ATEL CAPITAL EQUIPMENT FUND VII, L.P.

                            Limited Partnership Units
                  $10 per Unit - Minimum Offering 120,000 Units
                    Minimum Investment -- 250 Units ($2,500)
  (200 Units or $2,000 for an Individual Retirement Account or Qualified Plan)

     ATEL Capital Equipment Fund VII, L.P. (the "Fund") is a California  limited
partnership of which ATEL Financial  Corporation ("ATEL") is the General Partner
and Fund Manager. The Fund's business will be to acquire a diversified portfolio
of primarily  low-technology  capital  equipment  leased to third  parties.  See
"Investment  Objectives and Policies." The Fund expects

                          (Continued on following page)
                            -----------------------

AN INVESTMENT IN THE FUND INVOLVES  SIGNIFICANT  RISKS.  (See "Risk  Factors" on
page 13) Among the most prominent risks are the following:

- Limited  voting rights for investors  mean total  reliance on the Fund Manager
  for Fund management,  and the Fund Manager may be subject to certain conflicts
  of interest;
- Substantial  fees are payable to the Fund Manager and its affiliates even
  if the Fund does not generate profits;
- All equipment investments are not specified, and investors cannot fully assess
  the risks involved in the Fund's equipment portfolio;
- The Fund's  ability to realize lease revenues and make cash  distributions  is
  subject to the risk of lessee defaults, and the use of secured debt to acquire
  equipment may result in the loss of equipment used as collateral for such debt
  in the event of a lessee default;
- The use of  secured  debt to  acquire  equipment  may  result  in the  loss of
  equipment  used as  collateral  for such debt if the Fund is unable to pay its
  debt obligations;
- The  Units  will not be  listed  on any  securities  exchange  and  there  are
  significant  limitations  on  transferability.  Accordingly,  investors may be
  unable to resell or dispose of Units  except at  discounts  from the  offering
  price, which discounts may be substantial,  and, while the Fund is expected to
  liquidate over a ten to eleven year term, the Partnership  Agreement  provides
  for termination no later than December 2017;
- The Fund's ability to diversify its portfolio of leased  equipment by types of
  equipment,  manufacturers,  lessees and geographic regions is dependent on the
  amount of capital  actually  raised and the amount of available debt financing
  (the Fund intends to incur debt equal to  approximately  50% of its  equipment
  cost,  but there  can be no  assurance  as to the  amount  of  available  debt
  financing);
- A  substantial  portion of  distributions  will be deemed,  and a  substantial
  portion  of  distributions  by prior  ATEL  programs  have  been,  a return of
  invested  capital,  as  opposed  to  investment  income,  and  the  amount  of
  investment  income  investors  may  realize  depends  in part on the resale or
  re-lease value of equipment after the initial leases terminate; and
                                          (Continued  on  the  following   page)
                           -----------------------

THESE  SECURITIES  HAVE NOT BEEN APPROVED OR  DISAPPROVED BY THE SECURITIES
AND  EXCHANGE  COMMISSION  OR  ANY  STATE  SECURITIES  COMMISSION  NOR  HAS  THE
COMMISSION  OR ANY STATE  SECURITIES  COMMISSION  PASSED  UPON THE  ACCURACY  OR
ADEQUACY OF THIS PROSPECTUS.  ANY  REPRESENTATION  TO THE CONTRARY IS A CRIMINAL
OFFENSE.
----------------------------------------------------------------------------
                         Price to            Selling        Proceeds to
                         Public              Commissions    Fund
Per Unit            $         10             $      0.95    $       9.05
Total  Minimum      $  1,200,000             $   114,000    $  1,086,000
Total  Maximum      $150,000,000             $14,250,000    $135,750,000
-----------------------------------------------------------------------------

                  THE DATE OF THIS PROSPECTUS IS NOVEMBER 29, 1996

     Any supplements  which update this Prospectus are contained inside the back
cover.

         ATEL Capital Equipment Fund VII, L.P. 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 subject to regulation thereunder.

<PAGE>


(Cover page continued)

to  commit  approximately  86% of the total  proceeds  of this  offering  to the
purchase of equipment. At least an additional 0.5% of the total proceeds will be
retained  by the  Fund as  capital  reserves.  The  balance  will be used to pay
selling commissions equal to 9.5% of the total proceeds (including up to 1.5% of
the proceeds  which may be retained by the Dealer  Manager,  an affiliate of the
Fund  Manager),  Acquisition  Expenses and the other expenses of the offering in
the estimated  amount of from 2.5% to 4% of the offering  proceeds (which may be
advanced  by the Fund  Manager  and  reimbursed  by the  Fund).  Other  than the
foregoing  selling  commissions,  the Fund Manager and its  Affiliates  will not
receive  any  compensation  from the Gross  Proceeds of the  Offering,  but will
receive  compensation only from Fund operating  revenues.  See "Estimated Use of
Proceeds."

         The Fund's objective is to invest in a diversified  portfolio of leased
equipment which will generate regular cash distributions to investors. There can
be no assurance that such objective can be attained.

         It is anticipated that a substantial portion of such distributions will
be  tax-deferred  during the  initial  years of Fund  operations  as a result of
depreciation  available from equipment  purchased by the Fund. To the extent the
Fund's net income is reduced thereby and  distributions  exceed net income,  any
distributions  will be  considered  a return of  capital  and income tax will be
deferred until subsequent years.

         The offering is a best efforts minimum-maximum offering. A best efforts
offering is one in which no underwriter  guarantees  that any specific amount of
offering proceeds will be raised.  All offering proceeds will be deposited in an
escrow account with First Trust of California,  National  Association,  and will
not be released to the Fund, until  subscriptions for a minimum of 120,000 Units
($1,200,000)  have been  received  and  accepted.  Unless the Fund  receives and
accepts  subscriptions for a minimum of 120,000 Units ($1,200,000) by a date one
year  from  the  date of this  Prospectus,  all  subscription  proceeds  will be
promptly released from the escrow account and returned to subscribers,  together
with all interest  earned  thereon.  If the minimum  offering amount is achieved
within the stated  period,  the  offering may continue for a period of up to two
years from the date hereof,  but will  terminate  when the maximum of 15,000,000
Units  ($150,000,000)  is sold or the  offering  is  earlier  terminated  in the
discretion of the Fund and the Dealer Manager.


(Cover page risk factors continued)

  -      The return of investors' capital is not guaranteed and there can be no
         assurance as to the timing or amount of any distributions.

     Under the terms of the  Partnership  Agreement,  the Fund will provide each
Holder  with  quarterly  and  annual  financial  statements,   Fund  information
necessary to prepare the Holder's federal income tax return and an annual report
of the Fund's business. The annual financial statements will be examined by, and
include the opinion of, an independent certified public accountant.


                                       2

<PAGE>


THE USE OF PROJECTIONS IN THIS OFFERING IS PROHIBITED.  ANY  REPRESENTATIONS  TO
THE CONTRARY AND ANY PREDICTIONS, WRITTEN OR ORAL, AS TO THE AMOUNT OR CERTAINTY
OF ANY PRESENT OR FUTURE CASH BENEFIT OR TAX CONSEQUENCE  WHICH MAY FLOW FROM AN
INVESTMENT  IN THE FUND IS A VIOLATION OF THE LAW.  HOWEVER,  SUCH  PROHIBITIONS
SHOULD NOT BE CONSTRUED TO PREVENT THE FUND FROM FILING  SUPPLEMENTALLY  ANY PRO
FORMA  FINANCIAL   STATEMENTS  REQUIRED  BY  THE  FEDERAL  SECURITIES  LAWS  AND
REGULATIONS THEREUNDER.

THE FOLLOWING LEGEND IS REQUIRED BY THE ARIZONA CORPORATION COMMISSION PURSUANT
TO ITS RULE 14-4-118B:  THESE ARE SPECULATIVE SECURITIES.

THE  COMMISSIONER  OF CORPORATIONS OF THE STATE OF CALIFORNIA DOES NOT RECOMMEND
OR ENDORSE THE PURCHASE OF THESE UNITS.

NOTICE TO PROSPECTIVE PURCHASERS IN THE STATE OF NEW HAMPSHIRE: NEITHER THE FACT
THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSE HAS BEEN FILED NOR
THE FACT THAT A  SECURITY  IS  EFFECTIVELY  REGISTERED  OR A PERSON IS  LICENSED
CONSTITUTES A FINDING BY THE DIRECTOR OF THE NEW HAMPSHIRE  OFFICE OF SECURITIES
REGULATION  THAT ANY DOCUMENT FILED UNDER THE NEW HAMPSHIRE  UNIFORM  SECURITIES
ACT IS TRUE,  COMPLETE  AND NOT  MISLEADING.  NEITHER ANY SUCH FACT NOR THE FACT
THAT AN EXEMPTION OR  EXCEPTION  IS  AVAILABLE  FOR A SECURITY OR A  TRANSACTION
MEANS THAT THE DIRECTOR HAS PASSED IN ANY WAY UPON THE MERITS OR  QUALIFICATIONS
OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON,  SECURITY,  OR TRANSACTION.
IT IS  UNLAWFUL  TO MAKE,  OR CAUSE TO BE MADE,  TO ANY  PROSPECTIVE  PURCHASER,
CUSTOMER, OR CLIENT ANY REPRESENTATION  INCONSISTENT WITH THE PROVISIONS OF THIS
SECTION 421-B:20 OF THE NEW HAMPSHIRE UNIFORM SECURITIES ACT.

PENNSYLVANIA INVESTORS:  BECAUSE THE MINIMUM OFFERING AMOUNT IS UNDER
$15,000,000, YOU ARE CAUTIONED TO EVALUATE CAREFULLY THE FUND'S ABILITY TO
ACCOMPLISH FULLY ITS STATED OBJECTIVES AND INQUIRE AS TO THE CURRENT DOLLAR
VOLUME OF FUND SUBSCRIPTIONS.

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.


                                        3


<PAGE>


                                TABLE OF CONTENTS
                                                                           Page


SUMMARY OF THE OFFERING...................................................   7
    Risk Factors..........................................................   7
    Who Should Invest.....................................................   8
    Estimated Use of Proceeds.............................................   9
    Management Compensation...............................................   9
    Investment Objectives and Policies....................................   10
    Conflicts of Interest.................................................   11
    Fiduciary Duty of the General Partner.................................   11
    Management............................................................   11
    Prior Performance Summary.............................................   12
    Income, Losses and Distributions......................................   12
    Income Tax Consequences...............................................   12
    Summary of the Partnership Agreement..................................   13
    Plan of Distribution..................................................   15
    Glossary..............................................................   15

RISK FACTORS..............................................................   15
  Limited Investor Voting Rights and
    Total Reliance on Management..........................................   15
  Fund Manager's Compensation and
      Conflicts of Interest...............................................   16
  Unspecified Equipment and Lessees.......................................   16
  Defaults by Lessees.....................................................   16
  Risks of Leverage.......................................................   16
  Balloon Payments........................................................   17
  Limited Transferability of Units........................................   18
  Diversification Dependent Upon Size of Fund.............................   18
  Return on Investment Dependent Upon
    Residual Value of Equipment...........................................   18
  Portion of Distributions Characterized
      as Return of Capital................................................   18
  Activities Outside of the United States.................................   19
  General Risks in the Equipment Leasing Business.........................   19
  Fluctuations in Demand for Equipment....................................   20
  Competition.............................................................   20
  Risks of Operating Leases...............................................   20
  Casualty Losses.........................................................   20
  Consequences of Government Regulation...................................   20
  Registration of Aircraft May Not Be Possible............................   21
  Newly-Formed Entity.....................................................   21
  Difficulty in Investing Proceeds........................................   21
  Income in Excess of Distributions.......................................   21
  Limited Financial Resources of Fund Manager.............................   22
  Liability of Holders....................................................   22
  Risks of Joint Ventures.................................................   22
  Partnership Status......................................................   23
  Certain Other Tax Considerations........................................   23


<PAGE>


  Tax Opinion.............................................................   24
  ERISA Considerations....................................................   25

WHO SHOULD INVEST.........................................................   25


ESTIMATED USE OF PROCEEDS.................................................   28

MANAGEMENT COMPENSATION...................................................   29
    Summary Table.........................................................   29
    Defined Terms Used in Description of Compensation.....................   33
    Narrative Description of Compensation.................................   34

INVESTMENT OBJECTIVES AND POLICIES........................................   37
    Principal Investment Objectives.......................................   37
    General Policies......................................................   38
    Identified Equipment Acquisitions.....................................   40
    Types of Equipment....................................................   41
    Borrowing Policies....................................................   48
    Description of Lessees................................................   50
    Foreign Leases........................................................   51
    Description of Leases.................................................   52
    Agreements with Manufacturers and Vendors.............................   53
    Competition...........................................................   54
    Joint Venture Investments.............................................   55
    General Restrictions..................................................   56
    Changes in Investment Objectives and Policies.........................   57

CONFLICTS OF INTEREST.....................................................   57

ORGANIZATIONAL DIAGRAM....................................................   60

FIDUCIARY DUTY OF THE GENERAL PARTNER.....................................   61

MANAGEMENT................................................................   63
    The Fund Manager......................................................   63
    The Dealer Manager....................................................   70

PRIOR PERFORMANCE SUMMARY.................................................   70

INCOME, LOSSES AND DISTRIBUTIONS..........................................   74
    Allocations of Net Income and Net Loss................................   74
    Timing of Distributions...............................................   75
    Allocations of Distributions..........................................   75
    Reinvestment..........................................................   77
    Return of Unused Capital..............................................   78
    Cash From Reserve Account.............................................   78
    Sources of Distributions - Accounting Matters.........................   79

CAPITALIZATION............................................................   79

MANAGEMENT'S DISCUSSION AND ANALYSIS
  OF FINANCIAL CONDITION..................................................   80



                                        5


<PAGE>



INCOME TAX CONSEQUENCES...................................................   81
    Summary...............................................................   82
    Opinion of Counsel....................................................   82
    Classification as a "Partnership".....................................   82
    Allocations of Profits and Losses.....................................   82
    Income Recognition....................................................   82
    Taxation of Holders of Units..........................................   82
    Limitation on Deduction of Losses.....................................   82
    Tax Status of Leases..................................................   83
    Depreciation..........................................................   83
    Deductibility of Management Fees......................................   83
    Sales or Exchanges of Fund Equipment..................................   83
    Disposition of Units..................................................   83
    Fund Elections........................................................   83
    Investment by Qualified Plans and IRAS................................   83
    Dissolution of Fund...................................................   83
    Opinion of Counsel....................................................   84
    Classification as a "Partnership" ....................................   85
    Allocation of Profits and Losses .....................................   88
    Income Recognition....................................................   90
    Taxation of Holders of Units .........................................   91
    Limitation on Deduction of Losses ....................................   92
    Tax Basis ............................................................   92
    At Risk Rules ........................................................   92
    Passive Loss Limitations .............................................   93
    Hobby Losses .........................................................   94
    Tax Status of Leases .................................................   94
    Depreciation .........................................................   95
    MACRS and ADR ........................................................   95
    Recapture ............................................................   97
    Basis ................................................................   97
    Limitation on the Use of MACRS .......................................   97
    Property Used Predominantly Outside the United States ................   97
    Tax Exempt Leasing ...................................................   98
    Deductibility of Management Fees .....................................   98
    Tax Liabilities in Later Years .......................................   99
    Sales orExchange of Fund Equipment ...................................   99
    Disposition of Units .................................................  101
    Original Issue Discount ..............................................  102
    Fund Elections .......................................................  102
    Dissolution of Fund ..................................................  103
    Treatment of Gifts of Units ..........................................  103
    Investment by Qualified Plans and IRAS ...............................  103
    Individual Tax Rates .................................................  105
    Alternative Minimum Tax ..............................................  105
    Fund Tax Returns and Tax Information..................................  106
    Interest and Penalties................................................  107
    Audit of Tax Returns..................................................  109
    Registration Provisions...............................................  110
    Miscellaneous Partnership Tax Aspects.................................  110
    Foreign Tax Considerations............................................  110
    Taxation of Foreign Persons...........................................  111
    Future Federal Income Tax Changes.....................................  112
    State and Local Taxes.................................................  113
    Need for Independent Advice...........................................  114

ERISA CONSIDERATIONS......................................................  114
    Prohibited Transactions Under ERISA and the Code......................  114
    Plan Assets...........................................................  114
    Other ERISA Considerations............................................  115

SUMMARY OF THE PARTNERSHIP AGREEMENT......................................  116
    The Duties of the Fund Manager........................................  116
    Liability of Holders..................................................  117
    Term and Dissolution..................................................  117
    Voting Rights of Limited Partners.....................................  118
    Dissenters' Rights and Limitations on
      Mergers and Roll-ups................................................  119
    Meetings..............................................................  119
    Books of Account and Records..........................................  119
    Status of Units.......................................................  120
    Transferability of Units..............................................  120
    Repurchase of Units...................................................  124

                                        6


<PAGE>





    Indemnification of the General Partner...............................   124

PLAN OF DISTRIBUTION.....................................................   125
    Distribution.........................................................   125
    Selling Compensation and Certain Expenses............................   126
    Escrow Arrangements..................................................   127
    Investments by Certain Persons.......................................   128
    State Requirements...................................................   129

REPORTS TO HOLDERS.......................................................   130

SUPPLEMENTAL SALES MATERIAL..............................................   131

LEGAL OPINIONS...........................................................   131

EXPERTS..................................................................   131

ADDITIONAL INFORMATION...................................................   132

GLOSSARY.................................................................   132

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

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


         No person has been  authorized to give any  information  or to make any
representations other than those contained in this Prospectus in connection with
the  offer  contained  herein,  and  if  given  or  made,  such  information  or
representation  must not be relied upon.  This Prospectus does not constitute an
offer or solicitation by anyone in any state or other jurisdiction in which such
offer or solicitation is not authorized or in which the person making such offer
is not  qualified  to do so or to any person to whom it is unlawful to make such
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  February  27, 1997 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.     


                             SUMMARY OF THE OFFERING

     The following is a summary of the pertinent  facts and highlights  from the
material contained in this Prospectus. More detailed information with respect


                                        7


<PAGE>





to this offering may be found in the remainder of this Prospectus.

         Risk Factors: An investment in Units involves significant risks.

         The "Risk  Factors"  section  of this  Prospectus  contains  a detailed
discussion  of the  most  important  risks,  organized  into the  categories  of
Investment  Risks  (those  relating  to the types of  investments  the Fund will
make), Fund Risks (those relating to the investments in limited partnerships and
the terms of the  Partnership  Agreement),  and Tax Risks (those relating to the
tax laws as they apply to the Fund and its  investments).  Please refer to those
sections of the Prospectus for discussions of material risk factors,  including,
but not limited to, the following risks:

  -      Limited  voting  rights for investors  mean total  reliance on the Fund
         Manager  for Fund  management,  and the Fund  Manager may be subject to
         certain conflicts of interest;

  -      Substantial fees are payable to the Fund Manager and its affiliates
         even if the Fund does not generate profits;

  -      All equipment investments are not specified, and investors cannot fully
         assess the risks involved in the Fund's equipment portfolio;

  -     The Fund's ability to realize lease revenues and make cash distributions
        is subject to the risk of lessee defaults;

  -     The use of secured debt to acquire  equipment  may result in the loss of
        equipment  used as collateral for such debt if the Fund is unable to pay
        its debt obligation;

  -     The Units will not be listed on any  securities  exchange  and there are
        significant limitations on transferability.  Accordingly,  investors may
        be unable to resell or dispose  of Units  except at  discounts  from the
        offering price, which discounts may be substantial,  and, while the Fund
        is  expected  to  liquidate  over a ten to  eleven  year  term,  it must
        terminate no later than December 2017;

  -      The Fund's  ability to diversify its  portfolio of leased  equipment by
         types of equipment,  manufacturers,  lessees and geographic  regions is
         dependent  on the amount of capital  actually  raised and the amount of
         available  debt  financing  (the Fund  intends  to incur  debt equal to
         approximately  50% of its equipment cost, but there can be no assurance
         as to the amount of available debt financing);

  -      A  substantial   portion  of  distributions   will  be  deemed,  and  a
         substantial  portion of distributions by prior ATEL programs have been,
         a return of invested capital,  as opposed to investment income, and the
         amount of investment  income  investors may realize  depends in part on
         the resale or re-lease  value of  equipment  after the  initial  leases
         terminate;

  -      The return of investors' capital is not guaranteed and there can be no
         assurance as to the timing or amount of any distributions; and

         Who Should Invest:  The section of the Prospectus entitled "Who Should
Invest" contains an explanation of investor suitability requirements, and
describes the minimum net worth and income requirements that various states


                                        8


<PAGE>





impose on investors.  In particular, that discussion addresses the rules
applicable to certain investors such as IRAs.

         Estimated  Use  of  Proceeds:  Of  each  dollar  raised  by  the  Fund,
approximately  86% will actually be invested in the cash portion of the purchase
price of equipment. An additional 0.5% will be retained as capital reserves. The
balance will be used to pay selling  commissions  equal to 9.5% (including up to
1.5% which may be  retained  by the Dealer  Manager,  an  affiliate  of the Fund
Manager, for wholesaling expenses and commissions), Acquisition Expenses and the
other expenses of the offering in the estimated amount of from 2.5% to 4% (which
may be advanced by the Fund Manager and reimbursed by the Fund).  See "Estimated
Use of Proceeds" for a precise breakdown of the Fund's estimate as to the use of
the capital it raises.

         Management  Compensation:  The Fund  Manager  and its  affiliates  will
receive  substantial  fees and compensation in connection with this offering and
the operation of the Fund's business, including the following:

                  - Selling  commissions on the sale of Units are payable to the
         Dealer  Manager,  a  substantial  portion of which will be reallowed to
         participating  broker dealers. The Dealer Manager may retain up to 1.5%
         of the total proceeds from the sale of Units.

   
                  - An equipment  management fee will be paid to an Affiliate of
         the Fund Manager,  in an amount equal to either 2% or 3.5% of the gross
         revenues from Fund leases (depending on the type of lease).

                  - An incentive management fee will be paid to the Fund Manager
         or an Affiliate, in an amount equal to 4% of distributions of cash from
         operations  (generally  consisting  of lease  revenues  less  operating
         expenses and  reserves).  When  investors  have received  distributions
         equal  to  their  original  investment  plus  distributions  equal to a
         cumulative 10% per annum on an investor's  unreturned capital, then the
         incentive management fee will be paid in an amount equal to 7.5% of all
         Fund distributions,  including distributions of the proceeds from sale,
         refinancing or other disposition of the equipment.
    

                  - An  equipment  resale/re-leasing  fee  may be  paid  to ATEL
         Equipment  Corporation  in an amount up to 3% of the sale price of Fund
         equipment,  but only after  investors  have received their capital back
         plus distributions equal to a cumulative 10% per annum on an investor's
         unreturned  capital.  A fee of up to 2% of the gross  rents may also be
         paid to ATEL Equipment Corporation upon a re-lease of Fund equipment.

                  - The Fund  Manager has an interest as the General  Partner in
         the Fund  allocating  to it 7.5% of all net income and net loss for tax
         and accounting purposes and cash distributions.

         See  "Management  Compensation."  The Fund Manager has discretion  with
respect to all decisions related to Fund transactions, and may therefore be


                                        9


<PAGE>


able to affect the amount and timing of compensation payable by the Fund.  See
"Conflicts of Interest - Receipt of Commissions, Fees and other Compensation
by the Fund Manager and its Affiliates."

         Investment Objectives and Policies: The Fund's objectives are to invest
in a diversified portfolio of equipment for lease to third parties which will:

     (i) Preserve, protect and return the Fund's invested capital;

     (ii) Generate  regular  distributions  to investors from net lease revenues
and from sales or refinancing  of equipment,  with any balance  remaining  after
certain minimum distributions (see "Income, Losses and Distributions Allocations
of  Distributions")  to be reinvested in equipment  during the period ending six
years  after  the  year  in  which  this  offering  of  Units   terminates  (the
"Reinvestment Period"); and

     (iii) Provide  additional  distributions  after the end of the Reinvestment
Period and until all Equipment has been sold.

         There can be no assurance that any such objectives can be attained.

         The Fund's equipment  portfolio may include various types of equipment,
as described  more fully under  "Investment  Objectives  and Policies - Types of
Equipment."

         It  is  the  Fund's   investment   objective   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 may include some more  technology-dependent  equipment,
such as certain types of communications equipment,  medical equipment and office
equipment,  although the Fund will seek to invest in such  equipment in a manner
consistent with its primary objective of acquiring  equipment which is generally
subject to relatively low rates of technological  obsolescence.  The Partnership
Agreement  does not  limit the  Fund's  ability  to  invest  in  high-technology
equipment.  Equipment that depends on high-technology design or applications for
its value may often tend to lose value more rapidly than equipment which is less
technology dependent,  as advances in technology may render such high-technology
equipment  functionally  obsolete at an earlier date. See Table IV of Exhibit A,
"Prior Performance  Information," for information  concerning the composition of
the equipment  portfolios held by the six prior public programs sponsored by the
Fund Manager and its affiliates  which have  investment  objectives and policies
identical to those of the Fund.

         The  effect  of  owning   assets  which  may  be  subject  to  economic
depreciation is, generally,  that the investors' return on their capital, and in
some  cases  the  return  of their  capital,  is  dependent  on the rate of such
economic  depreciation.  In other words,  the residual  values realized upon the
sale, release or other disposition of the equipment will play a significant role
in determining  the success of the  investment.  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

                                       10


<PAGE>


equipment  lessor such as the Fund seeks to negotiate  lease terms based in part
on its estimate of the value of the leased  equipment  upon  termination  of the
lease.  The lessor will  negotiate a lease rate designed to generate  sufficient
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 have  achieved 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 lessor's assumptions regarding the residual value
of the equipment will be accurate or that its objective will be achieved.

         A majority of the Fund's equipment will be leased on terms which return
at least 90% of the original purchase price through lease payments ("High Payout
Leases"),  and a  substantial  portion of the  purchase  prices of other  leased
assets may be expected to be returned through rents. The residual value risk and
the dependence on residual values to achieve a return on investment is discussed
under "Risk  Factors - Investment  Risks - Return on Investment  Dependent  Upon
Residual Value of Equipment."

         Upon  termination of the Fund's  leases,  the Fund Manager will seek to
release or sell the equipment, provided that subsequent leases will be for terms
consistent with the Fund's intended term.

         Other  than as set forth  under  "Investment  Objectives  and  Policies
Identified Equipment Acquisitions" and in any supplement to this Prospectus, the
Fund does not currently  have  options,  contractual  obligations  or letters of
intent to acquire any equipment.  See "Risk Factors" and "Investment  Objectives
and Policies."

         There is no limit on the  borrowings on individual  items of equipment.
However,  the Fund's  objective  is to incur total  portfolio  debt equal to the
maximum permitted under the Partnership  Agreement,  which is an amount equal to
50% of the cost of its  equipment as of the date of its final  investment of the
offering proceeds or, thereafter,  as of the date any subsequent indebtedness is
incurred.  See "Risk Factors - Risks of Leverage" and "Investment Objectives and
Policies - Borrowing Policies."

         Conflicts of Interest: The Fund Manager will have conflicts of interest
in  the  management  of  the  Fund,  including  having  interests  which  may be
inconsistent  with those of the  investors  under some  circumstances  and being
permitted to engage in other  activities  which may  conflict  with those of the
Fund. The section of this Prospectus  entitled "Conflicts of Interest" discusses
the most  important  of these  conflicts  of interest  and how the Fund  Manager
intends to resolve them.

         Fiduciary Duty of the General Partner:  The Fund Manager is responsible
for supervising all aspects of the  administration of the Fund and management of
its business.  The Fund Manager,  as General  Partner of the Fund, 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.  See "Fiduciary  Duty of
General  Partner."  However,  the Fund will  indemnify the Fund Manager  against
certain liabilities and the Fund Manager will have certain


                                       11


<PAGE>


conflicts of interest, as described under "Conflicts of Interest."

         Management:   The  General  Partner  of  the  Fund  is  ATEL  Financial
Corporation ("ATEL" or the "Fund Manager"), a California corporation. Affiliates
of the Fund Manager will provide various services to the Fund. See "Management."
The  offices of the Fund  Manager  and its  Affiliates  are  located at 235 Pine
Street,  6th Floor, San Francisco,  California  94104, and its telephone numbers
are (415)  989-8800 and (800)  543-ATEL.  The Fund  Manager's  balance  sheet is
included in this Prospectus under the caption "Financial Statements."

         Prior  Performance  Summary:  The Fund Manager and its affiliates  have
sponsored six prior public and one prior private equipment leasing programs. The
six prior public programs have had investment objectives substantially identical
to  those  of the  Fund,  while  the  private  program  had  similar  investment
objectives  which  differed  in certain  respects  from  those of the Fund.  The
section  of the  Prospectus  entitled  "Prior  Performance  Summary"  contains a
summary of certain of these prior investment  programs in which the Fund Manager
and its affiliates have been involved.  The Prior Performance Tables attached as
Exhibit A to the  Prospectus  include  statistical  and financial data regarding
these prior investment  programs.  Upon request, the Fund Manager will provide a
copy of the most  recent  annual  report  on Form  10-K for any of the six prior
public programs.

         Income, Losses and Distributions: Fund income and loss for tax purposes
shall be  allocated  92.5% to  investors  and  7.5% to the Fund  Manager.  After
payment of Fund expenses,  permitted reinvestment in equipment and setting aside
of  reserves,  investors  will  receive  88.5%  and  the  Fund  Manager  and its
Affiliates a total of 11.5% (7.5% as a  distribution  to the Fund Manager and 4%
as a fee payable to its Affiliate) of all  distributions  of net lease revenues.
Investors  will  initially  receive  92.5%  and  the  Fund  Manager  7.5% of all
distributions  of the net proceeds of equipment sales or  refinancings.  At such
time as investors have received aggregate  Distributions equal to their original
capital  contributions  plus an amount equal to 10% per annum on their "adjusted
invested  capital" (their  original  capital  contribution  reduced by all prior
distributions  to investors in excess of 10% per annum),  investors will receive
85% and the  General  Partner  and its  Affiliates  a total  of 15%  (7.5%  as a
distribution  to the General Partner and 7.5% as a fee payable to its Affiliate)
of all  subsequent  distributions  of proceeds from sales or  refinancings.  The
foregoing is only a brief summary of complicated  provisions in the  Partnership
Agreement.  See  "Income,  Losses and  Distributions"  for a more  complete  and
precise description of these provisions.

         Upon  liquidation  of the Fund,  the  proceeds of  liquidation  will be
distributed in accordance with each partner's positive capital account balance.
See "Income, Losses and Distributions."

          Reinvestment:  Subject to certain limitations, including the prior
distribution of cash in specified minimum amounts, the Fund Manager may reinvest
Fund revenues in additional equipment through the end of a six-year period
commencing after the year this offering closes.  See "Income, Losses and
Distributions - Reinvestment."

          Income Tax Consequences:   The following is a brief summary of, and is
qualified by, the more extensive discussion of the material federal income tax
consequences set forth in "Income Tax Consequences."

-      Partnership Classification.  Counsel is of the opinion that the Fund will
       be classified as a partnership for federal income tax purposes.



                                       12


<PAGE>



-      Allocation  of Net Income  and Net Loss.  Tax  counsel is of the  opinion
       that,  it is more likely than not, the tax  allocation  provisions in the
       Partnership Agreement will not be significantly  modified by the Internal
       Revenue Service.

-      Income Recognition.  In any year, an investor's tax liabilities
       attributable to his investment in the Fund may exceed cash realized by
       such investor in that year.

-      Limitations on Deduction of Losses.  There are certain limitations on the
       ability of an investor to utilize his allocable share of Fund tax losses.

-      Tax  Status  of  Leases.  In  order  for  investors  to  be  entitled  to
       depreciation  deductions,  the equipment  leases must be classified "true
       leases" for federal income tax purposes. The Fund Manager has represented
       that it will use its best  efforts to assure that each item of  equipment
       will  comply  or will  substantially  comply  with the  Internal  Revenue
       Service's equipment leasing guidelines.

-      Disposition of Units. In certain circumstances, the amount of tax payable
       by an investor on the gain  realized  from a sale or  disposition  of his
       Units may exceed the cash received therefrom.

-      Fund Elections.  The Fund is not expected to file an election under
       Internal Revenue Code section 754.  The absence of such election may have
       an adverse effect on the marketability and sale price of the Units.

-      UBTI.  The Fund will generate unrelated business taxable income to
       Holders who are Qualified Plans or IRAs.

-      AMT.  The Fund's depreciation deductions may be subject to adjustment
       under the alternative minimum tax.

         Summary of the Partnership  Agreement:  The Partnership  Agreement that
will govern the  relationship  between the  investors  and the Fund Manager is a
complex legal document,  and the section of the Prospectus  entitled "Summary of
the Limited Partnership  Agreement" summarizes some of its important provisions.
Other important  provisions are summarized elsewhere in the Prospectus under the
captions  "Management  Compensation,"  "Income,  Losses and  Distributions"  and
"Reports to Holders." The following is a brief summary of certain  provisions of
the  Partnership  Agreement which are discussed in greater detail under "Summary
of the Limited Partnership Agreement."

-      Voting Rights of Limited Partners.  Each limited partner of the Fund
       ("Limited Partner") will be entitled to cast one vote for each Unit which
       such partner owns as of the date designated as the record date for any
       Limited Partner vote.  The Limited Partners are entitled to vote on only
       certain fundamental organizational matters affecting the Fund, and are
       not authorized to participate in the conduct of Fund operations or the
       establishment or implementation of Fund investment policies.



                                       13


<PAGE>


-     Meetings.  The General Partner or Limited  Partners holding 10% or more of
      the total  outstanding Units may call a meeting of the Limited Partners or
      a vote of the Limited Partners without a meeting, on matters on which they
      are entitled to vote.

-     Dissenters'  Rights and Limitations on Mergers and Roll-ups.  Section 16.7
      of the Partnership Agreement provides Limited Partners with certain rights
      in the event of any proposal involving an acquisition,  conversion, merger
      or  consolidation  transaction in which the investors  would be issued new
      securities in the resulting entity.

-     Transferability of Units.  The Fund 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 certain  matters set
      forth in the Partnership Agreement.  Any assignment, sale, exchange or
      other transfer in contravention of any of the provisions of the
      Partnership Agreement shall be void and ineffectual, and shall not bind
      or be recognized by the Fund.

-     Liability  of  Investors.  Under  the  Partnership  Agreement  and  the
      California Revised Limited  Partnership Act, an investor complying with
      the  Partnership  Agreement will not be liable for Fund  obligations in
      excess   of  his   unreturned   capital   contribution   and  share  of
      undistributed profits;  provided that, if the Fund has made an improper
      distribution,  the  investor  may be  required  to  return  the  amount
      received as a result.

-     Status Of Units. Under the Partnership Agreement,  each Unit will be fully
      paid and  nonassessable  and all Units have equal voting and other rights,
      except with respect to certain  limitations on the voting of Units held by
      the Fund Manager or its Affiliates.

-     Term and Dissolution.  The Fund will continue for a maximum period ending
      December 31, 2017, 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 investors are admitted to the Fund) with final
      liquidation expected to occur approximately ten to eleven years after the
      date the final investors are admitted to the Fund.

-     The  Duties of the Fund  Manager.  ATEL  Financial  Corporation,  the Fund
      Manager,  is  General  Partner  of the Fund  and,  under  the terms of the
      Partnership  Agreement,  has the exclusive  management  and control of all
      aspects of the business of the Fund.

-     Books of Account and Records. The General Partner is responsible under the
      Partnership  Agreement for keeping certain 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 be kept at the principal place of


                                       14


<PAGE>





         business  of the Fund in the  State  of  California,  and each  Limited
         Partner 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,  and each Limited  Partner  shall have the right to compel
         the Fund to deliver copies of certain of these records on demand.

-        Indemnification of the Fund Manager. The Partnership Agreement provides
         that the Fund Manager and its affiliates  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"), an Affiliate of the Fund Manager.  The
Dealer Manager will in turn offer Units through other broker-dealers who are
members of the National Association of Securities Dealers, Inc. ("NASD").  See
"Plan of Distribution."

   
     Until subscriptions for a total of 120,000 Units are received and accepted,
all subscription  checks must be made payable to, and all offering proceeds will
be  deposited  in an escrow  account  at,  First  Trust of  California  National
Association,  San Francisco,  California.  The offering will terminate not later
than two years from the date of this Prospectus, subject to any re-qualification
or renewal of  qualification  of the  offering  which may be required in certain
jurisdictions after the end of the first year of the offering.  Upon receipt and
acceptance of  subscriptions  to a minimum of 120,000  Units,  the  subscription
proceeds will be released to the Fund. See "Plan of Distribution."     

         Glossary:  See "Glossary" for definitions of certain capitalized terms
which are not otherwise defined herein.

                                  RISK FACTORS

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

         Limited  Investor  Voting Rights and Total Reliance on Management.  All
decisions with respect to the management of the Fund will be made exclusively by
the Fund Manager. The success of the Fund will, to a large extent, depend on the
quality of the management of the Fund,  particularly  as it relates to Equipment
acquisition,  leasing and disposition. Holders are not permitted to take part in
the management of the Fund and Limited Partners have only limited voting rights.
An  affirmative  vote by  holders of more than 50% of the  outstanding  Units is
required  to  remove  the  General  Partner.  See  "Summary  of the  Partnership
Agreement - Voting Rights of Holders."  Accordingly,  no person should  purchase
any of the Units  offered  hereby unless he is willing to entrust all aspects of
the  management  of the  Fund to the Fund  Manager  and has  evaluated  the Fund
Manager's  capabilities to perform such functions.  The Fund Manager has engaged
in various phases of equipment acquisition,  leasing,  financing and disposition
for its own account,  and for corporate  investors and others, and has sponsored
six prior public partnerships, none of which has yet completed


                                       15


<PAGE>





its operations and been liquidated.  Although the General Partner does maintain
key employee life insurance policies, the key executives are not bound by
specific employment agreements.  See "Management" and Exhibit A - "Prior
Performance Information."

         Fund Manager's Compensation and Conflicts of Interest. Substantial fees
are payable to the Fund Manager and its Affiliates before distributions are paid
to investors  and even if the Fund does not generate  profits.  The Fund Manager
will also be  subject to many  conflicts  of  interest  in  connection  with its
management of the Fund. In particular,  the anticipated use of leverage equal to
50% of the  aggregate  cost  of  Equipment  could  result  in  higher  Equipment
Management Fees and other compensation as well.

         Unspecified  Equipment and Lessees. It is not possible to assess all of
the potential risks of an investment in Units because all of the Equipment to be
purchased  and the lessees to whom such  Equipment  will be leased have not been
identified.  A prospective investor will not have complete information as to the
manufacturers  from  which  the Fund  will  purchase  Equipment,  the  number of
Operating  Leases or Full Payout Leases to be entered into,  the specific  types
and models of Equipment to be acquired, or the identity, financial condition and
creditworthiness of the lessees who will lease such Equipment.  The Holders must
rely solely upon the  judgment  and ability of the Fund  Manager with respect to
the  selection  and  methods  of  investment  and   reinvestment  in  Equipment,
evaluation of Equipment manufacturers,  vendor leasing programs, types of leases
and potential lessees. See "Investment Objectives and Policies."

   
     Defaults  by  Lessees.  The  default by a lessee  under a lease may cause a
lease to terminate  and  Equipment to be returned to the Fund at a time when the
Fund Manager or its agents may be unable  promptly to arrange for the re-leasing
or sale of such  Equipment,  thus resulting in the loss of anticipated  revenues
and  the  inability  to  recover  the  entire  amount  of  the  Fund's  original
investment.  Furthermore,  the Fund may  experience  difficulties  and delays in
recovering  the  Equipment  from the  defaulting  lessee,  if a lessee files for
protection under the bankruptcy laws or otherwise. The Equipment may be returned
in poor  condition  and the Fund may be unable to enforce the return  provisions
and other lessee  obligations in its lease against an insolvent  lessee.  In any
event, the costs associated with recovering  Equipment upon a lessee's  default,
enforcing the lessee's  obligations under the lease, and transporting,  storing,
repairing and  remarketing  the Equipment may be  substantial  and may adversely
affect Fund operations. See Exhibit A, "Prior Performance Information," Table IV
and the  attached  footnotes  for a  discussion  of defaults by lessees of prior
programs  sponsored by the Fund  Manager and its  Affiliates.  On its  defaulted
leases,  the prior program  realized lower  residual  values on certain items of
equipment than had been anticipated at the time of acquisition.
    

         Risks of Leverage.  To finance a portion of the  purchase  price of its
Equipment  portfolio,  the Fund expects to incur  aggregate  indebtedness  in an
amount equal to the maximum  permitted  under the Partnership  Agreement.  Total
Fund  debt  may not  exceed  an  amount  equal to 50% of the  aggregate  cost of
Equipment as of the final commitment of the Net Proceeds and, thereafter, on


                                       16


<PAGE>


the date any  subsequent  indebtedness  is  incurred.  Equipment  purchased on a
leveraged  basis generally can be expected to be profitable only if it generates
sufficient  cash  revenues  from rents and residual  proceeds in excess of those
required to pay interest on the related  debt,  recover the  purchase  price and
cover other operating  expenses.  The Fund intends to use both  nonrecourse debt
(debt in which only the asset financed by the lender is collateral  securing the
obligation)  and recourse  debt (in which all of the Fund's assets or a selected
pool of the assets are collateral securing the obligation).  The Fund expects to
incur recourse debt obligations in the form of asset securitization transactions
and short term bridge financing to provide temporary  financing for transactions
approved for acquisition by the Fund,  including a common recourse debt facility
with affiliated  programs.  See the discussion under  "Investment  Objecties and
Policies -  Borrowing  Policies."  Upon a default by a borrower  under a secured
debt  transaction,  the lender  generally has the right to accelerate the entire
debt obligation and to foreclose on the collateral. The lender can thereby force
a sale of the  collateral  to  satisfy  the  full  balance  due  under  the debt
obligation of the borrower.  The use of leverage may therefore cause the risk of
loss to the Holders to be greater than if no debt were  incurred,  because fixed
payment  obligations  must be met on certain  specified dates  regardless of the
amount of revenues  derived by the Fund from  leveraged  Equipment.  At the same
time,  the use of debt  increases  the  potential  size of the Fund's  Equipment
portfolio,  the amount of gross lease revenues and potential  residual proceeds,
and would also thereby increase the potential Equipment  Management Fees payable
to the Fund  Manager,  as such fees are  determined as a percentage of the gross
revenues from leases of Equipment.

   
         Furthermore,  the amount of Distributions to the Holders and the amount
of  potential  tax benefits  may depend upon the  availability  and the terms of
financing  for the  purchase of  Equipment.  The Fund has not  entered  into any
agreements to obtain permanent  financing,  and it is not currently  possible to
ascertain the  availability  of such  financing.  No assurance can be given that
financing  will be available  or, if  available,  that it will be provided  upon
terms which the Fund Manager deems reasonable.     

         Balloon Payments. The Fund may borrow on terms which do not provide for
amortization  of the entire  principal  amount or a substantial  portion thereof
prior to maturity.  Such  "balloon  payment"  debt  involves  greater risks than
secured debt where the principal  amount is amortized  over the term of the loan
because the ability of the Fund to repay at maturity the  outstanding  principal
amount may be dependent upon its ability to obtain adequate refinancing,  and in
turn  upon  economic  conditions  in  general  and the  value of the  underlying
Equipment in  particular.  There is no assurance  that the  Equipment  will have
sufficient value to permit the Fund to pay or refinance any such balloon payment
at  maturity.  Further,  a  significant  decline in the value of the  underlying
Equipment could result in a loss of the Equipment through foreclosure.

         Limited  Transferability of Units. There are significant limitations on
the transferability of Units, and, as a result of potential adverse tax effects,
the Fund  Manager  will take  steps to  assure  that no  public  trading  market
develops for the Units offered hereby. Holders may not, therefore, be


                                       17


<PAGE>


able to liquidate their  investments in the event of an emergency.  In addition,
Units may not be readily  accepted as collateral for a loan.  Consequently,  the
purchase of Units should be considered only as a long-term investment.

   
     Diversification  Dependent  Upon Size of Fund. The Fund will be capitalized
with contributions of not less than $1,200,000 nor more than  $150,000,000.  The
potential   for   portfolio   diversification   and   therefore   the  potential
profitability  of the Fund  may be  affected  by the  amount  of funds  actually
raised. In the event that the Fund receives only the minimum Gross Proceeds,  it
will have less ability to obtain  diversification of its Equipment portfolio and
lessees,  and the degree to which it may be adversely affected by the results of
any single lease transaction will be increased.  See "Estimated Use of Proceeds"
and "Plan of  Distribution."  It should be noted that there is no minimum number
of lease transactions nor is there any restriction on the percentage of offering
proceeds at the minimum offering amount which may be used to purchase  equipment
of a single type or equipment leased to a single lessee.
    

         Return on  Investment  Dependent  Upon Residual  Value of Equipment.  A
substantial  portion of Fund distributions from lease revenues is expected to be
a return of capital.  The Fund's ability to generate  income from its investment
in Equipment  will depend in part upon the  continuing  value of such  Equipment
when its leases  terminate,  which in turn will depend upon, among other things:
(i) the condition of the  Equipment;  (ii) the cost of comparable new Equipment;
and (iii) the functional and  technological  obsolescence  of the Equipment.  In
general,  leased  equipment can be expected to  depreciate  in constant  dollars
(that is, in dollars  discounted  for the effects of inflation  during the lease
term).  In  structuring  the terms of Fund  leases,  the Fund  Manager will make
certain assumptions regarding the anticipated residual values of Equipment in an
effort to  calculate  lease rates  which,  when  combined  with  estimated  sale
proceeds,  may be expected to return the Fund's  invested  capital and provide a
profit.  There can be no assurance that the Fund's  residual  value  assumptions
will prove to be accurate or that the  Equipment  will not decline in value more
rapidly than anticipated.

         Portion  of  Distributions  Characterized  as  Return of  Capital.  The
portion of each Distribution  which exceeds the Fund's net income for the fiscal
period in which the  Distribution is made would  constitute a return of capital.
In other  words,  to the  extent  an  investor  receives  cash in  excess of his
allocable  share of income  for a period,  he will be deemed to be  receiving  a
return of his invested capital rather than investment  income.  Distributions by
the Fund may be  characterized  for tax,  accounting and economic  purposes as a
return of capital, a return on capital (i.e., investment income) or a portion of
each.  The  portion of total  Distributions  which will  constitute  a return of
capital and the portion which will constitute investment income upon termination
of the Fund  will  depend  on a number  of  factors  in the  Fund's  operations,
including the values which may be realized on the sales of the Fund's  Equipment
at the end of its leases, and cannot be determined until its Equipment portfolio
is liquidated and the total amount of all Distributions is compared to the total
capital invested.  The amount and sources of cash  distributions to investors in
each of the prior public programs sponsored by the General Partner and its


                                       18


<PAGE>



Affiliates are set forth in Table III of Exhibit A to this Prospectus. Set forth
under the line item "Cash  distributions  to investors on a GAAP basis," are the
amount of annual distributions by each prior program per $1,000 invested and the
portions of which constitute return of capital and investment  income. It should
be noted, however, that, as discussed above with respect to the Fund, the return
of capital and investment income ultimately to be realized by the prior programs
will not be finally determinable until each program is completed and liquidated.

         Activities  Outside of the United States.  The Fund may lease Equipment
to foreign subsidiaries of United States corporations and to foreign lessees and
otherwise lease  Equipment which is to be used outside the United States.  There
is no limit on the  amount of  Equipment  which may be so  leased,  but the Fund
Manager will seek to limit the aggregate amount of the Fund's equity invested in
all Equipment  which is leased to such foreign lessees and which is otherwise to
be used  primarily  outside the United  States to not more than 20% of the Gross
Proceeds at any time during the period the Fund is acquiring equipment.  In such
cases,  the Fund's  interest in the Equipment may be subject to the  regulatory,
taxing and judicial authorities of a foreign jurisdiction. The Fund will attempt
to require foreign lessees to consent to the  jurisdiction of U.S. courts in the
event disputes should arise regarding the lease.  Even if the Fund is successful
in this effort, it may be difficult or impossible to enforce judgments  obtained
against foreign lessees in the event of a lease default, or to obtain possession
of leased  Equipment or otherwise to enforce the Fund's rights under the related
lease.   Moreover,   the  use  and  operation  of  Fund   Equipment  in  foreign
jurisdictions may subject the Equipment to unanticipated  taxes,  assessments or
confiscation without fair compensation. The Fund will attempt to include in such
leases  provisions which will cause all payments due under the leases to be made
in U.S. currency and require lessees to reimburse the Fund for any foreign taxes
billed to the Fund and to maintain  insurance covering the risk of confiscation.
In the event that lease payments or other terms of the leases  involve  payments
in other than U.S.  currency,  the Fund will be subject to the risk of  currency
exchange rate  fluctuations,  which could reduce the Fund's overall return on an
investment.  Many countries also have laws  regulating the transfer and exchange
of  currencies,  and such laws may affect a foreign  lessee's  ability to comply
with lease terms. Finally, certain depreciation methods may not be available for
Equipment leased by a foreign lessee or "used  predominantly  outside the United
States." See the discussion  below under "Income Tax Consequences - Depreciation
- Limitations on the Use of MACRS - (1) Property Used Predominantly  Outside the
United States, and (2) Tax-Exempt Leasing."

