial statements    $      584,176    $           -
    Adjustment to depreciation expense           (640,404)               -
    Adjustments to lease revenues                 163,847                -
                                          ---------------- ----------------
    Net income per federal tax return      $      107,619    $           -
                                          ================ ================

Per unit data:

Net income and distributions per unit are based upon the weighted average number
of units outstanding during the period.








                                       17
<PAGE>

                       ATEL CAPITAL EQUIPMENT FUND IX, LLC

                          NOTES TO FINANCIAL STATEMENTS

                                DECEMBER 31, 2001


2.  Summary of significant accounting policies (continued):

Credit risk:

Financial instruments which potentially subject the Company to concentrations of
credit risk include cash and cash  equivalents,  notes  receivable  and accounts
receivable.  The Company places its cash deposits and temporary cash investments
with  creditworthy,  high quality financial  institutions.  The concentration of
such  deposits  and  temporary  cash  investments  is not  deemed  to  create  a
significant  risk to the  Company.  Accounts  receivable  and  notes  receivable
represent amounts due from lessees in various  industries,  related to equipment
on  operating  and direct  financing  leases.  See Note 7 for a  description  of
lessees by industry as of December 31, 2001.

Basis of presentation:

The accompanying  financial  statements as of December 31, 2001 and 2000 and for
the  years  then  ended,  have  been  prepared  in  accordance  with  accounting
principles  generally accepted in the United States.  Certain prior year amounts
have been reclassified to conform to the current year presentation.

Use of estimates:

The preparation of financial statements in conformity with accounting principles
generally  accepted in the United States  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.  Such
estimates primarily relate to the determination of residual values at the end of
the lease term.

Reserve for losses and impairments:

The Company will maintain a reserve on its  investments  in equipment and leases
when losses and  impairments  are  inherent in the  portfolio  as of the balance
sheet date. The Managing Member's  evaluation of the adequacy of an allowance is
a judgmental  estimate that is based on a review of individual leases, past loss
experience and other factors.  While the Managing Member believes any applicable
allowance  would be adequate to cover known losses,  it is  reasonably  possible
that such an allowance could change in the near term. However, such change would
not be expected to have a material  effect on the  financial  position or future
operating  results  of the  Company.  It is the  Company's  policy to charge off
amounts which, in the opinion of the Managing  Member,  are not recoverable from
lessees or the disposition of the collateral.

Derivative financial instruments:

In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial  Accounting  Standards ("SFAS") No. 133,  Accounting for Derivative
Instruments  and  Hedging  Activities,  which  established  new  accounting  and
reporting standards for derivative instruments. SFAS No. 133 has been amended by
SFAS No. 137, issued in June 1999, and by SFAS No. 138, issued in June 2000.

SFAS No. 133, as amended,  requires the Company to recognize all  derivatives as
either assets or liabilities in the balance sheet and measure those  instruments
at fair value.  It further  provides  criteria for derivative  instruments to be
designated as fair value, cash flow, or foreign currency hedges, and establishes
accounting  standards for reporting  changes in the fair value of the derivative
instruments.




                                       18
<PAGE>

                       ATEL CAPITAL EQUIPMENT FUND IX, LLC

                          NOTES TO FINANCIAL STATEMENTS

                                DECEMBER 31, 2001


2.  Summary of significant accounting policies (continued):

The Company adopted SFAS No. 133, as amended,  on January 1, 2001,  which had no
impact as the Company did not utilize  derivatives  during  2001.  However,  the
Company does expect to enter into interest rate swaps in future periods.

Recent Accounting Pronouncement:

In August 2001, the Financial  Accounting  Standards  Board issued  Statement of
Financial  Accounting  Standards  No.  144,  Accounting  for the  Impairment  or
Disposal of Long-Lived Assets (SFAS 144), which 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, and the accounting and reporting provisions
of APB Opinion No. 30,  Reporting the Results of Operations  for a disposal of a
segment of a business.  SFAS 144 is effective for fiscal years  beginning  after
December 15, 2001, with earlier application  encouraged.  The Company expects to
adopt SFAS 144 as of January 1, 2002 and it does not expect that the adoption of
the Statement will have a significant impact on the Company's financial position
and results of operations.


3.  Investment in leases:

The Company's investment in leases consists of the following:

<TABLE>
<CAPTION>
                                                            Depreciation
                                                             Expense and        Balance
                                                            Amortization      December 31,
                                             Additions        of Leases          2001
                                             ---------        ---------          ----
<S>                                           <C>              <C>              <C>
Net investment in operating leases            $22,025,405      $(2,053,997)     $19,971,408
Net investment in direct financing leases         819,124          (68,230)         750,894
Residual values, other                             66,093            9,890           75,983
Initial direct costs                              317,985          (24,898)         293,087
                                          ---------------- ---------------- ----------------
                                              $23,228,607      $(2,137,235)     $21,091,372
                                          ================ ================ ================
</TABLE>

Operating leases:

Property on operating leases consists of the following at December 31, 2001:

             Mining                                 $13,421,219
             Marine vessels                           5,712,000
             Office furniture                           998,540
             Manufacturing                              989,709
             Natural gas compressors                    696,451
             Materials handling                         207,486
                                                ----------------
                                                     22,025,405
             Less accumulated depreciation           (2,053,997)
                                                ----------------
                                                    $19,971,408
                                                ================


                                       19
<PAGE>

                       ATEL CAPITAL EQUIPMENT FUND IX, LLC

                          NOTES TO FINANCIAL STATEMENTS

                                DECEMBER 31, 2001


3.  Investment in leases (continued):

Direct financing leases:

As of December 31,  2001,  investment  in direct  financing  leases  consists of
office furniture. The following lists the components of the Company's investment
in direct financing leases as of December 31, 2001:

Total minimum lease payments receivable                        $      845,532
Estimated residual values of leased equipment (unguaranteed)          122,869
                                                              ----------------
Investment in direct financing leases                                 968,401
Less unearned income                                                 (217,507)
                                                              ----------------
Net investment in direct financing leases                      $      750,894
                                                              ================

All of the property on leases was acquired in 2001.

At December 31, 2001, the aggregate amounts of future minimum lease payments are
as follows:

                                              Direct
                            Operating        Financing
                             Leases           Leases            Total
       2002                 $  3,591,845     $    146,184     $  3,738,029
       2003                    3,589,980          146,184        3,736,164
       2004                    3,483,078          146,184        3,629,262
       2005                    3,280,986          146,184        3,427,170
       2006                    2,874,008          146,184        3,020,192
       Thereafter                104,120          114,612          218,732
                         ---------------- ---------------- ----------------
                             $16,924,017      $   845,532      $17,769,549
                         ================ ================ ================

At December 31, 2001,  there were  commitments to purchase lease assets totaling
approximately $528,000.


4.  Notes receivable:

The Company has various  notes  receivable  from  parties who have  financed the
purchase of equipment through the Company. The terms of the notes receivable are
36 months and bear interest at rates ranging from 17.633% to 21.459%.  The notes
are secured by the equipment  financed.  The minimum payments  receivable are as
follows:

                                                 2002        $ 574,729
                                                 2003          556,542
                                                 2004           38,244
                                                       ----------------
                                                             1,169,515
                   Less portion representing interest         (187,253)
                                                       ----------------
                                                             $ 982,262
                                                       ================





                                       20
<PAGE>

                       ATEL CAPITAL EQUIPMENT FUND IX, LLC

                          NOTES TO FINANCIAL STATEMENTS

                                DECEMBER 31, 2001

5.  Related party transactions:

The terms of the Limited Company  Operating  Agreement provide that the Managing
Member  and/or  affiliates  are entitled to receive  certain fees for  equipment
acquisition, management and resale and for management of the Company.

The Limited Liability  Company Operating  Agreement allows for the reimbursement
of costs incurred by the Managing Member in providing administrative services to
the  Company.  Administrative  services  provided  include  Company  accounting,
investor  relations,  legal counsel and lease and equipment  documentation.  The
Managing Member is not reimbursed for services where it is entitled to receive a
separate  fee as  compensation  for  such  services,  such  as  acquisition  and
management of equipment.  Reimbursable costs incurred by the Managing Member are
allocated to the Company based upon actual time incurred by employees working on
Company  business and an allocation of rent and other costs based on utilization
studies.

Substantially  all  employees of the  Managing  Member  record time  incurred in
performing administrative services on behalf of all of the Companies serviced by
the Managing Member.  The Managing Member believes that the costs reimbursed are
the lower of actual  costs  incurred  on behalf of the Company or the amount the
Company   would  be  required  to  pay   independent   parties  for   comparable
administrative  services in the same geographic location and are reimbursable in
accordance with the Limited Liability Company Operating Agreement.

The  Managing   Member   and/or   affiliates   earned  fees,   commissions   and
reimbursements, pursuant to the Limited Liability Company Agreement as follows:

Selling commissions (equal to 9.5% of the selling price of the
   Limited Liability Company units, deducted from Other Members'
   capital)                                                    $    4,145,191
Reimbursement of other syndication costs to Managing Member         2,210,852
Administrative costs reimbursed to Managing Member                    374,507
Initial direct costs paid to Managing Member                          317,985
Asset management fees to Managing Member                               83,341
                                                              ----------------
                                                               $    7,131,876
                                                              ================


6.  Members' capital:

As of  December  31,  2001,  4,363,409  Units were issued and  outstanding.  The
Company is authorized  to issue up to 15,000,000  Units in addition to the Units
issued to the initial members (50 Units).

The  Company's Net Income,  Net Losses,  and  Distributions  are to be allocated
92.5% to the Members and 7.5% to ATEL.  In  accordance  with the terms of the of
Operating Agreement, an additional allocation of income was made to the Managing
Member in 2001. The amount  allocated was determined so as to bring the Managing
Member's ending capital account balance to zero.







                                       21
<PAGE>

                       ATEL CAPITAL EQUIPMENT FUND IX, LLC

                          NOTES TO FINANCIAL STATEMENTS

                                DECEMBER 31, 2001

7.  Concentration of credit risk and major customers:

The Company leases  equipment to lessees in diversified  industries.  Leases are
subject to the Managing Member's credit committee review. The leases provide for
the return of the equipment upon default.

As of  December  31,  2001,  there  were  concentrations  (greater  than 10%) of
equipment  leased to lessees in certain  industries  (as a  percentage  of total
equipment cost) as follows:

                              Electric utilities                            50%
                              Marine transportation                         25%

During 2001, two customers  comprised 54% and 14% of the Company's revenues from
leases.


8.  Line of credit:

The Company  participates with the Managing Member and certain of its affiliates
in a  $62,000,000  revolving  line of credit with a financial  institution  that
includes certain  financial  covenants.  The line of credit expires on April 12,
2002.  The  Managing  Member is currently  negotiating  a new line of credit and
anticipates  that the current  line of credit  will either be replaced  upon its
expiration or that the current line of credit will be extended until the new one
is  finalized.  As of December 31, 2001,  borrowings  under the facility were as
follows:
<TABLE>
<CAPTION>

<S>                                                                                               <C>
Amount  borrowed by the Company under the acquisition facility                                    $            -
Amounts borrowed by affiliated partnerships and limited liability companies under the acquisition
   facility                                                                                           17,600,000
                                                                                                 ----------------
Total borrowings under the acquisition facility                                                       17,600,000
Amounts borrowed by the Managing Member and its sister corporation under the warehouse facility *     10,999,501
                                                                                                 ----------------
Total outstanding balance                                                                            $28,599,501
                                                                                                 ================

Total available under the line of credit                                                             $62,000,000
Total outstanding balance                                                                            (28,599,501)
                                                                                                 ----------------
Remaining availability                                                                               $33,400,499
                                                                                                 ================
</TABLE>

*  (Unaudited)  The  carrying  value of the  assets  pledged as  collateral  and
financed at December 31, 2001 was $17,955,014.

Draws on the acquisition facility by any individual borrower are secured only by
that borrower's assets,  including  equipment and related leases.  Borrowings on
the  warehouse  facility  are  recourse  jointly to  certain  of the  affiliated
partnerships  and limited  liability  companies,  the  Company and the  Managing
Member.

The Company has not borrowed  under the line of credit.  Interest on the line of
credit is based on either the thirty day LIBOR rate or the bank's prime rate.

The credit agreement  includes certain  financial  covenants  applicable to each
borrower.  The Company was in  compliance  with its covenants as of December 31,
2001.



                                       22
<PAGE>

                       ATEL CAPITAL EQUIPMENT FUND IX, LLC

                          NOTES TO FINANCIAL STATEMENTS

                                DECEMBER 31, 2001


9.  Fair value of financial instruments:

The following  methods and  assumptions  were used to estimate the fair value of
each class of financial  instrument for which it is practicable to estimate that
value.

Cash and cash equivalents:

The carrying amount of cash and cash equivalents approximates fair value because
of the short-term maturity of these instruments.

Notes receivable:

The fair value of the Company's notes  receivable is estimated using  discounted
cash flow analyses, based on the Company's current incremental lending rates for
similar types of lending arrangements. The estimated fair value of the Company's
notes receivable at December 31, 2001 is $898,671.




                                       23
<PAGE>

Item 9.  CHANGES IN AND DISAGREEMENTS WITH AUDITORS ON
           ACCOUNTING AND FINANCIAL DISCLOSURES

Not applicable


                                    PART III

Item 10.  DIRECTORS AND EXECUTIVE OFFICERS

The registrant is a Limited Liability Company and, therefore, has no officers or
directors.

All of the  outstanding  capital  stock  of ATEL  Financial  Services  LLC  (the
Managing Member) is held by ATEL Capital Group ("ACG"), a holding company formed
to control ATEL and affiliated  companies.  The outstanding voting capital stock
of ATEL Capital Group is owned 5% by A. J. Batt and 95% by Dean Cash.

Each of ATEL Leasing Corporation  ("ALC"),  ATEL Equipment  Corporation ("AEC"),
ATEL  Investor  Services  ("AIS") and ATEL  Financial  Services LLC ("AFS") is a
wholly-owned  subsidiary  of ATEL Capital  Group and  performs  services for the
Company.  Acquisition  services are performed for the Company by ALC,  equipment
management, lease administration and asset disposition services are performed by
AEC,  investor  relations and  communications  services are performed by AIS and
general  administrative  services  for the Company are  performed  by AFS.  ATEL
Securities  Corporation  ("ASC") is a wholly-owned  subsidiary of ATEL Financial
Services LLC.

The officers  and  directors of ATEL  Capital  Group and its  affiliates  are as
follows:

Dean L. Cash                  Chairman of the Board of Directors of ACG, AFS,
                              ALC, AEC, AIS and ASC; President and Chief
                              Executive Officer of ACG, AFS and AEC

Paritosh K. Choksi            Director, Executive Vice President, Chief
                              Operating Officer and Chief Financial Officer of
                              ACG, AFS, ALC, AEC and AIS

Donald E. Carpenter           Vice President and Controller of ACG, AFS, ALC,
                              AEC and AIS; Chief Financial Officer of ASC

Vasco H. Morais               Senior Vice President, Secretary and General
                              Counsel for ACG, AFS, ALC, AIS and AEC

Dean L. Cash,  age 51, joined ATEL as director of marketing in 1980 and has been
a vice president since 1981,  executive vice president since 1983 and a director
since 1984.  He has been  President  and CEO since April 2001.  Prior to joining
ATEL,  Mr.  Cash was a  senior  marketing  representative  for  Martin  Marietta
Corporation, data systems division, from 1979 to 1980. From 1977 to 1979, he was
employed  by  General  Electric  Corporation,   where  he  was  an  applications
specialist in the medical systems division and a marketing representative in the
information  services division.  Mr. Cash was a systems engineer with Electronic
Data Systems from 1975 to 1977, and was involved in  maintaining  and developing
software  for  commercial  applications.  Mr.  Cash  received  a B.S.  degree in
psychology and mathematics in 1972 and an M.B.A.  degree with a concentration in
finance in 1975 from Florida State  University.  Mr. Cash is an arbitrator  with
the American Arbitration Association.



                                       24
<PAGE>

Paritosh K.  Choksi,  age 48,  joined  ATEL in 1999 as a  director,  senior vice
president  and its  chief  financial  officer.  He  became  its  executive  vice
president  and COO in April 2001.  Prior to joining  ATEL,  Mr. Choksi was chief
financial officer at Wink  Communications,  Inc. from 1997 to 1999. From 1977 to
1997, Mr. Choksi was with Phoenix American  Incorporated,  a financial  services
and management  company,  where he held various positions during his tenure, and
was senior vice president, chief financial officer and director when he left the
company.  Mr.  Choksi was involved in all  corporate  matters at Phoenix and was
responsible  for Phoenix's  capital  market needs.  He also served on the credit
committee  overseeing  all  corporate  investments,  including its venture lease
portfolio.  Mr. Choksi was a part of the executive  management team which caused
Phoenix's  portfolio to increase  from $50 million in assets to over $2 billion.
Mr. Choksi  received a bachelor of technology  degree in mechanical  engineering
from the Indian Institute of Technology,  Bombay; and an M.B.A.  degree from the
University of California, Berkeley.

Donald E. Carpenter, age 53, joined ATEL in 1986 as controller. Prior to joining
ATEL, Mr. Carpenter was an audit supervisor with Laventhol & Horwath,  certified
public accountants in San Francisco, California, from 1983 to 1986. From 1979 to
1983,  Mr.  Carpenter  was an  audit  senior  with  Deloitte,  Haskins  & Sells,
certified public accountants,  in San Jose,  California.  From 1971 to 1975, Mr.
Carpenter was a Supply Corp officer in the U. S. Navy. Mr. Carpenter  received a
B.S. degree in mathematics  (magna cum laude) from California State  University,
Fresno in 1971 and completed a second major in accounting in 1978. Mr. Carpenter
has been a California certified public accountant since 1981.

Vasco H. Morais, age 43, joined ATEL in 1989 as general counsel to provide legal
support in the  drafting  and  reviewing  of lease  documentation,  advising  on
general corporate law matters, and assisting on securities law issues. From 1986
to 1989,  Mr.  Morais was  employed  by the  BankAmeriLease  Companies,  Bank of
America's  equipment leasing  subsidiaries,  providing in-house legal support on
the  documentation  of  tax-oriented  and non-tax  oriented direct and leveraged
lease transactions, vendor leasing programs and general corporate matters. Prior
to the BankAmeriLease  Companies,  Mr. Morais was with the Consolidated  Capital
Companies in the corporate and securities legal department  involved in drafting
and reviewing  contracts,  advising on corporate law matters and  securities law
issues.  Mr.  Morais  received  a B.A.  degree  in 1982 from the  University  of
California in Berkeley,  a J.D.  degree in 1986 from Golden Gate  University Law
School and an M.B.A.  (Finance) in 1997 from Golden Gate University.  Mr. Morais
has been an active member of the State Bar of California since 1986.


Item 11.  EXECUTIVE COMPENSATION

The registrant is a Limited Liability Company and, therefore, has no officers or
directors.

Set forth hereinafter is a description of the nature of remuneration paid and to
be paid to ATEL and its Affiliates. The amount of such remuneration paid in 2001
is set forth in Item 8 of this report  under the caption  "Financial  Statements
and  Supplementary  Data - Notes to the  Financial  Statements  - Related  party
transactions," at Note 5 thereof,  which  information is hereby  incorporated by
reference.

Selling Commissions

The Company paid selling commissions in the amount of 9.5% of Gross Proceeds, as
defined, to ATEL Securities Corporation, an affiliate of ATEL.

Through December 31, 2001,  $4,145,191 of such commissions had been paid to ATEL
or its  affiliates.  Of that amount,  $3,490,687  has been  re-allowed  to other
broker/dealers.



                                       25
<PAGE>

Asset Management Fee

The Company  will pay ATEL an Asset  Management  Fee in an amount equal to 4% of
Operating Revenues,  which will include Gross Lease Revenues and Cash From Sales
or Refinancing.  The Asset  Management Fee will be paid on a monthly basis.  The
amount of the Asset  Management Fee payable in any year will be reduced for that
year to the extent it would otherwise  exceed the Asset Management Fee Limit, as
described below. The Asset Management Fee will be paid for services  rendered by
ATEL and its  Affiliates  in  determining  portfolio and  investment  strategies
(i.e.,  establishing and maintaining the composition of the Equipment  portfolio
as a whole and the Company's  overall debt structure) and generally  managing or
supervising the management of the Equipment.

ATEL will supervise performance of among others activities,  collection of lease
revenues,  monitoring  compliance by lessees with the lease terms, assuring that
Equipment  is  being  used  in  accordance   with  all   operative   contractual
arrangements,  paying operating expenses and arranging for necessary maintenance
and  repair  of  Equipment  in the  event a lessee  fails  to do so,  monitoring
property,  sales and use tax compliance and  preparation of operating  financial
data.  ATEL  intends  to  delegate  all or a portion of its duties and the Asset
Management  Fee to one or more of its  Affiliates  who  are in the  business  of
providing such services.

Asset Management Fee Limit:

The Asset  Management Fee will be subject to the Asset Management Fee Limit. The
Asset  Management  Fee Limit will be  calculated  each year during the Company's
term by  calculating  the total fees that would be paid to ATEL if the  Managing
Member were to be compensated on the basis of an  alternative  fee schedule,  to
include an Equipment  Management  Fee,  Incentive  Management Fee, and Equipment
Resale/Re-Leasing  Fee, plus ATEL's Carried Interest, as described below. To the
extent that the amount paid to ATEL as the Asset Management Fee plus its Carried
Interest for any year would exceed the aggregate amount of fees calculated under
this  alternative  fee schedule for the year,  the Asset  Management  Fee and/or
Carried  Interest  for that year will be reduced to equal the maximum  aggregate
fees under the alternative fee schedule.

To the extent any such fees are reduced,  the amount of such  reduction  will be
accrued and deferred,  and such accrued and deferred  compensation would be paid
to ATEL in a subsequent period, but only if and to the extent that such deferred
compensation  would be  payable  within the Asset  Management  Fee Limit for the
subsequent  period.  Any deferred fees which cannot be paid under the applicable
limitations  in any subsequent  period through the date of liquidation  would be
forfeited by ATEL upon liquidation.

Alternative Fee Schedule:

For purposes of the Asset  Management  Fee Limit,  the Company will calculate an
alternative schedule of fees, including a hypothetical Equipment Management Fee,
Incentive Management Fee, Equipment Resale/Re- Leasing Fee, and Carried Interest
as follows:

An Equipment  Management  Fee will be calculated to equal the lesser of (i) 3.5%
of annual Gross Revenues from  Operating  Leases and 2% of annual Gross Revenues
from Full Payout  Leases which contain Net Lease  Provisions),  or (ii) the fees
customarily  charged by others  rendering  similar services as an ongoing public
activity in the same geographic location and for similar types of equipment.  If
services with respect to certain Operating Leases are performed by nonaffiliated
persons under the active  supervision of ATEL or its Affiliate,  then the amount
so calculated shall be 1% of Gross Revenues from such Operating Leases.

An Incentive  Management Fee will be calculated to equal 4% of  Distributions of
Cash from  Operations  until  Holders have  received a return of their  Original
Invested Capital plus a Priority Distribution, and, thereafter, to equal a total
of 7.5%  of  Distributions  from  all  sources,  including  Sale or  Refinancing
Proceeds.  In  subordinating  the increase in the Incentive  Management Fee to a
cumulative  return of a  Holder's  Original  Invested  Capital  plus a  Priority
Distribution,  a Holder  would  be  deemed  to have  received  Distributions  of
Original  Invested  Capital only to the extent that  Distributions to the Holder
exceed the amount of the Priority Distribution.



                                       26
<PAGE>

An Equipment  Resale/Re-Leasing Fee will be calculated in an amount equal to the
lesser of (i) 3% of the sale price of the Equipment, or (ii) one-half the normal
competitive equipment sale commission charged by unaffiliated parties for resale
services.  Such fee would apply only after the Holders have received a return of
their Original Invested Capital plus a Priority Distribution. In connection with
the  releasing  of  Equipment to lessees  other than  previous  lessees or their
Affiliates,  the fee  would  be in an  amount  equal  to the  lesser  of (i) the
competitive rate for comparable  services for similar  equipment,  or (ii) 2% of
the gross rental payments  derived from the re-lease of such Equipment,  payable
out of each rental payment received by the Company from such re-lease.

A Carried  Interest equal to 7.5% of all  Distributions  of Cash from Operations
and Cash from Sales or Refinancing.

See Note 6 to the financial statements included in Item 8 for amounts paid.

Managing Member's Interest in Operating Proceeds

Net income,  net loss and  investment  tax credits  are  allocated  92.5% to the
Members and 7.5% to ATEL. See financial statements included in Item 8, Part I of
this report for amounts allocated to the Managing Member in 2001.


Item 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
            MANAGEMENT

Security Ownership of Certain Beneficial Owners

At December 31, 2001, no investor is known to hold  beneficially more than 5% of
the issued and outstanding Units.

Security Ownership of Management

The parent of ATEL is the beneficial owner of Limited Liability Company Units as
follows:
<TABLE>
<CAPTION>

            (1)     (2)                                (3)                      (4)
                    Name and Address of          Amount and Nature of        Percent
Title of Class      Beneficial Owner             Beneficial Ownership        of Class
--------------      ----------------             --------------------        --------

<S>                 <C>                          <C>                             <C>
Limited Liability   ATEL Capital Group           Initial Limited Liability       0.0011%
Company Units       235 Pine Street, 6th Floor   Company Units
                    San Francisco, CA  94104     50 Units ($500)
</TABLE>

Changes in Control

The Members have the right,  by vote of the Members  owning more than 50% of the
outstanding Limited Liability Company Units, to remove a Managing Member.

ATEL may at any time  call a meeting  of the  Members  or a vote of the  Members
without a meeting, on matters on which they are entitled to vote, and shall call
such  meeting  or for vote  without a  meeting  following  receipt  of a written
request  therefore  of  Limited  Partners  holding  10% or  more  of  the  total
outstanding Limited Liability Company Units.


Item 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The  responses  to Item 1 of this report  under the caption  "Equipment  Leasing
Activities," Item 8 of this report under the caption  "Financial  Statements and
Supplemental  Data  -  Notes  to  the  Financial   Statements  -  Related  party
transactions"  at Note 5 thereof,  and Item 11 of this report  under the caption
"Executive Compensation," are hereby incorporated by reference.




                                       27
<PAGE>

                                     PART IV

Item 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
               ON FORM 8-K

                          (a)Financial Statements and Schedules
                          1.  Financial Statements
                              Included in Part II of this report:
                              Report of Independent Auditors
                              Balance Sheets at December 31, 2001 and 2000
                              Statement of income for the year ended December
                                 31, 2001
                              Statement of Changes in Members' Capital for the
                                 period  from  September  27,  2000  (inception)
                                 through  December  31,  2000  and for the  year
                                 ended December 31, 2001
                              Statement  of  Cash  Flows  for  the  period  from
                                 September 27, 2000 (inception) through December
                                 31, 2000 and for the year ended December 31,
                                 2001
                              Notes to Financial Statements

                          2.  Financial Statement Schedules
                              Allschedules for which provision is made in the
                                 applicable   accounting   regulations   of  the
                                 Securities  and  Exchange  Commission  are  not
                                 required under the related  instructions or are
                                 inapplicable and, therefore, have been omitted.

                          (b) Reports on Form 8-K for the fourth quarter of 2001
                              Not applicable

                          (c)Exhibits
                              None


                                       28
<PAGE>

                                   SIGNATURES


Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized.



    Date:  3/25/2002

                           ATEL Capital Equipment Fund IX, LLC
                             (Registrant)


     By: ATEL Financial Services LLC,
           Managing Member of Registrant



                     By:   /s/ Dean L. Cash
                           ---------------------------------------------------
                           Dean Cash
                           President of ATEL Financial Services LLC (Managing
                              Member)





                     By:   /s/ Paritosh K. Choksi
                           ---------------------------------------------------
                           Paritosh K. Choksi
                           Executive Vice President of ATEL Financial Services
                              LLC (Managing Member)






                                       29
<PAGE>

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has  been  signed  below  by the  persons  in the  capacities  and on the  dates
indicated.


         SIGNATURE                  CAPACITIES                           DATE



    /s/ Dean L. Cash        President, Chairman and Chief             3/25/2002
--------------------------  Executive Officer of ATEL Financial
        Dean Cash           Services LLC



 /s/ Paritosh K. Choksi     Principal financial officer of            3/25/2002
--------------------------  registrant; principal financial officer
   Paritosh K. Choksi       and director of ATEL Financial Services
                            LLC



 /s/ Donald E. Carpenter    Principal accounting officer of           3/25/2002
--------------------------  registrant; principal accounting officer
   Donald E. Carpenter      of ATEL Financial Services LLC



Supplemental  Information to be Furnished With Reports Filed Pursuant to Section
15(d) of the Act by Registrants Which Have Not Registered Securities Pursuant to
Section 12 of the Act:


No proxy  materials  have been or will be sent to  security  holders.  An annual
report will be furnished to security  holders  subsequent  to the filing of this
report on Form 10-K, and copies thereof will be furnished  supplementally to the
Commission when forwarded to the security holders.



                                       30
<PAGE>

                                INDEX TO EXHIBITS

        Index Number                              Exhibit

           3 & 4              Limited Liability Company Operating Agreement,
                              included as Exhibit B to Prospectus


            28.1              Prospectus






                                       31
<PAGE>
                                    EXHIBIT


                       ATEL CAPITAL EQUIPMENT FUND IX, LLC
                         Limited Liability Company Units


ATEL  Capital  Equipment  Fund  IX,  LLC  will buy a  diversified  portfolio  of
primarily low-technology equipment and lease the equipment to corporations. ATEL
Financial  Corporation is its Manager.  The Fund will collect lease payments and
eventually sell the equipment.  Its objective will be to distribute to investors
the lease payments and sales proceeds  remaining  after it pays its expenses and
fees. The Fund intends to use approximately  86.5% of the capital it raises from
the  sale of  Units  to  purchase  its  investments  in  equipment.  At least an
additional  one-half  of one  percent  of its  initial  capital  will be held as
reserves. Of the remaining capital, 9.5% will be used to pay selling commissions
and up to 3.5% will be used to pay other offering expenses.


A purchase of Units involves risks. See "Risk Factors" on page 9. Risks include:

  -      Investors must rely on ATEL to manage the Fund;

  -      The Fund will pay ATEL substantial fees;

  -      The Fund has not specified all its equipment investments;

  -      The Fund's performance  is subject to the risk of lessee defaults;

  -      The Fund will borrow to buy equipment;

  -      An investor's ability to sell his Units is limited; and
The Fund is  offering a total of  15,000,000  of its Units of limited  liability
company  interest  for a price of $10 per Unit.  An  investor  must  purchase  a
minimum of 250 Units,  except  that an  Individual  Retirement  Account or other
retirement  plan can  purchase  a minimum  of 200  Units.  No Units will be sold
unless a minimum  of  $1,200,000  in cash is  received  within one year from the
start of the offering.  The Fund will deposit its subscriptions in a bank escrow
account  until that amount is  received.  The brokers  selling the Units are not
required to sell any specific  number of Units,  but will use their best efforts
to sell Units.

  - The Fund does not  guarantee its  distributions  or the return of investors'
capital.

           Price to       Selling       Proceeds to
           Public         Commissions   Fund
           ------         -----------   ----
Per Unit   $10            $0.95         $9.05        THE DATE OF THIS PROSPECTUS
Total                                                IS  January 16, 2001
  Minimum  $1,200,000     $114,000      $1,086,000
Total
  Maximum  $150,000,000   $14,250,000   $135,750,000
           ------------   -----------   ------------



          Neither the Securities and Exchange Commission nor any state
       securities commission has approved or disapproved these securities
      nor has any state securities commission passed upon the accuracy or
        adequacy of this prospectus. Any representation to the contrary
                             is a criminal offense.


               [Sticker to be inserted on prospectus cover page]

The prospectus consists of this sticker, the prospectus dated January 16, 2001
and the cumulative prospectus Supplement No. 1 dated April 30, 2001.


<PAGE>




                                TABLE OF CONTENTS
                                                                            Page

SUMMARY OF THE OFFERING...................................................     6
    The Fund..............................................................     6
    Management............................................................     6
    Risk Factors..........................................................     6
    Who Should Invest.....................................................     6
    Use of Capital........................................................     7
    ATEL's Fees...........................................................     7
    Income, Losses and Distributions......................................     7
    Income Tax Consequences...............................................     7
    Summary of the Operating Agreement....................................     8
    Plan of Distribution..................................................     9

RISK FACTORS..............................................................     9
    Equipment Leasing Risks...............................................     9
    Risks Inherent in the Structure of the Fund...........................    12
    Risks Relating to Tax Matters.........................................    14
    Risks Relating to ERISA Matters.......................................    15

WHO SHOULD INVEST.........................................................    16

ESTIMATED USE OF PROCEEDS.................................................    18

MANAGEMENT COMPENSATION...................................................    20
    Summary Table.........................................................    20
    Narrative Description of Compensation.................................    21
    Limitations on Fees...................................................    22
    Defined Terms Used in Description of Compensation.....................    25

INVESTMENT OBJECTIVES AND POLICIES........................................    27
    Principal Investment Objectives.......................................    27
    General Policies......................................................    27
    Types of Equipment....................................................    30
    Prior Program Diversification.........................................    34
    Borrowing Policies....................................................    34
    Description of Lessees................................................    36
    Foreign Leases........................................................    37
    Description of Leases.................................................    38
    Growth Capital Equipment Financing....................................    39
    Competition...........................................................    41
    Joint Venture Investments.............................................    41
    General Restrictions..................................................    42
    Changes in Investment Objectives and Policies.........................    43


                                        2

<PAGE>




CONFLICTS OF INTEREST.....................................................    43

ORGANIZATIONAL DIAGRAM....................................................    46

FIDUCIARY DUTY OF THE MANAGER.............................................    46

MANAGEMENT................................................................    47
    The Manager...........................................................    47
    Selection and Management of Investments...............................    49
    Management Compensation...............................................    50
    Changes in Management.................................................    50
    The Dealer Manager....................................................    50

PRIOR PERFORMANCE SUMMARY.................................................    51

INCOME, LOSSES AND DISTRIBUTIONS..........................................    53
    Allocations of Net Income and Net Loss................................    54
    Timing of Distributions...............................................    54
    Allocations of Distributions..........................................    54
    Reinvestment..........................................................    55
    Return of Unused Capital..............................................    55
    Cash from Reserve Account.............................................    56
    Sources of Distributions - Accounting Matters.........................    56

CAPITALIZATION............................................................    57

MANAGEMENT'S DISCUSSION AND ANALYSIS
  OF FINANCIAL CONDITION..................................................    57
    Year 2000 Compliance..................................................    58

FEDERAL INCOME TAX CONSEQUENCES...........................................    59
    Opinion of Derenthal & Dannhauser.....................................    60
    Classification as a Partnership.......................................    60
    Allocations of Profits and Losses.....................................    62
    Income Recognition....................................................    63
    Taxation of Investors.................................................    64
    Limitation on Deduction of Losses.....................................    64
    Tax Basis.............................................................    64
    At Risk Rules.........................................................    65
    Passive Loss Limitation...............................................    65
    Tax Status of Leases..................................................    66
    Cost Recovery.........................................................    66
    Tax Consequences Respecting Equity Interests..........................    67
    Deductibility of Management Fees......................................    68
    Tax Liability in Later Years..........................................    68
    Sales or Exchanges of Fund Equipment..................................    68

                                        3

<PAGE>




    Disposition of Units..................................................    69
    Liquidation of the Fund...............................................    69

    Fund Elections........................................................    70
    Treatment of Gifts of Units...........................................    70
    Investment by Qualified Retirement Plans and IRAs.....................    70
    Individual Tax Rates..................................................    71
    Alternative Minimum Tax...............................................    71
    Fund Tax Returns and Tax Information..................................    74
    Interest and Penalties................................................    74
    Audit of Tax Returns..................................................    75
    Registration Provisions...............................................    76
    Miscellaneous Fund Tax Aspects........................................    76
    Foreign Tax Considerations of U.S. Investors..........................    77
    U.S. Taxation of Foreign Persons......................................    77
    Future Federal Income Tax Changes.....................................    77
    State and Local Taxes.................................................    78
    Need for Independent Advice...........................................    78

ERISA CONSIDERATIONS......................................................    78
    Prohibited Transactions Under ERISA and the Code......................    78
    Plan Assets...........................................................    79
    Other ERISA Considerations............................................    80

SUMMARY OF THE OPERATING AGREEMENT........................................    80
    The Duties of the Manager.............................................    80
    Liability of Holders..................................................    81
    Term and Dissolution..................................................    81
    Voting Rights of Members..............................................    81
    Dissenters' Rights and Limitations on Mergers and Roll-ups............    82
    Meetings..............................................................    82
    Books of Account and Records..........................................    83
    Status of Units.......................................................    83
    Transferability of Units..............................................    83
    Repurchase of Units...................................................    86
    Indemnification of the Manager........................................    86

PLAN OF DISTRIBUTION......................................................    87
    Distribution..........................................................    87
    Selling Compensation and Certain Expenses.............................    87
    Escrow Arrangements...................................................    88
    Investments by Certain Persons........................................    89
    State Requirements....................................................    89

REPORTS TO HOLDERS........................................................    90


                                        4

<PAGE>




SUPPLEMENTAL SALES MATERIAL...............................................    91

LEGAL OPINIONS............................................................    92

EXPERTS...................................................................    92

ADDITIONAL INFORMATION....................................................    92

GLOSSARY..................................................................    92

FINANCIAL STATEMENTS......................................................   F-1

Exhibit A - Prior Performance Information.................................   A-1
Exhibit B - Operating Agreement...........................................   B-1
Exhibit C - Subscription Instructions and Documents.......................   C-1




                                        5

<PAGE>


                             SUMMARY OF THE OFFERING

         This summary outlines the main points of the offering. The summary does
not  replace  the  more  detailed  information  found in the  remainder  of this
Prospectus.  All prospective  investors are urged to read this Prospectus in its
entirety.

The Fund:                  The Fund is a California  limited liability company
                           which intends to invest in a variety of  types  of
                           equipment and to lease the equipment to corporations.
                           The Fund expects  to  acquire  mostly  low-technology
                           equipment  such   as  the basic equipment used  by
                           companies   in  the  manufacturing,  mining, and
                           transportation industries.  The portfolio  will also
                           include some more high-technology equipment, such as
                           communications  equipment, medical equipment  and
                           office equipment. The Fund will seek to buy equipment
                           and leases  that will produce lease  payments and
                           eventual sales prices which will provide a favorable
                           return on its investments and cash distributions  to
                           its investors. The Fund's equipment will primarily be
                           leased to major publicly owned corporations. Some of
                           its  equipment investments will finance capital
                           equipment for other public and private companies. In
                           some of  these  investments, the Fund may acquire
                           equity interests and warrants and rights to purchase
                           equity interests in these companies.

Management:                The Manager of the Fund is ATEL Financial
                           Corporation.   ATEL and its family of related ATEL
                           companies will provide various services to the Fund,
                           including asset management and company
                           administration.  ATEL will be responsible for
                           supervising all of the Fund's business and affairs.
                           ATEL will act as a fiduciary to the Fund, and,
                           consequently, is required to exercise good faith and
                           integrity in all dealings with respect to Fund
                           affairs. The offices of the Fund and ATEL are located
                           at 235 Pine Street, 6th Floor, San Francisco,
                           California  94104, and its telephone numbers are
                           (415) 989-8800 and (800) 543-ATEL (2835).

Risk Factors:              An investment in Units involves risks, including the
                           following:

                            -  Investors  must rely on ATEL to manage the Fund's
                               business.

                            -  The Fund will pay ATEL substantial fees.

                            -  The Fund has not specified all its equipment
                               investments;

                            -  The Fund's performance  is subject to the risk of
                               lessee defaults;

                            -  The Fund will borrow to buy equipment
                               investments;

                            -  An investor's ability to sell his Units is
                               limited; and

                            -  The Fund does not guarantee its  distributions or
                               the return of investors' capital.

Who Should Invest:          The Units are a long-term investment, with a primary
                            objective of regular cash distributions. Investors
                            must satisfy minimum net worth and income
                            requirements which require, generally, that
                            investors have either:

                                        6

<PAGE>

                           -  an annual gross income of at least $45,000 and a
                              net worth (exclusive of home, home furnishings and
                              automobiles) of at least $45,000; or

                           -  a net worth (determined with the same exclusions)
                              of at least $150,000.


Use of Capital:            The   Fund   expects    to    invest    approximately
                           86.5% of its  capital  in  the  cash  portion  of the
                           purchase price of equipment.  It intends to retain an
                           additional  0.5%  as  reserves  for  general  working
                           capital  purposes,  and to  use  the  balance  to pay
                           selling commissions equal to 9.5%, and other offering
                           and organization  expenses in the estimated amount of
                           from 2.5% to 3.5% .


ATEL's Fees:               The   Fund   will  pay   ATEL  and  its   family   of
                           related  companies  substantial fees and compensation
                           in connection with this offering and the operation of
                           the Fund's business, including the following:

                           -   ATEL  Securities  Corporation  organize  and
                               manage the group of  broker-dealers  selling
                               the   Units.   It   will   receive   selling
                               commissions  most of  which  will pay to the
                               participating    broker    dealers.     ATEL
                               Securities Corporation may retain up to 1.5%
                               of the sale price of Units.

                           -   The  Fund  will  pay  ATEL an  annual  asset
                               management fee equal to 4%  of  the revenues
                               from   leases   and  sales  of  the   Fund's
                               equipment, subject to fee limits.

                           -   ATEL will have an interest equal to 7.5% of all
                               of the Fund's income, loss and cash
                               distributions.

                           The  Fund  will  also  reimburse  ATEL  for  offering
                           expenses and  administrative  expenses ATEL incurs on
                           behalf of the Fund, subject to some limitations.

Income, Losses
and Distributions:         Fund income and loss for tax purposes and cash
                           distributions will be allocated 92.5% to investors
                           and 7.5% to ATEL. The Fund intends to distribute all
                           cash revenues remaining after the Fund

                           -   pays its expenses, including fees paid to ATEL,

                           -   establishes or restores its capital reserves, and

                           -   to the extent permitted, sets aside amounts for
                               reinvestment in additional equipment.

                           Until the end of a six-year period  following the end
                           of the  offering  of Units,  the Fund may  invest its
                           revenues  in  additional  equipment.  Before  it  can
                           reinvest its revenues,  though, it must first satisfy
                           conditions   which  include   distributions  to  each
                           investor  for the  year  equal  to at least 8% of the
                           purchase price of the Units.

Income Tax
Consequences:              This  Prospectus  has a discussion of federal  income
                           tax  consequences  relating to an investment in Units
                           under the caption "Federal Income Tax  Consequences".
                           Investors should consult with their tax and financial
                           advisors to determine  whether an investment in Units
                           is suitable for their portfolio.

                                        7

<PAGE>
Summary of the
Operating                  Agreement:  The Operating  Agreement that will govern
                           the relationship  between the investors and ATEL is a
                           complex  legal  document.  The  following  is a brief
                           summary  of  certain   provisions  of  the  Operating
                           Agreement  discussed in greater detail under "Summary
                           of the Operating Agreement."

                           -        Voting Rights of Members. Each investor will
                                    become a  member  of the  Fund,  and will be
                                    entitled  to cast one  vote  for  each  Unit
                                    owned  as of the  date  record  date for any
                                    vote of all the  members.  The  members  are
                                    entitled to vote on only certain fundamental
                                    organizational  matters  affecting the Fund,
                                    and  have no  voice  in Fund  operations  or
                                    policies.

                           -        Meetings.  ATEL or  Members  holding  10% or
                                    more of the total outstanding Units may call
                                    a meeting  of the  Members  or a vote of the
                                    Members  without a  meeting,  on  matters on
                                    which they are entitled to vote.

                           -        Dissenters'   Rights  and   Limitations   on
                                    Mergers   and   Roll-ups.    The   Operating
                                    Agreement  provides  Members with protection
                                    in a  proposed  reorganization  in which the
                                    investors  would be issued new securities in
                                    the resulting entity.


                           -        Transferability of Units. ATEL may condition
                                    any  proposed  transfer  of Units on,  among
                                    other things, legal opinions confirming that
                                    the  proposed  transfer  does  not  violate
                                    securities  laws  and  will  not  result  in
                                    adverse tax  consequences  to the Fund.  The
                                    Fund will not permit any transfer which does
                                    not  follow  the  rules  in  the   Operating
                                    Agreement.

                           -        Liability of Investors.  Under the Operating
                                    Agreement  and  California  law, an investor
                                    complying with the Operating  Agreement will
                                    not personally be liable for any debt of the
                                    Fund.


                           -        Status   Of  Units.   Under  the   Operating
                                    Agreement,  each Unit will be fully paid and
                                    nonassessable   and  all  Units  have  equal
                                    voting and other  rights,  except  there are
                                    limitations  on the  voting of Units held by
                                    ATEL.

                           -        Term and  Dissolution.  The Fund  intends to
                                    begin  selling  its assets and  distributing
                                    all available cash to its Members  beginning
                                    after  the  end  of  the  sixth   full  year
                                    following the end of the offering,  with the
                                    final  distribution  expected  approximately
                                    ten to eleven years after the termination of
                                    the  offering.  In any event,  the Fund must
                                    end no later than December 31, 2020.

                           -        Books  of  Account  and  Records.   ATEL  is
                                    responsible  under the  Operating  Agreement
                                    for keeping  books of account and records of
                                    the Fund showing all of the contributions to
                                    the  capital  of  the  Fund  and  all of the
                                    expenses and transactions of the Fund. These
                                    books of account and records will be kept at
                                    the principal  place of business of the Fund
                                    in the State of California,  and each Member
                                    and  his  authorized  representatives  shall
                                    have,   at  all  times   during   reasonable
                                    business hours, free access to and the right
                                    to  inspect  and copy at their  expense  the
                                    books of the  Fund,  and each  Member  shall
                                    have the right to compel the Fund to deliver
                                    copies  of  certain  of  these   records  on
                                    demand.

                                        8
<PAGE>

                           -        Indemnification   of  ATEL.   The  Operating
                                    Agreement provides that ATEL and its related
                                    companies who perform  services for the Fund
                                    will   be   indemnified    against   certain
                                    liabilities.

Plan of Distribution:      The Units will be offered through ATEL Securities
                           Corporation, the dealer manager, who will
                           organize a group of  other broker-dealers who are
                           members of the National Association of Securities
                           Dealers, Inc. ("NASD").

                           Until  subscriptions for a total of 120,000 Units are
                           received and accepted,  all offering proceeds will be
                           deposited  in an escrow  account.  Upon  receipt  and
                           acceptance of  subscriptions  to a minimum of 120,000
                           Units, the subscription  proceeds will be released to
                           the Fund.  The offering will terminate not later than
                           two years from the date of this Prospectus.



                                  RISK FACTORS

         The purchase of Units  involves  various  risks.  Therefore,  investors
should  consider  the  following   factors,   among  others  discussed  in  this
Prospectus, before making a decision to purchase Units.

Equipment Leasing Risks

         The  success  of the Fund  will be  subject  to risks  inherent  in the
equipment leasing business.  A number of factors may threaten the Fund's ability
to operate profitably. These include:

-        the quality of the equipment the Fund buys and leases,

-        the continuing strength of the Equipment manufacturers,

-        the timing of purchases and the ability to forecast technological
         advances for equipment,

-        technological and economic obsolescence,

-        defaults by lessees, and

-        increases in Fund expenses(including energy, labor, taxes and insurance
         expenses).

         The Fund may be harmed if a lessee  defaults on its lease.  If a lessee
does not make  lease  payments  to the Fund when they are due under its lease or
violates the terms of its lease contract in another  important way, the Fund may
be forced to cancel the lease and recover the equipment. The Fund may do this at
a time when the  Manager may be unable to arrange for a new lease or the sale of
such Equipment  right away. The Fund would then lose the expected lease revenues
and  might  not be  able to  recover  the  entire  amount  of the  its  original
investment. If a lessee files for protection under the bankruptcy laws, the Fund
may  experience  difficulties  and delays in recovering  the equipment  from the
defaulting  lessee. The Equipment may be returned in poor condition and the Fund
may be unable to enforce important lease provisions against an insolvent lessee,
including  the  contract  provisions  that  require  the  lessee to  return  the
equipment in good condition.  In some cases, a lessee's deteriorating  financial
condition may make trying to recover what the lessee owes the Fund  impractical.
The  costs of  recovering  equipment  upon a  lessee's  default,  enforcing  the
lessee's obligations under the lease, and transporting,  storing,  repairing and
finding a new lessee or purchaser  for the  Equipment may be high and may affect
the Fund's profits.

                                        9

<PAGE>

         The amount of the Fund's profit will depend in part on the value of its
equipment when the leases end. In general,  leased  equipment loses value over a
lease term.  In  negotiating  leases,  the  Manager  will assume a value for the
equipment  at the end of the lease.  The Manager will seek lease  payments  plus
equipment  value at the end of the lease  which is enough to return  the  Fund's
investment in the equipment and provide a profit.  The value of the equipment at
the end of a lease will depend on a number of factors, including:

-        the condition of the equipment;

-        the cost of similar new equipment; and

-        whether the Equipment has become obsolete.

The Fund cannot assure that its value  assumptions  will be accurate or that the
equipment will not lose value more rapidly than anticipated.

         The Fund may lease equipment outside of the United States. The Fund may
lease  equipment to foreign  subsidiaries of United States  corporations  and to
foreign  lessees.  The Fund may also lease equipment to U.S. lessees which is to
be used  outside the United  States.  The Manager  will seek to limit the Fund's
total cash  investment  in  equipment  under  foreign  leases or used  primarily
outside the United States to not more than 20% of its capital.  The laws, courts
and tax authorities of a foreign country may govern the Fund's  equipment leased
or used in that  country.  The Fund will attempt to require  foreign  lessees to
consent to the  jurisdiction  of U.S.  courts if disputes should arise under the
lease.  Even if the Fund is  successful  in this  effort,  if a  foreign  lessee
defaults  the Fund may find it  difficult  or  impossible  to enforce  judgments
against foreign  lessees,  recover leased equipment or enforce the Fund's rights
under the lease.  Also, the use and operation of equipment in foreign  countries
may result in unanticipated taxes or confiscation without fair compensation. The
Fund will attempt to negotiate lease provisions which require:

-        payment in U.S. currency;

-        reimbursement for any foreign taxes billed to the Fund; and

-        insurance covering the risk of confiscation.

If lease payments or other lease terms involve payments in foreign currency, the
Fund will be subject to the risk of currency exchange rate  fluctuations,  which
could reduce the Fund's  overall  profit on an  investment.  Many countries also
have laws regulating the transfer and exchange of currencies, and these laws may
affect a foreign lessee's ability to comply with lease terms.  Finally,  certain
depreciation or cost recovery methods used in calculating taxable income may not
be available for  equipment  leased by a foreign  lessee or "used  predominantly
outside the United States."

         Demand  for  equipment  fluctuates.  The  Fund's  ability  to keep  the
equipment  leased  and the terms of its  purchase,  lease and sale of  equipment
depend on various  factors,  many of which  neither the Manager nor the Fund can
control.  Factors which have an effect on the demand for  equipment  include the
effects  of  inflation  or  recession,  and  fluctuations  in supply  and demand
resulting from, among other things, technological and economic obsolescence.

         The  equipment  leasing  industry  is  highly  competitive.   Equipment
manufacturers,  corporations, partnerships and others offer users an alternative
to the purchase of most types of equipment  with payment terms which vary widely

                                       10

<PAGE>

depending on the lease term and  type  of  equipment.  In  seeking  leases,  the
Fund will  compete with  financial  institutions,  manufacturers  and public and
private leasing  companies,  many of which may have greater financial  resources
than the Fund.

         Risks of leases that depend for profit on equipment value at the end of
the lease. Most of the Fund's leases will provide for total lease payments which
are less than the original price of the  equipment.  At the end of these leases,
the Fund must either renew the lease, find a new lessee or sell the equipment to
cover its investment and make a profit.

         Equipment may be damaged or lost.  Fire,  weather,  accident,  theft or
other  events  can cause  the  damage or loss of  equipment.  Not all  potential
casualties can be insured,  and, if insured,  the insurance  proceeds may not be
sufficient to cover a loss.

         Some types of equipment are under special  government  regulation.  The
use,  maintenance  and  ownership of certain types of equipment are regulated by
federal, state and/or local authorities. Regulations may impose restrictions and
financial burdens on the Fund's ownership and operation of equipment. Changes in
government  regulations,  industry standards or deregulation may also affect the
ownership, operation and resale value of equipment.

         In addition,  certain  types of  equipment,  such as  railcars,  marine
vessels and aircraft,  are subject to extensive safety and operating regulations
imposed  by  government  and/or  industry   organizations.   These  agencies  or
organizations  may require changes or improvements to equipment and the Fund may
have to spend its own  capital to comply.  These  changes  may also  require the
equipment to be removed  from service for a period of time.  The terms of leases
may provide for rent  reductions if the equipment must remain out of service for
an extended  period or is removed from  service.  The Fund may then have reduced
operating revenues from the leases for these items of equipment. If the Fund did
not have the capital to make a required change, it might be required to sell the
affected  equipment  or to sell other items of its  equipment in order to obtain
the  necessary  cash;  in  either  event,  the Fund  could  suffer a loss on its
investment and might lose future revenues,  and the Fund might also have adverse
tax consequences.

         A portion of the Fund's  equipment  portfolio will consist of financing
provided to  entities  without  substantial  operating  histories  or records of
profitability.  The Fund will primarily lease equipment to large and established
corporations. However, the Fund may invest up to 20% of its capital in providing
financing  to companies  which do not have  substantial  operating  histories or
records of profitability, and which are developing products or services prior to
bringing  them  to  market,  including  development  of some  new  and  untested
technologies.  Because of their stage of  development  and the types of products
and  technologies  they are seeking to  develop,  these  companies  will be more
subject to  changes  and  fluctuations  in  financial,  technology  and  product
markets.  These lessees and borrowers  therefore  will involve  greater risks of
default than  financing,  and  investment  in, more  established,  profitable or
investment grade entities.

         Risks Relating to Lending Activities.  In addition to credit risks, the
Fund may be subject to other risks in equipment financing  transactions in which
it is deemed to be a lender.  Some courts have held that certain  loan  features
such as equity interests constitute  additional  interest.  State laws determine
what rates of interest are deemed usurious, when the applicable rate of interest
is determined  and how it is  calculated.  Although the Fund will generally seek
assurances  and or opinions to the effect that its  transactions  do not violate
applicable usury laws, a finding that an equity interest is additional  interest
could  result in a court  determining  that the rate of interest  charged by the
Fund is  usurious,  the  "interest"  obligation  under the Fund's  loan could be
declared  void,  and the Fund could be deemed  liable for  damages or  penalties
under the applicable state law.

         The Fund will be subject to the risk of claims  asserting  theories  of
"lender liability". Various common law and statutory theories have been advanced
to hold lenders liable to their borrowers. The general principle underlying this
theory of  liability  is that  lenders  have a form of duty to their  borrowers,

                                       11

<PAGE>



regardless  of the  terms  of  the   loan   agreements   and   other   financing
documents.  Breach of that duty by the lender can lead to liability  for damages
to the  borrower.  The Fund and its  Manager  intend to act in good faith in all
dealings  with the Fund's  borrowers  and in a manner  designed to mitigate  any
potential for such liability. Nevertheless, this area of law is rapidly changing
and there can be no assurance that actions the Fund believes are  appropriate to
take in  protecting  the  Fund's  interests  as lender  might not cause it to be
liable for a deemed breach of a duty to a borrower.


         The Fund may not be able to register  aircraft or marine  vessels.  The
Fund may  invest in  aircraft  or marine  vessels.  Aircraft  or marine  vessels
operated in the United  States  must be  registered  with the  Federal  Aviation
Administration   ("FAA")  or  the  U.S.  Coast  Guard   ("USCG"),   which  limit
registration  to aircraft or marine vessels owned by U.S.  Citizens and Resident
Aliens.  The FAA's and USCG's Rules are not clear on the status of certain forms
of entity which own aircraft or marine vessels.  The Fund will acquire  aircraft
or marine vessels only if they are  appropriately  registered.  If  registration
were later  revoked for any reason,  the aircraft or marine  vessel could not be
operated in the United States airspace or territorial waters, and the Fund would
be subject to resulting risks,  including a possible forced sale of the aircraft
or marine vessel,  possible  uninsured  casualties,  the loss of benefits of the
central recording system under federal law and a breach by the Fund of leases or
financing agreements.

Risks Inherent in the Structure of the Fund

         Investors  will have limited  voting rights and must rely on management
for the success of the Fund.  ATEL,  as the Manager,  will make all decisions in
the  management  of the Fund.  The success of the Fund will,  to a large extent,
depend on the quality of its management, particularly decisions on the purchase,
leasing and sale of its  equipment.  Investors are not permitted to take part in
the management of the Fund and have only limited  voting rights.  An affirmative
vote by holders of a majority of the Units is required to remove the Manager. No
person  should  purchase  Units  unless he is willing to entrust  all aspects of
management  of  the  Fund  to  the  Manager  and  has  evaluated  the  Manager's
capabilities to perform such functions.

         The manager will receive  substantial  compensation.  The Fund will pay
substantial fees to the Manager and its related  companies before  distributions
are paid to  investors  even if the Fund does not produce  profits.  The Manager
will also be subject to conflicts of interest in its  management of the Fund. In
particular,  the Fund  expects  to  borrow  up to 50% of the  aggregate  cost of
equipment,  and this will result in higher  Asset  Management  Fees than if less
debt were incurred.

         The  Fund has not  identified  all of its  equipment  and  lessees.  An
investor  cannot  assess all of the  potential  risks of an  investment in Units
because  all of the  equipment  to be  purchased  and the  lessees  to whom  the
equipment will be leased have not been identified.  A prospective  investor will
not have complete  information as to the  manufacturers of the Fund's equipment,
the  number of leases to be  entered  into,  the  specific  types and  models of
equipment  to  be  acquired,   or  the   identity,   financial   condition   and
creditworthiness  of the companies who will lease its Equipment.  Investors must
rely upon the judgment and ability of the Manager in its  selection of equipment
to purchase, the evaluation of equipment manufacturers, the selection of lessees
and the negotiation of leases.

         The Fund  will  borrow  to buy  equipment  and will  bear the  risks of
borrowing.  The  Fund  will  borrow  a  portion  of the  purchase  price  of its
equipment.  The  Fund  expects  to  borrow  a total  amount  equal to 50% of the
aggregate  cost of its  equipment,  the maximum  permitted  under the  Operating
Agreement. The Fund can expect to make a profit on equipment purchased with debt
only if the  equipment  produces  more than enough cash from lease  payments and
sales price to pay the principal and interest on the debt,  recover the purchase
price and cover fees and other operating expenses.


                                       12

<PAGE>




The Fund intends to use both:

-        debt in which only the asset financed by the lender is collateral
         securing the obligation, and

-        debt in which all of the Fund's assets or a selected pool of the assets
         are collateral securing the obligation.

         When a borrower  defaults on a secured loan, the lender usually has the
right to immediate  payment of the entire debt and to sell the collateral to pay
the debt.  In this way, the Fund's  borrowing may involve a greater risk of loss
than if no debt  were  used,  because  the  Fund  must  meet its  fixed  payment
obligations  regardless of the amount of revenue it receives from the equipment.
At the same time,  the use of debt  increases the  potential  size of the Fund's
equipment  portfolio,  the amount of lease revenues and potential sale proceeds.
Greater  amounts  of debt  would also  increase  the total  fees  payable to the
Manager, because its asset management fees are determined as a percentage of the
Fund's total revenues.

         The amount and terms of debt  available to the Fund for the purchase of
equipment may also determine the amount of cash distributed to investors and the
amount of tax  benefits  they  receive.  The Fund has not entered  into any loan
agreements,  and it cannot  guarantee the  availability or terms of any possible
debt financing.

         The Fund may borrow on terms  which  provide  for a lump sum payment on
the due date. The Fund may have debt which is not repaid in regular installments
over the term of the  loan,  but  requires  a large  payment  of  principal  and
interest on the final due date. This "balloon payment" debt is riskier than debt
which is repaid in regular  installments over the term of the loan,  because the
Fund's  ability to repay the loan when it becomes  due may depend on its ability
to find a new loan or a buyer when the lump sum  payment is due.  If the economy
is not favorable at that time or the value of the equipment has fallen, the Fund
might default on its loan and lose the equipment.

         There are significant  limitations on the transferability of Units. The
Manager will take steps to assure that no public trading market develops for the
Units. If a public trading market were to develop,  the Fund could suffer a very
unfavorable change in the way it is taxed under the federal tax laws.  Investors
will  probably not be able to sell their Units for full value if they need to in
an  emergency.  Units  may  also  not be  accepted  as  collateral  for a  loan.
Consequently, investors should consder the purchase of Units only as a long-term
investment.

         The amount of capital  actually  raised by the Fund may  determine  its
diversification  and  profitability.  The Fund's  offering will be not less than
$1,200,000  nor more than  $150,000,000.  If the Fund  receives only the minimum
capital,  it will be harder to diversify  its  equipment  and  lessees,  and any
single lease  transaction  will have a greater impact on its potential  profits.
The  Fund  has  no  minimum  number  of  lease  transactions  nor is  there  any
restriction  on the  percentage  of the minimum  capital which it may use to buy
equipment of a single type or equipment leased to a single lessee.

         A  substantial  portion of Fund  distributions  from lease  revenues is
expected to be a return of capital.  The amount of cash the Fund will distribute
to investors  each year is not the same as the amount of taxable  income that is
passed  through to the investor.  For example,  the Fund may have tax deductions
which do not  represent  direct  cash  expenses,  so the Fund may have more cash
available to distribute than it has taxable income.  When an investor receives a
distribution of more cash in a year than his share of income,  he will be deemed
to be receiving a return of his invested capital rather than investment  income.
Distributions by the Fund may be characterized  differently for tax,  accounting
and economic purposes as a return of capital,  investment income or a portion of
each. The portion of total  distributions  which will be a return of capital and
the portion which will be  investment  income at the end of the Fund will depend
on a number of factors in the Fund's operations,  and cannot be determined until
all of its equipment is sold and an investor can compare the total amount of all
cash distributions to the total capital invested.

                                       13

<PAGE>



         The Fund is a  newly-formed  entity.  The Fund was formed in September
2000, and has no operating history.


         A delay in the  investment  could affect the Fund's ability to meet its
investment objectives.  Any overall decline in corporate expansion or demand for
capital goods could delay  investment of the Fund's capital,  and its production
of lease revenues.

         Investment  by the Fund in joint  ownership  of  Equipment  may involve
risks. Some of the Fund's investments may be owned by joint ventures between the
Fund and unaffiliated  third parties or, under certain  circumstances,  programs
related to the Fund or the  Manager,  or as  co-owners  with such  parties.  The
investment by the Fund in joint ownership of equipment,  instead of investing in
the Equipment directly or as the sole owner, may involve risks such as:

-        the Fund's co-venturer might become bankrupt,

-        the co-venturer may have interests or goals which are inconsistent with
         those of the Fund,

-        the parties may reach an impasse on joint venture decisions, or

-        the co-venturer may be in a position to take  action  contrary  to  the
         instructions or the requests of the Fund  or  contrary  to  the  Fund's
         policies or objectives, or

-        actions by a co-venturer might have the result of subjecting  equipment
         owned  by  the  joint  venture  to   liabilities  in  excess  of  those
         contemplated by the terms of the joint venture  agreement or might have
         other adverse consequences for the Fund.

Risks Relating to Tax Matters

         In determining  whether to invest in the Units, a prospective  investor
should consider possible tax consequences, which may include:

-        the Fund could be taxed as a corporation.  If so, the yield to an
         investor would be substantially reduced.

-        the IRS could disallow or reduce the Fund's deductions.  If so, Fund
         income would increase or Fund losses would decrease.

-        the IRS could  reallocate  Fund income,  gain,  deduction and loss in a
         manner  that  is  different   from  the  provisions  of  the  operating
         agreement.  If so, an investor's share of such items would be different
         from that described in this prospectus.

-        a tax-exempt organization will have unrelated business taxable income
         from an investment in the Fund.  IRAs and other retirement plans are
         tax-exempt entities;

-        changes in the tax law or regulations may adversely affect the Fund,
         the investors and the value of the Fund's equipment;

                                       14

<PAGE>





-        the opinion of tax counsel is limited in scope and qualified by certain
         assumptions.  There can be no assurance that the IRS will not challenge
         the Fund's tax positions. An IRS challenge, if successful, could have a
         detrimental  effect on the Fund's  ability to  realize  its  investment
         objectives;

-        investors may have tax liability greater than their distributions;

-        an investor's share of losses incurred by the Fund will be subject to
         the passive loss limitation on deductibility. An investor may be unable
         to deduct Fund losses until termination of the Fund;

-        investors may have tax liability from Fund portfolio income.  Portfolio
         income may not be offset by passive activity losses;

-        an audit of an investor's tax return could result from the audit of the
         Fund's return;

-        investors may be required to file tax returns and pay state, local
         and/or foreign taxes as a result of an investment in the Fund;

-        investors may be subject to withholding.

         Each investor is urged to consult his tax advisor regarding his own tax
situation and potential changes in the tax law.

Risks Relating to ERISA Matters

         In  considering  an  investment  of the assets of an IRA,  Keogh  Plan,
corporate  retirement plan or other  qualified  retirement plan in the Fund, the
plan fiduciary should assess:

-        whether the investment is prudent.  In this regard it is unlikely that
         there will be a secondary market for the sale of the Units;

-        whether the investment is made solely in the interest of the
         participants in the IRA or qualified retirement plan.

         For retirement  plans which are subject to ERISA,  the fiduciary should
assess  whether the investment  satisfies the  diversification  requirements  of
Section 404(a)(1)(C) of ERISA.


         ERISA may apply a look-through  rule when a retirement plan makes an
equity  investment in another entity. If the rule does not apply, the retirement
plan's assets would include only the security,  such as the Units,  representing
the equity  investment.  If the rule does apply,  the  retirement  plan's assets
would be deemed to include  all of the assets held by the entity in which it has
invested.  For this reason,  the Fund is limiting  sales to retirement  plans to
less than 25% of the Units.


         ERISA requires that plan assets be valued at their fair market value as
of the  close of the plan  year.  It may not be  possible  to  value  the  Units
accurately  from year to year.  There will not be a secondary  market for Units.
Any change in the value of the  equipment  may not be  reflected in the value of
the Units.

                                       15

<PAGE>




                                WHO SHOULD INVEST

         The Units  represent a  long-term  investment,  the primary  benefit of
which is expected to be cash distributions. A purchase of Units is suitable only
for persons who meet the financial suitability standards described below and who
have no need for  liquidity  from this  investment.  In order to  subscribe  for
Units, each investor must execute a Subscription  Agreement, a specimen of which
is attached as Exhibit C. The  Subscription  Agreement  provided to the investor
for  execution  must  be  accompanied  by a copy of this  Prospectus,  and  each
subscriber  has the right to  cancel  his  subscription  during a period of five
business  days after the  subscriber  has  submitted  the executed  Subscription
Agreement to the broker-dealer through which the Units are sold. The Fund and/or
the selling  broker-dealer will send each investor a written confirmation of the
acceptance of the investor's subscription for Units upon admission to the Fund.

         The Fund has  established  suitability  standards which require that an
investor:

-        have an annual gross income of at least $45,000 and a net worth
         (exclusive of home, home furnishings and automobiles) of at least
         $45,000; or

-        have a net worth (determined with the same exclusions) of at least
         $150,000.


      Certain state securities commissioners may establish suitability standards
different  from the above for their states,  and these  different  standards are
described under "Plan of Distribution - State  Requirements" or will be included
in a supplement. By executing the Subscription Agreement, an investor represents
that he meets the suitability  standards applicable to him, and agrees that such
standards  may be  applied  to  any  proposed  transferee  of  his  Units.  Each
participating  broker-dealer who sells Units has the affirmative duty, confirmed
in the  Selected  Dealer  Agreement  entered  into with the Dealer  Manager,  to
determine  prior to the sale of Units that an  investment in Units is a suitable
investment for its subscribing  customer,  must execute a representation  in the
Subscription Agreement regarding such suitability, and must maintain information
concerning  suitability for at least six years following the date of investment.
The  selling  broker  and the  sponsor  must  make  every  reasonable  effort to
determine  that the purchase of Units is a suitable and  appropriate  investment
for each  purchaser,  based on relevant  information  concerning  the  investor,
including the investor's  age,  investment  objectives,  investment  experience,
income, net worth,  financial situation,  and other investments,  as well as any
other pertinent factors.

         The  minimum  number of Units which an  investor  may  purchase is 250,
representing  a total minimum  investment  of $2,500,  except that an Individual
Retirement Account or a qualified pension plan, profit-sharing plan, stock bonus
plan or Keogh  Plan may  purchase a minimum  of 200 Units  ($2,000).  Additional
investments may be made in a minimum amount of 50 Units ($500) per subscription,
and  minimum  additional  increments  of one Unit  ($10).  Investors  seeking to
acquire  additional Units after their initial  subscription  need not complete a
second subscription  agreement.  In addition to restrictions on transfer imposed
by the Fund,  an  investor  seeking  to  transfer  his Units  after his  initial
investment  may be subject to the  securities or "Blue Sky" laws of the state in
which the transfer is to take place.

         Fund  income   realized  by  an  IRA  or  a  qualified   pension  plan,
profit-sharing  plan, stock bonus plan or Keogh Plan will be taxable to the plan
as  "unrelated  business  taxable  income"  under the Internal  Revenue Code. In
considering an investment in the Fund, plan fiduciaries  should consider,  among
other things, the  diversification  requirements of Section  401(a)(1)(C) of the
Internal  Revenue  Code,   additional  legal  requirements  under  the  Employee
Retirement  Income  Security Act of 1974,  as amended  ("ERISA") and the prudent
investment  standards  generally imposed on plan  fiduciaries.  Also, in certain
circumstances  the assets of an entity in which a Qualified Plan or IRA has made
an equity  investment may constitute  "plan assets." To the extent  necessary to
avoid this result, the Fund will limit the sale and transfer of Units to any IRA
or a qualified pension plan, profit-sharing plan, stock bonus plan or Keogh Plan
so that less than 25% of the total outstanding Units are held by these investors
at all  times.  Each  investor  must  make a  representation  at the time of his
subscription as to the record and beneficial ownership of the Units subscribed.

                                       16

<PAGE>

         Investors  should also note that the Fund is required by the  Operating
Agreement to distribute  its available  cash to the extent  necessary to allow a
Holder in a 31% federal  income tax bracket to pay the federal  income taxes due
on his income from the Fund for the year.  So it is possible  that a Holder in a
higher tax bracket  might not  receive  enough cash from the Fund to pay his tax
liabilities. However, the Manager is also required to make cash distributions in
certain  minimum  amounts  prior  to any  reinvestment  in  equipment  and  must
distribute  all available  revenues  after the sixth year following the year the
offering closes. The Manager expects distributions will be in amounts which will
exceed the expected tax liabilities resulting from allocations income regardless
of  the  investors'  tax  brackets.  Distributions  to  nonresident  or  foreign
investors may be subject to  withholding  taxes which would reduce the amount of
cash actually received by such investors.