         General Risks in the  Equipment  Leasing  Business.  The success of the
Fund will be affected  by the quality of the  Equipment,  the  viability  of the
Equipment  manufacturer,  the timing of the  purchases  of Equipment by the Fund
Manager and its  ability to  forecast  technological  advances  concerning  such
Equipment.   Equipment  leasing  is  subject  to  the  risk  of  credit  losses,
technological  and economic  obsolescence and defaults by lessees.  Increases in
operating  expenses borne by the Fund  (including  expenses  relating to energy,
labor, taxes and insurance) could have an adverse impact upon the Fund's


                                       19


<PAGE>


ability to keep the Equipment leased on a profitable basis.

         Fluctuations  in Demand for Equipment.  The ability of the Fund to keep
the Equipment leased and/or operating and the terms of acquisitions,  leases and
dispositions  of  Equipment  depend on  various  factors  (many of which are not
within the control of the Fund  Manager or the Fund),  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.

         Competition.  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.  In  seeking
suitable  lease  transactions,  the  Fund  will  compete  with  other  entities,
including financial  institutions,  manufacturers and public and private limited
partnerships organized and managed similarly to the Fund, some of which may have
greater  financial  resources or experience  than the Fund and the Fund Manager.
Such  competition may have an adverse effect on the terms of lease  transactions
available to the Fund.

   
     Risks of Operating  Leases.  Equipment  representing at least a majority of
the aggregate  purchase price of the Fund's Equipment  portfolio as of the final
investment  of the Net  Proceeds  must be leased under High Payout  Leases,  the
Equipment  portfolio  will  predominantly  consist of  investments  in Operating
Leases,  under  which the Fund will be  entitled  to  receive  aggregate  rental
payments  equal to at least 90% of the purchase  price of the leased  Equipment.
The Equipment  portfolio is expected  predominantly to consist of investments in
Operating Leases, under which the Fund will receive aggregate rental payments in
an amount that is less than its purchase price for the Equipment.  he Fund must,
upon  termination  of an  Operating  Lease,  either  obtain a  renewal  from the
original  lessee,  find a new lessee or sell the Equipment in order to cover its
investment in such  Equipment.  If the Fund is unable to renew leases,  to enter
into new leases or to sell Equipment on desirable  terms after the expiration of
the initial terms of Operating Leases, it may experience (i) loss of anticipated
revenues  and (ii)  the  inability  to  recover  the  Fund's  investment  in the
Equipment.     

         Casualty Losses.  Equipment may be damaged or lost as a result of fire,
weather, accident, theft or other events of casualty. There is no assurance that
all potential  casualties  will be insurable or that, if insured,  the insurance
proceeds will be sufficient to cover a casualty.

         Consequences  of  Government  Regulation.   The  use,  maintenance  and
ownership of certain types of Equipment  are regulated by federal,  state and/or
local  authorities  which may impose  restrictions and financial  burdens on the
Fund's  ownership  and  operation  of  such  Equipment.  Changes  in  government
regulations,  industry  standards or deregulation may also affect the ownership,
operation and resale of such Equipment.

         In addition, certain types of Equipment (such as railcars and aircraft)
are subject to extensive safety and operating regulations by governmental
agencies and/or industry organizations.  Such agencies or organizations may
require modifications or capital improvements to items of Equipment.  Such


                                       20


<PAGE>


modifications  or improvements  may require the removal from service of items of
Equipment  for a period  of time and  substantial  capital  expenditures  by the
owner.  The  terms of  leases  may  provide  for  rent  abatements  if  required
improvements  cannot be made in a timely manner or if the Equipment  must remain
out of  service  for an  extended  period.  The Fund may as a result  experience
reductions or interruptions in operating  revenues from such leases. If the Fund
lacked sufficient funds to make a required improvement or modification, it might
be required to sell the  affected  item of  Equipment  or to sell other items of
Equipment  owned by it in order to obtain the necessary  funds; in either event,
the Fund might sustain a loss on its investment in the items sold and might lose
future revenues, and the Holders might experience adverse tax consequences.

         Registration  of Aircraft  May Not Be  Possible.  The Fund may invest a
portion of the Net Proceeds in aircraft.  Aircraft operated in the United States
must be registered with the Federal Aviation  Administration,  which limits such
registration to aircraft owned by U.S.  Citizens and Resident Aliens.  The FAA's
Rules are not clear on the  status of a  partnership  which owns  aircraft,  and
there may be a risk that a Fund  aircraft may not be  registered or may have its
registration revoked. The fund's acquisition of any aircraft will be conditioned
on  appropriate  registration  with the FAA or other  government  agency  having
jurisdiction  over the  aircraft.  If such  registration  were  revoked  for any
reason,  the aircraft could not be operated in the United States  airspace,  and
the Fund would be subject to resulting  risks,  including a possible forced sale
of the aircraft,  the potential  for uninsured  casualties to the aircraft,  the
loss of the  benefits of the central  recording  system  under  federal law (and
exposure to liens not of record with the FAA) and a breach by the Fund of leases
or financing agreements relating to the aircraft. See "Investment Objectives and
Policies -- Types of Equipment - Aircraft."

         Newly-Formed  Entity.  The Fund was  formed  in May,  1996,  and has no
operating history.  No assurance can be given that the Fund's operations will be
successful or that it will meet its stated investment objectives.

         Difficulty in Investing  Proceeds.  There can be no assurance as to the
length of time it will take the Fund to invest the Net Proceeds.  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 would
adversely affect the Fund's ability to invest the Net Proceeds.

         Income  in  Excess  of  Distributions.  The Fund  Manager  may,  in its
discretion,  withhold Distributions if, in the opinion of the Fund Manager, such
funds should be used to meet Fund  obligations,  establish or replenish  capital
reserves or, as discussed below, reinvest in additional Equipment. Distributions
to the Holders may be less than the amount of the Fund's taxable income. In such
event,  depending upon a Holder's tax rate and the amount distributed,  a Holder
may be subject to income tax payable out of his personal funds. Until the end of
the  Reinvestment  Period,  the Fund  Manager  intends  to  purchase  additional
Equipment from funds obtained from  operations and sales of Equipment  after the
Fund has provided certain specified Distributions. Cash from Operations and Cash
from Sales or Refinancing  must be  distributed  to the extent  necessary to pay
federal and state tax liabilities arising from

                                       21


<PAGE>

the Fund for a taxpayer  in a 31%  federal  income tax  bracket  (subject to the
additional minimum Distribution requirements described under "Income, Losses and
Distributions - Distributions").  Accordingly,  the risk of any tax liability in
excess of cash  distributions for any period resulting from reinvestment of Fund
revenues in additional Equipment is limited to those persons in a federal income
tax bracket in excess of 31%. See "Income, Losses and Distributions" and "Income
Tax  Consequences" for information with respect to the allocation of Net Income,
Net  Loss  and  Distributions.   In  addition,   distributions  to  foreign  and
nonresident  Holders may be subject to withholding  taxes which would reduce the
amount of cash actually  received by such Holders.  See "Income Tax Consequences
Taxation of Foreign Persons" and "State Taxes."

         Limited Financial Resources of Fund Manager.  The net worth of the Fund
Manager  as of July 31,  1996 was in excess of $3 million  determined  on a book
value  basis.  If  the  financial  condition  of  the  Fund  Manager  should  be
substantially  reduced,  the Fund might not  continue to satisfy the  conditions
required for  classification  as a partnership  for federal income tax purposes,
thereby  resulting in adverse  income tax  consequences  for the  Partners.  See
"Income Tax  Consequences."  Furthermore,  should  such net worth be  materially
reduced in the future the Fund Manager's  ability to satisfy its  obligations to
the Fund could be impaired.  The Fund  Manager is also general  partner for five
other limited partnerships and has contingent liabilities arising out of leasing
transactions  with various  non-affiliated  third  parties;  as such,  it may be
liable  for  the  debts  and  obligations  arising  therefrom.   See  "Financial
Statements". If the Fund Manager were forced into bankruptcy or receivership and
the Holders did not elect to continue  the Fund,  dissolution  of the Fund could
result at a time when such dissolution  would be adverse to the interests of the
Holders.


         Liability of Holders.  Under  California law, neither the existence nor
the exercise of certain  voting rights in a limited  partnership  agreement will
cause limited  partners to be deemed to take part in the control of  partnership
business. A substantial number of states have adopted legislation which provides
that  the  laws of the  state  under  which a  foreign  limited  partnership  is
organized  govern its organization and internal affairs and the liability of its
partners.  Accordingly,  in such states,  the limitation of liability of limited
partners  provided by California law should be respected.  In those states which
have  not  adopted  similar  legislative  provisions,  counsel  for the Fund has
advised  that strong  arguments  may be made in support of the  conclusion  that
California  law should govern as to the  liability of limited  partners and that
neither the possession nor the exercise of such rights should affect the limited
liability of limited partners;  counsel, however, has also advised that there is
no  authoritative  precedent on this issue,  and a question exists as to whether
the  exercise  (or perhaps even the  existence)  of such rights might  provide a
basis on which a court in such a state could  determine that the Holders are not
entitled to the limitation on liability for which the Partnership  Agreement and
California law provide.

         Risks of Joint Ventures. Some of the Fund's investments may be owned by
joint ventures or partnerships  between the Fund and unaffiliated  third parties
or, under certain circumstances,  Affiliates of the Fund or the Fund Manager, or
as co-tenants  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 not otherwise present, including, for


                                       22


<PAGE>


example, risks associated with the possibility that the Fund's co-venturer in an
investment  might become  bankrupt,  that such  co-venturer may at any time have
economic or business interests or goals which are inconsistent with the business
interests  or goals of the Fund,  that the parties may reach an impasse on joint
venture  decisions or that such  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. Among other things, actions by such 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.  (See
"Investment Objectives and Policies - Joint Venture Investments.")

         Partnership  Status.  The Fund  will not  apply  for a ruling  from the
Internal  Revenue  Service  (the  "Service")  that it will  be  classified  as a
partnership  and not as an  association  taxable as a  corporation  for  federal
income tax purposes.  The Service has set forth  certain net worth  requirements
which  must be met by  general  partners  in a limited  partnership  before  the
Service will issue a ruling concerning the tax status of such partnership. There
can be no assurance  that the Fund Manager will maintain a net worth  sufficient
to satisfy such requirements.  Furthermore,  there is the possibility that Units
may be considered to be "publicly  traded," thereby  resulting in the Fund being
taxed as a  corporation.  The Fund  Manager  will cause the Fund to contest  any
contention by the Service that the Fund constitutes an association  taxable as a
corporation,  but  Holders  should be aware that this may  result in  additional
representation expenses (i.e., legal and accounting fees). In the event that the
Fund is treated for tax purposes as an  association,  the effective  yield on an
investment  in the Units  would be  substantially  reduced  because  certain tax
benefits  associated  with the offering  would be  unavailable.  See "Income Tax
Consequences."

         Certain Other Tax  Considerations.  In determining whether to invest in
the Units offered  hereby,  a prospective  Holder should consider other possible
tax consequences thereof which may include, among others:

                  (a)  the   Service   could   disallow  or  reduce  the  Fund's
         depreciation  deductions or other  deductions,  or reallocate among the
         Holders the items of Fund income,  gain, deduction and loss in a manner
         that is different  from the  provisions  contained  in the  Partnership
         Agreement,  in each  case  potentially  resulting  in less  tax loss to
         Holders,   or   additional   taxable   income  to  Holders   without  a
         corresponding increase in cash Distributions;

                  (b) the investment by an exempt  organization  or a trustee or
         custodian  of a  Qualified  Plan or an IRA  will  result  in  unrelated
         business taxable income to the exempt  organization,  Qualified Plan or
         IRA;

                  (c) changes in the tax law or in the  Regulations  promulgated
         under the Code may  materially  and  adversely  affect the Fund and the
         Holders, including limiting the ability of limited partnerships such as
         the Fund to generate  passive income,  and could  adversely  affect the
         value of equipment  in general,  including  the value of the  Equipment
         acquired by the Fund;


                                       23


<PAGE>



                  (d) the tax opinion of counsel is limited in scope and
         qualified by certain assumptions;

                  (e)  Holders may be subject to taxation of an amount in excess
         of  proceeds  actually  received  on a sale  of the  Units  and/or  the
         Equipment and on undistributed income;

                  (f) the taxable losses incurred by the Fund will be subject to
         the passive loss limitation which will limit the  deductibility of such
         losses;

                  (g) possible audit of a Holder's tax return resulting from the
         audit of the Fund's or another Holder's return; and

                  (h) Holders may be required to file tax returns and pay state,
         local and/or foreign taxes as a result of an investment in the Fund.

         See "Income Tax  Consequences"  for further  discussion with respect to
the above and other  possible  tax  consequences  of the  ownership  and sale of
Units.

         EACH PROSPECTIVE PURCHASER OF UNITS IS URGED TO CONSULT HIS TAX ADVISOR
WITH SPECIFIC REFERENCE TO HIS OWN TAX SITUATION AND POTENTIAL CHANGES IN
APPLICABLE LAW.

         Tax  Opinion.  The Fund has  obtained an opinion  from its tax counsel,
Derenthal & Dannhauser ("Tax Counsel"),  concerning the Fund's classification as
a partnership for federal income tax purposes.  See "Income Tax  Consequences --
Classification  as a Partnership." The opinion also states that the summaries of
federal  income tax  consequences  set forth  herein  under the  headings  "Risk
Factors" and "Income Tax Consequences" have been reviewed by Tax Counsel and, to
the extent such summaries  involve matters of law, Tax Counsel is of the opinion
that  such  statements  of law are  correct  under  the  Code,  the  regulations
promulgated thereunder and existing interpretations thereof.

         The  opinion of Tax Counsel is based upon the facts  described  in this
Prospectus and upon the facts as they have been  represented by the Fund Manager
or  determined by Tax Counsel as of the date of the opinion.  Any  alteration of
the facts may adversely affect the opinion rendered. Furthermore, the opinion of
Tax Counsel is based upon  existing  law and  applicable  current  and  proposed
Treasury Regulations,  current published administrative positions of the Service
contained in Revenue Rulings and Revenue Procedures, and judicial decisions, all
of which are subject to change either prospectively or retroactively.

         Each  prospective  investor  should  note that the  opinions  described
herein  represent  only Tax  Counsel's  best legal  judgment and have no binding
effect or official  status of any kind before the Service or the courts.  In the
absence of a ruling from the Service, there can be no assurance that the Service
will not challenge such conclusions (or the tax positions taken by the Fund).

         ERISA Considerations.  In considering an investment of a portion of the
assets of a Qualified Plan or IRA in the Fund, a fiduciary should assess (i)


                                       24


<PAGE>





whether the investment  satisfies the  diversification  requirements  of Section
404(a)(1)(C)  of the Employee  Retirement  Income Security Act of 1974 ("ERISA")
(in the case of IRA's  and  Keogh  Plans,  fiduciaries  should  first  determine
whether  the  investment  is subject to ERISA  requirements),  (ii)  whether the
investment is prudent,  as it is unlikely that there will be a market created in
which the Qualified Plan or IRA can sell or otherwise  dispose of the Units, and
(iii) whether the investment is made solely in the interest of the  participants
in the Qualified Plan or IRA. Under certain circumstances ERISA and the Code, as
interpreted by the  Department of Labor will 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." For this reason,  the
Fund is limiting sales to Qualified  Plans and IRAs to less than 25% in value of
the total sale of Units at any time. In the event that  Qualified  Plans or IRAs
acquire more than 25% in value of the Units either  because the  investors  have
misrepresented  the status of their  investment or because of transfers  made to
Qualified  Plans  or IRAs the  assets  of the Fund  might  be  treated  as "plan
assets."  ERISA also  requires that the assets of a plan 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,  because there will not be a secondary
market  for  them  and any  change  in the  value  of the  Equipment  may not be
reflected in the value of the Units.

                                WHO SHOULD INVEST

         The Units  represent a  long-term  investment,  the primary  benefit of
which is expected to be Distributions.  A purchase of Units involves  investment
risks  and is  suitable  only for  persons  who meet the  financial  suitability
standards  described  herein  and who  have  no need  for  liquidity  from  this
investment.  See "Risk Factors." In order to subscribe for Units,  each investor
must execute a Subscription Agreement, a specimen of which is included herein 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 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.


         As a result of the relative lack of liquidity and the long-term  nature
of the investment,  the Fund has established suitability standards which require
that an investor  (including  subsequent  transferees)  (i) have an annual gross
income of at least $30,000 and a net worth  (exclusive of home, home furnishings
and automobiles) of at least $30,000 in excess of his Original Invested Capital;
or (ii)  have a net  worth  (determined  with the same  exclusions)  of at least
$75,000 in excess of his Original Invested Capital;  or (iii) be purchasing in a
fiduciary  capacity  for a person or  entity,  and either  the  investor  or the
fiduciary account or the donor who is directly or indirectly supplying the funds
to purchase the Units subscribed for, meets the suitability  standards set forth
in clause (i) or (ii).  Instead of the  standards in clauses (i) and (ii) above,
however,  an investor (or fiduciary,  as described  above) in Alabama,  Arizona,
Arkansas, California, Indiana, Iowa, Kentucky, Maine, Massachusetts,



                                       25


<PAGE>


Michigan, Mississippi, Minnesota, Nebraska, New Hampshire, New Mexico, Oklahoma,
Oregon,  Pennsylvania,  South Dakota,  Tennessee,  Texas, Vermont and Washington
must  (i) 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 in
excess of his Original  Invested  Capital;  or (ii) have a net worth (determined
with the same  exclusions)  of at  least  $150,000  in  excess  of his  Original
Invested  Capital.  Certain  state  securities  commissioners  have  established
investor  suitability  standards  different  from those set forth  above for the
marketing,  sale or  subsequent  transfers  of  Units  within  their  respective
jurisdictions,  which  standards are set forth below under "Plan of Distribution
State  Requirements" or will be set forth in a supplement  hereto.  By executing
the Subscription Agreement, an investor represents that he meets the suitability
standards  applicable  to him  as  set  forth  herein  and  in the  Subscription
Agreement,  and  agrees  that such  standards  may be  applied  to any  proposed
transferee  of his Units.  Notwithstanding  the  foregoing,  each  participating
broker-dealer who sells Units has the affirmative duty to determine prior to the
sale of Units  that an  investment  in Units is a  suitable  investment  for its
subscribing customer and must maintain  information  concerning such 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.

         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 ("IRA") or a qualified  pension plan,  profit-sharing  plan,
stock bonus plan or Keogh Plan ("Qualified Plans") may purchase a minimum of 200
Units ($2,000).  Additional  investments  may  subsequently 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  subsequent to his initial  investment  may be subject to the
securities  or "Blue  Sky" laws of the state in which  the  transfer  is to take
place.

         Because the Fund will be engaged in the business of equipment  leasing,
the  distributive  share of Fund income realized by a Qualified Plan or IRA will
be  taxable  to such  plan as  "unrelated  business  taxable  income"  under the
Internal Revenue Code (the "Code"). Furthermore, 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 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.  Additionally,  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 Qualified  Plans and IRAs so that less than 25% of
the total  outstanding  Units are held by Qualified Plans and IRAs at all times.
In order to satisfy such  requirement,  each investor must make a representation
at the time of his subscription as to the record and beneficial ownership of the
Units subscribed. See "Income Tax Consequences -- Investment


                                       26


<PAGE>


by Qualified Plans and IRAs."

         Investors should also note that the Fund is required by the Partnership
Agreement to distribute,  to the extent available, Cash from Operations and Cash
from Sales or Refinancing in any year to the extent  necessary to allow a Holder
in a 31%  federal  income  tax  bracket  (but not a higher  bracket)  to pay the
federal  income  taxes due with  respect to his  interest in Fund Net Income for
such  year.  Accordingly,  it is  possible  that a  Holder  subject  to a higher
effective tax rate might not receive  sufficient  Distributions  to pay such tax
liabilities. However, the Fund Manager is also required to make Distributions in
certain minimum amounts during the Reinvestment Period prior to any reinvestment
in Equipment and must distribute all available  revenues after the  Reinvestment
Period. The Fund Manager  anticipates that such Distributions will be in amounts
which will exceed the expected tax  liabilities  resulting  from  allocations of
Fund Net Income regardless of the investors' respective tax brackets.  See "Risk
Factors - Income and Distributions" and "Income,  Losses and  Distributions." In
addition,  distributions  to nonresident or foreign  investors may be subject to
withholding  taxes which would  reduce the amount of cash  actually  received by
such investors.  See "Income Tax  Consequences  Taxation of Foreign Persons" and
"State Taxes."

         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 Fund Manager will not permit in excess
of 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  Partnership  Agreement -  Repurchase  of
Units." A HOLDER  WHO FAILS TO  CONFORM TO THE  REPRESENTATIONS  REGARDING  UNIT
OWNERSHIP AND CITIZENSHIP  REQUIREMENTS OR  MISREPRESENTS  HIS UNIT OWNERSHIP OR
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.

                            ESTIMATED USE OF PROCEEDS

         Many of the  figures set forth below are  estimates,  and  consequently
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% of the  Gross
Proceeds  of  this  offering  to the  cash  portion  of the  purchase  price  of
Equipment.  The amounts set forth as the  estimated  use of the Net Proceeds are
based on the assumption, and the Fund Manager's expectation,  that the Fund will
incur total acquisition  indebtedness in an estimated amount equal to 50% of the
aggregate cost of its Equipment.



                                       27
<PAGE>


                               Minimum Offering            Maximum Offering
                             Amount       Percent        Amount      Percent


Gross Offering
         Proceeds(1)...... $1,200,000       100.00%      $150,000,000  100.00%
Less Offering and
         Organization
         Expenses:
   Selling Com-
         missions(2)......    114,000         9.50%        14,250,000    9.50%
   Other Offering
         and Organ-
         ization
         Expenses(3)......     30,000         2.50%         5,250,000    3.50%
                            ---------        ------       -----------   ------

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

Capital Reserves(4)...          6,000         0.50%           750,000    0.50%
Amount Available for
         Cash Payments for
         Equipment(5)   ..    978,000        87.50%       129,750,000   86.50%
                            ---------        ------       -----------   ------
--------

         (1) The offering  amounts  shown do not include the Units  purchased by
the initial Holders.

         (2)  The  Fund  will  pay  ATEL  Securities  Corporation  (the  "Dealer
Manager"),  an Affiliate of the Fund Manager,  selling commissions equal to 9.5%
of the  Gross  Proceeds,  and  the  Dealer  Manager  will  in  turn  reallow  to
participating  broker-dealers  selling  commissions  equal  to 8% of  the  Gross
Proceeds from Units sold by them,  retaining  the balance of 1.5%.  See "Plan of
Distribution." Out of the amounts retained by the Dealer Manager, 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 Fund 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 Fund Manager would not  recognize  any  attempted  transfer of such
Units unless certain conditions are satisfied. See "Plan of Distribution."

         (3) Consists of expenses  incurred in connection with the  organization
and formation of the Fund,  legal,  accounting and escrow fees,  printing costs,
filing  and  qualification   fees  and   disbursements  and   reimbursements  to
participating  broker-dealers  in connection  with the sale and  distribution of
Units; provided, however, that total selling commissions, disbursements and


                                       28


<PAGE>


   
     reimbursements   to  participating   broker-dealers   may  not  exceed  the
limitations   thereon  set  forth  in  footnote  (2)  above.   See   "Management
Compensation."  The Fund Manager has agreed to pay all Organization and Offering
Expenses  which exceed an amount  equal to (i) 15% of the Gross  Proceeds of the
offering  up to  $25,000,000,  and (ii) 14% of the Gross  Proceeds  in excess of
$25,000,000.  Notwithstanding the foregoing,  in the event that the Fund's Gross
Proceeds  upon the  termination  of the  offering  are in an  amount  less  than
$2,000,000,  the Fund Manager has agreed to pay all  Offering  and  Organization
Expenses which exceed an amount equal to 12% of the Gross  Proceeds.  Payment of
such  expenses  by  the  Fund  Manager  will  be  made  without  recourse  to or
reimbursement by the Fund.     

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

   
     (5)  Includes  the amount  available  for the cash  portion of the purchase
price to be paid for Equipment plus  Acquisition  Expenses of the Fund. The Fund
will not pay the Fund Manager or any of its  Affiliates  Acquisition  Fees.  The
Fund anticipates paying Acquisition Expenses in an amount equal to approximately
0.25% of the Gross Proceeds. Acquisition Fees or Expenses may be paid by sellers
or  lessees  of  Equipment  (though  not  to  the  Fund  Manager  or  any of its
Affiliates). In cases where the sellers or lessees bear such costs, the price of
Equipment or lease terms will generally be negotiated with consideration of such
economic  factors,  so that,  in effect,  the Fund as  purchaser  and lessor may
indirectly bear a portion of such fees and costs.     


                             MANAGEMENT COMPENSATION

Summary Table

         The following  table includes  estimates of the maximum  amounts of all
fees,  compensation,  Distributions and other payments that the Fund 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."  It should be noted that the terms of
compensation  and amounts of  Distributions  payable to the Fund Manager and its
Affiliates  were not determined by arm's-length  negotiation.  See "Conflicts of
Interest - Non-Arm's-Length  Agreements"  below. The Partnership  Agreement does
not permit the Fund  Manager or its  Affiliates  to receive  fees or expenses in
excess of the  maximum  amount  stated for each type of  compensation  described
below by reclassifying such items under a different category.

                                                             Estimated Amount
Entity Receiving                                             Assuming Maximum
Compensation               Type of Compensation                 Units Sold

                         OFFERING AND ORGANIZATION STAGE

The Dealer                 Selling Commissions                Total selling
 Manager                   (Up to 1.5% of Gross               commissions to be



                                       29


<PAGE>





                            Proceeds to be retained          retained by the
                            by the Dealer Manager)           Dealer Manager are
                                 not expected to
                               exceed $2,250,000.


   
Fund Manager                    Reimbursement of             $5,250,000 (1)
 and/or Affiliates              Organization and Offering
                                Expenses (when added to selling commissions, not
                                to exceed a total equal to 15% of Gross Proceeds
                                up to $25  million  and  14%  of any  additional
                                Gross Proceeds)
    


                                OPERATIONAL STAGE

   
Fund Manager                    Equipment Management Fee     Not determinable
 and/or Affiliate               (2% or 3.5% of Gross         at this time (2)
                                Revenues from leases,
                                depending on type of
                                lease)
    


   
Fund Manager                    Incentive Management Fee     Not determinable
 and/or Affiliate               (4% of Distributions of      at this time (2)
                                Cash from  Operations  until  investors  receive
                                their Original  Invested Capital plus a Priority
                                Distribution, then 7.5% of all Distributions)
    


ATEL Equipment                  Equipment Resale/            Not determinable
 Corporation                    Re-Leasing Fees              at this time (2)
                                (Up  to  3%  of   resale   price,   subject   to
                                subordination; and up to 2% of re-lease revenues
                                from certain leases)

   
Fund Manager                    Reimbursement of             Not determinable
 and/or Affiliates              Operating Expenses,          at this time (2)
                                subject to certain
                                limitations (3)
    

                                INTEREST IN FUND

Fund Manager                    Interest in Net Income,       Not determinable
                                Net Loss and Dist-            at this time (2)
                                ributions (7.5% of all
                                allocations of Net
                                Income, Net Loss and
                                Distributions)(4)
-----------------------


                                       30


<PAGE>



   
     (1) The estimated maximum amount excludes selling commissions which will be
paid  directly by the Fund,  and will  therefore  not be  reimbursed to the Fund
Manager. Selling commissions are included as "Front End Fees" in the calculation
of the minimum  Investment in Equipment  described in footnote (4) below.  Total
Organization  and  Offering  Expenses  payable  or  reimbursable  by  the  Fund,
including  selling  commissions  payable directly by the Fund, may not exceed an
amount equal to (i) 15% of the Gross Proceeds up to $25,000,000, and (ii) 14% of
the  Gross  Proceeds  in  excess  of   $25,000,000.   It  is  anticipated   that
substantially all of the Organization and Offering Expenses,  other than selling
commissions,  will be paid by the  Fund  Manager  and  reimbursed  by the  Fund,
subject to such limitations.     

         (2) The Fund  Manager is unable to  predict  the  amounts  which may be
realized. Any such prediction would depend on the amount of Gross Revenues, Cash
from  Operations  and/or Cash from Sales or  Refinancing  and would,  therefore,
necessarily  involve  assumptions  of future events and operating  results which
cannot be made at this time.

         (3) 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 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 this offering,  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.

         (4) Pursuant to Section  15.7 of the  Partnership  Agreement,  the Fund
Manager must commit not less than 85.875% of the Gross  Proceeds to  "Investment
in  Equipment"  (which term includes the purchase  price of Equipment,  expenses
such as  interest  and taxes and amounts set aside for  reserves,  but  excludes
Front End Fees).  In the event the total amount of Investment in Equipment would
otherwise be insufficient,  the Fund Manager's  interest in Fund Net Income, Net
Loss and  Distributions  shall be  decreased  by an amount  necessary  to obtain
compliance with the foregoing  provision,  as described in the discussion  below
under "Limitations on Fees".

Defined Terms Used in Description of Compensation

         Definitions  of  certain   capitalized  terms  used  in  the  following
narrative  description  of  compensation  payable  to the Fund  Manager  and its
Affiliates 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


                                       31


<PAGE>


Distributions  with respect to such Units on or before the date of determination
pursuant to any provision of the Partnership  Agreement exceed (ii) the Priority
Distribution attributable to such Units for such period.

                  "Cash  from  Operations"  means 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 such as organization  and underwriting  costs but after a reasonable
allowance  for cash for repairs,  replacements,  contingencies  and  anticipated
obligations, as determined by the Fund 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  the
Equipment Resale Fee).

                  "Distributions"  means any cash distributed to Holders and the
Fund Manager arising from their respective interests in the Fund.

                  "Full   Payout   Lease"   means  a  lease   under   which  the
non-cancelable  rental  payments due during the initial term of the lease are at
least sufficient to cover the purchase price of the Equipment leased.

                  "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.

                  "Original   Invested   Capital"   means  the  amount  in  cash
contributed  by each  Partner 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 Partnership 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 Fund 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.


                                       32


<PAGE>



         See  Article  II  of  the  Partnership   Agreement  for  more  complete
definitions of the foregoing terms.

Narrative Description of Compensation

         Selling   Commissions.   The  Dealer   Manager  will  receive   selling
commissions on all sales of Units in an amount 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 General  Partner will directly effect
any sales of the  Units,  although  the  Dealer  Manager  will  provide  certain
wholesaling services. See "Plan of Distribution."

   
     Reimbursement  of  Organization  and  Offering  Expenses.  The Fund Manager
and/or 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 an amount equal to (i)
15% of the Gross Proceeds up to $25,000,000,  and (ii) 14% of the Gross Proceeds
in excess of $25,000,000.

     Equipment  Management  Fee. The Fund  Manager  and/or its  Affiliate,  will
receive an  Equipment  Management  Fee equal to 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.  The Fund
Manager  believes  that the  Equipment  Management  Fee  payable  by the Fund is
currently  equal to the fee  customarily  charged  for  similar  services  under
circumstances  similar to those of the Fund. Such  compensation will be paid for
the services rendered generally in managing or supervising the management of the
Equipment and in performing  other ongoing  services and activities,  including,
among others,  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.  If the services  with respect to certain  Operating
Leases are performed by  nonaffiliated  persons under the active  supervision of
the Fund Manager or its  Affiliate,  then the amount payable to the Fund Manager
or such Affiliate shall be 1% of Gross Revenues from such Operating Leases.

     Incentive  Management  Fee.  Until  Holders have received a return of their
Original Invested Capital plus a Priority Distribution,  the Fund Manager and/or
its Affiliates of the Fund Manager will receive,  as Incentive  Management Fees,
an amount equal to 4% of Distributions of Cash from Operations, and, thereafter,
an amount equal to a total of 7.5% of Distributions from all sources,  including
Sale or Refinancing  Proceeds.  In  subordinating  the increase in the Incentive
    


                                       33


<PAGE>


Management Fees to a cumulative  return of a Holder's  Original Invested Capital
plus a Priority Distribution,  a Holder is 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.  The Incentive  Management Fees
will be paid for services  which may be  distinguished  from those for which the
Equipment  Management Fee is payable.  In general the Incentive  Management Fees
are paid for 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 overall  supervision of Fund administration
(i.e., investor  communications and services,  regulatory reporting,  accounting
and  transfers  of  Units),  while  the  Equipment  Management  Fee is paid  for
management of the Fund's Equipment  leasing business,  including  supervision of
the portfolio of Equipment and leases owned by the Fund,  monitoring  compliance
with lease  terms and  maintaining  lessee  communications  and  relations.  See
"Income, Losses and Distributions."

         Equipment  Resale/Re-Leasing  Fee.  For  services  in  connection  with
Equipment  resale,  ATEL  Equipment  Corporation  may receive a fee 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 is payable  only after the
Holders  have  received  a return  of their  Original  Invested  Capital  plus a
Priority  Distribution.  For  services  in  connection  with the  re-leasing  of
Equipment  to lessees  other than  previous  lessees or their  Affiliates,  ATEL
Equipment  Corporation may receive a fee 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 Fund from such re-lease.

   
     Reimbursement of Operating Expenses. The Fund Manager and/or its Affiliates
may be reimbursed for expenses advanced or incurred on the Fund's behalf, to the
extent  permitted  under the  Partnership  Agreement.  The Fund  Manager and its
Affiliates  will be  reimbursed  (i) the actual cost to the Fund  Manager or its
Affiliates  of  services,  goods  and  materials  used  for and by the  Fund and
obtained from unaffiliated  parties;  (ii) administrative  services necessary to
the  prudent   operation  of  the  Fund,   provided   that   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 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 may
not exceed a cumulative limit. If at least 75% of the maximum Gross Proceeds are
raised by the end of this offering, the cumulative limit will be an amount equal
to 0.5% of the gross  proceeds per annum as of any date. If less than 75% of the
maximum Gross Proceeds is raised,  then the  cumulative  limit will be an amount
equal to 1% of the Gross  Proceeds per annum.  In addition,  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 an  amount  equal to 1% of the  Gross  Proceeds.  The Fund
Manager estimates that the total amount of Reimbursable  Administrative Expenses
during the Fund's first full year of operations after completion of     


                                       34


<PAGE>


the  offering,   assuming  receipt  of  the  maximum  Gross  Proceeds,   may  be
approximately  $400,000 to $500,000. See the footnotes to Table III of Exhibit A
- "Prior Performance  Information" for information  concerning the reimbursement
of operating  expenses by prior  programs  sponsored by the Fund Manager and its
Affiliates.

         Interest in Net Income,  Net Loss and  Distributions.  The Fund Manager
will have an interest in the Fund as a Partner equal to 7.5% of all  allocations
of all Net Income, Net Loss and Distributions.

Limitations on Fees

         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.  The Fund intends to incur total  indebtedness equal
to  50% of the  aggregate  cost  of its  Equipment.  The  Partnership  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 Fund  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 Fund  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 Fund  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 Limited  Partners 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 Fund 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
actual  amounts to be paid  under the terms of the  Partnership  Agreement  will
equal 11.5% of Distributions of Cash from Operations (4% as the Incentive


                                       35


<PAGE>


Management Fee plus 7.5% as the Fund Manager's Interest in the Fund) and 7.5% of
Distributions  of Sale or  Refinancing  Proceeds  (as the  Fund  Manager's  7.5%
Interest in the Fund)  before the  Priority  Return  (which is equal to Original
Invested Capital plus a cumulative  return of 10% per annum on Adjusted Invested
Capital),  and  15% of  all  Distributions  thereafter  (7.5%  as the  Incentive
Management Fee plus 7.5% as the Fund Manager's Interest in the Fund).

         Upon  completion  of the  offering of Units,  final  commitment  of Net
Proceeds to the acquisition of Equipment and the  establishment  of final levels
of permanent  portfolio debt encumbering such Equipment,  the Fund Manager shall
calculate the maximum carried  interest and promotional  interest payable to the
Fund  Manager and its  Affiliates  under the NASAA  Guidelines  and compare such
total permitted fees to the total of the Incentive  Management Fees and the Fund
Manager's  Interest in the Fund.  If and to the extent that the fees  payable to
the Fund Manager and its Affiliates as the Incentive Management Fee and the Fund
Manager's  Interest in the Fund should exceed the maximum  promotional  interest
plus carried interest permitted under the NASAA Guidelines,  as described above,
whether due to a lower than  anticipated  level of leverage for the initial Fund
portfolio or the Fund incurring  higher Front End Fees than permitted  under the
Partnership Agreement or otherwise, the fees payable to the Fund Manager and its
Affiliates  shall be reduced as described in this paragraph.  In such event, the
Partnership  Agreement shall be amended immediately to reduce the Fund Manager's
Interest in the  Partnership  by an amount  sufficient to cause the total of the
Incentive  Management  Fees and such Interest 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.

                       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

                  (i)  preserve, protect and return the Fund's invested capital;

                  (ii) generate  regular  Distributions  to Holders of Cash from
         Operations and Cash From Sales or  Refinancing,  any balance  remaining
         after certain minimum  Distributions to be used to purchase  additional
         Equipment during the Reinvestment Period; and

                  (iii) provide  additional  Distributions  after the end of the
         Reinvestment Period and until all Equipment has been sold.

         Distributions  will be made only to the extent cash is available  after
payment of Fund obligations (including payment of Fund administrative  expenses,
debt service and the  Equipment  Management  Fee) and  allowance  for  necessary
reserves. There can be no assurance that any specific level of Distributions


                                       36


<PAGE>


or any other objectives will be attained.

General Policies

         The Fund intends to acquire  various types of Equipment for lease.  See
the discussion below under "Types of Equipment." 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 may include some more  technology-dependent  equipment such as certain
types of  communications  equipment,  medical  equipment  and office  equipment,
although the Fund will seek to invest in such  equipment in a manner  consistent
with its primary objective of acquiring  equipment which is generally subject to
relatively low rates of technological  obsolescence.  The Partnership  Agreement
does not limit the Fund's ability to invest in  high-technology  Equipment.  See
Table  IV  of  Exhibit  A,  "Prior  Performance  Information,"  for  information
concerning the  composition of the equipment  portfolios  held by the four prior
public  programs  sponsored  by the Fund Manager and its  Affiliates  which have
investment objectives and policies similar to those of the Fund.

         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  seeks to
negotiate  lease terms based in part on its  estimate of the value of the leased
equipment upon  termination of the lease. The lessor will negotiate a lease rate
designed to generate  sufficient  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 have achieved 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 lessor's assumptions regarding the
residual  value of the equipment  will be accurate or that its objective will be
achieved.

         The Fund  Manager will seek to maintain an  appropriate  balance in the
types of Equipment acquired and the types of leases entered into by the Fund. At
least a majority of the Fund's Equipment, based on the aggregate purchase price,
will be  subject to High  Payout  Leases  (with  noncancellable  lease  payments
returning  at least 90% of the  Equipment  Price  through the term of the lease)
upon final investment of the Net Proceeds and completion of permanent  financing
for the  portfolio.  In addition,  the Fund Manager will seek to invest not more
than 20% of the aggregate purchase price of Equipment in Equipment acquired from
a single  manufacturer.  However,  the latter  limitation is a general guideline
only,  and the Fund  Manager  may in its  discretion  cause the Fund to  acquire
Equipment from a single  manufacturer  in excess of the stated  percentage if it
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


                                       37


<PAGE>


Fund's Equipment  portfolio;  for example, the amount of Gross Proceeds actually
received prior to the  termination of the offering will be a significant  factor
in determining the Fund's ability to diversify its portfolio.  Furthermore,  the
Fund Manager cannot  anticipate what types of Equipment will be available and at
what prices at the time the Fund is ready to invest its funds.

         As set forth above under "Principal Investment  Objectives," it will be
the  Fund's  objective  to  reinvest  in  additional  Equipment  any  Cash  from
Operations and Cash from Sales or Refinancing remaining after payment of certain
minimum  Distributions during the Reinvestment Period. The Fund will not acquire
Equipment  after the  Reinvestment  Period,  except to the extent  necessary  to
satisfy  obligations entered into prior to the end of the Reinvestment Period or
to maintain or improve Equipment already owned at such time.

         Other than as set forth below under "Identified Equipment Acquisitions"
and 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  Net  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.  This Prospectus will
be supplemented to describe the Fund's acquisition, in any single transaction or
related series of transactions,  of items of Equipment  involving a cash payment
of more than 10% of the maximum Net Proceeds  prior to the  termination  of this
offering.

         Prior to final funding of any acquisition of a single item of Equipment
which has a contract  purchase price in excess of  $1,000,000,  the Fund Manager
will  cause the Fund to  obtain an  appraisal  of the item of  Equipment  from a
qualified  independent third party appraiser.  The Fund Manager may also, in its
discretion,  obtain Equipment  appraisals for certain smaller acquisitions if it
deems an  appraisal  to be  appropriate  because of the type of  Equipment,  the
overall size of a transaction or otherwise.  It should be noted,  however,  that
any such appraisals would represent only the appraiser's opinion of the value of
the Equipment, and would not necessarily represent the actual amount which might
be realized by the Fund upon disposition of the Equipment.

         The Fund  Manager 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  (generally not in excess
of six months) 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 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 Fund
Manager or Affiliate  (including any out-of-pocket  carrying costs),  except for
compensation  permitted  by  the  Partnership  Agreement;   (iii)  there  is  no
difference  in interest  terms of the loans secured by the Equipment at the time
acquired by the Fund  Manager or  Affiliate  and the time  acquired by the Fund;
(iv) there is no benefit arising out of such  transaction to the Fund Manager or
its Affiliate apart from the compensation otherwise permitted by the Partnership
Agreement; and (v) all income generated


                                       38


<PAGE>


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

         Any of the Net  Proceeds  received by the Fund during the first  twelve
months  following  the date hereof which have not been  invested or committed to
investment in Equipment  during the period ending eighteen months  following the
date hereof, and any of the Net Proceeds received thereafter which have not been
invested or committed to  investment  in Equipment  during the period ending six
months after the Final Closing Date (except, in either case, for amounts used to
pay Fund  operating  expenses or deemed to be required as capital  reserves,  as
determined in the sole discretion of the Fund Manager and in accordance with the
Partnership  Agreement) will be distributed pro rata by the Fund to the Holders.
In  addition,  in order to refund to the  Holders  the  amount of Front End Fees
attributable to such returned capital, the Fund Manager has agreed to contribute
to the Fund,  and the Fund shall  distribute to the Holders 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 funds will be available
for general use during the foregoing period and may be expended in operating the
Equipment  which has been acquired.  Net Proceeds will not be segregated or held
separate from other funds of the Fund pending  investment,  and no interest will
be payable to the Holders if uninvested  Net Proceeds are returned to them.  For
the purpose of the foregoing provision, Net 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 such period,  regardless of whether any such 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.

Identified Equipment Acquisitions

         Set forth in the table below is a summary of the Equipment acquisitions
and  leases  identified  by the  Fund as of the date of this  Prospectus.  These
transactions  have  been  committed  and/or  funded by the Fund  Manager  or its
Affiliates  and  will be  assigned  to the  Fund at such  time as the  Fund  has
sufficient  capital to acquire the Equipment.  The Fund's ability to acquire the
Equipment  described  below will be dependent  upon the amount of capital raised
and the timing of the Fund's  capital  raising  efforts.  In addition,  the Fund
Manager  will cause the Fund to acquire  these  transactions  only to the extent
consistent with its investment  objectives at the time of each such acquisition.
Therefore, there can be no assurance that these transactions will be acquired as
described.

<TABLE>


                             EQUIPMENT ACQUISITIONS



<S>                     <C>          <C>           <C>          <C>         <C>
                        Equipment  Commence     Acquisition  Lease     Lease
Lessee                  Type       Date(s) (1)  Price (2)    Term (4)  Type (5)
------                  ----       -----------  ---------    --------  ---------
Mobil Business          Helicopter  12/96-3/97  $1,650,000    36           OL
 Resources
 Corporation (5)

General Electric        Plastic     12/96-3/97     906,370    24           OL
  Company               Molding
                        Equipment

Chrysler Corporation    Material    12/96-3/97     347,628    60           OL
                        Handling
                        Equipment


   Total



</TABLE>

                                       39
<PAGE>


NOTES

(1)      In many  cases,  a Lease  transaction  is funded  over a period of time
         according to the Lessee's requirements.  Therefore,  "Commence Date(s)"
         expressed  as a range  represents  multiple  Lease  commencement  dates
         occurring or anticipated under the same Lease line.

(2)      "Acquisition  Price" includes amounts  committed to Lessees for funding
         by the program. To the extent that the transaction is not fully funded,
         the  information  in the  table  represents  the  Fund  Manager's  best
         estimates as to the size, timing and terms of the transaction upon full
         funding,  based on the outstanding  lease  commitment,  its discussions
         with the  lessee,  the  current and  anticipated  availability  of Fund
         capital and other factors. There can be no assurance, however, that the
         portion  of the  transaction  which  has not yet  been  funded  will be
         completed as described.


(3)      "Lease Term" is expressed in months, although actual Lease Terms may be
         monthly, quarterly, semiannual or annual.

(4)      A  designation  of "FP"  indicates  that the  aggregate  rentals  to be
         received during the Lease Term equals or exceeds the Acquisition  Price
         of the  Equipment.  A designation  of "HP"  indicates  that total lease
         payments are at least 90% of such  Acquisition  Price. A designation of
         "OL"  indicates  that the aggregate  rentals to be received  during the
         Lease Term is less than 90% of the Acquisition Price.

(5)      Guaranteed by Mobil Corporation, parent of Mobil Oil Corporation and
         Mobil Business Resources Corporation.

   
     In addition to the  foregoing  specified  Equipment,  as of the date hereof
ATEL Capital  Group,  the parent of the Fund  Manager,  has been  awarded  lease
transactions  representing  equipment  purchase  costs in excess of $24  million
which are suitable for acquisition by the Fund as well as certain  Affiliates of
the  Fund.  Some or all of these  transactions  may be  allocated  to the  Fund,
subject  to  the  discretion  of  the  Fund  Manager  and  depending  on  future
circumstances  and the factors  discussed  below in the second  paragraph  under
"Conflicts of Interest - Competition  for  Investments."  ATEL Capital Group has
the right to allocate and assign  participations in these transactions among its
affiliates  in its  discretion,  and  the  Fund  Manager  has the  authority  to
determine what level of  participation,  if any, is appropriate  for each of the
programs under its management,  including the Fund. There can be no assurance as
to what, if any, portion of these transactions awarded to ATEL Capital Group may
be  allocated  and assigned to the Fund.  However,  these  transactions  include
binding lease  commitments  to ATEL Capital Group from the following  lessees in
the approximate  amounts noted:  Aetna Life & Casualty Co. ($8 million in office
equipment); Burlington Northern, Inc. ($7 million in locomotives); Cargill, Inc.
($6.5 million in railroad hopper cars);  Southern  Illinois Railcar (%460,000 in
railroad  hopper cars);  Sisseton  Milbank  ($300,000 in railroad  hopper cars);
Illinois  Central Gulf ($1.6  million in boxcars);  and Columbus and  Greenville
Railway ($640,000 in boxcars).     

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
therefore less subject to rapid obsolescence than types which are so dependent.

         Equipment acquisition will be subject to the Fund Manager or its agents
obtaining such  information and reports,  and undertaking  such  inspections and
surveys as the Fund Manager may deem necessary and  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


                                       40


<PAGE>


dealers,  either  pursuant  to a  purchase  agreement  relating  to  significant
quantities of such  equipment,  through lease brokers,  or on an ad hoc basis to
meet the needs of a  particular  lessee.  Purchases  pursuant to vendor  leasing
programs  (discussed below under  "Agreements with  Manufacturers  and Vendors")
will   typically  be  made   directly  from  the   manufacturers   or  principal
distributors.  There can be no assurance that favorable purchase  agreements can
be negotiated with equipment  manufacturers or their authorized dealers or lease
brokers at the time the Fund  commences  operations.  In addition,  the Fund may
enter into sale/leaseback  transactions pursuant to which the Fund will purchase
Equipment from companies which will 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 Fund
will not invest in commercial  passenger aircraft.  The Fund Manager anticipates
that the Fund's cash  investments in aircraft will not exceed an amount equal to
20% of the  maximum  Gross  Proceeds.  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.  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  Fund 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  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 Partner


                                       41


<PAGE>


is not, contrary to his representation to the Fund, a United States Citizen or a
Resident  Alien or if a  Partner  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 Fund  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.

         Communications  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.

         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.
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


                                       42


<PAGE>


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.

         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.

         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


                                       43


<PAGE>


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.

         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
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  Partnership  Agreement
prohibits  the Fund  from  acquiring  any such  incidental  property  rights  or
indirect ownership interest, provided that the primary purpose and objective


                                       44


<PAGE>


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 Partnership Agreement.

Prior Program Diversification

   
     The six prior  public  equipment  leasing  programs  sponsored  by the Fund
Manager and its Affiliates have had equipment portfolio objectives substantially
identical to those of the Fund.  See "Prior  Performance  Summary" below and the
Prior  Performance  Tables  included  as Exhibit A to this  Prospectus  for more
information  concerning  these prior  programs.  The first chart set forth below
represents the actual equipment portfolio  diversification by equipment type for
all prior ATEL public  programs as of July 31, 1996;  the second chart set forth
below  represents  the  actual  equipment  portfolio  diversification  by lessee
industry for all prior ATEL public  programs as of July 31, 1996;  and the third
chart set forth below  represents the actual  portfolio  diversification  by the
lessees'  geographic  location for all prior ATEL public programs as of July 31,
1996.  Diversification  of the  Fund's  portfolio  will  depend  on a number  of
variables,  including the amount of Gross Proceeds 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.     

[GRAPHIC OMITTED - FIGURE 1]

[GRAPHIC OMITTED - FIGURE 2]

[GRAPHIC OMITTED - FIGURE 3]

Borrowing Policies

         The Fund  expects to incur debt to finance the purchase of a portion of
its  Equipment  portfolio.  The  amount of  borrowings  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 indebtedness in excess of 50% of the total cost
of  Equipment  as of the  date of the  final  commitment  of Net  Proceeds  and,
thereafter,  as of the date any subsequent  indebtedness  is 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 Fund  Manager  has  obtained
commitments  for certain  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 Fund Manager at
the time the Fund seeks to finance a specific Equipment acquisition.


                                       45


<PAGE>


         Financing for the Fund is expected to be a combination  of  nonrecourse
and  recourse  borrowings.  The Fund  Manager  intends to use  nonrecourse  debt
primarily to finance assets leased to those credits which, in the opinion of the
Fund  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 Partner (including the Fund 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.  See "Income Tax
Consequences - Limitation on Deduction of Losses At Risk Rules." 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 the context of temporary or
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 Fund  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 ATEL Leasing Corporation,  or some other
nominee name, 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.  See the discussion under "Risk Factors" and "Conflicts of Interest"
above.

         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 Fund  Manager to use such asset  securitization  primarily  to
finance  assets  leased  to those  credits  which,  in the  opinion  of the Fund
Manager, have a relatively lower potential risk of lease default than those


                                       46


<PAGE>


lessees with Equipment financed with nonrecourse debt.

         In the case of any recourse bridge  financing or asset  securitization,
however,  the lender would not be entitled to look to the  individual  assets of
any Holder, or, in many cases, of the Fund Manager, for repayment of such loans.
Thus, the liability of the Holders would be limited to their unreturned  capital
contributions. See "Summary of the Partnership Agreement - Liability of Holders"
for a  discussion  of  potential  liability  of  Holders  for  return of certain
Distributions.  If, under tax principles, it is determined that the Fund 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 Fund Manager or its  Affiliate
for tax basis purposes and all deductions attributable to the recourse debt will
be allocated to the Fund Manager or its Affiliate.  See "Income Tax Consequences
- Limitation on Deduction of Losses - Tax Basis."

         Other than in connection with  short-term  bridge  financing,  the Fund
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 Fund  Manager  will attempt to limit such  variable  interest  rate
borrowings to short-term  debt or to those  instances in which the lessee agrees
to bear the cost of any increase in the interest  rate. If such  borrowings  are
incurred without 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.

         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.  See "Risk
Factors - Balloon Payments."

         In the event that the Fund does not have  sufficient  funds to purchase
an item of Equipment at the time it is acquired  (including  prior to the Fund's
Final  Closing  Date),  the Fund may borrow  such funds from third  parties on a
short-term  basis,  and repay the loans out of the Net Proceeds derived from the
subsequent sale of Units.  Any such short-term loans may be unsecured or secured
by the assets acquired and/or other assets of the Fund.

         Although the  Partnership  Agreement does not prohibit the Fund Manager
or its Affiliates from lending to the Fund, the Fund does not have any intention
or  arrangements  to  borrow  from  such  Persons.  In the  event  that any such
borrowing  is  incurred,  the  terms  may not  permit  the Fund  Manager  or any
Affiliate to receive a rate of interest or other terms which are more  favorable
than those generally  available from commercial lenders under the circumstances.
In no event may the Fund Manager or its Affiliates provide financing to the Fund
with a term in excess of twelve months.


                                       47


<PAGE>


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) acquired with the Net Proceeds to lessees which (i) have an average credit
rating by Moody's  Investor  Service,  Inc.  of "Baa" or  better,  or the credit
equivalent as determined by the Fund Manager,  with the average 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
Fund 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 (i) have
comparable  credit ratings as determined by other nationally  recognized  credit
rating services;  (ii) although not rated by nationally recognized credit rating
services, are believed by the Fund Manager to have comparable  creditworthiness;
or (iii) in the Fund  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 balance of the  original  Equipment  portfolio  may include  Equipment
leased to lessees which, although deemed creditworthy by the Fund Manager, would
not satisfy the general credit rating criteria for the portfolio. If the risk of
lessee default is not deemed significant,  and the potential return is deemed by
the Fund  Manager to justify the risk  involved,  the Fund may enter into leases
with such lessees for up to 25% of the Equipment acquired with the Net Proceeds.

         In arranging lease  transactions  on behalf of corporate  investors and
securing institutional financing for such transactions, the Fund Manager and its
Affiliates  have been required to analyze and evaluate the  creditworthiness  of
potential  lessees.  See "Exhibit A - Prior Performance  Information."  However,
neither  the  Fund  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 Fund 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  Fund  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 Fund  Manager  will use its best efforts to
diversify lessees by geography and industry. The Fund 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,  although  there  can be no  assurance  that  it  will  be
successful in doing so. The Partnership Agreement provides,  however, that in no
event may the Fund's equity investment in Equipment leased to a single


                                       48


<PAGE>


lessee exceed an amount equal to 20% of the maximum Gross Proceeds from the sale
of Units offered hereunder (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 Fund 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
Fund 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 Fund
Manager.  Any leases to foreign  lessees which do not meet the foregoing  credit
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 Fund  Equipment
subject to the lease.

         The Fund 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 at any time during the Reinvestment  Period. For this purpose, a lessee
under a lease  guaranteed  by a United States  corporation  will not be deemed a
foreign lessee.

Description of Leases

   
     The Equipment  will be leased to third parties  primarily  pursuant to High
Payout  Leases.  High Payout Leases are Full Payout  Leases or Operating  Leases
under which the non-cancelable  lease payments and other payment  obligations of
the  lessee  are equal to at least  90% of the  original  purchase  price of the
Equipment paid by the Fund. Operating Leases are leases which will return to the
lessor less than the purchase price of the subject equipment from non-cancelable
rentals payable during the initial term of the lease. These include leases where
rental  payments are based upon  equipment  usage.  A majority of the  aggregate
purchase price of the Fund's  Equipment will  represent  Equipment  leased under
High Payout Leases upon final  investment of the Net Proceeds and  completion of
permanent financing of the portfolio.     

         Generally, in a lease involving new Equipment,  the lessee will express
an interest in lease  financing  for equipment and the Fund Manager will attempt
to create a lease package for the prospective  lessee.  In formulating the lease
package, the Fund Manager will consider the following factors, among others: the
type of Equipment and its anticipated residual value; the business of the


                                       49


<PAGE>


lessee and its 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 Fund
Manager  deems it in the best  interests  of the  Fund and  consistent  with its
overall objectives.

         Operating  Leases may  represent  a greater  risk to the Fund than Full
Payout  Leases,  because  upon  termination  of the  initial  lease  term  it is
necessary  either to renew or  extend an  existing  Operating  Lease,  lease the
Equipment to a third party, or sell the Equipment in order to obtain recovery of
the  purchase  price.  If Equipment is sold at the end of the initial term of an
Operating  Lease,  the sale will likely  result in a recapture of  depreciation.
Notwithstanding the risks associated with investments in Operating Leases, lease
rentals during  comparable  terms are ordinarily  higher under Operating  Leases
than under Full Payout Leases, and, accordingly,  the Fund Manager believes that
well-structured  Operating  Leases  may  help the Fund  satisfy  its  investment
objectives.

         The Fund's  objective  will  generally be to lease the Equipment for an
initial lease term during which the lessee may not cancel the lease or otherwise
avoid the lease  obligation.  However,  where the Fund 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.

         The  Fund  Manager  believes  that  the  Fund  will be able to lease or
dispose of its purchased Equipment profitably in the aggregate after the initial
lease  terms  although no  assurances  can be given in this  regard.  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.

         It is  anticipated  that the leases which the Fund will enter into will
generally be "net  leases,"  which provide that the lessee must bear the risk of
loss  of the  Equipment,  provide  adequate  insurance,  pay  applicable  taxes,
maintain the  Equipment  and  indemnify  the Fund from and against any liability
which  may  arise as the  result  of any act or  omission  by the  lessee or its
agents. In the case of Operating 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.

         The Fund's lease agreements,  other than certain operating and per diem
leases, will generally require the respective lessees (i) to maintain casualty


                                       50


<PAGE>


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

Agreements with Manufacturers and Vendors

         The Fund may participate in  manufacturer's or vendor leasing programs.
Such programs will generally  involve a contract  between the Fund Manager and a
seller of  Equipment  (typically,  the  manufacturer)  whereby the Fund  Manager
agrees to purchase  Equipment  from the seller  during the term of the contract,
which  Equipment  is subject  to a lease  between  the seller and a third  party
lessee.  The Fund Manager will then assign suitable vendor leasing  transactions
to the Fund. See "Conflicts of Interest" for a discussion of potential conflicts
which may arise if the Fund and one or more  Affiliates of the Fund Manager have
funds available to invest at the same time in similar  equipment.  The Fund will
be unable to dictate the terms of third party leases  involved in such programs,
as such leases will be negotiated by the seller,  but the Fund will,  under such
agreements,  have the right to approve  both the  credit of each  lessee and the
terms of the  lease.  The  terms of such  agreements  may  vary,  but they  will
generally include, among other provisions,  covenants by the manufacturer to (i)
warrant the  Equipment  and its use,  (ii)  provide for the  maintenance  of the
Equipment and the supply of replacement  parts, (iii) indemnify the Fund against
patent  infringement and patent violation claims and other similar actions,  and
(iv) assist the Fund in obtaining  new leases for, or arranging the sale of, the
Equipment upon termination of the subject leases.

         The Fund  Manager  will  determine,  in its sole  discretion,  in which
vendor  leasing  programs,  if any,  the Fund will  participate.  It is the Fund
Manager's intention, however, to limit the Fund's investments pursuant to vendor
leasing  programs to an  insignificant  portion of its Equipment  portfolio.  It
should be noted that the Fund Manager and its Affiliates have not engaged in any
vendor leasing programs on behalf of prior programs they have sponsored.

         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
Fund 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.  In the case of an
Operating Lease, the manufacturer will not be required to repurchase  Equipment,
but may,  through the use of its sales force and  contacts  with its  customers,
re-lease or sell such  Equipment for the benefit of the Fund. The monthly rental
payments under a new lease or the sale price of such Equipment  would be subject
to the final approval of the Fund Manager.  Under a remarketing  agreement,  the
manufacturer  participates  with the Fund in revenues on an incentive basis. The
manufacturer would typically


                                       51


<PAGE>


receive a percentage of the revenue  derived by the Fund from Equipment  subject
to a remarketing agreement,  which percentage would increase substantially after
the Fund derived a specified return on its investment in such Equipment.

         In connection with the Fund entering into a management or service
agreement with vendors, manufacturers or others covering such services as
collection of rents, payment of expenses and monitoring of Equipment, an annual
fee may be paid by the Fund to the vendors for such services in addition to the
Equipment Management Fee and Incentive Management Fee payable to Affiliates of
the Fund Manager, subject to the limitations in the Partnership Agreement.  See
"Management Compensation."

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.  Such  public  direct  participation  programs  represent  only a
relatively small portion of the total lease financing industry.



[GRAPHIC OMITTED - FIGURE 4]


     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 Full Payout  Leases that provide for longer terms and lower rates than
Operating  Leases which the Fund will offer.  There are numerous other potential
entities,  including limited partnerships organized and managed similarly to the
Fund,  seeking to purchase  equipment subject to either Operating Leases or Full
Payout Leases, some of which have greater financial resources than the Fund.

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 such Equipment or beneficial  interest
therein.  For purposes of determining the permissibility of a joint venture with
a non-  Affiliate,  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 the other party or parties to the venture  should make certain
decisions respecting the sale,  refinancing or alteration of assets owned by the
venture.  The Fund may not acquire  Equipment jointly with others unless (i) the
joint  venture  agreement  does not authorize or require the Fund to do anything
with respect


                                       52


<PAGE>


to the  Equipment  which the Fund,  or the Fund  Manager,  could not do directly
because of the  policies  set forth in the  Partnership  Agreement  and (ii) 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.  In such event, the following conditions must be met: (i) the
Affiliate will be required to have substantially identical investment objectives
to those of the Fund;  (ii) there are no duplicative  fees;  (iii) the Affiliate
must make its investment on  substantially  the same terms and conditions as the
Fund;  (iv) the  Affiliate  must  have a  compensation  structure  substantially
identical to that of the Fund;  (v) the venture must be entered into in order to
obtain  diversification  or to  relieve  the Fund  Manager  or  Affiliates  from
commitments  entered into under Section 15.2.15 of the Partnership  Agreement or
similar provisions of the Affiliate's  partnership agreement;  and (vi) 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 such Affiliate will be required
to approve decisions pertaining to the Equipment, it is possible that an impasse
will 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.

         The  investment by the Fund in joint ventures which own Equipment or as
a co-owner of Equipment,  instead of investing  directly in the Equipment itself
or as the  sole  owner,  may  under  certain  circumstances  involve  risks  not
otherwise present, including, for example, risks associated with the possibility
that a Fund's  co-venturer might become bankrupt,  that the parties may reach an
impasse on joint venture  decisions,  or that each  co-venturer  may at any time
have  economic or business  interests or goals which are  inconsistent  with the
business  interests  or goals of the Fund.  See  "Risk  Factors - Risks of Joint
Ventures."

         The  Fund  may not  acquire  limited  partnership  interests  in  other
partnerships.

General Restrictions

         The Fund will not: (i) issue any Units after the Final  Closing Date or
issue Units in exchange for property, (ii) make loans to the Fund Manager or its
Affiliates,  (iii) invest in or underwrite the securities of other issuers, (iv)
operate in such a manner as to be  classified  as an  "investment  company"  for
purposes of the Investment  Company Act of 1940, (v) except as set forth herein,
purchase  or lease any  Equipment  from nor sell or lease  property  to the Fund
Manager or its Affiliates,  or (vi) except as expressly  provided herein,  grant
the Fund 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  Partnership  Agreement,  including  the  restrictions
applicable to transactions  with  Affiliates.  See Article 15 of the Partnership
Agreement for a description of additional investment limitations.


                                       53


<PAGE>



         The Fund  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.  See "Conflicts of Interest,"  "Management  Compensation" and
"Management."

Changes in Investment Objectives and Policies

         Holders  have no voting  rights with  respect to the  establishment  or
implementation  of the  investment  objectives  and policies of the Fund, all of
which are the  responsibility  of the Fund  Manager.  However,  the Fund Manager
cannot make any  material  changes in the  investment  objectives  and  policies
described  above  without  first  obtaining  the written  consent or approval of
Limited Partners 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 Fund Manager and  Affiliates of the Fund  Manager.  These
conflicts include, but are not limited to, the following:

         Other  Activities of the Fund Manager.  The Fund Manager  serves in the
capacity  of general  partner in six other  public  partnerships  engaged in the
equipment  leasing business,  and it and its Affiliates  otherwise engage in the
business of purchasing  and selling  equipment and arranging  leases for its own
account  and for the  accounts  of others.  See  Exhibit A - "Prior  Performance
Information."  The Fund  Manager will have  conflicts of interest in  allocating
management time, services and functions among the prior partnerships,  the Fund,
any future investment  programs and activities for their own accounts.  The Fund
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 general partner of prior and future partnerships,  the
Fund Manager will be contingently  liable for obligations of such  partnerships,
except nonrecourse  indebtedness relating to the acquisition of equipment.  Such
obligations  are  expected to consist  primarily of normal  operating  and other
current  expenses,  and it is not believed this  responsibility  will materially
affect the ability of the Fund  Manager to satisfy its  responsibilities  to the
Fund.

         Competition  for  Investments.  The Fund 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. Six
prior  public  programs,  ATEL Cash  Distribution  Fund  ("ACDF"),  a California
limited  partnership,  ATEL Cash  Distribution Fund II ("ACDF II"), a California
limited  partnership,  ATEL Cash  Distribution Fund III, L.P. ("ACDF III"), ATEL
Cash Distribution Fund IV, L.P. ("ACDF IV"), ATEL Cash Distribution Fund V, L.P.
("ACDF  V") and ATEL Cash  Distribution  Fund VI,  L.P.  ("ACDF  VI")  (together
collectively referred to as the "Prior Programs") have investment objectives


                                       54


<PAGE>


   
     substantially  identical to those of the Fund and may have funds  available
for investment at the same time the Fund is seeking to acquire  Equipment.  ACDF
completed a fully-subscribed  offering of $10,000,000 of its limited partnership
interests in December 1987. All of its available net offering proceeds have been
committed  to  investment  as of the date  hereof.  ACDF II  completed  a fully-
subscribed public offering of $35,000,000 of its limited  partnership  interests
in January 1990.  All of such gross  offering  proceeds  have been  committed to
equipment acquisitions, estimated organization and offering expenses and capital
reserves.  ACDF III  completed  a public  offering  of its  limited  partnership
interests  on  January  3,  1992,  pursuant  to which it raised  total  offering
proceeds in the amount of approximately $73,900,000.  All of such gross offering
proceeds have been committed to equipment  acquisitions,  estimated organization
and offering expenses and capital reserves. ACDF IV completed a fully-subscribed
public offering of $75,000,000 of its limited partnership  interests on February
4, 1993.  All of such gross  offering  proceeds had been  committed to equipment
acquisitions,  offering and organization  expenses and capital reserves.  ACDF V
completed a public  offering of its limited  partnership  interests  in November
1994 pursuant to which it raised total  offering  proceeds in the amount of $125
million.  All of such gross  offering  proceeds have been committed to equipment
acquisitions,  offering and organization expenses and capital reserves.  ACDF VI
completed a public offering of its limited partnership interests on November 23,
1996,  pursuant to which it raised  total  offering  proceeds  of $125  million.
Substantially,  all of such  gross  offering  had been  committed  to  equipment
acquisitions, offering and organization expenses and capital reserves as of such
date. In addition,  one or more of the Prior Programs may have excess  operating
revenues or financing proceeds available to invest 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  Fund  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 Fund
Manager.     

         Any  time  two  or  more  investment   programs  (including  the  Fund)
affiliated  with the Fund Manager have funds  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 Fund 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
(i) the amount of cash  available in each program for such  acquisition  and the
length of time such funds have been  available,  (ii) the current and  long-term
liabilities  of each  program,  (iii)  the  effect  of such  acquisition  on the
diversification of each program's equipment portfolio, (iv) the estimated income
tax consequences to the investors in each program from such acquisition, and (v)
the  cash  distribution  objectives  of each  program.  If after  analyzing  the
foregoing and any other appropriate  factors,  the Fund Manager  determines that
such acquisition would be equally suitable for more than one program, then


                                       55


<PAGE>


the Fund 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.

         Receipt of Commissions, Fees and Other Compensation by the Fund Manager
and its Affiliates.  Fund operations will result in certain  compensation to the
Fund Manager and its Affiliates. See "Management Compensation." The Fund Manager
has  absolute   discretion  with  respect  to  all  decisions  related  to  such
operations.  Because the amount and timing of such fees may depend,  in part, on
the  debt   structure  of  Equipment   acquisitions   and  the  timing  of  such
transactions, the Fund Manager and its Affiliates may be subject to conflicts of
interest to the extent the acquisition, retention, re-lease or sale of Equipment
and the terms and conditions  thereof may be less  advantageous  to the Fund and
more advantageous to the Fund Manager under certain circumstances.  It should be
noted  that the  Fund  Manager  intends  to  cause  the Fund to incur  aggregate
acquisition  debt in an amount  approximately  equal to 50% of the total cost of
Fund Equipment.

        In all cases where the Fund 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.  See "Fiduciary Duty of the Fund Manager."

         Non-Arm's-Length  Agreements.  Any agreements and arrangements relating
to  compensation  between the Fund and the Fund Manager or any of its Affiliates
will not be the result of arm's-length  negotiations and the performance thereof
by the Fund Manager and its  Affiliates  will not be  supervised  or enforced at
arm's-length.

         Distribution  of Units.  No independent  managing  underwriter has been
engaged  for  the  distribution  of  the  Units.  Furthermore,  ATEL  Securities
Corporation (the "Dealer  Manager"),  an Affiliate of the Fund Manager which may
sell Units and will perform certain  wholesaling  services for the Fund, 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 Fund Manager and its Affiliates and is expected to do
so in any future offerings that the Fund Manager and its Affiliates may conduct.

         Lack of  Separate  Representation.  The  Fund,  the  Fund  Manager  and
prospective  Holders have not been represented by separate counsel in connection
with the  formation of the Fund,  drafting of the  Partnership  Agreement or the
offering  of Units.  The  attorneys,  accountants  and other  professionals  who
perform  services for the Fund all perform similar services for the Fund Manager
and its Affiliates and it is  contemplated  that such dual  representation  will
continue in the future. However, should a dispute arise between the Fund and the
Fund Manager, the Fund Manager will cause the Fund to retain separate counsel in
connection with such matters.



                                       56


<PAGE>


         Joint Ventures with Affiliates of the Fund Manager.  The Fund may enter
into joint ownership or joint venture agreements for the acquisition and leasing
of Equipment with other persons,  including  limited  partnerships  of which the
Fund Manager or its Affiliates are general partners.  See "Investment Objectives
and Policies - Joint  Venture  Investments."  Should any such joint  ventures be
consummated, the Fund Manager may face certain conflicts of interest inasmuch as
it may  control  and owe  fiduciary  duties to both the Fund and,  through  such
Affiliates,  the affiliated co-venturer.  For example,  because of the differing
financial  positions  of the  co-venturing  partnerships,  it may be in the best
interest of one partnership to sell the jointly-held Equipment at a time when it
is in the  best  interest  of the  other  partnership  to hold  such  Equipment.
Nevertheless,  such 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 Fund  Manager and its  Affiliates  from each
co-venturer is substantially identical.

         Maintenance  of Reserves.  The Fund Manager will have the discretion to
determine the amount of reserves to be maintained by the Fund.  The Fund Manager
is required by the Partnership Agreement to establish an initial working capital
reserve equal to 1/2 of 1% of the Gross Proceeds. This amount may fluctuate from
time to time as the Fund Manager  determines the appropriate  amount of reserves
for the Fund to  maintain.  The Fund  Manager  may be  subject to  conflicts  of
interest to the extent that its interests may be served by the Fund  maintaining
higher reserves in order to avoid the Fund Manager's personal liability for Fund
obligations  when such reserves might  otherwise be distributed to Holders.  Any
personal liability  incurred by the Fund Manager for Fund obligations,  however,
would  generally be  reimbursable  to the Fund Manager by the Fund. As a result,
the Fund  Manager  does not  believe  any such  potential  conflict  will have a
material impact on the Fund or the Holders.


                             ORGANIZATIONAL DIAGRAM

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


                                       57


<PAGE>



[GRAPHIC OMITTED - FIGURE 5]

     ATEL Capital  Group's  capital  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 Fund  Manager,  ALC,  AIS and AEC. The Fund Manager owns 100% of the
outstanding  capital stock of the Dealer Manager.  See  "Management" for further
information  concerning  the above  entities and their  respective  officers and
directors.

                      FIDUCIARY DUTY OF THE GENERAL PARTNER

     The Fund Manager,  as General  Partner of the Fund, is  accountable  to the
Fund as  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 limited partner
may institute  legal action on behalf of the limited  partnership (a partnership
derivative  action) to recover  damages from a third party or to recover damages
resulting from a breach by a general partner of its fiduciary duty. In addition,
a limited  partner  may  institute  a legal  action on behalf of himself and all
other similarly  situated  limited  partners (a class action) to recover damages
for a breach by a general partner of its fiduciary  duty,  subject to procedural
rules generally applicable to class actions. This area of the law is


                                       58


<PAGE>


complex and rapidly  changing,  and investors who have  questions  regarding the
duties of a general  partner  and the  remedies  available  to limited  partners
should consult with their counsel.

         The  Partnership  Agreement  does not  exculpate  the Fund Manager from
liability or provide it with any defenses  for breaches of its  fiduciary  duty.
However, the fiduciary duty owed by a general partner to his partners 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 general
partner 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 Partnership  Agreement that the Fund Manager shall have no liability
to the Fund for losses  arising out of any act or omission by the Fund  Manager,
provided that the Fund 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  Partnership  Agreement  specifically
defining the General Partner's standard of care.

         The Partnership  Agreement also provides that, to the extent  permitted
by law, the Fund shall  indemnify the Fund 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 Fund 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 Fund  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 Fund Manager or any other
persons for actions or omissions for which  indemnification  is not permitted by
the Partnership Agreement.

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


                                       59


<PAGE>


the Partnership Agreement.")

                                   MANAGEMENT

The Fund Manager

         The Fund  Manager  and  General  Partner of the Fund is ATEL  Financial
Corporation  (the  "General  Partner",  "Fund  Manager" or "AFC"),  a California
corporation formed in 1977 under the name All Type Equipment  Leasing,  Inc. The
Fund 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,   including
acquiring and disposing of equipment subject to Operating Leases and Full Payout
Leases, as more fully described below and in Exhibit A hereto.  The Fund 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: (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 lease transactions  originated by other leasing  companies,  and (iii)
consulting on the pricing and  structuring of equipment lease  transactions  for
banks,  leasing companies and  corporations.  The Fund Manager has organized one
privately- placed limited partnership and six public limited partnerships formed
to acquire and lease equipment.  During the past 14 years, ATEL has participated
in structuring and/or arranging lease transactions involving aggregate equipment
costs in excess of $1 billion.

         All of the outstanding  capital stock of ATEL Financial  Corporation is
held by ATEL  Capital  Group  ("ACG").  The  outstanding  capital  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. 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.  See the
chart included


                                       60


<PAGE>


under the caption  "Organizational  Diagram" above for more  information in
this regard.

         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,
                                    ALC, 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 ALC, AIS
                                    and ASC

F. Randall Bigony............       Chief Financial Officer of
                                    ACG, AFC, ALC, AIS and AEC

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

Vasco H. Morais..............       General Counsel  for ACG, AFC,
                                    ALC, AIS and AEC

William J. Bullock...........       Director of Asset Management
                                    of AEC

Janet V. Eyre.............          Vice President of ALC

Jeffrey A. Schwager..........       Vice President - Syndication
                                    of ALC

Carl W. Magnuson.............       Vice President - Syndication of ALC

Russell H. Wilder............       Vice President - Credit of ALC

J. Edwin Holliday............       Senior Vice President -
                                    National Sales Manager of ASC

John P. Scarcella............       Senior Vice President of ASC

     A. J. Batt,  age 60,  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


                                       61


<PAGE>


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.

         Dean L. Cash,  age 46, 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.

         F.  Randall  Bigony,  age 39,  joined  ATEL in 1992  and  became  chief
financial officer in 1994. From 1987 until joining AFC, Mr. Bigony was president
of F.  Randall  Bigony & Co., a  consulting  firm that  provided  financial  and
strategic planning services to emerging growth companies.  From 1983 to 1987, he
was a manager with the accounting  firm of Ernst & Whinney,  serving  clients in
its  management  consulting  practice.  Mr.  Bigony  received  a B.A.  degree in
business from the University of  Massachusetts  and an M.B.A.  degree in finance
from the University of California,  Berkeley.  He is a founding board member and
acting treasurer of the I Have a Dream Foundation - Bay Area Chapter.

   
         Donald E. Carpenter,  age 47, joined ATEL in 1986 as controller.  Prior
to joining the Fund 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     


                                       62


<PAGE>


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 38,  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 and a J.D.  degree in 1986 from Golden Gate
University Law School.  Mr. Morais has been an active member of the State Bar of
California since 1986.

   
     William J.  Bullock,  age 33, joined ATEL in 1991, as the director of asset
management. He assumes responsibility for the disposition of off-lease equipment
and  residual  valuation  analysis on new lease  transactions.  Prior to joining
ATEL,  Mr.  Bullock  was a senior  member of the  equipment  group at  McDonnell
Douglas  Finance  Corporation  ("MDFC")  responsible for managing its $4 billion
portfolio of leases.  Mr. Bullock was involved in negotiating sales and renewals
as well as appraising and inspecting  equipment.  Prior to joining MDFC in 1989,
Mr. Bullock was the senior  negotiator at Equitable  Leasing (a subsidiary of GE
Capital Equipment Corp.) in San Diego, California.  At Equitable Leasing, he was
responsible  for  end-of-lease  negotiations  and  equipment  dispositions  of a
portfolio comprised of equipment leased primarily to Fortune 200 companies.  Mr.
Bullock has authored  industry  articles for the Equipment  Lessors  Association
("ELA")  and has been  named to the ELA's  equipment  management  committee.  He
received a B.S. degree in Finance in 1987 from San Diego State University and is
currently pursuing his MBA.     

     Janet V. Eyre,  age 41, joined ATEL in 1993 as director of sales support in
charge of the pricing of lease  transactions and has been a vice president since
1995.  From 1986 to 1993,  Ms. Eyre was  employed by GE Capital  Corporation  to
price and purchase


                                       63


<PAGE>


lease  transaction.  Prior to that,  Ms.  Eyre  worked  for  United  States
Portfolio  Leasing (a  subsidiary  of US Leasing  International)  for five years
marketing lease  financing;  responsibilities  included  pricing,  negotiations,
documentation and the remarketing of off-lease equipment. From 1977 to 1981, Ms.
Eyre worked at ITEL Corporation in various  administrative  and sales positions.
Ms. Eyre received a B.A. degree (cum laude) from Harvard University in 1976.

   
     Jeffrey  A.  Schwager,  age 36,  joined  ATEL  in  1991  as vice  president
syndication   and  is  responsible  for  acquiring   lease   transactions   from
intermediaries as well as debt and equity  placement.  Prior to joining ALC, Mr.
Schwager was a member of General  Electric Capital  Corporation's  Institutional
Financing Group.  There, he was responsible for originating  equipment lease and
corporate finance  opportunities,  as well as soliciting equipment portfolios in
conjunction with marketing a proprietary capital enhancement product.  From 1985
through  1990,  Mr.  Schwager  held several  positions  with Bank  Ireland/First
Financial, most recently Vice President Marketing,  where he was responsible for
originating and negotiating tax-oriented leveraged lease financings with Fortune
500 companies.  From 1983 to 1985 Mr. Schwager was an Associate  Consultant with
The  Bigelow  Company,   a  middle  market  investment  banking  and  management
consulting  firm,  developing and  implementing  strategic plans for a number of
clients. Prior to The Bigelow Company, he worked for Petro-Lewis  Corporation as
a  joint-interest  accountant.  Mr.  Schwager  received  his  B.S.  in  Business
Administration   from   Babson   College  in  1982,   majoring  in  Finance  and
Entrepreneurial Studies.     

     Carl W.  Magnuson,  age 53,  joined  ATEL  in  1994  and is Vice  President
Syndication for ALC. Mr. Magnuson is responsible for acquiring third party lease
transactions  and debt placement.  Prior to joining ATEL he was a Regional Group
Manager and Portfolio  Sales Manager for Bell  Atlantic  Systems  Leasing for 10
years.  From 1983 to 1984 he was Vice President and Chief  Financial  Officer of
the Handi-Kup  Company,  a plastics  manufacturer,  and from 1981 to 1982 he was
Controller for the Cyclotron  Corporation,  engaged in nuclear medicine research
and  development.  From 1978 to 1981 he was Executive  Vice President of Shannon
Financial Corporation, a middle market leasing corporation. From 1975 to 1978 he
was a Deputy Program Manager for the Watkins Johnson Company.  From 1968 to 1973
Mr.  Magnuson was an engineering  duty officer in the U.S.  Navy.  Mr.  Magnuson
received a B.S. in Engineering  Science and an M.S. in Applied  Mathematics from
the Rensselaer Polytechnic Institute, an MS in Industrial Engineering/Operations
Research  from  Stanford   University,and  an  M.B.A.  form  the  University  of
California at Berkeley.

   
         Russell H.  Wilder,  age 41,  joined ATEL in 1992 as Vice  President of
Credit for ALC.  Immediately  prior to joining  ATEL,  Mr. Wilder was a personal
property broker  specializing in equipment  leasing and financing and an outside
contractor in the areas of credit and collections. From 1985 to 1990 he was Vice
President and Manager of Leasing for Fireside Thrift Co., a Teledyne subsidiary,
and was  responsible  for all aspects of setting up and managing the department,
which operated as a small ticket lease funding source.  From 1983 to 1985 he was
with Wells Fargo Leasing  Corporation  as Assistant Vice President in the credit
department  where he oversaw all credit analysis on transactions in excess of $2
million.  From 1978 to 1983 he was a District  Credit Manager with  Westinghouse
Credit Corporation's  Industrial Group and was responsible for all non-marketing
operations of various district  offices.  Mr. Wilder holds a B.S. with Honors in
Agricultural Economics and Business Management from the University of California
at Davis.  He has been awarded the Certified Lease  Professional  designation by
the Western Association of Equipment Lessors.
    



                                       64


<PAGE>


   
     J. Edwin  Holliday,  age 53, joined ATEL in 1988 as Regional Vice President
of the Dealer  Manager  for the  Southwestern  region and has been a Senior Vice
President  and its National  Sales  Manager  since April 1994.  From August 1993
until April 1994, Mr. Holliday was a Managing Director of HomeMac Corporation, a
mortgage bank that also markets a mortgage-related trust. Prior to joining ATEL,
Mr.  Holliday  was  a  Regional  Vice  President  for  several  firms  marketing
investment  securities,  including  Icon  Group  from  1986 to 1988,  Stonehenge
Capital from 1982 to 1986, and Quantum Resources from 1980 to 1982. Mr. Holliday
was Sales Manager for a retail  division of Beech  Aircraft in Denver,  Colorado
from 1975 to 1980,  and sales  engineer for Trane  Company in Canton,  Ohio from
1968 to 1975. Mr. Holliday received a B.S. degree in Mechanical Engineering from
West Virginia  Institute of  Technology  in 1968,  and served as Chairman of the
Board of the Orange County,  California Chapter of the International Association
for Financial Planning in 1993 and 1994.     

         John P. Scarcella,  age 35, joined the Dealer Manager as vice president
of  broker  dealer  relations  in  1992.  He is  involved  in the  marketing  of
securities  offered by the Dealer  Manager.  Prior to  joining  ATEL  Securities
Corporation, from 1987 to 1991, he was employed by Landsing Pacific Fund, a real
estate  investment  trust in San  Mateo,  California  and acted as  director  of
investor  relations.  From 1984 to 1987,  Mr.  Scarcella  acted as broker dealer
representative  for Landsing Capital  Corporation,  where he was involved in the
marketing of limited  partnerships and REITs.  Mr.  Scarcella  received a B.S.C.
degree with an emphasis in investment finance in 1983 and an M.B.A.  degree with
a concentration in marketing in 1991 from Santa Clara University.

Selection and Management of Investments

         An Affiliate of the Fund Manager,  ATEL Leasing Corporation,  will have
primary  responsibility for selecting and negotiating potential acquisitions and
leases of Equipment, subject to the Fund Manager's supervision and approval. The
Fund Manager's  Investment  Committee will approve any acquisition  before it is
consummated. The Investment Committee currently consists of A.J. Batt, Dean L.
Cash, Donald E. Carpenter and F. Randall Bigony.

     ATEL Equipment  Corporation  will manage the Fund's portfolio of Equipment,
subject to the Fund 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


                                       65


<PAGE>


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 is not  required to pay the  officers or directors of the Fund
Manager or its Affiliates any remuneration.  However, the Fund will pay the Fund
Manager and its Affiliates  certain fees and  compensation for their services to
the Fund,  including  Equipment  Management Fees,  Equipment Resale and Re-lease
Fees and Incentive  Management  Fees.  Furthermore,  the Fund will reimburse the
Fund  Manager and its  Affiliates  for certain  costs  incurred on behalf of the
Fund, including the cost of certain personnel (excluding  controlling persons of
the  Fund  Manager)  who  will  be  engaged  by  the  Fund  Manager  to  perform
administrative, accounting, secretarial, transfer and other services required by
the Fund.  Such  individuals  may also  perform  similar  services  for the Fund
Manager,  its  Affiliates  and  other  investment  programs  to be formed in the
future. See "Management Compensation."

Changes in Management

         The Partnership Agreement provides that the Fund Manager may be removed
as General  Partner 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  General  Partner in place of the removed General Partner by a
similar vote. The Fund 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 Fund 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  Fund  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


                                       66


<PAGE>


   
organized in October 1985  principally for the purpose of  participating  in and
facilitating  the  distribution of securities of partnerships to be sponsored by
the Fund 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 AFC.
    

         The Dealer  Manager will provide  certain  wholesaling  services to the
Fund in connection with the distribution of the Units offered hereby. (See "Plan
of  Distribution.")  The executive  officers and directors of the Dealer Manager
are discussed above under "The Fund Manager."

                            PRIOR PERFORMANCE SUMMARY

         THE INFORMATION PRESENTED IN THIS SECTION AND IN THE TABLES INCLUDED AS
EXHIBIT  A TO  THIS  PROSPECTUS  REPRESENTS  THE  HISTORICAL  RESULTS  OF  PRIOR
EQUIPMENT  LEASING  PROGRAMS  SPONSORED BY THE FUND MANAGER AND ITS  AFFILIATES.
INVESTORS  IN THE FUND  SHOULD NOT ASSUME THAT THEY WILL  EXPERIENCE  INVESTMENT
RESULTS COMPARABLE TO THOSE EXPERIENCED BY INVESTORS IN SUCH PRIOR PROGRAMS.

         Since July 28, 1977, the Fund 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 Fund
Manager  sponsored and syndicated six prior public and one prior private limited
partnership.  See  Exhibit  A -  Prior  Performance  Tables  for  more  detailed
information  concerning  the prior  public  programs  (collectively  referred to
herein as the "Prior Programs").

         The  first  Prior  Program,   ATEL  Cash  Distribution  Fund  ("ACDF"),
commenced a public  offering  of up to  $10,000,000  of its limited  partnership
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 have been  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 as of June 30, 1996. See Table IV "Acquisition of
Equipment by Prior Programs" in Exhibit A for further information concerning the
types of equipment  acquired by ACDF. Of such equipment,  items  representing an
original purchase cost of approximately  $8,700,153 had been sold as of June 30,
1996. See Table V - "Sales or Disposals of Equipment" in Exhibit A. Through June
30, 1996,  ACDF had made cash  distributions  to its  investors in the aggregate
amount of $1,068.40 per




                                       67


<PAGE>


$1,000 invested.  Of this amount a total of $229.30 represents investment income
and $839.10 represents return of capital.  See Table III - "Operating Results of
Prior   Programs"  in  Exhibit  A  for  further   information   concerning  such
distributions.

         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 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 have been committed to equipment acquisitions,
organization and offering expenses and capital reserves.  ACDF II had acquired a
variety  of types  of  equipment  with a total  purchase  cost of  approximately
$52,270,536  as of June 30, 1996.  See Table IV -  "Acquisition  of Equipment by
Prior  Programs" in Exhibit A for further  information  concerning  the types of
equipment acquired by ACDF II. Of such equipment, items representing an original
purchase cost of  approximately  $33,874,148  had been sold as of June 30, 1996.
See Table V - "Sales or Disposals of  Equipment"  in Exhibit A. Through June 30,
1996,  ACDF II had made cash  distributions  to its  investors in the  aggregate
amount of  $1,018.35  per  $1,000  invested.  Of this  amount a total of $254.34
represents investment income and $764.01 represents return of capital. See Table
III - "Operating Results of Prior Programs" in Exhibit A for further information
concerning such distributions.

         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 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 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  $99,629,941 as of June 30, 1996.  See Table IV - "Acquisition  of
Equipment by Prior Programs" in Exhibit A for further information concerning the
types of equipment  acquired by ACDF III. Of such equipment,  items representing
an original purchase cost of approximately  $23,608,542 had been sold as of June
30, 1996.  See Table V - "Sales or Disposals of Equipment" in Exhibit A. Through
June 30,  1996,  ACDF III had made cash  distributions  to its  investors in the
aggregate  amount of $776.30  per  $1,000  invested.  Of this  amount a total of
$165.97  represents  investment income and $607.63 represents return of capital.
See Table III - "Operating  Results of Prior  Programs" in Exhibit A for further
information concerning such distributions.


                                       68


<PAGE>



         The fourth Prior Program,  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 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
purchase cost of  approximately  $112,424,026  as of June 30, 1996. See Table IV
"Acquisition   of  Equipment  by  Prior  Programs"  in  Exhibit  A  for  further
information  concerning  the  types of  equipment  acquired  by ACDF IV. Of such
equipment,  items  representing  an  original  purchase  cost  of  approximately
$13,835,773 had been sold as of June 30, 1996. See Table V - "Sales or Disposals
of  Equipment"  in  Exhibit  A.  Through  June 30,  1996,  ACDF IV had made cash
distributions  to its  investors in the  aggregate  amount of $517.84 per $1,000
invested.  Of this  amount a total of $69.25  represents  investment  income and
$448.59  represents  return of capital.  See Table III -  "Operating  Results of
Prior   Programs"  in  Exhibit  A  for  further   information   concerning  such
distributions.

         The fifth  Prior  Program,  ATEL Cash  Distribution  Fund V ("ACDF V"),
commenced a public  offering of up to  $125,000,000  of its limited  partnership
interests In February  1993.  ACDF V terminated  its offering in November  1994,
after  raising  a total  of $125  million  in  offering  proceeds,  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  $186,537,028 as
of June 30, 1996. See Table IV - "Acquisition of Equipment by Prior Programs" in
Exhibit A for further information  concerning the types of equipment acquired by
ACDF V. Of such  equipment,  items  representing  an original  purchase  cost of
approximately $7,411,341 had been sold as of June 30, 1996. See Table V - "Sales
or Disposals of Equipment" in Exhibit A. Through June 30, 1996,  ACDF V had made
cash  distributions  to its  investors  in the  aggregate  amount of $297.14 per
$1,000 invested.  Of this amount a total of $28.23 represents  investment income
and $268.91 represents return of capital.  See Table III - "Operating Results of
Prior   Programs"  in  Exhibit  A  for  further   information   concerning  such
distributions.

   
         The sixth Prior Program,  ATEL Cash  Distribution  Fund VI ("ACDF VI"),
commenced a public  offering of up to  $125,000,000  of its limited  partnership
interests in November 1994. ACDF VI terminated its offering on November 23,     



                                       69


<PAGE>


   
1996 after raising a total of $125 million in offering  proceeds,  substantially
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  $147,437,403  as of
June 30, 1996.  See Table IV - "Acquisition  of Equipment by Prior  Programs" in
Exhibit A for further information  concerning the types of equipment acquired by
ACDF VI. Of such  equipment,  items  representing  an original  purchase cost of
approximately  $155,361 had been sold as of June 30, 1996. See Table V "Sales or
Disposals of  Equipment"  in Exhibit A. Through June 30, 1996,  ACDF VI had made
cash  distributions  to its  investors  in the  aggregate  amount of $124.73 per
$1,000  invested,  all of which  represents  return of capital.  See Table III -
"Operating  Results  of Prior  Programs"  in Exhibit A for  further  information
concerning such distributions.     

         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.

         The Prior  Programs  have  investment  objectives  which are similar to
those of the Fund.  The factors  considered  by the Fund 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 Fund Manager and its Affiliates which completed their
offerings of interests  within the five-year  period  ending  December 31, 1995,
except that ACDF completed its offering in December 1987,  ACDF II completed its
offering  in  January  1990 and ACDF VI  completed  its  public  offering  as of
November 23, 1996. Accordingly,  the tabular information concerning ACDF VI does
not reflect  results of an  operating  period after  completion  of its funding.
Table V includes  information  regarding all  dispositions of equipment by Prior
Programs  during the five year  period  ending  June 30,  1996.  No  information
concerning  results of completed  programs is presented herein,  because none of
the Prior Programs has     



                                       70


<PAGE>


completed its operations.

         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 Fund Manager and
                                    Affiliates
         Table III         - Operating Results of Prior Programs
         Table IV          - Acquisition of Equipment by Prior Programs
         Table V           - Sales or Disposals of Equipment


         The Fund 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 Fund Manager at (415) 989-8800. >

                        INCOME, LOSSES AND DISTRIBUTIONS

Allocations of Net Income and Net Loss

         The taxable  income and  taxable  loss of the Fund (the "Net Income and
Net Loss") shall be allocated 7.5% to the Fund Manager and 92.5% to investors.

         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
limited  partnership  interests  will not be effective for any purpose until the
first day of the following quarter.



                                       71


<PAGE>


Timing of Distributions

         Fund cash  distributions are generally made and allocated to Holders on
a quarterly basis.  However,  the Fund 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 Fund 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 Fund 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  allocated to the  investors  as described  below will be
allocated  among  them on the  same  basis as Net  Income  and Net Loss is to be
allocated,  as described  under  "Allocations of Net Income and Net Loss" above.
Amounts to be  distributed  will be determined  after payment of Fund  operating
expenses, establishment or restoration of Capital reserves deemed appropriate by
the Fund Manager, and, to the extent permitted as described below,  reinvestment
in additional Equipment.

         Until the investors have received aggregate  distributions in an amount
equal to their original  capital  investment  plus an amount equal to an 10% per
annum return on their Adjusted  Invested Capital (which is equal to the original
investment  reduced  by  prior  distributions  in  excess  of  10%  per  annum),
calculated on a cumulative basis,  compounded daily,  commencing the last day of
the  calendar  quarter in which an investor or his  predecessor  in interest was
admitted to the Fund),  investors  will receive 88.5% of  distributions  of cash
from  operations  and 92.5% of  distributions  of the proceeds of any  equipment
sales or refinancing,  the Fund Manager will receive 7.5% of all  distributions,
and an Affiliate of the Fund  Manager will receive 4% of  distributions  of cash
from operations as Incentive Management Fees. Thereafter, investors will receive
85% of distributions from all sources, the Fund Manager will receive 7.5% of all
distributions,  and its  Affiliate  will  receive 7.5% of all  distributions  as
Incentive Management Fees.


         It is anticipated that income taxes on a portion of distributions  will
be deferred by depreciation  available from Equipment  purchased by the Fund. 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.   Furthermore,   until  investors  receive  aggregate
distributions  equal to their original  capital,  a portion of each distribution
will  be  deemed  a  return  of  capital   rather  than  a  return  on  capital.
Notwithstanding  the  foregoing,  however,  the  Fund  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


                                       73


<PAGE>


investment.

         The Fund is  intended  to be  self-liquidating  in  nature.  After  the
expiration of the  Reinvestment  Period,  the Fund will distribute any available
cash, subject to the establishment of reserves deemed reasonably required by the
Fund Manager for the proper  operation  of the  business of the Fund,  which may
include  reserves for the upgrading of Equipment in order to preserve its rental
or sales  value or for  purchasing  Equipment  for which the Fund has  committed
funds prior to the end of the Reinvestment Period.

         Upon  liquidation  of the Fund,  the  proceeds of  liquidation  will be
distributed,  after  creditors  of the  Fund  (including  investors  who  may be
creditors)  have been paid or  provision  has been  made for their  payment,  in
accordance with each Partner'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 of gain
from the sale or other  disposition  of  Equipment to the  investors  which will
equalize  their  respective   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 such differences will be substantially reduced or
eliminated to the extent the Fund Manager equalizes Capital Accounts through the
use of  special  allocations  of gain  from  the sale or  other  disposition  of
Equipment.

Reinvestment

     Subject to the limitations set forth herein, the Fund Manager has the right
to  reinvest on behalf of the Fund cash from  operations  and cash from sales or
refinancing during the Reinvestment  Period (which ends six years after the last
day of the year in which the offering of Units terminates).  Notwithstanding the
foregoing,  however,  the Fund Manager shall, at a minimum,  distribute,  to the
extent  available,  such amounts of cash from sales or refinancing and cash from
operations as may be sufficient to allow an investor in a 31% federal income tax
bracket  (but not a higher  bracket) to meet the federal and state  income taxes
due with respect to income  derived by him from the  operations of the Fund. See
"Risk Factors - Income in Excess of Distributions"  for a discussion of the risk
that a Holder in a higher tax bracket may, under some circumstances, be required
to pay certain tax  liabilities  out of his  personal  funds  rather than out of
amounts distributed by the Fund.

         Furthermore,  through the end of the  Reinvestment  Period the Fund may
reinvest cash from operations and cash from sales or refinancing, but only after
the Fund Manager has caused the Fund to distribute to the investors:

                  (i)  prior  to the  end of the  year  the  offering  of  Units
         terminates, an amount equal to the lesser of (a) 10% per annum on their
         original capital investment,  or (b) 90% of the total amounts available
         for distributions; and

                  (ii) in each of the six  years  after  the end of the year the
         offering  terminates,  an amount equal to 10% of their original capital
         investment.

         Distributions  will be made only to the  extent  cash is  available  to
distribute  after  payment  of Fund  obligations  and  allowance  for  necessary
reserves. There can be no prediction as to any future rate of return on original
capital  investment nor assurance that any specific amount of cash distributions
can be  attained.  Distributions  may in any year be in  amounts  less  than the
amounts stated above.

Return of Unused Capital

         Any portion of the net  offering  proceeds  received by the Fund during
the first twelve months following the date hereof which has not been invested or
committed to Investment in Equipment  during the period ending  eighteen  months
from the date hereof,  and any of the net offering proceeds received  thereafter
which have not been invested or committed to Investment in


                                       74


<PAGE>


Equipment  during the period  ending  six months  after the end of the  offering
(except,  in either  case,  for amounts used to pay Fund  operating  expenses or
deemed  by the  Fund  Manager  to be  required  as  capital  reserves)  will  be
distributed to investors pro rata as a return of capital. In addition,  in order
to refund to the  investors  the amount of Front End Fees  attributable  to such
returned capital, the Fund 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 offering
proceeds  remaining  after  payment  of all Front End Fees,  exceeds  the unused
capital so distributed.