         Under federal law, certain types of equipment,  including  aircraft and
marine  vessels,  may not be  operated  unless  they are owned by United  States
Citizens or Resident  Aliens.  To assure that the Fund will not exceed  relevant
federal limits on foreign  ownership,  the Manager will not permit more than 20%
of the  outstanding  Units to be held by persons  other than U.S.  Citizens  and
Resident Aliens, and may deny or condition any proposed subscription or transfer
in order to comply with such limitation.  Furthermore,  any Holder who ceases to
be a United States Citizen or Resident Alien may be required to tender his Units
to the  Fund  for  repurchase  at a price  determined  pursuant  to the  formula
described  under "Summary of Operating  Agreement - Repurchase of Units." A Unit
holder  who  fails  to  conform  to his  representations  about  citizenship  or
misrepresents  his  citizenship  may  forfeit  and no longer be entitled to cash
distributions,  tax  allocations,  receipt  of reports  and  voting  privileges,
although he may realize  proceeds  upon the transfer of his Units to an eligible
investor,  who  would  be  entitled  to the full  economic  benefits  and  other
privileges attributable to such units.
















                                       17

<PAGE>




                            ESTIMATED USE OF PROCEEDS


         Many of the figures set forth below are estimates, and should not be
relied upon as a prediction of the actual use of the proceeds of this  offering.
The Fund  expects to commit  approximately  86.5% of the Gross  Proceeds of this
offering to the cash portion of the  purchase  price of  Equipment.  At least an
additional  one-half  of one  percent  of its  initial  capital  will be held as
reserves.


                         Minimum                         Maximum
                         Offering                        Offering
                         Amount         Percent          Amount          Percent
                         --------       -------          --------        -------
Gross Offering
     Proceeds...         $1,200,000     100.00%          $150,000,000    100.00%
Less Offering and
     Organization
     Expenses:
   Selling
     Commissions...         114,000       9.50%            14,250,000      9.50%
   Other Offering
     and Organization
     Expenses...             30,000       2.50%             5,250,000      3.50%
                        -----------      ------           -----------     ------

Net Offering Proceeds     1,056,000      88.00%            130,500,000    87.00%

Capital Reserves...           6,000       0.50%                750,000     0.50%
Amount Available for
     Cash Payments for
     Equipment...         1,050,000      87.50%            129,750,000    86.50%
                        -----------      ------           -----------     ------
-------------


         The Fund  will pay  selling  commissions  equal to 9.5% of the  selling
price of Units to ATEL  Securities  Corporation,  a  subsidiary  of the  Manager
acting as the  dealer  manager  for the group of  selling  broker-dealers.  ATEL
Securities Corporation will in turn pay to participating  broker-dealers selling
commissions  equal  to 8% of the  price of Units  sold by  them,  retaining  the
balance of 1.5%. Out of the amounts retained by ATEL Securities Corporation,  it
may pay one or more broker-dealers for "wholesaling" services in connection with
the offering.  Wholesaling  services  include  coordinating  the sales effort of
participating  broker-dealers  and training their  personnel with respect to the
offering.  Total  selling  commissions,   disbursements  and  reimbursements  to
participating  broker-dealers may not exceed an amount equal to 10% of the Gross
Proceeds,  except that an additional 1/2 of 1% of the Gross Proceeds may be paid
for accountable,  bona fide due diligence expenses.  If the Manager,  the Dealer
Manager or the  broker-dealers  engaged by the Dealer Manager to sell the Units,
or any of their  Affiliates or employees,  purchase any Units in this  offering,
the Dealer  Manager,  in its  discretion,  may reimburse to any such  purchasers
selling  commissions  paid  with  respect  to  such  Units.  Sales  to any  such
purchasers on such terms would be for investment purposes only, and the Fund and
the Manager  would not  recognize  any  attempted  transfer of such Units unless
certain conditions are satisfied.

         Other offering and organization  expenses are expenses  incurred in the
organization  of the Fund,  legal,  accounting and escrow fees,  printing costs,
filing  and  qualification   fees  and   disbursements  and   reimbursements  to
broker-dealers participating in the sale of Units; but total selling commissions
and  payments to  participating  broker-dealers  may not exceed the  limitations
described  above.  The Manager has agreed to pay all  Organization  and Offering
Expenses which exceed an amount equal to:

-        15% of the offering proceeds up to $25,000,000, and

                                       18

<PAGE>


-        14% of the offering proceeds in excess of $25,000,000.

If the Fund's final offering proceeds are less than $2,000,000,  the Manager has
agreed to pay all  Offering  and  Organization  Expenses  which exceed an amount
equal to 12% of the total.  Payment of these  expenses  by the  Manager  will be
without reimbursement by the Fund.

         The Fund will initially  establish  capital reserves in an amount equal
to 1/2 of 1% of offering  proceeds for general  working capital  purposes.  This
amount may fluctuate  from time to time as the Manager  determines  the level of
reserves necessary for the proper operation of the Fund.

         The line item for cash payments for  equipment is the amount  available
to pay the  cash  portion  of the  purchase  price  of  equipment  plus  related
acquisition  expenses.  The Fund expects to pay  acquisition  expenses  equal to
approximately 0.25% of the offering proceeds.

















                                       19

<PAGE>




                             MANAGEMENT COMPENSATION

Summary Table

         The following  table includes  estimates of the maximum  amounts of all
compensation  and  other  payments  that the  Manager  and its  Affiliates  will
receive,  directly or indirectly, in connection with the operations of the Fund,
all of which are described more completely below under "Narrative Description of
Compensation."  The terms of the Manager's  compensation  were not determined by
arm's-length negotiation. The Operating Agreement does not permit the Manager or
its related  entities to receive more than the maximum  fees or expenses  stated
for each type of  compensation  by  reclassifying  such items  under a different
category.
                                                             Estimated Amount
     Entity Receiving                                        Assuming Maximum
     Compensation         Type of Compensation               Units Sold
     ------------         --------------------               ----------------



The Dealer Manager        Selling Commissions (Up to 1.5%    Total selling
                          of offering proceeds to be         commissions to
                          retained by the Dealer Manager)    be retained by
                                                             the Dealer
                                                             Manager are not
                                                             expected to
                                                             exceed $2,250,000.

Manager and Affiliates    Reimbursement of Organization      $5,250,000
                          and Offering Expenses (when
                          added to selling commissions,
                          not to exceed a total equal
                          to 15% of all offering proceeds
                          up to $25 million and 14% of any
                          additional offering proceeds)

                                OPERATIONAL STAGE

Manager and Affiliates    Asset Management Fee (a fee        Not determinable at
                          equal to 4% of Operating           this time
                          Revenues, subject to
                          limitations based on Fund
                          operations)

Manager and Affiliates    Reimbursement of Operating         Not determinable at
                          Expenses, subject to certain       this time
                          limitations

                           CARRIED INTEREST IN FUND

Manager and Affiliates    Interest equal to 7.5% of all      Not determinable at
                          Fund taxable income, tax losses    this time
                          and cash distributions

                                       20

<PAGE>




Narrative Description of Compensation

         Selling   Commissions.   The  Dealer   Manager  will  receive   selling
commissions  on all sales of Units equal to 9.5% of Gross  Proceeds.  The Dealer
Manager will reallow to  participating  broker-dealers  8% of the Gross Proceeds
from  Units  sold by  them,  and  may  use a  portion  of the  retained  selling
commissions to compensate certain  participating broker- dealers for wholesaling
services or reimburse certain selling  expenses.  It is not anticipated that the
Dealer Manager or other Affiliates of the Manager will directly effect any sales
of the Units,  although  the Dealer  Manager will  provide  certain  wholesaling
services.

         Reimbursement  of Organization and Offering  Expenses.  The Manager and
its Affiliates  will be reimbursed for certain  expenses in connection  with the
organization  of the Fund and the  offering  of Units.  Total  Organization  and
Offering  Expenses  payable  or  reimbursable  by the  Fund,  including  selling
commissions payable directly by the Fund, may not exceed:

-        15% of all offering proceeds up to $25,000,000 plus

-        14% of all offering proceeds in excess of $25,000,000.

         Asset Management Fee. The Fund will pay the Manager an Asset Management
Fee in an amount equal to 4% of all:

-        revenues from the Equipment, other than security deposits paid by
         lessees, and

-        cash remaining from the sale or refinancing of any equipment after
         payment of all expenses related to the transaction


The Asset  Management  Fee will be paid on a monthly  basis.  The  amount of the
Asset  Management  Fee  payable in any year will be reduced for that year to the
extent it would  otherwise  exceed the Asset  Management Fee Limit, as described
below.  The  Asset  Management  Fee will be paid for  services  rendered  by the
Manager and its  Affiliates in determining  portfolio and investment  strategies
(i.e.,  establishing and maintaining the composition of the Equipment  portfolio
as a whole and the Fund's  overall debt  structure)  and  generally  managing or
supervising  the  management  of  the  Equipment.  The  Manager  will  supervise
performance of all management activities,  including among other activities, the
collection of lease  revenues,  monitoring  compliance by lessees with the lease
terms,  assuring that  Equipment is being used in accordance  with all operative
contractual arrangements,  paying operating expenses and arranging for necessary
maintenance  and  repair  of  Equipment  in the  event a lessee  fails to do so,
monitoring  property,  sales and use tax compliance and preparation of operating
financial  data. The Manager  intends to delegate all or a portion of its duties
and the Asset  Management  Fee to one or more of its  Affiliates  who are in the
business of providing such services.


     Reimbursement  of Operating  Expenses.  The Fund will reimburse the Manager
and  its  Affiliates   for  expenses  it  pays  on  the  Fund's  behalf.   These
reimbursements will include:

-        the actual cost to the Manager or its Affiliates of services, goods and
         materials used for and by the Fund and obtained from unaffiliated
         parties;

-        the cost of administrative services necessary to the prudent operation
         of the Fund, provided that reimbursement for administrative services
         will be at the lower of

                                       21

<PAGE>




                  -        the actual cost of such services, or

                  -        the amount which the Fund would be required to pay to
                           independent parties for comparable services.

          Beginning  with the first  full year  after  the  termination  of this
offering,  the total amount of Reimbursable  Administrative  Expenses payable by
the Fund for the remainder of its term will be limited as follows:

-        If at least 75% of the maximum offering is raised, the cumulative limit
         as of any date will be 0.5% per annum of the total capital raised.

-        If less than 75% of the maximum offering is raised, then the cumulative
         limit as of any date will be 1% per annum of the total capital raised.

-        Beginning  with the first  full  year  after  the  termination  of this
         offering,  the maximum amount of Reimbursable  Administrative  Expenses
         payable by the Fund for any  single  year shall be limited to 1% of the
         total capital raised.

The  Manager  estimates  that the total  amount of  Reimbursable  Administrative
Expenses during the Fund's first full year of operations after completion of the
offering,  assuming receipt of the maximum Gross Proceeds,  may be approximately
$400,000 to $500,000.

         Carried Interest in Fund Net Income,  Net Loss and  Distributions.  The
Fund Manager will have a Carried  Interest in the Fund as a Member equal to 7.5%
of all  allocations  of Net  Income,  Net Loss and  Distributions.  The  Carried
Interest in the Fund will  compensate  the Manager for  organizing  the Fund and
arranging for supervision of Fund administration (i.e., investor  communications
and services, regulatory reporting, accounting and transfers of Units).

Limitations on Fees.

         The Asset  Management  Fee will be subject to the Asset  Management Fee
Limit,  which is an  alternative  fee  schedule.  The  alternative  fee schedule
consists of a group of fees which were designed to comply with state  guidelines
limiting  compensation  to  equipment  program  sponsors.  The  Fund  will use a
simplified fee structure, substituting its one Asset Management Fee for a number
of  other  fees  used  in  the  state  guidelines.   However,  to  assure  state
administrators  that its Asset  Management  Fee will not result in greater  fees
than would the fee schedule used in the guidelines,  the Fund will calculate the
hypothetical  fees that  would  have been paid  under the state  guidelines  fee
schedule and guarantee  that the fees it will pay the Manager and its Affiliates
will never  exceed  those  under the state  guideline  fee  schedule.  The Asset
Management  Fee may also be  adjusted  based on the  Front  End Fee  limitations
imposed by these state securities administrators.

         Asset  Management  Fee Limit.  The Asset  Management  Fee Limit will be
calculated  each year during the Fund's term by calculating  the total fees that
would be paid to the Manager if the Manager were to be  compensated on the basis
of an  alternative  fee  schedule,  to  include  an  Equipment  Management  Fee,
Incentive  Management  Fee,  and  Equipment   Resale/Re-Leasing  Fee,  plus  the
Manager's  Carried  Interest,  as described below. To the extent that the amount
paid to the Manager as the Asset  Management  Fee plus its Carried  Interest for
any year  would  exceed  the  aggregate  amount of fees  calculated  under  this
alternative  fee schedule for the year, the Asset  Management Fee and/or Carried
Interest for that year will be reduced to equal the maximum aggregate fees under
the  alternative  fee  schedule.  To the extent any such fees are  reduced,  the
amount of such reduction will be accrued and  deferred,  and  such  accrued  and

                                       22

<PAGE>


deferred  compensation  would be paid to the Manager in a subsequent period, but
only to the  extent  that the  deferred  compensation  would be within the Asset
Management  Fee Limit for that later  period.  Any deferred fees which cannot be
paid under the applicable  limitations  through the date of liquidation would be
forfeited by the Manager at liquidation.

         Alternative  Fee  Schedule.  For purposes of the Asset  Management  Fee
Limit,  the Fund will  calculate an  alternative  schedule of fees,  including a
hypothetical  Equipment  Management Fee,  Incentive  Management  Fee,  Equipment
Resale/Re-Leasing Fee, and Carried Interest as follows:

         -        An Equipment Management Fee will be calculated to equal the
                  lesser of

                  -        3.5% of annual Gross Revenues from  Operating  Leases
                           and 2% of annual  Gross  Revenues  from  Full  Payout
                           Leases which contain Net Lease Provisions), or

                  -        the fees  customarily  charged  by  others  rendering
                           similar services as an ongoing public activity in the
                           same  geographic  location  and for similar  types of
                           equipment.

                  -        If services with respect to certain  Operating Leases
                           are  performed  by  nonaffiliated  persons  under the
                           active  supervision  of the Manager or its Affiliate,
                           then the  amount  will be 1% of Gross  Revenues  from
                           these Operating Leases.

         -        An Incentive Management Fee will be calculated to equal

                  -        4% of  Distributions  of Cash from  Operations  until
                           Holders  have  received  a return  of their  Original
                           Invested Capital plus a Priority Distribution, and

                  -        thereafter, to equal a total of 7.5% of Distributions
                           from all sources, including Sale or Refinancing
                           Proceeds.

                  -        In  subordinating   the  increase  in  the  Incentive
                           Management  Fee to a cumulative  return of a Holder's
                           Original    Invested    Capital   plus   a   Priority
                           Distribution,  a  Holder  would  be  deemed  to  have
                           received  Distributions of Original  Invested Capital
                           only to the extent that  Distributions  to the Holder
                           exceed the amount of the Priority Distribution.

         -        An Equipment Resale/Re-Leasing Fee will be calculated in an
                  amount equal to the lesser of

                  -        3% of the sale price of the Equipment, or

                  -        one-half the normal competitive equipment sale
                           commission charged by unaffiliated parties for resale
                           services.

                  -        Such fee would  apply  only  after the  Holders  have
                           received a return of their Original  Invested Capital
                           plus a Priority Distribution.

                  -        In  connection  with the  re-leasing  of Equipment to
                           lessees   other  than   previous   lessees  or  their
                           Affiliates,  the fee would be in an  amount  equal to
                           the lesser of


                                       23

<PAGE>




                           -        the competitive rate for comparable services
                                    for similar equipment, or

                           -        2% of the gross rental payments derived from
                                    the re-lease of such Equipment,  payable out
                                    of each rental payment  received by the Fund
                                    from such re-lease.

         -        A Carried Interest equal to 7.5% of all Distributions of Cash
                  from Operations and Cash from Sales or Refinancing.

         Front End Fee Limitations.  The compensation payable as described above
will be subject to further adjustment based on the limitations on Front End Fees
imposed under the North American  Securities  Administrators  Association,  Inc.
("NASAA") Statement of Policy concerning Equipment Programs,  as amended through
October 24, 1991  (referred  to herein as the "NASAA  Guidelines").  The Manager
will  first  determine  the  effect,  if any,  of the Front End Fee  limitations
described  below and make any required  adjustments to the Asset  Management Fee
Limit.  Then the Manager will apply the adjusted  Asset  Management Fee Limit to
the Asset Management Fee and the Manager's Carried Interest.

         Under the NASAA  Guidelines,  the Fund is  required to commit a minimum
percentage of the Gross  Proceeds to Investment in Equipment,  calculated as the
greater of:

         -        80% of the Gross Proceeds reduced by 0.0625% for each 1% of
                  indebtedness encumbering the Fund's Equipment; or

         -        75% of such Gross Proceeds.

         The  Fund  intends  to  incur  total  indebtedness  equal to 50% of the
aggregate cost of its equipment.  The Operating  Agreement  requires the Fund to
commit at least 85.875% of the Gross Proceeds to Investment in Equipment.  Based
on the  formula  in the NASAA  Guidelines,  the  Fund's  minimum  Investment  in
Equipment  would  equal  76.875%  of  Gross  Proceeds  (80% - [50% x  .0625%]  =
76.875%),  and the Fund's minimum Investment in Equipment would therefore exceed
the NASAA Guideline minimum by 9%.

         The NASAA  Guidelines  permit the Manager and its Affiliates to receive
compensation in the form of a carried interest in Fund Net Income,  Net Loss and
Distributions  equal to 1% for the first 2.5% of excess  Investment in Equipment
over the NASAA Guidelines minimum, 1% for the next 2% of such excess, and 1% for
each additional 1% of excess Investment in Equipment.  With a minimum Investment
in  Equipment  of  85.875%,  the  Manager  and its  Affiliates  may  receive  an
additional  carried  interest  equal  to  6.5%  of  Net  Profit,  Net  Loss  and
Distributions under the foregoing formula (2.5% + 2% + 4.5% = 9%; 1% + 1% + 4.5%
= 6.5%).  At the lowest  permitted  level of Investment in Equipment,  the NASAA
Guidelines  would permit the Manager and its Affiliates to receive a promotional
interest  equal  to 5% of  Distributions  of  Cash  from  Operations  and  1% of
Distributions of Sale or Refinancing  Proceeds until Members have received total
Distributions  equal to their  Original  Invested  Capital  plus an 8% per annum
cumulative  return on their Adjusted  Invested  Capital,  and,  thereafter,  the
promotional interest may increase to 15% of all Distributions.

         With the additional carried interest calculated as described above, the
maximum  aggregate  fees payable to the Manager and  Affiliates  under the NASAA
Guidelines as carried  interest and  promotional  interest  would equal 11.5% of
Distributions  of  Cash  from  Operations  (6.5%  + 5% =  11.5%),  and  7.5%  of
Distributions  of Sale or Refinancing  Proceeds  (6.5% + 1% = 7.5%),  before the
subordination level was reached, and 21.5% of all Distributions thereafter.  The
maximum  amounts  to be paid  under the  terms of the  Operating  Agreement  are
subject to the application of the Asset Fee Limit provided in Section 8.3 of the
Agreement,  which  limits  the annual  amount  payable  to the  Manager  and its

                                       24

<PAGE>



Affiliates  as  the  Asset  Management  Fee  and  the  Carried  Interest  to  an
aggregate  not to exceed  the total  amount of fees that would be payable to the
Manager and its  Affiliates  under the  alternative  fee  schedule  set forth in
Section 8.3. This overall limitation on annual fees will include, in addition to
an Equipment Management Fee and Equipment Resale/Releasing Fee, amounts equal to
11.5% of  Distributions  of Cash from Operations (4% as an Incentive  Management
Fee  plus  7.5% as the  Carried  Interest  in Fund  Distributions)  and  7.5% of
Distributions  of Sale or  Refinancing  Proceeds  (as the  Fund  Manager's  7.5%
Carried  Interest)  before the  Priority  Return,  and 15% of all  Distributions
thereafter  (7.5%  as an  Incentive  Management  Fee  plus  7.5% as the  Carried
Interest).

         Upon completion of the offering of Units,  final commitment of offering
proceeds to  acquisition  of  equipment  and  establishment  of final  levels of
permanent  portfolio  debt,  the Manager  shall  calculate  the maximum  carried
interest  and  promotional  interest  payable to the Manager and its  Affiliates
under the NASAA Guidelines and compare such total permitted fees to the total of
the Incentive  Management  Fees and Manager's  Carried  Interest.  If and to the
extent that the fees calculated  under the alternative fee schedule  provided in
Section 8.3 as the Incentive  Management Fee and the Manager's  Carried Interest
should exceed the maximum  promotional  interest plus carried interest permitted
under the NASAA Guidelines,  as described above, the fees payable to the Manager
and its Affiliates shall be reduced.  In such event, the Manager will reduce the
amounts  calculated  for  purposes  of the  Asset  Management  Fee  Limit as the
Incentive  Management Fee and/or the Carried Interest by an amount sufficient to
cause the total of such compensation to comply with the limitations in the NASAA
Guidelines on the aggregate of promotional interests and carried interests.  The
adjusted Asset Management Fee Limit will then be applied to the Asset Management
Fee and Carried  Interest as described above. A comparison of the Front End Fees
actually paid by the Fund and the NASAA  Guideline  maximums  shall be repeated,
and any required adjustments shall be made, at least annually thereafter.

Defined Terms Used in Description of Compensation

Definitions  of  certain  capitalized  terms  used  in the  foregoing  narrative
description of compensation  payable to the Manager, and used in the alternative
fee schedule for purpose of calculating the Asset Management Fee Limitation, are
as follows:

"Adjusted Invested Capital" means, as of any date, the Original Invested Capital
attributable  to the  Units  held by any  Person  on or  before  such  date,  as
decreased (but not below zero) by the amount by which (i) all Distributions with
respect  to such Units on or before the date of  determination  pursuant  to any
provision  of the  Operating  Agreement  exceed (ii) the  Priority  Distribution
attributable to such Units for such period.

"Asset  Management  Fee Limit" means the total fees  calculated  pursuant to the
alternative fee schedule as set forth under  "Limitations on Fees" above,  equal
to  the  aggregate  of  a  hypothetical   Equipment  Management  Fee,  Incentive
Management Fee, and Equipment  Resale/Re-Leasing Fee, plus the Carried Interest,
determined in the manner described therein.

"Carried Interest" or "Interest in Distributions" shall mean the allocable share
of Fund Distributions of Cash from Operations and Cash from Sales or Refinancing
payable to the Manager,  as a Member,  pursuant to Sections 10.4 and 10.5 of the
Agreement.

"Cash from Operations"  means the excess of Gross Lease Revenues (which excludes
revenues from Equipment sales or refinancing) over cash disbursements (including
an Equipment  Management  Fee and amounts  reinvested  by the Fund in Equipment)
without  reduction for  depreciation  and  amortization  of intangibles  such as

                                       25

<PAGE>


organization  and  underwriting  costs  but  after  a  reasonable  allowance for
cash for repairs,  replacements,  contingencies and anticipated obligations,  as
determined by the Manager.

"Cash from Sales or  Refinancing"  means the net cash  realized by the Fund from
the sale, refinancing or other disposition of any Equipment after payment of all
expenses related to the transaction (including an Equipment Resale Fee).

"Distributions"  means any cash  distributed to Holders and the Manager  arising
from their  respective  interests in the Fund. "Full Payout Lease" means a lease
under which the  non-cancellable  rental payments due during the initial term of
the lease are at least  sufficient to cover the purchase  price of the Equipment
leased.

"Gross Lease  Revenues"  means all revenues  attributable to the Equipment other
than from  security  deposits paid by lessees,  but excluding  revenues from the
sale, refinancing or other disposition of Equipment.

"Net Income" or "Net Loss" means the taxable  income or taxable loss of the Fund
as determined for federal  income tax purposes,  computed by taking into account
each item of Fund income,  gain, loss,  deduction or credit not already included
in the  computation  of  taxable  income  and  taxable  loss,  but does not mean
Distributions.

"Operating  Lease" means a lease under which the aggregate  rental  payments due
during the  initial  term of the lease are less than the  purchase  price of the
Equipment leased.

"Operating  Revenues" means the total for any period of all Gross Lease Revenues
plus all Cash from Sales or Refinancing.

"Original Invested Capital" means the original gross purchase price of the Units
contributed  by each Member to the  capital of the Fund for his  interest in the
Fund,  which  amount shall be  attributed  to Units in the hands of a subsequent
Holder.

"Priority  Distribution"  for any  calendar  year or other  period  means,  with
respect to the Units held by any Person,  the average Adjusted  Invested Capital
with respect to such Units during each calendar year multiplied by 10% per annum
(calculated on a cumulative  basis,  compounded  daily, from the last day of the
calendar quarter in which the initial  purchaser of such Units was admitted as a
Holder  pursuant to the Operating  Agreement and pro rated for any fraction of a
calendar year for which such calculation is made).

"Reimbursable   Administrative  Expenses"  shall  mean  the  ordinary  recurring
administration expenses incurred by the Manager and reimbursed by the Fund. Such
expenses  shall not include  interest,  depreciation,  equipment  maintenance or
repair, third party services or other non-administrative expenses.









                                       26

<PAGE>




                       INVESTMENT OBJECTIVES AND POLICIES

Principal Investment Objectives

         The  Fund's  principal  objectives  are  to  invest  in  a  diversified
portfolio of primarily low-technology, low- obsolescence Equipment which will

         -        preserve, protect and return the Fund's invested capital;

         -        generate  regular  cash  distributions  to Unit  holders,  any
                  balance  remaining after required minimum  distributions to be
                  used to  purchase  additional  equipment  during the first six
                  years after the year the offering terminates; and

         -        provide additional cash distributions after the end of the
                  reinvestment period and until all equipment has been sold.

         Distributions  will be made only if cash is available  after payment of
Fund obligations (including payment of administrative expenses, debt service and
the Asset  Management Fee) and allowance for necessary  reserves.  Distributions
are expected to begin as of the quarter in which the minimum  offering amount is
achieved.  However, there can be no assurance as to the timing of distributions,
or that any specific  level of  distributions  or any other  objectives  will be
attained.

General Policies

         The Fund  intends  to acquire  various  types of  equipment  for lease.
Generally,  the Fund expects to acquire newly- manufactured equipment.  However,
the Fund may also invest in desirable  used  equipment and equipment  subject to
pre- existing leases under  appropriate  circumstances and where consistent with
the Fund's overall investment objectives.

         The Fund's investment objective is to acquire primarily low-technology,
low-obsolescence  equipment such as materials handling equipment,  manufacturing
equipment,  mining equipment,  and  transportation  equipment.  A portion of the
portfolio will include some more technology-dependent  equipment such as certain
types of communications  equipment,  medical equipment,  manufacturing equipment
and office equipment.  The Operating Agreement does not limit the Fund's ability
to invest in high-technology Equipment.

         Like most goods, new equipment generally has a higher market value than
comparable  used equipment,  and capital  equipment tends to lose value as it is
used  over a period  of time.  An  equipment  lessor  such as the Fund  tries to
negotiate  lease  terms  based in part on its  estimate  of the value the leased
equipment  will have when the lease ends. The lessor will negotiate a lease rate
designed to generate  enough rental revenues over the term of the lease so that,
when the total lease payments are added to the estimated  value of the equipment
upon lease  termination,  the lessor will  receive  both a return of the capital
used to purchase the equipment plus an overall profit on the  investment.  There
can be no assurance, however, that the Fund's assumptions regarding the residual
value of the equipment will be accurate or that its objective will be achieved.

         The Manager will seek to maintain an appropriate  balance and diversity
in the types of equipment  acquired and the types of leases  entered into by the
Fund. Its guidelines will include the following policies:


                                       27

<PAGE>

         -        When all the offering  proceeds are committed to equipment and
                  all permanent debt has been put in place,  at least a majority
                  of the equipment,  based on the aggregate purchase price, will
                  be subject to leases with scheduled  lease payments  returning
                  at least 90% of the purchase price of the equipment.

         -        The  Manager  will  seek to  invest  not more  than 20% of the
                  aggregate  purchase  price of equipment in Equipment  acquired
                  from a single  manufacturer.  However,  this  limitation  is a
                  general  guideline  only,  and the Fund may acquire  equipment
                  from a single  manufacturer in excess of the stated percentage
                  if the  Manager  deems  such a course  of  action to be in the
                  Fund's best interest.

         A number of factors will determine the actual composition of the Fund's
Equipment  portfolio;  for  example,  the amount of offering  proceeds  actually
received  will be a  significant  factor in  determining  the Fund's  ability to
diversify its portfolio.  Furthermore,  the Manager cannot anticipate what types
of Equipment  will be available and at what prices at the time the Fund is ready
to invest its capital.

         In structuring  leases,  the Fund's lease rate and return on investment
objectives will vary based on

-        the type of equipment,

-        the terms of the lease,

-        the credit quality of the lessee and

-        prevailing lease and financial market conditions.

         The Manager will commit to a particular  lease  transaction  only if it
believes that, in the context of the Fund's  overall  equipment  portfolio,  the
transaction  will  contribute  to  the  satisfaction  of the  Fund's  investment
objectives.  The Fund does not have any specific  "minimum  rate of return".  As
noted above,  the Fund's  objectives  are to acquire a diversified  portfolio of
equipment  that  will  generate  sufficient  net  cash  flow to  permit  regular
distributions  to  investors  and  additional  funds to reinvest  in  equipment.
Reinvestment  of revenues  is  permitted  only after  certain  minimum  rates of
distributions are made.

         The Manager will seek to structure a portfolio that is

-        diversified as to equipment type, industry, lessee and geographic
         location;

-        capable of generating sufficient net cash flow to meet the minimum
         distribution requirements to permit reinvestment; and

-        capable of generating sufficient cash flow to provide funds for
         additional investment in equipment.

The rates of return  necessary to meet these  objectives  through the end of the
reinvestment  period  will  depend  on a number  of  variables  which  cannot be
predicted this far in advance.

         As set forth above under "Principal Investment  Objectives," it will be
the Fund's objective to reinvest in additional  equipment any revenues remaining
after payment of certain minimum  distributions  during the reinvestment period.
The Fund will not acquire  equipment after the reinvestment  period,  ending six

                                       28

<PAGE>

years  after  the end of  the  year  the  offering  is   completed,  except   if
necessary  to  satisfy  obligations  entered  into  prior  to  the  end  of  the
reinvestment  period or to maintain or improve  equipment  already owned at that
time.

         Other than as set forth in any supplement to this Prospectus,  the Fund
has not invested in or committed  to purchase any  Equipment,  and, as a result,
there can be no  assurance as to when the  proceeds  from the  offering  will be
fully invested.  Furthermore,  prospective investors may not have an opportunity
prior to investing to evaluate all of the equipment to be acquired.

         Before  completing any  acquisition of a single item of equipment which
has a contract  purchase  price  more than  $1,000,000,  the Fund will  obtain a
future value  appraisal for the  equipment  from a qualified  independent  third
party appraiser. The Manager may also, in its discretion,  obtain appraisals for
certain smaller  acquisitions if it deems an appraisal to be appropriate because
of the type of equipment,  the size of a transaction or otherwise.  It should be
noted,  however,  that appraisals  represent only the appraiser's opinion of the
value of the equipment,  and do not necessarily  represent the actual amount the
Fund might receive on sale of the equipment.

         The  Manager  may  purchase  equipment  in its own name,  the name of a
related entity or the name of a nominee,  a trust or otherwise and hold title to
the  equipment  on a  temporarily  (generally  not more than six months) for any
purpose related to the business of the Fund, provided, however that:

-        the transaction is in the best interest of the Fund;

-        the equipment is purchased by the Fund for a purchase  price no greater
         than the cost to the Manager or Affiliate  (including any out-of-pocket
         carrying  costs),  except for  compensation  permitted by the Operating
         Agreement;

-        there is no difference in interest terms of the loans secured by the
         equipment at the time acquired by the Manager or Affiliate and the time
         acquired by the Fund;

-        there is no benefit arising out of such transaction to the Manager or
         its Affiliate apart from the compensation otherwise permitted by the
         Operating Agreement; and

-        all income generated by, and all expenses associated with, Equipment so
         acquired shall be treated as belonging to the Fund.

         Any  offering  proceeds  received by the Fund  during the first  twelve
months of the offering  which have not been committed to investment in equipment
during by a date eighteen  months after the  beginning of the offering,  and any
offering  proceeds  received during a second year of the offering which have not
been  committed to investment by a date six months after the end of the offering
(except  for  amounts  used to pay  operating  expenses  or  required as capital
reserves)  will be returned pro rata by the Fund to investors.  In addition,  in
order to refund to investors  the amount of Front End Fees  attributable  to any
returned capital, the Manager has agreed to contribute to the Fund, and the Fund
shall  distribute to investors  pro rata,  the amount by which (x) the amount of
unused capital so  distributed,  divided by (y) the percentage of Gross Proceeds
remaining  after  payment of all Front End Fees,  exceeds the unused  capital so
distributed.  The Fund's  capital will be  available  for general use during the
offering  period  and may be  expended  in  operating  equipment  which has been
acquired.  Offering  proceeds will not be segregated or held separate from other
capital  of the Fund  pending  investment,  and no  interest  will be payable to
investors  if  uninvested  offering  proceeds  are  returned  to them.  Offering
proceeds  will be deemed to have been  committed to  investment  and will not be
returned to the Holders to the extent written agreements in principle or letters
of understanding were executed at any time prior  to the  end of  these periods,

                                       29

<PAGE>


regardless of whether the investment is eventually consummated,  and also to the
extent any funds have been  reserved to make  contingent  payments in connection
with any equipment, regardless of whether any such payments are ever made.

Types of Equipment

         The Fund  intends  to  acquire  and lease a  diversified  portfolio  of
equipment.  The  Fund  intends  to  invest  primarily  in  what it  deems  to be
relatively  low-technology,  low-obsolescence types of equipment. These types of
equipment  would  include  a  variety  of  items  which  are  not  dependent  on
high-technology  design or applications for their usefulness to lessees, and are
expected  to be less  subject  to rapid  obsolescence  than  types  which are so
dependent.

         Equipment  acquisition  will be  subject  to the  Manager or its agents
obtaining  information and reports, and undertaking  inspections and surveys the
Manager deems appropriate to determine the probable  economic life,  reliability
and  productivity  of the equipment,  its  competitive  position with respect to
other  equipment and its  suitability  and  desirability  as compared with other
equipment.  Purchases of new equipment for lease will typically be made directly
from a manufacturer or its authorized dealers, either under a purchase agreement
for large quantities of such equipment,  through lease brokers,  or on an ad hoc
basis to meet the needs of a particular  lessee.  There can be no assurance that
favorable purchase agreements can be negotiated with equipment  manufacturers or
their authorized dealers or lease brokers. In addition,  the Fund may enter into
sale/leaseback  transactions  in which the Fund  will  purchase  equipment  from
companies which will then simultaneously lease the equipment from the Fund.

         The  following is a more detailed  description  of the various types of
equipment  which the Fund may  purchase and lease.  The types of  equipment  are
listed in  alphabetical  order,  and the discussion is not intended to imply any
order of emphasis in the Fund's acquisition policies. The final mix of equipment
types in the Fund's  portfolio will depend on the factors  discussed above under
"General Policies."

         Aircraft. The Fund may invest in cargo and freight aircraft,  corporate
aircraft and  aircraft  used for medical  evacuation  and rescue  purposes.  The
Manager  anticipates  that the Fund's cash  investments in all types of aircraft
will not  exceed an  amount  equal to 20% of the  maximum  offering  amount  (or
$30,000,000). Cargo and freight aircraft are used by commercial freight carriers
and national and international  mail and package delivery  services  exclusively
for the hauling of cargo.  Corporate  aircraft,  including both  helicopters and
fixed-wing aircraft,  are used by many businesses to move employees from city to
city or to locations  without scheduled air service and for the express delivery
of  personnel,  components  and  products at various  manufacturing  and service
facilities.  The Fund may invest in commercial passenger aircraft,  but not more
than 10% of its maximum  offering amount (or  $15,000,000)  will be committed to
the purchase of  commercial  passenger  aircraft and any debt used to acquire or
maintain commercial passenger aircraft will either be secured by the obligations
of an  "investment  grade"  lessee,  or will not involve the other assets of the
Fund as collateral.  Commercial  passenger  aircraft consist of aircraft used in
the day to day operation of scheduled passenger air carriers.

         All domestic corporate and commercial  aircraft are registered with the
Federal Aviation Administration ("FAA"). Under the Federal Aviation Act of 1958,
as amended (the "Act"),  it is unlawful to operate an  unregistered  aircraft in
the United  States.  In order to be  eligible  for  registration,  the rules and
regulations  of the FAA  provide,  in effect,  that  aircraft  is  eligible  for
registration only if it is owned by a United States Citizen or a Resident Alien.
A literal reading of the Act could lead to the conclusion that aircraft in which
the Fund has an interest  are not  eligible  for  registration  because the term
United States  Citizen is defined in the Act to include a  partnership  in which
each member is an  "individual"  who is a citizen of the United States or one of
its  possessions,  and the Fund has a corporate  Manager.  The FAA has indicated
informally  that it will permit  registration  of an aircraft  under the Federal
Aviation Act of 1958 and the regulations  thereunder in the name of a trustee of
a trust in which a  partnership  is the sole  beneficiary  if the  partnership's

                                       30

<PAGE>



partners   are   United  States  Citizens   (whether   or   not   they  are  all
individuals) or Resident Aliens.  However,  such representations are not binding
on the FAA; therefore,  the possibility exists that the FAA would challenge such
a  registration.  In addition,  a  registration  may be challenged  and rendered
invalid if a Member is not, contrary to his representation to the Fund, a United
States  Citizen or a Resident  Alien or if a Member ceases to be a United States
Citizen or a Resident Alien.  Any challenge,  if successful,  could result in an
inability to operate the aircraft,  substantial penalties, the premature sale of
the  aircraft,  the loss of the benefits of the central  recording  system under
federal law thereby leaving the aircraft exposed to liens or other interests not
of record  with the FAA,  and a breach by the Fund of lease  agreements  entered
into in connection  with the aircraft.  Accordingly,  the Manager will limit the
ownership of Units or interests therein by any persons who are not United States
Citizens or Resident Aliens to not more than 20% of the outstanding Units.

         It is anticipated that any aircraft lease will provide,  as a condition
precedent to the transaction,  that application for registration shall have been
duly made and that the  prospective  lessee  shall have  temporary  or permanent
authority to operate the aircraft. If such authority were not obtainable because
of failure of registration, the lessee might be entitled to void the transaction
and the lease would not take effect.

         Computer  and  Computer-related High Technology Equipment. This type of
equipment includes a variety of items including:

                  Small Computer Systems,  Personal  Computers and Workstations.
Small computer systems and personal computers are used alone or in networks by a
variety  of  businesses  for  various  functions,  including  accounting,  sales
management,  administration  and inventory  control.  Workstations are generally
high performance engineering and design systems that are more complex than small
computer systems and personal computers.

                  Computer Peripheral Equipment.  Devices used with a computer
system's  mainframe or central processing unit.

                  Mainframe Computers. Large central processing units, typically
manufactured by IBM and compatible with software designed by IBM.

                  CAE/CAD/CAM Equipment. Computer aided engineering,  design and
manufacturing systems housing advanced computer and communications  technologies
and sophisticated product data management software.

         Construction  Equipment.  Construction  equipment includes  bulldozers,
haulers, cranes, graders, backhoes, front- end loaders, scrapers and asphalt and
cement  spreaders  used in a wide  variety of  applications  including  building
construction and road, bridge and other civil engineering construction projects.

         Energy Equipment.  Energy equipment includes  cogeneration  facilities,
transmission lines, generation facilities, compression and pumping equipment and
other processing and treatment equipment, as well as energy management systems.

         General Purpose Plant/Office Equipment. Plant/office equipment includes
racking,  shelving,  storage  bins,  portable  steel storage  sheds,  furniture,
fixtures,  tables,  counters,  desks, chairs,  cabinets and numerous other items
generally used in manufacturing plants, storage and distribution  facilities and
offices.

         Graphic Processing  Equipment.  Graphic  processing  equipment includes
print setters,  printing presses,  automatic drafting machines and all equipment
which is used for the visual display of designs, drawings  and  printed  matter.

                                       31

<PAGE>



Printing  presses come  in  a  variety  of  sizes depending on the  applications
for which they are used.  Some printing  presses are of a single color,  whereas
others can apply up to eight colors.  Phototype setters are used for the setting
of  type  for  publications  such  as  newspapers  and  magazines.  Computerized
type-setters have become common in recent years, as they simplify  type-setting,
correction of mistakes and lay-out of printed pages. Automatic drafting machines
are computer  controlled  visual displays of drawings which enable  designers to
make  changes  in  engineering  drawings  without  the time  required  to make a
completely new drawing by hand.

         Machine   Tools  and   Manufacturing   Equipment.   Machine  tools  and
manufacturing equipment include a wide variety of metalworking  machinery,  such
as lathes, drilling presses,  turning mills, grinders,  metal bending equipment,
metal  slitting  equipment  and  other  metal  forming  equipment  used  in  the
production of a variety of machinery and equipment. Some form of machine tool is
used in virtually  every  production  process of a metal  product or  component.
While some machine tools and  metalworking  equipment are built for a particular
end  product,  the  majority  of  machine  tools  can be  used in a  variety  of
applications.  Manufacturing  equipment  can also include  some high  technology
equipment.

         Maritime  Equipment.  Maritime  equipment  is widely  used in  shipping
industry as the most  cost-effective  way of  transporting  large  quantities of
commodities.  Such equipment includes dry bulk ships,  tankers,  supply vessels,
tug boats, hopper barges, tank barges and intermodal containers.  Marine vessels
include (i) tankers,  which are designed to carry liquid  commodities,  and (ii)
dry bulk  carriers,  which are  designed  to carry  homogenous  commodities.  In
addition,  certain vessels have been designed as combination  carriers that have
the capacity to carry both liquid and dry cargoes.

         Marine  vessels may be  registered  in countries  other than the United
States and may operate in international and foreign seas and waterways.  Certain
types of marine  vessels must be registered  prior to operation in the waterways
of the United States.  Marine vessel registration can be challenged and rendered
invalid under  circumstances  similar to those discussed with regard to aircraft
above.  Any  successful  challenge with respect to a marine vessel may result in
substantial  penalties,  including the forced sale of the vessel,  the potential
for  uninsured  casualties,  and a breach  by the  Partnership  of the  lease or
financing agreements related to the vessel.

         In addition, certain U. S. federal statutes and regulations provide for
the forfeiture to the U. S. Government of  transportation  equipment,  including
marine  vessels,  found to be used in the  transportation  of illegal  drugs and
other  contraband.  Upon the  acquisition  of vessels,  the Manager will seek to
cause the vessel owner to enter into the Sea Carrier  Initiative  Agreement with
the  U.S.  Customs  Service  whereby  the  vessel  owner  shall  agree  to  take
affirmative  steps to deter  illegal  access to and use of such vessels by those
engaged  in  trafficking  of items  deemed to be illegal  contraband,  including
illegal  drugs.  The law provides for an exception with respect to the owners of
vessels where the illegal activity has occurred  without the owner's  knowledge,
consent or  willful  blindness.  However,  there can be no  assurance  that if a
marine  vessel  owned by the Fund and  leased  to a third  party was found to be
engaged in such illegal  activities,  that it would not be seized or detained by
the U. S.  Government.  In that  event,  insurance  coverages  of the Fund could
mitigate its loss of income or pecuniary damages.

         Materials  Handling  Equipment.  Materials  handling equipment includes
many  varieties  of  fork  lift  trucks.  They  are  either  battery-powered  or
gas-powered,  and are used in  warehouses  and  factories  for the  movement  of
products and materials from one work station to another or from a warehouse to a
truck for shipment, or for the storing of products and materials.  The equipment
comes in a variety of styles,  depending  on the design of the items to be moved
and the design of the  shipping or  warehouse  facility.  However,  this type of
equipment  is  generally  of  standard  design  and can be used by a variety  of
industries.

                                       32

<PAGE>




         Medical Equipment. Medical equipment includes a wide variety of testing
and diagnostic equipment including:

                  Radiology Equipment.  This category includes x-ray equipment,
         CAT and MRI scanners (i.e., body and head scanners) and other equipment
         to be used in the radiology departments of hospitals and clinics.

                  Laboratory Equipment.  This category includes blood analysis
         equipment and other automated medical laboratory equipment.

                  Other  Medical  Equipment.   This  general  category  includes
         equipment using ultrasound technology, patient monitoring systems and a
         variety of other  equipment  used in  hospitals,  clinics  and  medical
         laboratories.

         Photocopying Equipment. The Fund may acquire and lease photocopying and
other document duplicating or reproduction equipment.

         Railroad Rolling Stock. Railroad rolling stock includes gondolas,  tank
cars, boxcars,  hopper cars,  flatcars,  locomotives and various other equipment
used by railroads in the maintenance of their tracks.  Flatcars and boxcars have
a variety of designs,  some of which are  general  purpose and some of which are
special purpose.  Special purpose flatcars and boxcars are used for the shipment
of specific  products whereas a general purpose car can be used for the shipment
of a wide variety of products. Many electric utilities lease hopper cars for the
shipment of coal from the mine to the  generating  plant.  Tank cars are used to
transport liquids.  Locomotives are the engines,  generally diesel powered, that
drive  trains of railcars  from one location to another.  Locomotives  come in a
variety of designs which vary in the amount of horsepower produced.

         Research and  Experimentation  Equipment.  Research and experimentation
equipment  include  various  types of analyzers,  spectrometers,  oscilloscopes,
measuring  instruments,   gas  and  liquid   chromatographs,   physical  testing
centrifuges,  graphic  plotters and  printers,  laser  equipment,  digital-aided
design systems, scanning electron microscopes, dissolution sampling systems, and
other general  laboratory  instruments  and equipment used in businesses for the
development of ongoing research programs.

         Telephone and Telecommunications Equipment. Communications equipment is
used for voice and data  transmission.  Its  applications  include,  but are not
limited to, telephone communication,  radio and television  broadcasting,  cable
television,  and  satellite  communications.  The Fund  may  acquire  and  lease
communications   equipment  including  telephone  equipment  and  systems,  data
communication terminals,  cables, transmission wires, transmitters,  control and
amplification   equipment,   repeaters,   monitoring  equipment,   teleprinters,
connector  and  switching  equipment,   satellite  and  microwave   transmission
facilities and support equipment.

         Tractors,  Trailers and Trucks. Tractors,  trailers and trucks are used
for the  shipment of various  products  and goods from one  location to another.
Tractor-trailer  rigs are often used for longer shipments and delivery of larger
pieces; whereas heavy-duty trucks are generally used for the more local delivery
of large  products.  A "tractor"  refers to the power unit of a  tractor-trailer
combination.  The tractor cab is generally  manufactured  by one company and the
engine and drive train by another.  The engine may use  gasoline or diesel fuel.
Trailers  are the  container  portion  of a  tractor-trailer  rig and  come in a
variety of sizes and designs  depending  on the product to be shipped.  Trailers
may be designed for  intermodal  use so they can either be pulled by tractors or
transported  on railroad  flatcars.  Trailers  may be up to 45 feet long in most
states and most  commonly  have a set of twin axles (eight  wheels) to carry the
load.  A trailer  may be  enclosed  on a flatbed  for the  shipment  of large or
oversized  products,  and may be  refrigerated  for the  shipment of  perishable
products.  The Fund  intends  to  invest  in  trailers  that can be used for the

                                       33

<PAGE>



shipment   of  a  wide  variety  of  goods  and  are  not  limited  to  specific
applications.  Heavy-duty  trucks are large  trucks in which the engine and load
carrying  components  are mounted on a single frame.  The trucks can be used for
the  local  delivery  of  large  products  or for the  hauling  of  construction
materials.

         Miscellaneous  Equipment. The Fund may also acquire various other types
of equipment,  including, but not limited to, oil drilling equipment, mining and
ore-processing   equipment,   electronic  test  equipment,   office   automation
equipment,  furniture and fixtures,  automobiles,  dairy  production  equipment,
video  projection  and  production  equipment,  store  fixtures,  display cases,
freezers and equipment used in production facilities.

         Incidental  Property  Acquisitions.  Incidental  to an  acquisition  of
equipment,  the Fund may acquire  certain  interests in real  property,  mineral
rights or other tangible or intangible  property or financial  instruments.  The
Fund may acquire  ownership of an item of equipment by acquiring the  beneficial
interests  of a trust or the equity  interest in a special  purpose  corporation
which  holds an asset  sought by the Fund.  Nothing in the  Operating  Agreement
prohibits  the Fund  from  acquiring  any such  incidental  property  rights  or
indirect ownership interest,  provided that the primary purpose and objective is
the acquisition and leasing of equipment as described herein, the acquisition of
the incidental rights does not alter the essential  character of the transaction
as an acquisition and lease which otherwise satisfies the investment  objectives
and policies of the Fund,  and the  acquisition  does not  otherwise  violate or
circumvent any provision of the Operating Agreement.

Prior Program Diversification

         The prior public equipment  leasing  programs  sponsored by the Manager
and  its  Affiliates  have  had  equipment  portfolio  objectives  substantially
identical  to those of the Fund.  The first  chart set forth  below  (Figure  1)
represents the actual equipment portfolio  diversification by equipment type for
all prior ATEL public  programs as of July 31, 2000;  the second chart set forth
below (Figure 2) represents the actual equipment  portfolio  diversification  by
lessee  industry for all prior ATEL public  programs as of August 31, 1998;  and
the third  chart set forth  below  (Figure 3)  represents  the actual  portfolio
diversification  by the lessees'  geographic  location for all prior ATEL public
programs  as of July 31,  2000.  Diversification  of the Fund's  portfolio  will
depend on a number of  variables,  including  the amount of  capital  raised and
market conditions,  which cannot be predicted in advance.  Although there can be
no assurance that the Fund will achieve  diversification  similar to that of the
prior  programs,  achieving  such  diversification  will  be one of the  primary
investment objectives and policies of the Fund.

                          [FIGURE 1 - GRAPHIC OMITTED]

                          [FIGURE 2 - GRAPHIC OMITTED]

                          [FIGURE 3 - GRAPHIC OMITTED]

Borrowing Policies

         The Fund  expects to incur debt to finance the purchase of a portion of
its  equipment  portfolio.  The  amount  of  borrowing  in  connection  with any
equipment acquisition transaction will be determined by, among other things, the
credit of the lessee,  the terms of the lease,  the nature of the  equipment and
the condition of the money market. There is no limit on the amount of debt which
may be incurred in connection with any single acquisition of equipment. However,
the Fund may not incur  aggregate  outstanding  indebtedness in excess of 50% of
the  total  cost of all  equipment  as of the date of the  final  commitment  of
offering proceeds and, thereafter, as of the date any subsequent indebtedness is


                                       34

<PAGE>



incurred.  The Fund  intends to  borrow  amounts  equal  to  such  maximum  debt
level  in order to fund a  portion  of its  equipment  acquisitions.  While  the
Manager  maintains  short term lines of credit,  there can be no assurance  that
such short term credit or permanent  financing  will be available to the Fund in
the amounts desired or on terms considered reasonable by the Manager at the time
the Fund seeks to finance a specific acquisition.

         Financing for the Fund is expected to be a combination  of  nonrecourse
and recourse  debt.  The Manager  intends to use  nonrecourse  debt primarily to
finance  assets  leased to those lessees  which,  in the opinion of the Manager,
have a relatively  higher  potential risk of lease default than other lessees of
the Fund's  Equipment.  This use of  nonrecourse  debt will mitigate the risk of
loss due to default by such lessees.

         Nonrecourse  borrowing,  in the  context of the type of  business to be
conducted by the Fund,  means that the lender  providing the funds would only be
able to look to the equipment purchased with such funds and the proceeds derived
from the leasing or  reselling of such  equipment as security;  neither the Fund
nor any Member  (including the Manager) will be liable for repayment of any such
loan,  nor will any such loan be secured by other  Equipment  owned by the Fund.
Investors should note, however,  that the presence of nonrecourse  financing may
limit an  investor's  ability  to claim  losses  from the Fund.  Furthermore,  a
creditor may under some  circumstances  have  recourse to the Fund's assets upon
establishing fraud or misrepresentation by the Fund.

         The Fund expects to incur recourse debt in connection  with  short-term
bridge financing and "asset securitization",  as described below. Recourse debt,
in the context of the type of business to be conducted  by the Fund,  means that
the lender can look beyond the specific asset financed by the loan to all of the
assets of the  borrower,  or a  specified  pool of  assets,  as  collateral  for
repayment of its debt obligation.

         The Fund expects to incur recourse debt in short-term  bridge financing
used to  acquire  equipment  and  which  is  intended  to be  repaid  through  a
combination of permanent financing, offering proceeds and/or operating revenues.
In addition,  the Fund may participate  with other  affiliated  programs and the
Manager in a common  recourse debt  facility to provide  temporary or short-term
bridge  financing of transactions  approved for acquisition by the Fund and such
Affiliates. In such instances,  lease transactions may be held in the name of an
Affiliate of ATEL for convenience, notwithstanding that the transaction has been
approved for one or more participants.  The ultimate acquisition of the financed
transaction  will depend on many  factors,  including  without  limitation,  the
Fund's available cash,  portfolio makeup, and investment  objectives at the time
of closing.

         The Fund may also incur  long-term  recourse  debt in the form of asset
securitization  transactions  in order to obtain lower  interest  rates or other
more  desirable  terms than may be available  for  individual  nonrecourse  debt
transactions. In an "asset securitization",  the lender would receive a security
interest  in a specified  pool of  "securitized"  Fund assets or a general  lien
against  all  of the  otherwise  unencumbered  assets  of  the  Fund.  It is the
intention of the Manager to use asset securitization primarily to finance assets
leased to those credits which, in the opinion of the Manager,  have a relatively
lower potential risk of lease default than those lessees with equipment financed
with  nonrecourse  debt.  The  Manager  expects  that  an  asset  securitization
financing  would  involve  borrowing  at a  variable  interest  rate based on an
established  reference rate. The Manager would seek to limit the Fund's exposure
to increases in the interest rate by engaging in hedging transactions that would
effectively fix the interest rate obligation of the Fund.

         Other  than  short-term   bridge  financing  or  asset   securitization
financing,  the Manager will seek to avoid  borrowing  under terms which provide
for a rate of  interest  which  may vary  with the  prime or  reference  rate of
interest  of a lender.  The  Manager  will  attempt to limit any other  variable
interest  rate  borrowing to those  instances in which the lessee agrees to bear
the cost of any increase in the interest rate. If such debt is incurred  without

                                       35

<PAGE>


a   corresponding   variable  lease  payment  obligation,  the  Fund's  interest
obligations  could increase while lease revenues  remain fixed.  Accordingly,  a
rise in the prime or reference rate may increase  borrowing costs and reduce the
amount of income and cash available for distributions.  Historically,  the prime
rates charged by major banks have fluctuated; as a result, the precise amount of
interest  which  the Fund may be  charged  under  such  circumstances  cannot be
predicted.

         In the case of any recourse bridge  financing or asset  securitization,
the  lender  would  not be  entitled  to look to the  individual  assets  of any
investor,  or, in many cases, of the Manager,  for repayment of such loans.  If,
under tax principles, it is determined that the Manager or one of its Affiliates
bears the economic risk of loss for such recourse  debt,  then the recourse debt
will be allocated to the Manager or its Affiliate for tax basis purposes and all
deductions attributable to the recourse debt will be allocated to the Manager or
its Affiliate.

         Fund indebtedness may provide for amortization of the principal balance
over the term of the loan through regular  payments of principal and interest or
may  provide  that all or a  substantial  portion of the  principal  due will be
payable in a single  "balloon  payment"  upon  maturity.  Such  balloon  payment
indebtedness involves greater risks than fully amortizing debt.

         In the event that the Fund does not have  sufficient  funds to purchase
an item of equipment at the time it is acquired,  the Fund may borrow from third
parties on a short-term  basis, and repay the loans out of the proceeds from the
subsequent  sale of Units.  Any short-term  loans may be unsecured or secured by
the assets acquired and/or other assets of the Fund.

         Although the Operating  Agreement  does not prohibit the Manager or its
related  entities from lending to the Fund, the Fund does not have any intention
or  arrangements  to borrow from these parties.  If the Fund were to borrow from
the  manager or its related  companies,  the terms may not permit the Manager or
its  affiliates  to receive a rate of  interest  or other  terms  which are more
favorable  than those  generally  available  from  commercial  lenders under the
circumstances.  Neither the Manager nor its affiliates may provide  financing to
the Fund with a term in excess of twelve months.

Description of Lessees

         The Fund will only  purchase  equipment for which a lease exists or for
which a lease will be entered into at the time of purchase.

         The Fund's  objective is to lease a minimum of 75% of the equipment (by
cost),  as of the date of the final  commitment of its proceeds from the sale of
Units, to lessees which


-        have an average credit rating by Moody's Investor Service, Inc. of
         "Baa" or better, or the credit equivalent as determined by the Manager,
         with the average rating weighted to account for the original Equipment
         cost for eachitem leased; or

-        are established hospitals with histories of profitability or
         municipalities.

         The Manager may determine  that the credit  equivalent of a Moody's Baa
rating applies to those lessees which are not rated by Moody's, but which

-        have comparable credit ratings as determined by other nationally
         recognized credit rating services;



                                       36

<PAGE>


-        although not rated by nationally recognized credit rating services, are
         believed by the Manager to have comparable creditworthiness; or

-        in  the  Manager's  opinion,  as  a  result  of  guarantees   provided,
         collateral given,  deposits made or other security  interests  granted,
         have provided such  safeguards of the Fund's  interest in the Equipment
         that the risk is  equivalent  to that  involved in a lease to a company
         with a credit rating of Baa.

         The  remaining  25% of the  initial  equipment  portfolio  may  include
equipment  financed for companies  which,  although  deemed  creditworthy by the
Manager,  would not satisfy  the  specific  credit  criteria  for the  portfolio
described above. Included in this 25% of the portfolio may be one or more growth
capital  leasing  investments,  which are described  below under "Growth Capital
Equipment Financing".  No more than 20% of the initial portfolio,  by cost, will
consist of these growth capital leasing investments.

         In arranging lease  transactions  on behalf of corporate  investors and
securing  institutional  financing  for such  transactions,  the Manager and its
Affiliates  have been required to analyze and evaluate the  creditworthiness  of
potential lessees.  However, neither the Manager nor any of its Affiliates is in
the business of regularly  providing  credit rating  analyses as an  independent
activity.  In order to analyze  whether a  prospective  lessee's  credit risk is
comparable or  equivalent  to a Moody's Baa rating,  the Manager will attempt to
apply the standards applicable to securities qualifying for the Baa rating. Such
securities  are generally  deemed to be of  "investment  grade,"  neither highly
protected nor poorly secured,  with earnings and asset  protection  which appear
adequate at present but which may be questionable over any great length of time.
Notwithstanding   the   Manager's   best   efforts   to  assure   the   lessees'
creditworthiness, there can be no assurance that lease defaults will not occur.

         It is not anticipated that the Fund's lessees will be located primarily
in any given geographic area. The Manager will use its best efforts to diversify
lessees by geography and industry, and will apply the following policies:

-        The Manager will seek to limit the amount invested in equipment leased
         to any single lessee to not more than 20% of the aggregate purchase
         price of equipment owned at any time during the reinvestment period;
         and

-        In no event will the Fund's equity  investment in equipment leased to a
         single lessee exceed an amount equal to 20% of the maximum capital from
         the sale of Units (or $30,000,000).

Foreign Leases

         There is no limit on the  amount  of  equipment  which may be leased to
foreign subsidiaries of United States corporations,  to foreign lessees or which
may otherwise be permitted to be used  predominantly  outside the United States.
The Manager  does not have any specific  objective  with regard to the amount of
Equipment  to be subject  to foreign  leases,  but  intends to pursue  desirable
foreign  leasing  opportunities  for the Fund to the extent  consistent with the
Fund's overall investment objectives.

         Of the total purchase price of equipment leased to foreign lessees, the
Manager will require that a minimum of 75% must  represent  Equipment  leased to
lessees  which  have a credit  risk  equivalent  to a credit  rating by  Moody's
Investor Service, Inc. of "Baa" (investment grade) or better, as determined by a
credit  rating agency which is generally  recognized  in the financial  services
industry  or,  if no such  credit  rating is  available,  as  determined  by the
Manager.  Any leases to foreign  lessees which do not meet the foregoing  credit

                                       37

<PAGE>



standard will either be guaranteed by  a  U.S.  parent  company  of  the lessee,
or will involve  lessees  which have assets  located in the United States with a
value  equal to or greater  than the  original  purchase  cost of the  equipment
subject to the lease.

         The  Manager  will seek to limit  the  aggregate  amount of the  Fund's
equity invested in all equipment leased to foreign lessees or which is otherwise
to be used primarily outside the United States to not more than 20% of the Gross
Proceeds. For this purpose, a lessee under a lease guaranteed by a United States
corporation will not be deemed a foreign lessee.

Description of Leases

         Generally, in a lease involving new equipment,  the lessee will express
an interest in lease  financing  for  equipment  and the Manager will attempt to
create a lease package for the  prospective  lessee.  In  formulating  the lease
package, the Manager will consider the following factors, among others:

-        the type of equipment;

-        the anticipated residual value of the equipment;

-        the business of the lessee;

-        the lessee's credit rating;

-        the cost of alternative financing services, and

-        competitive pricing and other market factors.

         The initial lease terms will vary as to the type of equipment, but will
generally  be for 36 months to 84 months.  The Fund may lease some  equipment to
federal,  state or local governments,  or agencies thereof.  Many of such leases
will be subject to renewal  each year,  because many  governmental  lessees must
obtain  appropriations  for  funds  for their  leases  on an  annual  basis.  In
addition,  the  Fund  may,  under  appropriate  circumstances,  engage  in other
short-term or "per diem" leases when the Manager deems it in the best  interests
of the Fund and consistent with its overall objectives.

         The  equipment  will be leased to third parties  primarily  pursuant to
leases with  scheduled  rents which will return less than the purchase  price of
the equipment  during the initial term of the lease.  These include leases where
rental  payments are based upon  equipment  usage.  However,  as of the date the
final  offering  proceeds are  committed  and all  permanent  debt is placed,  a
majority of the leases,  based on  equipment  purchase  price,  will provide for
lease  payments  and other  payments by the lessee  equal to at least 90% of the
original  equipment  purchase price.  Lease rentals during  comparable terms are
ordinarily  higher under  leases that provide  rents that are less than the full
purchase price than those that return the full purchase price to the lessor.  As
a result, the Manager believes that well-structured leases of this type may help
the Fund satisfy its investment objectives.

         The Fund's will seek initial  lease terms during which a lessee may not
cancel the lease or avoid the lease obligation. However, where the Manager deems
it to be in the  Fund's  best  interests,  because  of  favorable  lease  terms,
anticipated high demand for particular  items of equipment or otherwise,  it may
permit an appropriate cancellation clause.

                                       38

<PAGE>

         The  Manager  believes  that the Fund will be able to lease or sell its
equipment profitably after the initial lease terms although no assurances can be
given  that it will.  The  Fund's  ability  to renew or extend  the terms of its
leases or to re-lease or sell the  equipment on  expiration of the initial lease
terms is dependent on many factors, including possible economic or technological
obsolescence  of  the  Equipment,   competitive  practices  and  conditions  and
generally prevailing economic conditions.

         The Fund's leases will  generally be "net  leases,"  which provide that
the  lessee  must  bear  the  risk of loss of the  equipment,  provide  adequate
insurance, pay taxes on the equipment,  maintain the equipment and indemnify the
Fund  against  any  liability  which may arise from any act or  omission  by the
lessee or its agents. In some leases, the Fund may be responsible for certain of
these  obligations,  such as certain  insurance and  maintenance  expenses,  but
generally only during a period when the equipment is not under lease.

         Most of the Fund's lease agreements will require the lessees

-        to maintain casualty insurance in an amount equal to the greater of the
         full value of the equipment or a specified
         amount set forth in the lease, and

-        to  maintain  liability  insurance  naming  the  Fund as an  additional
         insured with a minimum limit of  $1,000,000  in coverage.

         The Fund may  enter  into  remarketing agreements with manufacturers of
equipment on terms which are customary in the industry. A remarketing  agreement
is an agreement  whereby the  manufacturer  agrees with the lessor to assist the
lessor in finding a new lessee at the  termination  of the original  lease.  The
Manager  will  determine,  in its sole  discretion,  whether  to enter into such
agreements and with which  manufacturers to do so. Most  remarketing  agreements
call for the  manufacturer to find a second user only on a "best efforts" basis.
Thus, a remarketing  agreement does not assure the lessor that the equipment can
or will be re-leased at the end of the initial  lease term.  The monthly  rental
payments under a new lease or the sale price of such equipment  would be subject
to the  final  approval  of the  Manager.  Under a  remarketing  agreement,  the
manufacturer  would participate with the Fund in revenues on an incentive basis.
The manufacturer  would typically receive a percentage of the revenue derived by
the Fund from the equipment under the agreement,  which would increase after the
Fund received a specified return on its investment.

Growth Capital Equipment Financing

         At least 75% of the  Fund's  equipment  portfolio,  by cost,  as of the
final commitment of offering  proceeds,  will consist of transactions  financing
equipment for lessees with investment grade or equivalent  credit status. In the
rest of its portfolio,  the Fund intends to finance some equipment for a variety
of public and  non-public  companies,  and to obtain terms from some  non-public
lessees and borrowers that may include,  as consideration to the party providing
financing, the granting of warrants,  options or other rights to purchase equity
securities of the lessee or borrower, or the opportunity to purchase such equity
securities  outright (such rights to purchase equity interests and direct equity
investments  are  referred to in this  Memorandum  as the  "equity  interests").
Growing  young  companies  often have more  difficulty  obtaining  financing for
equipment  essential to the development and growth of their business,  and, as a
result,  must offer  lessors  and  lenders  substantial  cash  deposits,  equity
participations or other extraordinary  consideration to obtain financing for the
equipment.  The Fund intends to focus up to 20% of its initial portfolio in this
market  to  achieve  investment  returns  from  both its  direct  lease and loan
revenues and gains it may realize from the equity interests.

        The Manager will look for those companies which show solid potential for
consistent  profitability within a specific time period, and which have obtained
or are expected to attract sufficient equity venture capital  to  finance  their

                                       39

<PAGE>




operations  through  expected  profitability.  The Manager will seek to identify
potential lessees which are at an early enough stage in their  capitalization to
require these types of financing solutions,  but which demonstrate the potential
to both satisfy their lease terms and provide attractive equity participation to
the Fund as  lessor.  The  Manager  will  also  seek to  identify  more  mature,
privately-held  companies that seek creative financing  solutions  involving the
granting  of  equity  interests  to  the  Fund.  The  Fund  would  expect  these
transactions to involve more high technology,  low residual value equipment than
the primary portion of its portfolio.  As noted above, the Fund's portfolio will
consist primarily of low obsolescence equipment which will be expected to retain
significant  residual value upon expiration of the initial leases.  In contrast,
the  portion  of the  Fund's  portfolio  invested  in growth  capital  financing
transactions  is expected to return  invested  capital and a targeted  return on
investment through the regular cash payments due during the initial lease term.

         The Fund will only acquire  equity  interests in  conjunction  with the
financing of equipment by the Fund,  including leases and loans to the issuer of
the equity interests or to a parent,  subsidiary or affiliate of the issuer.  In
many cases, the Fund expects to acquire equity  interests,  such as warrants and
options to purchase securities,  in consideration of its equipment financing and
without  any other  cash  investment  by the Fund at the time it  acquires  such
rights (such rights granted as part of the financing transaction are referred to
here as "warrant coverage"). In such cases, cash investment by the Fund would be
made upon  exercise of the rights,  and the Fund expects to use  operating  cash
flow to fund such  exercises.  In other cases,  the Fund may obtain the right to
make a direct cash  investment in the lessee's or  borrower's  securities at the
time the equipment financing is provided,  for which the Fund would use proceeds
from the offering of Shares. In order to assure that the Fund will not be deemed
an "investment  company"  under the Investment  Company Act of 1940, the Manager
will in no event during the life of the Fund permit the  aggregate  value of the
equity interests and any other investment  securities held by the Fund to exceed
40% of the value of the Fund's total assets.

         In addition to true lease financing,  the Fund's growth capital leasing
investments  may be in the form of "leases  intended for  security"  and secured
loan transactions with equipment as the collateral. In a true lease transaction,
the Fund as  lessor  would be  considered  the  owner of the  Equipment  for tax
purposes, and is therefore entitled to cost recovery deductions allocable to the
equipment.  A "lease  intended for  security" or finance  lease may be nominally
structured as a lease,  but is analogous to an installment sale contract or loan
agreement,  and is  treated as a loan for tax  purposes,  with the  "lessor"  as
lender and the "lessee" as the borrower.  In a secured loan agreement,  the Fund
would be the lender and the user of the Equipment would be the borrower. In each
case,  the borrower  would be deemed the owner of the Equipment for tax purposes
and would  retain,  as part of the economic  structure of the lease,  all of the
rights to cost recovery deductions and other tax aspects of ownership.  In these
transactions,  the borrower  will  typically  have an  obligation  to make fixed
periodic  installments  of principal  and interest  over a specified  term.  The
Manager  will attempt to structure  these  transactions  so that the payments of
principal and interest, together with any equity interests involved, will return
the Fund's  investment  and provide a desirable  rate of return on investment in
view of the associated financing risks.

         In finance  leases  and  secured  loans,  the Fund will have a security
interest in the Equipment  financed in the  transaction,  as well as receivables
and proceeds  under any lease or rental  agreement  relating to the Equipment or
other assets.  The Fund's security interest may be a senior lien on the financed
assets,  providing  the Fund with the right,  on any default under the financing
arrangement,  to  foreclose  on the  assets  which are  collateral,  and to take
possession and or sell the assets in order to satisfy the borrower's obligation.
The Fund may also  provide  financing  as a junior or  subordinate  lender under
appropriate  circumstances.  In such  cases,  the Fund's  right to  enforce  its
obligations  against  the  collateral  would be subject to the  priority  of any
senior lender's rights.

         In  conjunction  with its lease of equipment to lessees,  the Fund will
negotiate the  acquisition  from the lessees,  or their  parents or  affiliates,
rights to purchase the equity  securities of such  entities,  or, in some cases,
the securities  themselves.  The equity interests may be in the form of warrants

                                       40

<PAGE>


or options to purchase  equity  securities,  common  shares,  preferred  shares,
convertible  equity,  convertible  debt, or any other form of interest  which is
structured to give the Fund the right to benefit from growth in the market value
of the lessee's  equity  capital.  At some time in the future,  typically at the
time  of,  or  soon  after,  the  lessee's  equity  securities  become  publicly
registered or tradeable, generally through an initial public offering, merger or
reorganization,  the Fund would  exercise its rights  represented  by the equity
interests,  acquire the lessee's publicly-traded  securities and seek to dispose
of the  securities  at a profit.  The equity  interests may also mature upon the
negotiated  sale of the lessee  through the sale of all of the  lessee's  equity
securities  or a sale of all its assets and  liquidation  of the proceeds to the
equity holders.

         The Fund's  management  will  determine  when and  whether to  exercise
rights to convert  or acquire  securities  subject to the equity  interests.  To
exercise warrant or option rights the Fund will pay an exercise price, which may
be financed  out of the  disposition  proceeds to be realized  upon an immediate
resale of the purchased  securities.  There can be no assurance that the issuers
of the  equity  interests  will  achieve  capital  growth  and that  the  equity
interests  will  generate  any profit,  or that such growth and profits  will be
achieved during the Fund's anticipated holding period.

Competition

         Leasing  has  become  one  of  the  major  methods  by  which  American
businesses  finance  their  capital  equipment  needs.  See Figure 4 below for a
graphic-presentation  of the dollar amount of equipment investment and equipment
lease  financing in the United States for each year since 1982 (according to the
Equipment Leasing  Association,  a leasing industry trade  association).  Please
note that this chart reflects the growth of equipment  lease  financing from all
sources, including manufacturers,  financial institutions and private and public
lease financing  companies,  and not just public equipment leasing programs such
as the Fund.  Public  programs like the Fund represent  only a relatively  small
portion of the total lease financing industry.