Cash from Reserve Account

         The Partnership  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 as
provided herein need not be restored,  and, if restored,  shall be restored from
the operating revenues of the Fund. When Equipment is sold or otherwise disposed
of,  all  cash  reserves  specifically   allocated  to  such  Equipment  may  be
distributed  to the Holders as a return of  original  capital  investment  or be
applied as a reserve for other Equipment. Distributions of cash reserves will be
allocated  and  distributed  in the same manner as cash  proceeds  from sales or
refinancing  of equipment.  Cash reserves  which the Fund Manager deem no longer
reasonably  required to be maintained as reserves may be distributed or invested
by the Fund,  subject to the limitations  described  herein. No distributions or
investments will be made from Fund reserve accounts during the three-year period
following the date  investors  are first  admitted to the Fund;  thereafter,  no
distributions  or  investments  will be made unless the Fund Manager  determines
that the  reserves  of the Fund,  in any  fiscal  quarter,  are in excess of the
amount deemed sufficient in connection with the Fund's operations.

Sources of Distributions - Accounting Matters

         During  the  initial  years,  the  Fund  may  experience  a Net Loss in
accordance with generally accepted accounting principles,  and it is anticipated
that a substantial  portion of any such Net Loss would be caused by depreciation
which is a non-cash  expense.  As a result,  distributions,  if any, 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


                                       75


<PAGE>


extent Equipment is not producing revenues in excess of operating expenses, debt
service  and  other   contractual   obligations   related  to  such   Equipment,
distributions may be considered a return of capital.

                                 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  1,250,000 Units are sold is
as follows:

                              As of               Minimum            Maximum
                              the Date            120,000            12,250,000
                              hereof(2)           Units              Units

Fund Manager's
Capital Contribution(1)       $       100         $      100         $      100

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

Total Capitalization           $      600        $1,200,600        $150,000,600

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

Net Capitalization             $      600        $1,056,600        $129,750,600
                                  -------         ---------         -----------
                                  -------         ---------         -----------

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

         (1)   See   "Management   Compensation"   and   "Income,   Losses   and
Distributions"  for a  description  of the fees and  compensation,  including an
interest in Net Income, Net Loss and Distributions,  payable to the Fund Manager
or its Affiliates.

         (2) The Fund was originally capitalized with $600,  representing a cash
contribution  to the Fund of $100 by the Fund  Manager and $500 from the initial
Holders.


           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.

         Following achievement of such funding level, 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.   Thereafter,  the  Fund  will
experience  a relative  increase in liquidity as  additional  subscriptions  for
Units are received, and a relative decrease in liquidity as Net Proceeds


                                       76


<PAGE>


are expended in connection with the acquisition and leasing of
Equipment.

   
     The  Fund  will  acquire   Equipment   with  cash  offering   proceeds  and
indebtedness.  The Fund may borrow on a secured or unsecured basis amounts up to
50% (and  intends to borrow  the  maximum  amount  permitted)  of the  aggregate
purchase  price of  Equipment  as of the  date of the  final  investment  of Net
Proceeds and, thereafter,  on the date any subsequent  indebtedness is incurred.
The Fund currently has no  arrangements  with, or  commitments  from, any lender
with  respect to permanent  financing.  The Fund  Manager  anticipates  that any
acquisition  financing or other  borrowing  will be obtained from  institutional
lenders. See "Investment Objectives and Policies Borrowing Policies."     

         Until required for the  acquisition or operation of Equipment,  the Net
Proceeds will be held in short-term, liquid investments. The Fund is required by
the Partnership Agreement to establish an initial working capital reserve in the
amount of 1/2 of 1% of the Gross Proceeds.  See also "Summary of the Partnership
Agreement Reserves."

     For financial reporting  purposes,  Fund 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
treatment for financial  reporting  purposes  differs from cost recovery for tax
purposes (generally,  the Modified Accelerated Cost Recovery System or "MACRS"),
in which the Service  prescribes certain useful lives for each type of equipment
and the Code provides  specific  accelerated  rates of  depreciation  over those
useful lives. See "Income Tax Consequences - Depreciation".

         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 such 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 generally  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.  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.




                                       77
<PAGE>



                             INCOME TAX CONSEQUENCES


         The following is a summary of all material  federal tax  considerations
which may be relevant to a prospective Holder. However, it is impractical to set
forth in this  Prospectus all aspects of federal,  state,  local and foreign tax
law which may  affect a Holder's  participation  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 of 1986, as amended (the
"Code"),  existing  laws,  judicial  decisions and  administrative  regulations,
rulings  and  practice,  all of which are  subject to change.  Each  prospective
Holder  should  consult  his own tax  counsel to  satisfy  himself as to the tax
consequences of his investment.

     Derenthal & Dannhauser ("Tax Counsel") as tax counsel to the Fund, will not
prepare or review  the Fund's  income  tax  information  returns,  which will be
prepared by the management and  independent  accountants  for the Fund. 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 many other similar items. Such matters will be
handled by the Fund, often with the advice of independent  accountants  retained
by the Fund, and usually will not be reviewed by Tax Counsel.

Summary

         The following is a summary of, and is qualified by, the more  extensive
discussion of the federal income tax consequences set forth in this section.

         Opinion of Counsel.  Tax Counsel has delivered its opinion to the Fund,
which will be confirmed as of the effective date of the registration statement
of which this Prospectus is a part, concerning the likely outcome on the merits
of a challenge to the Fund's position on certain material tax issues. There are
certain issues upon which Tax Counsel cannot express an opinion.  (See "Opinion
of Counsel.")

     Classification  as a  "Partnership".  Tax Counsel has  rendered its opinion
that the Fund  will be  classified  as a  partnership  for  federal  income  tax
purpose. (See "Classification as a Partnership.")

     Allocations of Profits and Losses. Tax Counsel has opined that, more likely
than not, the tax allocation provisions in the Partnership Agreement will not be
significantly  modified  by the  Internal  Revenue  Service  and  that  and each
Holder's  distributive  share  of  income,  gain,  loss  and  deduction  will be
determined  and  allocated  substantially  in  accordance  with the  Partnership
Agreement. (See "Allocations of Profits and Losses.")

     Income  Recognition.  The Fund's tax  returns  will be  prepared  using the
accrual method of accounting. Under such method, the Fund


                                       78


<PAGE>


will  include in income items such as rentals and interest as and when earned by
the Fund, whether or not received. In addition,  certain of the Fund's Equipment
leases may be subject to section  467 which could  result in a Holder  receiving
increased  allocations  of taxable  income (or reduced  allocations  of loss) in
earlier years  without any increase in cash  available  for  distribution  until
subsequent years. (See "Income Recognition.")  Finally, after some years of Fund
operations,  a Holder's tax liabilities may exceed cash  distributions to him in
corresponding years. (See "Tax Liabilities in Later Years.")

     Taxation of Holders of Units. A Holder's share of Fund income  generally is
not  identical to the Holder's  share of  Distributions.  Any  Distributions  in
excess of a Holder's  adjusted  tax basis in his Units will cause such Holder to
recognize such excess as taxable income. (See "Taxation of Holders of Units.")

     Limitations  on Deduction of Losses.  There are certain  limitations on the
ability of a Holder to utilize his distributive share of losses from the Fund to
offset income from other sources. (See "Limitations on Deduction of Losses.")

         Tax Status of Leases.  In order for the Fund and Holders to be entitled
to  depreciation  deductions,  a lease of  Equipment  must be treated as a lease
rather  than a sale or  financing  for  federal  income tax  purposes.  The Fund
Manager has represented that any initial lease of an item of Equipment  acquired
with  the Net  Proceeds  will  comply  or will  substantially  comply  with  the
equipment leasing  guidelines of the Internal Revenue Service (the "Service") if
the cost of such  item  exceeds  10% of the  Gross  Proceeds  of this  offering.
Furthermore,  the Fund  Manager has agreed to use its best  efforts to cause any
other  lease  entered  into by the Fund to satisfy  such  guidelines.  (See "Tax
Status of Leases.")

     Deductibility  of Management Fees. The Fund intends to deduct the Equipment
Management  Fee and the  Incentive  Management  Fee for  services  performed  by
Affiliates of the Fund Manager. Subject to certain assumptions,  Tax Counsel has
opined that it is more likely than not that such fees would be  deductible.  See
"Deductibility of Management Fees.")

         Sale or Exchange of Fund Equipment.  The Fund's gain or loss on sale or
disposition  of an item of  Equipment  will equal the  difference  between  sale
proceeds  (including  the amount of any  indebtedness  to which the Equipment is
subject)  and the  Fund's  adjusted  tax  basis  in the  Equipment.  In  certain
circumstances,  the  amount of tax  payable  by a Holder on his share of gain on
sale of Equipment may exceed his share of cash proceeds  therefrom.  (See "Sales
or Exchanges of Fund Equipment.")


                                       79
<PAGE>


     Disposition  of  Units.  On sale or  disposition  of Units,  a Holder  will
recognize gain equal to the excess,  if any, of cash received (plus the Holder's
share of any Fund  liabilities)  over the Holder's tax basis in the Units.  Such
gain will be taxed at  ordinary  income tax rates to the extent of  depreciation
recapture.  In certain  circumstances,  the amount of tax payable by a Holder on
the gain  realized from a sale or  disposition  of his Units may exceed the cash
received therefrom. (See "Disposition of Units.")

         Fund  Elections.  The Fund is not  expected to file an  election  under
section 754 of the Code. The absence of such election may have an adverse effect
on the marketability and sale price of Units.
(See "Fund Elections.")

         Investment  by  Qualified  Plans  and  IRAs.  The  Fund  will  generate
unrelated  business  taxable income to Holders who are Qualified  Plans or IRAs,
with the result  that the Fund  income will be subject to tax to the extent that
the Qualified Plan's or IRA's unrelated business taxable income from all sources
exceeds $1,000. (See "Investment by Qualified Plans and IRAs.")

     Dissolution of Fund. Upon  dissolution of the Fund, a Holder will recognize
taxable  income if the cash  received  (including  the reduction in his share of
Fund  liabilities)  exceeds  his tax basis in his Units.  (See  "Dissolution  of
Fund.")

     Alternative Minimum Tax. The tax preference items and adjustments under the
alternative  minimum  tax that may be present in the Fund  include the excess of
depreciation  deductions  claimed over deductions that would be allowable if the
Equipment were subject to depreciation over its ADR midpoint life using the 150%
declining balance method, switching to the straight-line method in later years.
(See "Alternative Minimum Tax.")

Opinion of Counsel


     The  Fund has  obtained  an  opinion  from  Derenthal  &  Dannhauser  ("Tax
Counsel"),  concerning  the likely  outcome on the merits of a challenge  to the
Fund's  position on certain  material  tax  issues.  This  opinion  will also be
executed and delivered to the Fund as of the effective date of the  registration
statement  of which this  Prospectus  is a part,  and, if there are any material
changes  to the  opinion  as of such  date,  the  prospectus  will be amended to
reflect all such material  changes.  The opinion further states that the summary
of federal income tax  consequences  to the Holders set forth in this Prospectus
under the headings  "Risk Factors -  Partnership  Status," " - Certain Other Tax
Considerations"  and " - Tax  Opinion"  and "Income Tax  Consequences"  has been
reviewed by Tax Counsel  and, to the extent such  summaries  involve  matters of
law, Tax Counsel is of the opinion that such statements of law are correct under
the Code, the Treasury Regulations and existing interpretations thereof.


         The  opinion of Tax Counsel is based upon the facts  described  in this
Prospectus,  upon facts as they have been represented by the Fund Manager to Tax
Counsel  or  determined  by them as of the  date of the  opinions  and  upon the
assumption the Fund will operate its


                                       80


<PAGE>


business  as  described  in the  Prospectus.  Any  alteration  of the  facts may
adversely affect the opinion rendered.  Furthermore, the opinion is based on the
Code,   current   and   proposed   Treasury   Regulations,   current   published
administrative positions of the Service contained in Revenue Rulings and Revenue
Procedures,   and  judicial  decisions,  which  are  subject  to  change  either
prospectively or retroactively.

         In the  preparation  and  rendition  of its  opinion,  Tax  Counsel has
considered  all  material tax issues and has  addressed  fully and fairly in the
offering  materials  all of the material  tax issues which Tax Counsel  believes
involve the reasonable possibility of a challenge by the Service.

         Each prospective investor should note that the opinion described herein
represents  only Tax Counsel's  best legal judgment and has no binding effect or
official status of any kind.  Thus, in the absence of a ruling from the Service,
there can be no assurance  that the Service will not challenge the conclusion or
propriety of any of Tax Counsel's opinions or that legislative or administrative
changes or court  decisions  may not be  forthcoming  which would  significantly
modify the  statements  expressed  herein.  Any such  changes  may or may not be
retroactive with respect to transactions prior to the date of such changes.

         Treasury  Regulations and certain ethical  standards  require  specific
opinions to be rendered in connection  with an opinion of counsel  regarding the
federal tax consequences of a "tax shelter" investment. 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 the meaning
of these Regulations and ethical standards.  Therefore,  although Tax Counsel is
rendering its opinion on certain  material federal income tax issues relating to
an investment in the Fund, such opinion will not follow the standards applicable
to opinions with respect to "tax shelters."

         It should  also be noted that there are  certain  issues upon which Tax
Counsel  cannot  express an opinion  because:  (i) the issue is subject to facts
that are not presently known and cannot readily be determined, (ii) the issue is
subject to future events, or (iii) the issue involves a question of law on which
there is  insufficient  judicial  or other  authority  upon  which a  conclusive
opinion can be based. Except for certain expenses that Tax Counsel has indicated
must be capitalized,  no opinion is expressed as to whether certain fees will be
deductible as ordinary and necessary  expenses  reasonable in amount in relation
to services rendered, and no opinion is expressed as to the proper allocation of
various  fees  and  expenses,   the  proper  periods  for  their   deduction  or
amortization,  or  whether  certain  fees  are  properly  allocable  to the cost
recovery


                                       81


<PAGE>


basis of the  Equipment.  In  addition,  no opinion is expressed on the issue of
whether  the Fund  will be  determined  to be a  "dealer"  with  respect  to the
Equipment.

Classification as a "Partnership"

         The Fund has not applied for a ruling from the Service  that it will be
classified as a partnership and will not be treated as an association taxable as
a corporation for federal income tax purposes.

         In the opinion of Tax Counsel,  under current  federal  income tax laws
and  regulations,  the Fund will be classified  as a  partnership  and not as an
association  taxable as a corporation for federal income tax purposes.  However,
unlike a tax  ruling,  an opinion of counsel  has no binding  effect or official
status of any kind, and no assurance can be given that the  conclusions  reached
in said opinion would be sustained by a court if contested by the Service.

         Tax  Counsel's  opinion is based in part upon Sections  301.7701-2  and
301.7701-3 of the Regulations, which provide that, in the absence of significant
relevant "other factors," an unincorporated  organization will not be treated as
a corporation for federal income tax purposes unless it has more than two of the
following  four  corporate  characteristics:  (a)  continuity of life;  (b) free
transferability  of  interests;  (c)  limited  liability;  and  (d)  centralized
management.

         If interests in the Fund were  considered  "publicly  traded," the Fund
would  be  treated  as a  corporation  under  the  publicly  traded  partnership
provisions  of  Code  section  7704.  (Being  classified  as a  publicly  traded
partnership  also may have other adverse tax  consequences.  See  "Limitation on
Deduction of Losses - Passive Loss Limitation"  below.) Under that section,  the
Fund would be treated as publicly  traded if Units were traded on an established
securities  market  or  were  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.  The
legislative  history of Code  Section  7704 states  that a  secondary  market is
generally indicated by the existence of a person standing ready to make a market
in the partnership  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,  whether or not there exists an identifiable market
maker. On the other hand, where offers to buy or sell interests are normally not
accepted  in a time frame  comparable  to that  which  would be  available  on a
secondary market, then the interests would not be treated as readily tradable on
the  substantial  equivalent of a secondary  market.  A secondary  market is not
created by occasional accommodation trades of partnership


                                       82


<PAGE>


interests or by the general  partner  providing  information as to the desire of
partners to buy or sell  interests  to each other or  arranging  such  transfers
between  partners,  without offering to buy or redeem  interests.  Complicity or
participation  of  the  partnership  or  the  general  partner  is  relevant  in
determining whether there is public trading of its interests. A partnership will
be considered as participating in public trading where trading is in fact taking
place  and  the  partnership  agreement  imposes  no  meaningful  limitation  on
partners' ability to readily transfer their interests.  The partnership's or the
general  partner's  right to refuse to  recognize  transfers is not a meaningful
limitation  unless such right is  exercised  (except in the case of transfers by
reason of death, divorce or gift and occasional accommodation transfers).

         The Fund  Manager  does not expect to list Units on an  exchange  or to
facilitate the quotation of Units in an  over-the-counter  market.  Accordingly,
the Fund Manager  does not expect that the Units will be readily  tradable on an
established  securities market.  Whether Units will become readily tradable on a
secondary market or the substantial  equivalent thereof cannot be predicted with
certainty.  In this regard, it should be noted that the Regulations provide that
certain types of limited non-public transfers will be disregarded in determining
whether a partnership is publicly-traded. The six categories of exempt transfers
are:

         (1)  Transfers  in which the basis of the  partnership  interest in the
hands of the  transferee is determined by reference to its basis in the hands of
the transferor,  or is determined under Section 732 of the Code. Transactions in
which basis is  determined  by  reference  to the  transferor  include  gifts of
partnership interests;

         (2)      Transfers at death;

         (3)      Transfers between members of a family, as defined in
Section 267(c)(4) of the Code.  This includes one's brothers and
sisters, spouse, ancestors (including parents and grandparents), and
lineal descendants (including children and grandchildren);

         (4)      Transfers resulting from the issuance of partnership
interests by the partnership in exchange for cash, property, or
services;

         (5)      Transfers resulting from distributions from a retirement
plan qualified under Section 401(a) of the Code (e.g., Qualified
Plans);

         (6) Any block transfer.  A block transfer is a transfer by a partner in
one or more transactions  during any thirty-day period of partnership  interests
representing  in the  aggregate  more than two percent of the total  outstanding
interests in partnership capital or profits.


                                       83


<PAGE>



         In addition to providing for these exempt  transfers,  the  Regulations
state that  partnership  interests  will not be deemed  "readily  tradable  on a
secondary  market (or the  substantial  equivalent  thereof)" if any of the safe
harbors  provided  for in that  Notice  is  satisfied.  One of these is the "two
percent safe harbor." It provides that a secondary market or its equivalent will
not  exist  if the  sum of the  interests  in  partnership  capital  or  profits
attributable  to  those  partnership   interests  that  are  sold  or  otherwise
transferred during the partnership's taxable year does not exceed two percent of
the total  interests in  partnership  capital or profits.  The six categories of
exempt transfers  listed above do not count towards the two percent ceiling.  In
determining  whether the Fund satisfies the two percent safe harbor,  non-exempt
privately arranged transactions will be counted.

           Although neither the Fund nor the Fund Manager would have any control
over  an  independent  third  person   establishing  a  secondary  market,   the
Partnership  Agreement  requires that the Holders obtain the consent of the Fund
Manager  prior to any transfers of Units.  The Fund Manager  intends to exercise
its  discretion in granting and  withholding  its consent to transfers in such a
manner  as to  fall  within  the  parameters  of the  two  percent  safe  harbor
articulated in the Regulations.  Accordingly,  based on  representations  of the
Fund  Manager  of its  intention  to  comply  with the two  percent  safe-harbor
provision of the  Regulations,  Tax Counsel is of the opinion that,  more likely
than not, the Fund will not be considered a "publicly traded" partnership.

         If the  Fund  were  treated  for  federal  income  tax  purposes  as an
association  taxable  as a  corporation  in any  taxable  year,  (i) it would be
required to pay federal income taxes upon its taxable income,  rather than there
being no tax on income at the Fund  level;  (ii)  state and local  income  taxes
could be imposed on the Fund;  (iii) losses of the Fund would not be  reportable
by the Holders on their personal income tax returns;  and (iv) any Distributions
would be  taxable  to them as  ordinary  income  to the  extent  of  current  or
accumulated earnings and profits or treated as gain from the sale of their Units
to the extent any  Distribution  exceeded  such earnings and profits and the tax
basis of such  Holder for his Units and would not be  deductible  by the Fund in
computing its taxable income. In addition,  Distributions from the Fund would be
classified as portfolio  income,  rather than passive  activity income and thus,
would not be  available to offset  passive  activity  losses of any Holder.  See
"Limitation on Deduction of Losses - Passive Loss Limitation"  below. If after a
period of operations the Fund is first deemed to be an  association  for federal
income tax purposes,  such change in status would result in taxable  income to a
Holder  measured by the excess,  if any, of his share of the  liabilities of the
Fund over the adjusted basis of his Units.  The effect of the foregoing would be
to substantially reduce the effective yield on an investment in Units.


                                       84


<PAGE>



     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

         Under  Section  704(b) of the Code, a partner's  distributive  share of
partnership  income,  gain,  deduction or loss will be  determined in accordance
with the partnership agreement, unless the allocation does not have "substantial
economic  effect," in which case the  distributive  shares will be determined in
accordance with the partners' interests in the partnership.

         An allocation has "economic  effect" under the Regulations if: (i) each
partner's  share  of  partnership   items,   including   certain   nondeductible
expenditures  (such as  syndication  expenses),  is  reflected by an increase or
decrease in the capital account  established for the partner;  (ii)  liquidation
proceeds are distributed in accordance with capital account balances;  and (iii)
any  partner  with a capital  account  deficit  following  the  distribution  of
liquidation proceeds is required to restore such deficit to the partnership.

         The Regulations further provide that liquidating  distributions must be
made by the end of the taxable year of liquidation or, if later,  within 90 days
after the date of the liquidation.  In addition, the Regulations provide that an
allocation  can  have  substantial  economic  effect  even if a  partner  is not
required to restore a deficit  balance in his capital  account,  but only (i) to
the extent the allocation does not reduce his capital account balance below zero
(after  reducing the capital  account for certain  adjustments,  allocations  or
distributions  in excess of income which are reasonably  expected in the future)
and (ii) if the partnership  agreement  contains a "qualified  income offset." A
partnership agreement contains a "qualified income offset" if it provides that a
partner who unexpectedly receives such 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.

         With respect to  allocations  of loss and  deductions  attributable  to
nonrecourse  debt,  the  Regulations  provide  that  such  allocations  will  be
respected if the partners who were allocated the  deductions  bear the burden of
the future  income  related  to the  previous  deductions.  In  particular,  the
following additional elements must be satisfied:  (i) the partnership  agreement
must provide for  allocations of nonrecourse  deductions in a manner  consistent
with allocations of some other significant  partnership item attributable to the
property securing the nonrecourse liability;  and (ii) the partnership agreement
must contain a "minimum gain chargeback."


                                       85


<PAGE>



         A  partnership  agreement  contains a "minimum gain  chargeback"  if it
provides that, if there is a net decrease in partnership "minimum gain" during a
partnership  taxable year,  all partners will be allocated  items of partnership
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
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 (of
whatever  character),  if any, that would be realized by the  partnership  if it
disposed of the partnership  property  subject to the  nonrecourse  liability in
full satisfaction thereof.

         The Partnership  Agreement prohibits losses from being allocated to the
Holders that would cause  deficit  Capital  Accounts in excess of their share of
Fund Minimum Gain. Nonrecourse deductions (if any) will be allocated in the same
manner as operating  profits and losses.  The Partnership  Agreement  contains a
minimum  gain  chargeback  and a qualified  income  offset that are  intended to
comply  with  the  provisions  of the  Regulations.  The  Partnership  Agreement
provides  that Capital  Accounts of the Holders will be maintained in accordance
with the  provisions  of the  Regulations  and proceeds on  liquidation  will be
distributed  in accordance  with the positive  Capital  Account  balances of the
Holders.  Therefore,  Tax Counsel is of the opinion that,  more likely than not,
the allocations will not be significantly modified by the Service.

         Under the substantial economic effect requirement,  the economic effect
of the Fund allocations also must be  "substantial."  Tax Counsel notes that the
meaning and scope of the  substantiality  requirements are unclear at this time.
Based on the existing language of the Regulations,  Tax Counsel does not believe
the Fund allocations present any material  substantiality issues.  Consequently,
as stated  above,  Tax Counsel is of the  opinion  that the  allocations  to the
Holders,  more  likely  than  not,  will not be  significantly  modified  by the
Service.  However,  Tax Counsel cautions that no assurance can be given that the
Service will not  interpret the  Regulations  in a manner that could cause those
allocations  to be  treated  as  lacking  substantiality.  If the  Service  were
successful in  challenging  the Fund's method of allocating  profits and losses,
then this may  decrease  the  Holders'  shares of taxable  loss or increase  the
Holders' shares of taxable income.

         As noted later in this  discussion,  there can be no assurance that the
Service will not attempt to recharacterize  fees paid to the Fund Manager or its
Affiliates as nondeductible partnership  distributions.  See Edward T. Pratt, 64
TC 203 (1975), aff'd, 550 F.2d 1023 (5th Cir.1977).  If the Service were to take
such  position and prevail,  any losses  allocated to Holders would be decreased
and any taxable  income  allocated to Holders would be  increased.  A protective
gross  income  allocation  is included  in the  Partnership  Agreement  to guard
against this recharacterization having any


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<PAGE>


adverse economic effect.

         Apart from the foregoing,  if the Service were to  recharacterize  fees
paid to the Fund Manager or its  Affiliates as Fund  Distributions,  the Service
might  additionally  take the position that the Fund Manager's  interest in Fund
profits and losses should be proportionately increased on the theory that if the
Fund Manager is receiving a greater share of Fund Distributions,  it should also
be credited with a greater share of the profits and losses.  If the Service were
to take that position and prevail,  any Fund profits and losses allocated to the
Holders would be reduced.

Income Recognition

         The Fund's tax  returns  will be prepared  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.

         In certain  circumstances,  where a lease  provides for varying  rental
payments increasing in the later years of the lease (step rentals),  Section 467
of the Code  requires the lessor to take the 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.  The Fund  Manager
expects  that  certain of the Fund's  Equipment  leases may  provide  for rental
payments  that  increase  or decrease  in the later  years of such  leases,  and
Section  467 may  operate to require  the Fund to accrue the rental  payments on
such leases at a constant  level rate.  This could  result in Holders  receiving
increased  allocations  of taxable  income (or reduced  allocations  of loss) in
earlier  years,  without any increase in cash available for  distribution  until
subsequent  years. An additional  consequence could be a conversion of a portion
of the Fund's  rental  income  (passive  income) from any such lease to interest
income (portfolio income).

Taxation of Holders of Units

         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. The Fund will file
federal  partnership  information  tax returns  reporting its  operations on the
accrual  basis for each  calendar  year.  Within  75 days  after the end of each
calendar  year,  Holders will be provided  with federal  income tax  information
relevant to the Fund and their own federal  income tax returns,  including  each
Holder's share of the Fund's ordinary income or loss,  capital gain or loss (net
short-term and net long-term) and credits for the year.  Each Holder (whether or
not a substitute  Holder)  will be required to report on his own federal  income
tax return his share


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<PAGE>


of Fund items of income, gain, loss, deduction, or credit and, accordingly,  may
be subject to tax on his  distributive  share of Fund income  whether or not any
Distribution is made to him.

         If the cash  distributed  by the Fund for any year  exceeds its 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 Holder's interest in the
Fund (as  described  below),  and any  amounts  in excess of such tax basis will
generally  be taxable  as a gain from the sale of a capital  asset.  However,  a
distribution  of money or property which is received by a Holder in exchange for
an interest in "inventory items" which have  substantially  appreciated in value
or "unrealized receivables" (as defined in Section 751) will generally result in
the receipt of  ordinary  income to the extent  that such  distributions  are in
excess  of the  Holder's  basis  for his  interest  in such  property.  The term
"unrealized receivables" under Section 751 includes depreciable property subject
to depreciation  recapture,  but only to the extent of the amount which would be
treated as ordinary  income upon a sale of the  property.  See  "Disposition  of
Units" below.

Limitation on Deduction of Losses

         There are certain limitations on the ability of a Holder to utilize his
distributive  share of losses of the Fund to offset  income from other  sources:
(1) losses are limited to the extent of a partner's tax basis in his interest in
a partnership;  (2) losses are limited to the amounts for which a partner is "at
risk"; (3) losses derived from  investments in "passive  activities" are limited
to a taxpayer's  income from such  activities;  and (4) losses  attributable  to
"activities not engaged in for profit" are also limited.  These  limitations are
described below.

         Tax Basis.  Generally,  each  Holder's  tax basis for his Units will be
equal to the price paid therefor plus his share of those liabilities of the Fund
with respect to which none of the Partners (General or Limited) nor the Fund has
any personal liability ("Fund Nonrecourse  Debts").  See "Investment  Objectives
and Policies Borrowing Policies." The Service has ruled that a partner acquiring
multiple interests in a partnership in separate transactions at different prices
must maintain an aggregate adjusted tax basis in a single  partnership  interest
consisting of his combined  interests.  Possible adverse tax consequences  could
result from the  application  of this  ruling upon a sale of Units.  Each Holder
will  increase  (or  decrease)  the tax basis of his Units by the  amount of his
allocable  share of the Fund's  taxable income (or loss) for any year and reduce
the tax basis of his Units by the  amount of any  distributions  (including  any
reduction in his share of Fund Nonrecourse Debts) made by the Fund to him during
such year. If the tax basis of a Holder's  Units should be reduced to zero,  the
amount of any


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<PAGE>


Distributions  (including any reduction in Fund Nonrecourse  Debts) in excess of
his share of the  income  reported  by the Fund for any year will be  treated as
gain from the sale or exchange of the Holder's Units.

         On his own federal income tax return,  each Holder may,  subject to the
limitations  discussed  below,  deduct his share of the Fund's  taxable loss, if
any, 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 Code  Section 465, the amount of losses which may
be  claimed  by  an  individual  investor  or  a  closely-held   corporation  (a
corporation  of which more than 50% in value of its shares is owned  directly or
indirectly by not more than five individuals) in equipment leasing activities is
limited  to the amount  which the  investor  has "at risk" with  respect to such
activities.  For purposes of the at risk rules,  the amount at risk is generally
equal to the sum of money and the adjusted basis of property  contributed to the
activity plus borrowed  amounts for which the taxpayer is personally  liable and
the net fair market value of his personal  assets (other than Units) that secure
nonrecourse borrowings,  the proceeds of which are used in the Fund. A partner's
at  risk  amount  is   decreased  by  his  share  of   partnership   losses  and
distributions,  and is increased by his share of partnership  income. Any losses
in excess of a  partner's  at risk  amount  will be  treated as a  deduction  in
succeeding taxable years, again subject to the at risk limitations. Recapture of
previously allowed losses is required if the Partner's amount at risk at the end
of the year is  reduced  below zero  (e.g.,  by  distributions  of cash from the
Fund).

         In the case of the Fund the total amount of money  contributed  by each
Holder for his Units will be considered at risk,  but any Fund  borrowings  will
not be  considered  at risk.  Accordingly,  subject  to the  passive  loss rules
discussed  below,  a Holder will only be able to deduct his share of Fund losses
in an amount  equal to the  purchase  price of his Units (as  adjusted  for Fund
income and distributions).

         The Code allows the Fund to aggregate its Equipment leasing  activities
only with respect to Equipment  placed in service  during the same taxable year.
Therefore, the "at risk" rules will be applied to the net taxable income or loss
resulting  from  leasing  Equipment  which is placed in service  during the same
taxable year. This could result in a Holder's  deduction for losses with respect
to certain  Equipment being limited by the "at risk" rules,  even though he must
recognize income with respect to other Equipment.  It is unclear what the effect
of this provision on ownership of Units will be.


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<PAGE>


         Passive Loss  Limitation.  Code  section 469 imposes a limitation  (the
"passive  loss  limitation")  on the amount of losses that a taxpayer  may claim
from an activity in which he/she does not materially participate.

         Under the passive loss limitation,  net losses from a passive activity,
such as the  leasing  activity  of the Fund,  may not be used to  offset  active
income (e.g.,  compensation) or portfolio income (e.g., interest and dividends).
Passive  losses may,  however,  be used to offset  passive income from any other
passive activity carried on by the taxpayer.  Tax Counsel has opined that, under
section 469 of the Code, the income received by the Fund will constitute passive
income  and  may  thus  be  offset  by a  Holder's  passive  losses  from  other
activities.  Furthermore,  excess  passive  losses  for a  particular  year  are
"suspended" and carried forward  indefinitely.  Suspended  passive losses may be
used to offset  passive  income in future years and may be claimed in full (even
to offset active income) if a taxpayer  disposes of his/her entire interest in a
passive  activity in a fully  taxable  transaction  and the  transferee is not a
related person to the taxpayer.

         The passive loss limitation is applied after the "at risk" rules. Thus,
if a loss is disallowed  under the "at risk" rules for a particular  year, it is
not again disallowed by the passive loss limitation for such year.  Rather,  for
the year in which the taxpayer becomes "at risk" in the activity,  the suspended
"at risk" loss  becomes  subject to the passive  loss  limitation.  On the other
hand,  even if a loss is permitted  under the "at risk"  rules,  it may still be
disallowed under the passive loss rules.

         Section  469(k) of the Code  provides  that net income  from  "publicly
traded"  partnerships  which are not taxable as corporations  for Federal income
tax purposes  will not be treated as passive  income for purposes of the passive
loss rules but, rather, as portfolio income. In addition, each partner in such a
publicly traded  partnership would treat a loss (if any) from the partnership as
separate from income and loss from any other publicly  traded  partnerships  and
also as separate from any income or loss from passive activities. This provision
should  not apply to the Fund  since the Fund  should  not be  considered  to be
publicly  traded;  if it were to be so  considered,  it  would be  taxable  as a
corporation. If the Fund were taxable as a corporation, income and deductions of
the  Fund  would  not  be  passed  through  to  the  Holders  and  certain  cash
distributions would be treated as dividends and be considered portfolio income.

         Hobby  Losses.  Under  Section  183 of the Code,  certain  losses  from
activities  not engaged in for profit are not allowed as  deductions  from other
income.  That section  contains a presumption that an activity is engaged in for
profit if income exceeds deductions in at least three out of five consecutive



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<PAGE>


years.  Although one of the  objectives  of the Fund is to provide  Holders with
Distributions  (see  "Investment  Objectives  and  Policies"),  there  can be no
assurance  that the Fund will be deemed to be engaged in an activity  for profit
because the applicable test is based on the facts and circumstances from time to
time.  Further,  although  the Service  has not  indicated  that  Section 183 is
applicable  to  limited  partners,  it is  conceivable  that it may take  such a
position, notwithstanding any "profit objective" which the Fund may be deemed to
have.  Prospective investors should consult their own tax advisers regarding the
impact of this section on their particular situations.

Tax Status of Leases

         The  decision  of whether a specific  lease is to be  categorized  as a
lease rather than as a sale for federal  income tax purposes  involves a factual
determination,  and, accordingly,  no assurance can be given that, upon audit by
the Service, the leases of Equipment would be treated as such for federal income
tax purposes. If they are treated as sales or financings rather than leases, the
Fund and the Holders would not be entitled to  depreciation  deductions.  On the
other hand, a portion of the lease rental  payments  (otherwise  fully taxable),
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  Service for a ruling that any
leases of Equipment  which conform to the Service  guidelines will be treated as
leases for federal  income tax purposes.  However,  Service  guidelines  are set
forth in Revenue  Procedures  75-21,  1975-1 C.B. 715,  75-28,  1975-1 C.B. 752,
76-30,  1976-2 C.B. 647 and 79-48,  1979-2 C.B. 529, which provide that,  unless
other facts and  circumstances  indicate a contrary  intent,  for advance ruling
purposes  only,  the  Service  will  consider  the lessor in a  leveraged  lease
transaction to be the owner of property if:

         (a) the lessor has a minimum  unconditional  investment in the property
at all times  during the lease of at least 20% of the cost of the  property  and
can  demonstrate  that the estimated  residual value of the property is at least
20% of the cost of the property;

         (b) the lessee does not have an option to purchase the property  (other
than at fair  market  value) and the  lessor  does not have the right to require
anyone to purchase the property;

         (c)      no part of the cost of the property subject to the lease
is furnished by the lessee other than for full consideration;

         (d)      the lessee does not lend the lessor any of the funds
necessary to purchase the property; and

         (e)      the lessor expects to receive a profit from the


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<PAGE>


transaction apart from tax benefits.

         The Fund Manager has  represented  that any initial lease of an item of
Equipment  acquired with the Net Proceeds will meet the foregoing  guidelines if
the amount of Net Proceeds  used to acquire such item exceeds an amount equal to
10% of the maximum Gross Proceeds of this offering.  Although,  as stated above,
determination of lease status is made on a case-by-case basis, Tax Counsel is of
the opinion  that any lease  satisfying  the  foregoing  guidelines  should more
likely than not qualify as a lease for tax purposes.

Depreciation

         MACRS and ADR. Under the "Modified  Accelerated  Cost Recovery  System"
("MACRS"),  the cost of  depreciable  property  placed in  service  after  1986,
so-called  "recovery  property,"  may be  depreciated  using  certain  specified
depreciation   methods  (referred  to  as  "recovery  methods")  over  specified
depreciable lives (referred to as "recovery  periods").  Under MACRS the methods
of recovery and the recovery periods apply equally to new and used property.

         MACRS  provides  that  the  cost  of  tangible   personal  property  is
depreciated  over a period  determined  with  reference to the ADR midpoint life
("ADR Midpoint Life") of such property prescribed by the Service.

                  For Assets With An                        The MACRS Recovery
                  ADR Midpoint Life Of...                   Period Is...
                  -----------------------                   ------------

                  4 years or less............................3 years
                  More than 4, but
                     less than 10............................5 years
                  10 or more, but
                     less than 16............................7 years
                  16 or more, but
                     less than 20...........................10 years
                  20 or more, but
                     less than 25...........................15 years
                  25 or more................................20 years

         The cost of MACRS  property is  recovered  over the  periods  specified
above using the 200% declining balance method, except for 15 or 20 year property
for which the 150% declining balance method is utilized.

         The Code contains "anti-churning"  provisions to prevent taxpayers from
utilizing  MACRS on property  placed in service prior to January 1, 1987.  These
provisions  generally  attempt to reach situations where personal  property used
during  1986 is  transferred  without a real change in the owner or user of such
property and MACRS depreciation would be more favorable than depreciation under


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<PAGE>


prior law. The Fund may acquire used Equipment  which will be leased back to the
owner or continued under lease to the original  lessee.  If the Fund is not able
to use MACRS with respect to such Equipment, the depreciation deductions thereon
will be  determined  under the rules in effect prior to 1987  ("ACRS").  In such
cases,  depreciation  deductions allowed with respect to such Equipment could be
less in the  early  years  and  greater  in later  years  than the  depreciation
deductions  allowable  under MACRS and the Holders'  share of Fund losses in the
early years could be reduced.

         Neither  MACRS nor ACRS will be available to the Fund for Equipment (i)
owned or used at any time during 1980 by certain related persons;  (ii) acquired
by the Fund from a person who owned the Equipment at any time during 1980 if the
user of such  Equipment  does not  change as part of the  transaction;  or (iii)
leased by the Fund to a person (or a person related to such person) who owned or
used such  Equipment at any time during  1980.  Such  Equipment  will instead by
subject to depreciation  under the pre-1981 rules, which would include the Asset
Depreciation  Range  ("ADR")  System.  Under ADR, the cost of used  Equipment is
depreciated using the 150% declining balance method,  switching to straight-line
at a time that will maximize the remaining deductions,  over the Equipment's ADR
useful life.

     It  should  be noted  that the  excess  of the  depreciation  deduction  on
Equipment  over the amount that would have been allowed had the  deduction  been
calculated  using the  half-year  convention,  no  salvage  value,  and the 150%
declining balance method over the property's ADR Midpoint Life, will effectively
be an item of tax preference. See "Alternative Minimum Tax."

         There can be no  assurance  that the  Service  will not  challenge  the
Fund's  determination of the appropriate  depreciation period for its Equipment.
If such a challenge were successful, the Fund's depreciation deductions would be
reduced for a particular period, although deferred to a subsequent period, and a
corresponding  adjustment would be made to the income or loss of the Holders for
tax purposes.  Further, a depreciation  deduction may be disallowed with respect
to  Equipment  which  the Fund is deemed to hold as a  "dealer".  See  "Sales or
Exchanges of Fund Equipment."

     Recapture.  All  depreciation  deductions with respect to the Equipment are
subject  to  recapture  upon the  disposition  of the  Equipment.  See "Sales or
Exchanges of Fund Equipment."

     Basis.  The  basis of the  Equipment  for  depreciation  purposes  includes
reasonable  costs payable in connection  with the  acquisition of the Equipment.
The Fund intends to include in the cost basis of the  Equipment the fees payable
by the Fund to the Fund Manager for  services  rendered in  connection  with the
acquisition of the Equipment. See "Management Compensation."


                                       93


<PAGE>


         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
an asset over a period  longer  than its MACRS  recovery  period.  The  relevant
restrictions  include the use of the property  predominantly  outside the United
States and the use of  equipment  by a foreign  or  "tax-exempt"  entity.  These
limitations are described below.

         (1) Property Used  Predominantly  Outside the United States.  The MACRS
provisions of the Code contain special rules for recovering the cost of personal
property  used  predominantly  outside  the United  States.  Under Code  section
168(g),  the cost of such  property is to be recovered  using the  straight-line
method over a period equal to the  property's  ADR Midpoint Life as set forth in
Regulation  section  1.167-11,  utilizing a half-year  convention and no salvage
value.  If the Regulations do not provide an ADR Midpoint Life, a 12-year period
is used. To the extent personal property used  predominantly  outside the United
States  is  subject  to  the  ADR  system  of   depreciation,   the  alternative
depreciation system of Code section 168(g) is not applicable.

         Section  168(g)(4) of the Code provides an exception to the predominant
use limitation  described above.  Under this Section,  certain types of property
which are used  predominantly  outside the United States  qualify for the normal
MACRS cost recovery rules;  the exceptions  include  aircraft  registered by the
administrator of the FAA which are operated to and from the United States, i.e.,
such aircraft return to the United States with some degree of frequency.

         (2) Tax-Exempt  Leasing.  Section 168 of the Code provides that the use
of personal  property by a  tax-exempt  entity  (including  (i) certain  foreign
persons or entities,  (ii) certain  governmental  units,  or (iii) certain other
tax-exempt  organizations),  which is classified as  "tax-exempt  use property,"
will  result  in a  reduction  of the tax  benefits  which  would  otherwise  be
available.  The portion of tax-exempt use property leased to a tax-exempt entity
must be depreciated using the  straight-line  method over the greater of (i) the
ADR Midpoint  Life (12 years if there is no ADR Midpoint  Life  assigned to such
property),  or (ii) 125 percent of the lease term. The tax-exempt use provisions
do not apply to property subject to the ADR system. The Fund does not anticipate
leasing a significant amount of its portfolio to tax-exempt entities.

         If any property which is not otherwise tax-exempt use property is owned
by a  partnership  which has both a tax-exempt  entity and a person who is not a
tax-exempt entity as a partner, such tax-exempt entity's  proportionate share of
such property is treated as tax-exempt use property  unless (i) all  allocations
to the tax-exempt entity of partnership items are qualified;  or (ii) the income
derived  from such share of the  property is subject to the  unrelated  business
tax. Income derived by tax-exempt entities other than


                                       94


<PAGE>


foreign  entities from the Fund should be subject to the unrelated  business tax
(see "Investment by Qualified Plans and IRAs," below);  thus,  admission of such
Qualified Plans and IRAs as Holders should not, in and of themselves,  cause any
of the  Equipment  to be treated as  tax-exempt  use  property.  If the  Service
successfully  asserted that the income of the Fund does not constitute unrelated
business taxable income to tax-exempt  Holders,  then the Fund would be required
to maintain  separate  depreciation  systems for its Equipment subject to MACRS,
and,  as a result,  depreciation  deductions  available  to Holders in the early
years of operations of the Fund would be reduced.

Deductibility of Management Fees

         The  Fund  intends  to  deduct  the  Equipment  Management  Fee and the
Incentive  Management  Fee for  services  performed  by  Affiliates  of the Fund
Manager.

     The U.S. Court of Appeals for the Fifth Circuit has held that a partnership
was not entitled to deduct as an ordinary and necessary business expense amounts
paid to general  partners  equal to 5% of the gross  rentals paid by tenants for
the performance of services basic to partnership business.  See Edward T. Pratt,
550 F.2d 1023 (5th Cir. 1977). aff'g, 64 T.C.203 (1975).

         However,  the Service in Revenue  Ruling  81-300,  1981-2 C.B. 143, and
Revenue  Ruling  81-301,  1981-2  C.B.  144,  ruled  that a payment to a general
partner of a partnership for advisory  services  provided to the partnership may
constitute a "guaranteed  payment" and be deductible by the partnership if not a
capital  expenditure,  if reasonable in amount and if the method for determining
the  amount  would  have been used to  compensate  an  unrelated  party for such
services.

         It is possible that the Service may challenge the  deductibility of all
or a portion of any fees on the basis that they are excessive,  or that all or a
portion of the fees should  properly be  considered  payment for other  services
performed  by, or other value  provided  by, the  recipient  of the fee, or that
payments for such services  rendered are not  deductible.  If a challenge by the
Service were successful, the asserted deductions could be reduced or eliminated.
This would result in a proportionate increase in the taxable income, or decrease
in tax loss,  of the Partners  resulting in the Partners  being  required to pay
additional tax.

Tax Liabilities in Later Years

         After some years of Fund  operations,  a Holder's tax  liabilities  may
exceed cash  distributions to him in corresponding  years.  Such situations will
typically  arise at the  "cross-over  point",  i.e.,  the point in time when the
Fund's nondeductible loan amortization


                                       95


<PAGE>


payments  on  its  Equipment  exceed  its  depreciation   deductions.   This  is
principally  due to (i) the short  periods over which  Equipment is  depreciated
under  MACRS  and (ii) the  annual  increases  in the  amount  of  nondeductible
principal amortization payments and the corresponding decreases in the amount of
deductible  interest  payments  which  will  typically  occur on  level  payment
obligations on Fund Equipment.  To the extent a Holder's tax liabilities  exceed
cash distributions,  such excess would be a nondeductible  out-of-pocket expense
to a Holder.

Sales or Exchanges of Fund Equipment

         Gain  realized  by the  Fund on a sale of any  Equipment  will,  to the
extent of all depreciation  deductions  claimed thereon,  be treated as ordinary
income. Unless the Fund is a "dealer" in the property sold, any gain realized by
the Fund in excess of such depreciation  deductions will, generally,  be treated
as long-term capital gain (if the property has been held for more than one year)
under Code Section 1231. Any loss realized upon a sale will generally be treated
as an ordinary loss (if the property has been held for more than one year) under
Code Section 1231.

         A "dealer" is one who holds  property  "primarily for sale to customers
in the ordinary course of business".  Under existing law, whether property is so
held is a question of fact, depending 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 make such  occasional  sales thereof as in the opinion of the Fund
Manager is consistent with the Fund's investment  objectives.  Accordingly,  the
Fund does not anticipate that it will be treated as a dealer with respect to any
of its Equipment,  although there is no assurance that the Service will not take
the contrary position.

         Under  Section  1033 of the Code,  the Fund  would not be  required  to
report income from the receipt of insurance  proceeds to the extent the proceeds
are reinvested in property  similar or related in service or use to the property
damaged or destroyed.  If the Fund Manager  elects to  distribute  any insurance
proceeds that are received as the result of the destruction or other  conversion
of an item of  Equipment,  the Fund would  recognize  gain in the same amount as
would be the case if the item of Equipment  had been sold for an amount equal to
the insurance proceeds.

         If the Fund were to sell an item of Equipment on an installment  basis,
all  depreciation  recapture  income  would  be  recognized  at the time of sale
whether  or  not  payments  were  to  be  made  in  succeeding   taxable  years.
Furthermore,  if the Fund were to sell an item of  Equipment  on an  installment
basis,  the "OID" rules,  discussed  below in "Original Issue  Discount,"  might
apply to the Sale.



                                       96


<PAGE>


         Unless the  Equipment  is found to be "dealer  property"  as  discussed
above, and assuming the Equipment has been held for more than one year, any gain
or loss generally will be treated as "section 1231" gain or loss,  except to the
extent of recapture of certain cost recovery or depreciation  deductions,  which
will be taxed as ordinary  income.  A Holder's  allocable  share of Fund Section
1231 gains or  losses,  if any,  for the  particular  year are  netted  with the
Partner's other Section 1231 gains and losses; a "net" Section 1231 loss will be
treated  as an  ordinary  loss.  Net  Section  1231  gain will be  treated  as a
long-term capital gain, except to the extent of the taxpayer's  "non-recaptured"
net Section 1231 loss (generally, the excess of net Section 1231 losses over net
Section 1231 gains) for the five preceding  taxable  years,  to which extent the
net Section 1231 gain will be treated as ordinary income.

         Under Section 1231,  casualty and theft gains and losses on depreciable
business  property and capital  assets  which are used in a taxpayer's  trade or
business  and held for more  than one year,  must be  grouped  together  by each
Holder and, if casualty gains equal or exceed  casualty  losses,  then the gains
and losses are further grouped with other Section 1231 transactions to determine
whether there is an overall  Section 1231 gain or loss. If the casualty or theft
losses exceed such gains,  the  resulting  net loss is not further  grouped with
other Section 1231  transactions,  but is instead excluded from Section 1231 and
characterized as an ordinary loss.

         As the  Fund's  gain on a sale of  Equipment  will be  measured  by the
difference between the sales proceeds  (including the amount of any indebtedness
to which the property is subject) and the adjusted basis of the  Equipment,  the
amount of tax  payable  by a Holder in  respect of his share of such gain may in
some cases 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 may realize gain
equal  to the  excess  of such  indebtedness  over  the  adjusted  basis  of the
Equipment,  and the Holders may realize  taxable  income  although  they may not
receive any cash distributions as a result of the foreclosure.

Disposition of Units

          Gain or loss  realized by a Holder on the sale of Units that have been
held for more than one year  generally  will  have the  character  of  long-term
capital gain or loss, and any such gain will be subject to tax at a maximum rate
of 28%, as opposed to the maximum rate of 39.6%  imposed on ordinary  income and
short-term  capital  gain.  However,  any  gain  realized  on the  sale or other
disposition of a Unit by a Holder which is attributable to the Holder's share of
previous Fund depreciation  deductions (computed as if the Equipment of the Fund
had been sold at its fair market value on the date the Units are sold),  will be
taxed at ordinary  income  rates.  A Holder  must  recognize  such  depreciation
recapture upon the


                                       97


<PAGE>


sale or other disposition of the Equipment by the Fund (see "Sale or Exchange of
Fund  Equipment"  above)  or upon the sale or other  disposition  of a Unit by a
Holder,  in the year of sale or  disposition,  regardless  of the amount of sale
proceeds received in the year of sale or disposition.

         The amount of gain which a Holder will  realize  upon the sale or other
disposition  of his Units  will  equal the  excess,  if any,  of (i) the  amount
realized  by the Holder for the Units  over (ii) the  Holder's  tax basis in the
Units.  The amount of any loss which a Holder will  realize on the sale or other
disposition  of the  Holder's  Units will equal the  excess,  if any, of (i) the
Holder's  tax basis  over  (ii) the  amount  realized  for the  Units.  For this
purpose,  the amount realized on the sale of the Units will include the Holder's
share of any Fund liabilities.  As a result, a sale or disposition of Units by a
Holder may result in a tax liability in excess of cash proceeds  received on the
sale or other disposition of such Units.

Original Issue Discount

         The original  issue  discount  ("OID") rules apply to seller-  provided
financing  furnished  to a  purchaser  of  property.  If the  interest  on  such
financing is not equal to an established  federal rate, interest will be imputed
at that rate. In addition,  the payee of deferred interest on such an obligation
is required to recognize such interest income ratably as it accrues. The imputed
rate is equal to the interest rate of U.S.  government  securities of comparable
maturity (the "applicable federal rate"),  provided that for seller financing of
property  other than new Section 38 property (as defined in Section 48(b) of the
Code as in effect on the day before the date of enactment of the Omnibus  Budget
Reconciliation  Act of 1990) in an amount equal to or less than $2.8 million per
transaction, the applicable rate will not exceed 9%.

         If the Fund were to sell an item of Equipment and provide  financing to
the buyer bearing interest at a rate less than the applicable  federal rate, the
Fund's  gain on sale would be reduced by the  application  of that rate.  Such a
reduction  in gain on sale would be  offset,  in whole or in part,  by  interest
income exceeding the nominal interest received by the Fund.

Fund Elections

         The  Code  permits  partnerships  to  elect  to  adjust  the  basis  of
partnership  property on the transfer of an interest in a partnership by sale or
exchange or on the death of a partner,  and on the  distribution  of property by
the partnership to a partner (Section 754 election).  The general effect of such
an election is that  transferees of the partnership  interests are treated,  for
the  purpose of  depreciation  and gain,  as though  they had  acquired a direct
interest in the partnership assets and the partnership is


                                       98


<PAGE>


treated for such purposes,  upon certain distributions to partners, as though it
had newly acquired an interest in the partnership  assets and therefore acquired
a new cost basis for such  assets.  Any such  election,  once  made,  may not be
revoked without the consent of the Service.  As a result of the complexities and
added expense of the tax accounting required to implement such an election,  the
Fund  Manager  does  not  intend  to  cause  the  Fund  to  make  the  election.
Accordingly,  upon the sale of Equipment  subsequent  to the transfer of a Unit,
taxable  gain or loss to the  transferee  of the Unit  will be  measured  by the
difference between his share of the gross proceeds of such sale and his share of
the Fund's tax basis in the  Equipment  (which,  in the absence of a Section 754
election,  will be unchanged by the transfer of the Unit to him), rather than by
the difference  between his share of the amount  realized and the portion of his
purchase  price that was  allocable to the  Equipment.  As a  consequence,  such
transferee  will be subject to tax upon a portion of the proceeds  which,  as to
such transferee,  constitutes a return of capital,  if the purchase price of his
Unit exceeded his share of the adjusted basis for all Equipment.

         Therefore,  any benefits which might have been available to the Holders
of Units by reason of such an election will not be available. Moreover, a Holder
may have greater difficulty in selling his Units since the purchaser will obtain
no current tax benefits from his  investment to the extent that his cost of such
investment exceeds his allocable share of the Fund's basis in its assets.

         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.

Dissolution of Fund

         Upon the dissolution of the Fund, the Fund assets are to be sold, which
may result in the  realization of taxable gain to the Holders of Units including
recapture  of  depreciation   deductions  taken.  See  "Disposition  of  Units."
Subsequent  distributions  of cash in  complete  dissolution  of the  Fund  will
generally  be treated in the same manner as  nonliquidating  distributions.  See
"Limitation on Deduction of Losses - Tax Basis."

Treatment of Gifts of Units

         Generally,  no gain or loss is recognized  for income tax purposes as a
result of a gift of property. Although the Fund Manager does not anticipate that
a Holder's  allocable share of the Fund's  nonrecourse  indebtedness will exceed
the adjusted basis of his Unit, if a gift of a Unit were made at a time when the
Holder's allocable share of the Fund's nonrecourse indebtedness exceeded the


                                       99


<PAGE>


adjusted  basis of his Unit,  such  Holder  would  realize  gain for  income tax
purposes,  to the extent of such  excess,  upon the  transfer  of such  Unit.  A
charitable contribution of Units by a Holder also would result in income or gain
to the extent that the Holder's  share of  nonrecourse  liabilities  exceeds the
adjusted basis in his Units. For this purpose, rules applicable to bargain sales
to  charitable  organizations  may  substantially  reduce the portion of the tax
basis of the Units to reduce  gain.  Gifts of Units may also  result in gift tax
liability pursuant to the rules generally applicable to all gifts of property.

Investment by Qualified Plans and IRAs

         Qualified  pension,  profit-sharing,  stock  bonus  plans,  Keogh Plans
(collectively,  "Qualified Plans") and Individual  Retirement  Accounts ("IRAs")
are generally exempt from taxation except to the extent that "unrelated business
taxable  income"  (determined in accordance  with Sections  511-514 of the Code)
exceeds  $1,000 during any fiscal year.  Because the Fund will be engaged in the
business of equipment leasing,  each Qualified Plan's  distributive share of the
Fund's  taxable  income  (including  capital  gain) will  constitute  "unrelated
business  taxable  income"  ("UBTI").  Therefore,  a Qualified  Plan or IRA that
purchases  Units in the Fund would be  required  to report its pro rata share of
the Fund's  taxable  income as unrelated  business  taxable income if and to the
extent that the Qualified Plan's or IRA's unrelated business taxable income from
all sources exceeds $1,000 in any year.

         Income from property subject to acquisition  indebtedness  also will be
included in the unrelated  business  income of a tax-exempt  entity,  converting
what might otherwise be portfolio  income into unrelated  business  income.  For
this purpose,  indebtedness will constitute  acquisition  indebtedness if it was
incurred   directly  or  indirectly  in  connection   with  the  acquisition  or
improvement of property.

         Except to the extent of gain or loss from the sale, exchange,  or other
disposition  of  acquisition  indebtedness  property,  and  except to the extent
Equipment constitutes inventory or property held primarily for sale to customers
in the ordinary  course of a trade or business,  gains from the sale or exchange
of Equipment  generally  will be excluded  from the scope of unrelated  business
taxable  income.  However,  any gain on the  disposition  of Equipment  which is
characterized  as ordinary  income as a result of the recapture of  depreciation
deductions in all events will constitute  unrelated  business  taxable income of
Qualified Plans and IRAs. See "Sale or Exchange of Fund Equipment" above.

         Finally,  interest  income from the  investment  of Fund cash  balances
should not constitute unrelated business taxable income, unless such interest is
derived from acquisition indebtedness


                                       100


<PAGE>


property.

         If an IRA has UBTI in excess of a specific  exemption of $1,000 for any
taxable  year,  the IRA is subject to income tax on this  excess at the same tax
rates applicable to trusts and estates. Even though an IRA is not subject to tax
for any year,  if the gross income taken into account in computing  UBTI exceeds
$1,000,  the IRA customer is still  obligated to file a tax return for such year
on Form  990-T.  Generally,  this tax return  must be filed with the  Service by
April 15th of the following year.

         Penalties  may be imposed by the  Service  for failing to file this tax
return when required,  and, if tax is due, additional penalties and interest may
be imposed if the tax is not paid. In addition,  any tax due should be paid from
the IRA.  Direct  payment of the tax by the IRA customer may have other  adverse
tax consequences.

         AN IRA CUSTOMER WHO MAKES AN INVESTMENT IN HIS/HER IRA WHICH MAY RESULT
IN THE REALIZATION OF UNRELATED BUSINESS INCOME IS URGED TO OBTAIN THE ADVICE OF
A QUALIFIED TAX ADVISOR ON THE EFFECT OF REALIZING  UNRELATED BUSINESS INCOME IN
HIS/HER IRA AND ANY OBLIGATION TO FILE INCOME TAX RETURNS AND TO PAY TAX ON SUCH
UNRELATED  BUSINESS INCOME.  FOR A DISCUSSION OF THE ERISA  CONSIDERATIONS OF AN
INVESTMENT IN THE FUND BY A QUALIFIED PLAN OR IRA, SEE "ERISA CONSIDERATIONS."

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  (other  than  medical  expenses,   casualty  and  theft  losses  and
investment  interest)  are  reduced  by an  amount  equal to 3% of a  taxpayer's
adjusted gross income over certain thresholds.  In no event,  however,  are such
deductions reduced by more than 80%.

         Capital  Gains  and  Losses.  Net  capital  gains  (the  excess  of net
long-term capital gains over short-term capital losses) of individuals are taxed
at a 28% maximum rate.  Capital losses,  whether  long-term or short-term,  will
only be available to offset  $3,000 of ordinary  income in a given taxable year.
Any remaining capital loss may be carried forward indefinitely.

         Two Percent Floor on Miscellaneous  Itemized  Deductions.  Noncorporate
Holders  may  deduct  expenses  paid  or  incurred  for (a)  the  production  or
collection  of income,  (b) the  management,  conservation,  or  maintenance  of
property  held for the  production  of  income,  or (c) in  connection  with the
determination, collection or


                                       101


<PAGE>


refund of a tax,  only to the extent such expenses  exceed 2% of adjusted  gross
income.  This rule is to apply  with  respect  to  indirect  deductions  through
pass-through  entities (such as the Fund) of amounts that would not be allowable
as a deduction if paid or incurred directly by an individual. Although it is not
anticipated that the Fund will incur any material  expenses of this nature,  the
2% limit described above may cause certain  expenses  allocable to Holders to be
nondeductible.

Alternative Minimum Tax

         The  alternative  minimum tax ("AMT") rate for individuals is 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  ("AMTI")  exceeds the
exemption  amounts:  $45,000 for married  taxpayers filing jointly,  $33,750 for
single  individuals  and $22,500 for married  individuals  filing  separately or
trusts.  (The foregoing  exempt amounts are reduced for taxpayers with income in
excess of certain specified  levels.) The alternative  minimum tax is imposed to
the extent that such tax exceeds the taxpayer's  "regular tax" liability for the
year.

         AMTI is  computed  differently  than  taxable  income for  regular  tax
purposes in various respects,  including the following:  (i) certain  tax-exempt
interest excluded from income for regular tax purposes is included in AMTI; (ii)
deductions for depreciation are computed using longer  depreciable  lives and in
some cases slower  depreciation  methods (i.e., a 150% declining  balance method
rather  than  a  200%  declining  balance  method);  and  (iii)  deductions  for
miscellaneous itemized deductions,  for state and local real property,  personal
property and income taxes and for interest expense on certain borrowings related
to  residences  are not  permitted.  Because of this second  item,  the basis of
depreciated  property  for AMT  purposes  will be  different  from its basis for
regular federal income tax purposes. Thus, upon disposition of the property, the
taxpayer  may  recognize  less gain for AMT  purposes  than for regular  federal
income tax purposes.

         The tax  preference  items and  adjustments  that may be present in the
Fund include,  with respect to an item of Equipment,  the excess of depreciation
deductions  claimed  over  deductions  that  would be  allowable  if the item of
Equipment were subject to depreciation over its ADR midpoint life using the 150%
declining balance method,  switching to the straight line method in later years.
Items of tax preference also include other items which are not anticipated to be
generated by the Fund, but may apply in the case of certain Holders due to their
particular facts and circumstances unrelated to the Fund.

         The effect of the AMT on each Holder will depend upon each


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<PAGE>


Holder's particular  circumstances.  Each prospective  investor should therefore
consult his own tax advisor as to the effect of an investment in the Fund on his
AMT liability.

Fund Tax Returns and Tax Information

         The Fund  Manager  will file the Fund's tax  returns  using the accrual
method of  accounting  and will adopt the  calendar  year as the Fund's  taxable
year. The Fund will provide tax  information to the Holders within 75 days after
the close of each taxable  year.  If a Holder is required to file its tax return
on or before March 15, it may be necessary for the Holder to obtain an extension
to file if the tax information  referred to above is not  distributed  until the
end of the 75-day period.

         Holders  will be required  to file their  returns  consistent  with the
information provided on the Fund's informational return or notify the Service of
any inconsistency.  A failure to notify the Service of an inconsistent  position
allows  the  Service  automatically  to  assess  and  collect  the tax,  if any,
attributable to the inconsistent treatment.

         Under Section 6050K of the Code, a selling Holder is required to inform
the Fund of the sale or exchange  of the  Holder's  Units  within 30 days of the
transaction  or, if  earlier,  January 15 of the  calendar  year  following  the
calendar year in which the  transaction  occurs.  The Fund is required to inform
the Service of each such  transaction  in connection  with the filing of its tax
information return for the taxable year in which the transaction occurs. Failure
to provide this notice may result in a $50 penalty per unreported  transfer with
an annual  maximum  penalty of  $250,000.  Intentional  failure  may result in a
penalty per unreported  transfer in an amount equal to the greater of $100 or 5%
of the  transfer  price with no annual  maximum.  The Fund is also  required  to
inform both the seller and the buyer of Units of the  proportionate  interest of
those Units in the  unrealized  receivables  (including  potential  depreciation
recapture)  and  substantially  appreciated  inventory  items of the Fund.  This
notification  is required to be made prior to  February 1 of the  calendar  year
following the calendar year in which the transaction  occurs. A Holder who fails
to inform the Fund of a sale or exchange  of the  Holder's  Units in  accordance
with the  rules  described  in this  paragraph  is  liable  under the Code for a
penalty  of $50 per  unreported  transfer  with an  annual  maximum  penalty  of
$100,000.  These reporting  requirements may increase the Fund's  administrative
costs.

Interest and Penalties

         With certain  exceptions,  a penalty will be assessed for each month or
fraction  thereof (up to a maximum of five months) that a partnership  return is
filed either late or incomplete. The monthly


                                       103


<PAGE>


penalty is equal to $50 multiplied by the number of partners in the  partnership
during the year for which the return is due.

         A penalty  will be assessed if the Fund fails to furnish to the Holders
a correct  Schedule  K-1 to the  federal  income  tax  return for the Fund on or
before the prescribed due date (including any extension thereof). The penalty is
equal to $50  multiplied  by the  number of  partners  not  furnished  a correct
Schedule  K-1 on or before the  prescribed  due date  (including  any  extension
thereof),  with a maximum penalty of $100,000 per calendar year. If such failure
to furnish a correct Schedule K-1 to the Holders is due to intentional disregard
of this requirement,  the penalty is equal to the greater of (i) $100 multiplied
by the number of partners not furnished a correct  Schedule K-1 on or before the
prescribed due date (including any extension  thereof) or (ii) 10% of the amount
required to be shown on the Fund's  return,  with no  limitation  on the maximum
penalty per calendar year.

     A nondeductible penalty may be imposed by the Service in connection with an
underpayment  of  tax  resulting  from  a  taxpayer's   negligent  disregard  of
applicable  rules  and  regulations.  This  penalty  is  equal  to  20%  of  the
underpayment.

         Section  6662  of  the  Code  establishes  a  penalty  equal  to 20% on
underpayment of tax attributable to substantial valuation  overstatements.  This
penalty  applies  only if (i) the value or  adjusted  basis of any  property  as
claimed on an income tax return exceeds 200% of the correctly  determined amount
of its value or adjusted basis and (ii) the  underpayment of tax attributable to
the  substantial  overvaluation  exceeds  $5,000  ($10,000  in  the  case  of  a
corporation  other than an S corporation or personal  holding  company).  In the
event an underpayment of tax is attributable to a gross valuation  misstatement,
then the penalty is increased  from 20% to 40%. A gross  valuation  misstatement
occurs only if (i) the value or adjusted  basis of any property as claimed on an
income tax return exceeds 400% of the correctly  determined  amount of its value
or adjusted basis and (ii) the  underpayment  of tax  attributable to such gross
valuation  misstatement  exceeds  $5,000  ($10,000 in the case of a corporation,
other than an S corporation or personal holding company). All or any part of the
penalty  may be  waived  by the  Service  upon  the  taxpayer's  showing  that a
reasonable  basis existed for the  valuation  claimed on the return and that the
claim  was  made in good  faith.  If the Fund  were to  overstate  the  value of
Equipment, a Holder might be liable for this penalty.

         There  is a 20%  penalty  on  the  amount  of an  underpayment  of  tax
attributable  to  the  "substantial   understatement"  of  a  tax  liability.  A
substantial  understatement is defined as an understatement for the taxable year
that  exceeds  the greater of 10% of the  required  tax or $5,000  ($10,000  for
corporations other than personal holding companies and S corporations). Interest
accrues on the amount of


                                       104


<PAGE>


the penalty at the applicable  federal rate as of the due date of the return and
not the date the  penalty is  assessed.  The  penalty  can be avoided  either by
disclosing  the  questionable  item on the return or by  showing  that there was
"substantial authority" for taking the position on the return. If a questionable
item is related to a tax shelter  (defined as any  entity,  plan or  arrangement
whose principal purpose is the avoidance or evasion of tax), the  understatement
penalty can only be avoided by showing  that the  taxpayer  reasonably  believed
that the treatment of the item was "more likely than not" the proper  treatment.
Based upon the  representations  of the Fund Manager,  Tax Counsel  believes the
Fund will not be characterized as a "tax shelter" for these purposes.  It should
also be noted that the Fund Manager will not cause the Fund to claim a deduction
unless the Fund Manager  believes,  based upon the advice of its  accountants or
counsel, that substantial authority exists to support the deduction.

         All interest payable with respect to a deficiency is compounded  daily.
Interest  rates  are  redetermined  quarterly  and  are  based  on  the  federal
short-term  interest rate (the average rate of interest on Treasury  obligations
maturing in less than three years) for the first month of the preceding  quarter
plus three percent.

Audit of Tax Returns

         An audit of the Fund's  information return may result in adjustments to
items of income,  gain,  deduction,  loss or credit reported on such information
return. At a minimum such adjustments will result in a corresponding  adjustment
to the federal income tax liability of individual Partners,  and may result in a
full audit of their  individual  tax returns (thus  resulting in  adjustments to
non- Fund as well as Fund items).

         The tax  treatment of items of Fund income,  loss,  deduction or credit
will be determined at the Fund level in a unified Fund  proceeding,  rather than
in  separate  proceedings  with  the  Partners.  Similarly,  only  one  judicial
proceeding contesting a Service determination may be filed on behalf of the Fund
and all Partners.

         With   respect  to  proposed   tax   deficiency   adjustments   at  the
administrative  level, in general each partner (other than a partner owning less
than a 1% profits interest in a partnership having more than 100 partners) whose
name and address is furnished to the Service (a  "notice-partner")  will receive
notice of the commencement of a partnership level audit as well as notice of the
final  partnership  administrative  adjustment.  All partners  have the right to
participate in a partnership audit proceeding.  In general, each partner is free
to negotiate his own  settlement of partnership  items with the Service.  If the
Service enters into a settlement  agreement with any partner,  it must offer the
same settlement terms to the other parties who request settlement. The Fund must
designate a


                                       105


<PAGE>


"tax matters  partner" who may enter into a settlement on behalf of, and binding
upon,  partners owning less than a 1% profits  interest in  partnerships  having
more than 100  partners.  The tax  matters  partner  may not settle on behalf of
partners with less than a 1% profits  interest if (i) an aggregate of 5% or more
of such partners  designate  with the Service a notice partner to receive notice
from the Service on behalf of the group or (ii) such partners notify the Service
that the tax  matters  partner  may not settle on their  behalf.  Except for the
above-described settlement power granted the tax matters partner, any settlement
entered into by any partner  (including the tax matters  partner) is not binding
on any partner who does not wish to be bound thereby.  However,  the tax matters
partner may extend the statute of  limitations  for  assessment  of a deficiency
with respect to all partners.  The Fund has  designated  ATEL as the tax matters
partner.

Registration Provisions

         Sections 6111 and 6112 of the Code require (i)  registration of certain
tax shelters and (ii) the  maintenance  of lists of investors  participating  in
certain tax shelter investments, respectively.

         Under Section 6111,  anyone who organizes a "tax shelter" must register
such  shelter  with the Service not later than the day on which occurs the first
offering  for sale of  interest  therein.  A "tax  shelter"  is  defined  as any
investment  with  respect  to  which  a  person  could   reasonably  infer  from
representations  made or to be made in connection  with an offer for sale of any
interest  that,  as of the  close of any of the first 5 years,  the  ratio  with
respect to any investor of (A) the sum of the  aggregate  gross  deductions  and
350% of the  credits  potentially  allowable  to (B) 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) is greater than 2 to
1.

         The Fund Manager has determined that,  because of the limited amount of
leverage that will be placed on the Equipment,  and because a significant amount
of the Equipment  will be "net leased" by the Fund,  the Fund is not expected to
generate  a  tax  shelter   ratio  of  greater  than  2  to  1.  Based  on  this
determination,  the Fund Manager  will not register the Fund as a tax  shelter.\
Miscellaneous Partnership Tax Aspects

         (a) Fees for the  syndication  of a  partnership  must be  capitalized;
partnership  organization  fees must be capitalized  and may be amortized over a
five-year period.

         (b)      Under Code Section 195, a taxpayer must amortize "start-up
expenditures" over a period of 60 months, beginning with the date on
which the business begins.  Start-up expenditures are costs incurred


                                       106


<PAGE>


in  investigating  the creation or organization of a business,  or in creating a
business, which would be deductible if incurred in connection with the expansion
of an existing business.

Foreign Tax Considerations

         As noted  above,  the  Fund may  acquire  Equipment  which is  operated
outside the United  States.  As a  consequence,  Holders may be required to file
returns  and pay taxes in foreign  jurisdictions  with  respect  to the  foreign
source income of the Fund. The income taxed by the foreign jurisdiction would in
such a case be calculated according to the tax laws of the foreign jurisdiction,
which may or may not correspond with applicable United States standards.

         Holders who have foreign tax liabilities as a result of the Fund may be
entitled to a foreign tax credit or to a deduction  for foreign taxes paid which
can be utilized to reduce their United States tax liabilities or taxable income,
respectively.  The calculation of the foreign tax credit is quite complex and no
assurance  can be given  that a credit  will be  available  in the amount of any
foreign tax paid. In particular, prospective Holders should be aware that United
States  law does not  generally  allow a foreign  tax  credit  greater  than the
taxpayer's  United  States  federal  income tax  liability  with  respect to the
foreign  source  income of the taxpayer  calculated  according to United  States
rather than the foreign  jurisdiction's  tax law.  Because the United States tax
rate may be lower than the tax rate imposed by a foreign country, it is possible
that a  foreign  country  might  impose  a tax in an  amount  greater  than  the
allowable foreign credit under United states law. In such a case,  Holders would
be subject to a higher  effective  rate of  taxation  than if no foreign tax had
been  imposed.  To the extent  that all income  taxes paid to a foreign  country
exceed the  amount of  foreign  tax  credit  allowable  in any year,  the excess
foreign  tax credits  generally  may be carried  back two years or forward  five
years to offset United States income taxes on foreign source income in those tax
years.  If the Fund were to suffer an overall foreign loss in one year and incur
foreign taxes in a subsequent  year, the amount of foreign tax credit  allowable
in that subsequent taxable year could be reduced on account of the prior foreign
loss,  regardless of whether the loss resulted in a United States tax benefit to
the  Holders.  Each Holder  should  consult his own tax  advisor  regarding  the
applicability of foreign taxes to his own situation.

         Prior to the Fund entering into an arrangement  which  contemplates the
use of Equipment  outside the United States,  the Fund Manager will consult with
its counsel and with  special  tax advisor  located in the foreign  jurisdiction
concerning the possibility of structuring the transaction in a manner which will
enable the  Holders to avoid  being  required  to file income tax returns in the
foreign jurisdiction. The Fund Manager has


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discretion to cause the Fund to enter into any such arrangement.

Taxation of Foreign Persons

         Special rules in the Code govern the U.S.  federal  income  taxation of
nonresident alien individuals,  foreign  corporations,  foreign partnerships and
other  foreign  investors  ("foreign  persons").  No  attempt is made to provide
herein more than a brief summary of some of the relevant rules. Holders that are
foreign  persons  should  consult their own tax advisors to fully  determine the
impact of them of United States federal, state and local income tax laws.

         Foreign  persons  who own Units will be  considered  to be engaged in a
trade or business in the United States because of the activities of the Fund and
such activities will be deemed to be conducted through a permanent establishment
within the meaning of potentially applicable tax treaties.  Therefore, a foreign
person who becomes a Holder of Units will  generally  be required to file United
States tax returns on an annual  basis on which he must report his  distributive
share of the Fund's items of income,  gain, loss, deduction and credit, and will
be required to pay United States taxes at regular rates on his share of any Fund
net income that is effectively connected with a United States trade or business,
whether ordinary income or capital gains.

         A partnership  such as the Fund engaged in a United States  business is
required to withhold with respect to a foreign Partner's  distributive  share of
the  partnership's  "effectively  connected"  income at the maximum regular rate
applicable  to such foreign  Partner  (currently  39.6% for  individual  foreign
partners and 35% for  corporate  foreign  partners).  Amounts  withheld  will be
creditable  by a foreign  Partner  against the foreign  Partner's  United States
income  tax  liability.   Further,   if  any  portion  of  a  foreign  Partner's
distributive  share of Fund income is not  effectively  connected  with a United
States  trade or  business,  such income may,  depending  on its  character,  be
subject to a 30% United  States  withholding  tax (or such lower rates as may be
prescribed under an applicable income tax treaty).

         Foreign  corporations that are Holders will also be subject to a branch
profits  tax  equal  to 30% of a  foreign  corporation's  earnings  and  profits
effectively  connected  with a United  States  business  that are  withdrawn (or
deemed  withdrawn) from investment in the United States.  This tax is payable in
addition to the regular United States corporate tax. The branch profits tax will
generally not apply in cases inconsistent with United States tax treaties.

         A foreign person may also be subject to tax on his  distributive  share
of the Fund's  income and gain in his country of  nationality  or  residence  or
elsewhere, against which the tax paid to the United


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<PAGE>


States may in some  instances  be  creditable.  The method of  taxation  in such
jurisdictions  may  differ  considerably  from  the  United  States  tax  system
described  herein and may be affected by the United States  characterization  of
the Fund and its income.  Prospective foreign investors should consult their own
tax  advisors   with  respect  to  their   potential   tax   liability  in  such
jurisdictions,  as well as in the  United  States,  on  income  derived  from an
investment in the Fund.

Future Federal Income Tax Changes

         Neither the Fund  Manager nor Tax Counsel can predict  what  additional
legislation,  if any,  may be  proposed by members of  Congress,  by the current
administration,  or by any  subsequent  administration,  nor can either  predict
which proposals, if any, might ultimately be enacted. Moreover, neither the Fund
Manager  nor Tax  Counsel  can  predict  what  changes  may be made to  existing
Regulations,  or what revisions may occur in the Service's ruling policies.  Any
such changes may have a retroactive  effect.  Consequently,  no assurance can be
given that the income tax  consequences  of an investment in Units will continue
to be as described in this Prospectus.

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.  A  Partner'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 Partners,  determined
with  reference to their 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  Holders on Fund income derived from such states.  Any amounts  withheld
would be deemed  distributed  to the  nonresident  or  foreign  Holder and would
therefore  reduce the amount of cash  actually  received by the  nonresident  or
foreign Holder as a result of such  distribution.  Nonresidents may be allowed a
credit for the amount so withheld  against any income tax imposed by their state
of residency. The Fund cannot, at present, estimate the percentage of its future
income  that  will be from  states  which  have  adopted  such  withholding  tax
procedures and it cannot  therefore  estimate the required  withholding  tax, if
any. In addition, while the Fund may apply to the applicable taxing


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<PAGE>


authority  of such  states for a waiver (or a partial  waiver),  if any, of such
withholding  requirements,  no  assurance  can be given  that such  waiver  will
ultimately be granted.

         To the extent that a nonresident  Partner pays tax to a state by virtue
of Fund  operations  within  that state,  he may be  entitled to a deduction  or
credit  against  tax owed to his state of  residence  with  respect  to the same
income.  Furthermore,  estate or  inheritance  taxes  might be  payable  in such
jurisdiction upon the death of a Holder.

         PROSPECTIVE  INVESTORS SHOULD BE AWARE THAT, IN COMPUTING THEIR TAXABLE
INCOME FOR THE PURPOSE OF DETERMINING  THEIR STATE INCOME TAX LIABILITIES,  THEY
MAY BE SUBJECT TO RULES WHICH ARE LESS FAVORABLE THAN THOSE UNDER FEDERAL INCOME
TAX LAWS.

Need for Independent Advice

         The foregoing  summary is not intended as a substitute  for careful tax
planning,  particularly  as 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
("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


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<PAGE>


in  connection  with the  transaction  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 Fund 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 Fund 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:  (a) 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, (b)
any plan described in Section 4975(e)(1) of the Code (which description includes
Qualified  Plans and IRAs),  and (c) 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.  As described  above under "Who Should Invest"
and "Summary of the Partnership Agreement


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<PAGE>


-  Transferability  of Units," the sale of Units  during this  offering  and the
subsequent transfer of Units will be limited to the extent that the Fund 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.

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 (a) the investment is in accordance  with the documents and  instruments
governing the Qualified Plan or IRA, (b) the purchase is prudent in light of the
potential  difficulties that may exist in liquidating  Units, (c) the investment
will provide  sufficient  cash  distributions  in light of the Qualified  Plan's
likely  required  benefit  payments,  (d) the  investment  is made solely in the
interests of plan  participants,  and (e) 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 PARTNERSHIP AGREEMENT

         The  Partnership  Agreement  (attached  hereto  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 partnership,  and contains the rules under
which the Fund will be operated.  The Partnership  Agreement will be executed on
behalf of each  subscriber  upon his  admission  to the Fund by the Fund Manager
acting  pursuant  to  the  power  of  attorney  contained  in  the  Subscription
Agreement.

         The  following  is  a  brief  summary  of  certain  provisions  of  the
Partnership Agreement.  It does not purport to be complete and it is recommended
that each prospective investor review the Partnership Agreement carefully in its
entirety.  Aspects of the Partnership  Agreement  relating to allocations of Net
Income,  Net Loss and  Distributions  to Holders and reports to the Partners are
summarized


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<PAGE>


elsewhere in this Prospectus.  See "Income,  Losses and  Distributions" and
"Reports to Holders."

The Duties of the Fund Manager

         ATEL Financial Corporation, the Fund Manager, is General Partner of the
Fund and has the exclusive management and control of all aspects of the business
of the Fund.  Affiliates  of the Fund  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 Fund
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  of the  Fund  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 Revised Limited  Partnership 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 Partners 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, 2017,
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


                                       113


<PAGE>


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 Fund Manager  unless (i) there is a
remaining Fund Manager,  and the remaining  Fund 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  Fund Manager,  the Limited  Partners  holding in
excess of 50% of the  outstanding  Units elect a successor Fund Manager prior to
the effective date of removal and such successor Fund Manager elects to continue
the business of the Fund;

         (c) An election to dissolve  upon the vote of Limited  Partners  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 Limited Partners

         In any vote of the  Limited  Partners,  each  Limited  Partner  will be
entitled to cast one vote for each Unit which such  Partner  owns as of the date
designated  as the record  date for such vote.  Notwithstanding  the  foregoing,
Units held by the Fund Manager or any  Affiliate of the Fund 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 Fund
Manager and the Fund,  including,  but not limited to, any vote on the  proposed
removal or  withdrawal  of the Fund  Manager as General  Partner or any proposed
amendment to the Partnership  Agreement which would expand or extend the rights,
authorities  or powers of the General  Partner.  The Limited  Partners  have the
right, by vote of Limited Partners owning more than 50% of the total outstanding
Units, to vote upon:

         (a)      Removal or voluntary withdrawal of the General Partner;

         (b)      Election of a successor General Partner;

         (c)      Termination and dissolution of the Fund;

         (d)     Amendment of the Partnership Agreement, provided such amendment
is not for the purpose of reflecting the addition or substitution of Limited
Partners, the reduction of Capital Accounts


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<PAGE>


or for any other purposes prohibited under the Partnership 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  Partners  to be  adversely  affected by the
amendment,  the Partnership  Agreement may not be amended so as to (i) convert a
Holder into a general  partner;  (ii) modify the limited  liability of a Holder;
(iii)  alter  the  interest  of  the  Partners  in  Net  Income,  Net  Loss  and
Distributions;  or (iv)  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  Partnership  Agreement  provides  that  Limited
Partners  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  15679.1  through  15679.14 of the California  Revised Limited
Partnership Act. Such provisions generally give a dissenting limited partner the
right, subject to certain procedural  requirements,  to require that the limited
partnership  repurchase the dissenting limited partner's partnership interest at
a price equal to its fair market value.

Meetings

         The  General  Partner  may at any time  call a meeting  of the  Limited
Partners  or a vote of the  Limited  Partners  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 Limited
Partners holding 10% or more of the total  outstanding  Units. Upon such written
request of Limited Partners holding 10% or more of the total outstanding  Units,
such Limited  Partners may propose a vote by all Partners on any matter on which
Limited Partners are entitled to vote under the Partnership Agreement.

Books of Account and Records

         The General  Partner 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:


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<PAGE>


                  (i) A current list of the full name and last known business or
         residence  address  of each  Partner  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 Partner;

                  (ii) A copy of the certificate of limited  partnership and all
         certificates of amendment,  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 the Partnership 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 Limited Partner 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
Limited  Partner,  the General  Partner shall  promptly  deliver to such Limited
Partner at the expense of the Fund a copy of the  information  described in (i),
(ii) and (iv)  above.  In the event a Limited  Partner is required to compel the
General  Partner to produce  the  foregoing  records as a result of the  General
Partner's  breach of its  obligation  to deliver such  information,  the General
Partner shall  reimburse the Limited  Partner 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 Fund Manager or its Affiliates.

Transferability of Units

         The General  Partner may  condition the  effectiveness  of any proposed
transfer of Units or an interest in Units on such  representations,  warranties,
opinions of counsel, and other


                                       116


<PAGE>


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;

             (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
         Partnership  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 Fund
         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


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<PAGE>


         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, 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


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<PAGE>


         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  Partnership   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 Fund 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


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<PAGE>


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 Limited  Partner in the place
of the assignor with the prior consent of the Fund Manager, which consent may be
withheld in the Fund Manager's sole discretion.  Any substituted Limited Partner
must also agree to be bound by the provisions of the Partnership Agreement.  The
Fund Manager shall cause the Partnership  Agreement to be amended to reflect the
substitution of Limited Partners at least once in each fiscal quarter.

         The Fund 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 Limited Partner,
except as noted above under "Voting Rights of Limited Partners."

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.

         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.  The Fund
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.

Indemnification of the General Partner

         The  Partnership  Agreement  provides that the General  Partner 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


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<PAGE>


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
Partnership  Agreement also provides  that, to the extent  permitted by law, the
Fund will indemnify the General Partner against  liability and related  expenses
(including  attorneys'  fees) incurred in dealing with third  parties,  provided
that the  conduct  of the  General  Partner  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 General Partner will not be indemnified against liabilities arising
under the Securities Act of 1933. Furthermore, the General Partner 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  General  Partner or its
Affiliates.  The Fund will not pay for any insurance  covering  liability of the
General  Partner  or any  other  persons  for  actions  or  omissions  for which
indemnification  is  not  permitted  by  the  Partnership  Agreement,  provided,
however,  that this will not preclude  the naming of the General  Partner 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 General Partner will have fiduciary responsibility for the
safekeeping and use of all funds and assets of the Fund.  See
"Fiduciary Duty of the General Partner."

                              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 Fund  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).



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<PAGE>


         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 Fund 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 Fund  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
coordinating  their  sales  efforts,   training  their  personnel  and  expenses
incurred, by such


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<PAGE>


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
Fund  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 Fund
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 Fund Manager,  be paid in  connection  with
accountable, bona fide due diligence activities.

         The  Fund   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 Fund Manager may elect
to pay a portion of the  set-up  fees for IRAs which  purchase  Units.  The Fund
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 First Trust of
California, National Association, San Francisco, California. 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


                                       123


<PAGE>


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 Fund  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 Fund Manager and received and
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.

         First Trust of  California,  National  Association'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.  First Trust of California neither endorses,
recommends nor guarantees any aspect of an investment in the Units.  First Trust
of  California  does not  represent  the  interests  of the Limited  Partners 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 Fund Manager.  Pursuant to the terms of the Escrow  Agreement,  the Fund has
directed First Trust of California to distribute to the subscribers any interest
earned on funds held in escrow as described above under this caption.

Investments By Certain Persons

         The Fund 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 Fund Manager or its Affiliates  will be purchased on the
same terms as the other Units


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<PAGE>


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 Fund 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 (i) has been advised by such advisor over a continuous
course of time on investments  other than the purchase of Units, and (ii) 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 Fund Manager would no recognize
any attempted  transfer of such Units unless the Fund 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
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)


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<PAGE>



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).

         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.

         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.  See
"Escrow Arrangements" above.


                               REPORTS TO HOLDERS

         The Fund fiscal year will be the calendar year; provided, however, that
the Fund 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 Partnership  Agreement.  The
Fund Manager shall have prepared and


                                       126


<PAGE>


distributed at least annually,  at the Fund's  expense,  (i) a statement of cash
flow,  (ii) Fund  information  necessary  in the  preparation  of each  Holder's
federal income tax returns;  (iii) a report of the business of the Fund;  (iv) a
statement as to the compensation received by the Fund Manager and its Affiliates
from the Fund during the year; (v) a report  identifying the sources of all Fund
Distributions for the year; and (vi) a special report containing an opinion of a
certified public  accounting firm and a breakdown of the costs reimbursed by the
Fund to the Fund 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 partners' 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 Fund  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 Partnership
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 Partnership.

                           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  Fund  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


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<PAGE>


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.

                                 LEGAL OPINIONS

         The legality of the Units 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 balance sheet of ATEL Capital  Equipment Fund VII, L.P. at July 17,
1996 and the  consolidated  balance sheet of ATEL Financial  Corporation at July
31, 1996,  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 in the registration  statement,
and are included in reliance  upon such reports given upon the authority of such
firm as experts in auditing and accounting.

                             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.
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:



                                       128


<PAGE>


         "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
Distributions  with respect to such Units on or before the date of determination
pursuant to any provision of the Partnership  Agreement exceed (ii) the Priority
Distribution attributable to such Units for such period.

          "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.

           "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  Partnership  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.

           "Capital  Account"  shall mean,  with  respect to any  Partner,  such
Partner's  Capital  Account  determined  in  accordance  with Section 6.7 of the
Partnership Agreement.

           "Cash from Operations" shall mean the excess of Gross


                                       129


<PAGE>


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 such as organization  and underwriting  costs but after a reasonable
allowance  for cash for repairs,  replacements,  contingencies  and  anticipated
obligations, as determined by the Fund 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 Partnership 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  (including  the  Equipment
Resale Fee).

          "Closing Date" shall mean such date  designated by the General Partner
for the termination of the offering of Units,  but not later than  ____________,
1998 (a date two years from the date the offering of Units commenced). 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 Fund
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 the fee payable to an Affiliate of
the General  Partner under the  provisions  of Section 8.3.1 of the  Partnership
Agreement. See "Management Compensation."



                                       130


<PAGE>


         "Equipment Re-leasing Fee" shall mean the fee payable to an Affiliate
of the General Partner under the provisions of Section 8.3.3 of the Partnership
Agreement. See "Management Compensation."

         "Equipment Resale Fee" shall mean the fee payable to an Affiliate of
the General Partner, under the provisions of  Section  8.3.2 of the  Partnership
Agreement. See "Management Compensation."

         "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 General Partner.

         "Full Payout  Lease" shall mean a lease under which the  non-cancelable
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 partnership created under the Partnership
Agreement.

         "Fund  Manager"  shall  mean  the  General   Partner,   ATEL  Financial
Corporation or its successor as General Partner of the Fund.

         "Fund  Minimum  Gain" shall have the  meaning set forth in  Regulations
section 1.704-2(d)(1).

         "General  Partner" shall mean ATEL Financial  Corporation  ("ATEL"),  a
California corporation,  or any other Person or Persons which succeed it in such
capacity. The General Partner is referred to throughout the Prospectus as "ATEL"
or the "Fund Manager."

         "Gross  Proceeds"  shall  mean  the  aggregate  total  of the  Original
Invested Capital of the initial and all of the additional Holders.

         "Gross  Revenues"  shall mean all revenues from the operation and lease
of 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  noncancelable
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.



                                       131


<PAGE>


         "Holders"  shall  mean  owners  of Units  who are  either  Partners  or
Assignees of Record,  and  reference to a "Holder"  shall be to any one of them.
The General  Partner shall not be considered to be a Holder except to the extent
it also owns Units.

         "Incentive  Management  Fee" shall mean the fee payable to an Affiliate
of the General  Partner under the provisions of Section 8.3.4 of the Partnership
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 Partnership
Agreement up to a maximum of 3% of Gross  Proceeds and other cash  payments such
as interest and taxes, but excluding Front-End Fees.

        "Limited Partners" shall mean the initial limited partners and any other
Persons  who are  admitted  to the Fund as  additional  or  substituted  limited
partners. Reference to a "Limited Partner" 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-cancelable
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.

         "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.

         "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,


                                       132


<PAGE>


including selling  commissions and all advertising  expenses except  advertising
expenses related to the leasing of Equipment.

         "Original  Invested  Capital" shall mean the amount in cash contributed
by each Partner 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.

         "Partners" shall mean  collectively the General Partner and Holders who
are admitted to the Fund as Limited  Partners and reference to a "Partner" shall
be to any one of the Partners.

   
         "Partnership  Agreement"  or  "Agreement"  shall mean the Amended and
Restated  Agreement of
Limited  Partnership  of ATEL Capital  Equipment  Fund VII,  L.P.,  as it may be
further amended from time to time.
    

         "Person"  shall  mean any  natural  person,  partnership,  corporation,
association or other legal entity.

         "Priority  Distribution"  for any  calendar  year or other period shall
mean,  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).

         "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.



                                       133


<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 Limited Partners voting rights;
                           (ii)      the term of existence of the Fund;
                          (iii)      the terms of compensation of the
                                     General partner 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.



                                       134


<PAGE>

                              FINANCIAL STATEMENTS

Set forth below are the following financial statements:

                      ATEL Capital Equipment Fund VII, L.P.

Report of Independent Auditors  . . . . . . . . . . . . . . . . . . . . . F - 2
Balance Sheet, July 17, 1996  . . . . . . . . . . . . . . . . . . . . . . F - 3
Notes to Financial Statements, July 17, 1996  . . . . . . . . . . . . . . F - 4


                           ATEL Financial Corporation

Report of Independent Auditors  . . . . . . . . . . . . . . . . . . . . . F - 6
Consolidated Balance Sheet, July 31, 1996 . . . . . . . . . . . . . . . . F - 7
Notes to Consolidated Balance Sheet, July 31, 1996  . . . . . . . . . . . F - 8


                                     F - 1
<PAGE>

                         REPORT OF INDEPENDENT AUDITORS






The Partners
ATEL Capital Equipment Fund VII, L.P.


We have audited the  accompanying  balance sheet of ATEL Capital  Equipment Fund
VII, L.P. as of July 17, 1996. This balance sheet is the  responsibility  of the
Partnership's  management.  Our  responsibility  is to express an opinion on the
balance sheet based on our audit.

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

In our opinion,  the balance sheet  referred to above  presents  fairly,  in all
material  respects,  the financial  position of ATEL Capital Equipment Fund VII,
L.P.  at July  17,  1996,  in  conformity  with  generally  accepted  accounting
principles.





                                                              Ernst & Young LLP
San Francisco, California
July 18, 1996


                                     F - 2
<PAGE>

                      ATEL CAPITAL EQUIPMENT FUND VII, L.P.

                                  BALANCE SHEET

                                  JULY 17, 1996


                                     ASSETS

Cash                                                                       $600
                                                                        ========

                                PARTNERS' CAPITAL

Partners' capital:
     General Partner                                                      $100
     Limited Partners                                                      500
                                                                       --------
Total partners' capital                                                   $600
                                                                       ========

                             See accompanying notes.

                                     F - 3

<PAGE>

                      ATEL CAPITAL EQUIPMENT FUND VII, L.P.

                             NOTES TO BALANCE SHEET

                                  JULY 17, 1996

1.  Organization and Partnership matters:

ATEL Capital  Equipment Fund VII, L.P. (the Fund),  was formed under the laws of
the State of California on May 17, 1996, for the purpose of acquiring  equipment
to engage in equipment leasing and sales activities. Contributions in the amount
of $600 were received as of July 17, 1996, $100 of which represented the General
Partner's (ATEL Financial Corporation's)  continuing interest, and $500 of which
represented the Initial Limited Partners' capital investment.

As of July 17,  1996,  the Fund had not  commenced  operations  other than those
relating to organizational  matters.  The Fund, or the General Partner on behalf
of the Fund, will incur costs in connection with the organization,  registration
and issuance of the Units of Limited Partnership interest (Units). The amount of
such  costs to be borne by the Fund is  limited  by  certain  provisions  of the
Partnership  Agreement.  In the event that the minimum number of Units specified
in the Prospectus are not sold, all funds received for subscribed  Units will be
refunded together with interest thereon.

2.  Income taxes:

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

3.  Partners' capital:

As of July 17, 1996,  50 Units were issued and  outstanding.  The Fund is in the
process of filing a  registration  statement  with the  Securities  and Exchange
Commission  in  order  to issue up to  15,000,000  additional  Units of  Limited
Partnership interest at $10.00 per Unit.

The  Partnership  Net Profits,  Net Losses,  and Tax Credits are to be allocated
92.5% to the Limited Partners and 7.5% to the General Partner.

Available Cash from Operations, as defined in the Limited Partnership Agreement,
shall be distributed as follows:

First,  Distributions  of Cash  from  Operations  shall be 88.5% to the  Limited
Partners,  7.5% to the  General  Partner  and 4% to the  General  Partner or its
affiliate designated as the recipient of the Incentive Management Fee, until the
Limited  Partners have received  Aggregate  Distributions  in an amount equal to
their Original  Invested  Capital,  as defined,  plus a 10% per annum cumulative
(compounded daily) return on their Adjusted Invested Capital,  as defined in the
Limited Partnership Agreement.

Second, 85% to the Limited Partners, 7.5% to the General Partner and 7.5% to the
General  Partner or its  affiliate  designated  as the recient of the  Incentive
Management Fee.



                                     F - 4

<PAGE>

                      ATEL CAPITAL EQUIPMENT FUND VII, L.P.

                             NOTES TO BALANCE SHEET

                                  JULY 17, 1996


3.  Partners' capital (continued):

Available Cash from Sales or Refinancing,  as defined in the Limited Partnership
Agreement, shall be distributed as follows:

First,  Distributions  of Sales or  Refinancings  shall be 92.5% to the  Limited
Partners  and 7.5% to the  General  Partner,  until the  Limited  Partners  have
received  Aggregate  Distributions in an amount equal to their Original Invested
Capital, as defined,  plus a 10% per annum cumulative  (compounded daily) return
on their Adjusted Invested Capital.

Second, 85% to the Limited Partners, 7.5% to the General Partner and 7.5% to the
General  Partner or its  affiliate  designated  as the recient of the  Incentive
Management Fee.


4. Commitments and management:

The terms of the Limited Partnership  Agreement provide that the General Partner
and/or  affiliates  are entitled to receive  certain  fees, in addition to those
described  above,  which are more fully  described  in Section 8 of the  Limited
Partnership  Agreement.  The  additional  fees to  management  include  fees for
equipment management and resale.