                          [FIGURE 4 - GRAPHIC OMITTED]

         In  obtaining  lessees  the Fund will  compete  with  manufacturers  of
equipment which provide leasing programs and with established  leasing companies
and equipment  brokers.  Manufacturers of equipment may offer certain incentives
including maintenance services and trade-in or replacement  privileges which the
Fund cannot offer. The Fund may also be competing with  manufacturers and others
who offer leases that provide for longer terms and lower rates than leases which
the Fund will offer.  There are numerous  other  potential  entities,  including
entities  organized  and  managed  similarly  to the Fund,  seeking to  purchase
equipment subject to leases.

Joint Venture Investments

         The  Fund  may  purchase  certain  of  its  equipment  by  acquiring  a
controlling  interest in a partnership,  equipment  trust or other form of joint
venture with a non-Affiliate which owns the equipment.  The controlling interest
requirement  may be satisfied  by  ownership  of more than 50% of the  venture's
capital or profits or from provisions in the governing agreement giving the Fund
certain  basic  rights.  For example,  control may take the form of the right to
make or veto certain management  decisions or provide for certain  predetermined
benefits  for the Fund in the event that any other party to the  venture  should
decide to sell,  refinance or change the assets  owned by the venture.  The Fund
may not acquire equipment jointly with others unless

-        the joint venture  agreement  does not authorize or require the Fund to
         do  anything  with  respect  to the  equipment  which the Fund,  or the
         Manager, could not do directly because of the policies set forth in the
         Operating Agreement, and

                                       41

<PAGE>


-        the transaction does not result in payment of duplicate fees.

         The Fund may also  acquire  equipment  by joint  venture or as co-owner
with an Affiliate if the following conditions are met:

-        the Affiliate will be required to have substantially identical
         investment objectives to those of the Fund;

-        there are no duplicate fees;

-        the Affiliate must make its investment on substantially the same terms
         and conditions as the Fund;

-        the Affiliate must have a compensation structure substantially
         identical to that of the Fund;

-        the venture must be entered into in order to obtain  diversification or
         to relieve the Manager or  Affiliates  from  commitments  entered  into
         under Section 15.2.15 of the Operating  Agreement or similar provisions
         governing the Affiliate; and

-        the Fund has a right of first refusal should a co-venturer decide to
         sell the property owned by the venture.

         Because  both the Fund and its  Affiliate  will be  required to approve
decisions pertaining to the equipment,  a management impasse may develop. If one
party, but not the other,  wishes to sell the equipment,  the party not desiring
to sell  will  have a right of first  refusal  to  purchase  the  other  party's
interest in the equipment.  The Fund may not,  however,  be able to exercise its
right of first refusal unless it has the financial resources to do so, and there
can be no assurances that it will.

General Restrictions

         The Fund will not:

-        issue any Units after the offering terminates or issue Units in
         exchange for property,

-        make loans to the Manager or its Affiliates,

-        invest in or underwrite the securities of other issuers,

-        operate in such a manner as to be classified as an "investment company"
         for purposes of the Investment Company Act of 1940,

-        except as set forth herein, purchase or lease any equipment from nor
         sell or lease property to the Manager or its Affiliates, or

-        except as expressly  provided  herein,  grant the Manager or any of its
         Affiliates  any rebates or give-ups or  participate  in any  reciprocal
         business  arrangements  with such parties  which would  circumvent  the
         restrictions  in the Operating  Agreement,  including the  restrictions
         applicable to transactions with Affiliates.


                                       42

<PAGE>

         The Manager and its Affiliates, including their officers and directors,
may engage in other businesses or ventures that own,  finance,  lease,  operate,
manage,  broker  or  develop  equipment,  as well  as  businesses  unrelated  to
equipment leasing.

Changes in Investment Objectives and Policies

         Unit   holders  have  no  right  to  vote  on  the   establishment   or
implementation  of the  investment  objectives  and policies of the Fund, all of
which are the  responsibility of the Manager.  However,  the Manager cannot make
any material changes in the investment  objectives and policies  described above
without first  obtaining the written  consent or approval of Members owning more
than 50% of the total outstanding Units entitled to vote.

                              CONFLICTS OF INTEREST

         The Fund is subject to various conflicts of interest arising out of its
relationship  with the Manager and  Affiliates of the Manager.  These  conflicts
include, but are not limited to, the following:

         The Manager engages in other,  potentially competing,  activities.  The
Manager  serves in the  capacity of manager or general  partner in other  public
programs engaged in the equipment  leasing  business,  and it and its Affiliates
also engage in the business of  purchasing  and selling  equipment and arranging
leases for their own account and for the  accounts of others.  The Manager  will
have conflicts of interest in allocating management time, services and functions
among  the  prior  programs,  the  Fund,  any  future  investment  programs  and
activities for its own account.  The Manager  believes that it has or can employ
sufficient  staff,  equipment  and other  resources  to  discharge  fully  their
responsibilities to each such activity.

         In addition,  as a general partner of prior programs,  the Manager will
be contingently  liable for obligations of these  programs,  except  nonrecourse
indebtedness  relating to the  acquisition of equipment.  Such  obligations  are
expected to consist  primarily of normal  operating and other current  expenses,
and the Manager does not believe this  responsibility will affect its ability to
satisfy its responsibilities to the Fund.

         Competition  for  Investments.  The  Manager  will  have  conflicts  of
interest to the extent that its prior or future investment  programs may compete
with the Fund for  opportunities  in the  acquisition  and leasing of equipment.
Prior public programs  currently in operation and expected to acquire additional
equipment  investments include:  ATEL Cash Distribution Fund V, L.P. ("ACDF V");
ATEL Cash  Distribution  Fund VI, L.P. ("ACDF VI"); ATEL Capital  Equipment Fund
VII, L.P. ("ACEF VII"); and ATEL Capital  Equipment Fund VIII, LLC ("ACEF VIII")
(together collectively referred to as the "Prior Programs").  The Prior Programs
have investment objectives  substantially identical to those of the Fund and may
have funds  available for investment in additional  equipment at a time when the
Fund is also active in seeking to invest or reinvest  in  Equipment.  Certain of
the equipment owned and to be acquired by the Prior Programs and the Fund may be
similar  and may be  purchased  from the same  manufacturers.  Furthermore,  the
Manager and its Affiliates may in the future form additional investment programs
having similar objectives, and accordingly,  the Fund may be in competition with
any such future programs formed by the Manager.

         Any  time  two  or  more  investment   programs  (including  the  Fund)
affiliated with the Manager have capital available to acquire and lease the same
types of equipment,  conflicts of interest may arise as to which of the programs
should proceed to acquire available items of equipment. In such situations,  the
Manager  will  analyze  the  equipment  already  purchased  by,  and  investment
objectives  of, each program  involved,  and will  determine  which program will
purchase the equipment based upon such factors, among others, as

                                       43

<PAGE>


-        the amount of cash available in each program for such acquisition and
         the length of time such funds have been available,

-        the current and long-term liabilities of each program,

-        the effect of such acquisition on the diversification of each program's
         equipment portfolio,

-        the estimated income tax consequences to the investors in each program
         from such acquisition, and

-        the cash distribution objectives of each program.

If after analyzing the foregoing and any other appropriate  factors, the Manager
determines  that such  acquisition  would be equally  suitable for more than one
program,  then the Manager shall purchase such equipment for the programs on the
basis of rotation  with the order of priority  determined  by the length of time
each  program  has had  funds  available  for  investment,  with  the  available
equipment  allocated  first to the  program  which has had funds  available  for
investment the longest.

         The Manager and  Affiliates  will  receive  substantial  fees and other
compensation. Fund operations will result in certain compensation to the Manager
and its Affiliates. The Manager has absolute discretion in all decisions on Fund
operations.  Because  the amount of such fees may depend,  in part,  on the debt
structure of equipment  acquisitions and the timing of these  transactions,  the
Manager and its  Affiliates  may have  conflicts of interest.  For example,  the
acquisition,  retention,  re-lease  or sale of  equipment  and  the  terms  of a
proposed transaction may be less favorable to the Fund and more favorable to the
Manager under certain circumstances. It should be noted that the Manager intends
to cause the Fund to incur aggregate acquisition debt in an amount approximately
equal to 50% of the total cost of equipment.

         In all cases where the Manager or its  Affiliate may have a conflict of
interest in  determining  the terms or timing of a  transaction  by the Fund, it
will exercise its discretion  strictly in accordance  with its fiduciary duty to
the Fund and the Holders.

         Agreements are not  Arm's-Length.  Agreements  between the Fund and the
Manager or any of its Affiliates are not the result of arm's-length negotiations
and  performance  by the Manager and its  Affiliates  will not be  supervised or
enforced at arm's-length.

         No  independent   managing   underwriter   has  been  engaged  for  the
distribution of the Units.  ATEL  Securities  Corporation is an Affiliate of the
Manager  and will  perform  wholesaling  services  for the  Fund.  It may not be
expected to have  performed due  diligence in the same manner as an  independent
broker-dealer.  The  Dealer  Manager  has  acted in the same  capacity  in prior
offerings  sponsored by the Manager and its  Affiliates and is expected to do so
in any future offerings that the Manager and its Affiliates may conduct.

         The Fund, the Manager and prospective Holders have not been represented
by separate  counsel.  In the  formation of the Fund,  drafting of the Operating
Agreement  and the  offering  of Units,  the  attorneys,  accountants  and other
professionals who perform services for the Fund all perform similar services for
the Manager and its Affiliates.  The Fund expects that this dual  representation
will  continue in the future.  However,  should a dispute arise between the Fund
and the Manager, the Manager will cause the Fund to retain separate counsel.

                                       44

<PAGE>


         The Fund may enter into joint  ventures  with  programs  managed by the
Manager or its Affiliates.  The Manager may face conflicts of interest as it may
control  and  owe  fiduciary   duties  to  both  the  Fund  and  the  affiliated
co-venturer.  For example,  because of the differing  financial positions of the
co-venturers,  it  may  be in the  best  interest  of one  entity  to  sell  the
jointly-held equipment at a time when it is in the best interest of the other to
hold the  equipment.  Nevertheless,  these  joint  ventures  are  restricted  to
circumstances  where the co-venturer's  investment  objectives are comparable to
the Fund's,  the Fund's  investment  is on  substantially  the same terms as the
co-venturer  and  the  compensation  to be  received  by  the  Manager  and  its
Affiliates from each co-venturer is substantially identical.



























                                       45

<PAGE>


                             ORGANIZATIONAL DIAGRAM


         The  following  diagram  (Figure 5) shows the  relationships  among the
Fund,  the Manager and certain of  Affiliates  of the Manager  which may perform
services  for the Fund (solid  lines  denote  ownership  and dotted lines denote
other relationships).

                                    Figure 5

[GRAPHICS OMITTED]


                           ATEL Capital Group ("ACG")


   ATEL Equipment        ATEL Financial       ATEL Investor       ATEL Leasing
 Corporation ("AEC")      Corporation         Services ("AIS")    Corporation
                       ("Manager" or "AFC")                         ("ALC")



    ATEL Securities Corporation
       (the "Dealer Manager")




                       ATEL CAPITAL EQUIPMENT FUND IX, LLC
                                  (the "Fund")


         ATEL Capital  Group's voting stock is owned 75% by A.J. Batt and 25% by
Dean L. Cash. ATEL Capital Group owns 100% of the  outstanding  capital stock of
each of the Manager,  ALC, AIS and AEC. The Manager owns 100% of the outstanding
capital stock of the Dealer Manager.

                          FIDUCIARY DUTY OF THE MANAGER

         The  Manager  is   accountable   to  the  Fund  as  a  fiduciary   and,
consequently,  is required to exercise  good faith and integrity in all dealings
with respect to Fund affairs.

         Under  California law and subject to certain  conditions,  a Member may
file a lawsuit on behalf of the Fund (a  derivative  action) to recover  damages
from a third party or to recover damages resulting from a breach by a Manager of
its fiduciary  duty. In addition,  a Member may sue on behalf of himself and all
other Members (a class  action) to recover  damages for a breach by a Manager of
its fiduciary duty,  subject to class action  procedural rules. This area of the
law is complex and rapidly changing,  and investors who have questions regarding
the duties of a Manager and the  remedies  available to Members  should  consult
with their counsel.


                                       46

<PAGE>

         The Operating  Agreement  does not excuse the Manager from liability or
provide it with any defenses for breaches of its fiduciary  duty.  However,  the
fiduciary  duty owed by a Manager is similar in many  respects to the  fiduciary
duty owed by directors of a corporation to its  shareholders,  and is subject to
the same rule,  commonly  referred  to as the  "business  judgment  rule,"  that
directors  are not liable for  mistakes  in the good  faith  exercise  of honest
business  judgment or for losses incurred in the good faith performance of their
duties when performed with such care as an ordinarily  prudent person would use.
As a result of the business judgement rule, a Manager may not be held liable for
mistakes  made or losses  incurred  in the good  faith  exercise  of  reasonable
business  judgment.  Accordingly,  provision  has  been  made  in the  Operating
Agreement  that the  Manager  shall  have no  liability  to the Fund for  losses
arising  out of any act or omission by the  Manager,  provided  that the Manager
determined  in good faith that its conduct was in the best  interest of the Fund
and, provided further, that its conduct did not constitute fraud,  negligence or
misconduct.  As a result,  purchasers  of Units may have a more limited right of
action  in  certain  circumstances  than  they  would in the  absence  of such a
provision  in  the  Operating  Agreement  specifically  defining  the  Manager's
standard of care.

         The Operating  Agreement also provides that, to the extent permitted by
law, the Fund shall indemnify the Manager and its Affiliates  providing services
to the Fund against liability and related expenses  (including  attorneys' fees)
incurred  in  dealings  with third  parties,  provided  that the  conduct of the
Manager is consistent with the standards described in the preceding paragraph. A
successful  claim for such  indemnification  would  deplete  Fund  assets by the
amount  paid.  The Manager  shall not be  indemnified  against  any  liabilities
arising  under  the  Securities  Act of  1933.  The Fund  shall  not pay for any
insurance  covering liability of the Manager or any other persons for actions or
omissions for which indemnification is not permitted by the Operating Agreement.

         Subject  to  the   fiduciary   relationship,   the  Manager  has  broad
discretionary  powers to manage  the  affairs of the Fund under the terms of the
Operating  Agreement and under the California Act.  Generally,  actions taken by
the  Manager  are not  subject to vote or review by the  Holders,  except to the
limited extent provided in the Operating Agreement and under California law.

                                   MANAGEMENT

The Manager

         The Manager is ATEL Financial  Corporation  (the "Manager" or "AFC"), a
California corporation formed in 1977 under the name All Type Equipment Leasing,
Inc.  The  Manager's  offices are  located at 235 Pine  Street,  6th Floor,  San
Francisco,  California  94104,  and its telephone  numbers are  415/989-8800 and
800/543-ATEL. Its officers have extensive experience with transactions involving
the acquisition,  leasing, financing and disposition of equipment, as more fully
described  below and in Exhibit A hereto.  The  Manager and its  Affiliates  are
sometimes collectively referred to below as "ATEL" for convenience.

         Since its  organization  in 1977, ATEL has been active in several areas
within the equipment leasing industry, including:

-        originating and financing leveraged and single investor lease
         transactions for corporate investors,

-        acting as a broker/packager by arranging equity and debt participants
         for equipment lease transactions originated by other leasing companies,
         and

                                       47
<PAGE>


-        consulting on the pricing and structuring of equipment lease
         transactions for banks, leasing companies and corporations.

         The Manager has organized  eight prior public limited  partnerships  to
acquire and lease equipment.  During the past 18 years, ATEL has participated in
structuring and/or arranging lease transactions  involving  aggregate  equipment
costs in excess of $1 billion.

      All of the outstanding stock of ATEL Financial Corporation is held by ATEL
Capital Group  ("ACG").  The  outstanding  voting stock of ATEL Capital Group is
owned 75% by A.J. Batt and 25% by Dean L. Cash. Each of ATEL Leasing Corporation
("ALC"),  ATEL Equipment  Corporation ("AEC") and ATEL Investor Services ("AIS")
is a wholly- owned  subsidiary of ATEL Capital Group which will perform services
for the Fund under the  direction of the Manager.  Acquisition  services will be
performed  for the  Fund by ALC,  equipment  management  and  asset  disposition
services will be performed by AEC, and AIS will perform partnership  management,
administration  and  investor  services.   Finally,  the  Dealer  Manager,  ATEL
Securities  Corporation ("ASC"), is a wholly-owned  subsidiary of ATEL Financial
Corporation.  ACG had a net worth as of July 31,  2000,  its most recent  fiscal
year end, well in excess of the NASAA Guidelines  minimum of $1,000,000.  ACG is
responsible  for all aspects of the  performance  by its  affiliates of services
necessary  to the  operation  of the  Fund  and for the  facilities,  personnel,
equipment,  financial  and  other  resources  used  by  its  affiliates  in  the
performance of those services.


         The  officers  and  directors of ATEL  Capital  Group,  ATEL  Financial
Corporation and their Affiliates are as follows:

  Name                Positions
  ----                ---------

A.J. Batt ........... Chairman of the Board of Directors of ACG, AFC, AVI, AEC,
                      AIS and ASC; President and Chief Executive Officer of ACG,
                      AFC, and AEC

Dean L. Cash ........ Director, Executive Vice President and Chief Operating
                      Officer of ACG, AFC and AEC; Director, President and Chief
                      Executive Officer of AVI, AIS and ASC

Paritosh K. Choksi... Director, Senior Vice President and Chief Financial
                      Officer of ACG, AFC, AVI, AIS and AEC

Donald E. Carpenter.. Controller of ACG, AFC, AVI, AEC and AIS; Chief Financial
                      Officer of ASC

Vasco H. Morais...... Senior Vice President and General Counsel  for ACG, AFC,
                      AVI, AIS and AEC


         A. J. Batt, age 64, founded ATEL in 1977 and has been its president and
chairman of the board of directors  since its  inception,  and a director of the
Dealer Manager since its  organization  in October,  1985. From 1973 to 1977, he
was employed by GATX Leasing  Corporation as manager-data  processing and equity
placement for the lease underwriting department, which was involved in equipment
financing  for  major  corporations.  From  1967 to 1973  Mr.  Batt was a senior
technical representative for General Electric Corporation, involved in sales and
support  services for computer time- sharing  applications  for corporations and
financial  institutions.  Prior to that time, he was employed by North  American
Aviation as an  engineer  involved in the Apollo  project.  Mr. Batt  received a
B.Sc.  degree with honors in  mathematics  and physics  from the  University  of
British  Columbia in 1961. Mr. Batt is qualified as a registered  principal with
the NASD.


                                       48

<PAGE>

         Dean L. Cash,  age 50, joined ATEL as director of marketing in 1980 and
has been a vice president since 1981,  executive vice president since 1983 and a
director  since  1984.  He has been a director of the Dealer  Manager  since its
organization and its president since 1986. Prior to joining ATEL, Mr. Cash was a
senior marketing  representative for Martin Marietta  Corporation,  data systems
division,  from 1979 to 1980.  From 1977 to 1979,  he was  employed  by  General
Electric  Corporation,  where he was an  applications  specialist in the medical
systems  division and a marketing  representative  in the  information  services
division. Mr. Cash was a systems engineer with Electronic Data Systems from 1975
to 1977, and was involved in maintaining and developing  software for commercial
applications.  Mr. Cash received a B.S.  degree in psychology and mathematics in
1972 and an M.B.A.  degree with a concentration  in finance in 1975 from Florida
State  University.  Mr.  Cash is an  arbitrator  with the  American  Arbitration
Association and is qualified as a registered principal with the NASD.

         Paritosh K. Choksi,  age 47, joined ATEL in 1999 as a director,  senior
vice  president and its chief  financial  officer.  Prior to joining  ATEL,  Mr.
Choksi was chief  financial  officer at Wink  Communications  Inc.  from 1997 to
1999. From 1977 to 1997, Mr. Choksi was with Phoenix  American  Incorporated,  a
financial  services and  management  company,  where he held  various  positions
during his tenure,  and was senior vice president,  chief financial  officer and
director  when he left the company.  Mr.  Choksi was  involved in all  corporate
matters at Phoenix and was  responsible  for Phoenix's  capital market needs. He
also  served on the  credit  committee  overseeing  all  corporate  investments,
including  its  growth  capital  lease  portfolio.  Mr.  Choksi  was part of the
executive  management  team which  caused  Phoenix's  portfolio to grow from $50
million  in assets  to over $2  billion.  Mr.  Choksi  received  a  Bachelor  of
Technology  degree  in  mechanical  engineering  from the  Indian  Institute  of
Technology,  Bombay  in  1975;  and an  M.B.A.  degree  from the  University  of
California, Berkeley in 1977.

         Donald E. Carpenter,  age 49, joined ATEL in 1986 as controller.  Prior
to joining  the  corporate  Manager,  Mr.  Carpenter  was  employed  as an audit
supervisor  with  Laventhol  &  Horwath,  certified  public  accountants  in San
Francisco,  California,  from 1983 to 1986. From 1979 to 1983, Mr. Carpenter was
employed by Deloitte Haskins & Sells,  certified public accountants in San Jose,
California.  From 1971 to 1975,  Mr.  Carpenter was a supply officer in the U.S.
Navy. Mr. Carpenter received a B.S. degree in mathematics (magna cum laude) from
California  State  University,  Fresno in 1971 and  completed a second  major in
accounting  in 1978.  Mr.  Carpenter  has  been a  California  certified  public
accountant since 1981. He is qualified as a registered principal with the NASD.

         Vasco H. Morais,  age 40, joined ATEL in 1989 as general  counsel.  Mr.
Morais manages  ATEL's legal  department,  which provides legal and  contractual
support in the  negotiating,  drafting,  documenting,  reviewing  and funding of
lease  transactions.  In addition,  Mr. Morais advises on general  corporate law
matters,  and assisting on securities law issues.  From 1986 to 1989, Mr. Morais
was  employed  by the  BankAmeriLease  Companies,  Bank of  America's  equipment
leasing  subsidiaries,  providing in-house legal support on the documentation of
tax-oriented  and non-tax  oriented  direct and  leveraged  lease  transactions,
vendor  leasing   programs  and  general   corporate   matters.   Prior  to  the
BankAmeriLease Companies, Mr. Morais was with the Consolidated Capital Companies
in the  Corporate  and  Securities  Legal  Department  involved in drafting  and
reviewing  contracts,  advising on  corporate  law matters  and  securities  law
issues.  Mr.  Morais  received  a B.A.  degree  in 1982 from the  University  of
California in Berkeley;  a J.D.  degree in 1986 from Golden Gate  University Law
School; and an M.B.A.  (Finance) degree from Golden Gate University in 1997. Mr.
Morais has been an active member of the State Bar of California since 1986.


Selection and Management of Investments


     ATEL Leasing  Corporation,  will have primary  responsibility for selecting
and negotiating potential  acquisitions and leases of equipment,  subject to the
Manager's supervision and approval.  The  Manager's  Investment  Committee  will

                                       49

<PAGE>




approve any acquisition before  it  is  consummated.  The  Investment  Committee
currently consists of A.J. Batt, Dean L. Cash,  Paritosh K. Choksi and Donald E.
Carpenter.

         ATEL  Equipment   Corporation  will  manage  the  Fund's  portfolio  of
Equipment,  subject to the  Manager's  supervision.  Management  services  to be
provided  by AEC  include  collection  of lease  payments  from the  lessees  of
Equipment,  re-leasing  services  upon  termination  of  leases,  inspection  of
Equipment,  acting as a liaison between lessees and vendors, general supervision
of lessees and vendors to ensure that the  Equipment is being  properly used and
operated by lessees, arranging for maintenance and related services with respect
to the Equipment and the supervision, monitoring and review of others performing
services  for the  Fund.  Third  parties  may  participate  in  managing  or may
separately manage Equipment for which they will receive a fee from the Fund.

Management Compensation

         The Fund does not pay the  officers or  directors of the Manager or its
Affiliates  any  compensation.  However,  the Fund will pay the  Manager and its
Affiliates  the  Asset  Management  Fee for their  services  to the Fund and the
Manager  will have a Carried  Interest in the Fund as a Member  equal to 7.5% of
Fund allocations of  Distributions,  Net Income and Net Loss.  Furthermore,  the
Fund will reimburse the Manager and its Affiliates for certain costs incurred on
behalf  of  the  Fund,  including  the  cost  of  certain  personnel  (excluding
controlling  persons  of the  Manager)  who will be  engaged  by the  Manager to
perform  administrative,  accounting,  secretarial,  transfer and other services
required by the Fund. Such individuals may also perform similar services for the
Manager,  its  Affiliates  and  other  investment  programs  to be formed in the
future.

Changes in Management

         The  Operating  Agreement  provides  that the Manager may be removed as
Manager at any time upon the vote of Holders  owning  more than 50% of the total
outstanding  Units  entitled  to vote,  and  Holders  have the  right to elect a
successor Manager in place of the removed Manager by a similar vote. The Manager
may only withdraw  voluntarily from the Fund with the approval of Holders owning
in excess of 50% of the Units entitled to vote on Fund matters. The Holders have
no voice in the election of directors or  appointment of officers of the Manager
or its parent, ATEL Capital Group, and the capital stock of such entities can be
transferred without the consent of the Fund or the Holders.

         The  by-laws of the Manager  provide for a maximum of three  directors.
The by-laws can be amended to increase the number of directors  either by a vote
of  stockholders  or of directors.  In the event of a vacancy or increase in the
number of members of the board of directors,  the remaining  directors may elect
the members to serve until the next annual  meeting of directors.  Directors are
otherwise  elected  annually  by vote  of the  stockholders,  and the  directors
appoint corporate officers to serve at the will of the board.

The Dealer Manager

         ATEL  Securities  Corporation  (the "Dealer  Manager") was organized in
October 1985  principally  for the purpose of assisting in the  distribution  of
securities  of programs to be sponsored by the Manager and its  Affiliates.  The
Dealer  Manager became a member of the NASD in February 1986. The Dealer Manager
is a wholly-owned  subsidiary of ATEL.  The Dealer Manager will provide  certain
wholesaling  services to the Fund in  connection  with the  distribution  of the
Units offered hereby.

                                       50

<PAGE>

                            PRIOR PERFORMANCE SUMMARY

         The information presented in this section and in the tables included as
Exhibit A to this prospectus  represents  historical  results of prior equipment
leasing programs  sponsored by the Manager and its affiliates.  Investors in the
Fund should not assume that they will experience  investment  results comparable
to those experienced by investors in prior programs.

         Since July 28,  1977,  the Manager and its  Affiliates  have  financed,
structured or arranged  equity and debt  participations  for  equipment  leasing
transactions  involving  total  equipment  costs in  excess of $1  billion.  The
Manager has  sponsored  and  syndicated  eight prior  public  equipment  leasing
programs  (collectively  referred  to as the  "Prior  Programs").  In  addition,
beginning in August  1999,  ATEL  sponsored  ATEL Venture Fund I, LLC, a private
fund formed to engage  exclusively  in "venture  leasing",  a different  primary
investment objective than that of the Fund or the Prior Programs.

         The  first  Prior  Program,   ATEL  Cash  Distribution  Fund  ("ACDF"),
commenced a public  offering of up to  $10,000,000  of its equity  interests  on
March 11, 1986.  ACDF terminated its offering on December 18, 1987 after raising
a total of $10,000,000 in offering proceeds from a total of approximately  1,000
investors,  all of which  proceeds  were  committed to  equipment  acquisitions,
organization and offering expenses and capital reserves.  ACDF public acquired a
variety  of types  of  equipment  with a total  purchase  cost of  approximately
$11,133,679.  All of such  equipment  had  been  sold  and the  partnership  was
terminated  as of December 31,  1997.  Through its  liquidation,  ACDF made cash
distributions  to its investors in the aggregate  amount of $1,121.03 per $1,000
invested.  Of this amount a total of $244.89  represents  investment  income and
$876.14 represents return of capital.

         The second Prior Program,  ATEL Cash  Distribution Fund II ("ACDF II"),
commenced a public offering of up to $25,000,000 (with an option to increase the
offering to  $35,000,000)  of its equity  interests on January 4, 1988.  ACDF II
terminated  its offering on January 3, 1990 after raising a total of $35,000,000
in offering proceeds from a total of approximately 3,100 investors, all of which
proceeds  have  been  committed  to  equipment  acquisitions,  organization  and
offering expenses and capital  reserves.  ACDF II acquired a variety of types of
equipment with a total purchase cost of approximately  $52,270,536.  All of such
equipment had been sold and the  partnership  was  terminated as of December 31,
1998.  ACDF II made total cash  distributions  to its investors in the aggregate
amount of  $1,222.63  per  $1,000  invested.  Of this  amount a total of $335.43
represents investment income and $887.20 represents return of capital.

         The third Prior Program,  ATEL Cash Distribution Fund III ("ACDF III"),
commenced a public offering of up to $50,000,000 (with an option to increase the
offering to  $75,000,000)  of its equity  interests on January 4, 1990. ACDF III
terminated  its offering on January 3, 1992 after raising a total of $73,855,840
in offering proceeds from a total of approximately 4,822 investors, all of which
proceeds have been committed to equipment  acquisitions,  estimated organization
and offering expenses and capital  reserves.  ACDF III had acquired a variety of
types of equipment with a total purchase cost of approximately $99,629,942 as of
June 30,2000 Of such equipment,  items representing an original purchase cost of
approximately  $99,617,789  had been sold as of June  30,2000  Through  June 30,
2000,  ACDF III had made cash  distributions  to its  investors in the aggregate
amount of  $1,282.31  per  $1,000  invested.  Of this  amount a total of $351.28
represents investment income and $931.03 represents return of capital.

         The fourth Prior Program,  ATEL Cash  Distribution Fund IV ("ACDF IV"),
commenced a public  offering of up to  $75,000,000  of its equity  interests  on
February  4, 1992.  ACDF IV  terminated  its  offering on February 3, 1993 after
raising  a  total  of  $75,000,000   in  offering   proceeds  from  a  total  of
approximately  4,873  investors,  all of which  proceeds have been  committed to
equipment acquisitions, estimated organization and offering expenses and capital
reserves.  ACDF IV had  acquired  a variety of types of  equipment  with a total

                                       51

<PAGE>



purchase  cost of  approximately  $108,734.880  as  of  June  30,2000.  Of  such
equipment,  items  representing  an  original  purchase  cost  of  approximately
$84,464,176  had been sold as of June 30,2000 Through June 30, 2000, ACDF IV had
made cash  distributions  to its investors in the aggregate  amount of $1,077.88
per $1,000  invested.  Of this amount a total of $285.52  represents  investment
income and $792.36 represents return of capital.

         The fifth  Prior  Program,  ATEL Cash  Distribution  Fund V ("ACDF V"),
commenced a public  offering of up to  $125,000,000  of its equity  interests in
February 1993. ACDF V terminated its offering in November 1994,  after raising a
total of $125,000,000 in offering  proceeds from a total of approximately  7,217
investors,  all of which proceeds have been committed to equipment acquisitions,
estimated  organization and offering expenses and capital  reserves.  ACDF V had
acquired  a  variety  of  types  of  equipment  with a  total  purchase  cost of
approximately   $186,995,157  as  of  June  30,2000  Of  such  equipment,  items
representing  an original  purchase cost of  approximately  $67,403,080 had been
sold  as  of  June  30,2000  Through  June  30,  2000,  ACDF  V  had  made  cash
distributions  to its  investors in the  aggregate  amount of $760.99 per $1,000
invested.  Of this amount a total of $153.67  represents  investment  income and
$607.32 represents return of capital.

         The sixth Prior Program,  ATEL Cash  Distribution  Fund VI ("ACDF VI"),
commenced a public  offering of up to  $125,000,000  of its equity  interests in
November 1994. ACDF VI terminated its offering in November 1996, after raising a
total of $125,000,000 in offering  proceeds from a total of approximately  6,401
investors,  all of which proceeds have been committed to equipment acquisitions,
estimated  organization and offering expenses and capital reserves.  ACDF VI had
acquired  a  variety  of  types  of  equipment  with a  total  purchase  cost of
$208,277,121  as of  June  30,2000  Of such  equipment,  items  representing  an
original  purchase cost of  approximately  $50,712,500  had been sold as of June
30,2000  Through  June 30,  2000,  ACDF VI had made  cash  distributions  to its
investors in the aggregate amount of $528.08 per $1,000 invested. Of this amount
a total of $29.49 represents  investment income and $498.59 represents return of
capital.

         The seventh  Prior  Program,  ATEL  Capital  Equipment  Fund VII ("ACEF
VII"), commenced a public offering of up to $150,000,000 of its equity interests
in November  1996.  ACEF VII  terminated  its  offering as of November 29, 1998,
after  raising  a total  of  $150,000,000  in  offering  proceeds,  all of which
proceeds have been committed to equipment  acquisitions,  estimated organization
and offering expenses and capital  reserves.  ACEF VII had acquired a variety of
types of equipment with a total purchase cost of $287,743,685 as of June 30,2000
Of such equipment, items representing an original purchase cost of approximately
$16,945,323 had been sold as of June 30,2000 Through June 30, 2000, ACEF VII had
made cash  distributions to its investors in the aggregate amount of $324.64 per
$1,000 invested.  Of this amount a total of $57.68 represents  investment income
and $266.96 represents return of capital.

         The eight  Prior  Program,  ATEL  Capital  Equipment  Fund VIII  ("ACEF
VIII"),  commenced  a  public  offering  of up to  $150,000,000  of  its  equity
interests in December  1998.  ACEF VIII expects to terminate  its offering on or
before  December  7,  2000.  As of June  30,  2000,  it had  raised  a total  of
$107,169,250 in offering proceeds,  all of which proceeds have been committed to
equipment acquisitions, estimated organization and offering expenses and capital
reserves.  ACEF VIII had acquired a variety of types of  equipment  with a total
purchase cost of $203,263,258  as of August 31, 2000. Of such  equipment,  items
representing an original purchase cost of approximately $46,537 had been sold as
of June 30, 2000.  Through June 30, 2000, ACEF VIII had made cash  distributions
to its investors in the aggregate amount of $10.60 per $1,000  invested.  All of
this amount represents return of capital.

         Although certain of the Prior Programs have experienced lessee defaults
in the ordinary  course of business,  none of the Prior Programs has experienced
an unanticipated  rate of default or other major adverse  business  developments
which the  Manager  believes  will  impair its  ability  to meet its  investment
objectives.


                                       52

<PAGE>


         The Prior  Programs  have  investment  objectives  which are similar to
those of the Fund. The factors considered by the Manager in determining that the
investment  objectives  of the prior  programs were similar to those of the Fund
include the types of equipment to be  acquired,  the  structure of the leases to
such equipment, the credit criteria for lessees, the intended investment cycles,
the reinvestment  policies and the investment  goals of each program.  Therefore
all of the  information  set forth in the tables  included in Exhibit A - "Prior
Performance  Information"  may be deemed to relate to programs  with  investment
objectives similar to those of the Fund.

         In Tables I through III  information  is presented  with respect to all
Prior Programs sponsored by the Manager and its Affiliates which completed their
offerings of interests  within the five-year period ending December 31, 2000. It
should  be noted  that the  tabular  information  concerning  ACDF VIII does not
reflect  results of an  operating  period  after  completion  of its  funding in
December  2000.  Table V includes  information  regarding  all  acquisitions  of
equipment  by  Prior  Programs.  Table VI  includes  information  regarding  all
dispositions  of equipment by Prior Programs  during the five year period ending
June 30, 2000 Table IV includes  information  concerning  the two Prior Programs
that had completed their respective operations as of June 30, 2000.

         The following is a list of the tables set forth in Exhibit A:

         Table I           -Experience in Raising and Investing Funds
         Table II          - Compensation to the Manager and Affiliates
         Table III         - Operating Results of Prior Programs
         Table IV          - Results of Completed Program
         Table V           - Acquisition of Equipment by Prior Programs
         Table VI          - Sales or Disposals of Equipment

The Manager  will  provide to any  investor,  upon  written  request and without
charge,  copies of the most  recent  Annual  Reports on Form 10-K filed with the
Securities  and  Exchange  Commission  by each of the Prior  Programs,  and will
provide to any investor,  for a reasonable  fee,  copies of the exhibits to such
reports.  Investors  may request such  information  by writing to ATEL  Investor
Services,  Inc. at 235 Pine Street,  6th Floor,  San  Francisco,  CA 94104 or by
calling the Manager at (415) 989-8800.

                        INCOME, LOSSES AND DISTRIBUTIONS

         The taxable  income and  taxable  loss of the Fund (the "Net Income and
Net Loss") and all Fund cash distributions shall be allocated

-        92.5% to investors and

-        7.5% to the Manager as the Carried Interest.

                                       53

<PAGE>


Allocations of Net Income and Net Loss

         The  Fund  will  close  its  books  as of the end of each  quarter  and
allocate Net Income,  Net Loss and cash  distributions  on a daily basis,  i.e.,
Fund items will be allocated  to the  investors in the ratio in which the number
of Units held by each of them bears to the total  number of Units held by all as
of the last day of the fiscal quarter with respect to which such Net Income, Net
Loss and Distributions are attributable;  provided,  however, that, with respect
to Net Income,  Net Loss and cash  distributions  attributable  to the  offering
period  of  the  Units  (including  the  full  quarter  in  which  the  offering
terminates),  such  Net  Income,  Net  Loss  and  cash  distributions  shall  be
apportioned  in the ratio in which (i) the number of Units held by each investor
multiplied by the number of days during the period the investor  owned the Units
bears to (ii) the amount obtained by totaling the number of Units outstanding on
each day during such period. No Net Income, Net Loss and cash distributions with
respect to any  quarter  shall be  allocated  to Units  repurchased  by the Fund
during such quarter, and such Units shall not be deemed to have been outstanding
during such  quarter for  purposes of the  foregoing  allocations.  Transfers of
Member  interests  will not be effective  for any purpose until the first day of
the following quarter.

Timing of Distributions

         Fund cash  distributions are generally made and allocated to Holders on
a quarterly basis.  However,  the Manager will determine  amounts  available for
distributions  on a monthly rather than quarterly  basis.  All investors will be
entitled to elect to receive  distributions  monthly  rather than  quarterly  by
designating  such  election in a written  request  delivered to the Manager.  An
initial election to receive monthly rather than quarterly  distributions  may be
made  at  the  time  of  subscription  by  designating   such  election  on  the
Subscription Agreement. Thereafter, each investor may during each fiscal quarter
designate  an  election  to change  the timing of  distributions  payable to the
investor for the ensuing  fiscal  quarter by delivering to the Manager a written
request. Investors who have previously elected monthly distributions may at such
time elect to return to quarterly  distributions  and those receiving  quarterly
distributions may elect monthly distributions for the following quarter.

Allocations of Distributions

         Distributions  will be allocated  among  investors on the same basis as
Net Income and Net Loss.  Amounts to be  distributed  will be  determined  after
payment of Fund  operating  expenses,  establishment  or  restoration of capital
reserves  deemed  appropriate  by the  Manager,  and,  to the extent  permitted,
reinvestment in additional equipment.

         The  Fund   anticipates   that  income   taxes  on  a  portion  of  its
distributions will be deferred by depreciation available from its equipment.  To
the extent Net Income is reduced by depreciation deductions,  distributions will
be considered return of capital for tax purposes and income tax will be deferred
until subsequent  years.  Until investors receive total  distributions  equal to
their  original  investment,  a portion  of each  distribution  will be deemed a
return  of  capital  rather  than  a  return  on  capital.  Notwithstanding  the
foregoing,  however,  the Manager intends to make distributions only out of cash
from  operations  and cash  from  sales or  refinancing  and not out of  capital
reserves or offering proceeds held pending investment.

         The Fund is  intended  to be  self-liquidating.  After the  sixth  year
following the year the offering  ends,  the Fund will  distribute  all available
cash,  other than  reserves  deemed  required  for the proper  operation  of its
business,  including  reserves  for the  upgrading  of equipment to preserve its
value or for to purchase  equipment  the Fund has  committed to buy prior to the
end of the reinvestment period.

                                       54

<PAGE>

         When  the Fund  liquidates,  and  after  the  Fund  pays its  creditors
(including  investors who may be  creditors),  the the Fund will  distribute any
remaining  proceeds of  liquidation  in accordance  with each Member's  positive
Capital Account balance.  As a result, if cash distributions are made during the
period  between the date investors are first admitted to the Fund and the end of
the  offering  of  Units,   it  is  likely  that  different   amounts  would  be
distributable  upon liquidation to the different  investors,  depending on their
then Capital Account balances.  This difference will be substantially reduced or
eliminated  by the  special  allocation  to  investors  of gain from the sale of
equipment which could equalize their Capital Account balances. In particular, if
distributions  made during the offering period to investors who were admitted at
the initial  admission  date  reflect a return of capital (or to the extent that
such  investors  receive  allocations  of net losses  relating  to the  offering
period),  such investors will receive less on liquidation of the Fund than those
who were admitted at the final admission date.  Furthermore,  to the extent that
those   investors  who  were  admitted  at  the  first  admission  date  receive
allocations  of net  profits  relating to the  offering  period in excess of the
distributions  of cash for that same period,  such  investors  will receive more
distributions on liquidation than those investors who are admitted at end of the
offering.  As noted above,  any differences  would be  substantially  reduced or
eliminated to the extent the Manager  equalizes Capital Accounts through special
allocations of gain from the sale of equipment.

Reinvestment

         The Fund has the right to reinvest  revenues  during the period  ending
six years after the year in the offering  ends.  Before the Fund can reinvest in
equipment, however, the Fund must, at a minimum, distribute

-        enough cash to allow an investor in a 31% federal income tax bracket to
         meet  the  federal  and  state  income  taxes  due on  income  from the
         operations of the Fund;

-        Through the first full fiscal quarter ending at least six months after
         termination of the offering of Units, an amount equal to the lesser of

         -        a rate of return on their original capital  contribution equal
                  to 3.5% over the  average  yield on  five-year  United  States
                  Treasury  Bonds for the fiscal quarter  immediately  preceding
                  the date of distribution, as published in a national financial
                  newspaper  from time to time  (with a minimum  of 9% per annum
                  and a maximum of 11% per annum), or

         -        90% of the total amount of cash available for distributions;
                  and

-        for each quarter during the rest of the reinvestment  period, an amount
         equal to a rate of return on their original capital  contribution equal
         to 3.5% over the average  yield on  five-year  United  States  Treasury
         Bonds for the period  from the  commencement  of the  offering of Units
         through  a date  six  months  following  the  termination  date  of the
         offering  (with a minimum  of 9% per  annum  and a  maximum  of 11% per
         annum) as published in a national financial newspaper.

Return of Unused Capital

         Any net offering  proceeds received by the Fund during the first twelve
months of the offering  not  committed  to  investment  in equipment by eighteen
months after the beginning of the offering,  and any offering  proceeds received
in a second year of the  offering  not  committed  to  investment  by a date six
months  after the end of the  offering  (except  amounts  used to pay  operating
expenses or required as reserves) will be distributed to investors pro rata as a
return of capital.  In addition,  in order to refund to the investors the amount

                                       55

<PAGE>


of  Front  End  Fees  attributable to such returned  capital,  the  Manager  has
agreed to contribute to the Fund, and the Fund will  distribute to investors pro
rata, the amount by which (x) the unused capital so distributed,  divided by (y)
the  percentage of offering  proceeds  remaining  after payment of all Front End
Fees, exceeds the amount of unused capital distributed.

Cash from Reserve Account

         The Operating  Agreement  requires that the Fund initially  establish a
cash reserve for general working capital purposes in an amount equal to not less
than 1/2 of 1% of the offering  proceeds  (equal to $6,000 if the minimum  Units
are sold and $750,000 if the maximum  Units are sold).  Any cash  reserves  used
need not be  restored,  and, if  restored,  may be restored  from the  operating
revenues of the Fund.  Distributions  of cash  reserves  will be  allocated  and
distributed  in the same manner as cash proceeds  from sales of equipment.  Cash
reserves  which  the  Manager  deems  no  longer  required  as  reserves  may be
distributed or invested by the Fund.

Sources of Distributions - Accounting Matters

         During the initial years,  the Fund may  experience  loss in accordance
with generally accepted accounting principles. A substantial portion of any loss
would likely be caused by depreciation which is a non-cash expense. As a result,
distributions  made in the initial  years of the Fund may be  considered to be a
return of capital and not investment income.

         Without  regard  to  the  accounting  method  adopted,  to  the  extent
equipment  is not  producing  revenues  in excess of  operating  expenses,  debt
service and other  contractual  obligations,  distributions  may be considered a
return of capital.









                                       56

<PAGE>




                                                           CAPITALIZATION

         The  capitalization  of the Fund, as of the date of this Prospectus and
as  adjusted  to  reflect  the  issuance  and sale of the Units  offered  hereby
assuming the minimum 120,000 Units and the maximum  15,000,000 Units are sold is
as follows:

                                As of           Minimum         Maximum
                             the Date           120,000        15,000,000
                               hereof           Units          Units
                               ------         -----------     --------------


Units of Member
Interest
($10 per Unit)                    500         1,200,500       150,000,500
                              -------         ---------       -----------

Total Capitalization        $     500        $1,200,500      $150,000,500

Less Estimated
Organization
and Offering Expenses              -            144,000        20,250,000
                               ------          --------        ----------

Net Capitalization           $    500        $1,056,500      $129,750,500
                              -------         ---------       -----------


           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

            Until receipt and acceptance of subscriptions for 120,000 Units, the
Fund will not commence active operations.

            After the minimum capital is received, subscription proceeds will be
released to the Fund from escrow and applied to the payment or  reimbursement of
Organization and Offering Expenses, leaving estimated net proceeds available for
investment and operations of $1,056,000.  As additional  subscriptions for Units
are received,  the Fund will  experience a relative  increase in liquidity and a
relative  decrease in liquidity as capital is expended in the purchase and lease
of Equipment.

            The Fund will  acquire  Equipment  with cash and debt.  The Fund may
borrow  on a secured  or  unsecured  basis  amounts  up to 50% of the  aggregate
purchase price of equipment, and intends to borrow the maximum amount permitted.
The Fund currently has no  arrangements  with, or  commitments  from, any lender
with respect to debt  financing.  The Manager  anticipates  that any acquisition
financing or other borrowing will be obtained from institutional lenders. Except
as discussed below in connection with asset securitization  financing,  the Fund
does not  currently  anticipate  that it will  engage  in any  material  hedging
transactions.

            Until required for the  acquisition  or operation of equipment,  the
offering proceeds will be held in short-term,  liquid  investments.  The Fund is
required by the  Operating  Agreement to establish  an initial  working  capital
reserve in the amount of 1/2 of 1% of the Gross Proceeds.

            For financial reporting purposes, equipment on operating leases will
generally be depreciated using the straight-line  method,  over periods equal to
the terms of the related leases to the equipment, down to an amount equal to the
estimated  residual value of the equipment at the end of the related leases. The

                                       57

<PAGE>

treatment  for  financial  reporting  purposes  differs from  cost recovery  for
tax purposes in which the IRS  prescribes  certain useful lives for each type of
equipment and the Code provides specific  accelerated rates of depreciation over
those useful lives.

            The  potential  effects of  inflation  on the Fund are  difficult to
predict.  If the general  economy  experiences  significant  rates of inflation,
however,  it could  affect the Fund in a number of ways.  The cost of  equipment
acquisitions  could increase with inflation,  but cost increases could be offset
by the  Fund's  ability  to  increase  lease  rates in an  inflationary  market.
Revenues from existing leases would not generally  increase with  inflation,  as
the  Fund  does not  expect  to  provide  for rent  escalation  clauses  tied to
inflation in its leases.  Nevertheless,  the  anticipated  residual values to be
realized  upon the sale or re-lease of equipment  upon lease  terminations  (and
thus the overall  cash flow from the Fund's  leases) may be expected to increase
with inflation as the cost of similar new and used equipment increases.

            Fluctuations  in  prevailing  interest  rates  could also affect the
Fund. The cost of capital reflected in interest rates is a significant factor in
determining  market  lease rates and the pricing of lease  financing  generally.
Higher  interest  rates could  affect the cost of Fund  borrowing,  reducing its
yield on leveraged  investments or reducing the  desirability  of leverage.  The
Fund would also expect that increases or decreases in prevailing  interest rates
would  generally  result in  corresponding  increases  or decreases in available
lease rates on new leases. Except as discussed below, interest rate fluctuations
would  generally have little or no effect on existing  leases,  as rates on such
leases  would  generally  be fixed  without any  adjustment  related to interest
rates.

            The Fund may incur  short term bridge  financing  bearing a variable
interest  rate, but this  borrowing  would involve little  exposure to increased
interest rates because of its limited term.  However,  the Manager  expects that
any asset  securitization  financing  by the Fund will  involve  borrowing  at a
variable interest rate based on an established reference rate. The Manager would
seek to  mitigate  the Fund's  exposure to  increases  in the  interest  rate by
engaging in hedging  transactions  that would  effectively fix the interest rate
obligation  of the Fund.  The  Manager's  policy will be to incur  variable rate
financing  only under  conditions  and terms which limit the  potential  adverse
effect on the Fund's anticipated return on the related lease transactions. Other
than in  short-term  bridge  financing or asset  securitization  financing,  the
Manager  will seek to avoid  borrowing  under terms which  provide for a rate of
interest  which may vary.  The Manager will attempt to limit any other  variable
interest  rate  borrowing to those  instances in which the lessee agrees to bear
the cost of any increase in the interest rate. If such debt is incurred  without
a  corresponding   variable  lease  payment  obligation,   the  Fund's  interest
obligations  could increase while lease revenues  remain fixed.  Accordingly,  a
rise in interest  rates may  increase  borrowing  costs and reduce the amount of
income and cash available for  Distributions.  Historically,  the interest rates
charged by major  banks have  fluctuated;  as a result,  the  precise  amount of
interest  which  the Fund may be  charged  under  such  circumstances  cannot be
predicted.

Year 2000 Compliance

            The year 2000 issue is the result of computer programs being written
using two digits  rather than four to define the  applicable  year. As a result,
the  programs  are not designed to make the  transition  to the year 2000.  This
computer  software problem is commonly referred to as the "year 2000" (or "Y2K")
issue. Computer programs with date-sensitive  applications may, if not modified,
fail or miscalculate  dates,  causing system failures,  the inability to process
transactions or other disruptions of operations.

            The  Manager  uses,  and  expects  on  behalf  of the  Fund  to use,
primarily third party software and has communicated with key software vendors to
ensure that the systems used by the Manager and the Fund are not impaired by the
year 2000 issue. Currently, all of ATEL's critical software systems are believed
by the Manager to be Y2K compliant.

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<PAGE>

            The  ultimate  impact of the year 2000 issue on the Fund will depend
to a great  extent  on the  manner  in which  the  issue is  addressed  by those
businesses  whose  operational  capability is important to the Fund.  Failure of
these  businesses to be Y2K compliant may impact credit quality or cause a delay
in payments made to the Fund. The Manager has contacted  those  businesses  with
which it currently has material  relationships in order to request  verification
of Y2K compliance.  The Manager believes that each of those entities will have a
material  self  interest  in  resolving  any year 2000 issue  affecting  its own
operations.

            Equipment to be purchased by the Fund may include technology subject
to the year  2000  issue.  Potential  year  2000  issues  will be among the many
factors  considered  by the Manager and its  affiliates in analyzing and pricing
lease  transactions  for  acquisition  by the Fund. The lessees of the equipment
will select  such  equipment  and may be  expected to consider  year 2000 issues
themselves in determining the suitability of the equipment for the lessee's use.
Most equipment is expected to be subject to fixed term, non-cancellable,  triple
net  leases.  In  addition,  new  equipment  may be  covered  by  manufacturer's
warranties. As a result of such triple net provisions and warranties, repairs or
modifications  necessary  to correct  year 2000  issues  will most likely be the
responsibility  of the  manufacturers  or the lessees,  and the Fund's rights to
lease  payments as a triple net lessor  will not be  affected by any  functional
issues  affecting  the  equipment.  It is expected that the lease terms for such
equipment will extend well beyond the year 2000.

            As a  result  of the  year  2000  issue,  the  Fund  may  experience
increased  costs  resulting  from  delayed  payments  from  lessees,  the  costs
associated  with the  collection of those  payments,  or costs  associated  with
manual processing  efforts in the event of a Y2K related system failure.  In any
event,  the Manager does not expect these  increased  costs to be significant or
that such costs will have any material  adverse  effect on the operations of the
Fund.  Nevertheless,  the impact of year 2000 issues  cannot be  predicted  with
certainty  and the Fund may be affected  both by the impact these issues have on
parties with which it has direct contractual and other  relationships as well as
by their impact on  financial  institutions  and the national and  international
economy as a whole. Accordingly, there can be no assurance that year 2000 issues
might not have some adverse impact on the operating  results  experienced by the
Fund.

                         FEDERAL INCOME TAX CONSEQUENCES

            The  following  is a summary  of all  material  federal  income  tax
considerations which may be relevant to a prospective  investor.  However, it is
impractical to set forth in this prospectus all aspects of federal, state, local
and foreign tax law which may affect an investment in the Fund. Furthermore, the
discussion  of various  aspects of federal,  state,  local and foreign  taxation
contained herein is based on the Internal Revenue Code,  existing laws, judicial
decisions and administrative regulations, rulings and practice, all of which are
subject to change. Each prospective  investor should consult his own tax counsel
to satisfy himself as to the tax consequences of his investment.

            The Fund's  management  will  prepare  its  income  tax  information
returns. The Fund will make a number of decisions on such tax matters as

-           the expensing or capitalizing of particular items,

-           the proper period over which capital costs may be depreciated or
            amortized,

-           the allocation of acquisition costs between equipment and management
            fees, and

-           other similar items.


                                       59

<PAGE>

Such  matters  will be  handled  by the Fund.  Tax  counsel to the Fund will not
prepare or review the Fund's income tax information returns.

Opinion of Derenthal & Dannhauser

            Derenthal & Dannhauser has reviewed this section of the  prospectus.
Derenthal  &  Dannhauser  has  rendered  its  opinion  that,  to the  extent the
summaries of federal income tax  consequences to the investors set forth in this
section involve matters of law,

-           such statements are accurate in all material respects under the
            Internal Revenue Code, the Treasury Regulations and existing
            interpretations thereof, and

-           such statements address fairly the principal aspects of each
            material federal income tax issue relating to an investment in
            Units.

            The opinion of Derenthal & Dannhauser is based upon

-           the facts described in this prospectus,

-           ATEL's representation of facts to Derenthal & Dannhauser, and

-           the assumption that the Fund will operate its business as described
            in this prospectus.

Any alteration of the facts may adversely affect the opinion rendered.

            Each  prospective  investor  should note that the opinion  described
herein represents only Derenthal & Dannhauser's  best legal judgment.  It has no
binding effect or official status of any kind. The Fund has not requested an IRS
ruling on any matter.  There can be no assurance that the IRS will not challenge
any of Derenthal & Dannhauser's opinions.

            Treasury   Regulations   impose  standards   regarding  tax  shelter
opinions.  For this  purpose,  a tax  shelter is an  investment  that has,  as a
significant or intended feature,  the generation of tax losses or tax credits to
shelter  taxable income or tax liability  from other sources.  The Fund is not a
tax shelter  within that  meaning.  Derenthal &  Dannhauser's  opinion  does not
follow the standards applicable to tax shelters opinions.

            There are certain  issues upon which  Derenthal & Dannhauser  cannot
express an opinion because:

-           the issue is subject to facts that are not presently known and
            cannot readily be determined,

-           the issue is subject to future events, or

-           there is insufficient judicial or other authority upon which a
            conclusive opinion can be based.

Classification as a Partnership

            ATEL has represented that the Fund will not elect to be treated as a
corporation  for federal income tax purposes.  If not,  under the  check-the-box
rules  the Fund  will be  classified  as a  partnership  and not an  association

                                       60

<PAGE>


taxable as a corporation for  federal  income  tax  purposes. The  check-the-box
rules are Treasury  Regulations issued under Internal Revenue Code Section 7701.
Accordingly,  the treatment of the Fund as a partnership  for federal income tax
purposes is based upon the present  provisions of the Internal  Revenue Code and
the Treasury Regulations,  which are subject to change. If those provisions were
to be amended, it is possible that the Fund would not qualify as a partnership.

            Notwithstanding  the  preceding,  if Units are  considered  publicly
traded the Fund will be  treated  as a  corporation  under the  publicly  traded
partnership  provisions of Internal  Revenue Code Section 7704. The Fund will be
treated as publicly traded if Units are

-           traded on an established securities market, or

-           readily tradable on a secondary market or the substantial equivalent
            thereof.

An established  securities  market  includes a securities  exchange as well as a
regular  over-the-counter  market.  Treasury  Regulations under Internal Revenue
Code  Section  7704 state that a  secondary  market  for an  entity's  interests
generally is indicated

-           by the existence of a person standing ready to make a market in the
            interests, or

-           where the holder of an interest has a readily available, regular and
            ongoing opportunity to sell or exchange his interest through a
            public means of obtaining or providing information on offers to buy,
            sell or exchange interests.

Complicity or  participation  of the entity is relevant in  determining  whether
there is public  trading of its interests.  A partnership  will be considered as
participating in public trading where trading in its interests is in fact taking
place and the partnership's  governing documents impose no meaningful limitation
on the holders'  ability to readily  transfer their  interests.  A partnership's
right to refuse to recognize  transfers is not a  meaningful  limitation  unless
such right actually is exercised.

            Whether the Units will become readily tradable on a secondary market
or the substantial  equivalent  thereof cannot be predicted with certainty.  The
Units  will  not  be  deemed  readily  tradable  on a  secondary  market  or the
substantial  equivalent  thereof  if any of the  safe  harbors  included  in the
Treasury  Regulations is satisfied.  One of these is the 2% safe harbor.  If the
sum of the  interests  in Fund  capital  or profits  that are sold or  otherwise
transferred  during a tax year  does not  exceed 2% of the  total  interests  in
capital or profits,  then a secondary market or its equivalent in Units will not
exist.

            Neither the Fund nor ATEL will have any control over an  independent
third  person  establishing  a secondary  market in Units.  However,  the Fund's
operating  agreement  requires that an investor obtain the consent of ATEL prior
to any transfers of Units.  ATEL intends to exercise its  discretion in granting
and  withholding its consent to transfers so as to fall within the parameters of
the 2% safe harbor.  If the Fund complies with the 2%  safe-harbor  provision of
the Treasury Regulations, Derenthal & Dannhauser is of the opinion that the Fund
will not be considered a publicly traded partnership.

            If the Fund  were  treated  for  federal  income  tax purposes  as a
corporation in any year,

-           instead of there being no tax at the Fund level, the Fund would be
            required to pay federal income taxes upon its taxable income;

-           state and local income taxes could be imposed on the Fund;

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<PAGE>

-           losses of the Fund would not be reportable by the investors on their
            personal income tax returns;

-           any distributions would be taxable to an investor as

            -      ordinary income to the extent of current or accumulated
                   earnings and profits, and

            -      gain from the sale of the investor's Units to the extent any
                   distribution exceeded such earnings and profits and the tax
                   basis of such Units;

-           distributions would be classified as portfolio income which would
            not be available to offset passive activity losses.  See "Limitation
            on Deduction of Losses - Passive Loss Limitation" below.

Also, a change in status from a  partnership  to a  corporation  could result in
taxable  income to an  investor.  The amount of taxable  income  would equal his
share of the liabilities of the Fund over the adjusted basis of his Units.

            Any of the foregoing would substantially  reduce the effective yield
on an investment in Units.

            The following  discussion is based upon the assumption that the Fund
will be classified as a partnership for federal income tax purposes.

Allocations of Profits and Losses

            In general, a partner's  distributive  share of partnership  income,
gain,  deduction or loss will be determined in accordance  with the operating or
partnership  agreement.  However,  if such  allocations do not have  substantial
economic effect,  distributive  shares will be determined in accordance with the
partners' interests in the partnership.

            An allocation has economic effect under the Treasury Regulations if:

-           each partner's share of partnership items is reflected by an
            increase or decrease in the partner's capital account;

-           liquidation proceeds are distributed in accordance with capital
            account balances; and

-           any partner with a capital account deficit following the
            distribution of liquidation proceeds is required to restore such
            deficit.

An  allocation  can have  economic  effect even if a partner is not  required to
restore a deficit balance in his capital account, but only

-           to the extent the allocation does not reduce his capital account
            balance below zero; and

-           if the operating or partnership agreement contains a qualified
            income offset.

An agreement  contains a qualified  income  offset if it provides that a partner
who unexpectedly receives an adjustment, allocation or distribution that reduces
his capital account below zero will be allocated income or gain in an amount and
manner sufficient to eliminate his deficit capital account balance as quickly as
possible.

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<PAGE>

            Special rules apply to the allocation of deductions  attributable to
nonrecourse  debt.  Such  allocations  will  be  respected  under  the  Treasury
Regulations if the partners who are allocated the deductions  bear the burden of
the future  income  related  to the  previous  deductions.  In  particular,  the
following additional elements must be satisfied:

-           the operating or partnership  agreement must provide for allocations
            of nonrecourse deductions in a manner consistent with allocations of
            some other  significant  partnership  item  related to the  property
            securing the nonrecourse debt,  provided such other allocations have
            substantial economic effect;

-           all other material allocations and capital account adjustments under
            the operating or partnership  agreement  are  recognized  under  the
            Treasury Regulations, and

-           the operating or  partnership  agreement  contains  a  minimum  gain
            chargeback.

A  minimum  gain  chargeback  provides  that,  if  there  is a net  decrease  in
partnership minimum gain during a tax year, all partners will be allocated items
of partnership income and gain in proportion to, and to the extent of, an amount
equal to the portion of such partner's  share of the net decrease in partnership
minimum gain. The amount of partnership  minimum gain is determined by computing
the amount of gain,  if any,  that would be  realized by the  partnership  if it
disposed  of  the  property  subject  to  the  nonrecourse   liability  in  full
satisfaction thereof.

            The Fund's operating agreement prohibits losses from being allocated
to an  investor  that  would  cause a deficit  capital  account in excess of the
investor's share of Fund minimum gain.  Nonrecourse deductions will be allocated
in the same manner as  operating  profits and losses.  The  operating  agreement
contains a minimum  gain  chargeback  provision  and a qualified  income  offset
provision  that are  intended  to comply  with the  provisions  of the  Treasury
Regulations.  The operating  agreement  provides  that capital  accounts will be
maintained in accordance  with the provisions of the Treasury  Regulations.  The
operating   agreement  also  provides  that  proceeds  on  liquidation  will  be
distributed in accordance  with positive  capital account  balances.  Therefore,
Derenthal &  Dannhauser  is of the opinion  that it is more likely than not that
the allocations  included in the operating  agreement would not be significantly
modified if challenged by the IRS.

            The  economic   effect  of  the  Fund   allocations   also  must  be
"substantial."  The meaning and scope of the  substantiality  requirements under
the Treasury  Regulations  are unclear at this time.  Based on current  Treasury
Regulations,  Derenthal  &  Dannhauser  does not  believe  the Fund  allocations
present any  material  substantiality  issues.  Consequently,  as stated  above,
Derenthal &  Dannhauser  is of the opinion  that it is more likely than not that
the Fund's allocations would not be significantly  modified by the IRS. However,
no  assurance  can be given  that the IRS  will  not  disagree.  If the IRS were
successful in challenging the Fund's  allocations,  the investors' shares of tax
loss could decrease or their shares of taxable income could increase.

Income Recognition

            The Fund will  prepare its tax returns  using the accrual  method of
accounting. Under the accrual method, the Fund will include in income items such
as interest and rentals as and when earned by the Fund, whether or not received.
Thus, the Fund may be required to recognize income sooner than would be the case
under the cash receipts and disbursements method of accounting.

            Some  leases  provide for varying  rental  payments  over the years.
Section  467 of the  Internal  Revenue  Code can  require  a lessor to take such
rental  payments  into income as if the rent  accrued at a constant  level rate.
This  provision  applies  to certain  sale-leaseback  transactions  and  certain
long-term  leases.  Certain of the Fund's leases may provide for varying  rental
payments.  If so, Section 467 requires the Fund to accrue the rental payments on

                                       63

<PAGE>


such  leases at  a  constant   level   rate.  This  could  result  in  investors
receiving increased allocations of taxable income or reduced allocations of loss
in earlier years,  without any increase in distributions until subsequent years.
An  additional  consequence  could be a  conversion  of a portion  of the Fund's
rental income from any such lease to interest  income.  Rental income  generally
constitutes  passive income.  Interest income  generally  constitutes  portfolio
income. See "Limitation on Deduction of Losses - Passive Loss Limitation."

Taxation of Investors

            As long as the Fund is treated as a partnership  for federal  income
tax purposes,  it will not be subject to any federal income taxes.  Nonetheless,
the Fund will file federal partnership information tax returns for each calendar
year.

            Each investor  will be required to report on his own federal  income
tax return his share of Fund items of income, gain, loss, deduction,  or credit.
An  investor  will be subject to tax on his  distributive  share of Fund  income
whether or not any distribution is made to him.

            If the amount of a distribution  to an investor for any year exceeds
the investor's  share of the Fund's taxable income for the year, the excess will
constitute a return of capital.  A return of capital is applied  first to reduce
the tax basis of the investor's  Units.  Any amounts in excess of such tax basis
generally will be taxable as a gain from the sale of a capital  asset.  However,
all or a portion of a distribution to an investor in exchange for

-           an interest in inventory items which have substantially appreciated
            in value, or

-           unrealized receivables

will generally  result in the receipt of ordinary  income.  The terms  inventory
items and unrealized  receivables  are specially  defined for this purpose.  The
term unrealized receivables includes depreciation recapture.

Limitation on Deduction of Losses

            There  are  limitations  on an  investor's  ability  to  deduct  his
distributive share of Fund losses. Among them are:

-           losses will be limited to the extent of the investor's tax basis in
            his Units;

-           losses will be limited to the amounts for which the investor is
            deemed at risk; and

-           losses will be limited to the investor's income from passive
            activities.

Deduction of losses  attributable  to activities  not engaged in for profit also
are limited.

            Tax Basis.  Initially, an investor's tax basis for his Units will be
equal to the price paid for the Units. Each investor will increase the tax basis
for his Units by

-           his allocable share of the Fund's taxable income, and

-           any increase in his share of the Fund's nonrecourse liabilities,

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<PAGE>

and will decrease the tax basis for his Units by

-           his allocable share of the Fund's tax loss,

-           the amount of any distributions, and

-           any reduction in his share of Fund nonrecourse liabilities.

If the tax basis of an  investor  should be reduced  to zero,  the amount of any
distributions and any reduction in Fund nonrecourse  liabilities will be treated
as gain from the sale or exchange of the investor's Units.

            Subject to the other limitations discussed below, on his own federal
income tax return an investor may deduct his share of the Fund's tax loss to the
extent of the tax basis for his Units.  Fund losses  which  exceed his tax basis
may be carried  over  indefinitely  and,  subject to the  limitations  discussed
below, deducted in any year to the extent his tax basis is increased above zero.

            At Risk Rules.  Under Internal  Revenue Code Section 465, the amount
of losses which may be claimed by an  individual or a  closely-held  corporation
from equipment  leasing  activities  cannot exceed the amount which the investor
has at risk with respect to such  activities.  A  closely-held  corporation is a
corporation  more than 50% of which is owned  directly or indirectly by not more
than five individuals.

            The amount at risk is generally  equal to the sum of money  invested
in the  activity.  In addition,  an investor will be at risk with respect to any
qualified  nonrecourse  financing used in the investment.  An investor's at risk
amount  will be  decreased  by his share of Fund  losses and  distributions.  An
investor's at risk amount will be increased by his share of Fund income.

            The total  amount of money paid by each  investor for his Units will
be considered  at risk.  Fund  indebtedness  is not expected to be considered at
risk.  Accordingly,  an  investor  will only be able to deduct his share of Fund
losses under the at risk rules in an amount  equal to the purchase  price of his
Units,  as adjusted for Fund  income,  losses and  distributions.  Any losses in
excess of an  investor's  at risk  amount  will be  treated  as a  deduction  in
succeeding taxable years, again subject to the at risk limitations.  An investor
must recapture previously allowed losses if the investor's amount at risk at the
end of the year is reduced below zero.

            Even if an investor  can claim Fund losses  under the at risk rules,
the investor is still subject to the other limits on deduction discussed herein.

            Under the  Internal  Revenue  Code,  the Fund will be  permitted  to
aggregate its equipment leasing activities only with respect to equipment placed
in  service  during  the same  taxable  year.  This  could  limit an  investor's
deduction for losses with respect to certain equipment, even though the investor
must recognize income with respect to other equipment.

            Passive Loss  Limitation.  Internal  Revenue Code Section 469 limits
the amount of losses that individuals and certain other taxpayers may claim from
an activity in which the taxpayer does not  materially  participate.  Under this
limitation,  net losses from a passive activity may only be deducted against net
income  from  passive  activities.  Passive  activity  losses may not be used to
offset  compensation  income or other  forms of  active  income.  Also,  passive
activity losses may not be used to offset interest, dividends and other forms of
portfolio income.

                                       65

<PAGE>

            To the extent the Fund enters  into true  leases for Federal  income
tax  purposes,  the  equipment  leasing  activities  of the Fund will be passive
activities.  See "Tax Status of Leases" below in this section.  Fund losses from
passive activities are considered to be passive activity losses.  Most investors
will only be able to deduct their share of Fund passive  activity  losses to the
extent they have  passive  income from other  sources.  Any excess Fund  passive
activity  losses will be suspended and carried forward  indefinitely.  Suspended
passive  activity losses may be used to offset passive activity income in future
years. Suspended passive activity losses also may be claimed in full against all
types of income if an investor  disposes of all of his Units in a fully  taxable
transaction to an unrelated person.

            The Fund will have portfolio income

-           to the extent its investments constitute financing leases or secured
            loans, rather than true leases, and

-           to the extent of any dividends it receives from equity interests in
            growth capital lease investments.

The Fund's receipt of the equity  interests  themselves may constitute a taxable
event.  The income  therefrom could be passive or portfolio,  depending upon the
circumstances.  Therefore,  investors  may  be  required  to  recognize  taxable
portfolio  income and pay tax thereon in years in which they also are  allocated
passive  losses  which  cannot be used by them.  Counsel has rendered no opinion
regarding the  classification  of financing  leases,  secured  loans,  or equity
interests.

            The passive loss limitation is applied after the at risk limitation.
Thus, if a loss is disallowed  under the at risk rules for a particular year, it
will not again be  disallowed  by the  passive  loss  limitation  for such year.
Rather, for the year in which the investor becomes at risk in the activity,  the
suspended at risk loss will become subject to the passive loss limitation.

            Hobby  Losses.  Section  183 of the  Internal  Revenue  Code  limits
deduction  of losses  from  activities  not  engaged in for  profit.  Whether an
activity is engaged in for profit is based on the facts and  circumstances  from
time to time. Although one of the objectives of the Fund is to provide investors
with distributions, there can be no assurance that the Fund will be deemed to be
engaged in an activity  for profit.  It is  conceivable  that the IRS may assert
that the Fund is not engaged in an activity  for profit.  Prospective  investors
should consult their own tax advisers  regarding the impact of Internal  Revenue
Code Section 183 on their particular situations.

Tax Status of Leases

            Whether a specific  lease is categorized as a lease rather than as a
sale  or a  financing  for  federal  income  tax  purposes  involves  a  factual
determination.  Accordingly, no assurance can be given that the Fund's leases of
equipment  will be treated as leases by the IRS. If they are treated as sales or
financings rather than leases,  the Fund and the investors would not be entitled
to cost recovery  deductions  with respect to such leases.  On the other hand, a
portion of the lease rental payments would be deemed to constitute  amortization
of such financing or sales proceeds which would not be taxable to the Fund.

            The Fund does not  intend to apply to the IRS for a ruling  that any
leases of equipment  will be treated as leases for federal  income tax purposes.
No opinion of counsel has been rendered in this regard.

Cost Recovery

            MACRS . Under the Modified  Accelerated  Cost Recovery  System,  the
cost of  depreciable  personal  property  placed in  service  after  1986 may be
recovered using specified recovery methods over specified recovery periods.

                                       66

<PAGE>




            Under MACRS the cost of most  recovery  property is recovered  using
the  200%  declining  balance  method.  For  some  recovery  property,  the 150%
declining balance method is utilized.  The recovery periods generally range from
three to 20 years.

            The Internal Revenue Code contains  provisions to prevent  taxpayers
from utilizing MACRS on property placed in service prior to January 1, 1987. The
cost of such property is recovered under the Accelerated Cost Recovery System in
effect prior to 1987. In such cases,  cost recovery  deductions could be less in
the early  years and greater in later  years than the cost  recovery  deductions
allowable under MACRS.

            The  amount  by  which  cost  recovery  deductions  using  the  200%
declining  balance  method exceeds the amount that would have been allowed using
the  150%  declining  balance  method  will be an item  of tax  preference.  See
"Alternative Minimum Tax."

            Recapture.  All cost recovery  deductions  claimed by Fund investors
will be subject to recapture at ordinary  income rates upon the  disposition  of
the equipment or the investor's Units.

            Limitations  on the Use of MACRS.  Under certain  circumstances,  in
addition to those set forth above, a taxpayer is required to recover the cost of
property  over  a  period  longer  than  its  MACRS   recovery   period.   These
circumstances include:

-           property used predominantly outside the United States,

-           property used by a foreign or tax-exempt entity,

-           property owned by a partnership which has both a tax-exempt entity
            and a person who is not a tax-exempt entity as holders, unless
            certain exceptions apply.

Tax Consequences Respecting Equity Interests

            The Internal  Revenue Code includes a myriad of rules respecting the
tax treatment of stock,  stock  options,  stock  warrants,  and similar items. A
discussion of those provisions is beyond the scope of this prospectus. Investors
should  consult with their own tax advisors if they desire more  information  in
that regard.

            The Fund  will have  taxable  income on the  receipt  of cash  lease
payments. Similarly, the Fund could have taxable income on the receipt of equity
interests. However, the Fund's receipt of equity interests will not provide cash
for  distribution  to the  investors.  Any tax  liability  would be paid from an
investor's own funds.

            Whether the Fund's receipt of equity interests will result in income
recognition will depend upon various factors, including

-           whether or not the transfer of the equity interests by the Fund is
            subject to restriction, and

-           the nature of the equity interests.  For example, the receipt of
            marketable stock for no payment would almost always result in the
            recognition of income.

These  factors  will also  determine  the  amount  of  income,  if any,  and its
character  for  purposes of the  passive  activity  rules.  See  "Limitation  on
Deduction of Losses - Passive Loss Limitation" above.

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<PAGE>

            The  Fund's   exercise  of  stock  options,   warrants  and  similar
securities could result in the recognition of income.

            No opinion  of  counsel  has been  rendered  with  regard to the tax
treatment of equity interests.

Deductibility of Management Fees

            The Fund will pay asset  management fees for services to be rendered
by ATEL.  The Fund intends to deduct the asset  management  fees. It is possible
that the IRS may  challenge the  deductibility  of all or a portion of the asset
management fees on the basis that

-            the amount thereof is excessive,

-           all or a portion thereof is payment for other services performed by,
            or other value provided by, the recipient thereof, or

-           payments for such services is not deductible.

If such a challenge by the IRS were successful, the asserted deductions would be
reduced or eliminated.

Tax Liabilities in Later Years

            It  is  possible  that  after  some  years  of  Fund  operations  an
investor's tax liabilities may exceed cash distributions to him in corresponding
years. Such a situation would typically arise if the Fund's  nondeductible  loan
amortization payments on its equipment exceeded its depreciation deductions.  It
is possible in such a situation that an investor's tax liabilities  could exceed
cash  distributions.  If so, such excess would be a nondeductible  out-of-pocket
expense to an investor.  Based on historical  experience with similar  programs,
ATEL does not believe these events are likely to occur.

Sales or Exchanges of Fund Equipment

            On the  disposition  of equipment,  the Fund will realize gain in an
amount equal to the proceeds  received  minus the basis in the  equipment.  As a
result of cost recovery  deductions,  most  equipment is expected to have a zero
basis. Proceeds received includes any debt assumed by the transferee.

            Gain  realized by the Fund on a  disposition  of  equipment  will be
taxed as ordinary income to the extent of prior cost recovery  deductions  taken
by the Fund on the equipment.  Unless the Fund is a dealer in the property sold,
any other gain generally will be treated as capital gain.

            A dealer is one who holds  property  primarily for sale to customers
in the  ordinary  course  of  business.  Whether  property  is so held as dealer
property  depends  upon all of the facts  and  circumstances  of the  particular
transactions. The Fund intends:

-           to purchase equipment for investment only,

-           to engage in the business of owning and operating such equipment,
            and

-           to make occasional sales thereof.


                                       68

<PAGE>

Accordingly,  the Fund does not  anticipate  that it will be treated as a dealer
with respect to any of its  equipment.  However,  there is no assurance that the
IRS will not take the contrary position.

            As stated above,  the Fund's gain on a disposition of equipment will
be measured by the difference between the disposition  proceeds,  and the Fund's
basis in the  equipment.  Disposition  proceeds  include  the amount of any debt
encumbering the property. Consequently, the amount of tax payable by an investor
as a result  of the  disposition  may  exceed  his  share  of the cash  proceeds
therefrom.  In the event of a  foreclosure  of a debt on equipment  owned by the
Fund, the Fund would realize gain equal to the excess of such  indebtedness over
its  adjusted  tax basis of the  equipment.  In such event the  investors  would
realize taxable income although they may not receive any cash distributions as a
result of the foreclosure.

Disposition of Units

            The  amount  of  gain  which  an  investor  will  realize  upon  the
disposition of his Units will equal the excess of

-           the amount realized by the investor, over

-           the investor's tax basis in the Units.

Conversely,  the  amount  of loss  which  an  investor  will  realize  upon  the
disposition of his Units will equal the excess of

-           the investor's tax basis, over

-           the amount realized for the Units.

The amount  realized on the sale of the Units will include the investor's  share
of any Fund liabilities. As a result, a disposition of Units may result in a tax
liability in excess of the cash proceeds.

            Such gain or loss  generally  will be capital  gain or loss.  In the
case of an individual, any such gain will be subject to tax:

-           at a maximum rate of 20%, if the Units have been held for more than
            18 months, and

-           at a maximum rate of 28%,  if the Units have been held for more than
            12 months but not more than 18 months.

However,  any gain  realized  on the  disposition  of  a  Unit  by  an  investor
which is attributable to unrealized receivables or inventory items will be taxed
at ordinary income rates.  Unrealized  receivables  would include the investor's
share of previous Fund cost recovery deductions. An investor must recognize such
cost recovery recapture in the year of disposition,  regardless of the amount of
proceeds received in the year of disposition.

Liquidation of the Fund

            The operating agreement provides that on liquidation of the Fund its
assets will be sold. The sale proceeds will be distributed pursuant to the terms
of the operating agreement.  Each investor will realize his share of the gain or
loss on the sale of Fund assets. In addition,  each investor will recognize gain
or loss measured by the  difference  between the cash he receives in liquidation
and the  adjusted  tax basis of his Units.  The cash an investor  receives  will
include the cash  constructively  received as a result of relief of liabilities.

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<PAGE>


Gain  or  loss  recognized  generally  will  constitute  capital  gain  or loss.
However,  gain attributable to the recapture of cost recovery deductions will be
taxable as ordinary  income.  See "Sales or Exchanges of Fund  Equipment." It is
anticipated that all or  substantially  all of any gains will be attributable to
such deductions and taxed as ordinary income.

Fund Elections

            Section 754 of the  Internal  Revenue Code permits an entity such as
the Fund to elect to adjust the tax basis of its
property

-           upon the transfer of units by sale or exchange or on the death of a
            holder, and

-           upon the distribution of property by the fund to a holder.

This is known as a  Section  754  election.  If the  Fund  were to make  such an
election,  then  transferees  of Units  would be  treated,  for the  purpose  of
depreciation  and gain,  as though they had  acquired a direct  interest in Fund
assets.

            A Section 754 election is complex.  A Section 754 election increases
the expense of tax  accounting.  As a result,  ATEL does not intend to cause the
Fund to make a Section 754  election.  If not, then an investor may have greater
difficulty in selling his Units.

            The Internal  Revenue Code includes  other  elections.  The Fund may
make various elections for federal tax reporting  purposes which could result in
various  items of  income,  gain,  loss,  deduction  and  credit  being  treated
differently for tax purposes than for accounting purposes.

Treatment of Gifts of Units

            Generally,  no gain or loss is  recognized  for  federal  income tax
purposes as a result of a gift of property.  There are exceptions to the general
rule.  If a gift of a Unit  were made at a time  when the  investor's  allocable
share of the Fund's nonrecourse  indebtedness exceeded the adjusted tax basis of
his Unit,  such investor would realize gain for federal income tax purposes upon
the  transfer  of  such  Unit  to  the  extent  of  such  excess.  A  charitable
contribution of Units also would result in income or gain to the extent that the
transferor's share of nonrecourse liabilities exceeded the adjusted tax basis in
his Units.  Gifts of Units may also result in gift tax liability pursuant to the
rules applicable to all gifts of property.

Investment by Qualified Retirement Plans and IRAs

            Qualified  pension,  profit-sharing,  stock bonus plans, Keogh Plans
and IRAs are generally exempt from taxation.  A qualified  retirement plan or an
IRA will have tax  liability to the extent that its unrelated  business  taxable
income exceeds $1,000 during any fiscal year.  Unrelated business taxable income
is determined in accordance with Sections 511- 514 of the Internal Revenue Code.
The Fund will be engaged in the  business of equipment  leasing.  The share of a
qualified  retirement  plan  or an  IRA  of  the  Fund's  business  income  will
constitute unrelated business taxable income. A qualified retirement plan or IRA
will be required to report its pro rata share of the Fund's  business  income as
unrelated  business  taxable  income if and to the  extent  that the  investor's
unrelated business taxable income from all sources exceeds $1,000 in any taxable
year.

            A  portion  of the  gain  from  the  sale of  equipment  subject  to
acquisition  indebtedness also will be included in the unrelated business income
of a tax-exempt  entity.  Indebtedness  is  acquisition  indebtedness  if it was
incurred   directly  or  indirectly  in  connection   with  the  acquisition  or
improvement of the equipment. In addition,

                                       70

<PAGE>




-           gain which is characterized as ordinary income due to the recapture
            of cost recovery, or

-           gain from equipment which is inventory or property held primarily
            for sale to customers in the ordinary course of a trade or business

will be unrelated business taxable income.

            If a qualified retirement plan or IRA has unrelated business taxable
income in excess of $1,000 for any year,

-           it is subject to income tax on the excess, and

-           it is obligated to file a tax return for such year.

Any tax due should be paid directly from the tax-exempt  entity.  Payment of the
tax by the beneficiary could have other adverse tax consequences.

            All  tax-exempt  entities  are  urged  to  obtain  the  advice  of a
qualified tax advisor on the effect of an investment in Units.

Individual Tax Rates

            General.  The highest  individual tax rate  currently is 39.6%.  The
benefits of personal  exemptions  are phased out for taxpayers  with an adjusted
gross income over certain  thresholds.  Further,  otherwise  allowable  itemized
deductions  are reduced by an amount equal to 3% of a taxpayer's  adjusted gross
income over certain thresholds.  Such deductions may not be reduced by more than
80%.

            Capital Gains and Losses.  The excess of net long-term capital gains
over  short-term  capital losses is referred to in the Internal  Revenue Code as
net capital  gain.  Net capital  gain of  individuals  is taxed at a 28% maximum
rate.

            Capital  losses of  individuals  may offset  capital gains plus only
$3,000 of ordinary income in a year.  Capital losses of corporations  may offset
capital  gains  only.  Any  remaining   capital  loss  may  be  carried  forward
indefinitely.

            Two Percent Floor on Miscellaneous Itemized Deductions. Noncorporate
investors  may deduct  itemized  expenses  only to the extent  they exceed 2% of
adjusted gross income. Itemized deductions include expenses paid or incurred

-           for the production or collection of income,

-           for the management, conservation, or maintenance of property held
            for the production of income, or

-           in connection with the determination, collection or refund of a tax.

Alternative Minimum Tax

            In addition to the regular  income tax,  the  Internal  Revenue Code
includes an alternative  minimum tax for noncorporate  and corporate  taxpayers.
The base upon which the alternative minimum tax is imposed is equal to

                                       71

<PAGE>

-           the taxpayer's taxable income,

-           subject to alternative minimum tax adjustments,

-           increased by items of tax preference, and

-           reduced by an exemption,

all as described below.

            Under  the  alternative  minimum  tax,  depreciation  deductions  on
personal  property are computed using the 150%  declining  balance method rather
than the 200%  declining  balance  method.  A less  favorable net operating loss
deduction is used in lieu of the regular tax net operating loss deduction.

            The itemized deductions  allowable in computing  alternative minimum
taxable income include the following:

-           charitable contributions,

-           medical deductions in excess of 10% of adjusted gross income,

-           casualty losses,

-           interest on personal housing, and

-           other interest to the extent of net investment income.

No standard  deduction  is allowed,  but an  exemption  amount is  available  as
discussed below.

            The  Internal  Revenue  Code  eliminates  an  incentive  for married
taxpayers  to file  separate  returns by  increasing  the amount of  alternative
minimum taxable income by the lesser of:

-           25% of the excess of alternative minimum taxable income over
            $165,000, or

-           $22,500.

            For corporations,  the Internal Revenue Code requires an addition to
taxable income of 75% of the amount by which adjusted  current  earnings exceeds
alternative minimum taxable income.

            In addition to the adjustments described above,  alternative minimum
taxable  income  is  increased  by the  amount of items of tax  preference.  Tax
preferences  include excess depletion  deductions,  excess  intangible  drilling
costs,  tax- exempt interest,  and the difference  between the fair market value
and the  exercise  price of stock  acquired by exercise  of an  incentive  stock
option. No deduction is allowed for losses from a tax shelter farm activity.

            Tax credits  cannot be used to offset  alternative  minimum tax. Any
excess tax credits are first carried back one year and then forward 20 years.


                                       72

<PAGE>

            The alternative minimum tax for individuals is equal to:

-           26% of so much of the taxable excess as does not exceed $175,000,
            plus

-           28% of so much of the taxable excess as exceeds $175,000.

For this purpose,  taxable excess means the amount by which alternative  minimum
taxable income exceeds the exemption amount. The exemption amount is:

-           $45,000 for a married couple filing a joint return or a surviving
            spouse,

-           $33,750 for a single individual, and

-           $22,500 for a married individual filing a separate return or for  an
            estate or trust.

            However, the exemption is reduced by 25% of the amount by which the
alternative minimum taxable income exceeds:

-           $150,000 in the case of a married couple filing a joint return,

-           $112,500 in the case of a single individual, and

-           $75,000 in the case of a married individual filing a separate return
            or for an estate or trust.

            The  corporate  alternative  minimum tax is the  amount,  if any, by
which:

-           20% of the excess of

            -      the corporation's alternative minimum taxable income, over

            -      the exemption amount, exceeds

-            the corporation's regular tax for the year.

The corporate exemption amount is $40,000. However, this exemption is reduced by
25% of the amount by which alternative  minimum taxable income exceeds $150,000.
The corporate  alternative minimum tax does not apply to corporations which have
elected to be subject to Subchapter S of the Internal Revenue Code.  Rather, the
alternative minimum tax applies to the shareholders of an S corporation.

            The  corporate  alternative  minimum tax has been repealed for small
business  corporations.  A corporation that had average annual gross receipts of
less than $5,000,000 for the three-year period beginning after December 31, 1993
is a small  business  corporation  for its first  taxable year  beginning  after
December 31, 1997. A corporation  that meets the $5,000,000  gross receipts test
will  continue  to be treated  as a small  business  corporation  so long as its
average gross receipts do not exceed $7,500,000.

                                       73

<PAGE>


            Because the impact of the alternative  minimum tax is dependent upon
each investor's particular tax situation,  each prospective investor is urged to
consult his own tax adviser as to the effect an investment in the Fund will have
on the calculation of his alternative minimum tax liability.

Fund Tax Returns and Tax Information

            The Fund will use the accrual  method of  accounting.  The Fund will
adopt the calendar year as its tax year. The Fund's operating agreement requires
the Fund to provide tax  information  to the investors  within 75 days after the
close of each Fund tax year.  Some  investors  may be required to file their tax
returns on or before  March 15. If so, they may have to obtain an  extension  to
file.

            Each investor must file his tax return either

-           consistently with the information provided on the Fund's
            informational return or

-           in a manner which notifies the IRS of any inconsistency.

Otherwise,  the IRS could  automatically  assess and  collect  the tax,  if any,
attributable to the inconsistent treatment.

            An investor will be required to inform the Fund of the sale or
            exchange of his Units within the earlier of

-           30 days of the transaction or,

-           January 15 of the calendar year following the calendar year in which
            the transaction occurs.

The Fund will be required to inform the IRS of each such  transfer.  The failure
of an  investor or of the Fund to file these  notices may result in  substantial
penalties.  The Fund also must  inform both the seller and the buyer of Units of
the   proportionate   interest  of  the  transferred  Units  in  the  unrealized
receivables  and inventory  items of the Fund.  This  notification  must be made
prior to February 1 of the calendar  year  following  the calendar year in which
the transaction occurs.

Interest and Penalties

            Document  and  Information  Return  Penalties.  Three  separate  and
distinct  categories  of  penalties  apply  to  information  returns  and  payee
statements, as follows:

-           a penalty for failing to file an information return or to include
            correct information therein. An example is Form 8308, which a
            partnership must file upon a transfer of its partnership interests;

-           a penalty for failing to file a payee statement or to include
            correct information on a payee statement. An example is Schedule
            K-1, which a partnership must provide annually to each partner; and

-           a penalty  for failure to comply  with other  information  reporting
            requirements.  An example is the requirement  that a transferor must
            give notice to a partnership  concerning the exchange of an interest
            in the partnership.


                                       74

<PAGE>


            The penalties in this category differ in amount. It is possible that
a filer might reduce or avoid some of the penalties by filing corrected  returns
within  specific  time  limits,   or  if  the  omissions  and  inaccuracies  are
inconsequential.  On the other  hand,  the  penalties  may be  increased  if the
failure to comply is due to intentional disregard.

            Accuracy-Related and Fraud Penalties.  The penalty for an inaccurate
tax return is equal to 20% of the portion of an underpayment  resulting from one
or more of the following:

-           negligence or disregard of the rules and regulations,

-           any substantial understatement of income tax,

-           any substantial valuation overstatement,

-           any substantial overstatement of pension liabilities, and

-           any substantial estate or gift tax valuation understatement.

            A substantial  understatement  of income tax exists if the amount of
the  understatement  exceeds the greater of 10% of the tax required to be shown,
or $5,000. The $5,000 is increased to $10,000 for most corporations.

            A substantial valuation overstatement exists if:

-           the value or adjusted basis of any property is 200% or more of the
            amount determined to be the correct value or adjusted basis, or

-           the price for services or property in transactions between
            affiliated entities is 200% or more of the current price.


In the case of a gross  overstatement,  the penalty is  increased  to 40%. In no
event will a penalty be imposed  unless the  underpayment  exceeds  $5,000.  The
$5,000  figure  is  increased  to  $10,000  for  most   corporations.   A  gross
overstatement  occurs when the value or adjusted  basis or price is 400% or more
of the correct amount.

            Any portion of an  understatement  which is attributable to fraud is
subject  to a  penalty  at  the  rate  of 75% of  the  understatement.  The  20%
accuracy-related  penalty  will not apply to any  portion  of an  understatement
subject to the fraud penalty.

Audit of Tax Returns

            The IRS could  audit the Fund's tax  information  returns.  Any such
audit could  result in the audit of an  investor's  tax  return.  An audit of an
investor's  return could result in  adjustments  to items related to the Fund as
well as items not related to the Fund.

            The Internal  Revenue Code treats a partnership as a separate entity
for purposes of audit,  settlement and judicial review.  Thus, the IRS may audit
and make a single determination of the propriety of a partnership's treatment of
partnership tax items at the partnership  level. In general, a partnership's tax
matters  partner  represents the partnership and its partners in the event of an
audit of the partnership's tax returns.  ATEL is the Fund's tax matters partner.

                                       75

<PAGE>




All partners are nevertheless  entitled to  participate  in  an  audit  and each
partner may enter into a settlement agreement on his own behalf with the IRS.

            If the IRS proposes any  adjustments to the tax returns filed by the
Fund or an investor,  substantial  legal and accounting  expenses and deficiency
interest and penalties may be incurred.  The Fund will not bear any expense that
may be incurred by an investor in connection with:

-            the investor's participation in an audit of the Fund,

-           the audit of his tax returns, or

-           the determination or redetermination of his tax liability even
            though resulting solely from adjustments to the Fund's tax returns.

Registration Provisions

            Sections 6111 and 6112 of the Internal Revenue Code require

-           registration of tax shelters and

-           the maintenance of lists of investors participating in tax shelter
            investments.

            Under Section 6111, anyone who organizes a tax shelter must register
such  shelter with the IRS. To determine if an entity is a tax shelter as to any
investor, the following ratio is computed:

-           the sum of the aggregate gross deductions and 350% of the credits
            potentially allowable, to

-           the aggregate of the cash invested and the adjusted basis of other
            property contributed by the investor, reduced by any liability to
            which the property is subject.

A tax shelter is any investment as to which a person could reasonably infer that
the  foregoing  ratio is  greater  than two to one as of the close of any of the
first five years.

            ATEL has determined  that the Fund is not expected to generate a tax
shelter ratio of greater than two to one. Based on this determination, ATEL will
not register the Fund as a tax shelter.

Miscellaneous Fund Tax Aspects

-           Fees for the syndication of the Fund must be permanently
            capitalized.

-           Fund organization fees must be capitalized and may be amortized over
            a five-year period.

-           Fund start-up expenditures must be capitalized and may be amortized
            over a period of 60 months, beginning with the date on which the
            business begins.

                                       76

<PAGE>

Foreign Tax Considerations for U.S. Investors

            As noted  above,  the Fund may acquire  equipment  which is operated
outside the United States.  If so, investors may be required to file returns and
pay  taxes in  foreign  jurisdictions  with  respect  to the  income  from  such
equipment.  The income  taxed by the foreign  jurisdiction  would be  calculated
according to the tax laws of the foreign jurisdiction. These tax laws may or may
not correspond with applicable United States standards.

            Investors  who have  foreign  tax  liabilities  as a  result  of the
purchase of Units may be entitled to a credit or a deduction  for foreign  taxes
on their U.S. tax returns.  The  calculation  of the foreign tax credit is quite
complex.  No  assurance  can be  given  that a  credit  or a  deduction  will be
available.  For example, a taxpayer generally cannot claim a credit for taxes on
foreign  source income in an amount greater than the taxes which would have been
due had the taxes been  computed  under U.S.  law.  This could  result in higher
taxes for income from equipment  located in a foreign  jurisdiction  than income
from  equipment  located in the U.S.  Each investor  should  consult his own tax
advisor regarding the applicability of foreign taxes to his own situation.

U.S. Taxation of Foreign Persons

            Special rules govern the U.S. federal income taxation of

-           nonresident alien individuals,

-           foreign corporations,

-           foreign partnerships, and

-           other foreign investors.

The rules are complex.  No attempt is made herein to discuss the relevant rules.
Foreign  investors  persons  should  consult  their  own tax  advisors  to fully
determine  the impact to them of United States  federal,  state and local income
tax laws.

Future Federal Income Tax Changes

            No one can predict what additional legislation, if any, may be
proposed by

-           members of Congress

-           the current administration, or

-           any subsequent administration,

No one can  predict  which  proposals,  if any,  might  ultimately  be  enacted.
Moreover,  no one can predict  what  changes  may be made to  existing  Treasury
Regulations,  or what  revisions  may  occur in IRS  ruling  policies.  Any such
changes may have a retroactive effect.  Consequently,  no assurance can be given
that the federal income tax consequences of an investment in Units will continue
to be as described in this prospectus.


                                       77

<PAGE>

State and Local Taxes

            In  addition  to the  federal  income tax  considerations  described
above,  prospective  investors should consider  applicable state and local taxes
which may be imposed by various jurisdictions.  An investor's distributive share
of the  income,  gain or loss of the Fund will be  required  to be  included  in
determining  his  reportable  income  for  state or local  tax  purposes  in the
jurisdiction  in which he is a resident.  Moreover,  California  and a number of
other  states  in which the Fund may do  business  impose  taxes on  nonresident
investors.  The  tax on  nonresident  investors  generally  is  determined  with
reference to the pro rata share of Fund income derived from such states. Any tax
losses  associated  with an investment in the Fund from  operations in one state
may not be available to offset income from other sources  taxable in a different
state.

            California  and a number of other states have adopted a  withholding
tax procedure in order to facilitate  the  collection of taxes from  nonresident
and foreign investors. Any amounts withheld would be deemed to be a distribution
to the investor. The deemed distribution would decrease the amount of any actual
subsequent  distribution.  Investors  may be  allowed  a credit  for the  amount
withheld  against any income tax imposed by their state of  residency.  The Fund
cannot estimate the percentage of its income that will be from states which have
adopted such withholding tax procedures. Therefore, the Fund cannot estimate the
required withholding tax, if any.

            Estate  or  inheritance  taxes  might  be  payable  in  any  of  the
jurisdictions outlined above upon the death of an investor.

            Investors may be subject to state tax rules which are less favorable
than federal tax rules.

Need for Independent Advice

            The  foregoing  summary is not intended as a substitute  for careful
tax planning.  The income tax consequences  associated with an investment in the
Fund are  complex  and  certain of them will not be the same for all  taxpayers.
Accordingly,  each  prospective  purchaser of Units is strongly urged to consult
his own tax advisors with specific reference to his own tax situation.

                              ERISA CONSIDERATIONS

Prohibited Transactions Under ERISA and the Code

            Section 4975 of the Code (which  applies to all Qualified  Plans and
IRAs) and Section 406 of the Employee Retirement Income Security Act of 1974, as
amended  ("ERISA")  (which does not apply to IRAs or to certain  Qualified Plans
that are not subject to ERISA's  fiduciary  rules) prohibit  Qualified Plans and
IRAs from engaging in certain transactions  involving "plan assets" with parties
that are "disqualified  persons" under the Code.  "Disqualified persons" include
fiduciaries of the Qualified Plan or IRA, officers, directors,  shareholders and
other owners of the company  sponsoring the Qualified  Plan and natural  persons
and legal entities sharing certain family or ownership  relationships with other
"disqualified persons."

            "Prohibited transactions" include any direct or indirect transfer or
use  of a  Qualified  Plan's  or  IRA's  assets  to  or  for  the  benefit  of a
disqualified person, any act by a fiduciary that involves the use of a Qualified
Plan's  or  IRA's  assets  in the  fiduciary's  individual  interest  or for the
fiduciary's own account, and any receipt by a fiduciary of consideration for his
or her own personal account from any party dealing with a Qualified Plan or IRA.
Under ERISA, a disqualified person that engages in a prohibited transaction will
be required to disgorge any profits made  in  connection  with  the  transaction

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and will be required to compensate  any  Qualified  Plan that was a party to the
prohibited  transaction for any losses sustained by the Qualified Plan.  Section
4975 of the Code imposes excise taxes on a disqualified person that engages in a
prohibited  transaction with a Qualified Plan or IRA.  Section  408(e)(2) of the
Code  provides that an IRA will cease to be an IRA and will be treated as having
immediately  distributed  all of  its  assets,  if it  engages  in a  prohibited
transaction.

Plan Assets

            If the Fund's assets were  determined  under ERISA or the Code to be
"plan assets" of Qualified Plans and/or IRAs holding Units,  fiduciaries of such
Qualified  Plans and IRAs  might  under  certain  circumstances  be  subject  to
liability for actions taken by the Manager or its Affiliates, and certain of the
transactions  described  in this  Prospectus  in which  the Fund  might  engage,
including  certain  transactions  with Affiliates of the Fund,  might constitute
prohibited  transactions under the Code and ERISA with respect to such Qualified
Plans and IRAs, even if their acquisition of Units did not originally constitute
a prohibited transaction.  Moreover,  Qualified Plans (other than IRAs) might be
deemed to have  delegated  their  fiduciary  responsibility  to the  Manager  in
violation of ERISA.

            Although  under  certain   circumstances  ERISA  and  the  Code,  as
interpreted by the Department of Labor in currently effective regulations, apply
a  "look-through"  rule under which the assets of an entity in which a Qualified
Plan or IRA  has  made an  equity  investment  may  generally  constitute  "plan
assets,"  the  applicable   regulations  except  from  the  application  of  the
"look-through"  principle  investments in entities in which equity participation
in the entity by benefit plan investors is not significant.

            In order to qualify for the exception described above, "benefit plan
investors"  must at all  times  hold  less than 25% of the value of any class of
equity  interest  in the  entity.  For this  purpose,  the  value of any  equity
interests  held by a person  (other  than a  "benefit  plan  investor")  who has
discretionary  authority  or control  with respect to the assets of an entity or
any person who provides  investment  advice for a fee (direct or indirect)  with
respect to such assets,  or any affiliate of such a person,  is  disregarded.  A
"benefit plan investor" is any of the following:

-           any employee benefit plan (as defined in Section 3(3) of ERISA,
            which definition includes Qualified Plans), whether or not it is
            subject to the provisions of Title I of ERISA,

-           any plan described in Section 4975(e)(1) of the Code (which
            description includes Qualified Plans and IRAs), and

-           any entity (such as a common or collective trust fund of a bank)
            whose underlying assets include plan assets by reason of a plan's
            investment in the entity.

The sale of Units during this offering and the subsequent transfer of Units will
be limited to the extent that the Manager deems it necessary to qualify for this
exception.  Therefore,  the Fund's  assets  should  not be "plan  assets" of any
Qualified Plan or IRA investor; and no prohibited transaction should occur based
on treatment of the Fund's  underlying assets as "plan assets" of Qualified Plan
or IRA investors.

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Other ERISA Considerations

            In addition to the above considerations in connection with the "plan
asset"  question,  a  fiduciary's  decision to cause a Qualified  Plan or IRA to
acquire Units should involve,  among other factors,  considerations that include
whether

-           the investment is in accordance with the documents and instruments
            governing the Qualified Plan or IRA,

-           the purchase is prudent in light of the potential difficulties that
            may exist in liquidating Units,

-           the investment will provide sufficient cash distributions in light
            of the Qualified Plan's likely required benefit payments,

-           after an acquisition of Units, the Qualified Plan's investments
            taken as a whole are sufficiently diversified so as to minimize the
            risk of large losses,

-           the investment is made solely in the interests of plan participants,
            and

-           the fair market value of Units will be  sufficiently  ascertainable,
            with sufficient frequency, to enable the Qualified Plan to value its
            assets on an annual basis in accordance  with the  Qualified  Plan's
            rules and policies.

Prospective  Qualified  Plan  investors  should note that,  with  respect to the
diversification of assets  requirement,  the legislative  history of ERISA and a
Department of Labor advisory  opinion  indicate that in determining  whether the
assets of a Qualified  Plan that has  invested in an entity such as the Fund are
sufficiently  diversified,  it may be  relevant to look  through  the  Qualified
Plan's interest in the entity to the underlying portfolio of assets owned by the
entity,  regardless  of whether the  entity's  underlying  assets are treated as
"plan assets" for the purpose of ERISA's and the Code's  prohibited  transaction
and other fiduciary duty rules.

                       SUMMARY OF THE OPERATING AGREEMENT

            The  Operating  Agreement  (attached as Exhibit B) is the  governing
instrument  establishing  the  Fund's  right  under  the  laws of the  State  of
California  to operate as a limited  liability  company,  and contains the rules
under which the Fund will be operated.  The Operating Agreement will be executed
on behalf  of each  subscriber  upon his  admission  to the Fund by the  Manager
acting  pursuant  to  the  power  of  attorney  contained  in  the  Subscription
Agreement.

            The  following  is a brief  summary  of  certain  provisions  of the
Operating  Agreement.  It does not purport to be complete and it is  recommended
that each prospective  investor review the Operating  Agreement carefully in its
entirety.  Aspects of the Operating  Agreement  relating to  allocations  of Net
Income,  Net Loss and  Distributions  to Holders  and reports to the Members are
summarized elsewhere in this Prospectus.

The Duties of the Manager

            ATEL  Financial  Corporation  is  Manager  of the  Fund  and has the
exclusive  management  and control of all  aspects of the  business of the Fund.
Affiliates of the Manager will perform certain Equipment  acquisition,  leasing,
management and disposition services, as well as certain administrative services,
for the Fund. In the course of its management,  the Manager may, in its absolute
discretion,  acquire,  hold title to,  sell,  re-lease or  otherwise  dispose of
Equipment and interests  therein when and upon such terms as it determines to be
in the best interest of the Fund and employ such persons,  including  Affiliates

                                       80

<PAGE>




of the Manager,  as it deems  necessary for the efficient operation of the Fund.
However,  prior to the sale or other  disposition  of  Substantially  All of the
Assets of the Fund in any single 12-month period, except upon liquidation of the
Fund,  Holders owning more than 50% of the total  outstanding Units must consent
to such sale or other disposition.

Liability of Holders

            A Holder's  capital is subject to the risks of the Fund's  business.
He is not  permitted  to take  any  part in the  management  or  control  of the
business  and he may not be required  to  contribute  additional  capital at any
time. Under the California Act, a Holder will not be liable for Fund obligations
in excess of his  unreturned  capital  contribution  and share of  undistributed
profits.  Notwithstanding the foregoing,  a Holder will be liable to the Fund in
an  amount  equal to any  Distribution  made by the Fund to such  Holder  to the
extent that,  immediately after the Distribution is made, all liabilities of the
Fund, other than liabilities to Members on account of their interest in the Fund
and  liabilities  as to which  recourse  of  creditors  is limited to  specified
property of the Fund,  exceed the fair value of the Fund assets,  provided  that
the fair  value of any  property  that is  subject  to a  liability  as to which
recourse of  creditors  is so limited is included in the Fund assets only to the
extent that the fair value of the property exceeds such liability.

Term and Dissolution

            The Fund will  continue  for a maximum  period  ending  December 31,
2020,  but may be dissolved at an earlier date if certain  contingencies  occur.
The Fund intends to liquidate  its assets and  distribute  the proceeds  thereof
beginning  after the  Reinvestment  Period expires (at the end of the sixth full
year  following  the year during which the Final Closing Date occurs) with final
liquidation  expected to occur approximately ten to eleven years after the Final
Closing Date. A Holder may not withdraw from the Fund prior to dissolution,  but
may assign his Units to others or may, under certain circumstances, request that
the Fund  repurchase  his Units.  See  "Repurchase  of Units"  below  under this
caption. The contingencies whereupon the Fund may be dissolved are as follows:

            (a) The Fund becomes insolvent or bankrupt;

            (b) The removal, adjudication of bankruptcy,  insolvency, disability
or  incompetence  or  dissolution  or death of a Manager  unless  (i) there is a
remaining Manager, and the remaining Manager, within 45 days of the date of such
event,  elects to continue  the business of the Fund or (ii) if, upon removal of
the  last  remaining  Manager,  the  Members  holding  in  excess  of 50% of the
outstanding  Units  elect a successor  Manager  prior to the  effective  date of
removal and such successor Manager elects to continue the business of the Fund;

            (c) An election to dissolve upon the vote  of  Members  owning  more
than 50% of the total outstanding Units; or

            (d) The  disposition  of all interests in Equipment and other assets
of the Fund and the receipt by the Fund of the proceeds of such disposition.

Voting Rights of Members

            In any vote of the Members, each Member will be entitled to cast one
vote for each Unit  which  such  Member  owns as of the date  designated  as the
record  date for such vote.  Notwithstanding  the  foregoing,  Units held by the
Manager or any  Affiliate of the Manager will not be entitled to vote,  and will
not be deemed to be  "outstanding"  for purposes of any vote, upon matters which
involve a conflict between the interests of the Manager and the Fund, including,
but not  limited  to,  any vote on the  proposed  removal or  withdrawal  of the
Manager as  Manager  or  any  proposed  amendment  to  the  Operating  Agreement

                                       81

<PAGE>

which would expand or extend the rights,  authorities  or powers of the Manager.
The Members have the right, by vote of Members owning more than 50% of the total
outstanding Units, to vote upon:

            (a)    Removal or voluntary withdrawal of the Manager;

            (b)    Election of a successor Manager;

            (c)    Termination and dissolution of the Fund;

            (d) Amendment of the Operating Agreement, provided such amendment is
not for the purpose of reflecting the addition or substitution  of Members,  the
reduction of Capital  Accounts or for any other  purposes  prohibited  under the
Operating Agreement as described below;

            (e) The sale or other disposition of Substantially All of the Assets
in a single sale, or in multiple sales in the same twelve-month  period,  except
in  the  liquidation  and  winding  up of the  business  of the  Fund  upon  its
termination and dissolution; and

            (f)    The extension of the term of the Fund.

            Without the consent of the Members to be adversely affected by the
amendment, the Operating Agreement may not be amended so as to

-           convert a Holder into a Manager;

-           modify the limited liability of a Holder;

-           alter the interest of the Members in Net Income, Net Loss and
            Distributions; or

-           affect the status of the Fund as a partnership for federal income
            tax purposes.

Dissenters' Rights and Limitations on Mergers and Roll-ups

            Section  16.7  of the  Operating  Agreement  provides  that  Members
holding not less than 90% of the  outstanding  Units must  approve any  proposal
that involves an acquisition, conversion, merger or consolidation transaction in
which the Holders are issued new securities in the resulting entity.  The rights
of any  dissenting  Holders will be as provided  under Section 16.7 and Sections
17600 through 17613 of the  California  Act. Such  provisions  generally  give a
dissenting  Member the right,  subject to certain  procedural  requirements,  to
require that the company repurchase the dissenting  Member's interest at a price
equal to its fair market value.

Meetings

            The  Manager may at any time call a meeting of the Members or a vote
of the Members without a meeting, on matters on which they are entitled to vote,
and shall call such meeting or for a vote without a meeting following receipt of
a  written  request  therefore  of  Members  holding  10% or more  of the  total
outstanding  Units.  Upon such written request of Members holding 10% or more of
the total  outstanding  Units, such Members may propose a vote by all Members on
any matter on which Members are entitled to vote under the Operating Agreement.

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<PAGE>

Books of Account and Records

            The Manager is responsible  for keeping books of account and records
of the Fund reflecting all of the  contributions  to the capital of the Fund and
all of the  expenses  and  transactions  of the Fund.  Such books of account and
records will include the following:

                   (i) A current  list of the full name and last known  business
or residence address of each Member set forth in alphabetical  order together
with the Original Invested Capital,  the Units held and the share in Net Income
and Net Loss of each Member;

                   (ii) A copy of the  articles  of  organization  and  all
amendments;

                   (iii) Copies of the Fund's  federal,  state and local income
tax or information  returns and reports, if any, for the six most recent taxable
years;

                   (iv) Copies of the original of the Operating Agreement and
all amendments;

                   (v)  Financial statements of the Fund for the six most recent
fiscal years; and

                   (vi) The Fund's  books and  records  for at least the current
and past three fiscal years.

            Such  books of account  and  records  will be kept at the  principal
place of  business of the Fund in the State of  California,  and each Member and
his  authorized  representatives  shall  have,  at all times  during  reasonable
business  hours,  free  access  to and the  right to  inspect  and copy at their
expense such books of account and all records of the Fund. Upon the request of a
Member,  the Manager shall promptly deliver to such Member at the expense of the
Fund a copy of the  information  described in (i),  (ii) and (iv) above.  In the
event a Member is  required  to compel  the  Manager to  produce  the  foregoing
records as a result of the  Manager's  breach of its  obligation to deliver such
information,  the Manager shall  reimburse the Member for all  reasonable  costs
actually incurred in compelling production.

Status Of Units

            Each Unit will be fully  paid and  nonassessable  and all Units have
equal voting and other rights,  except as noted above with respect to the voting
of Units held by the Manager or its Affiliates.

Transferability of Units

            The Manager may condition the effectiveness of any proposed transfer
of Units or an interest in Units on such representations,  warranties,  opinions
of counsel, and other assurances as it considers appropriate as to:

            (i)    such assignment or transfer not resulting,  in the opinion of
counsel for the Fund,  in the Fund being  considered  to have terminated within
the meaning of Section 708 of the Code;

            (ii)   the transferee not being a minor or an incompetent;

            (iii)  the transfer or assignment not violating federal or state
securities laws;

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<PAGE>

            (iv) the transferor or the transferee not holding Units representing
Original  Invested  Capital of less than $2,500  ($2,000 in the case of IRAs and
Keogh Plans);

            (v) such assignee or transferee being  a  Citizen  of  the  United
States;

            (vi) such  assignment or transfer not  constituting a transfer "on a
secondary market (or the substantial  equivalent thereof)" within the meaning of
Section 7704 of the Code or otherwise  adversely affecting the tax status of the
Fund;

            (vii)  such assignment or transfer not causing Fund  assets  to  be
deemed Plan Assets under ERISA; and

            (viii)  the  transferor  filing  with the Fund a duly  executed  and
acknowledged   counterpart  of  the  instrument  effecting  such  assignment  or
transfer,  which instrument  evidences the written acceptance by the assignee or
transferee  of all of the  terms  and  provisions  of the  Operating  Agreement,
contains  a  representation  that  such  assignment  or  transfer  was  made  in
accordance  with all  applicable  laws and  regulations  (including any investor
suitability  requirements) and in all other respects is satisfactory in form and
substance to the Manager.

            In connection with state  securities laws  restrictions on transfer,
Section  260.141.11 of the Rules of the California  Commissioner of Corporations
states:

                   (a) The issuer of any security  upon which a  restriction  on
            transfer has been imposed pursuant to Sections 260.102.6, 260.141.10
            or 260.534 of the Rules of the California Corporations  Commissioner
            shall cause a copy of this section to be delivered to each issuee or
            transferee of such security at the time the  certificate  evidencing
            the security is delivered to the issuee or transferee.

                   (b) It is  unlawful  for the holder of any such  security  to
            consummate  a sale or transfer  of such  security,  or any  interest
            therein,  without  the prior  written  consent  of the  Commissioner
            (until this condition is removed  pursuant to Section  260.141.12 of
            the Rules of the California Corporations Commissioner),  except: (1)
            to the  issuer;  (2)  pursuant to the order or process of any court;
            (3) to any person  described in Subdivision  (i) of Section 25102 of
            the  Corporations  Code  of  the  State  of  California  or  Section
            260.105.14 of the Rules of the California Corporations Commissioner;
            (4) to the transferor's  ancestors,  descendants,  or spouse, or any
            custodian  or  trustee  for the  account  of the  transferor  or the
            transferor's ancestors,  descendants,  or spouse; or to a transferee
            by a trustee or custodian  for the account of the  transferee or the
            transferee's  ancestors,  descendants,  or spouse; (5) to holders of
            securities of the same class of the same issuer;  (6) by way of gift
            or  donation  inter  vivos  or  on  death;   (7)  by  or  through  a
            broker-dealer  licensed under the Corporations  Code of the State of
            California (either acting as such or as a finder) to a resident of a
            foreign state, territory, or country who is neither domiciled in the
            State of  California  to the  knowledge  of the  broker-dealer,  nor
            actually  present  in the  State of  California  if the sale of such
            securities is not in violation of any  securities law of the foreign
            state,  territory,  or  country  concerned;  (8) to a  broker-dealer
            licensed under the Corporations Code of the State of California in a
            principal  transaction,  or  as  an  underwriter  or  member  of  an
            underwriting syndicate or selling group; (9) if the interest sold or
            transferred  is a pledge or other lien given by the purchaser to the
            seller  upon a  sale  of  the  security  for  which  the  California
            Corporations  Commissioner's  written  consent is obtained or is not
            required  under Section  260.141.11  of the Rules of the  California
            Corporations  Commissioner;  (10) by way of a sale  qualified  under
            Section 25111,  25112,  25113, or 25121 of the Corporations  Code of
            the  State  of  California,  of the  securities  to be  transferred,
            provided  that no order under Section  25140 or  subdivision  (a) of
            Section 25143 of the Corporations Code of the State of California is
            in effect with respect to such qualification;  (11) by a corporation
            to  a  wholly-owned   subsidiary  of  such  corporation,   or  by  a
            wholly-owned  subsidiary of a corporation to such corporation;  (12)
            by  way  of  an  exchange  qualified  under  Section  25111,  25112,

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<PAGE>


            or  25113  of the  Corporations  Code of the  State  of  California,
            provided  that no order under Section  25140 or  subdivision  (a) of
            Section 25143 of the Corporations Code of the State of California is
            in effect with respect to such qualification; (13) between residents
            of  foreign  states,  territories,  or  countries  who  are  neither
            domiciled nor actually  present in the State of California;  (14) to
            the California State Controller  pursuant to the Unclaimed  Property
            Law or to the administrator of the unclaimed property law of another
            state; or (15) by the California  State  Controller  pursuant to the
            Unclaimed  Property  Law or by the  administrator  of the  unclaimed
            property law of another  state if, in either such case,  such person
            (i)  discloses to potential  purchasers at the sale that transfer of
            the securities is restricted  under Section  260.141.11 of the Rules
            of the California Corporations  Commissioner,  (ii) delivers to each
            purchaser  a  copy  of  Section  260.141.11  of  the  Rules  of  the
            California   Corporations   Commissioner,   and  (iii)  advises  the
            California Corporations  Commissioner of the name of each purchaser;
            (16) by a trustee to a successor trustee when such transfer does not
            involve  a change in the  beneficial  ownership  of the  securities;
            provided  that  any  such  transfer  is on the  condition  that  any
            certificate  evidencing the security issued to such transferee shall
            contain the legend  required by Section  260.141.11  of the Rules of
            the California Corporations Commissioner; or (17) by way of an offer
            and sale of outstanding  securities in an issuer transaction that is
            subject to the  qualification  requirement  of Section  25110 of the
            Corporations Code but exempt from that qualification  requirement by
            subdivision (f) of Section 25102.

                   (c) The certificates  representing such securities subject to
            such a  restriction  on transfer,  whether upon initial  issuance or
            upon  any  transfer  thereof,  shall  bear on their  face a  legend,
            prominently  stamped  or printed  thereon in capital  letters of not
            less than 10-point size, reading as follows:

            "IT IS UNLAWFUL TO  CONSUMMATE A SALE OR TRANSFER OF THIS  SECURITY,
            OR ANY INTEREST THEREIN,  OR TO RECEIVE ANY CONSIDERATION  THEREFOR,
            WITHOUT  THE  PRIOR   WRITTEN   CONSENT  OF  THE   COMMISSIONER   OF
            CORPORATIONS OF THE STATE OF CALIFORNIA,  EXCEPT AS PERMITTED IN THE
            COMMISSIONER'S RULES."

            Any assignment, sale, exchange or other transfer in contravention of
any of the provisions of the Operating  Agreement shall be void and ineffectual,
and shall not bind or be recognized by the Fund.

            An Assignee of Record  will be entitled to receive  allocations  and
Distributions from the Fund attributable to the Units acquired by reason of such
assignment  from and after the effective date of the assignment of such Units to
him; provided,  however,  the Fund and the Manager will be entitled to treat the
assignor of such Units as the absolute  owner thereof in all respects,  and will
incur no liability for allocations of Net Income, Net Loss or Distributions,  or
transmittal  of reports and notices  requested to be given to Holders  which are
made in good faith to such assignor until such time as the written instrument of
assignment  has been  received  by the Fund and  recorded  on its  books and the
effective  date of an assignment of Units has passed.  The effective  date of an
assignment  of Units  and the date on which  the  Assignee  shall be  deemed  an
Assignee  of Record  shall be the first day of the  first  full  fiscal  quarter
following  the  later of (i) the date set  forth on the  written  instrument  of
assignment,  or (ii) the  date on  which  the  Fund  has  actual  notice  of the
assignment.

            All costs and expenses  incurred by the Fund in connection  with the
transfer of a Unit shall be paid by the transferring Holder.

            An Assignee may only be  substituted as a Member in the place of the
assignor with the prior consent of the Manager, which consent may be withheld in
the Manager's  sole  discretion.  Any  substituted  Member must also agree to be
bound by the provisions of the Operating Agreement.  The Manager shall cause the
Operating  Agreement  to be amended to reflect  the  substitution  of Members at
least once in each fiscal quarter.

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<PAGE>


            The Manager  will,  with respect to any Units owned by it, enjoy all
of the rights, other than the right to request that the Fund repurchase any such
Units,  and be subject to all of the obligations and duties of a Member,  except
as noted above under "Voting Rights of Members."

Repurchase of Units

            In the  event a Holder  ceases  to be a  United  States  Citizen  or
Resident Alien for any reason,  he must  immediately  notify the Fund and may be
required to tender his Units to the Fund for  repurchase in order to protect the
Fund's interest in certain leases. The Fund will have the absolute right, but no
obligation,  to  repurchase  the  Units for a price  equal to the Unit  Holder's
capital account,  computed in accordance with federal tax accounting principles,
allocable  to the  repurchased  Units as of the last day of the  quarter  during
which the precipitating event occurs.

            The  Manager  may, in its  discretion  and on such terms as it deems
appropriate,  repurchase Units in the event that it deems such repurchase in the
best  interests  of the Fund,  but the Fund is in no event  required to make any
such  repurchase.  No such  repurchase  may be effected  if it would  impair the
capital of the Fund or cause the Fund or any  remaining  Unit holder to suffer a
material adverse tax consequence.  It is the Fund's intention that any voluntary
redemption  would be for a price equal to the original  capital  invested in the
redeemed  Units  less the  amount  of cash  distributed  on the  Units  prior to
redemption.  The Fund may, however,  redeem Units on any other terms it may deem
appropriate  and in the best  interests  of the  Fund  under  the  circumstances
surrounding the redemption.

            Upon any repurchase of Units by the Fund, the Units will be canceled
and will no longer  be deemed to  represent  an  interest  in the Fund,  and the
interests of all other Unit holders will be adjusted accordingly.

Indemnification of the Manager

            The Operating Agreement provides that the Manager and its affiliates
who perform  services for the Fund will be indemnified  against any liability or
loss  arising  out of any act or  omission  by any such  Person  when  acting in
connection with the business of the Fund,  provided that such Person  determines
in good  faith  that its  conduct  was in the  best  interest  of the Fund  and,
provided further, that its conduct did not constitute fraud, negligence,  breach
of fiduciary duty or misconduct.  The Operating Agreement also provides that, to
the  extent  permitted  by law,  the Fund will  indemnify  the  Manager  against
liability and related expenses  (including  attorneys' fees) incurred in dealing
with third parties,  provided that the conduct of the Manager is consistent with
the standards described in the preceding  sentence.  A successful claim for such
indemnification would deplete the Fund's capital assets by the amount paid.

            The Manager  will not be  indemnified  against  liabilities  arising
under  the  Securities  Act of 1933.  Furthermore,  the  Manager  has  agreed to
indemnify the Fund against any loss or liability it may incur as a result of any
violation of state or federal  securities laws by the Manager or its Affiliates.
The Fund will not pay for any insurance covering liability of the Manager or any
other  persons  for  actions  or  omissions  for  which  indemnification  is not
permitted by the  Operating  Agreement,  provided,  however,  that this will not
preclude  the naming of the  Manager or any  Affiliates  as  additional  insured
parties on  policies  obtained  for the  benefit of the Fund to the extent  that
there is no additional cost to the Fund.

            The Manager will have fiduciary  responsibility  for the safekeeping
and use of all funds and assets of the Fund.












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                              PLAN OF DISTRIBUTION

Distribution

            The   Units   will  be   offered   and  sold  on  a  "best   efforts
minimum/maximum"   basis  through  ATEL  Securities   Corporation  (the  "Dealer
Manager"),  a broker-dealer which is an Affiliate of the Manager (see "Conflicts
of Interest" and "Management"),  and through other participating  broker-dealers
who  are  members  of the  National  Association  of  Securities  Dealers,  Inc.
("NASD").  The Dealer Manager will manage the selling group and provide  certain
wholesaling  services.  Although  the  Dealer  Manager  may  participate  in the
offering  on the  same  basis as  other  broker-dealers,  it has not in the past
effected,  nor does it  anticipate  in this  offering  directly  effecting,  any
significant sales of the Units. The Dealer Manager is a wholly-owned  subsidiary
of ATEL formed solely to manage offerings sponsored by ATEL and its Affiliates.

            The minimum  offering  amount is $1,200,000  (120,000 Units) and the
maximum is $150,000,000 (15,000,000 Units).

            The minimum subscription is 250 Units ($2,500); provided that an IRA
or Keogh  Plan may  subscribe  for a minimum of 200 Units  ($2,000).  Additional
investments may subsequently be made in a minimum amount of 50 Units ($500), and
additional one-Unit ($10) increments.

            The  broker-dealers  are not obligated to obtain any  subscriptions,
and there is no assurance that any Units will be sold.

            Subscriptions  will be effective  only on  acceptance by the Manager
and the right is reserved to reject any  subscription  in whole or in part.  The
Subscription   Agreement   provided  to  the  investor  for  execution  must  be
accompanied by a copy of this  Prospectus,  and each subscriber has the right to
cancel his or her  subscription  during a period of five business days after the
subscriber   has   submitted   the  executed   Subscription   Agreement  to  the
broker-dealer  through  which the Units are sold.  The Fund  and/or the  selling
broker-dealer  will send each investor a written  confirmation of the acceptance
of the investor's subscription for Units upon admission to the Fund.

            The offering will  terminate on a date not later than two years from
the date of this  Prospectus.  The  offering  of Units after the end of one year
from the date hereof will be subject to renewal or  requalification in all those
jurisdictions  requiring such renewal or requalification.  However, the offering
may be terminated at any time by the Manager.  If subscriptions for a minimum of
120,000 Units have not been received and accepted  prior to a date one year from
the date hereof,  all funds received will be promptly returned together with any
interest earned thereon.

Selling Compensation and Certain Expenses

            The Dealer  Manager will receive  selling  commissions  in an amount
equal  to  9.5%  of the  Gross  Proceeds,  and  will  reallow  to  participating
broker-dealers   selling   commissions   equal  to  8%  of  the  Gross  Proceeds
attributable  to Units sold by them. Out of the 1.5% of the selling  commissions
retained by the Dealer Manager, it will pay wholesaling compensation in the form
of  salaries  and  commissions  to  its  personnel  and  certain   participating
broker-dealers, reimburse certain wholesaling expenses incurred by participating
broker-dealers  and reimburse  amounts which may be advanced by ATEL for certain
overhead expenses of the Dealer Manager and its personnel.

            The Dealer  Manager  (out of its  compensation  equal to 1.5% of the
Gross  Proceeds) or the Fund (up to a maximum  amount equal to 0.5% of the Gross
Proceeds) may pay or reimburse  participating  dealers a portion of their actual
expenses  in  connection  with this  offering  (including  expenses  incurred in


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coordinating   their  sales  efforts,  training  their  personnel  and  expenses
incurred,  by such  broker-dealers  as the Dealer  Manager shall  designate,  in
performing  "wholesaling"  functions).  The  Fund  may  also  pay  or  reimburse
participating dealers for their due diligence expenses. Subject to NASD approval
and compliance with Rule  2810(b)(4)(E)  of the NASD's Conduct Rules,  the Fund,
the Manager or the Dealer Manager may establish noncash sales incentive programs
for sales representatives of participating dealers,  provided that the aggregate
value of any noncash incentive awards to any individual by the Manager or any of
its Affiliates during any year does not exceed the sum of $100. The total of all
selling  compensation,  including sales  commissions,  wholesaling  salaries and
commissions,  retail and wholesaling expense  reimbursements,  broker dealer and
investment seminar expenses,  non-cash incentive payments and any other forms of
compensation  paid to the Dealer Manager or other  participating  broker-dealers
(including any  unreimbursed  overhead  costs of the Dealer Manager  advanced by
ATEL),  will  not  exceed  10% of  the  Gross  Proceeds,  except  that  up to an
additional  0.5% of the  Gross  Proceeds  may,  in the  sole  discretion  of the
Manager,  be paid in  connection  with  accountable,  bona  fide  due  diligence
activities.

            The   Manager   has   agreed   to   indemnify   the    participating
broker-dealers,  including  the  Dealer  Manager,  against  certain  liabilities
arising under the Securities Act of 1933, as amended.

            At various times during the offering period the Manager may elect to
pay a portion of the set-up fees for IRAs which purchase Units. The Manager will
pay a maximum of $25 toward such fees for each IRA which  purchases  the minimum
number of Units or more.

            The Fund will not pay referral or similar  fees to any  accountants,
attorneys or other persons in connection with the distribution of Units.

Escrow Arrangements

            Until the  minimum  number of  subscriptions  are  received  and the
initial  subscribers are admitted to the Fund,  subscription checks will be made
payable to, and  subscription  funds will be held in an escrow  account at, U.S.
Bank Trust National Association,  San Francisco,  California (the "Bank"). Until
such time all participating  broker-dealers will forward  subscription checks to
the Dealer Manager promptly but in no event later than noon of the next business
day  following  receipt  thereof,  and the  Dealer  Manager  will  forward  such
subscriptions to the bank escrow agent promptly, but in no event later than noon
of the second business day following receipt thereof by the Dealer Manager.

            Subscription proceeds held in the escrow account will be invested in
United States government securities, including Treasury bills, securities issued
or guaranteed by United States government agencies,  certificates of deposit and
time or demand  deposits in banks and savings  and loan  associations  which are
insured by United  States  government  agencies  or  deposits  in members of the
Federal Home Loan Bank System,  as directed by the Manager.  Subscribers may not
withdraw funds from the escrow  account.  Upon the earlier of termination of the
offering or satisfaction of the escrow condition,  any interest which accrues on
funds held in escrow will be distributed to subscribers and allocated among them
on the basis of the respective  amounts of the  subscriptions  and the number of
days that such amounts were on deposit in the escrow account.

            Notwithstanding   the   foregoing,   subscriptions   received   from
Pennsylvania  subscribers  will be placed in a separate  escrow account and will
not be counted toward  satisfaction  of the minimum escrow  condition.  Instead,
such Pennsylvania  subscriptions  will be released to the Fund only at such time
as  total  subscription  proceeds  received  by the Fund  from all  subscribers,
including  the  escrowed  Pennsylvania  subscriptions,  equal not less than $7.5
million in Gross Proceeds.

            The Original  Invested  Capital of the initial  subscribers  will be
transferred  from  escrow to the Fund at any time  after  subscriptions  for the
minimum of 120,000  Units have been  accepted by the Manager  and  received  and

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collected by the bank escrow  agent,  and  such  subscribers  will  be  admitted
to the Fund within 15 days  thereafter.  Subsequent  subscribers will have their
subscriptions accepted or rejected within 30 days after receipt. Investors whose
subscriptions  are  accepted  will be admitted to the Fund  promptly  after such
acceptance,  but not later than 30 days thereafter.  Rejected subscription funds
will be promptly returned.

            The Bank's sole role in this  offering is that of escrow  holder and
as  such  it has  not  reviewed  any of the  offering  materials  and  makes  no
representations  whatsoever as to the nature of this offering or its  compliance
or lack thereof with any applicable state or federal laws, rules or regulations.
The Bank neither  endorses,  recommends nor  guarantees  the purchase,  value or
repayment or any other aspect of an investment  in the Units.  The Bank does not
represent  the interests of the Members or potential  investors.  Its duties are
limited as expressly set forth in the Escrow  Agreement and  interested  parties
may request a copy of the Escrow  Agreement  from the  Manager.  Pursuant to the
terms of the Escrow  Agreement,  the Fund has directed the Bank to distribute to
the  subscribers  any interest earned on funds held in escrow as described above
under this caption.

Investments By Certain Persons

            The Manager and its Affiliates may, but do not currently  intend to,
acquire such number of Units as they determine. Except as noted below, any Units
purchased by the Manager or its  Affiliates  will be purchased on the same terms
as the other  Units  offered  hereby.  Such  Units will be  acquired  solely for
investment  and not with a view to or for  distribution.  Any Units  acquired by
such  Persons will not be applied to the  requirement  that a minimum of 120,000
Units be purchased by all subscribers.

            The Manager, the Dealer Manager or the broker-dealers engaged by the
Dealer Manager to sell the Units, or any of their  Affiliates or employees,  may
purchase  Units in this offering net of the 8% retail  selling  commissions at a
per Unit price of $9.20. In addition,  clients of an investment advisor which is
registered  under the  Investment  Advisors Act of 1940 and is an Affiliate of a
participating  broker-dealer  may  also  purchase  Units  with  reduced  selling
commissions, subject to the express approval of such participating broker-dealer
Affiliate, if the client

-           has been advised by such advisor over a continuous course of time on
            investments other than the purchase of Units, and

-           is not being charged by the advisor or its Affiliates, through the
            payment of commissions or otherwise, for the advice rendered by such
            advisor specifically in connection with the purchase of Units.

In no event will the net  contribution  to the Fund by such persons be less than
$9.20 per Unit.  The Dealer  Manager may require that any investor  claiming the
right to purchase on the foregoing  terms  demonstrate  the basis for such right
through reasonable documentation and certification. Sales to any such purchasers
on such  terms  would  be for  investment  purposes  only,  and the Fund and the
Manager  would not  recognize  any  attempted  transfer of such Units unless the
Manager is  satisfied  that the  original  purchase  was not made with a view to
distribution of the securities and that any proposed  transfer was in compliance
with all  applicable  laws and  regulations,  including the NASD's Rules of Fair
Practice.

State Requirements

            In  addition to the  investor  suitability  and  minimum  investment
standards established by the Fund and described under "Who Should Invest" above,
the securities  administrators  of certain states have imposed more  restrictive
standards on investments in Units effected within their jurisdictions.  Any such

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<PAGE>


additional  requirements  imposed after the date  of  this  Prospectus  will  be
reflected in a supplement  hereto,  and  investors  are urged to review any such
supplement to ascertain  whether more  restrictive  standards are  applicable to
their investment.

            The  following   states  have  imposed   additional   conditions  on
investments in such jurisdictions:

     Iowa. The minimum investment for all IRAs in Iowa is $2,500 (250 Units).

     Maine.  The minimum amount which may be invested by a Maine investor on any
subscription,  whether an initial  investment or any subsequent  investment,  is
$2,500 (250 Units), or $2,000 (200 Units) for IRAs and Qualified Plans.

     Michigan.  An investor  in  Michigan  may not invest in Units any amount in
excess of 10% of the investor's net worth  (exclusive of home, home  furnishings
and automobiles)

     Missouri. Each Missouri investor must (i) have an annual gross income of at
least  $60,000  and a  net  worth  (exclusive  of  home,  home  furnishings  and
automobiles) of at least $60,000 in excess of his Original Invested Capital;  or
(ii) have a net worth (determined with the same exclusions) of at least $225,000
in excess of his Original Invested Capital.

     Nebraska. The minimum investment for all investors in Nebraska, except IRAs
and Keogh Plans,  is $5,000 (500 Units).  Nebraska  investors  may not invest in
Units  an  amount  in  excess  of 10% of the  investor's  net  worth  determined
exclusive of investor's home, home furnishings and automobile.


     New  Hampshire.  Each New Hampshire  investor must (i) have an annual gross
income of at least $50,000 and a net worth  (exclusive of home, home furnishings
and  automobiles)  of at least  $125,000  in  excess  of his  Original  Invested
Capital;  or  (ii)  a  net  worth  (exclusive  of  home,  home  furnishings  and
automobiles) of at least $250,000 in excess of his Original Invested Capital.

     North Carolina.  Each North Carolina investor must (i) have an annual gross
income of at least $60,000 and a net worth  (exclusive of home, home furnishings
and automobiles) of at least $60,000 in excess of his Original Invested Capital;
or (ii)  have a net  worth  (determined  with the same  exclusions)  of at least
$225,000 in excess of his Original Invested Capital.

     Ohio.  An Ohio  investor may not invest in Units an amount in excess of 10%
of the investor's net worth.

     Oregon.  Each Oregon  investor  must (i) have an annual  gross income of at
least  $60,000  an  a  net  worth  (exclusive  of  home,  home  furnishings  and
automobiles) of at least $60,000 in excess of his Original Invested Capital;  or
(ii) have a net worth (determined with the same exclusions) of at least $225,000
in excess of his Original Invested Capital.


     Pennsylvania.  In addition to the investor suitability  standards set forth
under "Who Should Invest," an investor in  Pennsylvania  may not invest in Units
an  amount in excess of 10% of the  investor's  net worth  (with  such net worth
calculated  exclusive of home, home furnishings and  automobiles).  Furthermore,
Pennsylvania  subscriptions  will be subject  to a  separate  escrow and will be
released  to the Fund only when the Fund has  received  aggregate  subscriptions
from all investors equal to not less than $7.5 million.

                               REPORTS TO HOLDERS

            The Fund fiscal year will be the calendar year;  provided,  however,
that the Manager may, subject to the approval of applicable taxing  authorities,
adopt another fiscal year if they deem it to be in the Fund's best interest.

             The Fund will furnish to each Holder  certain  reports,  statements
and tax information,  as set forth in Article 14 of the Operating Agreement. The
Manager shall have prepared and  distributed  at least  annually,  at the Fund's
expense,

-           a statement of cash flow,

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-           Fund information necessary in the preparation of each Holder's
            federal income tax returns;

-           a report of the business of the Fund;

-           a statement as to the compensation received by the Manager and its
            Affiliates from the Fund during the year;

-           a report identifying the sources of all Fund Distributions for the
            year; and


-           a special report containing an opinion of a certified public
            accounting firm and relating to the cost reimbursements by the Fund
            to the Manager or its Affiliates.


Following the close of each taxable year of the Fund,  the Fund will  distribute
to the  Holders  copies of the annual  report and  annual  financial  statements
(balance  sheet,  statement of income or loss,  statement of members' equity and
statement  of cash  flow,  accompanied  by a report  containing  an  opinion  of
independent  certified public accountants) within 120 days thereafter,  and such
statements  will be prepared on an accrual  basis in accordance  with  generally
accepted  accounting  principals;  and all  Fund  information  necessary  in the
preparation  of their federal income tax returns within 75 days after the end of
each fiscal  year.  The Manager does not intend to cause the Fund to prepare and
distribute any reconciliation between the financial information contained in the
foregoing  reports  and the  information  furnished  to  Holders  for income tax
purposes.

            During the offering period and until the Fund is fully invested, the
Fund  will  also  furnish  to  each  Holder,  at  least  quarterly,  information
concerning the investments of the Fund.

            The  Fund  will  also  furnish  to each  Holder a  quarterly  report
covering  each of the first three  quarters of Fund  operations in each calendar
year,  including unaudited  financial  statements (each of which shall include a
balance  sheet,  statement  of  income  or loss for said  quarterly  period  and
statement of Cash from  Operations and Cash from Sales or  Refinancing  for said
quarterly period) and a statement of other pertinent  information  regarding the
Fund and its  activities  during the  quarterly  period  covered by the  report.
Copies of such statements and other pertinent  information  shall be distributed
to each Holder within 60 days after the close of the quarterly period covered by
the report of the Fund.

                           SUPPLEMENTAL SALES MATERIAL

            In  addition  to and apart  from this  Prospectus,  the Fund may use
certain  sales  material in  connection  with the offering of Units.  In certain
jurisdictions  such sales  material may not be  available.  This  material  will
include  information  relating to this offering,  the Manager and its Affiliates
and brochures and articles and publications concerning equipment leasing.

            The Fund will use only sales  material  which has been  approved  by
such appropriate regulatory bodies as may be required. The offering is made only
by means of this  Prospectus.  Although the information  contained in such sales
material  does  not  conflict  with  any of the  information  contained  in this
Prospectus,  such  material  does not purport to be complete,  and should not be
considered  as part of this  Prospectus or the  registration  statement of which
this Prospectus is a part, or as incorporated by reference in this Prospectus or
said  registration  statement  or as forming the basis of the  offering of Units
which are offered hereby.


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<PAGE>

                                 LEGAL OPINIONS

            The  legality of the Units has been  passed upon and the  statements
under the captions "Income Tax Consequences" and "ERISA  Considerations" as they
relate to federal  income tax and ERISA  matters  have been  reviewed and passed
upon by Derenthal & Dannhauser, San Francisco, California.

                                     EXPERTS

            The  consolidated  balance sheet of ATEL Financial  Corporation  and
subsidiary as of July 31, 2000, and the balance sheet of ATEL Capital  Equipment
Fund IX, LLC (a  development  stage  enterprise)  as of October 6, 2000, and the
related  statements of changes in members' capital and cash flows for the period
from September 27, 2000 (inception)  through October 6, 2000,  appearing in this
Prospectus  and  Registration  Statement have been audited by Ernst & Young LLP,
independent  auditors, as set forth in their reports thereon appearing elsewhere
herein,  and are included in reliance upon such reports given upon the authority
of such firm as experts in accounting and auditing.

                             ADDITIONAL INFORMATION

         The Fund  has  filed  with  the  Securities  and  Exchange  Commission,
Washington,  D.C., a registration statement under the Securities Act of 1933, as
amended,  with respect to the Units  offered  pursuant to this  Prospectus.  For
further  information,  reference is made to the  registration  statement and the
exhibits  thereto which are available for  inspection at no fee in the principal
office of the Commission at 450 Fifth Street, Northwest, Washington, D.C. 20549.
The Fund is subject to the informational requirements of the Securities Exchange
Act of 1934 and in accordance therewith files reports and other information with
the Securities and Exchange Commission. Such reports, the registration statement
and other  information  are  available for  inspection  and copying at the above
address, and are also available to be viewed and retrieved without charge on the
Commission's  electronic  data gathering and retrieval  (EDGAR)  system,  at its
internet  web  site at  www.sec.gov.  In  addition,  photostatic  copies  of the
material  containing  this  information may be obtained from the Commission upon
paying of the fees  prescribed by the rules and  regulations of the  Commission.
This  Prospectus  contains a fair  summary  of the  material  provisions  of the
exhibits filed with the Commission.  This Prospectus does not knowingly  contain
any untrue  statement  of a  material  fact or omit to state any  material  fact
required to be stated  herein or  necessary  to make the  statements  herein not
misleading.

                                    GLOSSARY

         The following  terms used in this  Prospectus  shall (unless  otherwise
expressly  provided  herein or unless the context  otherwise  requires) have the
following respective meanings:

         "Acquisition  Expenses" shall mean expenses including,  but not limited
to,  legal  fees and  expenses,  travel  and  communication  expenses,  costs of
appraisals, accounting fees and expenses, and miscellaneous expenses relating to
selection and acquisition of Equipment, whether or not acquired.

         "Acquisition  Fees"  shall  mean the total of all fees and  commissions
paid by any party in  connection  with the initial  purchase or  manufacture  of
Equipment.  Included in the computation of such fees or commissions shall be any
commission,  selection fee, financing fee,  nonrecurring  management fee, or any
fee of a similar nature, however designated.

          "Adjusted  Invested  Capital" shall mean, as of any date, the Original
Invested Capital  attributable to the Units held by any Person on or before such
date,  as  decreased  (but not  below  zero)  by the  amount  by  which  (i) all

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<PAGE>

Distributions  with   respect   to   such   Units   on or  before  the  date  of
determination  pursuant to any provision of the Operating  Agreement exceed (ii)
the Priority Distribution attributable to such Units for such period.