                                     F - 5
<PAGE>











REPORT OF INDEPENDENT AUDITORS




Board of Directors and Shareholders
ATEL Financial Corporation


We have audited the  accompanying  consolidated  balance sheet of ATEL Financial
Corporation  and  subsidiary  as of July 31,  1996.  This  balance  sheet is the
responsibility of the Company's management.  Our responsibility is to express an
opinion on this balance sheet based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards  require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free from 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, 1996 in conformity  with  generally  accepted
accounting principles.



                                                              Ernst & Young LLP

San Francisco, California
September 13, 1996

                                      F-6

<PAGE>

                    ATEL FINANCIAL CORPORATION AND SUBSIDIARY

                           CONSOLIDATED BALANCE SHEET

                                  JULY 31, 1996

                                     ASSETS


Cash and cash equivalents                                              $818,309
Short-term investments                                                  372,649
Accounts receivable, net of allowance for doubtful accounts
of $10,828                                                               41,033
Amounts due from affiliated partnerships                              1,931,434
Investments in leases                                                 4,538,190
Cash surrender value of life insurance                                  300,000
Other assets                                                            581,227
                                                                ----------------
                                                                     $8,582,842
                                                                ================


                      LIABILITIES AND SHAREHOLDER'S EQUITY


Liabilities:
Non-recourse debt                                                    $1,959,206
Line of credit                                                          499,639
Amounts due to affiliated companies                                     129,553
Accounts payable and accrued liabilities                                287,757
Customer deposits                                                        83,389
Deferred liabilities and credits:
  Unearned acquisition fees                                           1,946,985
  Deferred income taxes                                                 415,856
                                                                ----------------
  Total liabilities                                                  5,322,385

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                                                     3,164,602
                                                                ----------------
  Total shareholder's equity                                          3,260,457
                                                                ----------------
                                                                     $8,582,842
                                                                ================
                             See accompanying notes.

                                      F-7

<PAGE>

                    ATEL FINANCIAL CORPORATION AND SUBSIDIARY

                       NOTES TO CONSOLIDATED BALANCE SHEET

                                  JULY 31, 1996


1.   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  affiliated
partnerships. 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 (the "affiliated  partnerships"
or the "programs")  engaged in equipment leasing and sales  activities.  It also
acts as the corporate general partner in these affiliated partnerships.  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 and the balance is  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 for certain of the
affiliated partnerships for which ATEL is a general partner, ATEL is entitled to
participate  in net cash from  operations  and sales or refinancing of equipment
owned by the  affiliated  partnerships.  A portion  of ATEL's  participation  is
subordinated  to the limited  partners' 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, 1996. The  shareholders  of ATEL Capital Group are also general
partners in certain of these affiliated partnerships.

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.

Initial direct costs:

Initial direct costs are capitalized and amortized over the terms of the related
leases.

Short-term investments:

Short-term   investments  consist  of  certificates  of  deposit  with  original
maturities in excess of ninety days.


                                      F-8
<PAGE>

                    ATEL FINANCIAL CORPORATION AND SUBSIDIARY

                       NOTES TO CONSOLIDATED BALANCE SHEET

                                  JULY 31, 1996


1.   Summary of significant accounting policies (continued):

Investment in leveraged leases:

Leases which are financed  principally with non-recourse debt at lease inception
and which meet certain other  criteria are  accounted  for as leveraged  leases.
Leveraged lease contracts  receivable are stated net of the related non-recourse
debt service (which  includes  unpaid  principal and aggregate  interest on such
debt) plus estimated  residual values.  Unearned income represents the excess of
anticipated  cash flows (after  taking into account the related debt service and
residual  values)  over the  investment  in the lease and is  amortized  using a
constant rate of return  applied to the net investment  when such  investment is
positive.

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 until the  ultimate  liquidation  of the  underlying  equipment  and
realization of the participation.

Commissions:

Commission  revenue is recognized as the offerer accepts each  subscription  for
interests in the affiliated  partnership  units after minimum funding levels are
achieved.   Commissions   to  outside   broker-dealers   are   expensed  as  the
corresponding income is recognized.

Acquisition fees:

Acquisition  fees  received  from  the  affiliated   partnerships  on  equipment
purchased prior to 1995, generally 3.5% to 4.75% of the affiliated partnerships'
equipment  cost,  were  deferred  and are  recognized  as income as services are
provided in  connection  with the  partnerships'  acquisition  of equipment  and
leases.  It is estimated  that these  services will be rendered over a period of
seven  years.  Beginning  in 1995,  acquisition  services  are  performed  by an
affiliate.

Cash surrender value of life insurance

ATEL purchased two single premium  key-man life insurance  policies to cover its
two officer-shareholders. ATEL is a beneficiary under the contracts for $300,000
of cash surrender values and death benefits.  The spouses are the  beneficiaries
for amounts above $300,000.



                                      F-9
<PAGE>

                    ATEL FINANCIAL CORPORATION AND SUBSIDIARY

                       NOTES TO CONSOLIDATED BALANCE SHEET

                                  JULY 31, 1996


1.   Summary of significant accounting policies (continued):

Income taxes:

For federal and state income tax reporting, ATEL's taxable income is included in
the returns  filed by its parent.  For  financial  reporting,  ATEL's income tax
provision is  calculated  on a separate  return  basis.  The current  portion is
included  in the  intercompany  account  with the  parent.  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.

New accounting pronouncement:

In August 1995, the Financial Accounting Standards Board (FASB) issued Statement
No. 121,  "Accounting for the Impairment of Long-Lived  Assets and for Long-Live
Assets to be Disposed Of" (FAS 121). This statement  requires  impairment losses
to be recorded  on  long-lived  assets used in  operations  when  indicators  of
impairment are present and the undiscounted cash flows estimated to be generated
by those  assets  during the holding  period are less than the assets'  carrying
amount. The impairment loss is measured by comparing the fair value of the asset
to its carrying  amount.  FAS 121 also  addresses the  accounting for long-lived
assets that are expected to be disposed of. ATEL adopted FAS 121 as of August 1,
1995. No impairment  losses were required to be recorded as a result of adopting
FAS 121.

Credit Risk:

Financial   instruments   which   potentially   subject   the   Partnership   to
concentrations of credit risk include cash and cash equivalents. The Partnership
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 Partnership.

Use of estimates:

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



                                      F-10
<PAGE>

                    ATEL FINANCIAL CORPORATION AND SUBSIDIARY

                       NOTES TO CONSOLIDATED BALANCE SHEET

                                  JULY 31, 1996


2.  Investments in leases:

Investments in leases consist of the following:

Equipment on operating leases, net of accumulated depreciation       $3,170,411
Residual interests                                                      682,227
Lease assets held for sale, net of allowance for losses of
   $273,446                                                             435,281
Investment in leveraged leases                                          250,271
                                                                ----------------
                                                                     $4,538,190
                                                                ================
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
                                                                ----------------
                                                                      4,359,225
Less accumulated depreciation                                        (1,188,814)
                                                                ----------------
Equipment on operating leases, net of accumulated depreciation       $3,170,411
                                                                ================

At July 31,  1996,  the  aggregate  amounts  of future  minimum  lease  payments
receivable from operating leases are as follows:

                                     Year ending July 31,
                                                1996         $641,295
                                                1997          641,295
                                                1998          286,590
                                                1999          290,999
                                                2000          290,999
                                          Thereafter          339,500
                                                      ================
                                                           $2,490,678
                                                      ================

Leveraged leases:

ATEL  participates in leveraged  lease  transactions in which the cost of assets
leased to others is financed primarily by loans from financial  institutions but
ownership of property is retained by ATEL. The lessees'  rental  obligations are
assigned to the financial  institutions  and the related  property is pledged as
collateral  for the loans and are without  deficiency  liability  (non-recourse)
against  ATEL.  Equipment  under  leveraged  leases  includes  coal  mining  and
processing equipment and over-the-road tractors and trailers. The net investment
in leveraged leases is as follows:

Aggregate rentals receivable                                          $3,852,459
Aggregate principal and interest payable on non-recourse loans       (3,852,459)
Estimated residual value of leased assets                               581,000
Less unearned income                                                   (330,729)
                                                                ----------------
Investment in leveraged leases                                          250,271
Deferred tax asset, included in the accompanying
   balance sheet                                                        328,131
                                                                ----------------
Net investment in leveraged leases                                     $578,402
                                                                ================


                                      F-11
<PAGE>

                    ATEL FINANCIAL CORPORATION AND SUBSIDIARY

                       NOTES TO CONSOLIDATED BALANCE SHEET

                                  JULY 31, 1996


2.  Investments in leases (continued):

General lease terms and concentration of credit risk:

Operating  and  leveraged  leases  generally  provide  that the  lessee  will be
responsible  for  maintenance,  insurance and similar costs  (referred to as net
leases).

ATEL leases equipment to lessees in diversified industries. As of July 31, 1996,
equipment  representing 18% and 16% of total assets was leased to lessees in the
heavy construction and machine tool industries, respectively. Leases are subject
to  the  Company'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:

Note payable to financial  institution,  interest at 9.6094% per year,  concrete
hauling  trucks  and  related  leases  pledged  as  collateral,  due in  various
installments through 2002 $1,237,030

Note payable to financial institution, interest at 10.87% per
year, cogeneration plant and related lease pledged as
collateral, due in quarterly installments of $100,801 through
July 1998                                                               722,176
                                                                ----------------
                                                                     $1,959,206
                                                                ================

The net book value of assets financed with  non-recourse  debt was $3,170,411 at
July 31, 1996.

Future minimum payments on non-recourse debt are as follows:

                                   Principal          Interest          Total
     Year ending July 31,           Payments          Payments         Payments
                     1997           $467,755          $173,540         $641,295
                     1998            516,173           125,122          641,295
                     1999            201,397            85,194          286,591
                     2000            226,437            64,562          290,999
                     2001            249,180            41,819          290,999
               Thereafter            298,264            16,985          315,249
                             ----------------  ---------------- ----------------
                                  $1,959,206          $507,222       $2,466,428
                             ================  ================ ================

Cash in the amount of  $250,000  is  restricted  as a security  interest  to the
lender.  The cash  would  transfer  to the  lender  only in the  event of ATEL's
default on the related notes.


                                      F-12
<PAGE>

                    ATEL FINANCIAL CORPORATION AND SUBSIDIARY

                       NOTES TO CONSOLIDATED BALANCE SHEET

                                  JULY 31, 1996


4.  Income taxes:

Deferred  income  taxes as of July  31,  1996  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, 1996, deferred tax assets total $1,009,670 and deferred tax liabilities
total $1,425,526.

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 partnerships,  in a $70,000,000 line of credit facility with a lender
to be used in connection with warehousing lease  transactions.  The line expires
July  18,  1997.  Included  in this  line of  credit  is a  $1,000,000  facility
available  for  operations  and  working  capital.  At  July  31,  1996,  ATEL's
borrowings  related  to  working  capital  were  $499,639.  At  July  31,  1996,
$2,501,013  was borrowed under a separate small ticket lease facility by another
subsidiary  of ACG  relating  to lease  transactions.  Interest is at the bank's
prime rate plus 1/2% (8 1/4% at July 31, 1996).

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  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.

In separate facilities under the line, the affiliated partnerships have borrowed
$37,341,915 as July 31, 1996. These funds are collateralized by the assets owned
by the affiliated  partnerships,  except equipment,  lease receipts and residual
values specifically pledged to other equipment funding sources.


6.  Commitments and contingencies:

Office lease:

ATEL occupies office space under operating leases expiring through January 2003.
Future minimum payments for fiscal year periods under the leases are $468,374 in
1997, $512,438 in 1998, $526,279 in 1999, $536,164 in 2000 and $550,004 in 2001.
Office rent expense was $434,964 in 1996 and $362,963 in 1995.


7.  Reimbursements of operating costs:

The Limited Partnership Agreements of the affiliated  partnerships allow for the
reimbursement  of  costs  incurred  by ACG and  its  subsidiaries  in  providing
administrative services to the Partnerships,  of which a portion of such amounts
is allocated  to ATEL.  Administrative  services  provided  include  partnership
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



                                      F-13
<PAGE>

                    ATEL FINANCIAL CORPORATION AND SUBSIDIARY

                       NOTES TO CONSOLIDATED BALANCE SHEET

                                  JULY 31, 1996


7.  Reimbursements of operating costs (continued):

management of equipment.  Reimbursable  operating  costs incurred by ACG and its
subsidiaries are allocated to the  Partnerships  based upon actual time incurred
by employees working on partnership business and an allocation of rent and other
costs based on utilization  studies.  Accrual and payment of reimbursable  costs
and  management  fees due from ATEL  Cash  Distribution  Fund  were  voluntarily
suspended in May 1994.


8.  Fair value of financial instruments:

During  the year  ended July 31,  1996,  ATEL  adopted  Statement  of  Financial
Accounting  Standards  No.  107,  "Disclosures  about  Fair  Value of  Financial
Instruments,"   which  requires  disclosure  of  the  fair  value  of  financial
instruments  for which it is practicable  to estimate fair value.  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 maturity of these instruments.

Accounts payable, accrued interest and customer deposits:

The carrying amounts of accounts payable, accrued interest and customer deposits
approximate fair value because of the short maturity of these instruments.

Non-recourse debt:

The fair value of ATEL's  non-recourse  debt is estimated using  discounted cash
flow analyses,  based on ATEL's current incremental  borrowing rates for similar
types of borrowing arrangements. The estimated fair value of ATEL's non-recourse
debt at July 31, 1996 is $1,923,376.

Line of credit:

The carrying  amount of ATEL's  variable rate line of credit  approximates  fair
value.


                                      F-14
<PAGE>


      -----------------------------------------------------------------
                          PRIOR PERFORMANCE INFORMATION
       -----------------------------------------------------------------

     ATEL Financial Corporation  ("ATEL"),  the General Partner 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  six prior public and one private  equipment  leasing
limited  partnership(s).  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  approximately  $296,627 as of June 30, 1996.  All such
equipment  had been sold as of June 30, 1996.  See Table V - "Sales or Disposals
of Equipment" in this Exhibit A.

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 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 have been committed to equipment acquisitions,
estimated  organization  and offering  expenses and capital  reserves.  ACDF had
acquired  a  variety  of  types  of  equipment  with a  total  purchase  cost of
approximately  $11,133,679 as of June 30, 1996.  See Table IV - "Acquisition  of
Equipment by Prior Programs" in Exhibit A for further information concerning the
types of equipment  acquired by ACDF. Of such equipment,  items  representing an
original purchase cost of approximately  $8,700,153 had been sold as of June 30,
1996. See Table V - "Sales or Disposals of Equipment" in Exhibit A. Through June
30, 1996,  ACDF had made cash  distributions  to its  investors in the aggregate
amount of  $1,068.40  per  $1,000  invested.  Of this  amount a total of $229.30
represents investment income and $839.10 represents return of capital. See Table
III -  "Operating  Results  of Prior  Programs"  in this  Exhibit A for  further
information concerning such distributions.

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 have been committed to equipment acquisitions,
estimated  organization and offering expenses and capital reserves.  ACDF II had
acquired  a  variety  of  types  of  equipment  with a  total  purchase  cost of
approximately  $52,270,536 as of June 30, 1996.  See Table IV - "Acquisition  of
Equipment by Prior Programs" in Exhibit A for further information concerning the
types of equipment acquired by ACDF II. Of such equipment, items representing an
original purchase cost of approximately $33,874,148 had been sold as of June 30,
1996. See Table V - "Sales or Disposals of Equipment" in Exhibit A. Through June
30, 1996, ACDF II had made cash  distributions to its investors in the aggregate
amount of  $1,018.35  per  $1,000  invested.  Of this  amount a total of $254.34
represents investment income and $764.01 represents return of capital. See Table
III -  "Operating  Results  of Prior  Programs"  in this  Exhibit A for  further
information concerning such distributions.


                                      A-1
<PAGE>

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 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  $99,629,941 as of June 30, 1996.  See Table IV - "Acquisition  of
Equipment by Prior Programs" in Exhibit A for further information concerning the
types of equipment  acquired by ACDF III. Of such equipment,  items representing
an original purchase cost of approximately  $23,608,542 had been sold as of June
30, 1996.  See Table V - "Sales or Disposals of Equipment" in Exhibit A. Through
June 30,  1996,  ACDF III had made cash  distributions  to its  investors in the
aggregate  amount of $776.30  per  $1,000  invested.  Of this  amount a total of
$165.97  represents  investment income and $607.63 represents return of capital.
See Table III -  "Operating  Results of Prior  Programs"  in this  Exhibit A for
further information concerning such distributions.

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 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
purchase cost of  approximately  $112,424,026  as of June 30, 1996. See Table IV
"Acquisition   of  Equipment  by  Prior  Programs"  in  Exhibit  A  for  further
information  concerning  the  types of  equipment  acquired  by ACDF IV. Of such
equipment,  items  representing  an  original  purchase  cost  of  approximately
$13,835,773 had been sold as of June 30, 1996. See Table V - "Sales or Disposals
of  Equipment"  in  Exhibit  A.  Through  June 30,  1996,  ACDF IV had made cash
distributions  to its  investors in the  aggregate  amount of $517.84 per $1,000
invested.  Of this  amount a total of $69.25  represents  investment  income and
$448.59  represents  return of capital.  See Table III -  "Operating  Results of
Prior  Programs"  in this  Exhibit A for  further  information  concerning  such
distributions.

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.  All of the
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  $186,537,028  as of June 30,
1996.  Of such  equipment,  items  representing  an  original  purchase  cost of
approximately  $7,411,341  had been sold as of June 30,  1996.  Through June 30,
1996,  ACDF V had made cash  distributions  to its  investors  in the  aggregate
amount  of  $297.14  per  $1,000  invested.  Of this  amount a total  of  $28.23
represents investment income and $268.91 represents return of capital. See Table
III -  "Operating  Results  of Prior  Programs"  in this  Exhibit A for  further
information  concerning  such  distributions.  See  Table IV -  "Acquisition  of
Equipment by Prior Programs" in Exhibit A for further information concerning the
types of  equipment  acquired  by ACDF V. See Table V - "Sales or  Disposals  of
Equipment" in Exhibit A.

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 has not  terminated  its offering as of
June 30,  1996.  As of that date,  $93,303,920  of  offering  proceeds  had been
received.  All of the 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
$147,437,403  as of June 30, 1996.  Of such  equipment,  items  representing  an
original  purchase cost of  approximately  $155,361 had been sold as of June 30,
1996.  Through  June  30,  1996,  ACDF VI had  made  cash  distributions  to its
investors in the aggregate  amount of $124.73 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 IV - "Acquisition  of Equipment by Prior  Programs" in
Exhibit A for further information  concerning the types of equipment acquired by
ACDF VI. See Table V - "Sales or Disposals of Equipment" in Exhibit A.

Although certain of the Prior Programs have  experienced  lessee defaults in the
ordinary  court 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.

                                      A-2
<PAGE>

     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 the 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 General Partner 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 General Partner and its Affiliates which closed their
offerings  within the five year period  ending June 30,  1996,  except that ACDF
closed its offering  December 18, 1987,  ACDF II closed its offering  January 3,
1990  and  ACDF  VI has  not  completed  its  offering  as of the  date  hereof.
Accordingly,  the tabular information for ACDF VI does not reflect results of an
operating period after completion of its funding.  Table V includes  information
regarding all  dispositions  of equipment by prior programs during the five year
period  ending June 30, 1996.  No  information  concerning  results of completed
programs  is  presented  herein,  because  none of the  prior  partnerships  has
completed  its  operations.  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 ATEL  and  Affiliates  TABLE  III -
                      Operating results of Prior Programs TABLE IV - Acquisition
                      of  Equipment  by  Prior  Programs  TABLE  V  -  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 V, two summary  charts are set forth below.
Figure 6 is a summary of cumulative cash distributions  through June 30, 1996 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 Programs'  financial
statements  as a return of  capital,  on the one hand,  and net  income,  on the
other.

{GRAPHIC OMITTED]

     Figure 7 below illustrates the disposition of equipment after expiration of
the initial  lease term for  equipment  coming off lease through May 1, 1996 for
all of the Prior Public Programs that had completed their public offerings as of
December 31, 1995. The dispositions are characterized as (i) short term renewals
by the lessee (for terms of less than 12 months), (ii) long term renewals by the
lessee  (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.

[GRAPHIC OMITTED]

                                      A-3

<PAGE>

                                     TABLE I

                    EXPERIENCE IN RAISING AND INVESTING FUNDS
                             (on a percentage basis)
                                 June 30, 1996
                                   (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 Cash       ATEL Cash       ATEL Cash      ATEL Cash        ATEL Cash
                                 Distribution    Distribution    Distribution     istribution   Distribution    Distribution
                                     Fund          Fund II         Fund III        Fund IV         Fund V          Fund VI
                                     ----          --------        --------        -------         ------          -------
<S>                              <C>             <C>             <C>             <C>            <C>              <C>
EQUITY PROCEEDS
  Dollar amount of equity
    offered                      $10,000,000     $35,000,000     $75,000,000     $75,000,000    $125,000,000     $125,000,000
  Dollar amount of equity
    raised                       $10,000,000     $35,000,000     $73,855,840     $75,000,000    $125,000,000      $93,303,920
                              --------------- --------------- --------------- --------------- --------------- ----------------
Less:  Offering expenses:
  Selling commissions                   9.50%           9.50%           9.50%           9.50%           9.50%            9.50%
  Organization and program
    expenses (1)                        4.00%           5.00%           4.25%           4.53%           4.60%            4.77%
  Reserves                              3.00%           1.50%           1.50%           1.50%           1.50%            1.50%
                              --------------- --------------- --------------- --------------- --------------- ----------------
Percent available for
  investment                           83.50%          84.00%          84.75%          84.47%          84.40%           84.23%
Acquisition costs:
  Purchase price (2)                   79.00%          79.25%          80.00%          79.71%          79.64%           79.73%
  Acquisition fees                      4.50%           4.75%           4.75%           4.76%           4.76%            4.50%
                              --------------- --------------- --------------- --------------- --------------- ----------------
                                       83.50%          84.00%          84.75%          84.47%          84.40%           84.23%
                              =============== =============== =============== =============== ===============  ================
Percent leverage (9)                   20.26%          40.93%(8)       43.04%(10)      41.50%          28.93%           28.93%
                              =============== =============== =============== =============== ===============  ================


Date offering commenced:         Mar. 1, 1986    Jan. 4, 1988    Jan. 4, 1990    Feb. 4, 1992   Feb. 22, 1993     Nov. 23, 1994

Length of offering                  21 Months       24 Months       24 Months       12 Months       21 Months              N/A (11)

Months to  invest 90% of
  amount available for
  investment (measured from
   beginning of offering            30 Months (3)    27 Months (4)  30 Months (5)   20 Months (6)   22 Months (7)          N/A (11)
</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) As of September  1988,  90% of the amount  available for investment had been
invested.  As of December 1988, 100% of the amount  available for investment had
been invested.

(4) As of March  1990,  90% of the  amount  available  for  investment  had been
invested.  As of June 1990, 100% of the amount available for investment had been
invested.

(5) As of September 30, 1992,  100% of the amount  available for  investment had
been invested.

(6) As of February 3, 1993, the  Partnership's  offering of Limited  Partnership
Units was  completed.  As of  September  30,  1993,  90% of the  proceeds of the
offering  had been  invested.  As of  December  31,  1993,  the  proceeds of the
offering had been fully invested.

(7) As of November 15, 1994, the Partnership's  offering of Limited  Partnership
Units was  completed.  As of December 31, 1994, the proceeds of the offering had
been fully committed.

(8) From January 4, 1988 through August 31, 1994, the maximum amount of leverage
at the end of any quarter was 37%. This was computed as the outstanding  balance
of all  debt  divided  by  the  original  cost  of all  equipment  owned  by the
partnership as of the end of each period.

(9) 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.

(10) From January 4, 1990 through June 30, 1996,  the maximum amount of leverage
at  the  end of any  quarter  was  less  than  40%.  This  was  computed  as the
outstanding  balance of all debt divided by the original  cost of all  equipment
owned by the partnership as of the end of each period.

(11) The offering had not been completed as of June 30, 1996.

                                      A-4
<PAGE>

                                    TABLE II
                      COMPENSATION TO THE GENERAL PARTNERS
                                 June 30, 1996
                                   (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 Cash        ATEL Cash       ATEL Cash       ATEL Cash        ATEL Cash
                                     Distribution    Distribution     Distribution    Distribution    Distribution     Distribution
                                         Fund           Fund II         Fund III         Fund IV          Fund V          Fund VI
                                         ----           -------         --------         -------          ------          -------
<S>                                  <C>              <C>             <C>             <C>            <C>              <C>
Date offering commenced               Mar. 1, 1986    Jan. 4, 1988    Jan. 4, 1990    Feb. 4, 1992   Feb. 22, 1993    Nov. 23, 1994

Date offering closed                 Dec. 18, 1987    Jan. 4, 1990    Jan. 3, 1992    Feb. 3, 1993   Nov. 15, 1994            N/A

Dollar amount raised                   $10,000,000     $35,000,000     $73,855,840     $75,000,000    $125,000,000      $93,303,920

Amounts paid to General
   Partners from proceeds of
   offering:
    Acquisition fees                      $450,000      $1,662,500      $3,558,700      $3,575,123      $5,956,443        4,460,019
    Organization and program costs        $550,000      $1,751,422      $3,135,942      $3,394,652      $5,751,177       $4,450,776
Dollar amount of cumulative
   cash generated from operations
   before deducting payments to
   the General Partner                 $10,288,753     $41,060,384     $61,802,522     $40,156,559     $39,313,793      $12,056,344
Cumulative amount paid to the
   General Partner from operations:
       Management fees                    $765,081      $2,724,746      $4,503,090      $3,272,322      $3,678,541         $784,209
       Other operating expenses           $475,740      $1,342,886      $2,071,102      $1,744,830      $1,737,049         $819,403

Aggregate payments to General
   Partner: (1)
                1991                      $185,640        $605,326      $8,681,140
                1992                       220,893         664,605       3,709,768     $10,986,027
                1993                       221,000         741,295       1,383,380       4,178,039      $8,084,815
                1994                        54,739         551,300       1,339,355       2,007,562      15,675,132
                1995                             -         380,380       1,201,436       1,480,305       4,067,056      $12,837,117
                1996                             -         134,942         482,421         599,992       1,122,537        6,691,017
                                    --------------- --------------- --------------- --------------- --------------- ----------------
                                          $682,272      $3,077,848     $16,797,500     $19,251,925     $28,949,540      $19,528,134
                                    =============== =============== =============== =============== =============== ================
</TABLE>



FOOTNOTES:

(1) As of June 30, 1996. Includes payments of management fees, reimbursements of
syndication  costs to general  partner (and  affiliates),  acquisition  fees and
reimbursements of administrative costs.


                                      A-5

<PAGE>

                                    TABLE III
                       OPERATING RESULTS OF PRIOR PROGRAMS
                                 June 30, 1996
                                   (Unaudited)

 The following Table  summarizes the operating  results of Prior Programs (ACDF,
ACDF II,  ACDF III,  ACDF IV,  ACDF V and ACDF VI).  The  Programs'  records are
maintained in accordance  with  generally  accepted  accounting  principles  for
financial statement purposes.

<TABLE>
<CAPTION>
                                                                         ATEL Cash Distribution Fund
                                                            ---------------------------------------------------------
                                                                                Period Ended December 31,
                                                                         1986               1987               1988
                                                                         ----               ----               ----
Months of operations                                                      2                  12                 12
<S>                                                                   <C>              <C>                 <C>
Gross revenue - lease and other                                          $6,257          $375,072          $1,493,794
Less Operating Expenses: (1)
       Depreciation expense                                                   -            51,965             914,188
       Amortization expense                                                   -             7,849               7,949
       Interest expense                                                   1,558            29,918              37,727
       Administrative costs and reimbursements                                -            16,288              20,978
       Legal/Professional fees                                                -            15,105              16,586
       Provision for doubtful accounts                                        -                 -                   -
       Supplies                                                               -            10,507               6,414
       Other                                                               125             10,886              18,329
       Management fee                                                        -             19,882             108,196
                                                                ---------------    ---------------    ----------------

Net income - GAAP basis (2)                                             $4,574           $212,672            $363,427
                                                                ===============    ===============    ================

Taxable income (loss) from operations                                   $3,972          ($208,962)          ($414,155)
                                                                ===============    ===============    ================


Cash generated by (used in) operations (3)                            $221,291           $160,581          $1,402,104
Cash generated from sales                                                    -                  -                   -
Cash generated from refinancing                                              -                  -                   -
Cash generated from other (3)                                                -            104,143             183,679
                                                                ---------------    ---------------    ----------------
                                                                       221,291            264,724           1,585,783
                                                                ---------------    ---------------    ----------------
Less cash distributions to investors:
       From operating cash flow                                              -            160,581           1,215,018
       From sales                                                            -                  -                   -
       From refinancing                                                      -                  -                   -
       From other                                                            -             93,374                   -
                                                                ---------------    ---------------    ----------------
       Total distributions                                                   -            253,955           1,215,018
                                                                ---------------    ---------------    ----------------
Cash generated (deficiency) after cash distributions                  $221,291            $10,769            $370,765
                                                                ===============    ===============    ================

Tax and distribution data per $1,000 limited partner investment:
       Federal Income Tax Results:
          Ordinary income (loss):
            Operations                                                   $2.76            ($46.78)            ($41.00)
            Recapture
          Capital gain (loss)

Cash distributions to investors on a GAAP basis:
       -  Investment income                                               None             $47.60              $35.98
       -  Return of capital                                               None               9.82               85.52
                                                                ---------------    ---------------    ----------------
                                                                          None              57.42              121.50
Cash available for distribution, reinvested for
     investors' accounts                                                  None              65.08               28.50
                                                                ---------------    ---------------    ----------------
Total                                                                     None            $122.50             $150.00
                                                                ===============    ===============    ================
Sources (on a cash basis)
       Sales
       Refinancing
       Operations                                                                          $77.46             $150.00
       Other                                                                                45.04
                                                                ---------------    ---------------    ----------------
       Total                                                              None            $122.50             $150.00
                                                                ===============    ===============    ================

Amount invested in program equipment (cost, excluding
   acquisition fees)                                                  $467,071         $4,293,800          $8,139,130
Amount invested in program equipment (book value)                     $488,090         $4,341,128          $7,244,935
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) (4)             4.20%             38.57%              73.10%
</TABLE>

                         (Footnotes follow on page A-21)

                                      A-6
<PAGE>

                                    TABLE III
                 OPERATING RESULTS OF PRIOR PROGRAMS (CONTINUED)
                                 June 30, 1996
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                                                   ATEL Cash Distribution Fund
                                                                                    Period Ended December 31,
                                                                                    -------------------------
                                                                  1989               1990               1991               1992
                                                                  ----               ----               ----               ----
Months of operations                                               12                 12                 12                 12
<S>                                                            <C>               <C>                 <C>                 <C>
Gross revenue - lease and other                                $1,761,021         $2,201,630         $1,816,898          $1,410,396
                  - gain (loss) on sales of assets                 11,951              8,766              4,998              15,909
                                                           ---------------    ---------------    ---------------    ----------------
                                                                1,772,972          2,210,396          1,821,896           1,426,305

Less Operating Expenses: (1)
       Depreciation expense                                     1,215,223          1,612,647          1,277,406             906,100
       Amortization expense                                         7,949              7,949              7,849                   -
       Interest expense                                            52,553            176,922            144,752              72,057
       Administrative costs and reimbursements                     43,990             37,163             55,293             126,664
       Legal/Professional fees                                     39,712             35,231             41,141              41,459
       Provision for doubtful accounts                                  -             96,682             42,870               5,731
       Supplies                                                         -                  -                  -                   -
       Other                                                       12,648             11,786             25,922              35,839
       Management fee                                             147,120            164,932            130,347              94,229
                                                           ---------------    ---------------    ---------------    ----------------

Net income (loss) - GAAP basis (2)                               $253,777            $67,084            $96,316            $144,226
                                                           ===============    ===============    ===============    ================

Taxable income (loss) from operations                           ($294,778)          $150,104           $180,117          $1,105,467
                                                           ===============    ===============    ===============    ================

Cash generated by (used in) operations (3)                     $1,521,502         $1,585,967         $1,424,425          $1,673,016
Cash generated from sales                                               -             30,000            159,396             562,504
Cash generated from refinancing                                         -                  -                  -                   -
Cash generated from other (3)                                     221,151            237,576            185,406             126,552
                                                           ---------------    ---------------    ---------------    ----------------
                                                                1,742,653          1,853,543          1,769,227           2,362,072
                                                           ---------------    ---------------    ---------------    ----------------
Less cash distributions to investors:
       From operating cash flow                                 1,508,226          1,516,124          1,265,955           1,470,260
       From sales                                                       -                  -                  -                   -
       From refinancing                                                 -                  -                  -                   -
       From other                                                       -                  -                  -                   -
                                                           ---------------    ---------------    ---------------    ----------------
       Total distributions                                      1,508,226          1,516,124          1,265,955           1,470,260
                                                           ---------------    ---------------    ---------------    ----------------
Cash generated (deficiency) after cash distributions             $234,427           $337,419           $503,272            $891,812
                                                           ===============    ===============    ===============    ================

Tax and distribution data per $1,000 limited partner investment:
       Federal Income Tax Results:
          Ordinary income (loss):
            Operations                                            ($29.20)            $14.88             $17.83             $109.44
            Recapture
          Capital gain (loss)

Cash distributions to investors on a GAAP basis:
       -  Investment income                                        $25.14              $6.66              $9.54              $14.30
       -  Return of capital                                        125.75             145.17             117.24              132.94
                                                           ---------------    ---------------    ---------------    ----------------
                                                                   150.89             151.83             126.78              147.24
                                                           ---------------    ---------------    ---------------    ----------------
Cash available for distribution, reinvested for
     investors' accounts                                             9.11              18.17              14.46               31.00
                                                           ---------------    ---------------    ---------------    ----------------
Total                                                             $160.00            $170.00            $141.24             $178.24
                                                           ===============    ===============    ===============    ================

Sources (on a cash basis)
       Sales
       Refinancing
       Operations                                                 $160.00            $170.00            $141.24             $178.24
       Other
                                                           ---------------    ---------------    ---------------    ----------------
       Total                                                      $160.00            $170.00            $141.24             $178.24
                                                           ===============    ===============    ===============    ================
Amount invested in program equipment (cost,

   excluding acquisition fees)                                 $8,989,917        $10,064,292         $8,607,852          $7,402,311
Amount invested in program equipment (book value)              $6,724,650         $5,961,158         $3,639,966          $2,147,253
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) (4)             80.75%             90.40%             77.31%              66.49%
</TABLE>
                         (Footnotes follow on page A-21)

                                      A-7
<PAGE>

                                    TABLE III
                 OPERATING RESULTS OF PRIOR PROGRAMS (CONTINUED)
                                 June 30, 1996
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                   ATEL Cash Distribution Fund
                                                                           Period Ended December 31,                    June 30,
                                                                          -------------------------                    --------
                                                                 1993               1994               1995               1996
                                                                 ----               ----               ----               ----
Months of operations                                              12                 12                 12                  6
<S>                                                            <C>                <C>                <C>                 <C>
Gross revenue - lease and other                                  $895,012           $264,117           $374,172            $108,081
              - gain (loss) on sales of assets                      9,929            220,266             15,106               5,196
                                                           ---------------    ---------------    ---------------    ----------------
                                                                  904,941            484,383            389,278             113,277

Less Operating Expenses: (1)
       Depreciation expense                                       348,650             98,835             29,324              21,572
       Amortization expense                                             -                  -                  -                   -
       Interest expense                                            25,403              5,154             12,496               8,358
       Administrative costs and reimbursements                    140,984             34,380                  -                   -
       Legal/Professional fees                                     44,256             20,391             15,443               5,035
       Provision for losses                                             -                  -              3,768               1,133
       Provision for doubtful accounts                                  -                  -                  -                   -
       Supplies                                                         -                  -                  -                   -
       Other                                                       21,664             20,697             17,552               7,973
       Management fee                                              80,016             20,359                  -                   -
                                                           ---------------    ---------------    ---------------    ----------------
Net income (loss) - GAAP basis (2)                               $243,968           $284,567           $310,695             $69,206
                                                           ===============    ===============    ===============    ================

Taxable income (loss) from operations                            $692,509           $745,274           $339,275            $150,000
                                                           ===============    ===============    ===============    ================

Cash generated by (used in) operations (3)                       $574,077           $195,123           $200,234             $89,612
Cash generated from sales                                       1,343,908            622,350            112,188              14,000
Cash generated from refinancing                                         -                  -                  -                   -
Cash generated from other (3)                                     183,275            119,745             79,692              47,112
                                                           ---------------    ---------------    ---------------    ----------------
                                                                2,101,260            937,218            392,114             150,724
                                                           ---------------    ---------------    ---------------    ----------------
Less cash distributions to investors:
       From operating cash flow                                   574,077            195,123           200,234               89,612
       From sales                                                 524,806            622,350            112,188              14,000
       From refinancing                                                 -                  -                  -                   -
       From other                                                 183,275            412,143            174,165              20,467
                                                           ---------------    ---------------    ---------------    ----------------
       Total distributions                                      1,282,158         1,229,616             486,587            124,079
                                                           ---------------    ---------------    ---------------    ----------------
Cash generated (deficiency) after cash distributions             $819,102          ($292,398)          ($94,473)            $26,645
                                                           ===============    ===============    ===============    ================

Tax and distribution data per $1,000 limited partner investment:
       Federal Income Tax Results:
          Ordinary income (loss):
            Operations                                             $68.55             $73.92             $33.65              $14.88
            Recapture
          Capital gain (loss)

Cash distributions to investors on a GAAP basis:
       -  Investment income                                        $24.18             $28.22             $30.82               $6.86
       -  Return of capital                                        104.22              94.96              17.91                5.57
                                                           ---------------    ---------------    ---------------    ----------------
                                                                   128.40             123.18              48.73               12.43
                                                           ---------------    ---------------    ---------------    ----------------
Cash available for distribution, reinvested for
     investors' accounts                                           (21.92)            (23.66)            (18.63)              (2.43)
                                                           ===============    ===============    ===============    ================
Total                                                             $106.48             $99.52             $30.10              $10.00
                                                           ===============    ===============    ===============    ================

Sources (on a cash basis)
       Sales                                                       $43.58             $50.37              $6.94               $1.13
       Refinancing
       Operations                                                   47.68              15.79              12.39                7.22
       Other                                                        15.22              33.36              10.77                1.65
                                                           ===============    ===============    ===============    ================
       Total                                                      $106.48             $99.52             $30.10              $10.00
                                                           ===============    ===============    ===============    ================
Amount invested in program equipment (cost,

   excluding acquisition fees)                                 $3,620,293         $2,300,024         $2,825,287          $2,785,169
Amount invested in program equipment (book value)                $724,675           $484,971           $552,050            $473,429
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) (4)              32.52%             20.66%             25.38%              25.02%
</TABLE>

                         (Footnotes follow on page A-21)

                                      A-8
<PAGE>

                                    TABLE III
                 OPERATING RESULTS OF PRIOR PROGRAMS (CONTINUED)
                                 June 30, 1996
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                          ATEL Cash Distribution Fund II
                                                                                              Period Ended December 31,
                                                                                     1988               1989               1990
Months of operations                                                                  9                  12                 12

<S>                                                                             <C>                <C>                 <C>
Gross revenue - lease and other                                                  $1,001,065         $4,190,191          $8,619,546
              - gain (loss) on sales of assets
                                                                             ---------------    ---------------    ----------------
                                                                                  1,001,065          4,190,191           8,619,546

Less Operating Expenses: (1)
       Depreciation expense                                                         531,855          2,579,866           5,253,869
       Provision for decline in value of commercial aircraft                              -                  -           1,083,834
       Provision for doubtful accounts                                                    -                  -                   -
       Interest expense                                                              31,445            362,122           1,485,960
       Administrative costs and reimbursements                                       19,284            107,082              95,474
       Legal/Professional fees                                                            -             32,022              42,748
       Other                                                                          7,799             41,448              58,465
       Management fee                                                                43,721            252,159             472,064
                                                                             ---------------    ---------------    ----------------
Net income - GAAP basis (5)                                                        $366,961           $815,492            $127,132
                                                                             ===============    ===============    ================

Taxable income (loss) from operations                                             ($588,007)       ($3,544,620)        ($3,583,850)

Cash generated by (used in) operations (3)                                       $1,044,176         $3,639,963          $6,823,453
Cash generated from sales
Cash generated from refinancing
Cash generated from other (3)                                                       100,715            147,741             400,308
                                                                             ---------------    ---------------    ----------------
                                                                                  1,144,891          3,787,704           7,223,761
Less cash distributions to investors:
       From operating cash flow                                                     253,760          1,986,455           4,069,920
       From sales                                                                         -                  -                   -
       From refinancing                                                                   -                  -                   -
       From other                                                                         -                  -                   -
                                                                             ---------------    ---------------    ----------------
       Total distributions                                                          253,760          1,986,455           4,069,920

                                                                             ---------------    ---------------    ----------------
Cash generated (deficiency) after cash distributions                               $891,131         $1,801,249          $3,153,841
                                                                             ===============    ===============    ================

Tax and distribution data per $1,000 limited partner investment:
       Federal Income Tax Results:
          Ordinary income (loss):
            Operations                                                              ($96.15)          ($158.82)           ($101.37)
            Recapture
          Capital gain (loss)

Cash distributions to investors on a GAAP basis:
       -  Investment income                                                          $41.91             $36.54               $3.60
       -  Return of capital                                                                              53.37              112.69
                                                                             ---------------    ---------------    ----------------
                                                                                      41.91              89.91              116.29
Cash available for distribution, reinvested for investors' accounts                   37.47              30.09               13.71
                                                                             ---------------    ---------------    ----------------
Total                                                                                $79.38            $120.00             $130.00
                                                                             ===============    ===============    ================

Sources (on a cash basis)
       Operations                                                                    $79.38            $120.00             $130.00
       Sales
       Refinancing
       Other
                                                                             ---------------    ---------------    ----------------
       Total                                                                         $79.38            $120.00             $130.00
                                                                             ===============    ===============    ================


Amount invested in program equipment (cost, excluding acquisition fees)         $14,664,014        $30,309,212         $48,538,987
Amount invested in program equipment (book value)                               $14,661,074        $28,412,251         $40,154,353
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) (4)                                                                   28.05%             57.99%              92.86%
</TABLE>

                         (Footnotes follow on page A-21)

                                      A-9
<PAGE>

                                    TABLE III
                 OPERATING RESULTS OF PRIOR PROGRAMS (CONTINUED)
                                 June 30, 1996
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                        ATEL Cash Distribution Fund II
                                                                                            Period Ended December 31,
                                                                                    1991               1992               1993
Months of operations                                                                 12                 12                 12
<S>                                                                              <C>                <C>                 <C>
Gross revenue - lease and other                                                   $8,774,789         $8,148,565          $6,665,582
              - gain (loss) on sales of assets                                       (31,613)           111,809             184,599
                                                                              ---------------    ---------------    ----------------
                                                                                   8,743,176          8,260,374           6,850,181

Less Operating Expenses: (1)
       Depreciation expense                                                        5,546,000          5,285,315           4,285,373
       Provision for decline in value of commercial                                        -                  -                   -
          aircraft                                                                         -                  -                   -
       Provision for doubtful accounts                                                30,400              4,064                   -
       Interest expense                                                            1,353,033          1,171,105             860,663
       Administrative costs and reimbursements                                        94,910            256,184             313,421
       Legal/Professional fees                                                        52,281             39,612              47,110
       Other                                                                          38,337             70,316              49,725
       Management fee                                                                510,416            408,421             427,874
                                                                              ---------------    ---------------    ----------------
Net income - GAAP basis (5)                                                       $1,117,799         $1,025,357            $866,015
                                                                              ===============    ===============    ================

Taxable income (loss) from operations                                            ($2,013,494)        $1,686,207          $2,346,733

Cash generated by (used in) operations (3)                                        $6,705,095         $6,601,157          $4,720,797
Cash generated from sales                                                            223,447            767,749           2,643,336
Cash generated from refinancing                                                            -                  -                   -
Cash generated from other (3)                                                        488,962            698,496           1,437,114
                                                                              ---------------    ---------------    ----------------
                                                                                   7,417,504          8,067,402           8,801,247
Less cash distributions to investors:
       From operating cash flow                                                    4,561,842          4,927,246           4,720,797
       From sales                                                                          -                  -                   -
       From refinancing                                                                    -                  -                   -
       From other                                                                          -                  -             794,270
                                                                              ---------------    ---------------    ----------------
       Total distributions                                                         4,561,842          4,927,246           5,515,067
                                                                              ---------------    ---------------    ----------------
Cash generated (deficiency) after cash distributions                              $2,855,662         $3,140,156          $3,286,180
                                                                              ===============    ===============    ================

Tax and distribution data per $1,000 limited partner investment:
       Federal Income Tax Results:
          Ordinary income (loss):
            Operations                                                               ($56.95)            $47.69              $66.38
            Recapture
          Capital gain (loss)

Cash distributions to investors on a GAAP basis:
       -  Investment income                                                           $31.62             $29.01              $24.50
       -  Return of capital                                                            98.72             111.77              133.07
                                                                              ---------------    ---------------    ----------------
                                                                                      130.34             140.78              157.57
Cash available for distribution, reinvested for
   investors' accounts                                                                  9.66               9.22                2.43
                                                                              ---------------    ---------------    ----------------
Total                                                                                $140.00            $150.00             $160.00
                                                                              ===============    ===============    ================

Sources (on a cash basis)
       Operations                                                                    $140.00            $150.00             $136.96
       Sales
       Refinancing
       Other                                                                                                                  23.04
                                                                              ---------------    ---------------    ----------------
       Total                                                                         $140.00            $150.00             $160.00
                                                                              ===============    ===============    ================


Amount invested in program equipment (cost, excluding acquisition fees)          $47,181,808        $41,405,356         $36,692,677
Amount invested in program equipment (book value)                                $29,983,437        $23,667,996         $16,204,828
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) (4)                                                                    90.26%             79.21%              70.20%

</TABLE>
                         (Footnotes follow on page A-21)

                                      A-10
<PAGE>

                                    TABLE III
                 OPERATING RESULTS OF PRIOR PROGRAMS (CONTINUED)
                                 June 30, 1996
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                     ATEL Cash Distribution Fund II
                                                                                         December 31,                   June 30,
                                                                                    1994               1995               1996
Months of operations                                                                 12                 12                  6

<S>                                                                              <C>                <C>                 <C>
Gross revenue - lease and other                                                   $5,627,738         $3,191,834          $1,098,313
              - gain (loss) on sales of assets                                        (3,239)           453,960              63,650
                                                                              ---------------    ---------------    ----------------
                                                                                   5,624,499          3,645,794           1,161,963

Less Operating Expenses: (1)
       Depreciation expense                                                        2,963,445          1,451,193             527,880
       Provision for decline in value of commercial
          aircraft                                                                         -                  -                   -
       Provision for losses                                                           11,616             25,972              11,344
       Interest expense                                                              509,267            365,099             134,967
       Administrative costs and reimbursements                                       238,185            157,444              60,902
       Legal/Professional fees                                                        37,647             44,864              13,211
       Other                                                                          66,324             71,101              51,019
       Management fee                                                                313,115            222,936              74,040
                                                                              ---------------    ---------------    ----------------
Net income - GAAP basis (5)                                                       $1,484,900         $1,307,185            $288,600
                                                                              ===============    ===============    ================

Taxable income (loss) from operations                                             $4,340,559         $3,101,835          $1,000,000

Cash generated by (used in) operations (3)                                        $3,921,897         $2,788,119            $748,095
Cash generated from sales                                                          2,959,549          2,304,367             431,159
Cash generated from refinancing                                                            -                  -                   -
Cash generated from other (3)                                                      1,311,673            875,730             449,828
                                                                              ---------------    ---------------    ----------------
                                                                                   8,193,119          5,968,216           1,629,082
Less cash distributions to investors:
       From operating cash flow                                                    3,921,897          2,788,119             748,095
       From sales                                                                    859,241          1,064,197
       From refinancing                                                                                         -
       From other                                                                  1,311,673            875,730             382,999
                                                                              ---------------    ---------------    ----------------
       Total distributions                                                         6,092,811          4,728,046           1,131,094

                                                                              ---------------    ---------------    ----------------
Cash generated (deficiency) after cash distributions                              $2,100,308         $1,240,170            $497,988
                                                                              ===============    ===============    ================

Tax and distribution data per $1,000 limited partner investment:
       Federal Income Tax Results:
          Ordinary income (loss):
            Operations                                                               $122.79             $87.76              $28.29
            Recapture
          Capital gain (loss)

Cash distributions to investors on a GAAP basis:
       -  Investment income                                                           $42.01             $36.99               $8.17
       -  Return of capital                                                           132.10              98.14               24.16
                                                                              ---------------    ---------------    ----------------
                                                                                      174.11             135.13               32.33
Cash available for distribution, reinvested for
   investors' accounts                                                                 (4.11)            (30.13)              (6.33)
                                                                              ---------------    ---------------    ----------------
Total                                                                                $170.00            $105.00              $26.00
                                                                              ===============    ===============    ================

Sources (on a cash basis)
       Operations                                                                    $109.43             $61.92              $17.20
       Sales                                                                           23.97              23.63
       Refinancing
       Other                                                                           36.60              19.45                8.80
                                                                              ---------------    ---------------    ----------------
       Total                                                                         $170.00            $105.00              $26.00
                                                                              ===============    ===============    ================