          "Affiliate" of a Person shall mean

-        any Person directly or indirectly controlling, controlled by or under
         common control with such Person;

-        any Person owning or controlling 10% or more of the outstanding voting
         securities or beneficial interests of such Person,

-        any officer, director, trustee or partner of such Person and

-        if such Person is an officer,  director,  trustee, partner or holder of
         10% or more of the voting  securities or  beneficial  interests of such
         Person,  any other company for which such Person acts in such capacity.
         However,  such term  shall not  include a Person  who is a partner in a
         partnership  or  joint  venture  with the  Fund if such  Person  is not
         otherwise an Affiliate.

         "Asset  Management  Fee" shall mean the fee  payable to the Manager and
its Affiliates under the provisions of Section 8.2 of the Operating Agreement.

         "Asset  Management Fee Limit" means the total fees calculated  pursuant
to the  alternative  fee schedule set forth under  Section 8.3 of the  Operating
Agreement,  equal to the  aggregate of an Equipment  Management  Fee,  Incentive
Management Fee, and Equipment  Resale/Re-Leasing Fee, plus the Carried Interest,
determined in the manner described therein.

          "Assignee" shall mean a Person who has acquired a beneficial  interest
in one or more Units from a third party but who is neither a substituted  Holder
nor an Assignee of Record.

          "Assignee  of  Record"  shall  mean an  Assignee  who has  acquired  a
beneficial  interest in one or more Units whose  ownership  has been recorded on
the books of the Fund and which ownership is the subject of a written instrument
of assignment, the effective date of which assignment has passed.

         "ATEL" shall mean ATEL Financial Corporation, a California corporation.

         "California  Act"  shall  mean  the  Beverly-Killea  Limited  Liability
Company Act, Title 2.5, Chapters 1-15, of the California  Corporations  Code, as
it may be amended from time to time.

         "Capital Account" shall mean, with respect to any Member, such Member's
Capital  Account  determined  in  accordance  with Section 6.7 of the  Operating
Agreement.

         "Carried Interest" shall mean the allocable share of Fund Distributions
of Cash  from  Operations  and Cash from  Sales or  Refinancing  payable  to the
Manager, as a Member, pursuant to Sections 10.4 and 10.5 of the Agreement.

         "Cash from  Operations"  shall mean the excess of Gross Revenues (which
excludes revenues from Equipment sales or refinancing)  over cash  disbursements
(including the Equipment  Management  Fee and amounts  reinvested by the Fund in
Equipment)  without  reduction for  depreciation and amortization of intangibles

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such  as  organization  and  underwriting   costs   but   after   a   reasonable
allowance  for cash for repairs,  replacements,  contingencies  and  anticipated
obligations, as determined by the Manager.

         "Cash from Reserve Account" shall mean that portion of the Net Proceeds
not  utilized  in  the  acquisition  of  Equipment,  including  cash  maintained
according to the provisions of Section 9.4 of the Operating Agreement.

         "Cash from Sales or  Refinancing"  shall mean the net cash  realized by
the Fund from the sale,  refinancing or other disposition of any Equipment after
payment of all expenses related to the transaction.

         "Closing  Date" shall mean such date  designated by the Manager for the
termination  of the  offering  of Units,  but not later  than  January 16, 2003.
Extension of the offering beyond one year from the date of the Prospectus  shall
be subject to the  qualification of the offering for any such extension in those
jurisdictions  which may limit the offering period to one year. "Initial Closing
Date" shall mean the date on which subscribers for Units, other than the initial
Holder,  are first  admitted to the Fund as Holders.  "Final Closing Date" shall
mean the last date on which  subscribers  for Units are  admitted to the Fund as
Holders.

         "Code" shall mean the Internal  Revenue  Code of 1986,  as amended,  or
corresponding provisions of subsequent federal revenue laws.

         "Distributions"  shall mean any cash  distributed  to  Holders  and the
Manager arising from their respective interests in the Fund.

         "ERISA" shall mean the  Employment  Retirement  Income  Security Act of
1974, as amended.

         "Equipment" shall mean the equipment  acquired and owned by the Fund to
be  leased  by the Fund to others  as well as any Fund  interest  in  equipment,
including  without  limitation its rights,  whether  direct or indirect,  in all
trusts, joint ventures, leases, chattel paper, options and other contract rights
with respect to equipment.

         "Equipment Management Fee" shall mean an element of the alternative fee
schedule  calculation  to  determine  the Asset  Management  Fee Limit under the
provisions of Section 8.3.2 of the Operating Agreement.

         "Equipment Re-leasing Fee" shall mean an element of the alternative fee
schedule  calculation  to  determine  the Asset  Management  Fee Limit under the
provisions of Section 8.3.2 of the Operating Agreement.

         "Equipment  Resale  Fee" shall mean an element of the  alternative  fee
schedule  calculation  to  determine  the Asset  Management  Fee Limit under the
provisions of Section 8.3.2 of the Operating Agreement.

         "Front-End Fees" shall mean fees and expenses paid by any party for any
services rendered during the Fund's organization and acquisition phase including
Organization and Offering Expenses,  Leasing Fees, Acquisition Fees, Acquisition
Expenses,  and any other similar fees, however  designated.  Notwithstanding the
foregoing,  Front-End Fees shall not include any Acquisition Fees or Acquisition
Expenses paid by a manufacturer of Equipment to any of its employees unless such
Persons are Affiliates of the Manager.

         "Full Payout Lease" shall mean a lease under which the  non-cancellable
rental payments due during the initial term of the lease are at least sufficient
to cover the purchase price of the Equipment leased.

                                       94

<PAGE>

         "Fund" shall mean ATEL CAPITAL  EQUIPMENT  FUND IX, LLC, the California
limited liability company created under the Operating Agreement.

         "Fund  Manager"  or  "Manager"  shall mean ATEL  Financial  Corporation
("ATEL"), a California corporation, or any other Person or Persons which succeed
it in such  capacity.  The Manager is referred to throughout  the  Prospectus as
"ATEL" or the "Manager."

         "Fund  Minimum  Gain" shall have the  meaning set forth in  Regulations
Section 1.704-2(d)(1).

         "Gross  Proceeds"  shall  mean  the  aggregate  total  of the  Original
Invested Capital of the initial and all of the additional Holders.

         "Gross  Lease  Revenues"  shall mean all revenues  attributable  to the
Equipment other than from security  deposits paid by lessees  thereof.  The term
"Gross Revenues" shall not include revenues from the sale,  refinancing or other
disposition of Equipment.

         "High Payout  Lease" shall mean a lease under which the  noncancellable
rental  payments  and other  payment  obligations  of the lessee due through the
initial  term of the lease are  equal to at least 90% of the  original  purchase
price paid by the Fund for the Equipment.

         "Holders"  shall  mean  owners  of  Units  who are  either  Members  or
Assignees of Record,  and  reference to a "Holder"  shall be to any one of them.
The Manager  shall not be considered to be a Holder except to the extent it also
owns Units.

         "Incentive Management Fee" shall mean an element of the alternative fee
schedule  calculation  to  determine  the Asset  Management  Fee Limit under the
provisions of Section 8.3.2 of the Operating Agreement.

         "IRA" shall mean an  individual  retirement  account  qualifying  under
Section 408 of the Code.

         "Investment  in  Equipment"  shall  mean the  amount of Gross  Proceeds
actually  paid or allocated  to the purchase of Equipment  acquired by the Fund,
any amount of Gross Proceeds  reserved  pursuant to Section 9.4 of the Operating
Agreement up to a maximum of 3% of Gross  Proceeds and other cash  payments such
as interest and taxes, but excluding Front-End Fees.

         "Members"  shall mean the initial Members and any other Persons who are
admitted  to the Fund as  additional  or  substituted  Members.  Reference  to a
"Member" shall refer to any one of them.

         "Net  Income" or "Net Loss"  shall mean the  taxable  income or taxable
loss of the Fund as  determined  for federal  income tax  purposes,  computed by
taking into account each item of Fund income,  gain,  loss,  deduction or credit
not already  included in the computation of taxable income and taxable loss, but
does not mean Distributions.

         "Net Lease Provisions" shall mean contractual  arrangements under which
the lessee assumes responsibility for, and bears the cost of, insurance,  taxes,
maintenance,  repair and operation of the leased asset and where non-cancellable
rental   payments   under  the  lease  are   absolutely   net  to  the   lessor,
notwithstanding  that some minor costs or responsibilities  remain with the Fund
as lessor or that the Fund  retains  the option to require  and pay for a higher
standard of care or greater  level of  maintenance  or  insurance  than would be
imposed on the lessee under the terms of the lease.

         "Net Proceeds"  shall mean the total Gross  Proceeds less  Organization
and Offering Expenses.

                                       95

<PAGE>

         "Operating  Lease" shall mean a lease under which the aggregate  rental
payments  due during the  initial  term of the lease are less than the  purchase
price of the Equipment leased.

         "Operating  Revenues" means the total for any period of all Gross Lease
Revenues plus all Cash from Sales or Refinancing.

         "Organization and Offering Expenses" shall mean those expenses incurred
in connection with preparing the Fund for registration and subsequently offering
and  distributing  Units to the public,  including  selling  commissions and all
advertising  expenses  except  advertising  expenses  related to the  leasing of
Equipment.

         "Original  Invested  Capital"  shall mean the original  gross  purchase
price of the Units contributed by each Member to the capital of the Fund for his
interest in the Fund,  which amount shall be attributed to Units in the hands of
a subsequent Holder.

         "Operating  Agreement" or "Agreement"  shall mean the Limited Liability
Company Operating Agreement of ATEL CAPITAL EQUIPMENT FUND IX, LLC, as it may be
amended from time to time.

         "Person"  shall  mean any  natural  person,  partnership,  corporation,
association or other legal entity.

         "Priority  Distribution"  shall mean a hypothetical  amount  determined
solely for purposes of the alternative fee schedule calculation to determine the
Asset  Management Fee Limit under the provisions of Section 8.3 of the Operating
Agreement.  Such amount will equal,  for any calendar  year or other period with
respect to the Units held by any Person,  the average Adjusted  Invested Capital
with  respect to such  Units  during  such  period  multiplied  by 10% per annum
(calculated on a cumulative  basis,  compounded  daily, from the last day of the
calendar quarter in which the capital  contribution of the initial  purchaser of
such Units was received by the Fund and pro rated for any fraction of a calendar
year for which such calculation is made).

         "Prospectus"  shall mean the final  prospectus filed in connection with
the  registration  of the Units with the Securities  and Exchange  Commission on
Form  S-1,  as  amended,  together  with any  supplement  thereto  which  may be
subsequently filed with such Commission.

         "Purchase  Price of  Equipment"  shall  mean the  price  paid  upon the
purchase  or sale of a  particular  item of  equipment  including  all liens and
mortgages on the equipment, but excluding points and prepaid interest.

         "Qualified  Plan" shall mean  employee  trusts (or employer  individual
retirement  accounts),  Keogh Plans and corporate  retirement  plans  qualifying
under Section 401(a) of the Code.

         "Regulations"  or  "Treasury  Regulations"  shall  mean the  income tax
regulations  promulgated under the Code, as such regulations may be amended from
time to time (including corresponding provisions of succeeding regulations).

         "Reinvestment Period" shall mean the period commencing with the Initial
Closing  Date and  ending on a date 72 months  after the last day of the  fiscal
year during which the Final Closing Date occurs.

         "Reimbursable   Administrative   Expenses"   shall  mean  the  ordinary
recurring  administration expenses incurred by the Manager and reimbursed by the
Fund.  Such  expenses  shall  not  include  interest,  depreciation,   equipment
maintenance  or  repair,  third  party  services  or  other   non-administrative
expenses.

                                       96

<PAGE>

         "Resident  Alien"  shall  mean a resident  alien as defined  within the
Federal  Aviation Act of 1958,  as amended from time to time,  or any  successor
statute,  or any  regulations  adopted  pursuant  to such  Act or any  successor
statute.

         "Roll-Up" shall mean a transaction  involving the acquisition,  merger,
conversion or consolidation,  either directly or indirectly, of the Fund and the
issuance of securities of a Roll-Up Entity. Such term does not include:

                  (a)      any transaction if the securities of the Fund have
               been for at least twelve months traded through the National
               Association of Securities Dealers, Inc. Automated Quotation
               National Market System; or

                  (b) a transaction involving the conversion to corporate, trust
               or association form of only the Fund, if, as a consequence of the
               transaction,  there will be no significant adverse change in any
               of the following

                  (i)      the Members voting rights;
                  (ii)     the term of existence of the Fund;
                  (iii)    the terms of compensation of the Manager and its
                           Affiliates; or
                  (iv)     the Fund's investment objectives.

         "Service" shall mean the United States Internal  Revenue Service or its
successor.

         "Substantially  All of the  Assets"  shall  mean,  unless  the  context
otherwise dictates, Equipment representing 66 2/3% or more of the net book value
of all Equipment as of the end of the most recently completed fiscal quarter.

         "Unit"  shall  mean  the  interest  in the Fund  representing  Original
Invested  Capital in the amount of $10 and shall  entitle the Holder  thereof to
the rights herein provided.

         "United States  Citizen" shall mean a "citizen of the United States" as
defined  within the Federal  Aviation Act of 1958, as amended from time to time,
or any successor statute, or any regulations adopted pursuant to such Act or any
successor statute.

                                       97

<PAGE>
                              FINANCIAL STATEMENTS

Set forth below are the following financial statements:

ATEL Capital Equipment Fund IX, LLC

Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . .F - 2
Balance Sheet, October 6, 2000 . . . . . . . . . . . . . . . . . . . . . .F - 3
Notes to Financial Statements  . . . . . . . . . . . . . . . . . . . . . .F - 4

ATEL Financial Corporation and Subsidiary

Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . .F - 5
Consolidated Balance Sheet, July 31, 2000  . . . . . . . . . . . . . . . .F - 6
Notes to Consolidated Balance Sheet, July 31, 2000 . . . . . . . . . . . .F - 7












                                       F-1
<PAGE>
                  REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS






The Members
ATEL Capital Equipment Fund IX, LLC


We have audited the  accompanying  balance sheet of ATEL Capital  Equipment Fund
IX, LLC (a development  stage enterprise) as of October 6, 2000, and the related
statements  of changes in  members'  capital  and cash flows for the period from
September  27,  2000  (inception)  through  October  6,  2000.  These  financial
statements are the responsibility of the Fund'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
from  material  misstatement.  An audit  includes  examining,  on a test  basis,
evidence supporting the amounts and disclosures in the financial statements.  An
audit also includes  assessing the accounting  principles  used and  significant
estimates  made by  management,  as well as  evaluating  the  overall  financial
statement  presentation.  We believe that our audit provides a reasonable  basis
for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the financial position of ATEL Capital Equipment Fund IX,
LLC (a  development  stage  enterprise)  at October 6, 2000,  and its changes in
members'  capital  and  cash  flows  for the  period  from  September  27,  2000
(inception)  through October 6, 2000, in conformity  with accounting  principles
generally accepted in the United States.



                                                           /s/ ERNST & YOUNG LLP
San Francisco, California
October 9, 2000

















                                       F-2
<PAGE>

                       ATEL CAPITAL EQUIPMENT FUND IX, LLC
                        (A Development Stage Enterprise)

                                  BALANCE SHEET

                                 October 6, 2000


                                     ASSETS

Cash                                                                   $600
                                                                    ========



                        LIABILITIES AND MEMBERS' CAPITAL


Members' capital:
     Managing Member                                                   $100
     Initial Member                                                     500
                                                                    --------
Total members' capital                                                 $600
                                                                    ========




                    STATEMENT OF CHANGES IN MEMBERS' CAPITAL

               FOR THE PERIOD FROM SEPTEMBER 27, 2000 (INCEPTION)
                             THROUGH OCTOBER 6, 2000

                           Initial Member
                           --------------         Managing
                         Units        Amount       Member        Total
                         -----        ------       ------        -----

Capital contributions         50          $500        $100          $600
                      =========== ============= ===========  ============




                             STATEMENT OF CASH FLOWS

               FOR THE PERIOD FROM SEPTEMBER 27, 2000 (INCEPTION)
                             THROUGH OCTOBER 6, 2000


Financing activities:
Capital contributions received                                           $600
                                                                       -------
Net increase in cash                                                      600
                                                                       -------
Cash at end of period                                                    $600
                                                                       =======


                             See accompanying notes.


                                       F-3
<PAGE>

                       ATEL CAPITAL EQUIPMENT FUND IX, LLC
                        (A Development Stage Enterprise)

                          NOTES TO FINANCIAL STATEMENTS

                                 October 6, 2000


1.  Organization and Limited Liability Company matters:

ATEL Capital Equipment Fund IX, LLC (a development stage enterprise)(the  Fund),
was formed under the laws of the state of  California  on September 27, 2000 for
the purpose of  acquiring  equipment  to engage in  equipment  leasing and sales
activities.  The Fund shall continue until December 31, 2019.  Contributions  in
the  amount  of $600  were  received  as of  October  6,  2000,  $100  of  which
represented  the  Managing  Member's  (ATEL  Financial  Corporation's)  (ATEL's)
continuing interest,  and $500 of which represented the Initial Member's capital
investment.

As of October 6, 2000,  the Fund had not commenced  operations  other than those
relating to organizational  matters.  The Fund, or the Managing Member on behalf
of the Fund, will incur costs in connection with the organization,  registration
and issuance of the Limited Liability Company Units (Units).  The amount of such
costs to be born by the Fund is limited by certain  provisions  of the Operating
Agreement.


2.  Income taxes:

The Fund does not provide  for income  taxes since all income and losses are the
liability  of the  individual  members  and are  allocated  to the  members  for
inclusion in their individual tax returns.


3.  Members' capital:

As of October  6,  2000,  50 Units  were  issued  and  outstanding.  The Fund is
authorized to issue up to 15,000,000 additional Units.

The Fund Net Income,  Net Losses, and Distributions are to be allocated 92.5% to
the Members and 7.5% to the Managing Member.


4. Commitments and management:

The terms of the  Operating  Agreement  provide that the Managing  Member and/or
affiliates are entitled to receive  certain fees, in addition to the allocations
described  above,  which are more fully  described in Section 8 of the Operating
Agreement.  The  additional  fees  to  management  include  fees  for  equipment
management and resale.


                                       F-4
<PAGE>










             REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS




Board of Directors and Shareholder
ATEL Financial Corporation


We have audited the  accompanying  consolidated  balance sheet of ATEL Financial
Corporation  and  subsidiary  as of July 31,  2000.  This  balance  sheet is the
responsibility of ATEL's management. Our responsibility is to express an opinion
on this balance sheet 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  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 balance sheet presentation.  We
believe that our audit provides a reasonable basis for our opinion.

In our  opinion,  the  consolidated  balance  sheet  referred to above  presents
fairly, in all material  respects,  the consolidated  financial position of ATEL
Financial Corporation at July 31, 2000, in conformity with accounting principles
generally accepted in the United States.



                                                           /s/ ERNST & YOUNG LLP

San Francisco, California
September 15, 2000



                                      F-5
<PAGE>

                    ATEL FINANCIAL CORPORATION AND SUBSIDIARY

                           CONSOLIDATED BALANCE SHEET

                                  JULY 31, 2000

                                     ASSETS


<TABLE>
<CAPTION>
<S>                                                                                 <C>
Cash and cash equivalents                                                           $ 2,330,964
Amounts due from affiliated programs                                                  6,305,472
Investments in leases                                                                 2,239,079
Cash surrender value of life insurance                                                  300,000
Deferred tax asset                                                                    3,767,487
Income taxes receivable                                                                 404,292
Property and equipment, net of accumulated depreciation of $1,575,989                   370,042
Leasehold improvements, net of accumulated amortization of $478,499                     272,541
Other assets                                                                            163,880
                                                                                ----------------
                                                                                   $ 16,153,757
                                                                                ================


                      LIABILITIES AND SHAREHOLDER'S EQUITY


Liabilities:
Non-recourse debt                                                                   $ 1,310,061
Amounts due to affiliated companies                                                   4,549,344
Accounts payable and accrued liabilities                                              2,928,849
Customer deposits                                                                        22,000
Deferred liabilities and credits:
  Deferred capital contributions                                                      2,040,899
  Deferred tax liability                                                              5,061,513
                                                                                ----------------
  Total liabilities                                                                  15,912,666

Shareholder's equity:
Common stock, 100,000 shares authorized, 666 1/2shares issued and outstanding             2,000
Additional paid-in capital                                                               93,855
Retained earnings                                                                       145,236
                                                                                ----------------
  Total shareholder's equity                                                            241,091
                                                                                ----------------
                                                                                   $ 16,153,757
                                                                                ================
</TABLE>
                             See accompanying notes.



                                      F-6
<PAGE>

                    ATEL FINANCIAL CORPORATION AND SUBSIDIARY

                       NOTES TO CONSOLIDATED BALANCE SHEET

                                  JULY 31, 2000


1.   Organization and summary of significant accounting policies:

Organization and principles of consolidation:

The  consolidated   balance  sheet  includes  the  accounts  of  ATEL  Financial
Corporation (ATEL) and its wholly owned subsidiary,  ATEL Securities Corporation
(ASC). ATEL is a wholly owned subsidiary of ATEL Capital Group (ACG).

ATEL is a California  corporation formed in July 1977 to engage in the brokering
and leasing of equipment for its own account and the account of affiliates.  ASC
was formed in November 1985 and was registered as a securities  broker/dealer in
February 1986. All  significant  intercompany  balances have been  eliminated in
consolidation.

ATEL organizes and sponsors limited partnerships and limited liability companies
(the "affiliated  programs" or the "programs")  engaged in equipment leasing and
sales  activities.  It also acts as the  corporate  general  partner or managing
member in these affiliated programs. Through these programs, ACG derives various
fees and also receives  reimbursements  for expenses incurred on behalf of these
entities,  of which  certain fees and expense  reimbursements  are  allocated to
ATEL,  with the balance  allocated to various  other  affiliates.  The basis for
determination  of the types and  amounts  of these fees and  reimbursements  are
provided in agreements with the various programs.

In  addition,  under  the  terms of the  partnership  agreements  and  operating
agreements  for certain of the  affiliated  programs for which ATEL is a general
partner or managing  member,  ATEL is entitled to  participate  in net cash from
operations  and  sales or  refinancing  of  equipment  owned  by the  affiliated
programs.  A portion of ATEL's  participation  is  subordinated  to the  limited
partners' and other  members' full  recovery of their initial  invested  capital
contributions  plus a  specified  return on their  investments.  No  earnings or
equity interests from such subordinated  interests have been recognized  through
July 31, 2000. The  shareholders of ACG are also general  partners in certain of
these affiliated programs.

Cash and cash equivalents:

Cash and cash equivalents include cash in banks and cash equivalent  investments
with original maturities of ninety days or less.

Operating leases:

Assets on  operating  leases are stated at cost less  accumulated  depreciation.
Revenues  from  operating  leases are  recognized  evenly  over the terms of the
related leases.  Depreciation is provided by the  straight-line  method over the
term of the lease to an amount equal to the equipment's estimated residual value
at lease termination.


                                      F-7
<PAGE>

                    ATEL FINANCIAL CORPORATION AND SUBSIDIARY

                       NOTES TO CONSOLIDATED BALANCE SHEET

                                  JULY 31, 2000


1.   Organization and summary of significant accounting policies (continued):

Residual interests:

Residual interests represent the present value of ATEL's proportionate  interest
(calculated at the time of the  transaction) in the estimated  residual value of
equipment  originally owned by ATEL and subsequently sold to a third party where
ATEL retains an  unconditional  right to participate in such residual value upon
the expiration of the related lease.  This retained  residual value is presented
as an asset and is included in the consolidated  balance sheet under the caption
"Investments  in  leases"  until  the  ultimate  liquidation  of the  underlying
equipment and realization of the participation.

Property and equipment:

Property and equipment is stated at cost.  Depreciation is calculated  using the
straight-line  method over the estimated useful lives of the respective  assets,
which range from three to seven years.

Leasehold improvements:

Leasehold improvements are stated at cost.  Amortization is calculated using the
straight-line  method over the lives of the related  leases or estimated  lives,
whichever is shorter.

Cash surrender value of life insurance:

ATEL purchased two single premium  key-man life insurance  policies to cover the
two  officer-shareholders  of ACG. ATEL is a beneficiary under the contracts for
$300,000 of cash surrender values.  The spouses of the two  officer-shareholders
of ACG are the beneficiaries for amounts above $300,000.

Income taxes:

For federal and state income tax reporting, ATEL's taxable income is included in
the returns filed by ACG. For financial  reporting,  ATEL's income tax provision
is calculated on a separate  return basis.  Deferred taxes are calculated  using
the liability method of accounting for income taxes. Under this method, deferred
tax assets and  liabilities  are  determined  based on  differences  between the
financial  reporting  and tax bases of assets and  liabilities  and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse.  The ultimate  realization of ATEL's deferred tax asset
is dependent upon the realization of such amount by ACG.


                                      F-8
<PAGE>

                    ATEL FINANCIAL CORPORATION AND SUBSIDIARY

                       NOTES TO CONSOLIDATED BALANCE SHEET

                                  JULY 31, 2000


1.   Organization and summary of significant accounting policies (continued):

Credit risk:

Financial instruments which potentially subject ATEL to concentrations of credit
risk  include  cash and cash  equivalents.  ATEL  places its cash  deposits  and
temporary  cash   investments   with   creditworthy,   high  quality   financial
institutions.  The concentration of such deposits and temporary cash investments
is not deemed to create a significant risk to ATEL.

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.

Investments in affiliated programs:

ATEL  accounts  for its  interest  as a  corporate  general  partner  (or as the
managing member) in the affiliated  programs at cost, or under the equity method
of accounting,  based on the terms of the individual  affiliated  partnership or
operating agreements.

Affiliated  programs  accounted for at cost do not provide for provisions in the
partnership  agreements  (or  operating  agreements)  for  general  partner  (or
managing member)  distributions  and hence, ATEL does not in effect have any way
to recover  the amounts of its  capital  accounts as recorded by the  affiliated
programs.  Certain affiliated programs accounted for at cost do not require ATEL
to make  capital  contributions  and,  hence,  ATEL  records  all  distributions
received from these  programs as income based on the cost method of  accounting.
Upon the dissolution of these programs,  a special  allocation of income or loss
is made from the  general  partner  to the  limited  partners  (or  between  the
managing  member and the other  members)  in an amount  sufficient  to bring the
capital  accounts to zero,  based on the terms of the  partnership and operating
agreements.

Affiliated programs accounted for under the equity method of accounting, subject
to  limitations  in  the   respective   partnership   agreements  (or  operating
agreement), provide for general partner (or managing member) distributions. Upon
dissolution of these programs, if the general partner (or managing member) has a
deficiency in its capital  account,  the general partner (or managing member) is
required  to  contribute  cash to the  capital of the  affiliated  program in an
amount  equal to the  lesser of the  deficiency  in the  general  partner's  (or
managing  member's)  account or 1.01% of the  original  invested  capital of the
affiliated  program,  based on the provisions of the  partnership  agreement (or
operating agreement).



                                      F-9
<PAGE>

                    ATEL FINANCIAL CORPORATION AND SUBSIDIARY

                       NOTES TO CONSOLIDATED BALANCE SHEET

                                  JULY 31, 2000


1.   Organization and summary of significant accounting policies (continued):

Investments in affiliated programs (continued):

If the general partner (or managing  member) has a positive capital balance upon
the dissolution of the program,  a special allocation of income is made from the
general  partner  (or  managing  member) to the  limited  partners  in an amount
sufficient  to bring the  capital  accounts  to zero,  based on the terms of the
partnership  agreements (or operating  agreements).  Through July 31, 2000, ATEL
has deferred  $2,040,899  in  distributions  received from  affiliated  programs
accounted for on the equity method of  accounting.  Such amounts are included in
the   consolidated   balance   sheet   under  the  caption   "Deferred   capital
contributions."

Amounts due to affiliated companies:

Amounts  due to  affiliated  companies  represent  net  amounts  advanced  to or
received from affiliated companies for operations or for income taxes to be paid
by ATEL on behalf of ACG and its subsidiaries.


2.  Investments in leases:

Investments in leases consist of the following:

Equipment on operating leases, net of accumulated depreciation      $ 2,197,544
Residual interests                                                       41,535
                                                                ----------------
                                                                    $ 2,239,079
                                                                ================

Operating leases:

Equipment on operating leases consists of the following:
Electrical cogeneration plant (estimated useful life, 20 years)     $ 2,565,815
Concrete hauling trucks (estimated useful life, 7 years)              1,793,410
Kaolin processing equipment (estimated useful life, 20 years)           304,444
Hydraulic excavator (estimated useful life, 10 years)                   120,000
                                                                ----------------
                                                                      4,783,669
Less accumulated depreciation                                        (2,586,125)
                                                                ----------------
Equipment on operating leases, net of accumulated depreciation      $ 2,197,544
                                                                ================


                                      F-10
<PAGE>

                    ATEL FINANCIAL CORPORATION AND SUBSIDIARY

                       NOTES TO CONSOLIDATED BALANCE SHEET

                                  JULY 31, 2000


2.  Investments in leases (continued):

At July 31,  2000,  the  aggregate  amounts  of future  minimum  lease  payments
receivable from operating leases are as follows:

                      Year ending July 31,
                       --------------------
                                       2001          $512,390
                                       2002           478,999
                                       2003           212,250
                                       2004           188,000
                                       2005           141,000
                                             -----------------
                                                   $1,532,639
                                             =================

General lease terms and concentration of credit risk:

Operating  leases  generally  provide  that the lessee will be  responsible  for
maintenance, insurance and similar costs (referred to as net leases).

Leases are subject to ATEL's credit committee review. The leases provide for the
repossession of the equipment in the event of default.


3.  Non-recourse debt:

Non-recourse debt consists of the following:

<TABLE>
<CAPTION>
<S>                                                                                  <C>
 Notes payable to financial institutions,  interest at 9.6094% per year, concrete
trucks and related  leases pledged as  collateral,  due in various  installments
through 2002                                                                         $  547,444


Note payable to financial institution, interest at 8.332% per year, cogeneration
plant and related lease pledged as collateral,  due in quarterly installments of
$47,000 through July 2005                                                               762,617

                                                                                 ----------------
                                                                                    $ 1,310,061
                                                                                 ================
</TABLE>

The net book value of assets financed with  non-recourse  debt was $1,923,243 at
July 31, 2000.

Future minimum payments on non-recourse debt are as follows:

                              Principal           Interest         Total
    Year ending July 31,       Payments           Payments        Payments
    --------------------       ---------          ---------       --------
                    2001          $377,670           $101,329       $478,999
                    2002           413,726             65,273        478,999
                    2003           175,551             36,699        212,250
                    2004           164,497             23,503        188,000
                    2005           178,617              9,384        188,001
                          -----------------  ----------------- --------------
                                $1,310,061           $236,188     $1,546,249
                          =================  ================= ==============


                                      F-11

<PAGE>

                    ATEL FINANCIAL CORPORATION AND SUBSIDIARY

                       NOTES TO CONSOLIDATED BALANCE SHEET

                                  JULY 31, 2000


4.  Income taxes:

Deferred  income  taxes  reflect  the net tax effects of  temporary  differences
between the carrying  amounts of assets and liabilities for financial  reporting
purposes  and the  amounts  used for  income  tax  purposes.  At July 31,  2000,
deferred  tax  assets  total  $3,767,487  and  deferred  tax  liabilities  total
$5,061,513.

Deferred income taxes arise primarily from differences in the reporting of lease
income,  depreciation,  acquisition fees and valuation accounts for tax purposes
as compared to their treatment for financial reporting purposes.


5.  Line of credit:

ATEL participates with ACG, certain other  subsidiaries of ACG, and with certain
affiliated programs in a $77,500,000  revolving credit agreement with a group of
financial  institutions  which expires July 28, 2001. The agreement  includes an
acquisition  facility,  a lease  warehouse  facility and a small ticket facility
which are used to provide  bridge  financing for assets on leases.  Draws on the
acquisition  facility  by any  individual  borrower  are  secured  only  by that
borrower's  assets,  including  equipment and related leases.  Borrowings on the
warehouse  facility are recourse  jointly to certain of the affiliated  programs
and ATEL.  Borrowings on the small ticket  facility are recourse to the borrower
and are guaranteed by ACG and certain of its shareholders. Also included in this
line of credit  facility is  $1,000,000  available  for  operations  and working
capital.

At July 31, 2000, ATEL had no borrowings related to working capital. At July 31,
2000,  there were no borrowings  under the small ticket lease facility.  At July
31, 2000, $52,968,572 was borrowed under the separate lease warehousing facility
by another subsidiary of ACG relating to lease transactions.  Interest is at the
bank's  prime rate (9.5% at July 31, 2000) or at LIBOR plus 1.25% (6.72% at July
31, 2000).

These  facilities,  when used,  are  collateralized  by (i) leases and equipment
owned by the  specific  borrower  and  financed  by the lines and (ii) all other
assets owned by the  specific  borrower  except  equipment,  lease  receipts and
residual values specifically pledged to other equipment funding sources.  ATEL's
borrowings under the facility are guaranteed by ACG and/or its shareholders.

Under the line, the affiliated programs have borrowed $13,150,000 as of July 31,
2000.  These  funds are  collateralized  by the assets  owned by the  affiliated
programs,  except  equipment,  lease receipts and residual  values  specifically
pledged to other equipment funding sources.

The credit agreement  includes certain  financial  covenants  applicable to each
borrower. ACG was in compliance with such covenants as of July 31, 2000.



                                      F-12
<PAGE>

                   ATEL FINANCIAL CORPORATION AND SUBSIDIARY

                      NOTES TO CONSOLIDATED BALANCE SHEET

                                 JULY 31, 2000


6.  Equity investments in affiliated programs (Unaudited):

Certain  affiliated  programs  are  accounted  for  under the  equity  method of
accounting.  Summarized  information  about these affiliates as of June 30, 2000
and for the year then ended are included in the following table.



                          ATEL Cash        ATEL Capital      ATEL Capital
                         Distribution       Equipment       Equipment Fund
                         Fund VI, L.P.    Fund VII, L.P.        VIII, LLC
                        --------------- -----------------  -----------------

            Total Assets   $ 86,507,975     $ 174,944,419      $ 172,348,563

       Total Liabilities   $ 36,943,681      $ 77,600,531       $ 88,677,679

        Net Income (loss)     $ 336,780        $ (702,030)        $ (896,462)


7.  Commitments and contingencies:

Office lease:

ACG occupies office space under operating leases expiring through December 2002.
Future minimum payments for fiscal year periods under the leases are $550,001 in
2001, $559,886 in 2002 and $233,286 in 2003.

8.  Reimbursements of operating costs:

The Limited  Partnership  Agreements and Operating  Agreements of the affiliated
programs  allow  for  the  reimbursement  of  costs  incurred  by  ACG  and  its
subsidiaries in providing  administrative  services to the programs,  of which a
portion of such amounts is allocated to ATEL.  Administrative  services provided
include  program  accounting,  investor  relations,  legal counsel and lease and
equipment  documentation.  ACG  and its  subsidiaries  are  not  reimbursed  for
services where they are entitled to receive a separate fee as  compensation  for
such  services,  such as acquiring and  overseeing  the management of equipment.
Reimbursable  operating costs incurred by ACG and its subsidiaries are allocated
to the programs based upon actual time incurred by employees  working on program
business and an allocation of rent and other costs based on utilization studies.
As of July 31, 2000,  $6,305,472  remained  outstanding from affiliated programs
for reimbursable operating and syndication costs and management fees.


                                      F-13
<PAGE>

EXHIBIT A


--------------------------------------------------------------------------------
                          PRIOR PERFORMANCE INFORMATION
--------------------------------------------------------------------------------

ATEL Financial Corporation ("ATEL"), the Manager of the Fund, and its affiliates
have extensive  experience in the equipment  leasing  industry,  including:  (i)
originating and financing  leveraged and single investor lease  transactions for
corporate  investors,  (ii) acting as a broker/packager  by arranging equity and
debt  participants  for  equipment  leasing  transactions  originated  by  other
companies,  (iii)  consulting on the pricing and  structuring of equipment lease
transactions for banks, leasing companies and corporations,  (iv) organizing and
offering  individual  ownership  and  limited  partnership   investment  leasing
programs and (v)  supervising  and  arranging for the  supervision  of equipment
management and marketing on leasing transactions involving total equipment costs
in excess of $1 billion.

In addition to the Fund,  ATEL has sponsored  eight prior public and one private
equipment leasing limited  partnerships.  See "Prior Performance  Summary" for a
summary of information regarding such prior programs.

The first prior partnership, ATEL Lease Income Fund 1985-A ("ALIF"), completed a
private placement of $218,500 of its limited partnership interests in April 1986
from a total of 12  investors.  ALIF had acquired a variety of equipment  with a
total  purchase cost of $296,627 as of December 31, 1987. All such equipment had
been sold as of December 31, 1995 and the partnership has ceased operations.

The second prior partnership,  ATEL Cash Distribution Fund ("ACDF"), commenced a
public  offering of up to  $10,000,000 of its limited  partnership  interests on
March 1, 1986. ACDF terminated its offering on December 18, 1987 after raising a
total of $10,000,000 in offering  proceeds from a total of  approximately  1,000
investors,  all of which  proceeds  were  committed to  equipment  acquisitions,
organization and offering expenses and capital reserves. ACDF acquired a variety
of  types of  equipment  with a total  purchase  cost of  $11,133,679.  All such
equipment had been sold as of December 31, 1997.

Through December 31, 1997, ACDF had made cash  distributions to its investors in
the aggregate amount of $1,121.03 per $1,000 invested. Of this amount a total of
$244.89 represents investment income and $876.14 represents return of capital.

The third  prior  partnership,  ATEL  Cash  Distribution  Fund II  ("ACDF  II"),
commenced a public offering of up to $25,000,000 (with an option to increase the
offering to  $35,000,000)  of its limited  partnership  interests  on January 4,
1988.  ACDF II terminated  its offering on January 3, 1990 after raising a total
of  $35,000,000  in  offering  proceeds  from a  total  of  approximately  3,100
investors,  all of which  proceeds  were  committed to  equipment  acquisitions,
organization  and  offering  expenses and capital  reserves.  ACDF II acquired a
variety of types of equipment  with a total  purchase cost of  $52,270,536.  All
such equipment had been sold as of December 31, 1998.

Through December 31, 1998, ACDF II had made cash  distributions to its investors
in the aggregate amount of $1,222.63 per $1,000 invested. Of this amount a total
of  $335.43  represents  investment  income  and  $887.20  represents  return of
capital.

The fourth prior  partnership,  ATEL Cash  Distribution  Fund III ("ACDF  III"),
commenced a public offering of up to $50,000,000 (with an option to increase the
offering to  $75,000,000)  of its limited  partnership  interests  on January 4,
1990.  ACDF III terminated its offering on January 3, 1992 after raising a total
of  $73,855,840  in  offering  proceeds  from a  total  of  approximately  4,822
investors,  all of which  proceeds  were  committed to  equipment  acquisitions,
organization  and offering  expenses and capital  reserves.  ACDF III acquired a
variety of types of equipment with a total purchase cost of $99,629,942. Of such
equipment,  items representing an original purchase cost of $99,617,789 had been
sold as of June 30, 2000.

                                       A-1
<PAGE>

Through June 30, 2000, ACDF III had made cash  distributions to its investors in
the aggregate amount of $1,282.31 per $1,000 invested. Of this amount a total of
$351.28 represents investment income and $931.03 represents return of capital.

The fifth  prior  partnership,  ATEL  Cash  Distribution  Fund IV  ("ACDF  IV"),
commenced a public  offering  of up to  $75,000,000  of its limited  partnership
interests on February 4, 1992.  ACDF IV  terminated  its offering on February 3,
1993 after raising a total of $75,000,000  in offering  proceeds from a total of
approximately 4,873 investors, all of which proceeds were committed to equipment
acquisitions,  organization and offering expenses and capital reserves.  ACDF IV
acquired  a  variety  of  types  of  equipment  with a  total  purchase  cost of
$108,734,880. Of such equipment, items representing an original purchase cost of
$84,464,176 had been sold as of December 31, 1999.

Through June 30, 2000, ACDF IV had made cash  distributions  to its investors in
the aggregate amount of $1077.88 per $1,000 invested.  Of this amount a total of
$285.52 represents investment income and $792.36 represents return of capital.

The sixth prior partnership, ATEL Cash Distribution Fund V ("ACDF V"), commenced
a public offering of up to $125,000,000 of its limited partnership  interests on
February 22, 1993.  ACDF V terminated  its offering on November 15, 1994.  As of
that  date,   $125,000,000   of  offering   proceeds  had  been   received  from
approximately  7,217 investors.  All of the proceeds were committed to equipment
acquisitions,  organization and offering expenses and capital  reserves.  ACDF V
acquired  a  variety  of  types  of  equipment  with a  total  purchase  cost of
$186,995,157  as of June 30, 2000.  Of such  equipment,  items  representing  an
original purchase cost of $67,403,080 had been sold as of December 31, 1999.

Through June 30, 2000,  ACDF V had made cash  distributions  to its investors in
the aggregate amount of $760.99 per $1,000  invested.  Of this amount a total of
$153.67 represents investment income and $607.32 represents return of capital.

The seventh  prior  partnership,  ATEL Cash  Distribution  Fund VI ("ACDF  VI"),
commenced a public  offering of up to  $125,000,000  of its limited  partnership
interests on November 23, 1994.  ACDF VI terminated its offering on November 22,
1996. As of that date,  $125,000,000 of offering proceeds had been received from
approximately  6,401 investors.  All of the proceeds were committed to equipment
acquisitions,  organization and offering expenses and capital reserves.  ACDF VI
acquired  a  variety  of  types  of  equipment  with a  total  purchase  cost of
$208,277,121  as of June 30, 2000.  Of such  equipment,  items  representing  an
original purchase cost of $50,712,500 had been sold as of June 30, 2000.

Through June 30, 2000, ACDF VI had made cash  distributions  to its investors in
the aggregate amount of $528.08 per $1,000  invested.  Of this amount a total of
$29.49 represents  investment  income and $498.59  represents return of capital.
See Table III -  "Operating  Results of Prior  Programs"  in this  Exhibit A for
further information concerning such distributions. See Table V - "Acquisition of
Equipment by Prior Programs" in Exhibit A for further information concerning the
types of  equipment  acquired by ACDF VI. See Table VI - "Sales or  Disposals of
Equipment" in Exhibit A.

The eighth prior  partnership,  ATEL Capital  Equipment  Fund VII ("ACEF  VII"),
commenced a public  offering of up to  $150,000,000  of its limited  partnership
interests on November 29, 1996. ACEF VII terminated its offering on November 29,
1998. As of that date,  $150,000,000 of offering proceeds had been received from
approximately  5,348 investors.  All of the proceeds were committed to equipment
acquisitions,  organization and offering expenses and capital reserves. ACEF VII
had  acquired  a variety of types of  equipment  with a total  purchase  cost of
$287,743,685  as of June 30, 2000.  Of such  equipment,  items  representing  an
original purchase cost of $16,945,323 had been sold as of June 30, 2000.

Through June 30, 2000, ACEF VII had made cash  distributions to its investors in
the aggregate amount of $324.64 per $1,000  invested.  Of this amount a total of
$51.77 represents  investment  income and $272.87  represents return of capital.
See Table III -  "Operating  Results of Prior  Programs"  in this  Exhibit A for
further information concerning such distributions. See Table V - "Acquisition of
Equipment by Prior Programs" in Exhibit A for further information concerning the
types of  equipment  acquired by ACEF VII. See Table VI - "Sales or Disposals of
Equipment" in Exhibit A.

                                       A-2
<PAGE>

The ninth prior  partnership,  ATEL Capital  Equipment  Fund VIII ("ACEF VIII"),
commenced a public  offering of up to  $150,000,000  of its limited  partnership
interests on December 7, 1998.  ACEF VIII had not yet terminated its offering as
of June 30, 2000. As of that date,  $107,169,250  of offering  proceeds had been
received from approximately 6,000 investors.  All of the proceeds were committed
to  equipment  acquisitions,  organization  and  offering  expenses  and capital
reserves.  ACEF VIII had acquired a variety of types of  equipment  with a total
purchase cost of $203,263,258  as of August 31, 2000. Of such  equipment,  items
representing an original purchase cost of approximately $46,537 had been sold as
of August 31, 2000.

Through June 30, 2000, ACEF VIII had made cash distributions to its investors in
the  aggregate  amount  of  $10.60  per  $1,000  invested.  All of  this  amount
represents  return  of  capital.  See Table III -  "Operating  Results  of Prior
Programs"  in  this   Exhibit  A  for  further   information   concerning   such
distributions.  See Table V -  "Acquisition  of Equipment by Prior  Programs" in
Exhibit A for further information  concerning the types of equipment acquired by
ACEF VII. See Table VI - "Sales or Disposals of Equipment" in Exhibit A.

Although certain of the Prior Programs have  experienced  lessee defaults in the
ordinary  course of  business,  none of the Prior  Programs has  experienced  an
unanticipated  rate of default or major adverse business  developments which the
Fund Manager believes will impair its ability to meet its investment objectives.

All of the Prior Programs have  investment  objectives that are similar to those
of the  Fund.  It  should be noted,  however,  that the prior  privately  placed
program,  ALIF,  invested in equipment  without the use of any acquisition debt,
while Prior  Programs  ("Prior Public  Programs")  were designed to use moderate
amounts of acquisition debt, as is the Fund. In addition,  as in the case of the
Fund's portfolio  objectives,  the Prior Public Programs'  equipment  portfolios
placed greater emphasis on relatively low technology equipment than did ALIF.

The  factors  considered  by the  Manager  in  determining  that the  investment
objectives  of the prior  programs were similar to those of the Fund include the
types  of  equipment  to be  acquired,  the  structure  of the  leases  to  such
equipment,  the credit criteria for lessees, the intended investment cycles, the
reinvestment policies and the investment goals of each program. Therefore all of
the  information  set  forth  in  Tables  included  in this  Exhibit  A - "Prior
Performance  Information"  may be deemed to relate to programs  with  investment
objectives similar to those of the Fund.

In Tables I through  III  information  is  presented  with  respect to all Prior
Programs  sponsored  by the  Manager  and  its  Affiliates  which  closed  their
offerings within the five year period ending December 1, 2000. Table VI includes
information  regarding all  dispositions of equipment by prior programs  through
June 30, 2000.  The  following is a list of the tables set forth on this Exhibit
A:

           TABLE I            Experience in Raising and Investing Funds
           TABLE II           Compensation to the General Partners
           TABLE III          Operating Results of Prior Programs
           TABLE IV           Results of Completed Programs
           TABLE V            Acquisition of Equipment by Prior Programs
           TABLE VI           Sales or Disposals of Equipment

ATEL will  provide to any  investor,  upon written  request and without  charge,
copies of the most recent Annual  Reports on Form 10-K filed with the Securities
and Exchange  Commission  by each Prior  Public  Program and will provide to any
investor, for a reasonable fee, copies of the exhibits to such reports.

INVESTORS IN THE PARTNERSHIP WILL HAVE NO INTEREST IN THE INVESTMENTS  DESCRIBED
IN THE FOLLOWING TABLES. PROSPECTIVE INVESTORS SHOULD NOT CONSTRUE THE INCLUSION
OF THIS INFORMATION AS INDICATIVE OF THE POSSIBLE OPERATIONS OF THE PARTNERSHIP.

         In addition  to Tables I through  VI, two summary  charts are set forth
below. Figure 6 is a summary of cash distributions  through July 31,2000 by each
Prior  Public  Program,  expressed  as a  percentage  of an  initial  investor's
original   capital   contribution   and  divided   into  the  portions  of  such
distributions  which have been  characterized  in the Prior Program's  financial
statements  as a return of  capital,  on the one hand,  and net  income,  on the
other.

                          [FIGURE 6 - GRAPHIC OMITTED]

         Figure  7  below   illustrates   the  disposition  of  equipment  after
expiration of the initial lease term for equipment coming off lease through June
30, 2000 for all Prior Public Programs that had completed their public offerings
as of December 31, 1999. The  dispositions  are  characterized as (i) short term
renewals  by the  lessees  (for  terms of less than 12  months),  (ii) long term
renewals  by the  lessees  (for terms of at least 12  months),  (iii)  equipment
purchased by the lessee and (iv)  equipment  returned by the lessee to the Prior
Public Program for sale or lease to another party.

                          [FIGURE 7 - GRAPHIC OMITTED]


                                       A-3
<PAGE>

                                     TABLE I
                    EXPERIENCE IN RAISING AND INVESTING FUNDS
                             (on a percentage basis)
                                  June 30, 2000
                                   (Unaudited)

The following Table sets forth certain information  concerning the experience of
the General  Partners in raising and investing  funds. A percentage  analysis of
the application of the proceeds raised is presented.


<TABLE>
<CAPTION>
                                                       ATEL Cash           ATEL Capital         ATEL Capital
                                                      Distribution          Equipment            Equipment
                                                        Fund VI              Fund VII            Fund VIII
EQUITY PROCEEDS
<S>                                                    <C>                   <C>                  <C>
         Dollar amount of equity offered               $ 125,000,000         $150,000,000         $150,000,000
         Dollar amount of equity raised                $ 125,000,000         $150,000,000         $107,169,250
                                                    -----------------    -----------------    -----------------
Less:    Offering expenses:
         Selling commissions                                   9.50%                9.50%                9.50%
         Organization and program expenses (1)                 4.70%                4.67%                4.73%
         Reserves                                              1.50%                0.50%                0.50%
                                                    -----------------    -----------------    -----------------
Percent available for investment                              84.30%               85.33%               85.27%
Acquisition costs:
         Purchase price (2)                                   79.80%               85.33%               85.27%
         Acquisition fees                                      4.50%                    -                    -
                                                    -----------------    -----------------    -----------------
                                                              84.30%               85.33%               85.27%
                                                    -----------------    -----------------    -----------------
Percent leverage (3)                                          46.12%               36.60%               39.58%
                                                    =================    =================    =================

Date offering commenced:                               Nov. 23, 1994        Nov. 29, 1996         Dec. 7, 1998

Length of offering                                         24 Months            24 Months           N/A        (6)

Months to  invest 90% of amount available for
   investment (measured from beginning of offering)        24 Months (4)        24 Months (5)       N/A        (6)
</TABLE>

FOOTNOTES:

(1) Includes organization,  legal, accounting,  printing,  binding, delivery and
other costs incurred by the General Partner.

(2) Represents amounts paid to unrelated third parties for purchase of equipment
under leases.

(3) The  percentage  leverage is  calculated  by dividing the initial  principal
amount of debt  incurred  by the  program  through the date of this table by the
aggregate  original cost of all equipment  purchased by the program through such
date. It should be noted,  however,  that each program has acquired assets,  has
made or will make principal amortizing debt service payments and/or has disposed
or will  dispose  of  assets  over a period  of time  extending  from its  first
investment  in  equipment.  As a result,  for each program the total cost of the
assets in its portfolio and the total principal  amount of debt outstanding have
fluctuated from time to time. The percentage figure, therefore, does not reflect
the  current  leverage  ratio or the debt  ratio at any one  point in time,  but
constitutes an aggregate  ratio for the life of the program  through the date of
the table.

(4) As of November 22, 1996, the Partnership's  offering of Limited  Partnership
Units was  completed.  As of that date,  the  proceeds of the  offering had been
fully committed.

(5) As of November 29, 1998, the Partnership's  offering of Limited  Partnership
Units was  completed.  As of that date,  the  proceeds of the  offering had been
fully committed.

(6) As of June 30,  2000 the  Company's  offering of Limited  Liability  Company
Units had not been completed.  As of that date, the proceeds of the offering had
been fully committed.

                                       A-4
<PAGE>

                                    TABLE II
                      COMPENSATION TO THE GENERAL PARTNERS
                                  June 30, 2000
                                   (Unaudited)

The following Table sets forth certain  information  concerning the compensation
derived by the General Partner.  Amounts paid are from two sources:  proceeds of
the offering and gross revenues.


<TABLE>
<CAPTION>
                                                                           ATEL Cash           ATEL Capital         ATEL Capital
                                                                          Distribution          Equipment            Equipment
                                                                            Fund VI              Fund VII            Fund VIII
<S>                                                                      <C>                   <C>                  <C>
Date offering commenced                                                  Nov. 23, 1994        Nov. 29, 1996         Dec. 7, 1998

Date offering closed                                                     Nov. 22, 1996        Nov. 29, 1998             N/A      (2)

Dollar amount raised                                                       $ 125,000,000         $150,000,000         $107,169,250

Amounts paid to General Partners from proceeds of offering:
    Acquisition fees                                                         $ 5,625,000           None                 None
    Selling commissions                                                      $ 1,711,446          $ 1,922,703          $ 1,451,341
    Organization and program costs                                           $ 5,875,000          $ 7,000,000          $ 5,072,616
Dollar amount of cumulative cash generated from operations
   before deducting payments to the General Partner                        $ 101,894,575         $ 72,516,802         $ 15,165,338
Cumulative amount paid to the General Partner from
   operations:
         Management fees                                                     $ 5,979,924          $ 4,689,030          $ 1,036,920
         Other operating expenses                                            $ 2,763,437          $ 2,563,365          $ 1,307,968

Aggregate payments to General Partner: (1)
                                                               1995         $ 12,837,117
                                                               1996           13,208,900
                                                               1997            1,969,649         $ 10,657,867
                                                               1998            1,822,010           14,212,252
                                                               1999            1,575,230            2,448,883         $ 13,056,922
                                                               2000              705,455            1,183,393            5,772,916
                                                                        -----------------    -----------------    -----------------
                                                                            $ 32,118,361         $ 28,502,395         $ 18,829,838
                                                                        =================    =================    =================
</TABLE>

FOOTNOTES:

(1) As of June 30, 2000. Includes payments of management fees, reimbursements of
syndication  costs to general  partner (and  affiliates),  acquisition  fees and
reimbursements of administrative costs.

(2) As of June 30, 2000 the  Company's  offering  had not been  terminated.  The
offering will terminate on or before November 30, 2000.

                                       A-5
<PAGE>
                                    TABLE III
                       OPERATING RESULTS OF PRIOR PROGRAMS
                                  June 30, 2000
                                   (Unaudited)

The following Table summarizes the operating results of Prior Programs (ACDF VI,
ACEF VII and ACEF VIII). The Programs' records are maintained in accordance with
generally accepted accounting principles for financial statement purposes.


<TABLE>
<CAPTION>
                                                                                 ATEL Cash Distribution Fund VI
                                                                                          Period Ended
                                                                                          December 31,
                                                                           1995                1996               1997
                                                                           ----                ----               ----
Months of operations                                                        12                  12                 12

<S>                                                                       <C>               <C>                <C>
Gross revenue - lease and other                                           $ 6,440,218       $ 25,837,343       $ 36,458,734
              - gain (loss) on sales of assets                                  3,819           (107,873)            26,431
                                                                      ----------------    ---------------    ---------------
                                                                            6,444,037         25,729,470         36,485,165

Less Operating Expenses: (1)
        Depreciation and amortization expense                               4,976,075         19,298,500         27,596,548
        Provision for losses                                                   64,892            257,814            364,852
        Interest expense                                                      931,651          5,773,463          7,993,746
        Administrative costs and reimbursements                               539,009            748,745            435,759
        Legal/Professional fees                                                50,962            186,724             91,625
        Other                                                                 121,541            612,698            807,883
        Management fee                                                        362,581          1,061,856          1,492,716
                                                                      ----------------    ---------------    ---------------
                                                                            7,046,711         27,939,800         38,783,129
                                                                      ----------------    ---------------    ---------------
Net income (loss) - GAAP basis                                             $ (602,674)      $ (2,210,330)      $ (2,297,964)
                                                                      ================    ===============    ===============

Taxable income (loss) from operations                                   $ (11,625,618)     $ (27,319,391)     $ (22,433,132)
                                                                      ================    ===============    ===============

Cash generated by (used in) operations (2)                                $ 4,354,020       $ 13,940,220       $ 23,899,770
Cash generated from sales                                                      54,156            636,397            406,362
Cash generated from refinancing                                                     -                  -                  -
Cash generated from other (2)                                                 195,884            501,623            685,665
                                                                      ----------------    ---------------    ---------------
                                                                            4,604,060         15,078,240         24,991,797
Less cash distributions to investors:
        From operating cash flow                                            2,484,971          8,719,731         12,475,238
        From sales                                                                  -                  -                  -
        From refinancing                                                            -                  -                  -
        From other                                                                  -                  -                  -
                                                                      ----------------    ---------------    ---------------
        Total distributions                                                 2,484,971          8,719,731         12,475,238
                                                                      ----------------    ---------------    ---------------
Cash generated (deficiency) after cash distributions                      $ 2,119,089        $ 6,358,509       $ 12,516,559
                                                                      ================    ===============    ===============

Tax and distribution data per $1,000 limited partner investment:
        Federal Income Tax Results:
           Ordinary income (loss):
             Operations                                                     $ (364.88)         $ (346.74)         $ (177.67)
             Recapture
           Capital gain (loss)

Cash distributions to investors on a GAAP basis:
        -  Investment income
        -  Return of capital                                                  $ 78.78            $ 92.53            $ 99.80
                                                                      ----------------    ---------------    ---------------
                                                                              $ 78.78            $ 92.53            $ 99.80
                                                                      ================    ===============    ===============
Sources (on a cash basis)
        Sales
        Refinancing
        Operations                                                            $ 78.78            $ 92.53            $ 99.80
        Other                                                                       -                  -                  -
                                                                      ----------------    ---------------    ---------------
        Total                                                                 $ 78.78            $ 92.53            $ 99.80
                                                                      ================    ===============    ===============

Amount invested in program equipment (cost, excluding
   acquisition fees)                                                     $ 98,036,611      $ 204,553,244      $ 206,090,008
Amount invested in program equipment (book value)                        $ 92,802,029      $ 185,510,097      $ 158,856,251
Amount remaining invested in program equipment (Cost
   of equipment owned at end of period as a percentage of
   cost of all equipment purchased by the program) (3)                    47.07%              98.21%             98.95%
</TABLE>
                         (Footnotes follow on page A-10)

                                       A-6
<PAGE>

                                    TABLE III
                       OPERATING RESULTS OF PRIOR PROGRAMS
                                  June 30, 2000
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                 ATEL Cash Distribution Fund VI
                                                                                          Period Ended
                                                                                          ------------
                                                                                   December 31,                 June 30,
                                                                                   ------------                 --------
                                                                           1998                1999               2000
                                                                           ----                ----               ----
Months of operations                                                        12                  12                 6

<S>                                                                       <C>               <C>                <C>
Gross revenue - lease and other                                          $ 35,362,991       $ 34,138,161       $ 11,753,195
              - gain (loss) on sales of assets                                786,070            262,067          4,103,425
                                                                      ----------------    ---------------    ---------------
                                                                           36,149,061         34,400,228         15,856,620

Less Operating Expenses: (1)
        Depreciation and amortization expense                              26,193,147         22,710,097          9,070,151
        Provision for losses and doubtful accounts                             97,528          5,396,281                  -
        Interest expense                                                    6,557,551          4,783,105          1,730,157
        Administrative costs and reimbursements                               427,872            397,125            214,927
        Legal/Professional fees                                                74,390             65,918             68,930
        Other                                                                 693,512            776,273            363,011
        Management fee                                                      1,394,138          1,178,105            490,528
                                                                      ----------------    ---------------    ---------------
                                                                           35,438,138         35,306,904         11,937,704
                                                                      ----------------    ---------------    ---------------
Net income (loss) - GAAP basis                                              $ 710,923         $ (906,676)       $ 3,918,916
                                                                      ================    ===============    ===============

Taxable income (loss) from operations                                    $ (3,932,316)       $ 3,551,441        $ 4,000,000 (4)
                                                                      ================    ===============    ===============

Cash generated by (used in) operations (2)                               $ 24,079,438       $ 23,773,594       $ 11,847,533
Cash generated from sales                                                   3,357,017          1,802,696         18,853,784
Cash generated from refinancing                                                     -                  -                  -
Cash generated from other (2)                                                 428,622            255,610            113,574
                                                                      ----------------    ---------------    ---------------
                                                                           27,865,077         25,831,900         30,814,891
Less cash distributions to investors:
        From operating cash flow                                           12,500,645         13,058,314          6,562,374
        From sales                                                                  -                  -                  -
        From refinancing                                                            -                  -                  -
        From other                                                                  -                  -                  -
                                                                      ----------------    ---------------    ---------------
        Total distributions                                                12,500,645         13,058,314          6,562,374
                                                                      ----------------    ---------------    ---------------
Cash generated (deficiency) after cash distributions                     $ 15,364,432       $ 12,773,586       $ 24,252,517
                                                                      ================    ===============    ===============

Tax and distribution data per $1,000 limited partner investment:
        Federal Income Tax Results:
           Ordinary income (loss):
             Operations                                                      $ (31.14)           $ 28.13            $ 31.68
             Recapture
           Capital gain (loss)

Cash distributions to investors on a GAAP basis:
        -  Investment income                                                   $ 5.63            $ (7.18)           $ 31.04
        -  Return of capital                                                    94.37             111.65              21.46
                                                                      ----------------    ---------------    ---------------
                                                                             $ 100.00           $ 104.47            $ 52.50
                                                                      ================    ===============    ===============
Sources (on a cash basis)
        Sales
        Refinancing
        Operations                                                           $ 100.00           $ 104.47            $ 52.50
        Other                                                                       -                  -                  -
                                                                      ----------------    ---------------    ---------------
        Total                                                                $ 100.00           $ 104.47            $ 52.50
                                                                      ================    ===============    ===============

Amount invested in program equipment (cost, excluding
   acquisition fees)                                                    $ 199,708,088      $ 192,691,365      $ 158,931,933
Amount invested in program equipment (book value)                       $ 129,566,007       $ 99,946,381       $ 76,012,297
Amount remaining invested in program equipment (Cost
   of equipment owned at end of period as a percentage of
   cost of all equipment purchased by the program) (3)                    95.89%              92.52%             76.31%
</TABLE>


                         (Footnotes follow on page A-10)

                                       A-7
<PAGE>

                                    TABLE III
                       OPERATING RESULTS OF PRIOR PROGRAMS
                                  June 30, 2000
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                           ATEL Capital Equipment Fund VII
                                                                                  Period Ended
                                                                        December 31,                            June 30,
                                                                        ------------                            --------
                                                         1997              1998                1999               2000
                                                         ----              ----                ----               ----
Months of operations                                      12                12                  12                 6

<S>                                                  <C>                <C>                <C>                <C>
Gross revenue - lease and other                        $ 7,370,229       $ 35,399,754       $ 38,849,918       $ 21,672,141
              - gain (loss) on sales of assets               3,752          1,795,336            784,853            250,312
                                                    ---------------   ----------------    ---------------    ---------------
                                                         7,373,981         37,195,090         39,634,771         21,922,453

Less Operating Expenses: (1)
        Depreciation and amortization expense            5,847,827         22,861,169         24,868,782         13,252,126
        Provision for losses and doubtful accounts          74,277             56,955          6,779,040                  -
        Interest expense                                   714,701          5,473,480          6,082,904          2,826,516
        Administrative costs and reimbursements            645,437          1,056,746            556,577            304,605
        Legal/Professional fees                             90,305            151,183            146,794             76,944
        Other                                              380,821            756,971          1,467,738            450,674
        Management fee                                     358,846          1,559,090          1,892,306            878,788
                                                    ---------------   ----------------    ---------------    ---------------
                                                         8,112,214         31,915,594         41,794,141         17,789,653
                                                    ---------------   ----------------    ---------------    ---------------
Net income (loss) - GAAP basis                          $ (738,233)       $ 5,279,496       $ (2,159,370)       $ 4,132,800
                                                    ===============   ================    ===============    ===============

Taxable income (loss) from operations                 $ (7,867,498)     $ (26,502,705)     $ (30,943,906)      $ 10,000,000 (4)
                                                    ===============   ================    ===============    ===============

Cash generated by (used in) operations (2)             $ 6,061,438       $ 21,650,163       $ 29,817,476       $ 14,987,725
Cash generated from sales                                  130,413          4,742,122          2,469,199          4,368,359
Cash generated from refinancing                                  -                  -                  -                  -
Cash generated from other (2)                              232,472          2,345,113          3,406,564          2,586,114
                                                    ---------------   ----------------    ---------------    ---------------
                                                         6,424,323         28,737,398         35,693,239         21,942,198
Less cash distributions to investors:
        From operating cash flow                         2,684,635          9,798,122         14,977,030          8,102,696
        From sales                                               -                  -                  -                  -
        From refinancing                                         -                  -                  -                  -
        From other                                               -                  -                  -                  -
                                                    ---------------   ----------------    ---------------    ---------------
        Total distributions                              2,684,635          9,798,122         14,977,030          8,102,696
                                                    ---------------   ----------------    ---------------    ---------------
Cash generated (deficiency) after cash distributions   $ 3,739,688       $ 18,939,276       $ 20,716,209       $ 13,839,502
                                                    ===============   ================    ===============    ===============

Tax and distribution data per $1,000 limited partner investment:
        Federal Income Tax Results:
           Ordinary income (loss):
             Operations                                  $ (230.41)         $ (228.48)         $ (190.87)           $ 61.68
             Recapture
           Capital gain (loss)

Cash distributions to investors on a GAAP basis:
        -  Investment income                               $ (5.91)           $ 45.51           $ (13.32)           $ 25.49
        -  Return of capital                                 85.33              45.81             113.19              28.54
                                                    ---------------   ----------------    ---------------    ---------------
                                                           $ 79.42            $ 91.32            $ 99.87            $ 54.03
                                                    ===============   ================    ===============    ===============
Sources (on a cash basis)
        Sales
        Refinancing
        Operations                                         $ 79.42            $ 91.32            $ 99.87            $ 54.03
        Other                                                    -                  -                  -                  -
                                                    ---------------   ----------------    ---------------    ---------------
        Total                                              $ 79.42            $ 91.32            $ 99.87            $ 54.03
                                                    ===============   ================    ===============    ===============

Amount invested in program equipment (cost,
excluding acquisition fees)                          $ 149,409,976      $ 268,896,594      $ 279,610,891      $ 270,798,357

Amount invested in program equipment (book value)    $ 101,284,861      $ 204,329,984      $ 183,993,816      $ 164,233,222
Amount remaining invested in program equipment
(Cost of equipment owned at end of period as a
percentage of cost of all equipment purchased
by the program) (3)                                          51.92%            98.38%              97.17%             94.11%
</TABLE>


                         (Footnotes follow on page A-10)

                                       A-8
<PAGE>

                                    TABLE III
                       OPERATING RESULTS OF PRIOR PROGRAMS
                                  June 30, 2000
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                       ATEL Capital Equipment Fund VIII
                                                                                 Period Ended
                                                                       December 31,          June 30,
                                                                           1999                2000
                                                                           ----                ----
Months of operations                                                        12                  6

<S>                                                                     <C>                <C>
Gross revenue - lease and other                                           $ 8,657,636       $ 13,160,539
              - gain (loss) on sales of assets                                  3,017              1,453
                                                                      ----------------    ---------------
                                                                            8,660,653         13,161,992

Less Operating Expenses: (1)
        Depreciation and amortization expense                               5,392,504         10,183,852
        Provision for losses and doubtful accounts                                  -                  -
        Interest expense                                                    1,340,804          3,310,610
        Administrative costs and reimbursements                               767,386            540,582
        Legal/Professional fees                                               155,743             40,910
        Other                                                                 121,438             66,929
        Management fee                                                        443,943            592,977
                                                                      ----------------    ---------------
                                                                            8,221,818         14,735,860
                                                                      ----------------    ---------------
Net income (loss) - GAAP basis                                              $ 438,835       $ (1,573,868)
                                                                      ================    ===============

Taxable income (loss) from operations                                   $ (13,620,427)     $ (20,000,000)(4)
                                                                      ================    ===============

Cash generated by (used in) operations (2)                                $ 5,743,245        $ 9,422,093
Cash generated from sales                                                      38,178              9,520
Cash generated from refinancing                                                     -
Cash generated from other (2)                                                 951,549            899,922
                                                                      ----------------    ---------------
                                                                            6,732,972         10,331,535
Less cash distributions to investors:
        From operating cash flow                                            2,460,684          4,117,831
        From sales                                                                  -                  -
        From refinancing                                                            -                  -
        From other                                                                  -                  -
                                                                      ----------------    ---------------
        Total distributions                                                 2,460,684          4,117,831
                                                                      ----------------    ---------------
Cash generated (deficiency) after cash distributions                      $ 4,272,288        $ 6,213,704
                                                                      ================    ===============

Tax and distribution data per $1,000 limited partner investment:
        Federal Income Tax Results:
           Ordinary income (loss):
             Operations                                                      $ (31.25)          $ (20.23)
             Recapture
           Capital gain (loss)

Cash distributions to investors on a GAAP basis:
        -  Investment income                                                   $ 1.01            $ (1.59)
        -  Return of capital                                                     5.09               6.09
                                                                      ----------------    ---------------
                                                                               $ 6.10             $ 4.50
                                                                      ================    ===============
Sources (on a cash basis)
        Sales
        Refinancing
        Operations                                                             $ 6.10             $ 4.50
        Other                                                                       -                  -
                                                                      ----------------    ---------------
        Total                                                                  $ 6.10             $ 4.50
                                                                      ================    ===============

Amount invested in program equipment (cost, excluding
   acquisition fees)                                                    $ 142,755,301      $ 179,451,848
Amount invested in program equipment (book value)                       $ 139,420,208      $ 165,514,384
Amount remaining invested in program equipment (Cost
   of equipment owned at end of period as a percentage of
   cost of all equipment purchased by the program) (3)                    70.13%              99.97%
</TABLE>


                         (Footnotes follow on page A-10)

                                       A-9

<PAGE>

FOOTNOTES:

(1) Operating  expenses include  reimbursements to the corporate general partner
as follows:

                       ATEL Cash             ATEL Capital        ATEL Capital
  Year ended          Distribution            Equipment            Equipment
 December 31,           Fund VI                Fund VII            Fund VIII
 -------------          -------                --------            ---------
             1995            $ 539,009
             1996              748,745
             1997              435,759              $ 645,437
             1998              427,872              1,056,746
             1999              397,125                556,577        $ 767,386
             2000              214,927                304,605          540,582
                  ---------------------  ---------------------  ---------------
                           $ 2,763,437            $ 2,563,365      $ 1,307,968
                  =====================  =====================  ===============

 (2) Cash  generated  by (used in)  operations  does not include  the  principal
portion  of  lease  rentals  received  under  direct  financing  leases.  In the
partnerships'  statements  of cash flows (under  generally  accepted  accounting
principles), these amounts are included in the investing activities section.

 (3) The  percentage is calculated as a fraction,  the numerator of which is the
amount  invested in program  equipment  (at cost) as of the end of the indicated
period and the  denominator of which is the cumulative  total of the cost of all
equipment acquired by the program through the end of the latest period shown.

 (4)  Estimated taxable income (loss) as of June 30, 2000.







                                      A-10
<PAGE>

                                    TABLE IV
                          RESULTS OF COMPLETED PROGRAMS
                                  June 30, 2000
                                   (Unaudited)



<TABLE>
<CAPTION>
Program name:                                                        ATEL Cash              ATEL Cash
                                                                 Distribution Fund    Distribution Fund II

<S>                                                                   <C>                   <C>
Dollar amount of equity raised                                        $ 10,000,000          $ 35,000,000

Assets purchased                                                      $ 11,133,679          $ 52,270,536

Date of Closing of Offering                                      December 18, 1987       January 3, 1990

Date of first sale of property                                         May 1, 1989          July 1, 1994

Date of final sale of property                                   December 31, 1997     December 31, 1998

Taxand  distribution data per $1,000 limited partner investment through December
31, 1999:
         Federal Income Tax Results:
            Ordinary income (loss):
              Operations                                                  $ 192.40              $ 154.95
              Recapture
            Capital gain (loss)

Cash distributions to investors on a GAAP basis:
         -  Investment income                                             $ 244.89              $ 335.43
         -  Return of capital                                               876.14                887.20
                                                                -------------------  --------------------
                                                                          1,121.03              1,222.63
Cash available for distribution, reinvested for
     investors' accounts                                                     89.05                 48.75
                                                                -------------------  --------------------
Total                                                                   $ 1,210.08            $ 1,271.38
                                                                ===================  ====================

Sources (on a cash basis):
         Sales                                                            $ 136.03              $ 159.92
         Refinancing
         Operations                                                         969.59                987.33
         Other                                                              104.46                124.13
                                                                -------------------  --------------------
         Total                                                          $ 1,210.08            $ 1,271.38
                                                                ===================  ====================
</TABLE>














                                      A-11
<PAGE>
                                     TABLE V
                            ACQUISITION OF EQUIPMENT
                                BY PRIOR PROGRAMS

The  following is a summary of Equipment  acquisitions  and Lessees by the three
most recent  prior  publicly-registered  programs  sponsored  by ATEL  Financial
Corporation  and its  affiliates.  Information  concerning  the prior  programs'
Equipment acquisition is current through August 31, 2000.


<TABLE>
<CAPTION>
                                                                                                                               Lease
                                                                    Commence      Acquisition   Acquisition   Percent    Lease  Type
Lessee                         Notes  Equipment Type              Date(s) (1)       Cost (2)     Fees (3)   Leverage(4) Term (5) (6)
------                         -----  --------------              -----------       --------     --------   ----------- -------- ---

ATEL Cash Distribution Fund VI

<S>                            <C>    <C>                        <C>              <C>           <C>          <C>     <C>      <C>
A T & T Communications, Inc.     7    Printers                   Aug-95 to Nov-95  $ 1,578,500     $ 46,200               36    OL
A T & T Communications, Inc.     7    Printers                   Jul-96 to Dec-96    1,171,302       17,192               34    OL
A T & T Communications, Inc.     7    Printers                        Nov-97           912,252                       28 - 32    OL
A T & T Communications, Inc.     7    Printers                   Jun-96 to Jul-96      540,181       15,752          28 - 34    OL
American President Trucking      8    Tractors and trailers           Nov-95           759,092       22,773  30.18%     8       OL
   Company, Ltd.
Applied Magnetics Corporation         Manufacturing              Sep-96 to Oct-96    7,435,380      223,061  71.50%     60     OL/FP
Applied Magnetics Corporation         Sputter                         Jul-96         3,274,642       98,239  78.86%     60      FP
Armco, Inc.                           Link-Belt Scrapmaster           Oct-95           388,993       11,670             36      OL
Armco, Inc.                           Data processing                 Nov-95            67,829        2,035             37      FP
Armco, Inc.                           Office Automation               Jul-96           109,416        3,282             30      FP
Armco, Inc.                           Office Automation               Jan-97            60,655                          72      FP
AT&L Railroad Company            9    Covered Hopper Rail Cars        Apr-96            35,263        1,050             12      FP
Atchison, Topeka & Santa         10   Containers                 Oct-94 to Jan-95    9,196,811      298,896  60.53%     84      OL
   Fe Railroad Company
ATS Automation Tooling           11   Machine Tools              Apr-96 to Oct-96      379,551       77,093             60      FP
   Systems, Inc.
ATS Automation Tooling           11   Machine Center             Oct-96 to Jan-97      330,901        3,513             60      FP
   Systems, Inc.
BJ's Wholesale Club              12   Materials Handling              Jul-95           931,635       30,278             63      OL
Burlington Northern Railroad   9, 13  Covered Hopper Rail Cars        Apr-96        13,223,438      396,703             21      FP
Canadian Pacific Limited         9    Covered Hopper Rail Cars        Apr-96         2,433,113       72,450             13      FP
Cargill, Inc.                    9    Covered Hopper Rail Cars        Apr-96           352,625       10,500             36      FP
Certified Grocers of                  Materials Handling              Oct-96           637,702       19,131             60      OL
   California
CF Industries, Inc.              9    Covered Hopper Rail Cars        Apr-96           705,250       21,000             12      FP
Chrysler Corporation                  Materials Handling         Feb-96 to Jul-96    1,749,200       52,476  69.99%  53 - 60    OL
Chrysler Corporation                  Materials Handling         Mar-95 to Dec-95    5,925,384      184,233  66.83%     60      OL
Chrysler Corporation                  Materials Handling         May-96 to Oct-96    2,419,598       69,832  69.93%  52 - 60   OL/FP
Consolidated Rail                     Locomotives                     Sep-95        22,353,332      668,372  57.02%     60      OL
   Corporation
Consolidated Rail                     Intermodal Container            Jan-96         2,502,750       75,083             60      OL
   Corporation                           Chassis
Coors Transportation Company     14   Refrigerated Trailers           Nov-95           797,704       23,931  47.35%     21      OL
Fairmont Homes, Inc.                  Materials Handling              Apr-96           644,565       19,337             60      OL
Federal Paper Board Company           Materials Handling         Apr-96 to Jun-96    1,740,861       52,226  70.43%  36 - 60    OL
Federal Paper Board Company           Materials Handling         Jul-95 to Jan-96    5,401,765      166,124  57.05%  36 - 84   OL/FP
General Electric Company -            Office Filing System            Jan-97           101,685                          60      FP
   Aircraft Engines
General Motors Corporation            Manufacturing Equipment         Jul-95           652,232       19,567             36      OL
Gerber Products Company               Materials Handling              Oct-96           197,035        5,911             60      FP
Hastings Leasing Limited         15   Trucks & Miscellaneous          Aug-96        20,242,332      607,270  90.58%     80      FP
Illinois Central Railroad        9    Covered Hopper Rail Cars        Apr-96         1,692,600       50,400          12 - 40    FP
   Company
IMC Fertilizer, Inc.                  Rail Tank Cars                  Sep-95         1,266,374       37,991             27      OL
Mobil Oil Corporation                 Tractor                         Jul-96            78,327        2,350             36      OL


                                      A-12

<PAGE>

Mobil Oil Corporation                 Materials Handling              Oct-96           185,726        5,256             36      OL
Mobil Oil Corporation                 Hydraulic Crane                 Oct-96           160,773        4,823             84      OL
Mobil Oil Corporation            16   Liquid Petroleum           Jan-96 to Feb-96   16,110,807      483,324  75.44%    240      FP
                                         Tank Cars
Montana Rail Link, Inc.          9    Covered Hopper Rail Cars        Apr-96         1,198,925       35,700             12      FP
Nabisco, Inc.                         Office Automation               Apr-95           709,572       23,061             36      OL
National Steel Corporation            Hydraulic Shovels               Jul-96         6,245,062      187,352  69.96%     60      OL
National Steel Corporation            Steel Yard Equipemt             Jan-97           948,705       14,543          48 - 60   OL/FP
National Steel Corporation            Steel Yard Equipemt             Oct-96           338,674       10,160  75.58%     60      FP
National Steel Corporation            Wheel Loaders &            Jan-96 to Apr-96    4,710,131      141,304  59.68%  36 - 90   OL/FP
                                         Forklifts
National Steel Corporation            Materials Handling,        Jul-95 to Oct-95    1,525,887       49,517  66.05%  60 - 90   OL/FP
                                         Tractors & Trailers
National Steel Corporation            Cranes & Loaders           Jul-96 to Oct-96    1,099,210       32,976  72.33%  36 - 84   OL/FP
NEC Electronics, Inc.            17   Manufacturing                   Jan-96        18,320,603               66.67%     51     OL/FP
NVR, Inc.                             Roof Truss Assembly             Jul-96            78,484        2,355             84      FP
Omnicom Group, Inc.              18   Office Automation          Apr-95 to Oct-95    2,232,559       68,290          36 - 60   OL/FP
Omnicom Group, Inc.              18   Television Production      Jul-96 to Oct-96    1,080,056        4,819             48      FP
                                         Equipment
Overnite Transportation               Tractors                        Apr-96         2,140,643       62,961             36      OL
   Company
Peerless Eagle Coal              19   Haul Trucks &                   Jul-95         5,184,875      168,508  59.29%     48      OL
   Company                               Construction
Perdue Transportation            20   Freightliner Tractors           Nov-95           536,740       16,102  62.74%     24      OL
   Incorporated
Quaker Coal Company                   Wheel Loaders, Drill            Jan-96         3,298,935       98,968             48      FP
                                         & Grader
Quantum Restaurant               21   Restaurant Furniture &          Oct-96           253,676        7,610             60      FP
   Group, Inc.                           Fixtures
Quantum Restaurant               21   POS System                      Nov-96            33,815                          60      FP
   Group, Inc.
Sebastiani Vineyards, Inc.            Bottle Labeler                  Feb-96           317,520        9,526             60      OL
Signature Flight Support              Fuel Trucks                     Jan-97         1,085,000               85.01%  96 - 132   FP
   Corporation
Soo Line Railroad Company        9    Covered Hopper Rail Cars        Apr-96         2,256,800       67,200             12      FP
Tarmac America, Inc.             22   Dragline                        Jul-96         1,441,764       43,253             84      FP
Tarmac America, Inc.             22   Concrete Mixer Trucks      Jul-96 to Sep-96    4,787,890      143,637             96      FP
Tarmac America, Inc.             22   Construction Equipment     Oct-94 to Nov-94    3,114,870      101,233  71.69%     97      FP
TASC, Inc.                            Office Automation          Jan-96 to Jul-96    1,018,030       30,542             36      FP
TASC, Inc.                            Office Automation          May-95 to Oct-95    1,567,339       50,413          18 - 36   OL/FP
TASC, Inc.                            OfficeAutomation           Oct-96 to Jul-97    2,654,244       11,629             36      FP
Trans Ocean Container            23   Intermodal Containers           Jan-96         9,995,127      299,854            120      FP
   Corporation
Tyson Foods, Inc.                     Office Automation               Jun-95           563,411       18,311             24      OL
Xerox Corporation                     Binding & Finishing        Feb-95 to Jun-95      646,466       19,981             48      OL
                                         Equipment
Xerox Corporation                     Materials Handling         May-95 to Aug-95      144,527        4,456             44      OL
                                                                                 -------------- ------------
              ATEL Cash Distribution Fund VI total:                               $208,277,121  $ 5,623,585
                                                                                 ============== ============


ATEL Capital Equipment Fund VII

A.P.Moller (Maersk)              24   Intermodal Containers           Jan-98       $ 2,280,100                          52      OL
Alliant Techsystems, Inc.             Semiconductor  Equipment        Jan-98           138,505                        8 - 16    OL
Anchor Glass Container                Office Automation               Jan-98           404,995                          18      FP
   Corporation
Anchor Glass Container                Glass Packaging                 Jan-98           371,282               33.52%   3 - 6     OL
   Corporation                           Equipment
Anna Offshore Inc.               10   Offshore supply vessels         Apr-98        15,000,000                          36      OL
Applied Magnetics Corporation         Manufacturing Equipment         Jul-97         4,152,810               85.33%     60      FP
Applied Magnetics Corporation         Wafer Fabrication          Dec 97 - Jan 98     7,975,841                       60 - 63    FP
                                         Equipment
Archer Daniels Midland           25   Rail Tank Cars                  Jan-98            42,875                          6       OP
   Company
Arkansas Electric                     Surface Mining                  Jan-99         7,933,630                          66      OL
   Cooperatives


                                      A-13

<PAGE>

Atmel Corporation                     Semiconductor                   Jan-98         4,114,596                          96      FP
                                         Manufacturing
                                         Equipment
Avon Products, Inc.                   Office Automation               Jan-98            29,415                          17      FP
Blue Star Line Ltd.              24   Intermodal Containers           Jan-98         3,573,462                          60      OL
Burlington Northern & Santa           Ge B39-8 Diesel Electric        Jul-98        16,362,000                          36      OL
   Fe Railroad                           Locomotives
Burlington Northern & Santa           Containers                      Oct-98         9,280,000                          84      OL
   Fe Railroad
Burlington Northern Railroad   26, 27 GE Locomotives                  Dec-96         5,010,960                          13      OL
   Company
Cargill, Inc.                         Covered Hopper Railcar          Sep-98         2,708,564                          88      FP
Cargill, Inc.                         Covered Hopper Railcar          Sep-98         1,173,946                          28      FP
Cargill, Inc.                    9    Covered Hopper Railcars         Jan-97         6,534,000                          72      FP
Certified Grocers of                  Forklifts                       Jan-99            41,025                          60      OL
   California, Ltd.
Certified Grocers of                  Forklifts                       Jul-98           810,792                          60      OL
   California, Ltd.
Chrysler Corporation                  Material Handling          Oct 96 - Dec 96       982,293                          60     OL/HP
                                         Equipment
Columbus & Greenville            9    Boxcars                         Jan-97           667,000                          16      FP
   Railway Company
Consolidated Diesel Company           Copiers                         Jan-98            15,697                       10 - 13    FP
Consolidated Diesel Company           Machine Tools                   Jan-98            15,161                          14      OL
Consolidated Rail Corporation         Intermodal Containers      Sep 97 - Nov 97     3,314,000                          84      HP
                                         & Chassis
Costain Coal, Inc.                    Euclid Hual Trucks              Jan-98           805,181               58.22%     12      OL
Crowley Foods, Inc.                   Bag In Box Filler & Line        Sep-98           330,496                          60      OL
Crowley Foods, Inc.                   Materials Handling         Sep-98 to Oct-98       82,313                          36      OL
                                         Equipment
CVS Pharmacy, Inc.                    Phone Systems                   Jan-99         3,281,762                          60      FP
CVS Pharmacy, Inc.                    Materials Handling              Jun-99         1,152,971                          60      FP
                                         Equipment
CVS Pharmacy, Inc.                    Tractors and                    Jan-00         3,235,939                          84      FP
                                         Semi-Trailers
Danskin, Inc.                         Textile Manufacturing           Jan-98           255,718                        6 - 15    OL
                                         Equipment
Dole Fresh Fruit Company         24   Intermodal Containers           Jan-98         3,876,170                          44      OL
Empire Blue Cross and                 Office Furniture and            Jan-98           696,766                          27      FP
   Blue Shield                           Fixtures
Exel Logistics, Inc.                  Tractors and                    Jan-98           133,947                          3       OL
                                         Semi-Trailers
Far Eastern Shipping Company     24   Intermodal Containers           Jan-98         2,257,299                          75      HP
Farmland Hydro, L.P.             25   Rail Tank Cars                  Jan-98           370,808                          16      OL
Federal Paperboard Company       28   Rail Log Cars                   Oct-97         5,624,724                          51      OL
First Union Rail Corporation   25, 29 Rail Tank Cars                   N/A             478,836                         N/A      N/A
General American                      Various Tank /                  Jan-99         8,368,524                          84      OL
                                         Hopper Cars
   Transportation Company
General Electric Company /            Sun Enterprise SVR              Aug-98           308,343                          36      OL
   General Electric                      Stations
   Aircraft Engines
General Electric Company /            Measuring Equipment        Jun-98 to Aug-98      437,000                          84      FP
   General Electric
   Aircraft Engines
General Electric Company /            Machining Centers          Aug-98 to Nov-98      212,660                          60      OL
   General Electric
   Aircraft Engines
General Electric Company /            Machining Centers          Aug-98 to Sep-99    4,217,521                          84    OL /FP
   General Electric
   Aircraft Engines
General Electric Company /            Blow Molding Machine            Jan-97           906,370                          24      OL
   General Electric Plastics
General Electric Company /            Spectrometers                   Mar-97           306,545                          60      FP
   General Electric Plastics
General Electric Company /            Trackmobile Railcar             Mar-97           166,602                          60      OL
   General Electric Plastics             Mover
General Motors Corporation -          Forklifts                       Jan-98           352,520                          17      OL
   GM Powertrain Group
Grand Trunk Western              30   Remanufactured High             Jan-98         3,342,139               56.64%     24      OL
   Railroad Incorporated                 Cube Boxcars


                                      A-14

<PAGE>

Great Salt Lake Minerals         25   Rail Tank Cars                  Jan-98           481,261                          7       OL
   Corporation
Hallsmith-Sysco Food                  1999 Volvo WG42T Tractor        Aug-98           274,485                          84      FP
   Services, a division
   of Sysco Corporation
Hallsmith-Sysco Food                  1999 Trailmobile                Nov-98         1,054,033                          96      FP
   Services, a division                  Refrigerated Trailers
   of Sysco Corporation
Hallsmith-Sysco Food                  Volvo Tractors                  Apr-98           823,455                          84      FP
   Services, a division
   of Sysco Corporation
Hallsmith-Sysco Food                  Trailmobile                     May-98         1,209,055                          96      FP
   Services, a division                  Refrigerated Trailers
   of Sysco Corporation
Hambros Vendor Leasing           31   Vehicles & Sanitation           Sep-97         5,381,076               78.56%  30 - 66    FP
    Limited                              Trucks
Hartz Foods, Inc.                     Refrigeration Units             Jan-98            18,422                          9       FP
Hastings Leasing Limited         32   Trucks & Miscellaneous          Oct-97        28,811,289               88.85%  29 - 113   FP
Hastings Leasing Limited         32   Medical Equipment               Oct-97         8,014,488               91.66%  25 - 81    FP
Henry General Hospital                Hematology Analyzers            Jan-98           185,700                          41      FP
                                         & Upgrades
Hughes Network Systems, Inc.          Remote Communication            Jan-98            97,237               54.61%   6 - 9     OL
                                         Device
Hyplains Beef,  L.C.                  Racking and Conveyor            Jan-98         1,235,019                          10      OL
                                         Equipment
IBM Corporation                       Stereolithography               Jan-98            30,026                          7       OL
                                         Apparatus
Illinois Central Railroad        9    Boxcars                         Jan-97         1,610,000                          36      FP
   Company
International Paper Company           Trackmobile Railcar             Jan-97           248,952                          60      OL
                                         Mover
International Paper Company           Knuckle Boom Loader             Feb-97           213,095                          72      FP
International Paper Company           CAT Wheel Loaders          Jan 97 - Feb 97       417,700                          48      HP
International Paper Company           Hydraulic Excavator,       Jun 97 - Jul 97       539,438                          60      OL
                                         Lift Trucks, Loader
International Paper Company           Knuckle Boom/              Sep 97 - Oct 97       926,964               2.84%   48 - 60   OL/HP
                                        Wheel Loaders
International Rectifier               Wafer Fabrication               Jan-98           589,829               8.45%    1 - 9     OL
   Corporation                           Equipment
Ispat Inland Inc.                     Shovel and Coal Carriers        Jan-00         3,839,698                          60     HP/FP
ITO Corporation                       Forklifts                       Jan-98           240,488                       15 - 31    FP
Kawasaki Kisen Kaisha,           24   Intermodal Containers           Jan-98         2,614,728                          52      OL
   Ltd.(K-Line)
Koppers Industries, Inc.         25   Rail Tank Car                   Jan-98             5,400                          6       OL
Kraft Foods, Inc.                     Office Furniture/Fixtures  Jul-98 to Dec-98    1,228,432                       71 - 84    FP
Kraft Foods, Inc.                     Phone System               Nov-97 to Sep-98    1,128,179                       53 - 60    FP
Kraft Foods, Inc.                     Steelcase Office           Nov 97 - Dec 98     1,176,869                       71 - 84    FP
                                         Furniture & Fixtures
Louisiana Workers'                    Office Automation               Jan-98             2,199                          1       OL
   Compensation Corporation
Maxtor Corporation               33   Electronic Test Equipment       Sep-97           533,698                          36      HP
Maxtor Corporation               33   Computer Equipment              Jan-98           241,310                          6       OL
McDonnell Douglas Helicopter          Lift Trucks                     Apr-98            96,510                          60      OL
   Company
Midland Enterprises, Inc.        11   Jumbo Hopper Barges             Dec-98         4,941,229                       25 - 49    OL
Minteq International, Inc.            Geotronics Laser           Jan 97 - Mar 97       689,350                          36      HP
                                         Measuring Machine
Minteq International, Inc.            Geotronics Laser           Sep 97 - Jan 98     1,019,585                          36      HP
                                         Measuring Machines
Mobil Business Resources         34   Helicopters                     Nov-96         1,650,000                          36      OL
   Corporation
Mobil Business Resources         34   Helicopter                      Oct-97         1,160,000                          36      OL
   Corporation
Mobil Oil Corporation                 Wheel Loader                    Jan-98            92,773                          36      OL
National Steel Corporation            Haul Trucks/Loader/Dozer   Oct-98 to Jan-99    7,735,693                          60      OL
National Steel Corporation            CAT Dozer Tractors              Apr-97           734,730               75.36%     60      HP
National Steel Corporation            CAT Dozer, Loaders              Jul-97         3,666,101                          60      OL
National Steel Corporation            Motor Grader & Front            Oct-97         1,747,828                          60      HP
                                         End Loader
National Steel Corporation            Crane & Wheel Loader            Jan-98           861,344                          48      OL
National Steel Corporation            Omega Forklift & Loaders        Apr-98         1,286,210                          60      HP


                                      A-15

<PAGE>

Nippon Yusen Kaisha  Ltd.        24   Intermodal Containers           Jan-98         8,715,760                          96      FP
   (N.Y.K.Line)
North American Chemical               Mini Mag - Flow Meters          Jan-98            18,809                          5       FP
   Company
NVR, Inc.                             Home Manufacturing              Nov-97           137,921                          84      FP
                                         Equipment
NVR, Inc.                             Home Manufacturing              Oct-98           370,348                          84      FP
                                         Equipment
NVR, Inc.                             Tee-Lok Roller             Aug 97 - Oct 97       591,046                          84      FP
                                         Gantry Systems
Omnicom Group, Inc.              18   Office Furniture                Jul-97            20,292                          60      FP
Omnicom Group, Inc.              18   Office Furniture                Jan-98         1,007,401                          60      FP
Omnicom Group, Inc.              18   Office Furniture                Jul-98           123,277                          60      FP
PCS Phosphate Company, Inc.      25   Rail Tank Cars                  Jan-98           175,000                          25      OL
Pentagon Systems, Inc.                SMT-1200C Surface Mount         Jan-98           106,842                          35      FP
                                         Placement System
Pioneer Chlor Alkali Company     25   Rail Tank Cars                  Jan-98         1,614,144                       15 - 60   OL/HP
PlasmaQuest , Inc.                    Office Automation               Jan-98             6,406                          8       FP
PVS Technologies, Inc.           25   Rail Tank Cars                  Jan-98           672,388                        6 - 24    OL
Railcar, Ltd.                         Gondola and Hopper              Nov-98         4,550,304                         120      OL
                                         Railcars
Ralphs Grocery Company                Forklifts                       Jan-98           275,385               8.49%    2 - 17    FP
Riceland Foods, Inc.             25   Rail Tank Cars                  Jan-98           130,032                          4       OL
Rose Acres Farms, Inc.                Food Processing Equipment       Jan-98           185,461               62.96%     16      OL
Sarif, Inc.                           Wafer Fabrication               Jan-98           224,702                          23      FP
                                         Equipment
Seaboard Commodity Trading       25   Rail Tank Cars                  Jan-98           525,618                        6 - 22    OL
   Company
Sebastiani Vineyards, Inc.            Wine Barrels                    Jan-98           872,061                       36 - 60   HP/FP
Sebastiani Vineyards, Inc.            Wine Barrels                    Jul-98           201,470                          36      HP
Sematec, Inc.                         Manufacturing Equipment         Oct-97         1,303,600                          36      HP
Sematec, Inc.                         Manufacturing Equipment         Jul-98         2,400,000                          36      OL
Sematech, Inc.                        Novellus Inova Pvd System       Feb-99         3,500,000                          36      FP
Sierra Pacific Power             28   Coal Hopper Rail Cars           Dec-97         2,600,000                          67      OL
   Company & Idaho Power
   Company
Signature Flight Support              Rampmaster Fuel Truck           Oct-98           320,700                          96      FP
   Corporation
Signature Flight Support              Fuel Trucks                     Apr-97           760,000               89.01%    132      FP
   Corporation
Signature Flight Support              Fuel Trucks                     Jan-98           620,000               72.64%  96 - 132   FP
   Corporation
Signature Flight Support              Fuel Truck & Deicer             Apr-98           518,997               78.24%     96      FP
   Corporation
Signature Flight Support              Isuzu Trucks                    Jul-98           722,275               78.53%     60      HP
   Corporation
Signature Flight Support              Isuzu Trucks                    Oct-99            29,409                          60      HP
   Corporation
Sisseton Milbank                 9    Covered Hopper Railcars         Jan-97           330,000                          36      FP
   Railroad, Inc.
Smitty's Super Valu, Inc.             Furniture and Fixtures          Jan-98           451,861                          3       OL
Sony Pictures                         Sony Monitors                   Mar-98         1,278,900                          36      OL
   Entertainment, Inc.
Sony Pictures                         Cybex / Tectrix Fitness         Jan-99            83,642                          48      OL
   Entertainment,Inc.                    Equipment
Sony Pictures                         Laserjet Printers &             Dec-98            78,820                          36      OL
   Entertainment,Inc.                    Equipment
Southern Illinois Railcar Co.    9    Covered Hopper Railcars         Jan-97           462,000                          48      FP
Southern Pacific                      Locomotives                     Jan-98           397,658                          9       OL
   Transportation Company
Southwest Health Centre, Inc.         Siemens Mammographic            Jan-98            13,000                          1       OL
                                         System
Stater Brothers Markets               Furniture and Fixtures          Jan-98            13,643                          2       FP
Tarmac America, Inc.  /          22   CAT / Michigan Loaders          Apr-97           350,000                          18      OL
   Tarmac Mid Atlantic, Inc.
Tarmac Minerals. Inc.            22   Steel Deck Barges               Jan-98         7,335,250                          60      OL
TASC, Inc.                            Office Automation               Apr-98         1,143,297                          36      HP
TASC, Inc.                            Office Automation               Jul-98           952,230                          36      FP
TASC, Inc.                            Office Automation          Oct 97 - Jan 98     1,169,828                          36     HP/FP
TASC, Inc.                            Office Automation               Oct-98           581,810                          36      HP
TASC, Inc.                            Office Automation               Jan-99           555,260                          36      HP

                                      A-16

<PAGE>

TASC, Inc.                            Office Automation               Apr-99         1,122,413                          36      HP
The Pittston Company                  Cat D11R Crawler Tractors  Oct-98 to Dec-98    2,849,558                       48 - 60    OL
Thompson Pipe & Steel Company         Phone System, Furniture         Jan-98            31,918                          1       OL
                                         and Fixtures
Thomson Saginaw Ball                  Machine Tools                   Jan-98           488,918                          16      OL
   Screw Company
Triad International                   Aircraft Access and             Jan-98           954,125               36.77%     3       OL
   Maintenance Corporation               Ground Support
                                         Equipment
Ultrabeam Lithography, Inc.      35   Manufacturing                   Feb-99           830,770                          48      FP
Ultrabeam Lithography, Inc.      35   Manufacturing Equipment         May-98           167,220                          48      HP
Ultrabeam Lithography, Inc.      35   Manufacturing Equipment         Aug-98           361,634                          48      HP
Ultrabeam Lithography, Inc.      35   Technical Instrument            Dec-97           269,888                          48      HP
                                         Confocal Metrology
                                         System
United States Surgical                Assorted Manufacturing          Jul-98         3,747,760                         120      FP
   Corporation                           Equipment
Universal City Florida                Office Automation          Oct-98 to Apr-99    1,665,120                          36      OL
   Partners
Wagner College                        Desktop PCs                     Jan-98            91,951                        7 - 9     OL
Wayne Farms,  a division of           Food Processing Equipment       Jan-98            64,686                          12      OL
   Continental Grain Company
Wisconsin Packing                     Forklifts                       Jan-98            91,850                          25      HP
   Company, Inc.
Xerox Corporation                     FPD Inspection System           Jan-98         3,521,046                          60      HP
                                                                                 -------------- ------------
                  ATEL Capital Equipment Fund VII total:                          $287,743,685          $ -
                                                                                 ============== ============

ATEL Capital Equipment Fund VIII

American Oncologic                    MRI Scanner                     Jul-00       $ 1,871,181                          60      FP
   Hospital, Inc.
BJ's Wholesale Club, Inc.             Forklifts                       Apr-99           594,748                          60      HP
Burlington Northern and               Tri-level Auto Racks            Sep-99         1,741,739                          40      OL
   Santa Fe Railroad
Burlington Northern and               Locomotives                     Dec-99        11,750,000                          19      OL
   Santa Fe Railroad
Consolidated Diesel Company           Telephone System                Feb-99           406,030                          55      HP
Consolidated Rail Corporation         Railroad Gondolas and           Jan-00        12,922,864               23.79%     36      OL
                                         Ballast Cars
CSX Transportation, Inc.              Rail Boxcars                    Sep-99         6,782,075                          15      OL
CVS Corporation                       Telecommunications         Oct-99 to Oct-00    1,874,614                          60      HP
CVS Corporation                       Materials Handling         Apr-00 to Oct-00    2,359,038                          60    HP/FP
CVS Corporation                       Inventory Control               Oct-00           207,987                          36      HP
E. I. duPont de                       Lathe                           Jul-00           324,805                          72      FP
   Nemours & Company
Emery Worldwide Airlines              Aviation                        Nov-99         5,725,300                          32      OL
Emery Worldwide Airlines              Aviation                        Jul-00         7,203,037                          54      OL
Finnair OYJ                           Aviation                        Dec-99        15,448,037               26.54%     50      OL
General Electric Company         36   Machine Tools              Mar-99 to Oct-00   16,666,891                          84  OL/FP/HP
General Electric Company         36   Radiographic Inspection    Sep-99 to Jan-00      225,876                          84      HP
                                         Facility
General Electric Company         36   Other manufacturing        Oct-99 to Jul-00      882,964                          84      FP
General Electric Company         36   Materials Handling         Jan-00 to Aug-00      168,951                       36 - 60    OL
General Electric Company         37   Injection Molding               Oct-00         1,174,834                          36      OL
General Electric Company         37   Extruder systems                Oct-00           250,879                          60      OL
General Electric Company         37   Extruder systems                May-99           281,595                          60      OL
Georgia Gulf Corporation              Quad Hopper Cars                Sep-99         1,416,678                          58      OL
Great American Management             Rail Boxcars                    Oct-99         3,627,223                          30      OL
   Services, Inc.
IMC-Agrico Company                    Storage Facility                Jun-00         6,712,090                          78      OL
Ispat Inland Inc.                     Coil Carriers                   May-00           867,000                          60      OL
Lafarge Gypsum                        Forklifts                       Oct-00           766,805                          36      OL
Minteq International, Inc.            Laser Profiling System          Nov-99           303,211                          36      HP
National Gypsum Company               CAT Loaders / Dozers            Jul-00         1,147,259                          36      OL
National Steel Corporation            CAT Loaders                     Jan-00         1,135,900                          36      OL
NVR, Inc.                             Home Manufacturing              Aug-99           193,414                          84      FP
Omnicom Group, Inc.              38   Office Automation               Oct-98         1,749,913                          36      HP


                                      A-17

<PAGE>

Omnicom Group, Inc.              38   Office Furniture                Oct-98           321,976                          60      FP
Overnite Transportation               Conventional Tractors      Apr-99 to Oct-00   15,066,231                          48      OL
   Company
Overnite Transporattion               Trailers                        Jul-00         2,054,380                          96      FP
   Company
Seamex International, Ltd.     39, 40 Tug Supply Vessel               Dec-98         3,952,500                          44      OL
Sebastiani Vineyards, Inc.            Bottle Filler                   Jan-00           365,913                          84      FP
Sematech, Inc.                        Manufacturing Equipment         Apr-00         1,230,000                          36      OL
Solectron Corporation                 Chip Placers                    Sep-99         1,496,388                          48      OL
Solectron Corporation                 Chip Placers                    Dec-99        15,366,268                          48      OL
Solectron Corporation                 Fuji QP Module                  Jun-00            92,228                          45      OL
Southwest Airlines Company       29   Boeing 737 Aircraft             Mar-99         3,238,500                          50      OL
Staples, Inc.                         Point of sale                   Jan-99         2,410,939                          60      FP
Staples, Inc.                         Point of sale                   Apr-99           681,910                          60      FP
Staples, Inc.                         Point of sale                   May-99           204,571                          60      FP
Staples, Inc.                         Forklifts                       May-99           101,480                          48      OL
Staples, Inc.                         Point of sale                   Sep-99           511,079                          60      OL
Staples, Inc.                         Materials Handling              Oct-99            68,030                          48      OL
Stewart & Stevenson                   Gas Compressors            Jul-99 to Oct-99   10,781,578                       78 - 84    HP
   Services, Inc.
Sysco Food Services Albany            Refrigerated Trailers      Sep-99 to Jun-00    1,499,820                          96      FP
Sysco Food Services Albany            Tractors                        Aug-00           935,378                          84      FP
TASC, Inc.                            Office Automation               Jul-99           494,787                          36      FP
TASC, Inc.                            Office Automation               Oct-99           675,132                          36      FP
Transamerica Leasing, Inc.       41   Intermodal Containers           Dec-98        21,250,000                         120      FP
Union Pacific                         Fixed-end Gondola Cars          Dec-99         5,021,142                          72      OL
   Railroad Company
Universal City Development            Point of sale                   Apr-99           668,474                          60      FP
   Partners
Universal City Florida                Hotel Laundry                   Sep-99         3,882,462                          84      FP
   Hotel Venture
Universal City Florida                Office Automation          Jul-99 to Jul-00    1,271,203                          36      HP
   Partners
Whirlpool Corporation                 Gantry Crane                    Jan-99            72,763                          60      OL
Williams Distributed Power       42   Micro Turbine Systems      Jan-00 to Oct-00    2,482,562                          60      HP
   Services, Inc.
Xerox Corporation                     Materials Handling         Dec-98 to Dec-99      582,626                          44      OL
                                                                                 -------------- ------------
                  ATEL Capital Equipment Fund VIII total:                         $203,563,258          $ -
                                                                                 ============== ============

                                      TOTAL OF ALL FUNDS:                         $699,584,064  $ 5,623,585
                                                                                 ============== ============
</TABLE>


                                      A-18

<PAGE>

                   TABLE V ACQUISITION OF EQUIPMENT FOOTNOTES

(1) In many cases, a Lease transaction is funded over a period of time according
to the Lessee's requirements.  Therefore  "Commencement Date (s)" expressed as a
range represents multiple  commencement dates occurring or anticipated under the
same Lease line.

(2) "Acquisition  Cost" includes either amounts committed to Lessees for funding
by the program,  or the actual Equipment  acquisition cost, less any Acquisition
Fees. All figures are rounded.

(3) "Acquisition Fees" include fees accrued by the program as of the Preparation
Date. For partially  funded Lease lines,  additional fees may be expended by the
program for future acquisitions made pursuant to the terms of the Lease.

(4) "Percent  Leverage"  represents the percent ratio of the original  principal
amount of the debt acquired or assumed by the program,  to the Acquisition  Cost
of the  Equipment.  The  Equipment  may be  "leveraged"  (where a portion of the
Equipment Acquisition Cost is financed using non-recourse debt financing) at the
time of, or  subsequent  to, the  acquisition  of the  Equipment by the program.
Therefore,  actual leverage ratios may be more or less than indicated due to the
timing of the  acquisition of the Equipment in relation to the  amortization  of
the principal amounts of the debt.

(5) "Lease Term" is expressed in terms of months, although the actual Lease Term
may be expressed as monthly, quarterly, semiannual or annual.

(6) A designation  of "FP"  indicates  that the  aggregate  rents to be received
during  the  Lease  Term  exceed  or are  equal to the  Acquisition  Cost of the
Equipment.  A designation  of "OL"  indicates  that the aggregate  rentals to be
received during the Lease Term are less than the Acquisition Cost. A designation
of "HP" indicates that the aggregate  rents to be received during the Lease Term
exceed or are equal to 90% of the Acquisition Cost of the Equipment.

(7)  Subject  to a  remarketing/residual  sharing  agreement  with  AT&T  Credit
Corporation.

(8) Guaranteed by American President Companies.

(9)  Equipment  is  subject  to a full  payout  management  agreement  with MRXX
Corporation.

(10) Title to the equipment is held by a special  purpose  limited  partnership.
The General  Partner  and/or an affiliate is the General  Partner of the limited
partnership.  The Fund owns a divisable interest in the equipment,  as well as a
substantially  identical  vessel.  Interst in a third vessel held by the limited
partnership  has been  acquired  by an  investor  under a program  managed by an
affiliate  of the  Fund.  The Fund has a  controlling  interest  in the  limited
partnership.

(11) Title to the equipment is held by a special  purpose  limited  partnership.
The General  Partner  and/or an affiliate is the General  Partner of the limited
partnership.  The Fund owns a divisable  interest in the  equipment.  Interst in
additional  vessels  held by the  limited  partnership  has been  acquired by an
investor  under a program  managed by an affiliate  of the Fund.  The Fund has a
controlling interest in the limited partnership.

(12) A division of Waban, Inc.

(13) Equipment located in Canada.

(14) Guaranteed by Adolf Coors Company.



                                      A-19

<PAGE>

(15) The  end-users of the Equipment  are various  governmental  entities in the
United Kingdom.

(16) The equipment  and lease is held in a trust.  The Fund is the sole owner of
the beneficial interest in the trust.

(17) Guaranteed by NEC Corporation.

(18) Guaranteed by Omnicom Group,  Inc. Actual lessees are various  subsidiaries
of Omnicom Group Inc.: DDB Needham Worldwide  Communications Group Inc.; Griffin
Bacal Inc.; DDB Needham Chicago Inc.; DDB Needham Dallas, Inc.; PGC Advertising,
Inc.; The Focus Agency, LP.; Elgin DDB Inc.; Group Management Services; and TLP,
Inc.

(19) Guaranteed by A.T. Massey Coal Company, Inc.

(20) Guaranteed by Perdue Farms, Inc.

(21) The lessee name  represents the guarantor of the lease  obligations  (which
has since  changed its name to the  Morton's  Restaurant  Group,  Inc.).  Actual
lessees are various subsidiaries of the guarantor.

(22) Tarmac America,  Inc.; Tarmac Mid-Atlantic,  Inc.; and Tarmac Florida, Inc.
are co-lessees. Guaranteed by Tarmac PLC, a British Limited Liability Company.

(23) The  equipment  is subject to  operating  leases and  managed by the lessee
under a pooled  management  arrangement.  Rentals are variable.  Average monthly
lease payments are estimated  based on the minimum lease payments to be received
on similar Equipment owned by a prior program.

(24) Subject to a management agreement with Transamerica Leasing, Inc.

(25) Subject to a management agreement with First Union Rail Corporation.

(26) Title to the Equipment and Lease is held by an equipment  trust.  A divided
beneficial  interest in the trust  representing 24 of 34 of the  diesel-electric
locomotives is owned by the program. A divided beneficial  interest in the trust
representing the remaining 10 diesel-electric locomotives has been assigned to a
non-affiliate, however, such interest continues to be managed by an affiliate of
the program.

(27) Merged and name chacnged to "The Burlington  Northern and Santa Fe Railroad
Company."

(28) Title to the equipment is held in a trust. The program has a 100% undivided
beneficial interest in the trust.

(29) The lessee name  represents  the manager of the rail tank cars.  These rail
tank cars are not currently subject to a fixed term lease.

(30) Title to the equipment is held in a trust. A divided beneficial interest in
the trust  representing  130 of 291 boxcars is owned by the  program.  A divided
interest in the trust  representing  the remaining  161 boxcars  continues to be
owned by the seller of the Fund's interest, which seller is a non-affiliate.

(31) The underlying leases in this transaction are to various  municipalities in
the United  Kingdom.  The underlying  leases are being managed by Hambros Vendor
Finance Limited and include a residual sharing agreement.

(32) The underlying leases in this transaction are to various  municipalities in
the United Kingdom.  The underlying leases are being managed by Hastings Leasing
Limited and include a residual sharing agreement.

(33) Guaranteed by Hyundai Electronics Industries Co., Ltd.

(34) Guaranteed by Mobil Corporation.  Title to the equipment is held in a trust
where the Fund is the sole beneficial owner.


                                      A-20

<PAGE>

(35)  Co-lessee  under  the  lease  with  Ultratech  Stepper,   Inc.,  UltraBeam
Lithography, Inc. and Verdant Technologies, Inc. as additional co-lessees.

(36) Lessee is General Electric Company, by its division GE Aircraft Engines.

(37) Lessee is General Electric Company, by its division GE Plastics.

(38) Guaranteed by Omnicom Group,  Inc. Actual lessees are various  subsidiaries
of Omnicom  Group Inc.:  The DDB Needham  Worldwide  Communications  Group Inc.;
Griffin Bacal Inc.; DDB Needham  Chicago,  Inc.; DDB Needham  Dallas,  Inc.; PGC
Advertising,  Inc.;  The Focus Agency,  LP.;  Elgin DDB Inc.;  Group  Management
Services and TLP, Inc.

(39) Asset is held by a special purpose entity.  Acquisition cost represents 51%
of the total cost.  The remaining 49% is owned by another  program and continues
to be managed by ATEL.

(40)  Guaranteed  40% by Seacor  Smit,  Inc. and 60% by  Trasportacion  Maritima
Mexicana.

(41) Assets are on short-term sub-leases with various sub-lessees.

(42) Guaranteed by Williams Companies, Inc.



                                      A-21

<PAGE>

                                    TABLE VI

                         SALES OR DISPOSALS OF EQUIPMENT

ATEL Cash Distribution Fund VI, ATEL Capital Equipment Fund VII and ATEL Capital
Equipment  Fund VIII have  disposed of equipment in their  portfolios as of June
30, 2000. Set forth below is a summary of equipment sales and dispositions as of
such date. Sales were for  consideration  unless  otherwise noted.  Interim rent
(rent  paid  prior to formal  commencement  of a lease),  hold-over  rent  (rent
received  after  termination  of the  initial  lease  term,  but  before  formal
extension or disposition)  and extension rent (rent paid after formal  extension
of a lease)  are  included  in the  "Excess  of  Rents  Over  Expenses"  column.
"Equipment Acquisition Price" includes acquisition fees.  Dispositions are shown
on a per asset basis.
<TABLE>
<CAPTION>
                                                                                                                           Excess
                                                                                                                            of
                                                                             Equipment                                  Rents Over
                                                               Acquisition Acquisition                       Sale         Expenses
Lessee                                  Type of Equipment       Date (1)     Price (2)       Sale Date     Price (3)         (4)
------                                  -----------------       --------     ---------       ---------     ---------         ---
ATEL CASH DISTRIBUTION FUND VI
<S>                            <C>                          <C>              <C>          <C>              <C>          <C>

American President Trucking    Tractors                          Nov-95        $ 759,092  Jul-96 to Apr-97   $ 327,062    $ 225,942
   Co., Ltd.
Armco, Inc.                    Linkbelt Sl6000 Scrapmaster  Sep-95 to Jun-96     566,238  Nov-98 to Jan-99     166,938      691,107
At&T Communications, Inc.      Printers/Folders             Aug-95 to Jan-96   1,607,661  Dec-98 to Mar-99     155,000    1,953,642
Burlington Northern & Santa Fe 48'Aluminum External              Sep-94           20,068  Jul-98 to Apr-99      16,287       53,407
                                 Post Containers
Burlington Northern & Santa Fe 48'Aluminum External              Nov-94           10,034       Oct-99            7,667        6,413
                                 Post Containers
Consolidated Rail Corporation  GM-EMD SD40-2 Diesel              Sep-95       13,128,147       Mar-00       11,017,523    8,931,920
                                   Electric Locomotive
Coors Transportation Company   Utility Refrigerated Trailer      Nov-95           52,024  Jul-98 to Aug-98      19,683       26,969
Coors Transportation Company   Utility Refrigerated Trailer      Nov-95           17,341       May-98            8,507        8,990
Coors Transportation Company   Utility Refrigerated Trailer      Nov-95           17,341       Apr-98            8,507        8,990
Coors Transportation Company   Utility Refrigerated Trailer      Nov-95           17,341       Apr-98            7,366        8,990
Coors Transportation Company   Utility Refrigerated Trailer      Nov-95           17,341       Jan-98            8,080        8,990
Coors Transportation Company   Utility Refrigerated Trailer      Nov-95           17,341       Apr-98            8,507        8,990
Coors Transportation Company   Utility Refrigerated Trailer      Nov-95           17,341       Mar-98            8,380        8,990
Coors Transportation Company   Utility Refrigerated Trailer      Nov-95           17,341       May-98            6,734        8,990
Coors Transportation Company   Utility Refrigerated Trailer      Nov-95           17,341       Mar-98            8,507        8,990
Coors Transportation Company   Utility Refrigerated Trailer      Nov-95           17,341       May-98            8,507        8,990
Coors Transportation Company   Utility Refrigerated Trailer      Nov-95           17,341       May-98            8,507        8,990
Coors Transportation Company   Utility Refrigerated Trailer      Nov-95           17,341       Jan-98            8,024        8,990
Coors Transportation Company   Utility Refrigerated Trailer      Nov-95           17,341       Feb-98            9,530        8,990
Coors Transportation Company   Utility Refrigerated Trailer      Nov-95           17,341       May-98            8,507        8,990
Coors Transportation Company   Utility Refrigerated Trailer      Nov-95           17,341       Feb-98            8,380        8,990
Coors Transportation Company   Utility Refrigerated Trailer      Nov-95           17,341       Jan-98            8,080        8,990
Coors Transportation Company   Utility Refrigerated Trailer      Nov-95           17,341       Jan-98            8,024        8,990
Coors Transportation Company   Utility Refrigerated Trailer      Nov-95           17,341       Jan-98            8,080        8,990
Coors Transportation Company   Utility Refrigerated Trailer      Nov-95           17,341       Apr-98            8,507        8,990
Coors Transportation Company   Utility Refrigerated Trailer      Nov-95           17,341       Apr-98            9,507        8,990
Coors Transportation Company   Utility Refrigerated Trailer      Nov-95           17,341       May-98            8,507        8,990
Coors Transportation Company   Utility Refrigerated Trailer      Nov-95           17,341       Jan-98            8,080        8,990
Coors Transportation Company   Utility Refrigerated Trailer      Nov-95           17,341       May-98            8,507        8,990
Coors Transportation Company   Utility Refrigerated Trailer      Nov-95           17,341       Mar-98            8,380        8,990
Coors Transportation Company   Utility Refrigerated Trailer      Nov-95           17,341       Mar-98            8,507        8,990
Coors Transportation Company   Utility Refrigerated Trailer      Nov-95           17,341       Jan-98            8,080        8,990
The DDB Needham Worldwide      Office Automation            Jun-95 to Jun-96     786,108  Jul-99 to Jun-00     179,868      778,002
Genaral Motors Corporation     Roboform CNC EDM Machines         Jul-95          652,232       Nov-98          240,000      397,992
Hastings Leasing Limited       Office Equipment                  Aug-96          103,752       Sep-98           41,247      231,841
Hastings Leasing Limited       Office Automation                 Aug-96          305,088  Aug-99 to Jan-00      64,919      441,415
International Paper Company    Materials Handling           Apr-95 to Dec-96   1,307,495  Oct-98 to Jun-99     614,655      991,589
International Paper Company    Materials Handling           Mar-95 to Apr-96   1,603,379  Jul-99 to Jun-00     533,100    1,645,608
Louis Dreyfus Corporation      Jumbo Covered Hopper              Mar-96          176,313  Sep-98 to Apr-99     114,125       62,160
                                    Railcars
Mobil Oil Corporation          Petroleum Wax Car                 Feb-96           59,953       Jan-97           64,717        3,597
Mobil Oil Corporation          Liquid Petroleum Tank Cars   Nov-95 to Feb-96     135,997  May-99 to Jul-99     144,809      360,686

                                      A-22
<PAGE>

National Steel Corporation     Materials Handling           Apr-95 to Jan-96   2,643,021  Jul-99 to May-00     842,511    3,608,355
NEC Electronics, Inc.          Manufacturing                     Sep-96       18,320,604       Jan-00        6,737,469   16,201,544
Omnicom Group, Inc.            Office Automation            Mar-95 to Jun-95   1,339,140  Jul-98 to Mar-99     170,696    1,402,467
Peerless Eagle Coal Company    Driltech C50Kl Drills             Jun-95          856,932  Nov-99 to Apr-00      80,000      833,678
Perdue Transportation          Freightliner Tandem Tractor       Nov-95          280,829       Nov-98           51,452      331,500
   Incorporated
Perdue Transportation          Tractors                          Nov-95           47,038       Feb-96           45,838        3,900
   Incorporated
Quaker Coal Company            Driltech C50Kl Crawler Drill      Dec-95          457,497       Apr-00           20,000      494,979
TASC, Inc.                     Office Automation            Mar-95 to Sep-96     973,844  Jul-98 to Jun-99      94,413    1,044,037
TASC, Inc.                     Office Automation            Mar-95 to May-97   2,561,481  Jul-99 to Jun-00     271,904    3,530,919
The Atchison Topeka & Santa    Intermodal Containers             Jan-94           20,068       Jan-95           21,084          567
   Fe Railroad Company
The Atchison Topeka & Santa    Intermodal Containers             Sep-94           10,034       Jan-95           10,446          335
   Fe Railroad Company
The Atchison Topeka & Santa    Intermodal Containers             Sep-94           20,068       Jan-96           19,973        2,543
   Fe Railroad Company
The Atchison Topeka & Santa    Intermodal Containers             Nov-94           10,034       Feb-95           10,446        1,159
   Fe Railroad Company
The Atchison Topeka & Santa    Intermodal Containers             Nov-94           10,034       Jan-96           10,113          968
   Fe Railroad Company
The Atchison Topeka & Santa    Intermodal Containers             Nov-94            9,633       Apr-96            9,588        1,240
   Fe Railroad Company
The Atchison Topeka & Santa    Intermodal Containers             Nov-94            6,453       Apr-96            6,567          788
   Fe Railroad Company
The Burlington Northern &      Ext. Post Container               Nov-94            9,633       Oct-97            8,767        3,379
   Santa Fe Railway Co.
The Burlington Northern &      Intermodal Container              Sep-94           10,034       Jul-96            9,717        2,225
   Santa Fe Railway Company
The Burlington Northern &      Intermodal Container              Nov-94           10,034       Jul-96            9,855        1,614
   Santa Fe Railway Company
The Burlington Northern        Utility Refrigerated              Nov-95          312,145  Sep-97 to Dec-97     144,951      161,813
   Railroad Company                Trailers
The Burlington Northern        Covered Hopper Cars               Mar-96           70,526  Sep-97 to Dec-97      67,033       10,100
   Railroad Company
The Burlington Northern        Covered Hopper Cars               Mar-96           70,000  Dec-96 to Jan-97      59,553          619
   Railroad Company
Tracy Locke, Inc.              Printers                          Mar-95           12,470       Sep-95           12,179        1,662
Trans Ocean Container          Intermodal Containers             Dec-95           53,198  Jul-98 to Jun-99      52,101       22,908
   Corporation
Trans Ocean Container          Intermodal Containers             Dec-95           17,748  Oct-96 to Jan-97      20,730        1,107
   Corporation
Trans Ocean Container          Intermodal Containers             Dec-95           11,063  Jul-97 to Dec-97      12,070        1,986
   Corporation
Trans Ocean Container          Intermodal Containers             Dec-95            9,529       Jun-96           11,167          700
   Corporation
Transamerica Leasing Inc.      Intermodal Containers             Dec-95           40,373  Oct-99 to Jun-00      27,577       77,735
Tyson Foods, Inc.              Computers                         Jun-95          563,411  Jun-97 to Nov-97      66,323      522,877
Tyson Foods, Inc.              Computers & Related               Jun-95          195,152       Jun-97           23,080      181,113
                                    Equipment
Xerox Corporation              Materials Handling and        Jan-95 to May-95     53,368  Aug-99 to Sep-99       5,500       43,033
                                 Binding System
                                                                             ------------                  ------------ ------------
                                                                             $50,712,500                   $22,849,005  $45,518,890
                                                                             ============                  ============ ============


                                      A-23

<PAGE>

ATEL CAPITAL EQUIPMENT FUND VII

Anchor Glass Container         Glass Packaging Equipment         Dec-97        $ 325,684       Nov-98        $ 357,890    $ 116,336
   Corporation
Anchor Glass Container         Glass Packaging Equipment         Apr-98           45,598       Jun-98           60,611       10,086
   Corporation
Anchor Glass Container         Various Computer Equipment        Dec-97          404,995       Jul-99           19,021      456,356
   Corporation
Applied Magnetics              Manufacturing                     Dec-97        1,616,665  May-00 to Jun-00     357,525      992,344
   Corporation
Avon Products, Inc.            DEC Mira 11/83 System             Dec-97           29,415       Aug-99           14,800       44,147
Burlington Northern Santa Fe   48'Aluminium Domestic        Aug-98 to Sep-98      27,840       Jan-99           30,081        1,224
                                    Container
Burlington Northern Santa Fe   48'Aluminium Domestic        Jun-98 to Sep-98      64,960  Jul-99 to May-00      68,992        9,320
                                    Container
Cargill, Inc.                  Railcars                          Jan-97           99,000  May-97 to Oct-97      96,747        9,415
Cargill, Inc.                  Covered Hopper Railcar            Sep-98           12,103       Aug-99           18,000        5,253
Cargill, Incorporated          Jumbo Covered Hopper Railcar      Jan-97           66,000  Jul-99 to Jun-00      57,867       33,427
Consolidated Diesel Company    Minolta Copiers                   Dec-97           15,697  Nov-98 to Mar-99       2,249       16,690
Consolidated Rail              Domestic Container                Aug-97           10,255       Jan-98           10,752        9,646
   Corporation
Consolidated Rail              Gooseneck Container Chassis       Oct-97            6,315       Oct-99            5,896        1,714
   Corporation
Costain Coal, Inc.             Vme/Euclid 339Sd Rear             Apr-98          805,181       Jun-98          886,985      161,683
                                   Dump Truck
Danskin, Inc.                  Textile Manufacturing             Dec-97          255,717  Aug-98 to Dec-98     248,350      110,500
                                    Equipment
Dole Fresh Fruit Company       40'Hi-Cube Refrigerated           Dec-97           91,204  Aug-99 to May-00      96,560       27,748
                                    Container
Empire Blue Cross And          Office Furniture                  Dec-97          696,766       May-00                1      957,747
   Blue Shield
Exel Logistics, Inc.           1993 International 8200           Apr-98           88,610       May-98           89,307       16,341
                                     Tractor
Exel Logistics, Inc.           1993 Monon Semi-Trailer           Apr-98           45,337       May-98           45,693        8,360
Exxon Mobil                    Bell 206L-1 Long Ranger           Nov-96        1,650,000       Mar-00        1,699,276      914,804
                                   Helicopter
Grand Trunk Western            86'6" 100-Ton High Cube           Dec-97        3,342,139       Jan-00        1,672,856    1,838,542
   Railroad                        Box Car
Group Management Services      Office Furniture / Fixtures       Dec-97          170,867       Dec-99          143,378       72,544
Hartz Foods, Inc.              Thermo Kings Refrigeration        Dec-97           18,422       Oct-98                1       22,671
                                   Unit
Hambros Vendor Leasing         Applied 414 S2 Diesel             Sep-97           16,864       Oct-99            4,349       21,038
   Limited                         Sweeper
Hastings Leasing Limited       Various Transportation            Oct-97            7,260  Oct-99 to Feb-00      11,471       16,675
                                    Equipment
Hughes Network Systems, Inc.   Telecommunications Equipment      Dec-97           71,860       Dec-99                -      266,154
Hyplains Beef, L.C.            Food Processing Equipment         Dec-97        1,235,019       Jan-99        1,145,190      684,040
IBM Corporation                Stereolithography                 Dec-97           30,026       Dec-98           50,000       36,010
Illinois Central Railroad      Plate "C" Cushioned Boxcar        Jan-97           23,000       Nov-99           26,981       12,308
International Rectifier Corp.  Two Zone Thermal                  Dec-97          190,911  Aug-98 to Oct-98     148,000       76,091
                                  Shock Chamber
International Rectifier Corp.  Furnace/Heat Base                 Apr-98          153,515       Jun-98          154,782       71,669
International Rectifier Corp.  Bdf-41 Furnace W/Attachments      Apr-98          124,193       Jun-98          125,218       57,233
International Rectifier Corp.  Wafer Cleaning System             Apr-98           86,791       Jun-98           95,000       26,672
International Rectifier Corp.  Optical Assoc.Handler             Apr-98           13,336       May-98           12,000        4,480
                                   Assy W/Kit
International Rectifier Corp.  VSLI Critical Dim.                Apr-98           12,056       May-98           16,805        1,139
                                 Measure System
International Rectifier Corp.  Itc5511D Energy                   Apr-98            9,027       Jun-98            6,000        3,518
                                 Testing System
ITO Corporation                Taylor Stacker W/Fork             Dec-97          104,878       Apr-99                -      119,136
                                     Shifter
ITO Corporation                Ottawa Commando 30 Yard           Dec-97           15,678       Aug-99                -      115,010
                                     Hustler
Louisiana Workers              Printer                           Dec-97            2,200       Jun-99                -       11,393
   Compensation Corp.
Maxtor Corporation             Computer & Testing Equipment      Dec-97          241,310       Aug-99           11,734      265,919
Nippon Yusen Kaisha (N.Y.K.    20'Aluminum Refrigerated          Dec-97           17,432       Feb-99           20,995        3,059
   Line)                           Container
North American Chemical Co.    Mini Magnetic Flow Meters         Dec-97           18,809       Dec-98                -       22,771


                                      A-24

<PAGE>

NVR, Inc.                      Home Manufacturing Equipment      Oct-97           45,880       Nov-99           42,000       14,479
Plasmaquest, Inc.              Tatung Sparcstations              Dec-97            6,406       Aug-98            5,445        7,104
Ralphs Grocery Company         Materials Handling                Dec-97           95,598       Mar-00                -      138,424
Riceland Foods, Inc            23,700 Gal Uni-Temp Tank Car      Jan-98           17,594       Apr-98           17,594        1,981
Rose Acres Farms, Inc.         Automatic Case Packer             Dec-97          185,461       Sep-99           64,700      155,180
Sarif, Inc.                    ECR Enhanced CVD System           Dec-97          224,702       Apr-99           89,826      225,348
Sematech, Inc.                 Concept Two-Sequel-S              Sep-97        1,303,600       Jun-00          762,236    1,119,336
                                    Cvd (90%)
Smitty'S Super Valu, Inc.      Furniture,Fixtures &              Apr-98          451,861       Jun-98          601,960      139,202
                                    Equipment
Southern Pacific               EMD SD45-T2 Locomotive            Dec-97          397,658       Mar-99          520,000      391,486
   Transportation Company
Southwest Health Center,       Siemens Mammographic X-Ray        Apr-98           13,000       May-98           18,500        1,331
   Inc.
Stater Brothers Markets        Grocery Store Equipment           Apr-98           13,643       Jun-98                -       16,315
Tarmac America, Inc.           Tractors                          Mar-97           35,000       Aug-97           33,666        6,119
TASC, Inc.                     Office Equipment             Oct-97 to Jul-98      27,247  Dec-98 to Jun-99      21,441       26,974
The Burlington Northern &      General Electric C30-7            Dec-96          208,790       Jun-99          125,000      143,520
   Santa Fe Railroad Company       Locomotive
Thompson Pipe & Steel          Office Furniture & Fixtures       Apr-98           31,918       May-98           25,000        6,012
   Company
Thomson Saginaw Ball           Machine Tools                     Dec-97          488,917       Aug-98          382,771      242,618
   Screw Co.
Triad Intl Maintenance         Aircraft Access and Ground        Dec-97          954,124  Jul-98 to Aug-98   1,306,184      367,159
   Corporation                     Support Equipment
Union Tank Car Company         Exterior-Coiled Insulat.          Dec-97           33,212  Dec-99 to May-00       5,500       20,437
                                    Tank Car
US Surgical Corporation        Vascular Laser Stent              Jun-98           55,829       May-00          360,397       92,723
                                  Cutting Syst
Wagner College                 Various Desktop Computers         Dec-97           91,951  Aug-98 to Oct-98      34,289       77,503
                                                                             ------------                  ------------ ------------
                                                                             $16,945,326                   $12,227,872  $10,844,464
                                                                             ============                  ============ ============

ATEL CAPITAL EQUIPMENT FUND VIII

Great American Management      Pullman Xf Box Car                Oct-99         $ 15,635       Nov-99         $ 15,780          $ -
   Services
TASC, Inc.                     Office Automation                 Sep-99            9,652       Mar-00            9,520        1,601
Transamerica Leasing Inc.      Standard 20'Imo1 Tank             Dec-98           21,250       Nov-99           22,398        2,490
                                    Container
                                                                             ------------                  ------------ ------------
                                                                                $ 46,537                      $ 47,698      $ 4,091
                                                                             ============                  ============ ============

                               TOTALS OF ALL FUNDS:                          $67,704,363                   $35,124,575  $56,367,445
                                                                             ============                  ============ ============
</TABLE>



                                      A-25

<PAGE>

               TABLE VI SALES OR DISPOSALS OF EQUIPMENT FOOTNOTES


(1)  "Acquisition  Date" is the date the  Equipment  was  acquired  by the prior
program.

(2) "Equipment  Acquisition  Price" is the actual cost of the item of Equipment,
including  Acquisition  Fees, and any other  expenditures  incurred by the prior
program in the acquisition of the Equipment.

(3) "Sale Price" is the actual cash received for the purchase, early termination
or  casualty  of the  Equipment  upon  Lease  termination,  net  of  any  direct
out-of-pocket  closing  costs  incurred by the prior program as a result of such
termination.

(4) "Excess of Rents Over  Expenses" is a total amount of Lease rents,  less any
applicable direct  out-of-pocket  costs incurred by the prior program during the
term of the Lease for the particular Lease transaction.





                                      A-26


<PAGE>

EXHIBIT B


                       ATEL CAPITAL EQUIPMENT FUND IX, LLC

                              AMENDED AND RESTATED
                            LIMITED LIABILITY COMPANY
                               OPERATING AGREEMENT


                                January 16, 2001




<PAGE>



                       ATEL CAPITAL EQUIPMENT FUND IX, LLC

                              AMENDED AND RESTATED
                            LIMITED LIABILITY COMPANY
                               OPERATING AGREEMENT


                                TABLE OF CONTENTS

                                                                            Page

 1.    NAME AND PRINCIPAL PLACE OF BUSINESS..................................B-1

 2.    DEFINITIONS...........................................................B-1

 3.    BUSINESS AND PURPOSE..................................................B-7

 4.    TERM..................................................................B-8

 5.    MANAGER...............................................................B-8

 6.    INITIAL AND ADDITIONAL MEMBERS........................................B-8
         Section 6.1  Initial Members........................................B-8
         Section 6.2  Additional Members.....................................B-8
         Section 6.3  Conditions to Admission................................B-8
         Section 6.4  Admission as a Member..................................B-8
         Section 6.5  Limitation on Additional Issuance......................B-8
         Section 6.6  Escrow.................................................B-8
         Section 6.7  Capital Account........................................B-9

7.     LIABILITY AND STATUS OF MEMBERS.......................................B-9

8.     COMPENSATION TO THE MANAGER AND/OR AFFILIATES.........................B-9
         Section 8.1  General Limitation.....................................B-9
         Section 8.2  Asset Management Fee...................................B-9
         Section 8.3  Asset Management Fee Limit ............................B-9
         Section 8.4  Other Services........................................B-10
         Section 8.5  Payment of Fees on Removal............................B-11
         Section 8.6 Employment of Broker-Dealers...........................B-11

 9.    FUND EXPENSES AND RESERVES...........................................B-11
         Section 9.1  Reimbursement of Manager..............................B-11
         Section 9.2  Limitation on Reimbursement...........................B-11
         Section 9.3  Fund Expenses.........................................B-12
         Section 9.4  Reserves..............................................B-13

10.    ALLOCATION OF INCOME, LOSS AND DISTRIBUTIONS.........................B-13
         Section 10.1  Allocation of Net Income and Net
                         Loss Prior to Initial Closing Date.................B-13
         Section 10.2  Allocation of Net Income and Net
                         Loss After Initial Closing Date....................B-13

                                       ii

<PAGE>

         Section 10.3  Special Allocations..................................B-13
         Section 10.4  Distribution of Cash From Operations.................B-15
         Section 10.5   Distribution of Cash From Sales or Refinancing......B-15
         Section 10.6   Distributions of Cash From Reserve Account..........B-15
         Section 10.7   Determination of Amounts to be Distributed..........B-15
         Section 10.8   Consent to Allocations..............................B-16
         Section 10.9   Limitation on Distributions.........................B-16
         Section 10.10  Allocation to Manager...............................B-16
         Section 10.11  Return of Unused Capital............................B-16
         Section 10.12  Distributions in Kind...............................B-16
         Section 10.13  Withholding Taxes...................................B-17

11.    ASSIGNMENT OF FUND INTERESTS.........................................B-17
         Section 11.1  Limitations on Transfer..............................B-17
         Section 11.2  Distributions and Effective Date of Transfer.........B-18
         Section 11.3  Governmental Restrictions............................B-18
         Section 11.4  Non-Complying Transfers..............................B-18
         Section 11.5  Misrepresentations and Forfeit.......................B-18

12.    SUBSTITUTED MEMBERS..................................................B-19
         Section 12.1  Limitations on Substitution..........................B-19
         Section 12.2  Consent to Admission.................................B-19
         Section 12.3  Amendment of Agreement...............................B-19

13.    REPURCHASE OF FUND INTERESTS.........................................B-19

14.    BOOKS, RECORDS, ACCOUNTINGS AND REPORTS..............................B-20
         Section 14.1  Books of Account and Records.........................B-20
         Section 14.2  Audited Annual Financial Statements..................B-21
         Section 14.3  Other Annual Reporting...............................B-21
         Section 14.4  Quarterly Reports....................................B-22
         Section 14.5  Unaudited Quarterly Financial Statements.............B-22
         Section 14.6  Other Quarterly Reports..............................B-22
         Section 14.7  Tax Returns..........................................B-23
         Section 14.8  Governmental Reports.................................B-23
         Section 14.9  Maintenance of Suitability Records...................B-23

15.    RIGHTS, AUTHORITY, POWERS AND RESPONSIBILITIES
             OF THE MANAGER.................................................B-23
         Section 15.1  Services of the Manager..............................B-23
         Section 15.2  Authority of the Manager.............................B-23
         Section 15.3  General Powers and Fiduciary Duty....................B-26
         Section 15.4  Limitations on Manager's Authority...................B-26
         Section 15.5  Limitation on Manager's Liability....................B-29
         Section 15.6  Tax Matters Member...................................B-29
         Section 15.7  Minimum Investment in
                       Equipment /Maximum Front-End Fees....................B-29
         Section 15.8  Reliance on Manager's Authority......................B-31

                                       iii

<PAGE>

16.    RIGHTS, POWERS AND VOTING RIGHTS OF THE MEMBERS......................B-31
         Section 16.1  Limitation on Member Authority.......................B-31
         Section 16.2  Voting Rights........................................B-31
         Section 16.3  Voting Procedures....................................B-31
         Section 16.4  Limitations on Member Rights.........................B-33
         Section 16.5  Limitations on Power to Amend Agreement..............B-33
         Section 16.6  Member List..........................................B-33
         Section 16.7  Dissenters' Rights and Limitations on
                       Mergers and Roll-ups.................................B-33

17.    TERMINATION OF A MANAGER AND TRANSFER OF THE
         MANAGER'S INTEREST.................................................B-34
         Section 17.1  Removal or Withdrawal................................B-34
         Section 17.2  Other Terminating Events.............................B-35
         Section 17.3  Election of Successor Manager;
                       Continuation of Fund Business........................B-35
         Section 17.4  Admission of Successor or Additional Manager.........B-35
         Section 17.5  Effect of a Terminating Event........................B-35
         Section 17.6  Election of Additional Manager.......................B-36
         Section 17.7  Assignment of Manager's Interest.....................B-36
         Section 17.8  Members' Participation in Manager's Bankruptcy.......B-36

18.    CERTAIN TRANSACTIONS.................................................B-37

19.    TERMINATION AND DISSOLUTION OF THE FUND..............................B-37
         Section 19.1  Termination and Dissolution..........................B-37
         Section 19.2  Accounting and Liquidation...........................B-37

20.    SPECIAL POWER OF ATTORNEY............................................B-38
         Section 20.1  Execution of Power of Attorney.......................B-38
         Section 20.2  Special Power of Attorney............................B-38

21.    INDEMNIFICATION......................................................B-39
         Section 21.1  Indemnification of the Manager.......................B-39
         Section 21.2  Limitations on Indemnification.......................B-39
         Section 21.3  Insurance............................................B-40

22.    MISCELLANEOUS........................................................B-40
         Section 22.1  Counterparts.........................................B-40
         Section 22.2  Successors and Assigns...............................B-40
         Section 22.3  Severability.........................................B-40
         Section 22.4  Notices..............................................B-40
         Section 22.5  Captions.............................................B-40
         Section 22.6  Number and Pronouns..................................B-40
         Section 22.7  Manager Address......................................B-40
         Section 22.8  Member Address.......................................B-40
         Section 22.9  Construction.........................................B-41
         Section 22.10 Qualification to Do Business.........................B-41

                                       iv

<PAGE>



                              AMENDED AND RESTATED
                  LIMITED LIABILITY COMPANY OPERATING AGREEMENT
                     OF ATEL CAPITAL EQUIPMENT FUND IX, LLC



THIS LIMITED LIABILITY COMPANY OPERATING AGREEMENT (the "Agreement"), is entered
into  as of the 27th  day of  September,  2000, by  and  between  ATEL Financial
Corporation  ("ATEL"),  a California  Corporation,  as the Managing  Member (the
"Manager"),  and ATEL Capital Group as the initial  Member,  whereby the parties
together agreed to form a limited  liability  company pursuant to the California
Limited Liability Company Act, is hereby amended and restated in its entirety as
of this 16th day of January, 2001.


1.       NAME AND PRINCIPAL PLACE OF BUSINESS

         The name of the Fund shall be ATEL  Capital  Equipment  Fund IX, LLC or
such other  name as the  Manager  shall  hereafter  designate  in writing to the
Members.  The Fund's  principal place of business shall be 235 Pine Street,  6th
Floor,  San Francisco,  California  94104,  or such other place or places in the
State of California as the Manager may hereafter determine.

2.       DEFINITIONS

         The following  terms used in this  Agreement  shall  (unless  otherwise
expressly  provided  herein or unless the context  otherwise  requires) have the
following respective meanings:

         "Acquisition  Expenses" shall mean expenses including,  but not limited
to,  legal  fees and  expenses,  travel  and  communication  expenses,  costs of
appraisals, accounting fees and expenses, and miscellaneous expenses relating to
selection and acquisition of Equipment, whether or not acquired.

         "Acquisition  Fees"  shall  mean the total of all fees and  commissions
paid by any party in  connection  with the initial  purchase or  manufacture  of
Equipment.  Included in the computation of such fees or commissions shall be any
commission,  selection fee, financing fee,  nonrecurring  management fee, or any
fee of a similar nature, however designated.