Amount invested in program equipment (cost, excluding acquisition fees)          $26,755,760        $21,031,914         $19,473,778
Amount invested in program equipment (book value)                                $11,523,077         $7,459,980          $6,113,064
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) (4)                                                                 51.19%             40.24%              37.26%
</TABLE>

                         (Footnotes follow on page A-21)

                                      A-11
<PAGE>

                                    TABLE III
                 OPERATING RESULTS OF PRIOR PROGRAMS (CONTINUED)
                                 June 30, 1996
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                                          ATEL Cash Distribution Fund III
                                                                                             Period Ended December 31,
                                                                                    1990               1991               1992
Months of operations                                                                 12                 12                 12
<S>                                                                              <C>                <C>                 <C>
Gross revenue - lease and other                                                   $2,130,161         $7,760,246         $12,713,280
              - gain (loss) on sales of assets                                             -            (17,714)          1,202,188
                                                                              ---------------    ---------------    ----------------
                                                                                   2,130,161          7,742,532          13,915,468

Less Operating Expenses: (1)
       Depreciation expense                                                        1,278,427          4,919,605           7,739,054
       Provision for decline in value of commercial aircraft                         623,294                  -                   -
       Interest expense                                                              482,047          1,002,520           1,186,760
       Administrative costs and reimbursements                                        70,775            239,667             542,510
       Legal/Professional fees                                                         7,600             52,746              31,691
       Other                                                                          22,898             49,198              52,629
       Management fee                                                                 83,245            391,494             839,909
                                                                              ---------------    ---------------    ----------------
Net income - GAAP basis (6)                                                        ($438,125)        $1,087,302          $3,522,915
                                                                              ===============    ===============    ================

Taxable income (loss) from operations                                            ($2,539,135)       ($6,476,596)        ($3,010,933)
                                                                              ===============    ===============    ================

Cash generated by (used in) operations (3)                                        $1,572,921         $6,288,997          $9,564,446
Cash generated from sales                                                                  -                  -           4,006,080
Cash generated from refinancing                                                            -                  -                   -
Cash generated from other (3)                                                        125,093             14,587             181,746
                                                                              ---------------    ---------------    ----------------
                                                                                   1,698,014          6,303,584          13,752,272
Less cash distributions to investors:
       From operating cash flow                                                      396,751          4,185,400           9,261,560
       From sales                                                                          -                  -                   -
       From refinancing                                                                    -                  -                   -
       From other                                                                          -                  -                   -
                                                                              ---------------    ---------------    ----------------
       Total distributions                                                           396,751          4,185,400           9,261,560
                                                                              ---------------    ---------------    ----------------
Cash generated (deficiency) after cash distributions                              $1,301,263         $2,118,184          $4,490,712
                                                                              ===============    ===============    ================
Tax and distribution data per $1,000 limited partner investment:
       Federal Income Tax Results:
          Ordinary income (loss):
            Operations                                                              ($282.13)          ($200.01)            ($40.37)
            Recapture
          Capital gain (loss) Cash distributions to investors on a GAAP basis:
       -  Investment income                                                                              $33.58              $47.23
       -  Return of capital                                                           $44.53              96.98               78.19
                                                                              ---------------    ---------------    ----------------
                                                                                      $44.53            $130.56             $125.42
                                                                              ===============    ===============    ================
Sources (on a cash basis)
       Sales
       Refinancing
       Operations                                                                     $44.53            $130.56             $125.42
       Other
                                                                              ---------------    ---------------    ----------------
       Total                                                                          $44.53            $130.56             $125.42
                                                                              ===============    ===============    ================


Amount invested in program equipment (cost, excluding acquisition fees)          $28,534,220        $52,188,848         $83,423,686
Amount invested in program equipment (book value)                                $27,475,925        $44,531,829         $64,526,606
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) (4)                                                                   28.64%             52.38%              83.73%
</TABLE>

                         (Footnotes follow on page A-21)

                                      A-12
<PAGE>

                                    TABLE III
                 OPERATING RESULTS OF PRIOR PROGRAMS (CONTINUED)
                                 June 30, 1996
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                               ATEL Cash Distribution Fund III
                                                                                         Period Ended
                                                                                 December 31,                            June 30,

                                                                 1993               1994               1995               1996
                                                                 ----               ----               ----               ----
Months of operations                                              12                 12                 12                  6
<S>                                                           <C>                <C>                <C>                 <C>

Gross revenue - lease and other                               $13,970,227        $14,212,777         13,378,680           5,411,317
                  - gain (loss) on sales of assets               (140,513)           155,497            954,115             181,879
                                                           ---------------    ---------------    ---------------    ----------------
                                                               13,829,714         14,368,274         14,332,795           5,593,196

Less Operating Expenses: (1)
       Depreciation expense                                     8,984,502          9,734,408          9,037,450           3,801,365
       Provision for losses                                             -             36,626            826,550              55,882
       Interest expense                                         1,456,147          1,395,276          1,064,823             389,779
       Administrative costs and reimbursements                    468,005            340,269            300,952             108,924
       Legal/Professional fees                                     58,809             60,552             59,237              21,604
       Other                                                       75,289            113,411            110,637              86,679
       Management fee                                             915,375            999,086            900,484             373,497
                                                           ---------------    ---------------    ---------------    ----------------
Net income - GAAP basis (6)                                    $1,871,587         $1,688,646         $2,032,662            $755,466
                                                           ===============    ===============    ===============    ================

Taxable income (loss) from operations                         ($5,122,581)          $635,990         $6,281,437          $3,000,000
                                                           ===============    ===============    ===============    ================

Cash generated by (used in) operations (3)                    $11,402,915        $11,400,861        $10,333,228          $4,664,962
Cash generated from sales                                         269,479            682,595          3,276,705           1,025,749
Cash generated from refinancing                                         -                  -                  -                   -
Cash generated from other (3)                                     719,701          1,317,531          1,518,191             867,605
                                                           ---------------    ---------------    ---------------    ----------------
                                                               12,392,095         13,400,987         15,128,124           6,558,316
Less cash distributions to investors:
       From operating cash flow                                 9,594,918         10,201,485         10,333,228           4,664,962
       From sales                                                       -                  -                  -                   -
       From refinancing                                                 -                  -                  -                   -
       From other                                                       -                  -              4,961             122,835
                                                           ---------------    ---------------    ---------------    ----------------
       Total distributions                                      9,594,918         10,201,485         10,338,189           4,787,797
                                                           ---------------    ---------------    ---------------    ----------------
Cash generated (deficiency) after cash distributions           $2,797,177         $3,199,502         $4,789,935          $1,770,519
                                                           ===============    ===============    ===============    ================
Tax and distribution data per $1,000 limited partner investment:
       Federal Income Tax Results:
          Ordinary income (loss):
            Operations                                            ($68.68)             $8.53             $84.28              $40.25
            Recapture
          Capital gain (loss) Cash distributions to investors on a GAAP basis:
              -  Investment income                                 $25.09             $22.66             $27.27              $10.14
              -  Return of capital                                 104.86             115.59             112.73               54.76
                                                           ===============    ===============    ===============    ================
                                                                  $129.95            $138.25            $140.00              $64.90
                                                           ===============    ===============    ===============    ================
Sources (on a cash basis)
       Sales
       Refinancing
       Operations                                                 $129.95            $138.25            $139.93              $63.23
       Other                                                                                               0.07                1.67
                                                           ===============    ===============    ===============    ================
       Total                                                      $129.95            $138.25            $140.00              $64.90
                                                           ===============    ===============    ===============    ================
Amount invested in program equipment (cost, excluding
   acquisition fees)                                          $91,612,304        $87,442,745        $79,602,818         $76,864,677

Amount invested in program equipment (book value)             $63,434,911        $52,479,724        $39,107,792         $33,691,962
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) (4)              91.95%             87.77%             79.90%              77.15%
</TABLE>

                         (Footnotes follow on page A-21)

                                      A-13
<PAGE>

                                    TABLE III
                 OPERATING RESULTS OF PRIOR PROGRAMS (CONTINUED)
                                 June 30, 1996
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                              ATEL Cash Distribution Fund IV
                                                                                Period Ended December 31,

                                                                      1992               1993               1994
                                                                      ----               ----               ----
Months of operations                                                   12                 12                 12

<S>                                                                 <C>                <C>                <C>
Gross revenue - lease and other                                      $2,123,081        $10,510,289        $13,246,145
                  - gain (loss) on sales of assets                            -            (38,429)          (102,932)
                                                                 ---------------    ---------------    ---------------
                                                                      2,123,081         10,471,860         13,143,213

Less Operating Expenses: (1)
       Depreciation and amortization expense                          1,147,209          7,054,380          8,743,149
       Provision for losses                                                   -                  -             34,505
       Interest expense                                                  91,577             81,437          1,332,542
       Administrative costs and reimbursements                          382,114            537,918            358,441
       Legal/Professional fees                                           46,935             52,838             86,594
       Other                                                             25,988             57,575            114,376
       Management fee                                                   103,510            752,950          1,060,190
                                                                 ---------------    ---------------    ---------------
Net income - GAAP basis                                                $325,748         $1,934,762         $1,413,416
                                                                 ===============    ===============    ===============

Taxable income (loss) from operations                               ($2,034,428)       ($9,624,570)       ($8,073,869)
                                                                 ===============    ===============    ===============

Cash generated by (used in) operations (3)                           $3,560,891         $9,021,440        $10,366,325
Cash generated from sales                                                     -             98,752          5,648,425
Cash generated from refinancing                                               -                  -                  -
Cash generated from other (3)                                                 -            220,258          1,522,609
                                                                 ---------------    ---------------    ---------------
                                                                      3,560,891          9,340,450         17,537,359
Less cash distributions to investors:
       From operating cash flow                                       1,936,639          8,686,491          9,653,038
       From sales                                                             -                  -                  -
       From refinancing                                                       -                  -                  -
       From other                                                             -                  -                  -
                                                                 ---------------    ---------------    ---------------
       Total distributions                                            1,936,639          8,686,491          9,653,038
                                                                 ---------------    ---------------    ---------------
Cash generated (deficiency) after cash distributions                 $1,624,252           $653,959         $7,884,321
                                                                 ===============    ===============    ===============

Tax and distribution data per $1,000 limited partner investment:
       Federal Income Tax Results:
          Ordinary income (loss):
            Operations                                                  ($76.67)          ($127.78)          ($106.64)
            Recapture
          Capital gain (loss)

Cash distributions to investors on a GAAP basis:
       -  Investment income                                              $12.28             $15.86             $18.67
       -  Return of capital                                               61.44             100.63             110.12
                                                                 ---------------    ---------------    ---------------
                                                                         $73.72            $116.49            $128.79
                                                                 ===============    ===============    ===============

Sources (on a cash basis)
       Sales
       Refinancing
       Operations                                                        $73.72            $116.49            $128.79
       Other
                                                                 ---------------    ---------------    ---------------
       Total                                                             $73.72            $116.49            $128.79
                                                                 ===============    ===============    ===============
Amount invested in program equipment (cost, excluding
   acquisition fees)                                                $49,603,894        $82,896,683        $88,187,291

Amount invested in program equipment (book value)                   $49,801,834        $69,901,953        $65,252,553
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) (4)                    44.12%             73.74%             78.44%
</TABLE>

                         (Footnotes follow on page A-21)

                                      A-14

<PAGE>

                                    TABLE III
                 OPERATING RESULTS OF PRIOR PROGRAMS (CONTINUED)

                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                 ATEL Cash Distribution Fund IV
                                                                           Period Ended
                                                                 December 31,          June 30,
                                                                      1995               1996
                                                                      ----               ----
Months of operations                                                   12                 6

<S>                                                                 <C>                <C>
Gross revenue - lease and other                                     $12,973,718        $5,889,736
                  - gain (loss) on sales of assets                      615,042            790,390
                                                                 ---------------    ---------------
                                                                     13,588,760          6,680,126

Less Operating Expenses: (1)
       Depreciation and amortization expense                          8,740,231          4,047,106
       Provision for losses                                             679,634             66,796
       Interest expense                                               1,960,823            986,666
       Administrative costs and reimbursements                          349,663            116,694
       Legal/Professional fees                                           76,365             23,261
       Other                                                            110,466             58,388
       Management fee                                                   872,374            483,298
                                                                 ---------------    ---------------
Net income - GAAP basis                                                $799,204           $897,917
                                                                 ===============    ===============

Taxable income (loss) from operations                               ($2,073,084)        $1,000,000
                                                                 ===============    ===============

Cash generated by (used in) operations (3)                           $8,830,893         $3,359,858
Cash generated from sales                                             2,722,954          2,152,220
Cash generated from refinancing                                               -                  -
Cash generated from other (3)                                         2,384,094          1,732,475
                                                                 ---------------    ---------------
                                                                     13,937,941          7,244,553
Less cash distributions to investors:
       From operating cash flow                                       8,830,893          3,359,858
       From sales                                                                           57,182
       From refinancing
       From other                                                       906,007          1,732,475
                                                                 ---------------    ---------------
       Total distributions                                            9,736,900          5,149,515
                                                                 ---------------    ---------------
Cash generated (deficiency) after cash distributions                 $4,201,041         $2,095,038
                                                                 ===============    ===============

Tax and distribution data per $1,000 limited partner investment:
       Federal Income Tax Results:
          Ordinary income (loss):
            Operations                                                  ($27.43)            $13.22
            Recapture
          Capital gain (loss)                                              0.04

Cash distributions to investors on a GAAP basis:
       -  Investment income                                              $10.57             $11.87
       -  Return of capital                                              119.50              56.90
                                                                 ---------------    ---------------
                                                                        $130.07             $68.77
                                                                 ===============    ===============

Sources (on a cash basis)
       Sales                                                                                 $0.76
       Refinancing
       Operations                                                       $117.97              44.87
       Other                                                              12.10              23.14
                                                                 ---------------    ---------------
       Total                                                            $130.07             $68.77
                                                                 ===============    ===============
Amount invested in program equipment (cost, excluding
   acquisition fees)                                                $98,547,911        $98,588,253

Amount invested in program equipment (book value)                   $63,967,204        $59,321,966
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) (4)                    87.66%             87.69%
</TABLE>

                         (Footnotes follow on page A-21)

                                      A-15
<PAGE>

                                    TABLE III
                 OPERATING RESULTS OF PRIOR PROGRAMS (CONTINUED)
                                 June 30, 1996
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                ATEL Cash Distribution Fund V
                                                                                          Period Ended
                                                                                 December 31,                            June 30,
                                                                                 ------------                            --------
                                                                  1993               1994               1995               1996
                                                                  ----               ----               ----               ----
Months of operations                                               10                 12                 12                  6
<S>                                                           <C>               <C>                <C>                 <C>

Gross revenue - lease and other                                $2,173,205        $10,806,892        $19,951,380         $12,045,075
              - gain (loss) on sales of assets                                         2,564            933,289             137,301
                                                           ---------------    ---------------    ---------------    ----------------
                                                                2,173,205         10,809,456         20,884,669          12,182,376

Less Operating Expenses: (1)
       Depreciation and amortization expense                    1,600,628          8,135,951         14,600,474           7,943,833
       Provision for losses                                             -             34,158            987,013             121,824
       Interest expense                                            31,511             61,036          1,222,050           1,924,366
       Administrative costs and reimbursements                    373,089            706,324            535,812             201,113
       Legal/Professional fees                                     13,746             65,028            110,744              84,003
       Other                                                       36,269            113,981            176,847             125,702
       Management fee                                             178,583          1,013,448          1,623,818             862,692
                                                           ---------------    ---------------    ---------------    ----------------
Net income - GAAP basis                                          ($60,621)          $679,530         $1,627,911            $918,843
                                                           ===============    ===============    ===============    ================

Taxable income (loss) from operations                         ($5,061,304)      ($13,005,033)      ($11,831,759)        ($4,000,000)
                                                           ===============    ===============    ===============    ================

Cash generated by (used in) operations (3)                      $1,795,722       $10,053,220        $15,800,948          $6,248,313
Cash generated from sales                                                -            22,572          6,930,477             247,488
Cash generated from refinancing                                          -                 -                  -                   -
Cash generated from other (3)                                            -         1,513,782          2,498,923           2,678,736
                                                           ---------------    ---------------    ---------------    ----------------
                                                                1,795,722         11,589,574         25,230,348           9,174,537
Less cash distributions to investors:
       From operating cash flow                                   922,278          8,223,081         13,101,508           6,248,313
       From sales                                                       -                  -                  -                   -
       From refinancing                                                 -                  -                  -                   -
       From other                                                       -                  -                  -             551,666
                                                           ---------------    ---------------    ---------------    ----------------
       Total distributions                                        922,278          8,223,081         13,101,508           6,799,979
                                                           ---------------    ---------------    ---------------    ----------------
Cash generated (deficiency) after cash distributions             $873,444         $3,366,493        $12,128,840          $2,374,558
                                                           ===============    ===============    ===============    ================

Tax and distribution data per $1,000 limited partner investment:
       Federal Income Tax Results:
          Ordinary income (loss):
            Operations                                           ($219.75)          ($152.59)           ($93.72)            ($31.68)
            Recapture
          Capital gain (loss)

Cash distributions to investors on a GAAP basis:
       -  Investment income                                                            $8.05             $12.89               $7.28
       -  Return of capital                                        $40.45              89.41              91.93               47.13
                                                           ---------------    ---------------    ---------------    ----------------
                                                                   $40.45             $97.46            $104.82              $54.41
                                                           ===============    ===============    ===============    ================
Sources (on a cash basis)
       Sales
       Refinancing
       Operations                                                  $40.45             $97.46            $104.82              $49.99
       Other                                                                                                                   4.42
                                                           ---------------    ---------------    ---------------    ----------------
       Total                                                       $40.45             $97.46            $104.82              $54.41
                                                           ===============    ===============    ===============    ================
Amount invested in program equipment (cost, excluding
   acquisition fees)                                          $34,699,207       $113,427,843       $161,866,626        $179,127,761

Amount invested in program equipment (book value)             $34,246,741       $100,762,242       $131,686,535        $139,397,206
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) (4)              18.60%             60.81%             86.77%              96.03%
</TABLE>

                         (Footnotes follow on page A-21)

                                      A-16
<PAGE>

                                    TABLE III
                 OPERATING RESULTS OF PRIOR PROGRAMS (CONTINUED)
                                    TABLE III
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                       ATEL Cash Distribution Fund VI
                                                                                                Period Ended
                                                                                     December 31,         June 30,
                                                                                         1995               1996
                                                                                         ----               ----
Months of operations                                                                      12                 6

<S>                                                                                    <C>               <C>
Gross revenue - lease and other                                                         $6,440,218         $9,651,807
              - gain (loss) on sales of assets                                               3,819              9,380
                                                                                    ---------------    ---------------
                                                                                         6,444,037          9,661,187

Less Operating Expenses: (1)
       Depreciation and amortization expense                                             4,976,075          7,438,946
       Provision for losses                                                                 64,892             96,599
       Interest expense                                                                    931,651          1,919,915
       Administrative costs and reimbursements                                             539,009            280,394
       Legal/Professional fees                                                              50,962            123,552
       Other                                                                               121,541            141,343
       Management fee                                                                      362,581            421,628
                                                                                    ---------------    ---------------
Net income - GAAP basis                                                                  ($602,674)         ($761,190)
                                                                                    ===============    ===============

Taxable income (loss) from operations                                                 ($11,625,618)       ($7,500,000)
                                                                                    ===============    ===============

Cash generated by (used in) operations (3)                                              $4,354,020         $6,098,712
Cash generated from sales                                                                   54,156            103,247
Cash generated from refinancing                                                                  -                  -
Cash generated from other (3)                                                              195,884            236,138
                                                                                    ---------------    ---------------
                                                                                         4,604,060          6,438,097
Less cash distributions to investors:
       From operating cash flow                                                          2,484,971          3,583,893
       From sales                                                                                -                  -
       From refinancing                                                                          -                  -
       From other                                                                                -                  -
                                                                                    ---------------    ---------------
       Total distributions                                                               2,484,971          3,583,893
                                                                                    ---------------    ---------------
Cash generated (deficiency) after cash distributions                                    $2,119,089         $2,854,204
                                                                                    ===============    ===============

Tax and distribution data per $1,000 limited partner investment:
       Federal Income Tax Results:
          Ordinary income (loss):
            Operations                                                                    ($364.88)           ($95.19)
            Recapture
          Capital gain (loss)

Cash distributions to investors on a GAAP basis:
       -  Investment income
       -  Return of capital                                                                 $78.78             $45.95
                                                                                    ---------------    ---------------
                                                                                            $78.78             $45.95
                                                                                    ===============    ===============
Sources (on a cash basis)
       Sales
       Refinancing
       Operations                                                                           $78.78             $45.95
       Other
                                                                                    ---------------    ---------------
       Total                                                                                $78.78             $45.95
                                                                                    ===============    ===============

Amount invested in program equipment (cost, excluding acquisition fees)                $98,036,611       $147,282,097
Amount invested in program equipment (book value)                                      $92,802,029       $136,619,553
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) (4)                                                                              66.49%             99.89%
</TABLE>

                         (Footnotes follow on page A-21)

                                      A-17
<PAGE>

FOOTNOTES:

(1) Operating  expenses include  reimbursements to the corporate general partner
as follows:

<TABLE>
<CAPTION>
                       ATEL Cash          ATEL Cash          ATEL Cash          ATEL Cash           ATEL Cash          ATEL Cash
                     Distribution       Distribution       Distribution       Distribution       Distribution       Distribution
Year ended December 31,   Fund             Fund II            Fund III           Fund IV             Fund V             Fund VI
-----------------------   ----             -------            --------           -------             ------             -------
<S>                       <C>              <C>                <C>                <C>                 <C>                  <C>
             1986             $100
             1987           15,100
             1988           21,500             $3,000
             1989           32,201             86,234
             1990           37,163             95,474            $70,775
             1991           48,195             71,289            239,667
             1992          126,664            256,184            542,510           $382,114
             1993          140,984            313,421            468,005            537,918            $373,089
             1994           34,380            238,185            340,269            358,441             706,324
             1995                -            157,444            300,952            349,663             535,812           $539,009
             1996                -             60,902            108,924            116,694             201,113            280,394
                    ---------------    ---------------    ---------------    ---------------    ----------------   ----------------

                          $456,287         $1,282,133         $2,071,102         $1,744,830          $1,816,338           $819,403
                    ===============    ===============    ===============    ===============    ================   ================
</TABLE>

(2) A portion of the equipment  owned by the  Partnership is accounted for under
the direct financing method. Income under direct financing leases is reported on
the  financing  method  where the  income  portion  of each  rental  payment  is
calculated  so as to generate a constant rate of return on the  outstanding  net
investment.  The effect is to  recognize  decreasing  amounts of income in later
periods as the net investment declines.  Net income was also negatively impacted
in 1990 by necessity for a provision for doubtful accounts. Prior to 1990, there
had been no such need.  The  decrease  in net income  from 1988 to 1989 and from
1989 to 1990 is due to increasing debt levels and interest expense. The decrease
from 1992 to 1993 is due to decreased lease revenues.  Revenues have declined as
equipment leases have expired and as the related assets have been sold.

(3) 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.

(4) 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.

(5) Net income  decreased  from 1989 to 1990 due to the  provision  for  decline
value of  commercial  aircraft  ($1,083,834)  included  in net  income  in 1990.
Excluding the effect of that  provision,  net income per $1,000  invested  would
have been $34.60.  The results in 1990 are also effected by higher  depreciation
rates  used  for  more  recent  equipment  purchases,   resulting  in  increased
depreciation  expense  compared to lease revenues.  The remaining  amount of the
changes from 1988 to 1989 and from 1989 to 1990 are  primarily due to the timing
of the  acquisition of assets,  the placement of debt against certain assets and
other operating factors.

(6) Net income  increased  from 1990 to 1991 due to the  provision  for  decline
value of  commercial  aircraft  ($623,294)  included in net income in 1990.  The
remaining  amount  of the  changes  from  1990 to 1991 and from 1991 to 1992 are
primarily due to the timing of the acquisition of assets,  the placement of debt
against certain assets and other operating factors.



                                      A-18
<PAGE>



                                    TABLE IV
                            ACQUISITION OF EQUIPMENT
                                BY PRIOR PROGRAMS

The  following  is a summary of  Equipment  acquisitions  and Lessees by the six
prior  publicly-registered  programs sponsored by ATEL Financial Corporation and
its affiliates. Information concerning the prior programs' Equipment acquisition
is current through June 30, 1996.

<TABLE>
<CAPTION>
                                                          Commence          Acquisition Acquisition Percent      Lease        Lease
Lessee                       Notes   Equipment Type       Date(s) (1)       Cost (2)    Fees (3)    Leverage (4) Term (5)   Type (6)
------                       -----   --------------       -----------       --------    --------    ------------ -------- ----------
<S>                        <C>       <C>                  <C>              <C>           <C>             <C>          <C>     <C>
ATEL Cash Distribution Fund
---------------------------
Acushnet Company                     Office Information   Jan-87               $134,246      $6,041                   60          FP
                                        Systems
Alachua General Hospital, Inc.  7    Medical              Jan-89                628,632      28,288                   36          OL
American Motors Corporation          Lift Trucks          Oct-87 to Jan-88      622,632      28,018                   48          OL
Anaheim Memorial Hospital            Medical              Jan-88                779,613      35,083      48.07%       60          FP
Campbell Soup Company                Lift Trucks          Mar-87                317,500      14,288                   84          FP
Colour Graphics Corporation     8    Printing             Jan-87                222,520      10,013      80.75%       84          FP
Enron Corp.                          Office Information   Aug-88                244,488      11,002                   36          FP
                                        Systems
Financial News Network, Inc.    9    Studio and           Apr-90                909,735      26,183                   36          FP
                                        Broadcasting
GAF Corporation                10    Manufacturing        Oct-88                512,208      23,049                   60          FP
GAF Corporation                      Lift Trucks          Oct-87                439,866      19,794                   60          OL
Galardi Group, Inc.                  Restaurant Furnitue  Jul-94                247,000           -                   48          FP
                                        and Fixtures
Hartford Insurance Group             Communication        Mar-88                 89,236       4,016                   60          FP
Imperial Plastics, Inc.        11    Manufacturing        Sep-87 to Apr-88      526,270      23,682      69.63%       84          FP
Martin Marietta Corporation          Communication        May-88                425,670      19,155                   48          OL
Nord Kaolin Company        12, 13    Mining, Processing   Jul-87 to Jan-88      358,710      16,734                   60-62       FP
Nord Sil-Flo Company       12, 13    Material Handling    Aug-89 to Jan-88       28,113         673      86.27%       60          FP
Polaroid Corporation                 Office Information   Jan-87                 36,190       1,629                   59          FP
                                        Systems
Putnam County Hospital               Medical              May-88                110,000       4,950                   60          FP
Rohr Industries, Inc.                Motor Vehicle        Apr-88 to Oct-88      327,240      14,726                   36-84   FP, OL
Teledyne Industries, Inc.      14    Lift Trucks          Jan-88 to Oct-89    1,653,596      74,412                   36-84   FP, OL
The Dow Chemical Company             Motor Vehicle        May-88                217,908       9,805      74.86%       50          FP
Treasure Chest                 15    Printing             Apr-87                498,746      22,444      97.79%       60          FP
   Advertising Company
TRW, Inc.                            Communication        Apr-89                320,657      14,430                   36          OL
United Technologies                  Office Information   Jan-87                 74,115       3,335                   48          FP
   Corporation, Pratt &                 Systems
   Whitney Aircraft Group
Vista Chemical Company               Railroad Rolling     Mar-88                850,000      38,250      53.45%       60          FP
                                        Stock
Vista Chemical Company               Railroad Rolling     Apr-93                350,000           -                   60          OL
                                        Stock,
                                        Improvements
WSMP, Inc.                           Food Processing      Jul-95                208,788           -      98.47%       60          FP
                                        Equipment
                                                                          -------------- -----------
                                      ATEL Cash Distribution Fund total:    $11,133,679    $450,000
                                                                          ============== ===========
</TABLE>

                                      A-19
<PAGE>

<TABLE>
<CAPTION>
                                                          Commence          Acquisition Acquisition Percent      Lease        Lease
Lessee                       Notes   Equipment Type       Date(s) (1)       Cost (2)    Fees (3)    Leverage (4) Term (5)   Type (6)
------                       -----   --------------       -----------       --------    --------    ------------ -------- ----------
<S>                        <C>       <C>                  <C>              <C>           <C>             <C>          <C>     <C>
ATEL Cash Distribution Fund II
------------------------------
A.O. Smith Corporation               Office Information   Jul-89 to Feb-91     $873,480      $6,880      11.59%       36-59       FP
                                        Systems, Lift
                                        Trucks
Addwest Gold, Inc.             16    Mining               Oct-88              1,100,717      52,284                   60          FP
Alachua General Hospital, Inc.  7    Medical              Jan-89              1,257,263      59,720                   36          OL
American Express Company             Manufacturing        May-89                276,775      13,147                   48          FP
American President             17    Tractors             Sep-88              2,890,840     137,315                   84          FP
   Trucking Co., Ltd.
Bristol-Myers Squibb Company         Office Furniture     Jul-92                324,310           -                   24          OL
Buffalo & Pittsburgh Railroad        Locomotive           Nov-93                108,127           -                   37          FP
Campbell Soup Company                Lift Trucks          Aug-88                350,772      16,662                   84          FP
Chesebrough-Pond's Inc.              Lift Trucks          Jun-90                201,452           -                   48-50       FP
Chrysler Corporation                 Material Handling    Dec-93                103,620           -                   12          OL
Colour Graphics Corporation          Computer System      Oct-88                 33,805       1,606                   60          FP
Cooper Tire & Rubber Company         Lift Trucks          Jan-89                576,326      27,375                   84          FP
Delnor Community Hospital            Medical              Jul-88                449,956      21,373                   36          OL
DJ Aerospace (Bermuda), Ltd.         Executive Aircraft   Jul-94                810,000           -                   36          OL
Emanuel Hospital & Health Center     Helicopter           Oct-88              2,247,765     106,769      79.58%       144         FP
Financial News              9, 18    Studio and           Apr-90                640,544      29,815                   36          FP
   Network, Inc.                        Broadcasting
Fingerhut Corporation                Binding, Printing    Jan-89 to Mar-89    1,441,690      68,481                   60          FP
FMC Gold Company                     Material Handling    Apr-90                761,129      36,154                   36          OL
GAF Corporation                      Manufacturing        Oct-88 to Apr-88      682,310      32,410                   60          FP
Galardi Group, Inc.                  Restaurant Furniture Jul-94                507,000           -                   48          FP
                                        and Fixtures
General Motors Corporation           Video Projectors     Jan-94                 58,644           -                   36          OL
Home Life Insurance Company          Office Furniture/    Dec-88                425,658      20,219                   60          FP
                                        Lift Trucks/
                                        Binding
Hudson Foods, Inc.                   Food Processing      Dec-89              2,713,115     128,872      65.91%       57-59       FP
Inland Steel Company                 Scientific Measuring Sep-89                417,000      19,808                   54          FP
International Paper Company    19    Delivery Trucks      Jul-88              1,281,761      60,884                   36-60   FP, OL
KeyCorp                              Office Furniture,    Jul-89              1,618,337      76,870      40.09%       53-55       FP
                                        Automated Teller
                                        Machines
Koppers Industries, Inc.             Material Handling    Jun-90                639,120           -                   60          FP
Liggett Group, Inc.            20    Manufacturing        Dec-88                648,577      30,807                   56          FP
Midway Airlines, Inc.          21    Commercial Aircraft  Jun-90              4,592,040           -      68.85%       102         FP
National Semiconductor               Manufacturing        Apr-89                728,000      34,580                   56          FP
   Corporation
National Steel Corporation           Material Handling    May-89                606,153      28,792      87.63%       81          FP
National Union Electric        22    Communication        Apr-89                459,893      21,845                   60          FP
   Corporation
Nissan Motor Corporation             Office Information   Jul-88                219,187      10,411                   48          FP
   In USA                               Systems
NMCS, Inc. , d/b/a National    23    Office Furniture     Apr-88                599,001      28,452                   60          FP
   Medical Group Services,
   Inc.
Nord Kaolin Company            12    Drilling             Apr-89                292,799      13,908                   60          FP
Owens Corning Fiberglas              Material Handling    Jul-89 to Oct-90    1,689,012      42,404      39.57%       36-84   FP, OL
   Corporation
Quaker Coal Company                  Tractor              Apr-94                558,301           -                   24          OL
Regents of the University            Communication        Dec-88                 80,386       3,818                   60          FP
   of California
Rocky Mountain Helicopters,          Medical Aircraft     Nov-89              2,150,000     102,125      81.86%       84          FP
   Inc.
Rohr Industries, Inc.                Motor Vehicles       Jan-89 to Jan-90      749,291      33,835                   36-84       FP
Sebastiani Vineyards, Inc.           Production Line,     Jan-90 to Jan-91    2,818,067     133,417      79.98%       60-84       FP
                                        Wine Barrels
Shell Mining Company           24    Mining               Jul-90              3,736,965           -      21.46%       60-84       FP
Sherwood Rehabilitation        25    Medical Furniture/   Oct-90              1,814,036           -      97.36%       87          FP
   Hospital, Inc.                       Fixtures & Eqt.
South Dade Nursing Home Ltd.   25    Physical Therapy &   Jul-90                 36,676           -                   60          FP
                                        Exercise Eqt.
St. Luke's-Roosevelt                 Medical Furniture/   Feb-90              1,075,795      50,428      84.68%       34-39       OL
   Hospital Center                      Fixtures & Eqt.
The Budd Company                     Material Handling    May-90 to Jun-90    1,099,014           -      75.09%       55-80       FP
The Dow Chemical Company             Material Handling    Jun-88              1,532,061      72,773      74.86%       50          OL
Treasure Chest Advertising           Printing Press       Apr-93                850,000           -      95.59%       60          FP
   Company
Treasure Chest Advertising           Printing Equipment   Feb-94                233,000           -                   60          FP
   Company
USX Corporation                      Haul Trucks          Dec-89              2,910,766     138,261      83.41%       60          FP
                                                                          -------------- -----------
                                    ATEL Cash Distribution Fund II total:   $52,270,536  $1,662,500
                                                                          ============== ===========
</TABLE>

                                      A-20
<PAGE>

<TABLE>
<CAPTION>
                                                          Commence          Acquisition Acquisition Percent      Lease        Lease
Lessee                       Notes   Equipment Type       Date(s) (1)       Cost (2)    Fees (3)    Leverage (4) Term (5)   Type (6)
------                       -----   --------------       -----------       --------    --------    ------------ -------- ----------
<S>                        <C>       <C>                  <C>              <C>           <C>             <C>          <C>     <C>
ATEL Cash Distribution Fund III
-------------------------------
A.O. Smith Corporation               Material Handling    Feb-91               $451,902     $21,465                   60          FP
Alachua General Hospital, Inc.       Medical              Oct-92              2,074,989           -                   36          OL
Alachua General Hospital, Inc.       Medical              Apr-95                 80,500           -                   18          FP
Alumina Partners of Jamaica    26    Earth Moving         Jun-93              2,057,133           -                   60          FP
American President Trucking          Tractors and         Mar-90 to Aug-90    4,859,181     230,811      68.08%       77-84       FP
   Co., Ltd.                            Trailers
AMOCO Corporation                    Trailers             May-94                523,805           -      85.88%       66          FP
ARR, Inc.                  27, 28    Corporate Aircraft   Oct-92              5,275,000           -                   84          OL
Barney's, Inc.                       Retail Store         Oct-93              2,041,222           -      60.04%       60          FP
                                        Furniture and
                                        Fixtures
Buffalo & Pittsburgh                 Locomotives          Nov-93                792,657           -                   37          FP
   Railroad Company
Carrier Corporation                  Lift Trucks          Jul-90                108,062       5,133                   55          FP
Carrier Corporation                  Lift Trucks          Jul-90 to Aug-90      533,950      25,363                   53          FP
Dean Foods Company                   Trailers             Nov-90 to Apr-91    1,213,190      57,627                   75-84       FP
Fingerhut Corporation                Offset Printing      Apr-91              1,303,078      61,896                   85          FP
                                        Press
Fingerhut Corporation                Printing             Oct-91 to Oct-92    2,074,915      14,464      48.47%       84-85       FP
FMC Gold Company                     Haul Truck           Jul-90                534,828      25,404                   48          OL
Fred Meyer, Inc.                     Point-of-Sale        Oct-90              6,343,897     301,335      63.93%       58          FP
General American Life Insurance      Office Furniture     Jan-93              1,611,278      76,536                   84          FP
H.E. Butt Grocery Company            Tractors and         Jan-93              2,112,747           -                   60-84    OL/FP
                                        Trailers
Ingersoll International, Inc.        Communication        Dec-90                277,017      13,158                   60          FP
                                        System
Kelly-Springfield Tire Company       Material Handling    Apr- to Jul-92        127,834       6,072                   60          FP
Koppers Industries, Inc.             Material Handling    Oct-90                402,722      19,129                   60          FP
Kraft General Foods, Inc.            Lift Trucks          May-91 to Nov-91    1,621,541      77,023                   48-72       FP
Midway Airlines, Inc.          21    Commercial Aircraft  Jul-90              2,296,020     109,061      68.85%       102         FP
Mobil Oil Corporation                Material Handling    Jul-92                 70,256       1,173                   36          OL
Mobil Oil Corporation                Electric Golf Carts  Nov-93                280,119           -                   36          OL
Nord Kaolin Company            29    Materials Processing Sep-90                391,116      18,578                   60          FP
Ohio Coal Company              30    Mining               Apr-92             10,630,130     504,931      84.48%       51-84    OL/FP
Pepsico, Inc., d/b/a/ PFS            Material Handling    Jul-90 to Sep-90      539,330      25,618      45.63%       58-72       FP
Pilgrim's Pride Corporation          Food Processing      Nov-90              3,619,095     171,907                   59          FP
Pittston Coal Group            31    Mining               Jul-92              5,810,941     276,020      75.71%       60          FP
Portland General Electric      32    Power Generation     Jun-90              2,710,359     128,742      70.25%       101         OL
   Company
PSI Energy, Inc.                     Earth Moving         Aug-90                842,013      39,996                   72          FP
Quaker Coal Company                  Mining               Jan-94              5,808,385           -                   60          OL
Reliance Insurance Company           Office Furniture     Jul-92              1,222,297      50,135      51.90%       60          FP
Rohr Industries                      Motor Vehicle        Oct-95                 37,244           -                   36          OL
Shell Mining Company                 Haul Trucks          Jan-92              3,167,443     150,454      65.64%       60-84       FP
Stone Container Corporation          Material Handling    Nov-90              2,975,000     141,313      34.40%       26-57       OL
Teledyne Industries, Inc.            Lift Trucks          Feb-91                116,476       5,533                   39          OL
Terex Corporation                    Manufacturing        Apr-91                291,455      13,845                   84          FP
The Dow Chemical Company             Material Handling    Nov-90 to Dec-92    4,504,918     195,358      68.68%       53-60    OL/FP
The Helen Mining Company       33    Mining Shields       Jul-91              5,270,314     250,340                   60          FP
The Pillsbury Company                Harvesting           Jan-93              2,327,946     110,577      59.93%       60          OL
Treasure Chest Advertising           Flying High Speed    Apr-93                239,171           -                   87          FP
   Company                              Paster
Treasure Chest Advertising           Printing Stackers    Oct-95                139,600           -                   84          FP
   Company
Truck-Lite Company, Inc.       33    Project Line         Oct-91 to Jan-93    6,875,715     308,441      81.76%       69-84       FP
USS/Kobe Steel Company         34    Lift Trucks          Sep-19 to Nov-91      408,410      19,399                   36-60    OL/FP
Utilicorp United, Inc.         35    Power Generation     Sep-91              1,086,934      51,629      75.65%       105         FP
Wal-Mart, Inc.                       Trailers / Forklifts May-94                490,255           -      95.09%       20-38    OL/FP
West Penn Power Company              Storage Tanks        Sep-91              1,057,551      50,234      97.86%       87          FP
                                                                          -------------- -----------
          ATEL Cash Distribution Fund III total: $99,629,941 $3,558,700
                                                                          ============== ===========
</TABLE>

                                      A-21
<PAGE>

<TABLE>
<CAPTION>
                                                          Commence          Acquisition Acquisition Percent      Lease        Lease
Lessee                       Notes   Equipment Type       Date(s) (1)       Cost (2)    Fees (3)    Leverage (4) Term (5)   Type (6)
------                       -----   --------------       -----------       --------    --------    ------------ -------- ----------
<S>                        <C>       <C>                  <C>              <C>           <C>             <C>          <C>     <C>

ATEL Cash Distribution Fund IV
------------------------------
ARR, Inc.                    27, 28  Corporate Aircraft   Oct-92 to Dec-92   $9,635,969    $337,259                   84          OL
ATS Automatic Tooling                Machine Tools        Mar-95              3,338,997     123,410      86.98%       60          FP
   Systems
ATS Automatic Tooling                Machine Tools        Mar-95              1,353,644       6,545      86.98%       60          FP
    Systems
Barney's, Inc.                       Retail Store         Oct-93              2,353,608      82,376      60.05%       60          FP
                                        Furniture and
                                        Fixtures
Buffalo & Pittsburgh Railroad        Locomotives          Nov-93                849,216      29,723                   37          FP
Burlington Air Exress                Materials Handling   Apr-95                622,663      21,793      78.25%       84          FP
Burlington Air Exress                Materials Handling   Jul-95                            505,325      80.23%       84          FP
Burlington Northern Railroad         Locomotives          Jan-93              7,950,000     278,250                   24          OL
   Company
Chrysler Corporation             36  Tractors & Trailers  Dec-93              3,253,000     113,855      84.13%       71-72       FP
Clinchfield Coal Company             Drill, Endloader,    Jan-94                985,203      34,482      65.79%       73 1/2-     FP
                                        Diesel Generator                                                                91 1/2
DJ Aerospace (Bermuda), Ltd.         Executive Aircraft   Jul-94              1,890,000      66,150                   36          OL
Federal Paper Board Co., Inc.        Office Equipment     Jul-95                 77,950           -                   36          FP
Foodmaker, Inc.                      Restaurant Furniture Oct-94 to Jan-95    2,651,356      92,797                   60          FP
                                        and Fixtures
Galardi Group, Inc.                  Restaurant Furniture Jul-94                546,000      19,110                   48          FP
                                        and Fixtures
GE Industrial & Power Systems        Office Automation    Mar-95                138,130       4,835                   36          FP
GE Industrial & Power Systems        Machine Center       Jun-95                457,670           -                   84          FP
H.E. Butt Grocery  Company           Trailers             Oct-92 to Jan-93    5,709,369     199,828      72.48%       60-84    OL/FP
H.E. Butt Grocery  Company           Trailers             Jun-93              1,404,302      49,151      75.71%       84          FP
Holston Mining, Inc.             37  Endloader, Dozer     Jan-94                584,617      20,462                   91 1/2      FP
Kraft General Foods, Inc.            Tractors             Dec-93                964,315      33,751      71.69%       31          FP
Liquid Carbonic Industrial/      38  Air Separation Plant Dec-93              9,500,897     332,531      54.21%       99          FP
   Medical Corporation
Midwest Power Systems, Inc.          Coal Hopper Cars     Jan-93              2,240,000      78,400      28.36%       36          OL
Mobil Oil Corporation                Tractors/            Oct-92 to Apr-94    2,760,175      95,786                   27-60       OL
                                        Construction/
                                        Earth Moving
Nabisco, Inc.                        Office Automation    Aug-95                337,594           -                   36          FP
National Steel Corporation           Construction         Jan-95              2,208,510      77,298      76.55%       60-84       FP
                                        Equipment
National Steel Corporation           Construction         Apr-95              3,675,997      83,148      88.15%       85-91       FP
                                        Equipment
Omnicom Group, Inc.                  Office Automation    Oct-95                901,849           -                   36          FP
Paramount Coal Corporation       37  Drill, Dozer         Jan-94                595,800      20,853      65.79%       61 1/2-     FP
                                                                                                                        91 1/2
Pepsico, Inc.                        Materials Handling   Jan-94                146,926       5,142                   48-60    OL/FP
Pepsico, Inc.                        Materials Handling   Jul-93 to Sep-93      458,017      16,031                   48-60    OL/FP
Pittston Coal Group              31  Mining               Jul-92                846,883      29,641      78.76%       60          FP
Quaker Coal Company                  Rail Car Mover       Nov-95                263,984           -                   48          FP
Rochelle Coal Company            39  Mining               Jan-93              6,303,701     220,630      70.34%       84          FP
Sebastiani Vineyards, Inc.           Wine Barrels         Apr-94                189,855       6,645                   60          FP
Sebastiani Vineyards, Inc.           Wine Barrels         Apr-94 to Jul-94      454,721      15,915                   36          FP
Sebastiani Vineyards, Inc.           Wine Barrels         Apr-95                180,253       6,309                   60          FP
Signature Flight Support             Air Support          Jan-95                1,142,400    39,200                   84          FP
   Corporation                          Equipment
Tarmac America, Inc.                 Crawler Dozer,       Aug-94                385,443      13,491      75.64%       60-84       FP
                                        Wheel Loader
Tarmac America, Inc.                 Construction         Jan-95                210,438       7,365      80.90%       84          FP
                                        Equipment
Tarmac America, Inc.                 Construction         Jul-95 to Aug-95    1,309,300           -      79.82%       97          FP
                                        Equipment
TASC, Inc.                           Office Automation    Jan-95                131,008       4,585                   36          FP
TASC, Inc.                           Office Automation    Oct-95 to Apr-96      601,701           -                   36          FP
The Dow Chemical Company             Boom Lift            May-93                 66,900       2,342      75.81%       60          FP
The Dow Chemical Company             Material Handling,   Dec-92              2,221,228      77,743      74.80%       60-84       FP
                                        Research
The Dow Chemical Company             Research             Feb-93                102,149       3,575      87.94%       60          FP
The Helen Mining Company         33  Mining               Jan- to May-92      3,816,507     133,578      32.62%       60          FP
The Kendall Company                  Office Automation    Nov-94                166,835       5,839                   36          FP
The Kendall Company                  Office Automation    Jan-95                 86,108       3,014                   36          FP
The Kendall Company                  Office Automation    Apr-95                434,705      15,071                   36          FP
The Kendall Company                  Office Automation    Oct-95 to Jan-96      568,370           -                   24 - 36     FP
The Pittston Company                 Mining Equipment     Mar-95                819,349      28,677      65.79%       60          FP
The Stop & Shop Supermarket          Bakery Labeling      Feb-96                368,500           -                   60          FP
   Company                               Machines
Trans Ocean Container                Intermodal           Oct-93              3,001,930     105,068                   120         FP
   Corporation                          Containers
Treasure Chest Advertising           Bin Stackers and     Dec-93 to Apr 94      753,419      26,370                   84-86       FP
   Company                              Trimmers
Treasure Chest Advertising           Printing Press       Dec-93              3,478,749     121,756      88.28%       84          FP
   Company
Treasure Chest Advertising           Printing Press &     Aug-93              2,075,000      72,625      89.99%       66          FP
   Company                              Associated
                                        Equipment
Treasure Chest Advertising           Printing Press &     Feb-95                511,907      17,917                   84          FP
   Company                              Associated
                                         Equipment
Union Pacific Corporation            Intermodal           Jan-93              1,453,096      50,858      46.85%       60          OL
Union Tank Car Company               Rail                 Sep-92 to Oct-92    6,460,600     225,666      23.25%       25-51       OL
USS/Kobe Steel Company           34  Materials Handling   Jul-94                 35,920       1,257                   60          FP
USS/Kobe Steel Company           34  Dump Truck           Aug-92                256,000       8,960                   84          FP
USX Corporation                      Materials Handling   Jun-93              3,061,376     107,148      83.67%       54-69       FP
Xerox Corporation                    Materials Handling   Feb-95                 26,092         913                   44          OL
Xerox Corporation                    AKT PVD System       Jul-96              2,542,500           -                   60          FP
                                                                          -------------- -----------
                                   ATEL Cash Distribution Fund IV total:   $112,424,026  $3,575,123
                                                                          ============== ===========
</TABLE>

                                      A-22
<PAGE>

<TABLE>
<CAPTION>
                                                          Commence          Acquisition Acquisition Percent      Lease        Lease
Lessee                       Notes   Equipment Type       Date(s) (1)       Cost (2)    Fees (3)    Leverage (4) Term (5)   Type (6)
------                       -----   --------------       -----------       --------    --------    ------------ -------- ----------
<S>                        <C>       <C>                  <C>              <C>           <C>             <C>          <C>     <C>