         "Adjusted  Capital  Account  Deficit"  shall mean,  with respect to any
Member,  the deficit balance if any, in such Member's  Capital Account as of the
end of the Fund taxable year, after giving effect to the following  adjustments:
(a) Crediting to such Capital Account any amounts which such Member is obligated
to  restore or is deemed to be  obligated  to restore  pursuant  to  Regulations
Sections  1.704-2(g)(1)  and  1.704-2(i)(5);  and (b) Debiting from such Capital
Account the items described in Regulations  Section  1.704-1(b)(2)(ii)(d)(4),(5)
and (6). This  definition  is intended to comply with the  provisions of Section
1.704-1(b)(2)(ii)(d)  of the Regulations  and shall be interpreted  consistently
therewith.

         "Adjusted  Invested  Capital"  shall mean, as of any date, the Original
Invested Capital  attributable to the Units held by any Person on or before such
date,  as  decreased   (but  not  below  zero)  by  the  amount  which  (i)  all
Distributions from Cash from Operations and Cash from Sales and Refinancing with
respect  to such Units on or before the date of  determination  pursuant  to any
provision of this Agreement exceed (ii) the Priority  Distribution  attributable
to such Units for such period.


                                       B-1

<PAGE>

         "Affiliate"  of  a  Person  shall  mean  (i)  any  Person  directly  or
indirectly controlling,  controlled by or under common control with such Person;
(ii) any Person  owning or  controlling  10% or more of the  outstanding  voting
securities or beneficial interests of such Person, (iii) any officer,  director,
trustee  or  partner  of such  Person  and (iv) if such  Person  is an  officer,
director,  trustee, partner or holder of 10% or more of the voting securities or
beneficial  interests  of such Person,  any other  company for which such Person
acts in such  capacity.  However,  such term shall not include a Person who is a
partner in a  partnership  or joint  venture with the Fund if such Person is not
otherwise an Affiliate.

         "Asset  Management  Fee" shall mean the fee  payable to the Manager and
its Affiliates under the provisions of Section 8.2 of this Agreement.

         "Asset  Management Fee Limit" means the total fees calculated  pursuant
to the  alternative  fee schedule set forth under Section 8.3 of this Agreement,
equal to the aggregate of an Equipment Management Fee, Incentive Management Fee,
and  Equipment  Resale/Re-Leasing  Fee,  plus the  Manager's  Carried  Interest,
determined in the manner described herein.

         "Assignee"  shall mean a Person who has acquired a beneficial  interest
in one or more Units from a third party but who is neither a substituted  Holder
nor an Assignee of Record.

         "Assignee  of  Record"  shall  mean  an  Assignee  who has  acquired  a
beneficial  interest in one or more Units whose  ownership  has been recorded on
the books of the Fund and which ownership is the subject of a written instrument
of assignment, the effective date of which assignment has passed.

         "ATEL" shall mean ATEL Financial Corporation, a California corporation.

         "California Act" or "California  Limited  Liability  Company Act" shall
mean the Beverly-Killea Limited Liability Company Act, Title 2.5, Chapters 1-15,
of the California Corporations Code, as it may be amended from time to time.

         "Capital Account" shall mean, with respect to any Member, such Member's
Capital Account determined in accordance with Section 6.7.

         "Carried Interest" shall mean the allocable share of Fund Distributions
of Cash  from  Operations  and Cash from  Sales or  Refinancing  payable  to the
Manager, as Manager, pursuant to Sections 10.4 and 10.5 of this Agreement.

         "Cash from  Operations"  shall mean the excess of Gross  Revenues  over
cash disbursements (including the Asset Management Fee and amounts reinvested by
the Fund in Equipment in compliance with Section 15.4.18) without  reduction for
depreciation   and   amortization  of  intangibles   such  as  organization  and
underwriting  costs  but  after a  reasonable  allowance  for cash for  repairs,
replacements,  contingencies and anticipated  obligations,  as determined by the
Manager.  Cash from Operations  shall not include Cash from Sales or Refinancing
or Cash from Reserve Account.

         "Cash from Reserve Account" shall mean that portion of the Net Proceeds
not  utilized  in  the  acquisition  of  Equipment,  including  cash  maintained
according to the provisions of Section 9.4.

         "Cash from Sales or  Refinancing"  shall mean the net cash  realized by
the Fund  from the  sale,  refinancing  or other  disposition  of any  Equipment

                                       B-2

<PAGE>


(including insurance proceeds  or  lessee  indemnity  payments arising from the
loss or  destruction  of any Equipment  through  casualty)  after payment of all
expenses related to the transaction;  provided,  however that Cash from Sales or
Refinancing shall not include Cash from Reserve Account or Cash from Operations.

         "Closing  Date" shall mean such date  designated by the Manager for the
termination  of  the  offering  of  Units,  but not later than January 16, 2003.
Extension of the offering beyond one year from the date of the Prospectus  shall
be subject to the  qualification of the offering for any such extension in those
jurisdictions  which may limit the offering period to one year. "Initial Closing
Date" shall mean the date on which subscribers for Units, other than the initial
Holders,  are first admitted to the Fund as Holders.  "Final Closing Date" shall
mean the last date on which  subscribers  for Units are  admitted to the Fund as
Holders.


         "Code" shall mean the Internal  Revenue  Code of 1986,  as amended,  or
corresponding provisions of subsequent federal revenue laws.

         "Distributions"  shall mean any cash,  tax  credits  or other  property
allocated  to or  distributed  to Holders  and the  Manager  arising  from their
respective interests in the Fund, but shall not include any compensation payable
to the  Manager  under the  provisions  of  Article 8 or  Article  9,  except as
otherwise provided herein.

         "ERISA" shall mean the  Employment  Retirement  Income  Security Act of
1974, as amended.

         "Equipment" shall mean the equipment  acquired and owned by the Fund to
be  leased  by the Fund to others  as well as any Fund  interest  in  equipment,
including  without  limitation its rights,  whether  direct or indirect,  in all
trusts, joint ventures, leases, chattel paper, options and other contract rights
with respect to equipment.

         "Equipment Management Fee" shall mean an element of the alternative fee
schedule  calculation  to  determine  the Asset  Management  Fee Limit under the
provisions of Section 8.3 of this Agreement as provided therein.

         "Equipment  Re-lease Fee" shall mean an element of the  alternative fee
schedule  calculation  to  determine  the Asset  Management  Fee Limit under the
provisions of Section 8.3 of this Agreement as provided therein.

         "Equipment  Resale  Fee" shall mean an element of the  alternative  fee
schedule  calculation  to  determine  the Asset  Management  Fee Limit under the
provisions of Section 8.3 of this Agreement as provided therein.

         "Front-End Fees" shall mean fees and expenses paid by any party for any
services rendered during the Fund's organization and acquisition phase including
Organization and Offering Expenses,  Leasing Fees, Acquisition Fees, Acquisition
Expenses,  and any other similar fees, however  designated.  Notwithstanding the
foregoing,  Front-End Fees shall not include any Acquisition Fees or Acquisition
Expenses paid by a manufacturer of Equipment to any of its employees unless such
Persons are Affiliates of the Manager.

                                       B-3

<PAGE>

         "Full Payout Lease" shall mean a lease under which the  non-cancellable
rental payments due during the initial term of the lease are at least sufficient
to cover the purchase price of the Equipment leased.

         "Fund"  shall mean the limited  liability  company  created  under this
Agreement.

         "Fund  Minimum  Gain"  shall  have  the  meaning  ascribed  to the term
"partnership minimum gain" in Regulations Section 1.704-2(d)(1).

         "Gross  Income"  shall  mean the gross  income of the Fund  within  the
meaning of section 61(a) of the Code.

         "Gross  Proceeds"  shall  mean  the  aggregate  total  of the  Original
Invested Capital of the initial and all of the additional Holders.

         "Gross  Lease  Revenues"  shall mean all revenues  attributable  to the
Equipment other than from security  deposits paid by lessees  thereof.  The term
"Gross Lease Revenues" shall not include revenues from the sale,  refinancing or
other disposition of Equipment.

         "High Payout  Lease" shall mean a lease under which the  noncancellable
rental  payments  and other  payment  obligations  of the lessee due through the
initial  term of the lease are  equal to at least 90% of the  original  purchase
price paid by the Fund for the Equipment.

         "Holders"  shall  mean  owners  of  Units  who are  either  Members  or
Assignees of Record,  and  reference to a "Holder"  shall be to any one of them.
The Manager  shall not be considered to be a Holder except to the extent it also
owns Units.

         "Incentive Management Fee" shall mean an element of the alternative fee
schedule  calculation  to  determine  the Asset  Management  Fee Limit under the
provisions of Section 8.3 of the Operating Agreement as provided therein.

         "Independent  Expert"  shall mean a person with no current  material or
prior  business  or  personal  relationship  with  the  Manager  or  any  of its
Affiliates  who is engaged to a substantial  extent in the business of rendering
opinions  regarding the value of assets of the type held by the Fund, and who is
qualified to perform such work.

         "IRA" shall mean an  individual  retirement  account  qualifying  under
Section 408 of the Code.

         "Investment  in  Equipment"  shall  mean the  amount of Gross  Proceeds
actually  paid or allocated  to the purchase of Equipment  acquired by the Fund,
any amount of Gross  Proceeds  reserved  pursuant  to Section 9.4 hereof up to a
maximum of 3% of Gross  Proceeds  and other cash  payments  such as interest and
taxes, but excluding Front-End Fees.

         "Leasing Fees" shall mean the total of all fees and commissions paid by
any party in  connection  with the initial  lease of  equipment  acquired by the
Fund.

         "Manager" or "Managing  Member" shall mean ATEL  Financial  Corporation
("ATEL"), a California corporation, or any other Person or Persons which succeed
it in such capacity.

                                       B-4

<PAGE>

         "Members"  shall mean the  Manager,  the initial  Members and any other
Persons  who are  admitted to the Fund as  additional  or  substituted  Members.
Reference to a "Member" shall refer to any one of them.

         "Member Nonrecourse Debt" has the meaning ascribed to the term "partner
nonrecourse debt" in Regulations Section 1.704-2(b)(4).

         "Member  Nonrecourse Debt Minimum Gain" shall have the meaning ascribed
to the term  "partner  nonrecourse  debt minimum gain" in  Regulations  Sections
1.704-2(i)(2).

         "Net  Income" or "Net Loss"  shall mean the  taxable  income or taxable
loss  of the  Fund  (including  the  Fund's  share  of  income  or  loss  of any
partnership, venture or other entity which owns a particular item of Equipment),
as determined for federal  income tax purposes,  computed by taking into account
each item of Fund income,  gain, loss,  deduction or credit not already included
in the computation of taxable income and taxable loss.

         "Net Lease Provisions" shall mean contractual  arrangements under which
the lessee assumes responsibility for, and bears the cost of, insurance,  taxes,
maintenance,  repair and operation of the leased asset and where non-cancellable
rental   payments   under  the  lease  are   absolutely   net  to  the   lessor,
notwithstanding  that some minor costs or responsibilities  remain with the Fund
as lessor or that the Fund  retains  the option to require  and pay for a higher
standard of care or greater  level of  maintenance  or  insurance  than would be
imposed on the lessee under the terms of the lease.

         "Net Proceeds"  shall mean the total Gross  Proceeds less  Organization
and Offering Expenses.

         "Nonrecourse  Deductions" shall mean items of Fund loss,  deductions or
Code Section  705(a)(2)(B)  expenditures  which are  attributable to Nonrecourse
Liabilities.

         "Nonrecourse Liability" means a Fund liability with respect to which no
Member or Related Person bears the economic risk of loss.

         "Operating  Agreement" or "Agreement" shall mean this Limited Liability
Company Operating Agreement of ATEL Capital Equipment Fund IX, LLC, as it may be
amended from time to time.

         "Operating  Lease" shall mean a lease under which the aggregate  rental
payments  due during the  initial  term of the lease are less than the  purchase
price of the Equipment leased.

         "Operating  Revenues" means the total for any period of all Gross Lease
Revenues plus all Cash from Sales or Refinancing.

         "Organization and Offering Expenses" shall mean those expenses incurred
in connection with preparing the Fund for registration and subsequently offering
and  distributing  Units to the public,  including  selling  commissions and all
advertising  expenses  except  advertising  expenses  related to the  leasing of
Equipment.

         "Original  Invested  Capital"  shall mean the original  gross  purchase
price of the Units contributed by each Member to the capital of the Fund for his
interest in the Fund,  which amount shall be attributed to Units in the hands of
a subsequent Holder.

                                       B-5

<PAGE>

         "Person"  shall  mean any  natural  person,  partnership,  corporation,
association or other legal entity.

         "Priority  Distribution"  shall mean a hypothetical  amount  determined
solely for purposes of the alternative fee schedule calculation to determine the
Asset  Management  Fee  Limit  under  the  provisions  of  Section  8.3 of  this
Agreement.  Such amount will equal,  for any calendar  year or other period with
respect to the Units held by any Person,  the average Adjusted  Invested Capital
with  respect to such  Units  during  such  period  multiplied  by 10% per annum
(calculated on a cumulative  basis,  compounded  daily, from the last day of the
calendar quarter in which the capital  contribution of the initial  purchaser of
such Units was received by the Fund and pro rated for any fraction of a calendar
year for which such calculation is made).

         "Prospectus"  shall mean the final  prospectus filed in connection with
the  registration  of the Units with the Securities  and Exchange  Commission on
Form  S-1,  as  amended,  together  with any  supplement  thereto  which  may be
subsequently filed with such Commission.

          "Purchase  Price of  Equipment"  shall  mean the  price  paid upon the
purchase or sale of a  particular  item of  equipment,  including  the amount of
Acquisition  Fees and all liens and  mortgages on the  equipment,  but excluding
points and prepaid interest.

         "Qualified  Plan" shall mean  employee  trusts (or employer  individual
retirement  accounts),  Keogh Plans and corporate  retirement  plans  qualifying
under Section 401(a) of the Code.

         "Regulations"  shall mean the income tax regulations  promulgated under
the Code,  as such  regulations  may be  amended  from  time to time  (including
corresponding provisions of succeeding regulations).

         "Reimbursable   Administrative   Expenses"   shall  mean  the  ordinary
recurring  administration expenses incurred by the Manager and reimbursed by the
Fund.  Such  expenses  shall  not  include  interest,  depreciation,   equipment
maintenance  or  repair,  third  party  services  or  other   non-administrative
expenses.

         "Reinvestment Period" shall mean the period commencing with the Initial
Closing  Date and  ending on a date 72 months  after the last day of the  fiscal
year during which the Final Closing Date occurs.

         "Related  Person"  means a Person having a  relationship  with a Member
that is described in Regulations Section 1.752-4(b).

         "Resident  Alien"  shall  mean a resident  alien as defined  within the
Federal  Aviation Act of 1958,  as amended from time to time,  or any  successor
statute,  or any  regulations  adopted  pursuant  to such  Act or any  successor
statute.

         "Roll-Up" shall mean a transaction  involving the acquisition,  merger,
conversion or consolidation,  either directly or indirectly, of the Fund and the
issuance of securities of a Roll-Up Entity. Such term does not include:

                                       B-6

<PAGE>

         (a) any  transaction  if the  securities of the Fund have been  for  at
least twelve months  traded  through  the  National  Association  of  Securities
Dealers, Inc. Automated Quotation National Market System; or

         (b) a  transaction  involving the  conversion  to  corporate,  trust or
association  form of only the Fund,  if, as a  consequence  of the  transaction,
there will be no significant adverse change in any of the following:

            (i)      the Members voting rights;
            (ii)     the term of existence of the Fund;
            (iii)    the terms of compensation of the Manager
                      and its Affiliates; or
            (iv)     the Fund's investment objectives.

         "Roll-Up  Entity" means the  partnership,  trust,  corporation or other
entity that would be created or would survive after the successful completion of
a proposed Roll-Up transaction.

         "Service" shall mean the United States Internal  Revenue Service or its
successor.

         "Sponsor" shall mean any Person directly or indirectly  instrumental in
organizing,  wholly  or in part,  a Program  or any  Person  who will  manage or
participate  in the  management  of a  Program,  and any  Affiliate  of any such
Person.  Sponsor  does not  include the  Program  itself or a Person  whose only
relation with the Program is that of an independent  equipment manager and whose
only compensation is as such.  Sponsor does not include wholly independent third
parties such as attorneys,  accountants and underwriters whose only compensation
is for professional services rendered in connection with the offering of Program
interests.

         "Substantially  All of the  Assets"  shall  mean,  unless  the  context
otherwise dictates, Equipment representing 66 2/3% or more of the net book value
of all Equipment as of the end of the most recently completed fiscal quarter.

         "Unit"  shall  mean  the  interest  in the Fund  representing  Original
Invested  Capital in the amount of $10 and shall  entitle the Holder  thereof to
the rights herein provided.

         "United States  Citizen" shall mean a "citizen of the United States" as
defined  within the Federal  Aviation Act of 1958, as amended from time to time,
or any successor statute, or any regulations adopted pursuant to such Act or any
successor statue.

3.       BUSINESS AND PURPOSE

         The primary  purpose of the Fund is to  purchase,  own,  lease and sell
various types of Equipment  pursuant to such  arrangements as the Manager in its
discretion  may  enter  into on behalf  of the  Fund.  The Fund may  enter  into
ventures, partnerships and other business arrangements with respect to Equipment
to the  extent  deemed  prudent by the  Manager  in order to achieve  successful
operations for the Fund,  subject to the provisions of Section 15.4.8.  The Fund
may also engage in such other lawful  activities as may be deemed by the Manager
to be  incident  to its  primary  purpose  or  prudent  and in the  Fund's  best
interest.  The  Fund's  investment  objectives  shall be those  set forth in the
Prospectus,  and the Manager may not make any material change to such investment

                                       B-7

<PAGE>

objectives  without  first   obtaining   the  written  consent  or  approval  of
Members owning more than 50% of the total outstanding Units entitled to vote.

4.       TERM

         The Fund commenced as of the 27th day  of  September,  2000  and  shall
continue until the 31st day of December, 2020, unless  previously  terminated in
accordance with the provisions of this Agreement.

5.       MANAGER

         The Manager has  contributed  $100 in cash to the Fund and at all times
during the existence of the Fund the Manager shall have a present and continuing
interest in Net Income, Net Losses and Distributions according to the provisions
of Article 10.

6.       INITIAL AND ADDITIONAL MEMBERS

         6.1  Initial  Members.  ATEL Capital Group, as the initial  Member, has
contributed the sum of $500 to the capital of the Fund and has received 50 Units
in return therefor.

         6.2 Additional  Members.  The Fund intends to sell and issue to Holders
not less than 120,000 nor more than 15,000,000  additional Units and to admit as
additional  Members the Persons who  contribute  cash to the capital of the Fund
for such Units.

         6.3 Conditions to Admission.  Subject to the provisions of Section 6.6,
each Person who acquires any such additional  Units shall become a Member in the
Fund at such time as he has: (i)  purchased 250 or more Units (200 Units in case
of an IRA or Keogh Plan),  (ii) contributed the sum of $10 in cash for each Unit
purchased (or such lesser net amount as may be provided in  accordance  with the
terms described in the Prospectus under "Plan of Distribution"),  (iii) executed
and filed with the Fund a written  instrument  which sets forth an  intention to
become a Member and requests  admission to the Fund in that  capacity,  together
with such other  instruments  as the Manager may deem  necessary or desirable to
effect such  admission,  including the written  acceptance  and adoption by such
Person of the provisions of this  Agreement,  and the execution,  acknowledgment
and delivery to the Manager of a special power of attorney,  the form, style and
content of which are more fully described  herein,  and (iv) the Manager accepts
such Person as a Member in the Fund.

         6.4 Admission as a Member.  Each Person who  subscribes for Units under
Section  6.2  shall  be  admitted  to the  Fund  promptly  after  the  Manager's
acceptance of such  subscription,  but, except as provided in Section 6.6, in no
event later than 30 days after the receipt by the Fund of such subscription.

         6.5  Limitation  on  Additional Issuance. The Fund shall  not issue any
additional Units after the Final Closing Date.

         6.6 Escrow.  All Original Invested Capital of Holders shall be received
by the Fund in trust, and shall be deposited in an escrow account with a banking
institution designated by the Manager as escrow holder for the Original Invested
Capital,  until  such time as  subscriptions  for a total of 120,000  Units,  in
addition to the Unit  purchased  by the initial  Holder,  representing  Original
Invested  Capital of $1,200,000  have been deposited  therein.  Not less than 15
days after  receipt  of a minimum  of  $1,200,000  of such  additional  Original
Invested  Capital,  the Fund will admit  subscribers into the Fund as additional
Holders.  At the time a subscriber  is admitted as a Holder,  the escrow  holder

                                       B-8

<PAGE>


shall transfer  the  subscriber's  Original  Invested  Capital to  the Fund.  If
the  $1,200,000  minimum is not  obtained  on or before a date one year from the
date of the Prospectus,  all Original Invested Capital will be promptly refunded
to the investors. In any event, any interest earned on Original Invested Capital
while in escrow shall be paid to investors.

         6.7 Capital Account.  An individual Capital Account shall be maintained
for each Member.  The Capital  Account of a Member shall consist of the Original
Invested Capital of such Member,  increased by (i) any additional  contributions
to capital and (ii) such Member's share of Fund Net Income, and decreased by (i)
Distributions  to such Member and (ii) such Member's  share of Fund Net Loss. In
the event a Member  transfers all or a portion of his Units,  the Assignee shall
succeed to the Capital  Account of the  transferor  (as  adjusted for all events
preceding the date the  transferee is deemed  admitted to the Fund under Section
10.3.1)  according  to the  number of Units,  and the  allocable  portion of the
transferor's  Capital  Account,  so  transferred.   No  Holder  shall  have  the
obligation  to restore any deficit in his Capital  Account upon  termination  or
dissolution  of the Fund.  The  foregoing  provisions  of this  Section  6.7 are
intended to comply with Regulation Section 1.704-1(b),  and shall be interpreted
and applied in a manner consistent with such Regulations.

7.       LIABILITY AND STATUS OF MEMBERS

         Holders  shall  not be bound  by,  or be  personally  liable  for,  the
expenses, liabilities or obligations of the Fund, except to the extent, but only
to the extent,  a Holder would be required to return any  Distribution  from the
Fund pursuant to Section 17254(e) of the California Act.

8.       COMPENSATION TO THE MANAGER AND/OR AFFILIATES

         8.1 General  Limitation.  The Manager and its Affiliates  shall receive
compensation   only  as  specified  by  this  Agreement.   In  addition  to  the
compensation  provided herein, the Manager will hold the Carried Interest and be
entitled  to  receive  Distributions  as  provided  in Article  10, and  receive
reimbursement  of costs and  expenses  advanced  as  provided  in Article 9. The
Manager may delegate to its Affiliates all or a portion of its management duties
hereunder,  as described in the  Prospectus,  and may assign all or a portion of
its  compensation  hereunder to one or more such  Affiliates or other parties in
its discretion.

         8.2  Asset  Management  Fee.  The Fund  will pay the  Manager  an Asset
Management Fee in an amount equal to 4% of Operating  Revenues  as  compensation
for the Manager's  services in establishing  and  supervising  management of the
Fund's portfolio of Equipment and its operations.  The Asset Management Fee will
be paid on a monthly  basis.  The amount of the Asset  Management Fee payable in
any year will be reduced for that year to the extent it would  otherwise  exceed
the Asset Management Fee Limit.


         8.3 Asset  Management Fee Limit. The Asset Management Fee Limit will be
calculated  each year during the Fund's term by calculating  the total fees that
would be paid to the Manager for the year in question if the Manager  were to be
compensated on the basis of an alternative fee schedule, to include an Equipment
Management Fee, Incentive Management Fee, and Equipment  Resale/Re-Leasing  Fee,
together with the Carried  Interest,  as provided herein. To the extent that the
total  amount paid to the Manager for the year as the Asset  Management  Fee and
the Carried  Interest would exceed the aggregate  amount of fees that would have
been payable as calculated  under this  alternative  fee schedule for that year,
the Asset  Management  Fee for that year will be  reduced  to equal the  maximum
aggregate fees under the alternative fee schedule.  The limitations set forth in

                                       B-9

<PAGE>


this Section 8.3 will be subject  to  adjustment  pursuant  to  the  limitations
imposed  under  Section 15.7  relating to the Minimum  Investment  in Equipment.
Under Section 15.7, a separate  calculation will be performed upon completion of
the  offering of Units,  final  commitment  of Net  Proceeds to  acquisition  of
Equipment  and  establishment  of  final  levels  of  permanent  portfolio  debt
encumbering such Equipment, and then annually thereafter. To the extent required
under the  provisions of Section 15.7,  the  alternative  fee schedule set forth
below will first be  adjusted  as provided  therein.  Thereafter,  the Asset Fee
Limitation,  using the alternative fee schedule as so adjusted,  will be imposed
under this Section 8.3 and applied to the total Asset Management Fee and Carried
Interest for the year. The  alternative  fee schedule to be used for calculating
the Asset Management Fee Limit shall include:

                  8.3.1 An Equipment  Management  Fee calculated for each fiscal
quarter  and in an amount  equal to (i) 3.5% of the Gross  Lease  Revenues  from
Operating  Leases,  except that if the services are  performed by  nonaffiliated
Persons under the active  supervision of the Manager or its Affiliate,  then the
amount  payable  to the  Manager  or such  Affiliate  shall  be 1% of the  Gross
Revenues from such  Operating  Leases,  and (ii) 2% of Gross  Revenues from Full
Payout Leases which contain Net Lease Provisions;

                  8.3.2 An  Equipment  Resale/Re-Leasing  Fee  calculated  in an
amount equal to the following:  for resale services, the lesser of (i) 3% of the
sales price of the Equipment,  or (ii) one-half the normal competitive equipment
sale commission charged by unaffiliated parties for such services, but in either
case  payable only after the Holders  have  received a return of their  Original
Invested Capital plus a Priority Distribution; plus, for re-leasing services, an
amount equal to the lesser of (i) the competitive  rate for comparable  services
for similar  equipment,  or (ii) 2% of gross  rental  payments  derived from the
re-lease  of such  Equipment  after the time the  re-lease is  consummated  as a
result of the recipient's efforts, payable as each rental payment is received by
the Fund over the term of the re-lease.  No such re-lease fee will be calculated
in  connection  with the  re-lease  of  Equipment  to a  previous  lessee or its
Affiliates;  and such fee will be  calculated  only to the extent the Manager or
its Affiliates have rendered substantial  re-leasing services in connection with
such re-lease;

                  8.3.3 An Incentive  Management  Fee will be  calculated  in an
amount equal to (i) 4% of all  Distributions  of Cash from Operations until such
time as the Holders have received aggregate  Distributions in an amount equal to
their  Original  Invested  Capital  plus  a  Priority  Distribution,   and  (ii)
thereafter,  in an  amount  equal  to 7.5%  of all  Distributions  of Cash  from
Operations and Cash from Sales or  Refinancing.  For the purposes of calculating
the Incentive  Management Fee for any period during which the Fund has available
both Cash from Operations and Cash from Sales or Refinancing,  Distributions  to
Holders  shall first be treated as  consisting  of Cash from  Operations  unless
specifically designated otherwise by the Manager; and

                  8.3.4 The  alternative  fee schedule  will include the Carried
Interest in Distributions provided in Article 10.

         8.4 Other Services. Except as set forth in this Article 8 and Article 9
hereof,  no other services may be performed by the Manager or its Affiliates for
the Fund except in  extraordinary  circumstances  (which  shall be defined as an
emergency  situation  requiring immediate action by the Manager or its Affiliate
and the service is not immediately  available from an unaffiliated  party).  Any
such other  services must meet the  following  criteria:  (i) the  compensation,
price or fee therefor must be comparable and competitive with the  compensation,
price or fee of any other Person who is rendering comparable services or selling
or leasing comparable goods which could reasonably be made available to the Fund

                                      B-10

<PAGE>



and shall be on competitive terms, (ii) the fees and other terms of the contract
shall be fully disclosed to Holders, (iii) the Manager or its Affiliates must be
previously  engaged in the  business of  rendering  such  services or selling or
leasing  such goods,  independently  of the Fund and as an ordinary  and ongoing
business and at least 75% of such  Person's  gross  revenues  from such activity
must be derived from other than Affiliates of the Manager, and (iv) all services
for which the Manager or its  Affiliates  are to receive  compensation  shall be
embodied in a written  contract  which  precisely  describes  the services to be
rendered and all compensation to be paid, which contract may only be modified by
a vote of the  majority of the Holders.  Said  contract  shall  contain a clause
allowing termination without penalty on 60 days notice.

         8.5 Payment of Fees on Removal.  Should the Manager be removed from the
Fund  according to  provisions  of Article 17, any portion of any fee payable to
the Manager  according to the provisions of this Article 8 which is then accrued
and due,  but not yet  paid,  shall be paid by the Fund to the  Manager  in cash
within  30 days of the date of  expulsion  as stated  in the  written  notice of
expulsion.

         8.6 Employment of Broker-Dealers.  The Fund may employ underwriters and
selected broker-dealers, including Affiliates of the Manager as set forth in the
Prospectus, for the sale of Units.

9.       FUND EXPENSES AND RESERVES

         9.1  Reimbursement  of Manager.  Except as set forth in this Article 9,
all of the Fund's expenses shall be billed directly to and paid by the Fund. The
Manager and its  Affiliates  may be reimbursed  for the following Fund expenses:
(i) Organization and Offering Expenses not in excess of 15% of Gross Proceeds up
to $25,000,000  plus 14% of all Gross  Proceeds in excess of $25,000,000  (or an
amount equal to 12% of the Gross  Proceeds if, upon  termination of the offering
of Units, the total Gross Proceeds are in an amount less than $2,000,000);  (ii)
the actual  cost of goods and  materials  used for and by the Fund and  obtained
from entities  unaffiliated with the Manager; and (iii) administrative  services
necessary to the prudent operation of the Fund, provided that such reimbursement
for administrative  services will be at the lower of (A) the actual cost of such
services,  or (B) the amount which the Fund would be required to pay independent
parties for comparable  administrative services in the same geographic location;
provided further that,  beginning with the first full year after the termination
of the  offering  of Units,  the total  amount  of  Reimbursable  Administrative
Expenses  payable  by the Fund for the  remainder  of its term may not  exceed a
cumulative  limit.  This cumulative  limit on such  Reimbursable  Administrative
Expenses will equal, as of any date, a maximum of (i) 0.5% of the Gross Proceeds
per annum if the total  Gross  Proceeds  are at least 90% of the  maximum  Gross
Proceeds; (ii) 0.75% of the Gross Proceeds per annum if the total Gross Proceeds
are at least 75%, but less than 90%, of the maximum Gross Proceeds; and (iii) 1%
of the Gross Proceeds per annum if the total Gross Proceeds are less than 75% of
the maximum  Gross  Proceeds.  In addition,  beginning  with the first full year
after  the  termination  of  the  offering  of  Units,  the  maximum  amount  of
Reimbursable  Administrative  Expenses  payable by the Fund for any single  year
shall be limited to an amount equal to 1% of the Gross Proceeds.

        9.2 Limitation on Reimbursement. The Manager and its Affiliates will not
be reimbursed by the Fund for the following expenses:

                  9.2.1 Services for which the Manager  or  its  Affiliates  are
entitled to compensation in the form of a separate fee  pursuant  to  Article  8
hereof;

                                      B-11
<PAGE>

                  9.2.2 Rent or depreciation, utilities or capital equipment and
other administrative items of the Sponsor;

                  9.2.3   Salaries,   fringe   benefits,   travel   expenses  or
administrative  items incurred by or allocated to any Controlling  Person of the
Manager or its  Affiliates.  For  purposes  of this  subparagraph,  "Controlling
Person" shall mean any person,  regardless of title,  who performs  executive or
senior management  functions for the Manager or its Affiliates  similar to those
of executive management or senior management, and directors, or those holding 5%
or more equity interest in the Manager or its Affiliates;  or persons having the
power to direct or cause the  direction  of the  Manager or  Affiliates  through
ownership of voting  securities,  by contract or  otherwise.  It is not intended
that  every  person  who  carries a title such as vice  president,  senior  vice
president,  secretary,  controller  or  treasurer be  considered  a  Controlling
Person;

                  9.2.4  Organization  and Offering  Expenses of the Fund to the
extent such  Organization and Offering Expenses exceed 15% of the Gross Proceeds
up to $25,000,000 plus 14% of all Gross Proceeds in excess of $25,000,000 (or an
amount equal to 12% of the Gross  Proceeds if, upon  termination of the offering
of Units, the total Gross Proceeds are in an amount less than  $2,000,000),  and
the Manager guarantees  payment of any such excess expenses,  which guarantee is
without recourse to, or reimbursement by, the Fund; and

                  9.2.5 All other expenses which are unrelated to  the  business
of the Fund.

         9.3 Fund Expenses.  Subject to Sections 9.1 and 9.2, the Fund shall pay
all  expenses  of the Fund which may  include,  but are not  limited to: (i) all
costs of personnel employed by the Fund and involved in the business of the Fund
(which  may  include  personnel  who are  employed  by a Manager  or one or more
Affiliates),  (ii) all taxes  and  assessments  on  Equipment  and  other  taxes
applicable to the Fund, (iii) legal, appraisal, audit, accounting, brokerage and
other fees,  (iv)  printing,  engraving and other expenses and taxes incurred in
connection with the issuance, distribution, transfer, registration and recording
of documents  evidencing  ownership of an interest in the Fund or in  connection
with  the  business  of the  Fund,  (v) fees and  expenses  paid to  independent
contractors, brokers and servicers, leasing agents, consultants, equipment lease
brokers,  insurance  brokers and other agents,  (vi) expenses in connection with
the  acquisition,  disposition,  replacement,  alteration,  repair,  leasing and
operation of Equipment  (including the costs and expenses of insurance premiums,
equipment  lease  brokerage and leasing  commissions  and of maintenance of such
Equipment),  (vii) the cost of  insurance  as  required in  connection  with the
business  of the  Fund,  (viii)  expenses  of  organizing,  revising,  amending,
converting,  modifying or terminating the Fund, (ix) the cost of preparation and
dissemination  of the  informational  material  and  documentation  relating  to
potential  sale or  other  disposition  of  Equipment,  (x)  costs  incurred  in
connection  with any  litigation  in which the Fund is involved,  as well as the
examination,  investigation  or other  proceedings  conducted by any  regulatory
agency,  including legal and accounting  fees incurred in connection  therewith,
(xi) costs of any computer  equipment or services used for or by the Fund, (xii)
costs of any accounting,  or statistical bookkeeping equipment necessary for the
maintenance  of the  books and  records  of the Fund,  and  (xiii)  the costs of
supervision  and expenses of  professionals  employed by the Fund in  connection
with any of the foregoing,  including  attorneys,  accountants  and  appraisers;
provided, however, that the cost of any services relating to items (vi) or (vii)
above must either be  attributable  to services  performed by Persons other than
the Manager or its  Affiliates,  be  compensated  by a specific fee described in
Article 8 (and thus  would not be  reimbursable  by the  Fund,  as  provided  in
Section  9.2.1) or comply  with the  requirements  for  compensation  for "other
services" as provided in Section 8.3.5.

                                      B-12

<PAGE>

         9.4  Reserves.  The Fund shall  initially  establish a cash reserve for
general working  capital  purposes in an amount equal to at least one-half of 1%
of the Gross Proceeds. Upon the disposition of each item of Equipment,  any cash
reserve  which  was  specifically  allocated  to  that  Equipment  need  not  be
maintained thereafter,  but may be applied as reserves for other Equipment.  Any
cash  reserve used as  aforesaid  need not be restored  and if restored,  may be
restored out of Gross Lease Revenues.

10.      ALLOCATION OF INCOME, LOSS AND DISTRIBUTIONS

         10.1  Allocation  of Net Income  and Net Loss Prior to Initial  Closing
Date.  From the  commencement  of the Fund until the  Initial  Closing  Date Net
Income and Net Loss shall be allocated  99% to the Manager and 1% to the initial
Holders.

         10.2  Allocation of Net Income and Net Loss After Initial Closing Date.

                  10.2.1  Commencing  with the Initial  Closing Date, Net Income
and Net Loss shall be allocated 92.5% to the Holders and 7.5% to the Manager.

                  10.2.2 Notwithstanding Section 10.2.1 of this Agreement, items
of Net Loss  arising out of the Fund's  payment of  expenditures  classified  as
syndication  expenses pursuant to Regulations section 1.709-2(b) with respect to
each Unit shall be specially allocated to the Holder who acquires such Unit.

         10.3  Special Allocations

                  10.3.1 Except as provided in section 10.3.2,  Net Income,  Net
Loss  and  Distributions  allocable  to the  Holders  shall be  determined  on a
quarterly  basis and shall be allocated  among the Holders in the ratio in which
the number of Units held by each of them bears to the total number of Units held
by all Holders as of the last day of the fiscal  quarter  with  respect to which
such Net Income, Net Loss and Distributions are attributable; provided, however,
that, with respect to Net Income, Net Loss and Distributions attributable to the
offering  period of the Units  (including the full quarter in which the offering
terminates),  such Net Income,  Net Loss and Distributions  shall be apportioned
among the  Holders  in the ratio in which (i) the  number of Units  held by each
Holder  multiplied by the number of days during such period that such Holder was
the owner of such Units bears to (ii) the amount obtained by totaling the number
of Units outstanding on each day during such period. No Net Income,  Net Loss or
Distributions   with  respect  to  any  quarter  shall  be  allocated  to  Units
repurchased by the Fund during such quarter,  and such Units shall not be deemed
to have been  outstanding  during  such  quarter for  purposes of the  foregoing
allocations.

                  10.3.2  Notwithstanding  anything  in  this  Agreement  to the
contrary,  the  following  items  of Fund  income  and loss  shall be  specially
allocated to the Members in the manner described below:


                  (i) Gain characterized as recapture income under Sections 1245
                  or 1250 of the Code shall be  allocated  to those  Members who
                  claimed the deductions giving rise to such recapture income.

                  (ii) Except as provided in Section 10.3.2(iii) and 10.3.2(iv),
                  in   the  event  any   Member   unexpectedly   receives    any
                  adjustments,    allocations   or    distributions    described
                  in   Sections    1.704-1(b)(2)(ii)(d)(4),   (5)   or   (6)  of
                  the    Regulations   or   any    other    event   creates   an

                                      B-13

<PAGE>

                  Adjusted  Capital  Account  Deficit for such Member,  items of
                  Fund gross income and gain  (consisting  of a pro rata portion
                  of each item of the Fund's income, including gross income, and
                  gain for such year)  shall be  allocated  to such Member in an
                  amount  and  manner  sufficient  to  eliminate,  to the extent
                  required by Regulations,  the Adjusted Capital Account Deficit
                  created by such  adjustments,  allocations or distributions as
                  quickly as possible.  This Section  10.3.2(ii)  is intended to
                  comply with the qualified income offset requirement in Section
                  1.704-1(b)(2)(ii)(d)   of  the   Regulations   and   shall  be
                  interpreted consistently therewith.

                  (iii) If there is a net  decrease in Member  Nonrecourse  Debt
                  Minimum  Gain,   each  Member  with  a  share  of  the  Member
                  Nonrecourse  Debt Minimum Gain (as  determined  in  accordance
                  with  Regulations  Section  1.704-2(i)(5))  shall be specially
                  allocated items of Fund income and gain for such year (and, if
                  necessary,  subsequent  years) in  proportion  to,  and to the
                  extent of, an amount  equal to the  portion  of such  Member's
                  share of the net decrease in Member  Nonrecourse  Debt Minimum
                  Gain during such year.  The items to be so allocated  shall be
                  determined  in  accordance  with  Regulations  Section  1.704-
                  2(i)(4).  This Section  10.3.2(iii) is intended to comply with
                  the   minimum   gain   chargeback   requirement   in   Section
                  1.704-2(i)(4)  of the  Regulations  and  shall be  interpreted
                  consistently therewith.

                  (iv) If there is a net  decrease in Fund  Minimum  Gain during
                  any  Fund  taxable  year,   each  Member  shall  be  specially
                  allocated items of Fund income and gain for such year (and, if
                  necessary,  subsequent  years) in  proportion  to,  and to the
                  extent of, an amount  equal to the  portion  of such  Member's
                  share of the net  decrease  in Fund  Minimum  Gain during such
                  year  (within  the  meaning  of Section  1.704-2(g)(2)  of the
                  Regulations). The items to be so allocated shall be determined
                  in accordance with Section 1.704-2(f) of the Regulations. This
                  Section 10.3.2(iv) is intended to comply with the minimum gain
                  chargeback  requirement contained in Section 1.704-2(f) of the
                  Regulations and shall be interpreted consistently therewith.

                  (v)  After  giving  effect  to the  allocations  set  forth in
                  Sections  10.3.2(ii),  (iii) and (iv), in the event any Member
                  receives  any  actual  or  deemed  distribution  (i.e.,  under
                  section 752 of the Code) during a taxable  year which  exceeds
                  the  adjusted tax basis of such  Member's  Units at the end of
                  such taxable year (determined immediately before giving effect
                  to such  distribution),  such  Member  shall be  allocated  an
                  amount of gross income or gain equal to such excess.

                  (vi) In the event any fee to which the Manager or an Affiliate
                  thereof is entitled is treated as a Fund  distribution  by the
                  Service,  a special  allocation  of Fund gross income shall be
                  made  annually  to the Manager or an  Affiliate  thereof in an
                  amount equal to any such  recharacterized fee for that taxable
                  year.

                  (vii) The Manager  will  specifically  allocate  items of gain
                  from the sale or other  disposition  of items of Equipment for
                  any  year in  which  the  sale or  disposition  of any item of
                  Equipment occurs (and, if necessary,  subsequent years) to any
                  Holder in such  amounts  and in such  manner so as to equalize
                  the  Capital  Account  balances  of  the  Holders;   provided,
                  however, that such allocations are reasonably consistent with,
                  and reasonably supportable under, the Code.

                                      B-14

<PAGE>

                  (viii) Net Loss shall not be  allocated  to any Holder if such
                  allocation would cause or increase an Adjusted Capital Account
                  Deficit for such Holder at the end of any Fund  taxable  year,
                  and any  such Net  Loss  shall  instead  be  allocated  to the
                  Manager.  This  limitation  shall be  applied  on a Holder  by
                  Holder  basis so as to allocate  the maximum  permissible  Net
                  Loss to each Holder under Section  1.704-1(b)(2)(ii)(d) of the
                  Regulations.

                  (ix) To the extent an  adjustment  is made to the adjusted tax
                  basis of any Fund asset  pursuant  to Code  Section  734(b) or
                  Code Section 743(b),  the Members,  Capital  Accounts shall be
                  adjusted     as    provided     in     Regulations     Section
                  1.704-1(b)(2)(iv)(m).

                  (x)  Except  as   otherwise   provided   herein,   Nonrecourse
                  Deductions shall be allocated 92.5% to the Holders and 7.5% to
                  the Manager.

                  (xi) Any deduction  attributable  to Member  Nonrecourse  Debt
                  shall be allocated to the Members that bear the economic  risk
                  of loss for the Member Nonrecourse Debt.

         10.4  Distribution of Cash From Operations.  Cash from Operations shall
be distributed 92.5% to the Holders and 7.5% to the Manager.

         10.5  Distribution of Cash From Sales or Refinancing.  Cash from  Sales
or Refinancing shall be distributed  92.5%  to  the  Holders  and  7.5%  to  the
Manager.

         Notwithstanding  anything  to the  contrary  herein,  however,  no cash
Distribution  shall be made to a Holder to the extent that,  after giving effect
to all allocations under sections 10.1, 10.2 and 10.3 which would accompany such
Distribution  (including  allocations  of gross  income and gain  under  section
10.3.2(iv)),  such Distribution would exceed the tax basis of the Holder to whom
such Distribution is otherwise payable.

         10.6 Distributions of Cash from Reserve Account.  Distributions of Cash
from Reserve  Account,  if any,  shall be distributed in the same manner as Cash
from Sales or Refinancing.

         10.7 Determination of Amounts to be Distributed. The Manager shall have
sole  discretion  in  determining  the amount of any  Distributions.  Subject to
provisions of Section 15.4.18 of this  Agreement,  the Manager may use any funds
of the Fund not distributed to Holders to purchase  additional  Equipment during
the Reinvestment  Period or otherwise as permitted by this Agreement;  provided,
however,  that the Manager will not reinvest in Equipment,  but will distribute,
subject to payment of any  obligations  of the Fund,  such  available  Cash from
Operations and Cash from Sales or Refinancing as may be necessary to cause total
Distributions  to  Holders  to equal the  following  amounts  for the  specified
periods:

                  10.7.1  Through the first full fiscal  quarter ending at least
six months after  termination  of the offering of Units,  an amount equal to the
lesser of (a) a rate of return on their original capital  contribution  equal to
3.5% over the average yield on five-year  United States  Treasury  Bonds for the
fiscal quarter immediately preceding the date of distribution, as published in a
national  financial  newspaper from time to time (with a minimum of 9% per annum
and a  maximum  of 11%  per  annum),  or (b)  90% of the  total  amount  of cash
available for distributions; and


                                      B-15

<PAGE>


                  10.7.2 For each quarter during the balance of the Reinvestment
Period,  an  amount  equal  to a  rate  of  return  on  their  original  capital
contribution  equal to 3.5% over the average  yield on five-year  United  States
Treasury  Bonds for the period from the  commencement  of the  offering of Units
through a date six months following the termination date of the offering (with a
minimum  of 9% per annum and a maximum  of 11% per  annum),  as  published  in a
national financial newspaper.


                  10.7.3  Such  amounts  with  respect  to each  year  which are
sufficient  to allow a Holder in a 31%  federal  income tax  bracket  (but not a
higher  bracket) to pay the federal income taxes and state income taxes due with
respect to Net Income derived by him from the Fund for such year.

         10.8 Consent to Allocations. The methods hereinabove set forth by which
Distributions  and  allocations  of  Net  Income  and  Net  Loss  are  made  and
apportioned  are  hereby  expressly  consented  to by each  Member as an express
condition to becoming a Member.

         10.9  Limitation on Distributions. All Distributions are subject to the
payment of Fund expenses and to maintenance and repair of Equipment.

         10.10  Allocation  to  Manager.  To the  extent  that the Fund shall be
entitled to any  deduction  for federal  income tax  purposes as a result of any
interest in Net Income or Net Loss granted to a Manager, such deduction shall be
allocated for federal income tax purposes to such Manager.

         10.11  Return of Unused  Capital.  In the event that any portion of the
Net Proceeds  received by the Fund during the first twelve months after the date
of the  Prospectus is not invested or committed for investment  within  eighteen
months of the date of the  Prospectus,  or in the event any  portion  of the Net
Proceeds  received  by the Fund  thereafter  is not  invested or  committed  for
investment within six months from the Final Closing Date (except for any amounts
used to pay Fund operating expenses, including amounts set aside for reserves as
set forth in Section 9.4), such portion of the Net Proceeds shall be distributed
to the  Holders pro rata by the Fund as a return of capital.  In  addition,  the
Manager shall  contribute to the Fund, and the Fund shall distribute pro rata to
the Holders,  the amount by which (x) the amount of unused  capital  distributed
pursuant to the foregoing  sentence,  divided by (y) the percentage of the Gross
Proceeds  which remain after  payment of all Front End Fees,  exceeds the unused
capital so  distributed.  For the purposes of this Section 10.11,  funds will be
deemed to have been  committed  to  investment  and will not be  returned to the
Holders  to  the  extent   written   agreements   in  principle  or  letters  of
understanding  were  executed  at any  time  prior  to the end of  said  period,
regardless of whether any such  investment is actually  consummated,  and to the
extent any funds have been  reserved to make  contingent  payments in connection
with any Equipment, regardless of whether any such payment is actually made.

         10.12  Distributions  in  Kind.  Distributions  in  kind  shall  not be
permitted  except  upon  dissolution  and  liquidation,   and  then  only  to  a
liquidating  trust which has been established for the purpose of the liquidation
of the assets of the Fund, and the  distribution  of cash in accordance with the
terms of the Agreement.







                                      B-16

<PAGE>

         10.13  Withholding Taxes.

                  10.13.1  In the event the Fund pays to any  federal,  state or
local government  authority any amount of tax, penalty,  interest,  fee or other
expenditure  which  is  attributable  to the  particular  status  of one or more
Holders including,  without limitation,  the status of a Holder as a nonresident
of California or any other state imposing such a charge, the Manager shall treat
such tax,  penalty,  interest  or fee,  and in its  discretion  may treat  other
related Fund  expenditures,  as a distribution  of Cash from  Operations or Cash
from Sales or Refinancing as appropriate,  to such Holders.  Such a distribution
shall  reduce  the  amount  of Cash  from  Operations  or  Cash  from  Sales  or
Refinancing otherwise payable by the Fund to such Holders. Such Holders shall be
distributed  any  refund of any such tax,  penalty,  interest  or other  amounts
received by the Fund; provided,  however, that the distribution due such Holders
shall be reduced by any Fund  expenses  (and such  expenses  shall be  specially
allocated to such Holders)  incurred in connection with the payment or obtaining
of the refund of such taxes,  penalties,  interest or other amounts and the Fund
shall have no duty or obligation to seek to obtain or collect any such refund or
expend any amount to reduce the amount of any withholding,  penalty, interest or
other amount  otherwise  payable to any  government  authority.  The Manager may
require  from  a  Holder  the  appropriate  documentation  with  respect  to any
distribution hereunder.

                  10.13.2 As security  for any  withholding  tax or other amount
referred to in section  10.14.1 or other  liability or  obligation  to which the
Fund may be  subject  as a result of any act or status of any  Holder,  the Fund
shall have (and each Holder  hereby  grants to the Fund) a security  interest in
all Cash from Operations or Cash from Sales or Refinancing distributable to such
Holder to the extent of the amount of such withholding tax or other liability or
obligation.   The  Fund  shall  have  a  right  of  set-off   against  any  such
distributions  of Cash from  Operations or Cash from Sales or Refinancing in the
amount of such withholding tax or other liability or obligation.

11.      ASSIGNMENT OF FUND INTERESTS

         11.1 Limitations on Transfer.  A Holder may not transfer all or part of
his legal and  equitable  interest in his Units  except in  compliance  with the
provisions of this Agreement. The Manager may condition any proposed transfer on
receipt by the Fund of such representations and warranties of the transferor and
the  assignee,  opinions of counsel for the Fund and other  assurances as it may
deem necessary and appropriate to ensure that:

                  11.1.1 such  assignments  or transfers  do not result,  in the
opinion of counsel for the Fund, in the Fund being considered to have terminated
within the meaning of Section 708 of the Code;

                  11.1.2  the assignee is not a minor or an incompetent;

                  11.1.3  the transfer or assignment does not violate federal or
state securities laws;

                  11.1.4  the  transferor  or the  assignee  does not hold Units
representing  Original  Invested Capital of less than $2,500 ($2,000 in the case
of IRAs and Keogh Plans);

                  11.1.5  such assignee is a Citizen of the United States;

                  11.1.6  such assignment or transfer does not cause the  assets
of the Fund to be deemed "plan assets" for ERISA purposes;

                                      B-17

<PAGE>

                  11.1.7 such  assignment  or  transfer  does not  constitute  a
transfer "on a secondary market (or the substantial  equivalent thereof)" within
the meaning of Section 7704 of the Code or otherwise adversely affecting the tax
status of the Fund; and

                  11.1.8 the transferor  files with the Fund a duly executed and
acknowledged   counterpart  of  the  instrument  effecting  such  assignment  or
transfer,  which instrument  evidences the written acceptance by the assignee or
transferee  of all of the terms and  provisions  of this  Agreement,  contains a
representation  that such assignment or transfer was made in accordance with all
applicable   laws  and   regulations   (including   any   investor   suitability
requirements) and in all other respects being satisfactory in form and substance
to the Manager.

         11.2  Distributions  and  Effective  Date of  Transfer.  An Assignee of
Record shall be entitled to receive  Distributions from the Fund attributable to
the Units  acquired by reason of such  assignment  from and after the  effective
date of the assignment of such Units;  provided,  however,  that notwithstanding
anything  herein to the contrary,  the Fund and the Manager shall be entitled to
treat the assignor of such Units as the absolute  owner thereof in all respects,
and  shall  incur  no  liability  for  allocations  of Net  Income,  Net Loss or
Distributions,  or  transmittal  of reports and notices  required to be given to
Holders hereunder, which are made in good faith to such assignor until such time
as the  written  instrument  of  assignment  has been  received  by the Fund and
recorded on its books and the effective date of the  assignment has passed.  The
effective  date of such  assignment  on which  the  Assignee  shall be deemed an
Assignee  of  Record  shall be the last day of the  first  full  calendar  month
following  the  later of (i) the date set  forth on the  written  instrument  of
assignment  or (ii)  the  date on  which  the  Fund  has  actual  notice  of the
assignment of Units and has received  complete  documentation of the assignment.
Notwithstanding  anything to the contrary  contained  herein,  no  Distributions
shall be made in any calendar  quarter with respect to Units  repurchased by the
Fund during such calendar quarter.

         11.3 Governmental Restrictions. No assignment, sale, transfer, exchange
or other  disposition  of Units may be made except in  compliance  with the then
applicable  rules of any  other  applicable  governmental  authority.  All Units
originally  issued  pursuant to  qualification  under the  California  Corporate
Securities  Law of 1968 shall be subject to, and all documents of assignment and
transfer evidencing such securities shall bear, the following legend condition:

"IT IS  UNLAWFUL TO  CONSUMMATE  A SALE OR  TRANSFER  OF THIS  SECURITY,  OR ANY
INTEREST THEREIN,  OR TO RECEIVE ANY CONSIDERATION  THEREFOR,  WITHOUT THE PRIOR
WRITTEN CONSENT OF THE  COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA,
EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES."

No  transfer  of any such Unit shall be made  unless the  transferor  shall have
obtained,  if necessary,  the written consent of the California  Commissioner of
Corporations to such transfer.

         11.4 Non-Complying Transfers.  Any assignment,  sale, exchange or other
transfer in  contravention  of any of the provisions of this Article 11 shall be
void and shall not bind or be recognized by the Fund.

         11.5  Misrepresentation  and Forfeit.  Subject to the discretion of the
Manager,  in the event a Holder  who  originally  obtained  Units in the  Fund's
offering  misrepresented  that he was a Citizen of the United States, or that it
was not an IRA or Qualified  Plan or purchasing on behalf of an IRA or Qualified
Plan,  such  person  fails to  remain  a  Citizen  of the  United  States,  or a

                                      B-18

<PAGE>


subsequent  transferee  of Units is not or fails to  remain  a  Citizen  of  the
United States, such Person may, in the Manager's discretion if it deems that the
Fund will fail certain  citizenship  requirements with respect to its Equipment,
be required to forfeit  such Units to the Fund and no longer be entitled to cash
Distributions  or  allocations  of the Fund,  receipt of Fund reports and voting
privileges, although he may realize proceeds upon the transfer of his Units to a
Citizen of the United States,  which subsequent  transferee would be entitled to
the full economic benefits and other privileges attributable to such Units.

12.      SUBSTITUTED MEMBERS

         12.1 Limitations on  Substitution.  No Assignee shall have the right to
become a substituted  Member of the Fund in place of his assignor  unless all of
the following conditions are first satisfied:

                  12.1.1 A duly executed and acknowledged  written instrument of
assignment  covering  no less than 250 Units (200 in the case of an IRA or Keogh
Plan) shall have been filed with the Fund,  which  instrument  shall specify the
number of Units being  assigned and set forth the intention of the assignor that
the Assignee succeed to the assignor's interest as a substituted Member.

                  12.1.2 The  assignor  and  Assignee  shall have  executed  and
acknowledged  such  other  instruments  as the  Manager  may deem  necessary  or
desirable to effect such  substitution,  including  the written  acceptance  and
adoption by the Assignee of the provisions of this Agreement, as the same may be
amended  and his  execution,  acknowledgment  and  delivery  to the Manager of a
special power of attorney, the form and content of which are described herein;

                  12.1.3 The written consent of the Manager to such substitution
shall have been  obtained,  the granting of which may be withheld by the Manager
in its sole discretion, and any exercise of such discretion intended to preserve
the tax consequences of Unit ownership shall presumptively be deemed reasonable;

                  12.1.4 A transfer  fee not to exceed $100 shall have been paid
to the Fund to cover all reasonable  expenses  connected with such substitution;
and

                  12.1.5  The  provisions  of  Section  11.1  and  11.3  of this
Agreement are complied with.

         12.2 Consent to  Admission.  By executing or adopting  this  Agreement,
each Holder  hereby  consents to the  admission  of  additional  or  substituted
Holders by the Manager and to any Assignee  becoming a  substituted  Holder,  in
accordance with the provisions herein.

         12.3 Amendment of Agreement.  The Manager shall cause this Agreement to
be amended to reflect the admission and/or substitution of Members at least once
in each fiscal quarter.

13.      REPURCHASE OF FUND INTERESTS

         13.1 In the event a Holder  ceases  to be a United  States  Citizen  or
Resident Alien for any reason whatsoever,  he may be required,  in the Manager's
discretion,  to tender  his Units to the Fund for  repurchase  as of the date of
such event.  The Fund will have the absolute  right to purchase  such Units at a
price  equal to 100% of the  Holder's  Capital  Account as of such date,  in all

                                      B-19

<PAGE>

cases  determined  as of the last day  of  the  quarter  prior  to  the   fiscal
quarter  during  which such Units are  repurchased.  IT SHOULD BE NOTED THAT THE
FUND WILL NOT BE OBLIGATED TO PURCHASE UNITS FROM HOLDERS WHO CEASE TO BE UNITED
STATES CITIZENS OR RESIDENT ALIENS.

         13.2 The Manager may  otherwise  use  available  Reserves to repurchase
Units,  in its  discretion  and on terms it determines to be  appropriate  under
given  circumstances,  in the event the Fund Manager deems such repurchase to be
in the best interest of the Fund; provided,  the Fund shall never be required to
repurchase any Units. Upon the repurchase of any Units by the Fund, the tendered
Units shall be canceled  and shall no longer be deemed to  represent an interest
in the Fund; and,  provided  further,  that any such repurchase shall not impair
the capital of the Fund,  or cause the Fund or any of its  remaining  Members to
incur an adverse tax consequence as a result of such repurchase.

         13.3 The Manager  shall cause this  Agreement  to be amended to reflect
the change in the  interests  of the Holders  (including  the person whose Units
were  repurchased) in the Net Income,  Net Loss and Distributions of the Fund at
least once in each fiscal quarter.

         13.4  Neither the Manager  nor its  Affiliates  may request the Fund to
repurchase any Units owned by them.

14.      BOOKS, RECORDS, ACCOUNTINGS AND REPORTS

         14.1 Books of Account and Records.  The Manager  shall,  for income tax
purposes,  keep on an accrual basis adequate books of account and records of the
Fund wherein  shall be recorded and reflected  all of the  contributions  to the
capital of the Fund and all of the expenses and transactions of the Fund.

                  14.1.1  Such books of account and records shall include the
                          following:

                            (i) A current  list of the full name and last  known
                           business or residence address and business  telephone
                           number of each Member set forth in alphabetical order
                           together  with the  Original  Invested  Capital,  the
                           Units  held and the share in Net  Income and Net Loss
                           of each Member,  which list shall be updated at least
                           quarterly  to  reflect  changes  in  the  information
                           contained therein;

                           (ii) A copy of the Articles of  Organization  and all
                           amendments,  together  with  executed  copies  of any
                           powers of attorney  pursuant to which any certificate
                           has been executed;

                           (iii) Copies of the Fund's  federal,  state and local
                           income tax or  information  returns and  reports,  if
                           any, for the six most recent taxable years;

                           (iv) Copies of the  original of  this  Agreement  and
                           all amendments;

                           (v) Financial statements of the Fund for the six most
                           recent fiscal years; and

                           (vi) The Fund's  books and  records  for at least the
                           current and past three fiscal years.

                                      B-20

<PAGE>

                  14.1.2 Such books of account and records  shall be kept at the
principal  place of  business of the Fund in the State of  California,  and each
Member and his authorized representatives shall have, at all times during normal
business hours and at any other reasonable time, free access to and the right to
inspect and copy at their  expense  such books of account and all records of the
Fund.

                  14.1.3 Upon the request of a Member, the Manager shall mail to
such Member within ten days of the request a copy of the  information  described
in  Section  14.1.1(i),  (ii) and (iv).  The  information  described  in Section
14.1.1(i)  shall be printed in  alphabetical  order,  on white  paper,  and in a
readily  readable type size (in no event smaller than ten-point  type). The Fund
may require payment of a reasonable charge for copy work.

                  14.1.4 If the Manager neglects or refuses to exhibit,  produce
or mail a copy of the  information in Section  14.1.1(i)  above as requested and
required  under  this  Agreement,  the  Manager  shall be liable  to the  Member
requesting the information for the costs, including attorneys' fees, incurred by
the Member for compelling  production of the  information and for actual damages
suffered  by the  Member by reason of such  refusal  or  neglect.  It shall be a
defense that the actual  purpose and reason for the requests for  inspection  or
for a copy of the  information  is to  secure  the  list  of  Members  or  other
information for the purpose of selling such list or copies thereof,  or of using
the same for a commercial  purpose other than in the interest of the  requesting
person as a Member  relative to the affairs of the Fund. The Manager may require
that a Member  requesting the  information in Section  14.1.1(i) above represent
that  the  list is not  requested  for a  commercial  purpose  unrelated  to the
Member's  interest  in the Fund.  The  remedies  provided  hereunder  to Members
requesting  copies of the information in Section 14.1.1(i) above are in addition
to, and shall not in any way limit,  other remedies available to Limited Members
under federal law or the laws of any state.

                  14.1.5 Subject to any change pursuant to Section  15.2.8,  all
books and records of the Fund shall be kept on the basis of an annual accounting
period ending  December 31, except for the final  accounting  period which shall
end on the  dissolution or  termination of the Fund. All references  herein to a
"year of the Fund" are to such an annual accounting  period,  and all references
to a Fund  "quarter"  shall  refer to a calendar  quarter  unless and until such
periods are changed by an amendment hereto.  Accelerated methods of depreciation
with  respect to Fund assets and other  elections  available  to the Fund may be
used by the Fund for purposes of reporting federal or state income taxes.

         14.2  Audited  Annual  Financial  Statements.  The  Manager  shall have
prepared and  distributed  to the Holders at least  annually,  at Fund  expense,
financial statements (each of which shall include a balance sheet,  statement of
income or loss,  statement  of  Members'  equity,  and  statement  of cash flow)
prepared  in  accordance  with  generally  accepted  accounting  principles  and
accompanied  by a  report  thereon  containing  an  opinion  of  an  independent
certified  public  accounting  firm. Such opinion shall also state that reported
"Cash from Operations" is consistent with the definition of Cash from Operations
herein. Copies of such statements and report shall be distributed to each Holder
within 120 days after the close of each taxable year of the Fund.

         14.3 Other  Annual  Reporting.  The  Manager  shall have  prepared  and
distributed to the Holders at least annually,  at Fund expense:  (i) a statement
of cash flow, (ii) Fund information necessary in the preparation of the Holders'
and Assignees' federal income tax returns; (iii) a report of the business of the
Fund,  which  shall  include  for each  piece of  Equipment  which  individually
represents at least 10% of the Fund's total  investment  in Equipment,  a status
report to indicate: (a) the condition of the Equipment, (b) how the Equipment is
being used as of the end of the year (leased,  operated, held for lease, repair,

                                      B-21

<PAGE>

or sale), (c) the remaining term  of  the  Equipment  leases,  (d) the projected
use of Equipment for the next year (renewal of lease, re-lease,  retirement,  or
sale),  and (e)  such  other  information  relevant  to the  value or use of the
Equipment as the Manager deems  appropriate,  including the method used as basis
for valuation;  (iv) a statement as to the compensation  received by the Manager
and its  Affiliates  from the Fund during the year,  which  statement  shall set
forth the services  rendered or to be rendered by the Manager and its Affiliates
and the amount of fees received;  (v) a report identifying  Distributions  from:
(a) Cash from  Operations  for that year, (b) Gross Revenues of prior years held
in  reserves,  (c) Cash from  Sales or  Refinancing,  and (d) Cash from  Reserve
Account and other sources; and (vi) a special report prepared in accordance with
the American  Institute of Certified Public  Accountants  United States Auditing
Standards  relating to special reports,  containing an opinion of an independent
certified  public  accounting  firm,  to  report  the  breakdown  of  the  costs
reimbursed  by the Fund to the Manager or its  Affiliates.  Such special  report
shall at a minimum  provide:  (a) a review  of the time  records  of  individual
employees, the costs of whose services were reimbursed,  and (b) a review of the
specific  nature of the work  performed by each such  employee.  The  additional
costs of such  special  report  shall be  itemized  by the  auditors  among  all
programs  sponsored by the Manager and its  Affiliates  on a  program-by-program
basis and may be reimbursed to the Manager or its  Affiliates to the extent that
such reimbursement, when added to the cost for administrative services rendered,
does not  exceed the  competitive  rate for  comparable  services  performed  by
independent  parties  in the same  geographic  location.  Copies of the  reports
hereunder shall be distributed to each Holder within 120 days after the close of
each  taxable year of the Fund;  provided,  however,  that all Fund  information
necessary in the  preparation of the Holders' and Assignees'  federal income tax
returns shall be  distributed to each Holder and Assignee not later than 75 days
after the close of each taxable year of the Fund.

         14.4 Quarterly Reports.  The Manager shall have prepared quarterly,  at
Fund expense, commencing with the first full quarter after the Closing Date: (i)
a statement as to the  compensation  received by the Manager during such quarter
from the Fund which  statement  shall set forth the  services  rendered or to be
rendered by the Manager during such quarter from the Fund and the amount of fees
received,  and (ii) other relevant information.  Copies of such statements shall
be  distributed  to each Holder  within 60 days after the end of each  quarterly
period.

         14.5 Unaudited Quarterly Financial  Statements.  The Manager shall have
prepared,  at Fund expense,  a quarterly report covering each of the first three
quarters  of  Fund  operations  in  each  calendar  year,   unaudited  financial
statements (each of which shall include a balance sheet,  statement of income or
loss for said  quarterly  period and statement of Cash from  Operations and Cash
from Sales or Refinancing  for said  quarterly  period) and a statement of other
pertinent information regarding the Fund and its activities during the quarterly
period  covered by the report.  Copies of such  statements  and other  pertinent
information  shall be  distributed to each Holder within 60 days after the close
of the quarterly period covered by the report of the Fund.

         14.6 Other Quarterly Reports. The Manager shall have prepared,  at Fund
expense,  after the end of each quarter in which Equipment is acquired and until
the Net Proceeds  are fully  invested or returned to  investors,  a notice which
shall  describe  therein:  (i) a statement of the actual  purchase  price of the
Equipment,  including the terms of the  purchase,  (ii) a statement of the total
amount  of cash  expended  by the  Fund  to  acquire  such  items  of  Equipment
(including and itemizing all  commissions,  fees,  expenses and the name of each
payee), and (iii) a statement of the amount of proceeds in the Fund which remain
unexpended or  uncommitted.  Copies of such notice shall be  distributed to each
Holder within 60 days after the end of such quarter.  If deemed  appropriate  by
the  Manager  such notice may be prepared  and  distributed  to each Holder more
frequently than quarterly.

                                      B-22

<PAGE>



         14.7  Tax Returns. The Manager, at Fund expense, shall cause income tax
returns  for the  Fund  to  be  prepared  and  timely  filed  with   appropriate
authorities.

         14.8 Governmental Reports. The Manager, at Fund expense, shall cause to
be prepared and timely filed with  appropriate  federal and state regulatory and
administrative bodies, all reports required to be filed with such entities under
then current  applicable  laws,  rules and  regulations.  Such reports  shall be
prepared on the  accounting  or  reporting  basis  required  by such  regulatory
bodies. Any Holder shall be provided with a copy of any such report upon request
without expense to him.

         14.9 Maintenance of Suitability  Records. The Manager, at Fund expense,
shall maintain for a period of at least six years,  a record of the  information
obtained to indicate that a Holder meets the suitability  standards set forth in
the Prospectus.

15.      RIGHTS, AUTHORITY, POWERS AND RESPONSIBILITIES OF THE MANAGER.

         15.1  Services of the Manager.  The Manager shall  be  responsible  for
providing the following services to the Fund:

                  15.1.1  Supervising  the  organization  of  the  Fund  and the
offering and sale of Units;

                  15.1.2   Supervising  Fund  management,   which  includes  (i)
establishing  policies for the  operation  of the Fund;  (ii) causing the Fund's
agents or  employees to arrange for the  provision of services  necessary to the
operation of the Fund (including Equipment  management and investor,  accounting
and legal services,  and services relating to Distributions by the Fund);  (iii)
approving actions to be taken by the Fund; (iv) providing advice,  consultation,
analysis and  supervision  with respect to the functions of the Fund as an owner
of the Equipment (including, without limitation, decisions regarding adjustments
to rental  schedules,  the sale or disposition of Equipment and compliance  with
federal, state and local regulatory requirements and procedures);  (v) executing
documents on behalf of the Fund; (vi) having a fiduciary  responsibility for the
safekeeping  and use of all funds of the Fund,  whether or not in the  Manager's
immediate possession or control; and (vii) making all decisions as to accounting
matters; and

                  15.1.3 Approval of the terms of the sale or other  disposition
of  Equipment,  including  establishing  the  terms for and  arranging  any such
transaction.

         15.2 Authority of the Manager. The conduct of the Fund's business shall
be  controlled  solely by the Manager in  accordance  with this  Agreement.  The
Manager shall have fiduciary  responsibility  for the safekeeping and use of all
funds and assets of the Fund,  whether  or not in its  immediate  possession  or
control,  and shall have all authority,  rights and powers  conferred by law and
those required or appropriate to the management of the Fund business  which,  by
way of  illustration  but not by way of limitation,  shall,  subject only to the
provisions of Section 15.4, include the right, authority and power:

                  15.2.1 To acquire, lease, sell, hold and dispose of Equipment,
interests  therein  or  appurtenances  thereto,  as well as  personal  or  mixed
property  connected  therewith,  including  the  purchase,  lease,  improvement,
maintenance, exchange, trade or sale of such Equipment, at such price, rental or
amount,  for  cash,  securities  (in  compliance  with  appropriate   securities
regulations) or other property, and upon such terms, as the Manager deems in its
sole  discretion,  to be in the best interest of the Fund;  provided that, as of
the date of  the  final  investment  of  Net  Proceeds  and  completion  of  the

                                      B-23

<PAGE>

permanent  financing  of the  Equipment  portfolio,  at least 50% of the  Fund's
Equipment,  by aggregate purchase cost, shall be subject to initial leases which
are High Payout Leases.

                  15.2.2  To place  record  title  to,  or the right to use Fund
assets in, the name or names of a nominee or  nominees,  trustee or trustees for
any purpose convenient or beneficial to the Fund;

                  15.2.3 To acquire  and enter into any  contract  of  insurance
which the Manager deems  necessary or appropriate for the protection of the Fund
and  the  Manager,  for the  conservation  of Fund  assets,  or for any  purpose
convenient or beneficial to the Fund;

                  15.2.4 To employ  Persons in the operation  and  management of
the business of the Fund  including,  but not limited to,  supervisory  managing
agents, insurance brokers and equipment lease brokers and Persons to perform, on
behalf of the Fund, the activities  enumerated in Section 15.2.1,  on such terms
and for such compensation as the Manager shall determine,  subject,  however, to
the limitations with respect thereto as set forth in Article 8; provided that no
Person is employed to provide  duplicative  services;  and provided further that
agreements  with the Manager or their  Affiliates  for the services set forth in
Article 8 shall contain the terms and limitations as to fees and expenses as set
forth  in  said  Article  8 and  any of  such  agreements  shall  be  terminable
immediately upon dissolution of the Fund under Section 19.1;

                  15.2.5 To prepare or cause to be prepared reports,  statements
and other  relevant  information  for  distribution  to Holders,  as provided in
Article 14 and as they otherwise deem appropriate;

                  15.2.6 To open accounts and deposit and maintain  funds in the
name of the Fund in banks or savings and loan associations;  provided,  however,
that the Fund funds shall not be commingled with the funds of any other Person;

                  15.2.7  To  cause  the  Fund  to  make  or  revoke  any of the
elections referred to in the Code;

                  15.2.8  To select as the  Fund's  accounting  year  a calendar
year or such fiscal year as approved by the Service;

                  15.2.9  To determine  the  appropriate  accounting  method  or
methods to be used by the Fund;

                  15.2.10  To offer  and sell  Units  in the  Fund  directly  or
through any  licensed  Affiliate  of the Manager or  nonaffiliate  and to employ
personnel, agents and dealers for such purpose;

                  15.2.11 To amend this  Agreement  to reflect  the  addition or
substitution  of Holders,  the reduction of capital  accounts upon the return of
capital  to Members or the  change in the  interests  of the  Holders in the Net
Income, Net Loss and Distributions of the Fund after the repurchase of Units;

                  15.2.12 To require in all Fund  obligations  that the  Manager
shall not have any personal  liability  thereon but that the Person  contracting
with the Fund is to look solely to the Fund and its assets for  satisfaction  of
such obligations;  and in the event that the Manager has personal liability with
respect to any such obligation,  the Manager may require its satisfaction  prior
to  obligations  with  respect to which the Manager  has no personal  liability;
provided,  however,  that the  inclusion of the aforesaid  provisions  shall not
materially  affect the cost of the service or material  being  supplied  and all

                                      B-24

<PAGE>

Fund   obligations   are   satisfied   in   accordance  with   prudent  business
practices as to the time and manner of payment;

                  15.2.13  To execute and file  certificates  of  amendment  and
cancellation of the articles of organization, and certificates of dissolution of
the Fund;

                  15.2.14  Subject to the provisions of Article 10, to determine
the amount of Cash from  Operations and Cash from Sales or  Refinancing  used to
purchase additional Equipment and to make Distributions;

                  15.2.15 To purchase  Equipment in its own name, the name of an
Affiliate or in the name of a nominee, a trust or a corporation or otherwise and
hold title thereto on a temporary or interim basis  (generally  not in excess of
six months) for the purpose of facilitating the acquisition of such Equipment or
completion of manufacture of the Equipment,  or any other purpose related to the
business of the Fund; provided, however that: (i) the transaction is in the best
interest  of the  Fund;  (ii)  such  Equipment  is  purchased  by the Fund for a
purchase  price no greater  than the cost of such  Equipment  to the  Manager or
Affiliate (including any out-of-pocket  carrying costs), except for compensation
permitted by this  Agreement;  (iii) there is no difference in interest terms of
the loans  secured  by the  Equipment  at the time  acquired  by the  Manager or
Affiliate  and the time acquired by the Fund;  (iv) there is no benefit  arising
out of  such  transaction  to  the  Manager  or its  Affiliate  apart  from  the
compensation otherwise permitted by this Agreement; and (v) all income generated
by, and all expenses associated with,  Equipment so acquired shall be treated as
belonging to the Fund.

                  15.2.16  Subject to Sections  15.4.21 and  15.4.22,  to borrow
money and,  if  security  is  required  therefor,  to  mortgage  or subject  any
Equipment to any other security device,  to obtain  replacements of any mortgage
or other  security  device,  and to  prepay,  in  whole  or in part,  refinance,
increase,  modify,  consolidate or extend any mortgage or other security device,
all of the  foregoing at such terms and in such  amounts as the Manager,  in its
sole discretion, deems to be in the best interests of the Fund;

                  15.2.17  To invest  (i) the  Gross  Proceeds  or Net  Proceeds
temporarily prior to investment in Equipment, (ii) other funds of the Fund prior
to the  investment  in  Equipment or the  distribution  to Holders and (iii) the
Fund's capital reserves, in short-term, highly liquid investments where there is
appropriate safety of principal;

                  15.2.18 In addition  to any  amendments  otherwise  authorized
herein, this Agreement may be amended from time to time by the Manager,  without
the consent of any of the Holders

                  (i) to add to the  representations,  duties or  obligations of
                  the Manager or its  Affiliates or surrender any right or power
                  granted  to the  Manager  or its  Affiliates  herein,  for the
                  benefit of the Holders;

                  (ii) to cure any  ambiguity,  to  correct  or  supplement  any
                  provision  herein  which  may be  inconsistent  with any other
                  provision herein, or to make any other provisions with respect
                  to matters or questions  arising  under this  Agreement  which
                  will not be inconsistent with the provisions of this Agreement
                  provided  that no amendment  hereunder  will change the voting
                  rights of Holders;


                                      B-25

<PAGE>
                  (iii) to  delete  or  add  any  provision  of  this  Agreement
                  required to be so  deleted  or  added  by  the  staff  of  the
                  Securities and Exchange Commission or by  a  state  "Blue Sky"
                  administrator or  similar  such  official, which  addition  or
                  deletion is deemed by such staff or  official  to  be  for the
                  benefit or protection of the Holders; or

                  (iv) to amend the  provisions of Article 10 of this  Agreement
                  relating  to the  allocations  of Net  Income,  Net  Loss  and
                  Distributions  among Members or any other provisions hereof if
                  the Fund is advised at any time by the Fund's  accountants  or
                  legal counsel that the  allocations  or such other  provisions
                  set forth in this  Agreement  are  unlikely  to be  respected,
                  either because of promulgation  of Regulations  under Sections
                  704 or 706 of the Code or other  developments  in the law, but
                  only to the minimum extent  necessary in accordance  with such
                  advice of accountants  and/or counsel to cause such provisions
                  of  this   Agreement  to  be  respected.   Such  amendment  or
                  amendments  made by the Manager in reliance upon the advice of
                  the accountants or counsel  described above shall be deemed to
                  be made pursuant to the fiduciary obligation of the Manager to
                  the Fund and the Holders,  and no such amendment or amendments
                  shall give rise to any claim or cause of action by any Holder.

                  15.2.19  To  execute,  acknowledge  and  deliver  any  and all
instruments  to  effectuate  the  foregoing,  and to take  all  such  action  in
connection therewith as the Manager shall deem necessary or appropriate.

         15.3 General Powers and Fiduciary  Duty.  The Manager shall,  except as
otherwise  provided in this Agreement,  have all the rights and powers and shall
be subject to all the restrictions and liabilities provided for the manager of a
limited  liability company under the California Act.  Notwithstanding  any other
provision of this  Agreement,  in no event may the Manager modify or compromise,
by contract or otherwise, its fiduciary duty to the Fund or the Holders, whether
such duty is imposed under the common law or by statute.

         15.4  Limitations  on  Manager's Authority. Neither the Manager nor any
Affiliate shall have the authority to:

                  15.4.1 Enter into contracts with the Fund which would bind the
Fund after the expulsion, adjudication of bankruptcy or insolvency of a Manager,
or continue the business of the Fund with Fund assets  after the  occurrence  of
such an event;

                  15.4.2  Grant to the Manager or  any  Affiliate  an  exclusive
listing for the sale of Fund assets, including Equipment;

                  15.4.3 Sell  Substantially All of the Assets in a single sale,
or in  multiple  sales in the same  twelve-month  period,  except in the orderly
liquidation  and winding up of the business of the Fund upon its termination and
dissolution;

                  15.4.4 Pledge or encumber Substantially All of the Assets in a
single transaction or in multiple  transactions in the same twelve-month  period
other than in connection  with the  acquisition  or improvement of assets or the
refinancing of existing obligations;

                  15.4.5  Alter the primary purpose of the Fund as set forth in
Article 3;

                                      B-26

<PAGE>

                  15.4.6   Receive   from  the  Fund  a  rebate  or  give-up  or
participate in any reciprocal  business  arrangements which would circumvent the
provisions of this  Agreement,  nor shall any such person permit any  reciprocal
business  arrangement  which would  circumvent the  restrictions  herein against
dealing with the Manager and its Affiliates;

                  15.4.7  Sell or lease any  Equipment  to any entity in which a
Manager or any Affiliate has an interest,  other than a joint venture or similar
program which complies with the conditions set forth in Section 15.4.8 hereof;

                  15.4.8 Cause the Fund to invest in any program, partnership or
other venture unless:  (i) the other Member or joint owner is not a Manager (but
it may be an  Affiliate  of a  Manager,  provided  the  Affiliate  is formed and
operated for the primary  purpose of investment in and operation of or gain from
an interest in equipment,  and has substantially identical investment objectives
to those of the Fund);  (ii) such joint  venture  owns and  operates  particular
Equipment and the Fund or the Fund and  Affiliate,  as the case may be,  acquire
the  controlling  interest  in such  partnership,  or joint  venture;  (iii) the
agreement  of joint  venture  does not  authorize  the Fund to do  anything as a
Member or joint  venturer  with respect to the  Equipment  which the Fund,  or a
Manager, could not do directly because of the provisions of this Agreement; (iv)
the Fund's  investment is on substantially  the same terms and conditions as the
investment of any Affiliate;  (v) no compensation (other than as provided for by
this Agreement) is received in connection therewith by the Manager or any of its
Affiliates,  there are no duplicate equipment  management or any other duplicate
fees and such  investment  shall not  result in the  impairment,  abrogation  or
circumvention  of any of the terms or  provisions  of this  Agreement;  (vi) the
joint venture is in the best interest of both  co-venturers;  and (vii) in joint
venture  arrangements  with an Affiliate of a Manager,  if all of the  following
additional  conditions are met: the compensation of the Manager is substantially
identical  to that  received  by the sponsor of such  Affiliate,  the Fund has a
right of first refusal to buy, if such Affiliate wishes to sell,  equipment held
in the joint  venture,  and the joint  venture  is  established  either  for the
purpose  of  effecting  appropriate  diversification  of the  Fund's  investment
portfolio  or for the  purpose of  relieving  the Manager or its  Affiliates  or
nominees  from a  commitment  entered into  pursuant to Section  15.2.15 of this
Agreement;  for the  purposes of this  Section,  a  controlling  interest  shall
include:  (1) ownership of more than 50% of the venture's capital or profits; or
(2) provisions in the venture agreement giving the Fund effective control;

                  15.4.9 Except as provided in the Sections 15.2.15,  15.4.7 and
15.4.8,  purchase or lease Equipment from the Fund or sell or lease Equipment to
the Fund;

                  15.4.10  Cause the Fund to loan any funds or property  to  any
Manager or Affiliate of a Manager;

                  15.4.11  Cause the Fund to borrow  from any of the  Manager or
its Affiliates on terms which provide for interest, financing charges or fees in
excess of the amounts  charged by unrelated  lending  institutions on comparable
loans for the same purpose,  or in excess of the ledger's cost of funds,  or, in
any  event,  to cause  the Fund to  obtain  "permanent  financing"  (defined  as
financing with a term in excess of 12 months) from any such Person;

                  15.4.12  Cause the Fund to exchange  Units for  property other
than cash;

                  15.4.13 Do any action in  contravention  of this  Agreement or
which would make it impossible to carry on the ordinary business of the Fund;

                                      B-27

<PAGE>

                  15.4.14  Confess a judgment against  the  Fund  in  connection
with any threatened or pending legal action;

                  15.4.15  Possess any Equipment or  assign  the  rights  of the
Fund in specific Equipment for other than a Fund purpose;

                  15.4.16  Admit a Person as a Manager except with  the  consent
of the Holders as provided in Article 17 hereof;

                  15.4.17  Perform any act (other  than an act  required by this
Agreement or any act taken in good faith reliance upon counsel's  opinion) which
would,  at the time such act  occurred,  subject  any Holder to  liability  as a
Manager in any jurisdiction;

                  15.4.18  Reinvest  any funds of the Fund  after the end of the
Reinvestment  Period other than to invest in Equipment  pursuant to  commitments
entered into prior to the expiration of the Reinvestment  Period or in Equipment
to be used in connection with Equipment under an existing lease, or reinvest any
funds of the Fund during the  Reinvestment  Period unless such  reinvestment  is
effected for all Holders on the same terms and is otherwise in  compliance  with
Section 10.7 hereof;

                  15.4.19  Invest any of the Gross Proceeds in  Equipment  which
is non-income producing;

                  15.4.20 Employ,  or permit any Person to employ,  the funds or
assets of the Fund in any manner except for the  exclusive  benefit of the Fund;
this  provision  shall not  prohibit  the Manager  from causing Fund funds to be
deposited in a separate Fund account with a bank or other financial  institution
which  aggregates  all funds held on behalf of the Manager and its Affiliates in
calculating  qualifying balances for purposes of discounts on service charges or
other account benefits, provided that the Fund benefits on a pro rata basis from
any such discounts or other favorable  terms,  and,  provided  further,  that no
creditor of any party other than the Fund shall have any  recourse to funds held
in the Fund's separate account;

                  15.4.21 Incur any indebtedness wherein the lender will have or
acquire,  at any time as a result of making  the loan,  any  direct or  indirect
interest in the profit,  capital or property of the Fund other than as a secured
creditor;  or incur any  indebtedness  specifically  for the  purpose of funding
operating  distributions,   provided  however  that  the  Fund  may  enter  into
refinancing  transactions  with  respect to its  Equipment  and  distribute  net
proceeds from any such refinancing to the extent  consistent with its investment
objectives;

                  15.4.22 Incur aggregate Fund borrowings  which, as of the date
of the final  investment  of the Net Proceeds and,  thereafter,  on the date any
subsequent  indebtedness is incurred, are in excess of 50% of the purchase price
of all  Equipment  on a combined  basis.  "Purchase  price" for purposes of this
Section 15.4.22 shall mean the sum of the cash  downpayment and any indebtedness
incurred in connection with the acquisition of an item of Equipment by the Fund,
or to which the Equipment is taken subject,  plus any Acquisition Fees paid, but
does not include loan points, prepaid interest, or other prepaid expenses;

                  15.4.23  Commingle Fund funds with those of any other Person;

                                      B-28

<PAGE>


                  15.4.24 Except as otherwise provided herein, cause the Fund to
enter into any transaction with any other  partnership in which a Manager or any
of its  Affiliates  have  an  interest,  including,  but  not  limited  to,  any
transaction  involving  the sale,  lease or purchase of any Equipment to or from
the Fund,  the  rendering of services to or from the Fund, or the lending of any
monies or other property to or from the Fund;

                  15.4.25 Directly or indirectly pay or award any finder's fees,
commissions or other  compensation to any Person engaged by a potential investor
for  investment  advice as an inducement to such advisor to advise the purchaser
regarding the purchase of Units;  provided,  however, that the Manager shall not
be prohibited from paying the normal sales  commissions  payable to a registered
broker-dealer or other properly-licensed Person for selling Units;

                  15.4.26  Operate the Fund in such a manner as to have the Fund
classified as an "investment company" for purposes of the Investment Company Act
of 1940;

                  15.4.27  Except as  provided  herein,  invest any of the Gross
Proceeds in units of limited partnership  interest,  junior mortgages,  deeds of
trust or other similar instruments or obligations;

                  15.4.28  Cause the Fund to enter  into any  agreements  with a
Manager or any  Affiliate  of a Manager  which are not  subject  to  termination
without  penalty  by either  party upon not more than 60 days'  written  notice,
except for  agreements  which comply with the  provisions of Section  15.2.15 or
those  which  comply  with the  provisions  of Section  15.4.8 and relate to the
purchase of Equipment by the Fund and an Affiliate as joint venturers;

                  15.4.29 Cause the Fund to acquire any single item of Equipment
that has a contract purchase price in excess of $1,000,000 unless prior to final
funding of the  acquisition it obtains a future value appraisal of the Equipment
from a qualified independent third party appraiser;

                  15.4.30  Cause the Fund to invest cash in an aggregate  amount
in excess of $30,000,000 in Equipment leased to a single lessee.

         15.5  Limitation  on  Manager's  Liability.  The Manager  shall have no
personal  liability  for the repayment of the Original  Invested  Capital of any
Holder or to repay the Fund any  portion or all of any  negative  balance in its
Capital Account.

         15.6 Tax Matters Member.  ATEL is hereby designated as the "Tax Matters
Member" in  accordance  with Section  6231(a)(7)  of the Code and, in connection
therewith  and in addition to all other  powers  given  therein,  shall have all
other powers needed to perform fully hereunder  including,  without  limitation,
the power to retain all attorneys and accountants of its choice and the right to
settle any audits without the consent of Members.  The designation  made in this
paragraph  is hereby  consented  to by each  Member as an express  condition  to
becoming a Member. The Fund hereby indemnifies ATEL from and against any damages
or losses  (including  attorney's fees) arising out of or incurred in connection
with  any  action  taken  or  omitted  to be  taken  by it in  carrying  out its
responsibilities  as tax matters Member,  subject to the same  conditions  under
which indemnification is provided the Manager in Article 21 hereof.

         15.7 Minimum  Investment  in Equipment / Maximum  Front-End  Fees.  The
Manager must commit not less than 85.875% of the Gross Proceeds to Investment in
Equipment,  with the balance thereof  available to pay Organization and Offering
Expenses and Front End Fees, however designated.

                                      B-29

<PAGE>



Under the North American Securities Administrators  Association,  Inc. ("NASAA")
Statement of Policy concerning  Equipment  Programs,  as amended through October
24, 1991 (referred to herein as the "NASAA Guidelines"), the Fund is required to
commit a minimum  percentage  of the Gross  Proceeds to Investment in Equipment,
calculated as the greater of: (i) 80% of the Gross  Proceeds  reduced by 0.0625%
for each 1% of  indebtedness  encumbering the Fund's  Equipment;  or (ii) 75% of
such Gross  Proceeds.  Based on the  formula in the NASAA  Guidelines,  with 50%
portfolio  leverage  the Fund's  minimum  Investment  in  Equipment  would equal
76.875%  of Gross  Proceeds  (80% - [50% x .0625%] =  76.875%),  and the  Fund's
minimum  Investment  in Equipment  would  therefore  exceed the NASAA  Guideline
minimum by 9%. The NASAA  Guidelines  permit the Manager and its  Affiliates  to
receive  compensation in the form of a carried interest in Fund Net Income,  Net
Loss and  Distributions  equal to 1% for the first 2.5% of excess  Investment in
Equipment over the NASAA Guidelines  minimum, 1% for the next 2% of such excess,
and 1% for each additional 1% of excess Investment in Equipment.  With a minimum
Investment  in  Equipment  of 85.875%  and 50%  leverage,  the  Manager  and its
Affiliates  may  receive an  additional  carried  interest  equal to 6.5% of Net
Profit, Net Loss and Distributions under the foregoing formula (2.5% + 2% + 4.5%
= 9%;  1% + 1% +  4.5% =  6.5%].  At  the  lowest  permitted  level  of  minimum
Investment in Equipment,  the NASAA  Guidelines would permit the Manager and its
Affiliates to receive a promotional  interest  equal to 5% of  Distributions  of
Cash from  Operations and 1% of  Distributions  of Sale or Refinancing  Proceeds
until Members have received total Distributions equal to their Original Invested
Capital  plus an 8% per  annum  cumulative  return  on their  Adjusted  Invested
Capital, and, thereafter,  the promotional interest could increase to 15% of all
Distributions.  With the  additional  carried  interest  calculated as described
above,  the maximum  aggregate fees payable to the Manager and Affiliates  under
the NASAA  Guidelines as carried  interest and promotional  interest would equal
11.5% of Distributions of Cash from Operations (6.5% + 5% = 11.5%),  and 7.5% of
Distributions  of Sale or Refinancing  Proceeds  (6.5% + 1% = 7.5%),  before the
subordination level was reached, and 21.5% of all Distributions thereafter.  The
maximum  amounts to be paid under the terms of this Agreement are subject to the
application  of the Asset  Management  Fee Limit  provided in Section 8.3, which
limits the annual amount  payable to the Manager and its Affiliates as the Asset
Management Fee and the Carried  Interest to an aggregate not to exceed the total
amount of fees that would be payable to the Manager and its Affiliates under the
alternative  fee schedule set forth in Section 8.3.  This overall  limitation on
annual  fees will  include,  in  addition to the  Equipment  Management  Fee and
Equipment  Resale/Releasing Fee, amounts equal to 11.5% of Distributions of Cash
from  Operations  (4% as an  Incentive  Management  Fee  plus  7.5% as the  Fund
Manager's  Carried  Interest) and 7.5% of  Distributions  of Sale or Refinancing
Proceeds  (as the Fund  Manager's  7.5%  Carried  Interest)  before the Priority
Return, and 15% of all Distributions thereafter (7.5% as an Incentive Management
Fee plus 7.5% as the  Carried  Interest).  Upon  completion  of the  offering of
Units,  final  commitment  of Net  Proceeds  to  acquisition  of  Equipment  and
establishment  of final  levels of permanent  portfolio  debt  encumbering  such
Equipment,  the  Manager  shall  calculate  the  maximum  carried  interest  and
promotional  interest  payable to the Manager and its Affiliates under the NASAA
Guidelines  and compare such total  permitted fees to the total of the Incentive
Management  Fees  and  Carried  Interest.  If and to the  extent  that  the fees
calculated  under the  alternative  fee schedule  provided in Section 8.3 as the
Incentive  Management  Fee and the Carried  Interest  should  exceed the maximum
promotional interest plus carried interest permitted under the NASAA Guidelines,
as described  above, the fees payable to the Manager and its Affiliates shall be
reduced as described herein. In such event,  Section 8.3 of this Agreement shall
be  amended  immediately  to reduce  the  amounts  calculated  as the  Incentive
Management Fee and/or the Carried Interest by an amount  sufficient to cause the
total  of  such  compensation  to  comply  with  the  limitations  in the  NASAA
Guidelines on the aggregate of promotional  interests and carried  interests.  A
comparison  of the  Front  End Fees  actually  paid by the  Fund  and the  NASAA
Guideline  maximums  shall be repeated,  and any required  adjustments  shall be
made, at least annually thereafter.

                                      B-30

<PAGE>



         15.8  Reliance on Manager's  Authority.  The Manager  shall conduct the
business of the Fund,  devoting such time thereto as it, in its sole discretion,
shall  determine to be  necessary to manage the Fund  business and affairs in an
efficient manner.  Any Person dealing with the Fund or the Manager may rely upon
a  certificate  signed by the  Manager as  authority  with  respect  to: (i) the
identity  of  the  Manager  or  any  Holder   hereof;   (ii)  the  existence  or
non-existence  of any fact or facts which  constitute  a condition  precedent to
acts by the  Manager or are in any other  manner  germane to the  affairs of the
Fund; (iii) the Persons who are authorized to execute and deliver any instrument
or document on behalf of the Fund; or (iv) any act or failure to act by the Fund
as to any other matter whatsoever involving the Fund or any Members.

16.      RIGHTS, POWERS AND VOTING RIGHTS OF THE MEMBERS

         16.1 Limitation on Member Authority.  Members shall take no part in the
control,  conduct or  operation of the Fund and shall have no right or authority
to act for or bind the Fund except as expressly provided herein.

         16.2  Voting  Rights.  Members  shall  have the  right,  by the vote of
Members who own more than 50% of the total outstanding Units entitled to vote (a
"majority-in-interest"),  to approve the following  matters  affecting the basic
structure of the Fund:

                  16.2.1  Removal or withdrawal of a Manager;

                  16.2.2  Subject to the  further  requirements  of Article  17,
continuation  of  the  Fund  and  election  of  a  successor  Manager  upon  the
termination of a Manager;

                  16.2.3  Termination and dissolution of the Fund;

                  16.2.4 Amendment of this Agreement, provided such amendment is
not for any of the purposes set forth in Sections  16.4 or 16.5,  and  provided,
further,  that the  Members  shall have the right to approve  or  disapprove  by
separate vote each proposed amendment to this Agreement;

                  16.2.5 The pledge or  granting of a security  interest  in, or
sale of, Substantially All of the Assets in a single transaction, or in multiple
transactions  in the same  twelve-month  period,  except in the  liquidation and
winding up of the business of the Fund upon its termination and dissolution; and

                  16.2.6  The extension of the term of the Fund.

         16.3 Voting Procedures.  In any vote of the Members,  each Member shall
be  entitled  to cast one vote for each Unit which he owns as of the  designated
record date.  Notwithstanding  any other provision of this Agreement,  any Units
held by a Manager or an Affiliate of a Manager will not be entitled to vote, and
will not be considered to be "outstanding"  Units for purposes of any vote, upon
matters which  involve a conflict  between the interests of such Manager and the
Fund,  including,  but not  limited  to,  any vote on the  proposed  removal  or
withdrawal of such Manager or on any proposed  amendment to this Agreement which
would expand or extend the rights, authorities or powers of such Manager.

                  16.3.1  Meetings of the Members to vote upon any matters as to
which the Members are  authorized  to take action under this  Agreement,  as the
same may be amended from time to time,  may be called at any time by the Manager
or  by  one  or  more  Members  holding  more  than  10%  of   the   outstanding

                                      B-31

<PAGE>


Units by delivering  written notice,  either in person or by registered mail, of
such meeting to the Manager. Promptly, but in any event within 10 days following
receipt of such  request,  the Manager shall cause a written  notice,  either in
person or by certified mail, to be given to the Members entitled to vote at such
meeting,  which  notice  shall  state that a meeting  will be held at a time and
place fixed by the Manager, which is to be convenient to the Members as a group,
and which is not less than 15 days nor more than 60 days  after the  mailing  of
the notice of the meeting;  provided,  however, that such maximum period for the
giving of notice and the holding of meetings may be extended  for an  additional
60 days if such  extension  is necessary  to obtain the  qualification  with the
California  Commissioner of Corporations of the matters to be acted upon at such
meeting,  the  clearance  by the  Securities  and Exchange  Commission  or other
appropriate  governing agency of the  solicitation  materials to be forwarded to
Members  in   connection   with  such   meeting  or  any  other   administrative
authorizations  which may be  required.  Included  with the  notice of a meeting
shall be a detailed  statement  of the  action  proposed,  including  a verbatim
statement of the wording of any resolution  proposed for adoption by the Members
and of any proposed amendment to this Agreement. All expenses of the meeting and
notification shall be borne by the Fund.

                  16.3.2 In order to establish the Members of record entitled to
act upon matters by vote or written consent, the Manager or Members holding more
than 10% of the Units may fix in advance a record date (the "Record Date") which
is not more than 60 nor less than 10 days  prior to the date of the  meeting  or
the date upon which written  consents are to be delivered.  If no Record Date is
fixed in the notice of meeting or action by  written  consent,  the Record  Date
shall  be  deemed  to be at the  close  of  business  on the  business  day next
preceding the date on which notice is given. A new Record Date shall be fixed if
a meeting is adjourned  for more than 45 days from the date set for the original
meeting.

                  16.3.3 Upon adjournment of a meeting to another time or place,
notice  of the new time or place  shall be  announced  at the  meeting  at which
adjournment is taken.  If the  adjournment is for more than 45 days or if, after
the adjournment,  a new Record Date is fixed for the adjourned meeting, a notice
of the  adjourned  meeting  shall be given to each Member of record  entitled to
vote at the meeting.

                  16.3.4 Personal presence of the Members at a meeting shall not
be required,  provided that sufficient Units are represented at the meeting,  by
Members appearing in person and/or by duly executed proxies,  to take any action
proposed for a vote at such  meeting.  Attendance by a Member at any meeting and
voting in person shall revoke any proxies of such Member  submitted with respect
to action proposed to be taken at such meeting. Submission of a later proxy with
respect to any action shall  revoke an earlier one as to such  action.  Only the
votes,  whether in person or by proxy, of Members holding Units as of the Record
Date established for such meeting shall be counted.

                  16.3.5 Any matter as to which the  Members are  authorized  to
take  action  under  this  Agreement  or under  law may be taken by the  Members
without a meeting  and shall be as valid and  effective  as action  taken by the
Members at a meeting duly assembled,  if written  consents to such action by the
Members  are (i) signed by the  Members  entitled  to vote upon such action at a
meeting who held,  as of the Record Date for such  actions,  the number of Units
required to  authorize  such action and (ii)  delivered to the Manager as of the
date set for such action.  Any action taken without a meeting shall be effective
15 days after the required minimum number of Members have signed the consent and
shall be effective  immediately  if the Manager and Limited  Members  holding at
least  90% of the  outstanding  Units as of the  Record  Date  have  signed  the
consent.

                                      B-32

<PAGE>

                  16.3.6  In the  event  that  there  shall be no  Manager,  the
Members  may take  action  without a meeting by the  written  consent of Members
having the requisite voting power of the Members entitled to vote.

         16.4  Limitations on Member  Rights.  No Holder shall have the right or
power to: (i)  withdraw  or reduce his  contribution  to the capital of the Fund
except as a result of the repurchase of the Units as provided in Article 13, the
dissolution  of the Fund or as otherwise  provided by law,  (ii) bring an action
for partition  against the Fund,  (iii) cause the termination and dissolution of
the Fund by court decree or otherwise, except as set forth in this Agreement, or
(iv) demand or receive property other than cash in return for his  contribution.
No Holder shall have  priority  over any other Holder either as to the return of
contributions of capital or as to Net Income,  Net Loss or Distributions.  Other
than  upon the  termination  and  dissolution  of the Fund as  provided  by this
Agreement  there  has been no time  agreed  upon when the  contribution  of each
Holder may be returned.

         16.5  Limitations  on Power to Amend  Agreement.  Except as provided in
Section 15.2.18, and notwithstanding  anything to the contrary contained in this
Agreement,  this  Agreement may not,  without the consent of each of the Members
who would be adversely affected thereby, be amended to:

                  16.5.1 Convert a Holder into a Manager;

                  16.5.2 Modify the limited liability of a Holder;

                  16.5.3 Alter the interest of any Member  in  Net  Income,  Net
Loss or Distributions; or

                  16.5.4 Affect the status  of  the  Fund as  a  partnership for
federal income tax purposes.

         16.6  Member  List.  Upon the  written  request of a Member and for any
non-commercial  purpose  reasonably related to the exercise of rights under this
Agreement, the Manager will furnish to such Member or his representative, at his
expense, a list containing the name and address of, and the Units held of record
by, each Member, as provided in Section 14.1.3.

         16.7  Dissenters' Rights and Limitations on Mergers and Roll-ups.

                  16.7.1 Any  proposal  that the Fund enter into a Roll-Up  will
require  approval  by  Members  of not less than 90% of the  outstanding  Units.
Members who dissent with respect to a Roll-Up proposal will have the rights of a
dissenting  Member as provided under Sections  15679.1  through  15679.14 of the
California  Act. The Fund shall not reimburse the sponsor of a proposed  Roll-Up
for the costs of its proxy contest or any other costs of the  transaction in the
event the Roll-Up is not approved by the Members as provided herein.

                  16.7.2 In connection with a proposed Roll-Up,  an appraisal of
all Fund assets shall be obtained from a competent,  independent expert (defined
as a Person with no current material or prior business or personal  relationship
with the Manager or its Affiliates who is engaged to a substantial extent in the
business of rendering opinions regarding the value of assets of the type held by
the Fund,  and who is qualified to perform such work).  If the appraisal will be
included in a Prospectus used to offer the securities of a Roll-Up  Entity,  the
appraisal  shall  be filed  with the SEC and the  states  as an  Exhibit  to the
Registration  Statement  for the  offering.  Accordingly,  an  issuer  using the
appraisal  shall be  subject to  liability  for  violation  of Section 11 of the
Securities   Act   of    1933    and    comparable    provisions   under   state

                                      B-33

<PAGE>

laws for any material misrepresentations or material omissions in the appraisal.
Fund assets shall be appraised on a consistent  basis.  The  appraisal  shall be
based on an evaluation of all relevant information, and shall indicate the value
of the Fund's assets as of a date  immediately  prior to the announcement of the
proposed Roll-Up transaction.  The appraisal shall assume an orderly liquidation
of Fund  assets  over a  12-month  period.  The terms of the  engagement  of the
Independent Expert shall clearly state that the engagement is for the benefit of
the Fund and its Holders. A summary of the independent appraisal, indicating all
material assumptions underlying the appraisal,  shall be included in a report to
the Holders in connection with a proposed Roll-Up transaction.

                  16.7.3 In  connection  with a  proposed  Roll-Up,  the  Person
sponsoring the Roll-Up  transaction  shall offer to Holders who vote "no" on the
proposal the choice of:

                  (a)  accepting the securities offered in the proposed  Roll-Up
transaction; or

                  (b)  one of the following:

                           (i)  remaining as Holders in the Fund, and preserving
their interests therein on the same terms and conditions as existed  previously;
or

                           (ii)  receiving  cash  in  an  amount  equal  to  the
Holders' pro-rata share of the appraised value of the net assets of the Fund.

                  16.7.4 The Fund shall not participate in any proposed  Roll-Up
transaction which would result in Holders having democracy rights which are less
than those  provided  for under this  Agreement.  If the  resulting  entity is a
corporation,  the voting rights of Holders shall correspond to the voting rights
provided for in this Agreement to the greatest extent possible.

                  16.7.5 The Fund shall not participate in any proposed  Roll-Up
transaction  which includes  provisions which would operate to materially impede
or frustrate the  accumulation  of shares by any purchaser of the  securities of
the Roll-Up Entity  (except to the minimum extent  necessary to preserve the tax
status of the entity).  The Fund shall not  participate in any proposed  Roll-Up
transaction  which would  limit the  ability of a Holder to exercise  the voting
rights of the  securities  of the  Roll-Up  Entity on the basis of the number of
Units held by that Holder.

                  16.7.6 The Fund shall not participate in any proposed  Roll-Up
Transaction  in which  Holders'  rights of access to the  records of the Roll-Up
Entity will be less than those provided for under this Agreement.

17.      TERMINATION OF A MANAGER AND TRANSFER OF THE MANAGER'S INTEREST

         17.1  Removal or Withdrawal.  The following conditions shall govern the
voluntary withdrawal or removal of the Manager:

                  17.1.1 The Manager may not voluntarily  withdraw from the Fund
without the approval of Members  holding more than 50% of the total  outstanding
Units entitled to vote.

                  17.1.2  The  Manager  may be  removed  upon a vote of  Holders
owning more than 50% of the total  outstanding  Units entitled to vote.  Written

                                      B-34

<PAGE>

notice of removal of the Manager  shall be served  either  by  certified  or  by
registered mail, return receipt requested,  or by personal service.  Such notice
shall set forth the date upon which the removal is to become effective.

         17.2 Other  Terminating  Events.  In the event of the  adjudication  of
bankruptcy,  filing of a certificate of  dissolution,  death or  adjudication of
insanity  or  incompetency  of the  Manager  (each  of such  events,  as well as
removal,  resignation and withdrawal of a Manager, being herein referred to as a
"Terminating  Event"), the Fund shall be dissolved and shall be liquidated under
the provisions of Article 19, subject to the provisions of Section 17.3.

         17.3 Election of Successor Manager;  Continuation of Fund Business. The
following  provisions  shall  govern the  election  of a  successor  Manager and
continuation  of the business of the Fund upon the  occurrence  of a Terminating
Event with respect to a Manager (the "Retiring Manager"):

                  17.3.1 If at the time of a Terminating  Event the Fund has one
or more Managers  other than the Retiring  Manager,  any remaining  Manager or a
majority-in-interest   of  the  Limited  Members  may  elect,   within  90  days
thereafter,  to  continue  the Fund  business,  in which case the Fund shall not
dissolve. So long as there is at least one remaining Manager which so elects, or
if a  majority-in-interest  of the Members so elect and a remaining Manager does
not so elect,  any  remaining  Manager which is not willing to elect to continue
the Fund  business  will be deemed to have been removed from the Fund by vote of
the Members.

                  17.3.2  If at the time of a  Terminating  Event  the  Retiring
Manager is the sole  remaining  Manager,  the Fund shall be  dissolved  unless a
majority-in-interest  of the Members elect to continue the Fund business. In the
event of such election, the Fund business may be continued if the Members making
such  election,  within 90 days after the occurrence of the  Terminating  Event,
elect a successor Manager and continue the Fund's business on the same terms and
conditions as are contained herein, but with a name which does not include or in
any way refer to the name of any Retiring Manager.

         17.4  Admission of  Successor  or  Additional  Manager.  The  following
conditions shall be satisfied before any Person shall become a successor Manager
or an additional Manager:

                  17.4.1  Such Person shall have been elected in accordance with
Section 17.3 or 17.6;

                  17.4.2  Such Person shall have accepted and agreed to be bound
by all the terms and provisions of this Agreement;

                  17.4.3 If such Person is a corporation, it shall have provided
the Fund with evidence  satisfactory to counsel for the Fund of its authority to
become a Manager and to be bound by this Agreement; and

                  17.4.4 Any  amendments  and filings  required  or  appropriate
under the California Act shall have been made.

       17.5  Effect of a Terminating Event. Upon the occurrence of a Terminating
Event, the following provisions shall be applicable:

                  17.5.1 The Retiring  Manager shall  immediately  cease to be a
Manager and shall not have any right to  participate  in the  management  of the

                                      B-35

<PAGE>


affairs of the Fund or to receive any fees  under  this  Agreement  not  already
paid or earned;  provided,  however, that the Retiring Manager shall receive all
amounts  then  accrued and  payable by the Fund and shall be, and shall  remain,
liable as a Manager for all  obligations  and  liabilities  incurred by the Fund
prior to the effective date of the Terminating Event, but shall be free from any
obligation or liability  incurred on account of the  activities of the Fund from
and after such time.

                  17.5.2 If the business of the Fund is continued, as aforesaid,
the Retiring Manager shall be entitled to receive from the Fund the then present
fair market  value of its interest in the Fund,  determined  by agreement of the
Retiring Manager and the remaining or new Managers, or, if they cannot agree, by
arbitration  in  accordance   with  the  then  current  rules  of  the  American
Arbitration Association.  The expense of such arbitration shall be borne equally
by the Fund and the Retiring Manager, and such arbitration shall be conducted in
San Francisco,  California  unless  otherwise  agreed by both parties.  The Fund
shall forthwith pay to the Retiring  Manager an amount equal to the then present
fair market value of the  interest so  determined.  If the Retiring  Manager has
voluntarily  withdrawn  from  the  Fund,  payment  shall  be in  the  form  of a
non-interest  bearing unsecured  promissory note with principal  payable,  if at
all, out of  Distributions  the Retiring  Manager would  otherwise have received
under this  Agreement  had such  Manager not been  terminated.  If the  Retiring
Manager has been terminated  involuntarily,  the payment shall be in the form of
an interest bearing promissory note payable in equal annual  installments over a
term of not less than five  years.  Such  payment  when  made  shall  constitute
complete  and full  discharge  of all amounts to which the  Retiring  Manager is
entitled in respect to such interest.

                  17.5.3  All  executory  contracts  between  the  Fund  and the
Retiring  Manager or any  Affiliate  thereof  (unless such  Affiliate is also an
Affiliate of the  remaining or new Manager or Members) may be  terminated by the
Fund  effective  upon written  notice to the party so  terminated.  The Retiring
Manager or any Affiliate  thereof (unless such Affiliate is also an Affiliate of
the remaining or new Manager or Members) may also  terminate and cancel any such
executory  contract  effective  upon  60  days'  prior  written  notice  of such
termination and  cancellation  given to the remaining or new Manager or Members,
if any, or to the Fund.

         17.6 Election of Additional Manager. Members owning in excess of 50% of
the outstanding  Units may at any time and from time to time elect an additional
Manager, and, upon satisfaction of the conditions set forth in Section 17.4, the
Person so elected  shall be admitted as an additional  Manager.  Admission of an
additional Manager shall not cause dissolution of the Fund.

         17.7 Assignment of Manager's Interest. The Manager may not transfer its
Membership in the Fund without the consent of Members owning in excess of 50% of
the total  outstanding  Units,  unless such an  assignment is to an entity which
succeeds to all of the assets of the assigning Manager and of which at least 80%
of the voting and beneficial  interest is controlled by Persons  controlling 80%
or more of the voting and  beneficial  interest of the  assigning  Manager.  Any
entity to which the  entire  interest  of a Manager in the Fund is  assigned  in
compliance  with this  Section  17.7  shall be  substituted  as a Manager by the
filing  of  appropriate  amendments  to  this  Agreement.   Notwithstanding  the
foregoing,  the  Manager  may  delegate  to  any of its  subsidiaries  or  other
Affiliates responsibility for specific services to be performed for the Fund and
may  assign  all or a  portion  of the  compensation  due  the  Manager  to such
subsidiaries or other Affiliates.

         17.8 Members'  Participation in Manager's Bankruptcy.  In the event the
Manager is subject to a voluntary or involuntary  petition for reorganization or
liquidation  under the federal  Bankruptcy  Act, the Manager will cause separate
counsel to be retained on behalf of the Fund,  at  Fund  expense,  to  represent

                                      B-36

<PAGE>


the Members'  interests in the bankruptcy  action.  In such event, the Fund will
also bear any reasonable and necessary expenses of a duly appointed committee of
Members  incurred  while  acting on behalf of all of the  Members  as a group in
connection with such bankruptcy action.

18.      CERTAIN TRANSACTIONS

         18.1 The Manager and its  Affiliates,  the  Holders,  any  shareholder,
officer,  director,  Member or employee thereof, or any Person owning a legal or
beneficial  interest therein,  may engage in or possess an interest in any other
business  or venture  of every  nature and  description,  independently  or with
others,  including,  but not  limited  to, the  ownership,  financing,  leasing,
operation,  management  and brokerage of  equipment.  Except as described in the
Prospectus,  and  subject to their  fiduciary  duties to the Fund,  neither  the
Manager  nor its  Affiliates  shall  be  obligated  to  present  to the Fund any
particular investment opportunity,  regardless of whether such opportunity is of
such character  that the Fund could take advantage  thereof if it were presented
to the Fund, and the Manager and its Affiliates shall have the right to take for
their own accounts  (individually  or  otherwise)  or to recommend to others any
such investment opportunity.

19.      TERMINATION AND DISSOLUTION OF THE FUND

          19.1  Termination  and  Dissolution.  The  Fund  shall  be  terminated
and dissolved upon the earliest to occur of the following:

                  19.1.1 The  withdrawal,  removal,  adjudication of bankruptcy,
insolvency, insanity or incompetency, death or dissolution of a Manager unless a
remaining Manager or a  majority-in-interest  of the Members,  within 90 days of
the date of such event,  elects to continue  the  business of the Fund,  and, if
necessary,  elects a replacement  Manager, in the manner provided in Article 17;
provided that expenses  incurred on behalf of the Manager  and/or Members in the
continuation or reformation,  or attempted  continuation or reformation,  of the
Fund hereunder shall be deemed expenses of the Fund;

                  19.1.2  The  Members   owning  more  than  50%  of  the  total
outstanding Units vote in favor of dissolution and termination of the Fund;

                  19.1.3  The term of the Fund expires; or

                  19.1.4 The Fund disposes of all interests in Equipment and its
other  assets  and  receives  final  payment  in  cash of the  proceeds  of such
dispositions.

         19.2 Accounting and  Liquidation.  Upon the dissolution and termination
of the Fund for any  reason,  the  Manager  shall take full  account of the Fund
assets and liabilities,  shall liquidate the assets as promptly as is consistent
with  obtaining  the fair value  thereof,  and shall  apply and  distribute  the
proceeds therefrom in the following order:

                  19.2.1 To the payment of creditors  of the Fund but  excluding
secured creditors whose obligations will be assumed or otherwise  transferred on
the liquidation of Fund assets;

                  19.2.2  To the repayment of any outstanding loans made  by the
Manager to the Fund; and

                                      B-37

<PAGE>

                  19.2.3 To the  Manager and  Holders in  accordance  with their
respective  Capital  Account  balances,  after giving effect to all  allocations
described in Article 10 of this Agreement;  provided, however, that prior to any
allocation  under Section 10 of this Agreement,  Gross Income shall be specially
allocated to the Manager to the extent,  if any,  necessary to cause its Capital
Account  balance to be zero as of the close of such final  taxable  year  (after
crediting the Manager's Capital Account with the Manager's share of Fund Minimum
Gain). For purposes of making the foregoing allocation,  Net Income and Net Loss
for the final  taxable year of the Fund shall first  tentatively  be computed by
including all Gross Income as an element thereof;  then, to the extent,  if any,
that the Capital  Account  balance of the Manager is negative as of the close of
such final taxable year (after giving effect to all Fund  distributions),  Gross
Income shall be separately stated and allocated away from the Holders and to the
Manager pursuant to this Section 19.2.3.

                  19.2.4  Distributions in liquidation  shall be made by the end
of the taxable year in which the liquidation occurs or, if later, within 90 days
of the liquidating  event and shall otherwise  comply with  Regulations  Section
1.704-1(b).

20.      SPECIAL POWER OF ATTORNEY

         20.1 Execution of Power of Attorney. By executing this Agreement,  each
Holder is hereby granting to the Manager a special power of attorney irrevocably
making,  constituting and appointing ATEL, its duly appointed officers,  and any
one of them, as the  attorney-in-fact  for such Holder, with power and authority
to act alone in his name and on his behalf to execute,  acknowledge and swear to
the execution, acknowledgement and filing of the following documents:

                  20.1.1  This  Agreement,  the  Articles of  Organization,  any
separate  certificates,  as well as any amendments to the foregoing which, under
the laws of the State of California or the laws of any other state, are required
to be filed or which the Manager deems advisable to file;

                  20.1.2 Any other  instrument or document which may be required
to be filed  by the Fund  under  the  laws of any  state or by any  governmental
agency, or which the Manager deems advisable to file; and

                  20.1.3 Any  instrument  or  document  which may be required to
effect  the  continuation  of  the  Fund,  the  admission  of an  additional  or
substituted  Holder,  or the  dissolution  and termination of the Fund (provided
such  continuation,  admission or dissolution  and termination are in accordance
with the terms of this  Agreement),  or to reflect any  reductions  in amount of
contributions of Members.

         20.2  Special Power of Attorney.  The special power of  attorney  being
granted hereby:

                  20.2.1  Is  a  special  power  of  attorney  coupled  with  an
interest,  is  irrevocable,  shall survive the death or legal  incapacity of the
granting Holder, and is limited to those matters herein set forth;

                  20.2.2 May be exercised  by the Manager  acting alone for each
Holder by a facsimile signature of such Manager or by one of its officers, or by
listing all of the Holders executing any instrument with a single signature of a
Manager, or of one of the Manager's officers, acting as attorney-in-fact; and

                                      B-38

<PAGE>

                  20.2.3 Shall  survive an  assignment by a Holder of all or any
portion of his Units  except  that,  where the  Assignee of the Units owned by a
Holder  has  been  approved  by the  Manager  for  admission  to the  Fund  as a
substituted  Holder, the special power of attorney shall survive such assignment
for the sole  purpose of enabling the Manager to execute,  acknowledge  and file
any instrument or document necessary to effect such substitution.

21.      INDEMNIFICATION

         21.1  Indemnification  of the  Manager.  The Fund,  its receiver or its
trustee, shall indemnify, save harmless and pay all judgments and claims against
the Manager and any of its Affiliates who perform services for the Fund from any
liability,  loss or  damage  incurred  by them or the Fund by  reason of any act
performed or omitted to be performed by them when acting in connection  with the
business  of the Fund,  including  costs  and  attorneys'  fees and any  amounts
expended in the settlement of any claims or liability, loss or damage; provided,
however,  that,  if such  liability,  loss or claim  arises out of any action or
inaction of the Manager or  Affiliates  who perform  services for the Fund,  the
Manager or Affiliates who perform services for the Fund must have determined, in
good faith, that such course of conduct was in the best interest of the Fund and
did not constitute fraud, negligence,  breach of fiduciary duty or misconduct by
the  Manager or  Affiliates  who perform  services  for the Fund;  and  provided
further, that any such indemnification shall be recoverable only from the assets
of the Fund and not from the assets of the Holders.  All  judgments  against the
Fund and the  Manager,  wherein a Manager is entitled to  indemnification,  must
first be satisfied from Fund assets before such Manager may be held responsible.
Persons  entitled  to  indemnification  hereunder  shall be  entitled to receive
advances for attorney's  fees and other legal costs and expenses  arising out of
claims made against  them,  provided  that (i) no such  advances may be made for
such fees,  costs or expenses  resulting  from claims made by Holders;  and (ii)
advances  for such fees and  expenses  relating to claims made by parties  other
than Holders may only be made if the action relates to the performance of duties
or  services by the  indemnified  party on behalf of the Fund,  the  indemnified
party obtains an opinion of independent counsel that such party will be entitled
to indemnification  pursuant to this Agreement under the specific  circumstances
of the claim in question,  and the indemnified party undertakes in writing prior
to receipt of such advances that such party will repay in full any such advanced
funds  together  with  interest  thereon in the event  that,  upon the  ultimate
disposition  of the claim,  the party would not be  entitled to  indemnification
hereunder. Nothing contained herein shall constitute a waiver by a Holder of any
right  which he may have  against any party  under  federal or state  securities
laws.

         21.2 Limitations on  Indemnification.  Notwithstanding  anything to the
contrary contained in the foregoing Section 21.1, neither the Manager nor any of
its  Affiliates  performing  services  for the Fund nor any  party  acting  as a
broker-dealer  shall be indemnified from any liability,  loss or damage incurred
by them in connection with (i) any claim or settlement  involving  violations of
state or federal  securities laws by the Manager or by any Affiliate  performing
services for the Fund; or (ii) any  liability  imposed by law, such as liability
for fraud, bad faith or negligence; provided, however, that indemnification will
be allowed for settlements and related expenses of lawsuits alleging  securities
law  violations,  and for  expenses  incurred  in  successfully  defending  such
lawsuits,  provided  that a court either (x) approves the  settlement  and finds
that  indemnification  of any payment in settlement  and related costs should be
made;  or (y)  approves  indemnification  of  litigation  costs if a  successful
defense is made, or a dismissal with prejudice is obtained, as to the indemnitee
on the merits of each count involving alleged securities law violations; and (z)
the parties  seeking  indemnification  apprise the court of the positions of the
securities  law  administrators  of any state in which the Units were offered or
sold, including the Massachusetts  Securities  Division,  and the Securities and

                                      B-39

<PAGE>


Exchange  Commission   with  respect  to  indemnification  for  securities  laws
violations before seeking court approval for indemnification.  Furthermore,  the
Manager  shall  indemnify  the Fund against any loss or  liability  which it may
incur as a result  of the  violation  by the  Manager  or any of its  Affiliates
performing services for the Fund of any state or federal securities laws.

         21.3  Insurance.  The Fund  shall  not pay for any  insurance  covering
liability of the Manager or any of its  Affiliates  for actions or omissions for
which  indemnification  is not  permitted  hereunder;  provided,  however,  that
nothing  contained herein shall preclude the Fund from purchasing and paying for
such types of insurance,  including extended coverage liability and casualty and
worker's  compensation,  as would be customary for any Person owning  comparable
Equipment  and engaged in a similar  business or from naming the Manager and any
of its Affiliates as additional insured parties  thereunder,  provided that such
addition does not add to the premiums payable by the Fund.

22.      MISCELLANEOUS

         22.1   Counterparts.   This   Agreement  may  be  executed  in  several
counterparts and all so executed shall constitute one Agreement,  binding on all
parties hereto, notwithstanding that all of the parties are not signatory to the
original or the same counterpart.

         22.2 Successors and Assigns. The terms and provisions of this Agreement
shall be  binding  upon and shall  inure to the  benefit of the  successors  and
assigns of the respective Members.

         22.3  Severability.  In the event any  sentence  or  paragraph  of this
Agreement  is declared by a court of  competent  jurisdiction  to be void,  such
sentence  or  paragraph  shall be  deemed  severed  from the  remainder  of this
Agreement and the balance of this Agreement shall remain in effect.

         22.4 Notices.  All notices under this Agreement shall be in writing and
shall be given to the Person entitled  thereto,  by personal service or by mail,
posted to the  address  maintained  by the Fund for such Person or at such other
address as he may specify in writing.

         22.5 Captions. Article and section titles or captions contained in this
Agreement are inserted only as a matter of convenience  and for reference.  Such
titles and  captions in no way define,  limit,  extend or describe  the scope of
this Agreement nor the intent of any provision hereof.

         22.6 Number and Pronouns.  Whenever required by the context hereof, the
singular shall include the plural,  and vice-versa;  the masculine  gender shall
include the feminine and neuter genders, and vice-versa.

         22.7  Manager Address. The address of the Manager is:

                           ATEL Financial Corporation
                           235 Pine Street, 6th Floor
                         San Francisco, California 94104

         22.8 Member Addresses.  The names,  addresses and capital contributions
of the Members are set forth on Exhibit I attached  hereto,  which exhibit shall
be maintained at the principal place of business of the Fund.

                                      B-40

<PAGE>

         22.9 Construction.  Notwithstanding  the place where this Agreement may
be executed by any of the parties hereto,  the parties  expressly agree that all
the terms and provisions  hereof shall be construed  under the laws of the State
of  California  and that the Fund shall be  governed by the  California  Act, as
amended, governing limited liability companies formed under California law.

         22.10  Qualification  to Do Business.  In the event the business of the
Fund  is  carried  on or  conducted  in  states  in  addition  to the  State  of
California,  then the parties agree that this Fund shall exist under the laws of
each  state in which  business  is  actually  conducted  by the  Fund,  and they
severally  agree to execute such other and further  documents as may be required
or requested in order that the Manager may qualify the Fund to conduct  business
in such states.  The power of attorney  granted to the Manager by each Holder in
Article 20 shall constitute authority for the Manager to perform the ministerial
duty of qualifying the Fund under the laws of any state in which it is necessary
to file documents or instruments  of  qualification.  A Fund office or principal
place of business in a state may be designated from time to time by the Manager.

INITIAL MEMBERS:

ATEL FINANCIAL CORPORATION, Manager

By: /s/ A. J. BATT
    ----------------------------------------
         A. J. Batt, President

 ATEL CAPITAL GROUP, Initial Member

By: /s/ A. J. BATT
    ----------------------------------------
         A. J. Batt, President














                                      B-41

<PAGE>


                                   EXHIBIT I



                              Schedule of Members



                                        Capital
Name Address                            Contribution

ATEL Capital Group                      $500/50 Units
235 Pine Street
6th Floor
San Francisco, CA 94104

ATEL Financial Corporation              $100
235 Pine Street
6th Floor
San Francisco, CA 94104



















                                      B-42


<PAGE>

                                    EXHIBIT C


HOW TO INVEST
TO THE INVESTOR:

Prior to the satisfaction of the escrow condition (sale of 120,000 Units),  make
your check payable to "U.S. Bank - ACEF IX Escrow".  Thereafter, make your check
payable  to"ATEL  Capital  Equipment  Fund  IX".  Investments  must  be  made in
increments of $10,  minimum of $2,500 (or $2,000 for an IRA,  Keogh or qualified
plan)  in most  states.  See the  discussion  under  Plan of  Distribution-State
Requirements in the prospectus for exceptions.

IMPORTANT INSTRUCTIONS:
----------------------
Fully complete sections 1, 2, and 3 of the Subscription Agreement.

All subscribers must:
1) sign each appropriate  section where  indicated,  2) initial each appropriate
section  (sections 3A - 3D) where  indicated  on the bottom of the  subscription
agreement.

If you would  like your  distributions  sent to an  address  other than your own
(mutual fund,  bank,  etc.).  please fill in the optional check address  section
(section 6).

ADD-ON INVESTMENTS
The subscription agreement  accompanying  additional investments in Fund IX must
have an  authorized  signature  of a  Broker/Dealer,  but does not  require  the
signature of the investor.  Add-on investments must bear the exact name in which
the previous  investment was registered,  or a new signed subscription form will
be required.

FOREIGN INVESTOR OPTION
As  described  in the  Prospectus,  the Manager  has  elected to permit  limited
investment  in  Units  by  nonresident  alien  investors.  In  section  1 of the
Subscription  Agreement  there are three boxes,  one of which must be checked to
indicate  whether an investor  is a resident  alien,  nonresident  alien or U.S.
citizen  residing  outside  the  United  States.  If none of the three  boxes is
checked,  the executed  Subscription  Agreement  will  constitute the investor's
representation that he or she is a U.S. citizen residing in the United States.

                                       C-1

<PAGE>



TO THE SELLING REPRESENTATIVE:

Please  complete  the  Broker/Dealer  Information  section  (Box 7)  using  your
office  address  rather  than the home  office  address.  This  section  must be
completed  for  all  investments,   including  add-on  investments  by  previous
subscribers.  Please  make  sure  that  the  exact  same  name is  used  for the
registered  owner if the investment is an additional  subscription.  Also please
make sure that the investor  satisfies  any other special  investment  standards
imposed by the state in which he or she resides,  as set forth in the Prospectus
under the caption "Plan of Distribution - State Requirements."

Please have the  subscription  document  signed by your branch  manager or other
authorized signatory.

Mail original white, pink and yellow copies
Retain blue copy for Broker/Dealer
Retain  green copy for the  investor  unless  otherwise  specified  by your home
office,  (all IRA  investments  must be submitted  directly to the custodian and
they will then forward the subscription on to ATEL) to:

ATEL SECURITIES CORPORATION
SUBSCRIPTION PROCESSING DESK
235 PINE STREET, Suite 600
SAN FRANCISCO, CA 94104
(415) 989-8800
(800) 543-ATEL
E-mail: securities@atel.com

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


The  investor  whose  signature  appears in Section 2 on the reverse side hereof
(the  "Investor")  hereby  subscribes  for the  number of Units of ATEL  Capital
Equipment Fund IX, LLC (the "Fund") set forth in Section I of this  subscription
Agreement in the manner  described in the  prospectus to which this agreement is
an exhibit (the "Prospectus"). Prior to the satisfaction of the escrow condition
(sale of 120,000 Units), there is transmitted herewith as the subscription price
a check  payable  to "U.S.  Bank - ACEF IX Escrow"  in the  amount  required  to
purchase such Units ($10 per Unit). Such funds will be promptly  transmitted (as
defined in Rule 15c2-4 under the Securities Exchange Act of 1934 and NASD Notice
to members 84-64). No subscription funds will be released to the Fund unless and
until  subscriptions  for a minimum of  120,000  units  have been  received  and
collected  by the escrow  agent prior to a date 12 months  after the date of the
Prospectus. After the escrow condition of 120,000 Units sold has been satisfied,

                                       C-2

<PAGE>


checks should be made payable  to  "ATEL  Capital  Equipment  Fund IX".  Minimum
initial investment is 250 Units (200 Units for Individual Retirement Accounts or
Qualified Plans).

The  Investor  agrees  that if this  subscription  is  accepted it will be held,
together with the accompanying payment, on the terms described in the Prospectus
and that, if accepted as a holder of the Units ("Holder"), the Investor shall be
bound by the  terms  and  conditions  of the  Operating  Agreement  set forth as
Exhibit B to the  Prospectus,  including the special power of attorney set forth
therein.  The subscription may be cancelled by the subscriber at any time during
a  period  of five  days  after  the  subscriber  has  submitted  this  executed
subscription agreement to the Fund.

The  assignability  and  transferability  of the Units will be  governed  by the
Agreement and all applicable  laws, and the Investor must have adequate means of
providing for his current needs and personal contingencies and must have no need
for liquidity in this investment.

The Investor may not be able to  consummate a sale or transfer of the Units,  or
any interest therein, or receive any consideration  therefor,  without the prior
written consent of the  Commissioner of Corporations of the State of California,
except as permitted in the Commissioner's  Rules, and the Units, or any document
of assignment or transfer  evidencing the Units,  will bear a legend  reflecting
the  substance  of the  foregoing  understanding  if such Units have been issued
pursuant to qualification under the California Corporate Securities Law of 1968.

The undersigned acknowledges that U.S. Bank Trust National Association is acting
only as an escrow agent in  connection  with the offering of the Units,  and has
not endorsed, recommended or guaranteed the purchase, value or repayment of such
Units.

INSTRUCTIONS  FOR COMPLETING  THE  SUBSCRIPTION  AGREEMENT  Note- Please type or
print legibly when completing the Subscription Agreement.

Section 1: Units Purchased.
-        Fill in the total dollar amount and the number of Units to be acquired.
         Please note there are no fractional  Units.  All  purchases  must be in
         increments of $10.
-        Indicate  whether  this is an  original  investment  in the  Fund or an
         additional  investment  to an existing Fund account with the exact same
         registration by checking the  appropriate  box. Please note the minimum
         requirements. Only the dollar amount, subscriber name and broker/dealer
         information  sections of the  subscription  forms need be completed for
         additional subscriptions by the same investor.


                                       C-3

<PAGE>



Section 2: Registered Owner.
-      Fill in the name(s) and  addresses  for the  investment  as  they  should
       appear in the registration.
-      Check the applicable citizen status boxes.
-      Enter  the  appropriate    taxpayer    identification   number  for  this
       investment,  depending  on  the  type of  ownership.  For IRAs and Keoghs
       please  include   both   the  custodian's  taxpayer   identification  and
       investor's social security number.
-      Check whether monthly or quarterly distributions are desired.
-      Please read the Subscription Agreement, then sign and date the form.
-      Single Ownership - one signature required
-      Joint Tenants     - all parties must sign
-      Community Property - one signature required
-      Tenants in Common - all parties must sign
-      Tenants in Entirety - one signature required
-      In all other cases, the custodian, trustee, general partner or authorized
       corporate  officer must sign.  Where  the  documents   establishing  such
       representative  capacity  require more than one  signature  for execution
       of instruments on behalf of the represented entity, then  all  signatures
       required by such documents are required here.

Section 3: Subscriber Information
-        Each item must be initialed.

Section 4: Legal Form of Ownership.
-        Mark only one box.  Fill in any  information  requested  and note whose
         signature(s) is (are) required in Section 2.

Section 5:  Investor Mailing Addresses.
-        Fill in name and address if different  from Section 1, as with IRAs and
         Keoghs.

Section 6:  Optional Check Addresses.
-        Complete this section only if you want your distribution  checks mailed
         to an address other than that shown in Section 2.

Section 7: Broker/Dealer Information.
-        Fill in the name of the licensed  Broker/Dealer  firm,  the name of the
         Account Executive,  and the telephone number and mailing address of the
         Account  Executive.  The name,  address and phone number of the Account
         Executive  are  required so he/she can receive  copies of all  investor
         communications.


                                       C-4

<PAGE>



-        An  authorized   Branch   Manager  or   Registered   Principal  of  the
         Broker/Dealer  firm  must  sign the form.  Orders  cannot  be  accepted
         without Broker/Dealer authorization.

Mailing Address.
-        Mail the completed form with a check payable as indicated in  Section 1
to:

ATEL Securities Corporation
Attention: Subscription Processing Desk
235 Pine Street, Suite 600
San Francisco, CA 94104

If  you  have  any  additional  questions  about  completing  this  Subscription
Agreement,  please call ATEL Securities Corporation Subscription Processing Desk
at (800) 543-ATEL.
---------------------------------------------------------------------------

ATEL CAPITAL EQUIPMENT FUND IX, LLC - SUBSCRIPTION AGREEMENT

Please type or print the following  information:  1.UNITS  PURCHASED Make checks
payable to "ATEL Capital Equipment Fund IX" $_________ is for the purchase, as a
Holder, of _______ Units
and should be registered as indicated  in  the  Registered  Owner  section
below.

2. REGISTERED OWNER.
Name(s) and addresses will be recorded exactly as printed below.
(Include custodial address if applicable.)
___Mr.    ___Ms.    ___Mr. and Mrs.    ___Mrs.
Investor(s) Name and/or
Custodian/Nominee_________________________________________________________
Investor Name(s)__________________________________________________________
Address___________________________________________________________________
City ______________________________________State_____ZipCode______________
Investor Phone Number (____)______________E-mail__________________________
Investor Account # (if any)_______________________________________________

X______________________________________________Date_______________________
Subscriber's Signature

X______________________________________________Date_______________________
Subscriber/Custodian/Nominee or Authorized Signature

                                       C-5

<PAGE>



___INITIAL  INVESTMENT $10 per unit  ($2,500/250  Unit Minimum,  $2,000/200 Unit
Minimum for IRA or Qualified  Plan,  unless a higher  minimum is required in the
investor's state - see the Prospectus)

___ ADDITIONAL INVESTMENT ($500/50 Units, unless a higher minimum is required in
the investor's state - see the Prospectus)

___ Check if you are a resident alien.
___ Check if  you  are  a  nonresident  alien (please include W-8 form).
___ Check if you are a U.S. citizen residing outside the U.S.

TAXPAYER IDENTIFICATION NUMBER
Note: If the account is in more than one name, the  number should be that of
the first person listed.
-- --   -- -- -- -- -- -- --
Include BOTH numbers for IRAs and Keoghs.

SOCIAL SECURITY NUMBER
-- -- --   -- --   -- -- -- --

HAVE YOU INVESTED IN ANY PRIOR ATEL FUND?
___YES    ___NO

DISTRIBUTION OPTION  (check one)
___ Quarterly    ___Monthly


PRIVACY ELECTION (check if desired)

____ By  checking  this box the  undersigned  directs  the  Manager to treat all
information  concerning the undersigned as confidential,  and not to disseminate
any such information to any party, without the undersigned's consent,  except as
may be required  under an applicable  statute or regulation or by the order of a
court or governmental agency.

No  representations  should be relied  upon other than  those  contained  in the
Prospectus, as amended and/or supplemented. The subscriber represents,  warrants
and agrees as set forth on the reverse side of this signature page; further, the
undersigned  declares under penalty of perjury that to the best of his knowledge
the information supplied above is true and correct and may be relied upon by the
Manager and the Fund in connection  with his investment as a Holder in the Fund.
The  subscriber   hereby   subscribe(s)  for  the  purchase  of  fully-paid  and
nonassessable Units of the Fund as indicated.


                                       C-6

<PAGE>



3. SUBSCRIBER INFORMATION (EACH ITEM MUST BE INITIALED):
In order to induce the Manager to accept this subscription, the
Investor hereby represents to you as follows (initial in the space provided):

A. The  Investor  has (a) a net  worth of at least  $150,000  in  excess  of his
investment in Units, or (b) has a net worth of at least $45,000 in excess of his
investment  in Units and had during the last tax year or estimates  that he will
have during the current tax year a minimum of $45,000  annual gross  income.  In
all cases net worth is exclusive of home, home furnishings and automobiles.
INITIAL HERE________


B. If the undersigned is acting in a representative  capacity for a corporation,
partnership,  trust or other  entity,  or as agent for any person or entity,  he
hereby  represents  and warrants  that he has full  authority to enter into this
agreement in such capacity.
INITIAL HERE________

C. If the  undersigned  is  purchasing  the  Units  subscribed  for  hereby in a
fiduciary capacity, the representations and warranties herein shall be deemed to
have been made on behalf of the person or persons for whom the undersigned is so
purchasing.
INITIAL HERE________

D. Under the penalties of perjury, the undersigned certifies that (l) the number
provided herein is his correct Taxpayer Identification Number; and (2) he is not
subject to backup withholding either because he has not been notified that he is
subject to backup withholding as a result of a failure to report all interest or
dividends, or the Internal Revenue Service has notified him that he is no longer
subject to backup  withholding.  (If the  undersigned  is  currently  subject to
backup  withholding,  he has stricken the language under clause (2) above before
signing).
INITIAL HERE________

4. LEGAL FORM OF OWNERSHIP (Check Only One)
___ Single Ownership
___ Joint Tenants  With  Rights of Survivorship
___ Husband and Wife as Community Property
___ Tenants in Common
___ Tenants in  Entirety

                                       C-7

<PAGE>



___ Sep IRA
___ IRA  __regular   __rollover
___ Trust   -   Trust Date (Month/Day/Year)  ___/___/___
___ Custodian
___ Custodian  for___________________________________
___ UGMA / UTMA - State of:_______
___ Pension Plan
___ Profit Sharing Plan
___ Corporation
___ Partnership
___ Non-Profit Organization
___ Other__________________

5. INVESTOR MAILING ADDRESS
(if different from above, as with IRAs and Keoghs)
Name________________________________________________________________________
Name________________________________________________________________________
Address_____________________________________________________________________
City__________________________________________State_____Zip Code____________
Investor Phone Number (_____)_______________________________________________

6. OPTIONAL CHECK ADDRESS  If you would like your distribution checks mailed  to
an address other than registered owner's address, please complete.
___ Designated for all Units or,
___ Designated for Partial Units ________
Receiving Entity____________________________________________________________
Address_____________________________________________________________________
City__________________________________________State_____Zip Code____________
Fund Name______________________________Account Number_______________________

7.  BROKER/DEALER  INFORMATION  The  Broker/Dealer  must sign below to  complete
order.  Broker/Dealer  hereby warrants that it is a duly licensed  Broker/Dealer
and may lawfully offer Units in the state designated as the Investor's residence
and, further,  that it has reasonable  grounds to believe,  based on information
obtained  from  the  Subscriber  concerning  his  investment  objectives,  other
investments,  financial  situation and needs and any other  information known by
the Broker/Dealer, that investment in the Fund is suitable for the Subscriber in
light  of  his/her   financial   position,   net  worth  and  other  suitability
characteristics,  and that the  Broker/Dealer  has informed the Subscriber as to
the  limited   liquidity  and   marketability  of  the  Units.  The  undersigned
Broker/Dealer   warrants  that  a  current   Prospectus  was  delivered  to  the
Subscriber.


                                       C-8

<PAGE>


Licensed Firm Name__________________________________________________________
Account Executive Name_________________________________B/D Rep #____________
A/E Mailing Address____________________________________________Suite#_______
City__________________________________________State_____Zip Code____________
Telephone(____)____________________ NumberFax(____)_________________________
E-mail______________________________________________________________________

X_____________________________________________________Date__________________
Authorized signature (Branch Manager or Registered Principal).
Order cannot be accepted without signature.
This transaction, for Blue Sky purposes, took place in the State of ______.


ACCEPTANCE BY MANAGER
FOR MANAGER'S USE ONLY
Received and Subscription Accepted
ATEL Financial Corporation, Manager
By__________________________________________________________________________
Amount___________________________ Date______________ B/D Rep #______________

RETURN TOP 3 COPIES:  WHITE - ATEL COPY,  YELLOW - BROKER/DEALER COPY,
PINK - INVESTOR COPY

RETAIN:  BLUE - BROKER/DEALER COPY, GREEN - INVESTOR COPY

ATEL SECURITIES CORPORATION
235 PINE STREET - 6th FLOOR - SAN FRANCISCO, CA 94104
(800) 543-2835 - E-Mail: securities@atel.com
















                                       C-9

<PAGE>



                              [Outside Back Cover]

         The Fund has not authorized  anyone to give any  information or to make
any representations  other than those contained in this Prospectus in connection
with the offer of its Units,  and  unauthorized  information or  representations
must not be relied upon.  This  Prospectus  is not an offer or  solicitation  by
anyone in any state or other  jurisdiction in which the offer or solicitation is
not  authorized or in which the person making an offer is not qualified to do so
or to any  person  to whom it is  unlawful  to make an  offer  or  solicitation.
Neither the  delivery of this  Prospectus  or any  Supplement  nor any sale made
hereunder shall, under any  circumstances,  create an implication that there has
been no change in the facts set forth herein since the date hereof;  however, if
any material  change not  contemplated  hereby  occurs while this  Prospectus is
required  to be  delivered,  this  Prospectus  will be amended  or  supplemented
accordingly.

         Until a date 90 days after the effective date of this  Prospectus,  all
dealers  effecting  transactions  in the registered  securities,  whether or not
participating in this distribution may be required to deliver a Prospectus. This
is in addition to the obligation of dealers to deliver a Prospectus  when acting
as underwriters and with respect to their unsold allotments or subscriptions.

          ATEL CAPITAL EQUIPMENT FUND IX, LLC is not a mutual fund or
         any other type of investment company within the meaning of the
        Investment Company Act of 1940 and is not regulated by that Act.