ATEL Cash Distribution Fund V
-----------------------------
Armco, Inc.                          Phone Mail System    Jan-96               $459,835     $16,094                   84          FP
Atchison, Topeka & Santa             Containers           Jan-95              1,926,930      67,443      62.75%       84          OL
   Fe Railroad Company
Atchison, Topeka & Santa             Rail Car Containers  Jul-94              7,812,200     273,427      55.89%       84          OL
   Fe Railroad Company                  and Chassis
Atchison, Topeka & Santa         40  Tank Containers      Nov-93                744,875      26,071                   84          FP
   Fe Railroad Company
Barney's, Inc.                       Retail Store         Oct-93              3,365,947     117,808      60.04%       60          FP
                                        Furniture and
                                        Fixtures
BNMC Leasing, Inc.                   Over-the-road        May-94                141,540       4,954      35.62%       8           OL
                                        Tractors
Burlington Air Express               Materials Handling   Jan-95 to Apr-95    1,720,008      60,200      75.87%       84          FP
Burlington Northern Railroad     41  Covered Hopper Rail  Apr-96              9,344,563      60,848                   21          FP
                                        Cars
Burlington Northern Railroad         Locomotives          Jan-95             12,350,000     432,250                   28          OL
Burris Foods, Inc.                   Over-the-road        May-94                245,296       8,585      21.16%       5           OL
                                        Trailers
Canadian Pacific Limited         41  Covered Hopper Rail  Apr-96              1,798,388           -                   13          FP
                                        Cars
Cargill, Inc.                    41  Covered Hopper Rail  Apr-96                282,100           -                   36          FP
                                        Cars
CF Industries, Inc.              41  Covered Hopper Rail  Apr-96                528,938           -                   12          FP
                                        Cars
Chrysler Corporaion                  Materials Handling   Dec-94 to Mar-95    1,300,286      45,510      76.79%       60          OL
Chrysler Corporation                 Materials Handling   Nov-93 to Jan-94    1,303,039      45,606      58.69%       60          OL
Chrysler Corporation                 Materials Handling   Apr-95 to Jun-95      166,069       5,812      30.07%       60          OL
Chrysler Corporation                 Materials Handling   Apr-96                  9,296           -                   60          OL
Chrysler Corporation                 Over-the-road        Dec-93              1,379,490      48,282      54.62%       60          OL
                                        Tractors
CITGO Petroleum Corp.                Over-the-road        May-94                837,904      29,327      74.10%       36          OL
                                        Tractors
Clark Oil & Refining                 Retail Store         Jan-94              1,268,656      44,403                   36          OL
   Corporation                          Fixtures
Denver and Rio Grande Western        Auto Racks           May-94              7,180,000     251,300                   44       FP/OL
   Railroad
Emerson Electric Company             Over-the-road        May-94                237,149       8,300      27.39%       80          FP
                                        Trailers
Federal Paper Board Company          Materials Handling   Jan-95              1,315,911      46,057                   36          OL
Federal Paper Board Company          Materials Handling   Apr-95                930,814      32,578                   36          OL
Federal Paperboard Company, Inc.     Forklifts,           Oct-94                167,791       5,873                   36          OL
                                        Wheeloader
Foodmaker, Inc.                      Fixtures and         Jan-94 to Oct-94    6,042,382     211,489                   60          FP
                                        Fittings and
                                        Trailers
General Electric Company             Injection Molding    Feb-96              1,470,000      51,450                   120         FP
General Motors Corporation           Materials Handling   Jan-94 to May-94    3,023,173     105,811      62.16%       60          OL
   (Service Parts Operation
   Division)
General Motors Corporation           Materials Handling   Jul-94                893,382      31,268     73.33%        60          OL
   (Truck and Bus Division)
IBM Corporation                      Office Furniture     Aug-93              1,825,710      63,900                   48          OL
Illinois Central Railroad        41  Covered Hopper Rail  Apr-96              1,234,188           -                   12 - 40     FP
   Company                              Cars
Ingersoll International, Inc.        Machine Tools        Jun-94              1,196,355      41,872                   72          FP
Kaiser Cement Corporation            Tractor and Dump     Oct-93                984,671      34,463                   60          OL
                                        Truck
Kraft, Inc.                          Over-the-road        May-94              1,000,353      35,012     91.49%        56          FP
                                        Trailers
McDonnell Douglas Helicopter         Office Automation    Aug-95                110,320       3,861                   36          FP
   Systems
Minteq International, Inc.       42  Turbo Laser          May-96                347,430           -                   36          FP
Minteq International, Inc.       42  Turbo Laser          Feb-94                461,800      16,163                   60          FP
Mobil Administrative Services    43  Helicopter           Jun-93                844,525      29,558                   24          OL
   Company, Inc.
Mobil Oil Corporation                Environmental        Jul-93                423,000      14,805                   36          OL
                                        Ejector Systems
Mobil Oil Corporation                Liquid Petroleum     Oct-95 to Jan-96   12,863,591     450,226     75.74%        240         FP
                                        Tank Cars
Mobil Oil Corporation                Materials Handling   Jan-95                853,093      29,858                   60          OL
Mobil Oil Corporation                Wheel Loader         Oct-93                 70,200       2,457                   36          OL
Montana Rail Link, Inc.          41  Covered Hopper Rail  Apr-96                846,300           -                   12          FP
                                        Cars
Nabisco, Inc.                        Office Automation    Mar-95                426,420      14,925                   36          OL
Nabisco, Inc.                        Office Automation    Oct-95                190,442       6,665                   36          FP
National Steel Corporation           Bulldozer / Crane    Oct-95              2,137,183      74,801                   90          FP
National Steel Corporation           Materials Handling   Oct-94                 64,650       2,263                   49          OL
National Steel Corporation           Materials Handling   Jan-95                 66,134       2,315                   36          OL
National Steel Corporation           Materials Handling   Jan-95              1,649,465      57,731                   61          OL
National Steel Corporation           Materials Handling   Apr-95                609,500      21,333                   49          OL
National Steel Corporation           Materials Handling   Apr-95                873,161      30,561                   61          OL
National Steel Corporation           Wheel Loader         Oct-94                253,527       8,873                   60          FP
Occidental Chemical Corporation      Barges               Aug-94              2,798,303      97,941     56.31%        16          OL
Omnicom Group, Inc.                  Office Automation &  Jan-96              1,458,896      51,061                   36 - 60     FP
                                        Office Furniture
Owens Corning Fiberglas Corp.        Materials Handling   Aug-93                157,462       5,511                   36          OL
Pegasus Gold Corporation             Surface Mining       Jan-96              7,280,747     254,826     79.77%        84          FP
Praxair, Inc.                        Over-the-road        May-94                668,114      23,384     52.77%        27          OL
                                        Tractors
Primark Corporation                  Office Automation    Jul-95 to Apr-96      143,449       5,021                   36          FP
PV Trucking                          Over-the-road        May-94                 75,332       2,637                   18          FP
                                        Tractors
Quaker Coal Company                  Haul Truck &         Oct-94              2,626,953      91,943                   24-30       OL
                                        Crawler Tractor
Quaker Coal Company                  Haul Trucks &        Oct-95              2,877,672     100,719                   48 - 60     FP
                                        Tractor
Quaker Coal Company                  Mining Equipment     Jan-95              3,000,000     105,000                   24          OL
Quantum Restaurant Group, Inc.       Restaurant Furniture Oct-96                205,981       7,209                   60          FP
                                         / Fixtures /
                                         Equipment
Quantum Restaurant Group, Inc.       Restaurant Furniture Oct-96                425,437      14,890                   60          FP
                                         / Fixtures /
                                         Equipment
Quantum Restaurant Group, Inc.       Restaurant Furniture Oct-96                432,328      15,131                   60          FP
                                         / Fixtures /
                                         Equipment
Quantum Restaurant Group, Inc.       Restaurant Furniture Sep-96                272,498           -                   60          FP
                                         / Fixtures /
                                         Equipment
Quantum Restaurant Group, Inc.       Restaurant Furniture Jun-96                436,331           -                   60          FP
                                         / Fixtures /
                                         Equipment
Quantum Restaurant Group, Inc.       Restaurant Furniture Jul-96                499,131           -                   60          FP
                                         / Fixtures /
                                         Equipment
Roper Corporation                    Forklifts            Jan-96                243,659       8,528                   84          FP
Schwegmann Giant Super               Fixtures & Equipment Jul-95              5,058,331     176,161                   60          FP
   Markets, Inc.
Sebastiani Vineyards, Inc.           Bottling Equipment   Apr-94                113,673       3,979                   48          OL
Sebastiani Vineyards, Inc.           Wine Barrels         Apr-95                 95,848       3,355                   36          FP
Smitty's Super Valu, Inc.            Retail Store         Jan-96              4,709,326     164,826                   60          FP
                                        Furniture &
                                        Fixtures
Soo Line Railroad Company        41  Covered Hopper Rail  Apr-96              1,586,813           -                   12          FP
                                        Cars
Star Enterprise                      Over-the-road        May-94                923,533      32,324     59.16%        32          OL
                                        Tractors
Tarmac America, Inc.             44  Concrete Trucks      Sep-94 to Oct-94    5,937,371     207,808     76.81%        48          FP
                                        with Mixers
Tarmac America, Inc.             44  Concrete Trucks      Sep-95 to Oct-95    1,982,071      69,372     75.27%        97          FP
                                        with Mixers
Tarmac America, Inc.             44  Construction         Sep-95 to Jan-96    1,491,348      52,197     70.16%        84          FP
                                        Equipment
TASC, Inc.                           Office Automation    Jan-95                237,685       8,319                   18          OL
TASC, Inc.                           Office Automation    Apr-96                522,280      16,716                   18 - 36     FP
Texaco Trading and                   Over-the-road        May-94              4,485,676     156,999     60.91%        32-68    FP/OL
   Transportation, Inc.                 Tractors &
                                        Trailers
The Dow Chemical Company             Copiers              Jul-94                272,809       9,548                   36          OL
The Dow Chemical Company             Office Automation    Oct-94 to Jan-95      377,702      13,220                   36       OL/FP
The Dow Chemical Company             Office Equipment     Apr-95                122,800       4,298                   36          FP
The Kendall Company                  Office Automation    Oct-96                  3,735         131                   36          FP
The Pillsbury Company                Harvesting Equipment Oct-94              1,643,101      57,509     84.91%        60       FP/OL
The Pittston Company                 Construction &       Jan-94 to Dec-94   14,037,683     491,319     38.93%        49-61    OL/FP
                                        Mining Equipment
Tom's Foods, Inc.                    Over-the-road        May-94                259,102       9,069     35.23%        9           OL
                                        Tractors
Trans Ocean Container            45  Intermodal           Oct-93              5,000,683     175,024                   120         OL
   Corporation                          Containers
Treasure Chest Advertising           Printing Press &     Oct-93              2,069,950      72,448                   66          FP
   Company, Inc.                        Associated
                                        Equipment
Treasure Chest Advertising           Printing Press &     Jul-95 to Nov-95    2,328,538      81,499                  60 - 84      FP
   Company, Inc.                        Associated
                                        Equipment
Treasure Chest Advertising           Printing Press &     Aug-96                258,588       9,051                  84           FP
   Company, Inc.                        Associated
                                        Equipment
Tyson Foods, Inc.                    Tractors / Trailers  Jul-93 to Aug-93    5,785,000     202,475     26.95%       36 - 84      OL
Union Carbide Corporation            Rail Tank Cars       Aug-95              4,835,759     140,000     39.30%       68 - 92      FP
USS / Kobe Steel Company         34  Wheel loader, Crane  Jan-94                603,352      21,117                  60 - 84   FP/OL
                                        & Lift Truck
Waban, Inc.                          Materials Handling   Oct-94                613,998      21,490                  62           FP
                                                                          -------------- -----------
          ATEL Cash Distribution Fund V total: $186,537,028 $5,956,443
                                                                          ============== ===========
</TABLE>

                                      A-23
<PAGE>


<TABLE>
<CAPTION>
                                                          Commence          Acquisition Acquisition Percent      Lease        Lease
Lessee                       Notes   Equipment Type       Date(s) (1)       Cost (2)    Fees (3)    Leverage (4) Term (5)   Type (6)
------                       -----   --------------       -----------       --------    --------    ------------ -------- ----------
<S>                        <C>       <C>                  <C>              <C>           <C>             <C>          <C>     <C>
ATEL Cash Distribution Fund VI
------------------------------
AT&T Communications, Inc.            Printers             Aug-95 to Nov-95   $1,578,500     $46,200                   36          OL
American President Trucking      17  Tractors and         Nov-95                759,092      22,773       0.91%       8           OL
   Company, Ltd.                        trailers
Applied Magnetics Corporation        Sputter              Jul-96              3,274,642      98,239                   60          FP
Armco, Inc.                          Link-Belt            Oct-95                388,993      11,670                   36          OL
                                        Scrapmaster
Armco, Inc.                          Data processing      Nov-95                 67,829       2,035                   37          FP
Armco, Inc.                          Office Automation    Jul-96                109,416       3,282                   30          FP
AT&L Railroad Company            41  Covered Hopper       Apr-96                 35,263       1,050                   12          FP
                                        Rail Cars
AT&T Communications, Inc.        46  Printers             Jun-96 to Jul-96      540,181      16,205                   28 - 34     OL
Atchison, Topeka & Santa Fe          Containers           Oct-94 to Jan-95    9,196,811     298,896      60.53%       84          OL
   Railroad Company
ATS Automation Tooling Systems       Machine Tools        Apr-96 to Oct-96    2,569,753      77,093                   60          FP
BJ's Wholesale Club              47  Materials Handling   Jul-95                931,635      30,278                   63          OL
Burlington Northern Railroad     41  Covered Hopper       Apr-96             13,223,438     396,703                   21          FP
                                        Rail Cars
Canadian Pacific Limited         41  Covered Hopper       Apr-96              2,433,113      72,450                   13          FP
                                        Rail Cars
Cargill, Inc.                    41  Covered Hopper       Apr-96                352,625      10,500                   36          FP
                                        Rail Cars
CF Industries, Inc.              41  Covered Hopper       Apr-96                705,250      21,000                   12          FP
                                        Rail Cars
Chrysler Corporation                 Materials Handling   Feb-96 to Jul-96    1,716,947      51,508                   60          OL
Chrysler Corporation                 Materials Handling   Mar-95 to Dec-95    5,925,384     184,233      66.83%       60          OL
Consolidated Rail Corporation        Locomotives          Sep-95             22,353,332     668,372      57.02%       60          OL
Consolidated Rail Corporation        Intermodal Container Jan-96              2,502,750      75,083                   60          OL
                                        Chassis
Coors Transportation Company     48  Refrigerated         Nov-95                797,704      23,931      47.35%       21          OL
                                        Trailers
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                   36 - 60     OL
Federal Paper Board Company          Materials Handling   Jul-95 to Jan-96    5,401,765     166,124                   36 - 84  OL/FP
General Motors Corporation           Manufacturing        Jul-95                652,232      19,567                   36          OL
                                        Equipment
Illinois Central Railroad        41  Covered Hopper       Apr-96              1,692,600      50,400                   12 - 40     FP
   Company                              Rail Cars
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
Mobil Oil Corporation                Liquid Petroleum     Jan-96 to Feb-96   16,110,807     483,324      75.44%       240         FP
                                       Tank Cars
Montana Rail Link, Inc.          41  Covered Hopper       Apr-96              1,198,925      35,700                   12          FP
                                        Rail Cars
Nabisco, Inc.                        Office Automation    Apr-95                709,572      23,061                   36          OL
National Steel Corporation           Hydraulic Shovels    Jul-96              6,245,062     187,352                   60          OL
National Steel Corporation           Wheel Loaders &      Jan-96 to Apr-96    4,710,131     141,304                   36 - 90  OL/FP
                                        Forklifts
National Steel Corporation           Materials Handling,  Jul-96 to Oct-96    1,525,887      49,517                   60 - 84  OL/FP
                                        Tractors &
                                        Trailers
National Steel Corporation           Cranes & Loaders     Jul-96 to Oct-96    1,099,210      32,976                   36 - 84  FP OL
NVR, Inc.                            Roof Truss Assembly  Jul-96                 78,484       2,355                   84          FP
Omnicom Group, Inc.              49  Office Automation    Apr-95 to Oct-95    2,232,559      68,290                   36 - 60  OL/FP
Overnite Transportation Company      Tractors             Apr-96              2,140,643      62,961                   36          OL
Peerless Eagle Coal Company      50  Haul Trucks &        Jul-95              5,184,875     168,508      59.29%       48          OL
                                        Construction
Perdue Transportation            51  Freightliner         Nov-95                536,740      16,102      49.71%       24          OL
   Incorporated                         Tractors
Quaker Coal Company                  Wheel Loaders,       Jan-96              3,298,935      98,968                   48          FP
                                        Drill & Grader
Sebastiani Vineyards, Inc.           Bottle Labeler       Feb-96                317,520       9,526                   60          OL
Soo Line Railroad Company        41  Covered Hopper       Apr-96              2,256,800      67,200                   12          FP
                                        Rail Cars
Tarmac America, Inc.             44  Concrete Mixer       Jul-96                582,340      17,470                   96          FP
                                        Trucks
Tarmac America, Inc.             44  Dragline             Jul-96              1,441,764      43,253                   84          FP
Tarmac America, Inc.             44  Construction         Oct-94 to Nov-94    3,114,870     101,233      71.69%       97          FP
                                        Equipment
TASC, Inc.                           Office Automation    Jan-96 to Jul-96      796,027      23,881                   36          FP
TASC, Inc.                           Office Automation    May-95 to Oct-95    1,567,339      50,413                   18 - 36  OL/FP
Trans Ocean Container            45  Intermodal           Jan-96              9,995,127     299,854                   120         FP
   Corporation                          Containers
Tyson Foods, Inc.                    Office Automation    Jun-95                563,411      18,311                   24          OL
Xerox Corporation                    Binding & Finishing  Feb-95 to Jun-95      646,466      24,279                   48          OL
                                        Equipment
Xerox Corporation                    Materials Handling   May-95 to Aug-95      144,527       4,456                   44          OL
                                                                          -------------- -----------
                                   ATEL Cash Distribution Fund VI total:   $147,437,403  $4,489,790                   60          OL
                                                                          ============== ===========

                                                    TOTALS OF ALL FUNDS:   $609,432,613 $19,692,557
                                                                          ============== ===========
</TABLE>

                                      A-24
<PAGE>

  TABLE IV 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.

(7) The interest in this transaction is held 1/3 by ATEL Cash  Distribution Fund
and 2/3 by ATEL Cash Distribution Fund II.

(8) Guaranteed by both Fingerhut  Corporation and by Primerica  Corporation,  as
successor in interest to American Can Company.

(9) In March 1992, Financial News Network ("FNN"), a lessee of ATEL Lease Income
Fund, ATEL Cash  Distribution Fund and ATEL Cash Distribution Fund II, filed for
protection under Chapter 11 of the U.S. Bankruptcy Act.  Subsequent  competitive
bidding between CNBC (a division of General Electric  Company) and a partnership
consisting  of Dow Jones,  Inc.  and Group W  (Westinghouse)  developed  for the
purchase of FNN assets. This bidding resulted in the sale of certain FNN assets,
principally its subscribers, to CNBC for $145 million in cash and the assumption
of $9.3  million in  liabilities.  The proceeds  from the sale were  distributed
beginning in June 1992  resulting in the  recovery of  substantially  all of the
programs' remaining investment in the Equipment.

(10)  A  34.41%  interest  in  this   transaction  was  acquired  by  ATEL  Cash
Distribution  Fund. The remaining 65.59% was acquired by ATEL Cash  Distribution
Fund II.

(11) Guaranteed by Fingerhut Corporation.

(12)  Credit  support  provided  by  an  Investment  Agreement  of  Nord  Kaolin
Corporation and of Nord Resources Corporation.

(13) These  transactions  are all  leveraged  under one  non-recourse  note with
Sogelease Corporation.

(14) Leased to Teledyne  Wah Chang  Albany,  a division of Teledyne  Industries,
Inc.

(15) ATEL Cash  Distribution Fund holds a one-half interest in this transaction,
the  remaining  half  interest was  acquired by ATEL  Financial  Corporation  on
identical terms.

(16) Guaranteed by Addington Resources.

(17) Guaranteed by American President Companies.

(18) A 97.75%  interest in  Equipment  Schedule  No. 2 was acquired by ATEL Cash
Distribution Fund II. The remaining 2.25% interest in that Schedule was acquired
by ATEL Lease Income Fund.


                                      A-25
<PAGE>

(19) Lease  originally with Hammermill  Paper Company as lessee and subsequently
assumed by International Paper Company.

(20) Lease  assigned to and assumed by Liggett & Meyers  Tobacco  Company,  with
recourse retained against the original Lessee.

(21) On January 1, 1991 Midway Airlines, Inc., the lessee of the DC9-32 in which
ATEL  Cash  Distribution  Fund II and ATEL  Cash  Distribution  Fund  III  owned
interests,  suspended  payments on its debt and  aircraft  leases.  On March 26,
1991,  the Lessee filed for protection  under Chapter 11 of the U.S.  Bankruptcy
Act. On  September  4, 1991,  the  non-recourse  lender,  John  Hancock  Leasing
Corporation,  exercised  its  right  to  foreclose  on  the  aircraft.  As  this
investment  represents a relatively  small portion of the programs' total equity
and anticipated  cash flow, the General Partners do not believe that the adverse
developments  with  respect to this  investment  will have a material  effect on
their  respective  operations,  cash flows or rates of cash  distributions.  The
beneficial   interest  in  the  Equipment  was  held  two-thirds  by  ATEL  Cash
Distribution Fund II and one-third by ATEL Cash Distribution Fund III.

(22) Equipment operated by the Eureka Company, a division of Lessee, an indirect
subsidiary of AB Electrolux, Sweden.

(23) Guaranteed by Reynolds and Reynolds.

(24) On October 13, 1993, the lessee,  Rocky Mountain  Helicopters,  Inc., filed
for protection  under Chapter 11 of the U.S.  Bankruptcy Act. The aircraft which
was the subject of the lease was  delivered to ATEL Cash  Distribution  Fund II,
prior to the petition for bankruptcy and was sold by the lessor. The proceeds of
the sale satisfied in full the  non-recourse  debt obligation owed to USX Credit
Corporation  and the excess was applied to mitigate the lessor's  claim  against
the lessee. The lessor  subsequently filed and was allowed an unsecured claim in
the amount of $776,542.  Through  September  30,  1996,  the lessor has received
$310,617 on this claim,  representing  40% of the allowed claim.  The sum of the
proceeds from the rents,  sale of the aircraft and the claim filed in bankruptcy
has resulted in a recovery  exceeding  the lessor's  original  investment in the
aircraft.

(25) Guaranteed by Continental Medical Systems, Inc.

(26) An  indirect  subsidiary  and joint  venture of Kaiser  Aluminum & Chemical
Corporation and Norsk Hydro.

(27) Guaranteed by United States Surgical Corporation.

(28)  Acquisition  Cost represents  one-half of the total Equipment  Acquisition
Cost.  Title to this  Equipment is held in an equipment  trust where one-half of
the beneficial interest in the Equipment is owned by ATEL Cash Distribution Fund
III and one-half by ATEL Cash Distribution Fund IV.

(29) Guaranteed by Nord Resources Corporation.

(30) On January 10, 1996,  Barney's,  Inc.,  a lessee of ATEL Cash  Distribution
Fund III, ATEL Cash Distribution Fund IV and ATEL Cash Distribution Fund V filed
for protection under Chapter 11 of the U.S. Bankruptcy Act. In July of 1996, the
lessors  sold their  unsecured  claim in the  bankruptcy  for an amount equal to
approximately  73% of the unsecured  claim,  which,  after  satisfaction  of the
non-recourse  loan due to the CIT  Group/Equipment  Financing,  Inc. (and taking
into  account all prior rents  received,  security  deposits  retained  and loan
proceeds previously received),  resulted in proceeds to the lessors in excess of
their original investments in the equipment.

(31) The Lessee name is indicated for  convenience  only. The actual Lessees are
Paramount Coal Corporation,  Clinchfield Coal Company, Heartland Resources, Inc.
and Meadow River Coal Company,  all  subsidiaries of The Pittston  Company.  The
Lease is guaranteed by the Pittston Company.

(32) Title to the Equipment and Lease transaction is held by an equipment trust.
A  divisible  1/2  beneficial  interest in the  equipment  trust is owned by the
program.  The remaining divisible 1/2 beneficial interest in the equipment trust
is owned by a non-affiliate.

(33) Guaranteed by Quaker State Corporation.

(34) Lessee is a partnership  formed by United States Steel Corporation and Kobe
Steel Corporation.

(35) Title to the Equipment and Lease transaction is held by an equipment trust.
Partnership owns a 17.3199% beneficial interest in the equipment trust.

(36) Subject to a remarketing  agreement  with General  Motors -  Electro-Motive
division.



                                      A-26
<PAGE>

(37) Guaranteed by The Pittston Company.

(38) Guaranteed by CBI Industries, Inc.

(39) Guaranteed by Peabody Holding Company, Inc.

(40) Lessee has limited option to terminate at 36 months and 60 months,  subject
to a remarketing agreement with Bond International (US), Inc.

(41)  Equipment  is  subject to a full  payout  management  agreement  with MRXX
Corporation.

(42) Guaranteed by Mineral Technologies, Inc.

(43) Guaranteed by Mobil Corporation.

(44) Guaranteed by Tarmac PLC, a British Limited Liability Company.

(45) Rentals under the Lease 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.

(46)  Subject  to
a  remarketing/residual  sharing  agreement  with AT&T  Credit
Corporation.

(47) A division of Waban, Inc.

(48) Guaranteed by Adolf Coors Company.

(49) Guaranteed by Omnicom Group,  Inc. Actual lessees are various  subsidiaries
of Omnicom Group,  Inc.: DDB Needham  Worldwide,  Inc.; Griffin Bacal, Inc.; DDB
Needham Chicago, Inc.; Tracy-Locke,  Inc.; Puskar Gibbon Chapin, Inc.; The Focus
Agency, Inc.; and Elgin Syferd/DDB Needham, Inc.

(50) Guaranteed by A.T. Massey Coal Company, Inc.

(51) Guaranteed by Perdue Farms, Inc.


                                      A-27

<PAGE>

                                     TABLE V

                         SALES OR DISPOSALS OF EQUIPMENT

ATEL Lease Income Fund, ATEL Cash Distribution Fund, ATEL Cash Distribution Fund
II, ATEL Cash  Distribution  Fund III, ATEL Cash Dsitribution Fund IV, ATEL Cash
Distribution  Fund V and  ATEL  Cash  Distribution  Fund  VI  have  disposed  of
equipment in their  portfolios as of June 30, 1996. 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)         Notes
<S>                             <C>                         <C>         <C>          <C>        <C>          <C>                <C>
ATEL LEASE INCOME FUND 1985-A
-----------------------------
Colour Graphics                 Computer system             Feb-87          $34,500  Oct-93          $2,525      $44,483
Colour Graphics                 Office Information Systems  Jul-88           45,000  Jan-94          11,200       55,777
Educational Loan Services, Inc. Office Information Systems  May-86           33,050  Oct-90             900       31,350
Federal Home Loan Bank of       Office Information Systems  May-86           39,127  Apr-90             870       36,800
   New York
Financial News Network, Inc.    Studio and Broadcasting     Feb-90           14,777  Jun-92          11,493        2,027        5
Gorham, Inc.                    Office Information Systems  May-86           38,799  Mar-90           2,300       45,180
Long Lake Staionary, Inc.       Binding Equipment           May-87            4,023  Jul-92               1        6,242
Philip Morris, U.S.A.           Office Information Systems  May-86           13,297  Jan-89           3,600       12,400
Philip Morris, U.S.A.           Office Information Systems  May-86           21,584  Aug-92               -       22,050
Polaroid Corporation            Office Information Systems  May-86           48,028  Jan-90           4,500       45,000
Rohr Industries, Inc.           Motor Vehicle               Jan-89           12,451  Apr-95           6,400       17,843
Rohr Industries, Inc.           Motor Vehicle               Apr-89            8,376  Jul-92           4,723        8,558
                                                                        ------------            ------------ ------------
                                                                           $313,012                 $48,512     $327,710
                                                                        ============            ============ ============
</TABLE>



                                      A-28
<PAGE>

<TABLE>
<CAPTION>
                                                                                                             Excess of
                                                                        Equipment                            Rents Over
                                                            Acquisition Acquisition             Sale         Expenses
Lessee                          Type of Equipment           Date (1)    Price (2)    Sale Date  Price (3)       (4)         Notes
<S>                             <C>                         <C>         <C>          <C>        <C>          <C>                <C>

ATEL CASH DISTRIBUTION FUND
---------------------------
Acushnet Company                Office Information Systems  Jan-87       $140,287     Dec-91     $4,545      $156,000
Alachua General Hospital        Tractor                     Jan-89         15,327     Sep-92      9,000        15,900     6
American  Motors Corporation    Lift Trucks                 Oct-87         25,754     Sep-92      6,200        30,215
American Motors Corporation     Lift Truck                  Oct-87         34,494     May-89     30,818        10,117
American Motors Corporation     Lift Trucks                 Oct-87         25,754     Sep-92      6,200        31,306
American Motors Corporation     Lift Trucks                 Oct-87         12,367     Jan-93      3,200        15,863
American Motors Corporation     Lift Trucks                 Oct-87        105,158     Mar-93     31,800       141,636
American Motors Corporation     Lift Trucks                 Oct-87         53,186     Apr-93     15,956        71,727
American Motors Corporation     Lift Trucks                 Oct-87         15,201     Feb-94      4,500        22,886
American Motors Corporation     Hoist Mill Truck            Dec-87        100,325     Mar-93     18,000       131,164
American Motors Corporation     Lift Trucks                 Jan-88         45,378     Dec-92      7,000        63,268
Anaheim Memorial Hospital       CAT Scanner                 Jan-88        779,613     Apr-93     88,000       839,938
Campbell Soup Company           Lift Truck                  Mar-87         34,790     Jun-90     30,000        19,575
Campbell Soup Company           Lift Truck Battery Chargers Mar-87         35,529     Aug-93     12,435        38,812
Campbell Soup Company           Reach / Walkie Trucks       Mar-87         75,836     Sep-93      2,700        89,216
Campbell Soup Company           Batteries / Chargers        Mar-87         11,882     Dec-93      4,250        13,977
Campbell Soup Company           Lift Truck                  Mar-87         25,668     Jul-94      5,022        31,663
Campbell Soup Company           Lift Truck                  Apr-87          4,997     Apr-91      3,616         3,616
Campbell Soup Company           Lift Truck                  Apr-87         24,550     Apr-91     17,764        17,765
Campbell Soup Company           Lift Truck                  Mar-87         19,763     Oct-95      2,000        27,283
Color Graphics Corporation      645-MSS Output Scanning     Dec-86        232,533     Mar-94     20,000       303,307
                                   Station
Enron Corp.                     Office Information Systems  Jun-88         88,364     Jun-91     17,857        90,326
Enron Corp.                     Office Information Systems  Jun-88         87,399     Feb-92     10,650        85,140
Enron Corp.                     Office Information Systems  Jun-88         79,726     Mar-92      8,000        76,968
Financial News Network, Inc.    Studio and Broadcasting     Mar-90        935,918     Jun-92    747,617       123,050     7
GAF Corporation                 Lift Trucks                 Oct-87        459,660     Nov-92     94,575       457,460
Hartford Insurance Group        Communication               Jul-88         89,236     Jul-93      3,618       106,785
Imperial Plastics, Inc.         Injection Molding           Jun-87        137,247     Apr-94     67,000       147,445
Imperial Plastics, Inc.         Injection Molding           Dec-87        150,879     Apr-94     64,000       170,530
Imperial Plastics, Inc.         Injection Molding           Jan-88        194,944     Apr-94     77,000       229,797
Imperial Plastics, Inc.         Air Compressor Temperature  Mar-88        275,718     Apr-94    131,000       369,505
                                   Control Unit
Martin Marietta Corporation     Communication               Apr-88        148,275     Jun-92     16,000       138,592
Martin Marietta Corporation     Communication               Apr-88        283,780     Aug-93        500       277,184
Nord Kaolin Company             Hydraulic Excavator         May-87        156,450     Mar-93     45,000       184,567
Nord Kaolin Company             Lift Trucks                 Sep-87         15,633     Oct-95      3,500        27,386
Polaroid Corporation            Office Information Systems  Mar-87         37,819     Apr-92      2,475        41,005
Putnam County Hospital          Spectrum Analyzer           May-88        114,950     May-94      2,000       158,780
Rohr Industries, Inc.           Motor Vehicle               Jul-87         14,153     Feb-93      4,175        17,080
Rohr Industries, Inc.           Motor Vehicle               Mar-88         15,714     Feb-93      4,575        19,073
Rohr Industries, Inc.           Motor Vehicle               Apr-88         12,060     Apr-91      3,498        10,804
Rohr Industries, Inc.           Motor Vehicle               Apr-88         12,060     Apr-91      3,198        10,804
Rohr Industries, Inc.           Motor Vehicle               Apr-88         12,932     Apr-91      4,380        11,585
Rohr Industries, Inc.           Motor Vehicle               Apr-88         14,630     Apr-91      5,725        13,106
Rohr Industries, Inc.           Motor Vehicle               Apr-88         15,486     Aug-93      3,977        18,986
Rohr Industries, Inc.           Motor Vehicle               Jul-88         11,566     Jul-91      4,075        10,517
Rohr Industries, Inc.           Motor Vehicle               Jul-88         11,566     Jul-91      4,850        10,517
Rohr Industries, Inc.           Motor Vehicle               Jul-88         11,566     Jul-91      3,890        10,517
Rohr Industries, Inc.           Motor Vehicle               Aug-88         15,826     May-93      2,622        18,710
Rohr Industries, Inc.           Motor Vehicle               Aug-88         14,031     Oct-93      3,435        16,587
Rohr Industries, Inc.           Motor Vehicle               May-88         13,981     Sep-95      3,900        20,280
Rohr Industries, Inc.           Motor Vehicle               Apr-88         14,028     Dec-95      4,630        20,629
Rohr Industries, Inc.           Motor Vehicle               Apr-88         16,052     Feb-96      5,000        21,252
Rohr Industries, Inc.           Motor Vehicle               Jul-88         25,755     Mar-96      9,000        33,051
Teledyne Industries, Inc.       Lift Truck                  Oct-87        154,000     Feb-93     48,000       162,751
Teledyne Industries, Inc.       Lift Truck                  Oct-87         83,500     Mar-93     19,000        89,166
Teledyne Industries, Inc.       Lift Truck                  Jan-88         39,188     Apr-91     10,000        35,832
Teledyne Industries, Inc.       Lift Truck                  Jan-88         52,250     Apr-91     15,000        47,775
Teledyne Industries, Inc.       Lift Truck                  Jan-88        147,345     Nov-91     41,000       137,956
Teledyne Industries, Inc.       Lift Truck                  Feb-88        165,866     Feb-93     58,000       150,644
Teledyne Industries, Inc.       Lift Truck                  Mar-88         48,000     May-93     11,000        51,896
Teledyne Industries, Inc.       Lift Truck                  Apr-88         53,500     Feb-93     20,000        58,088
Teledyne Industries, Inc.       Lift Truck                  Jul-88        147,345     Oct-92     20,000       134,726
Teledyne Industries, Inc.       Lift Truck                  Aug-88         42,845     Jan-94      9,000        46,240
Teledyne Industries, Inc.       Lift Truck                  Nov-88         35,530     Jan-94     10,390        36,406
Teledyne Industries, Inc.       Lift Truck                  Nov-88         38,278     Mar-94     11,000        41,481
Teledyne Industries, Inc.       Lift Trucks                 Aug-89         32,771     Nov-94      7,896        33,173
Teledyne Industries, Inc.       Lift Truck                  Sep-89         68,970     Oct-92     10,000        67,300
Teledyne Industries, Inc.       Lift Truck                  Nov-89        208,740     Jan-93     44,000       204,009
Teledyne Industries, Inc.       Lift Truck                  Nov-89         58,374     Mar-94     12,500        63,256
Teledyne Industries, Inc.       Lift Truck                  Jan-90         57,487     Mar-94     13,000        55,978
Teledyne Industries, Inc.       Lift Trucks                 Jan-90         57,350     Jan-95     15,000        58,052
Teledyne Industries, Inc.       Lift Trucks                 Jan-90         57,350     Jan-95     15,000        58,052
The Dow Chemical Company        Motor Vehicle               Jul-87         25,211     Aug-92      7,500        22,361
The Dow Chemical Company        Mack Truck                  Jul-87         25,210     Aug-92      7,500        24,846
The Dow Chemical Company        Truck                       Jul-87        106,495     Jun-93     17,500       102,367
The Dow Chemical Company        Trucks                      Jul-87         87,288     Jul-93     26,000        80,985
TRW, Inc.                       Communication               Apr-89         77,957     May-92     19,800        70,704
TRW, Inc.                       Communication               Apr-89        246,057     Jul-93      8,400       235,080
United Technologies Corporation,Office Information          Dec-86         77,450     Mar-91     20,000        80,985
                                   Systems
Vista Chemical Company          Tank cars                   Mar-88      1,200,000     Dec-93    885,000     1,090,493
                                                                        =========            ========================
                                                                       $8,700,153            $3,066,214    $8,263,854
                                                                      ===========            ========================
ATEL CASH DISTRIBUTION FUND II
A. O. Smith Corporation         Office Automation Equipment Dec-90       $723,258     Sep-94    $75,017      $763,652
A.O. Smith Corporation          Machinery                   Jul-91         27,667     Jan-93     18,360        15,660
A.O. Smith Corporation          Lift Truck                  Jul-89         80,717     Jun-94     34,000        81,198
A.O. Smith Corporation          Personnel Carrier           Jul-89          4,381     Jul-94        500         4,407
A.O. Smith Corporation          Lift Truck                  Jul-89         26,910     Jun-95      6,250        51,147
A.O. Smith Corporation          Lift Truck                  Jul-89         17,616     Jul-95      1,500        23,346
Addwest Gold, Inc.              Portable Jaw Crusher Plant  Sep-88      1,153,001     Nov-94    301,000     1,104,720
Alachua General Hospital        Tractor                     Jan-89         30,727     Sep-92     18,000        31,801     6
American Express Company        Manufacturing               May-89        276,775     May-93     10,000       293,040
American President Trucking     Tractors                    Nov-88         58,724     May-93     44,172        44,957
  Co., Ltd.
American President Trucking     Tractors                    Nov-88         57,590     Jun-93     45,041        47,171
  Co., Ltd.
American President Trucking     Tractors                    Oct-88         58,724     Dec-93     16,000        52,752
  Co., Ltd
American President Trucking     Tractors                    Oct-88         57,590     Dec-93     15,000        51,734
  Co., Ltd.
American President Trucking     Tractors                    Nov-88         58,724     Dec-93     15,926        59,573
  Co., Ltd.
American President Trucking     Tractors                    Sep-88         60,326     Jan-94     15,500        55,808
  Co., Ltd.
American President Trucking     Tractors                    Oct-88         61,513     Jan-94     16,000        60,854
  Co., Ltd.
American President Trucking     Tractors                    Oct-88         61,513     Jan-94     16,000        58,674
  Co., Ltd.
American President Trucking     Tractors                    Oct-88         60,326     Jan-94     15,500        56,701
  Co., Ltd.
American President Trucking     Tractors                    Nov-88         61,513     Jan-94     16,000        59,369
  Co., Ltd.
American President Trucking     Tractors                    Nov-88         61,513     Jan-94     16,000        56,907
  Co., Ltd.
American President Trucking     Tractors                    Nov-88         60,326     Jan-94     17,461        58,772
  Co., Ltd.
American President Trucking     Tractors                    Nov-88         60,326     Jan-94     15,500        55,808
  Co., Ltd.
American President Trucking     Tractors                    Sep-88         60,326     Apr-94     16,400        61,125
  Co., Ltd.
American President Trucking     Tractors                    Sep-88         60,326     Apr-94     16,200        61,571
  Co., Ltd.
American President Trucking     Tractors                    Oct-88         60,326     Apr-94     16,400        58,570
  Co., Ltd.
American President Trucking     Tractors                    Oct-88         61,513     Apr-94     17,000        59,724
  Co., Ltd.
American President Trucking     Tractors                    Nov-88         60,326     Apr-94     19,000        55,809
  Co., Ltd.
American President Trucking     Tractors                    Nov-88         60,326     Apr-94     16,400        58,570
  Co., Ltd.
American President Trucking     Tractors                    Sep-88         60,326     Apr-94     16,400        55,808
  Co., Ltd.
American President Trucking     Tractors                    Oct-88         60,326     Apr-94     16,400        58,145
  Co., Ltd.
American President Trucking     Tractors                    Oct-88         60,326     Apr-94     19,000        58,595
  Co., Ltd.
American President Trucking     Tractors                    Nov-88         60,325     Dec-95     11,522        69,903
  Co., Ltd.
American President Trucking     Tractors                    Nov-88         61,513     Jun-96      8,500        71,279
  Co., Ltd.
American President Trucking     Tractors                    Nov-88         60,326     May-96     10,390        69,903
  Co., Ltd.
American President Trucking     Tractors                    Nov-88         60,326     Jan-96     10,350        69,903
  Co., Ltd.
American President Trucking     Tractors                    Nov-88         60,326     Jun-96      9,500        69,903
  Co., Ltd.
American President Trucking     Tractors                    Nov-88         60,326     Apr-96     10,565        69,903
  Co., Ltd.
American President Trucking     Tractors                    Nov-88         60,326     Jan-96     10,282        69,903
  Co., Ltd.
American President Trucking     Tractors                    Nov-88         60,326     Jan-96     10,350        69,903
  Co., Ltd.
American President Trucking     Tractors                    Nov-88         60,326     Jan-96     10,350        69,903
  Co., Ltd.
American President Trucking     Tractors                    Dec-88         60,326     Jun-96      9,500        69,903
  Co., Ltd.
American President Trucking     Tractors                    Mar-89         61,513     Feb-96     10,488        71,279
  Co., Ltd.
Bistol-Meyers Squib             Office furniture            Jun-92        324,310     Oct-95     89,834       340,960
Campbell Soup Company           Lift Trucks                 Jul-88        237,980     Oct-95     33,000       304,036
Campbell Soup Company           Life plus charger           Jul-88         28,056     Aug-95      6,000        34,608
Campbell Soup Company           Lift Truck                  Jul-88         26,604     Oct-95      2,500        33,597
Chesebrough-Pond's Inc.         Lift Trucks                 May-90        109,901     Aug-94     42,000       124,236
Chesebrough-Pond's Inc.         Lift Truck                  May-90         18,220     Aug-94      6,750        20,502
Chesebrough-Pond's Inc.         Lift Truck                  May-90         35,029     Aug-94     12,950        39,270
Chesebrough-Pond's Inc.         Motorized Lowlift Walk/Ride May-90         38,303     Aug-94      4,800        43,452
Colour Graphics Corporation     Computer system             Jul-88         33,805     Oct-93      2,475        41,767
Continental Medical Systems,    Physical therapy            Jun-90         36,676     Jun-95     11,750        45,485
  Inc.
Cooper Tire and Rubber Company  Lift Trucks                 Nov-88         33,296     Jan-96     10,600        37,698
Delnor Community Hospital       Medical                     Jul-88        118,775     Apr-91     17,850       106,513
Delnor Community Hospital       Medical                     Jul-88        265,473     Apr-91     45,000       247,586
Delnor Community Hospital       Medical                     Apr-88         89,081     Dec-91     35,000        87,406
Financial News Network, Inc.    Studio and Broadcasting     Feb-90        670,359     Jun-92    534,432       148,788     8
Fingerhut Corporation           Pacesetter Saddlebinder     Dec-89        233,268     Dec-94    110,000       258,130
FMC Gold Company                Material Handling           Apr-90        362,960     May-93    105,000       322,256
FMC Gold Company                Material Handling           Apr-90        398,169     Jul-93    155,000       361,891
Hudson Foods, Inc.              Chicken Processing          Jul-89        326,880     Aug-94    120,215       373,808
Hudson Foods, Inc.              Waste Water Pre-treatment   Aug-89        331,070     Aug-94    121,600       377,895
                                  Plant
Hudson Foods, Inc.              Chicken Processing          Dec-89      1,102,591     Sep-94    333,006     1,182,678
                                   Equipment
Hudson Foods, Inc.              Chicken Processing          Dec-89        890,708     Sep-94    272,280       959,784
                                   Equipment
Hudson Foods, Inc.              Chicken Processing          Dec-89        190,739     Sep-94     56,897       205,202
                                   Equipment
Inland Steel Company            Laser Measuring System      Sep-89        436,808     Apr-94    105,000       487,179
Inland Steel Company            Laser Measuring Equipment   Sep-89        436,808     Apr-94    105,000       461,538
International Paper Company     Trucks                      Nov-88        165,175     Aug-91    118,185        90,831
International Paper Company     Trucks                      Jul-88         32,039     Nov-91      7,412        31,840
International Paper Company     Trucks                      Sep-88         37,910     May-92     17,372        33,220
International Paper Company     Trucks                      Oct-89        116,589     May-92     83,477        63,595
International Paper Company     Trucks                      Mar-90         76,300     May-92     54,047        34,906
International Paper Company     Trucks                      Sep-88         26,840     Dec-93      7,750        30,848
International Paper Company     Truck                       Nov-89         33,587     Mar-94      9,000        32,917
International Paper Company     Trucks                      Nov-89         33,587     Mar-94      9,000        34,975
International Paper Company     Truck                       Jun-89         27,457     Apr-94      4,500        26,928
International Paper Company     Trucks                      Jun-89         27,457     Apr-94      4,500        32,538
International Paper Company     Truck                       Sep-88         35,302     Sep-94      8,500        36,360
International Paper Company     Van                         Sep-88         39,626     Nov-94     11,325        37,872
International Paper Company     Truck with power lift gate  Nov-88         32,691     Dec-94     10,000        36,079
International Paper Company     Cargo Van                   Mar-89         13,910     Dec-94      2,740        16,189
International Paper Company     Cut-away Van                Aug-89         19,484     Dec-94      5,750        19,095
International Paper Company     Truck with power lift gate  Nov-88         32,691     Feb-95      9,500        36,079
International Paper Company     Truck                       Mar-89         24,458     Apr-95     11,000        25,968
International Paper Company     Trucks                      Apr-89         76,873     May-95     20,000        86,592
International Paper Company     Trucks                      Mar-89         48,783     May-95     26,000        40,150
International Paper Company     Truck                       Jun-89         29,079     May-95      9,000        31,744
International Paper Company     Trucks                      Dec-89        123,513     Apr-95     50,750       139,088
International Paper Company     Truck                       Sep-88         20,850     Dec-95     11,924        39,114
International Paper Company     Truck                       Sep-88         42,161     Dec-95     11,120        73,774
International Paper Company     Cab & chassis               Oct-89         25,374     Dec-95      9,477        38,797
International Paper Company     Truck                       Aug-89         27,249     Apr-96      7,000        37,622
KeyCorp                         ATM Machines                Aug-89        139,658     Jan-94     41,250       146,802
KeyCorp                         Office Furniture and        Aug-89        913,120     Apr-94    245,000     1,014,508
                                   Equipment
KeyCorp                         ATM Machines                Aug-89         55,864     Aug-94     14,500        66,333
KeyCorp                         ATM Machines                Aug-89        195,522     Apr-96     18,650       211,431
Koppers Industries, Inc.        Hydraulic loader &          Jun-90        639,120     Jun-95    317,500       793,198
                                   end loader
Midway Airlines, Inc.           Commercial Aircraft         Jun-90      4,592,040     Sep-91  3,444,589       463,076     9
National Semiconductor          Wafer Processing System     Apr-89        762,580     Jan-94     82,000       869,955
  Corporation
National Union Electric         Phone System                Aug-89        481,738     Mar-94    130,000       507,722
  Corporation
Nissan Motor Corporation        Office Information Systems  Jul-88        219,187     Jul-93      3,700       221,328
  In USA
NMCS, Inc., d/b/a National      Office Furniture            Jun-88        627,453     Mar-94          1       747,640
  Medical Group Services, Inc.
Owens Corning Fiberglas         Lift Truck                  Aug-90         59,786     Dec-94     20,000        59,404
  Corporation
Owens Corning Fiberglas         Lift Truck                  Mar-90         18,288     Mar-95      6,500        19,851
  Corporation
Owens Corning Fiberglas         Material Handling           Jul-89        175,098     Jul-92     41,020       154,944
  Corporation
Owens Corning Fiberglas         Material Handling           Oct-89        144,350     Mar-93     47,000       139,317
  Corporation
Owens Corning Fiberglas         Material Handling           Apr-90         97,160     Jun-93     29,100        92,836
  Corporation
Owens Corning Fiberglas         Material Handling           May-90         57,956     Jun-93     13,500        62,821
  Corporation
Owens Corning Fiberglas         Material Handling           Aug-90        123,102     Aug-93     41,000       113,082
  Corporation
Owens Corning Fiberglas         Sweeper                     Nov-90         27,592     Dec-93      6,600        26,638
  Corporation
Owens Corning Fiberglas         Material Handling           Apr-90        122,130     Apr-94     36,600       126,827
  Corporation
Owens Corning Fiberglas         Material Handling           May-90         18,972     Apr-94      4,800        20,165
  Corporation
Owens Corning Fiberglas         Material Handling           Oct-89         31,192     Sep-94      9,000        34,524
  Corporation
Owens Corning Fiberglas         Material Handling           Oct-89         56,733     Sep-94     13,000        62,760
  Corporation
Owens Corning Fiberglas         Material Handling           Apr-90        118,092     Apr-95     44,500       128,182
  Corporation
Owens Corning Fiberglas         Automobile                  Nov-88         15,822     Apr-95      3,650        20,000
  Corporation
Owens Corning Fiberglas         Material Handling           Feb-90        100,985     Oct-95     35,000       119,560
  Corporation
Owens Corning Fiberglas         Material Handling           Aug-90         20,858     Sep-95     10,750        22,911
  Corporation
Owens Corning Fiberglas         Material Handling           Aug-90         20,858     Aug-95     10,750        22,911
  Corporation
Owens Corning Fiberglas         Material Handling           Jun-90        152,935     Oct-95     56,000       179,186
  Corporation
Owens Corning Fiberglas         Material Handling           Oct-90         22,750     Nov-95      7,000        29,948
  Corporation
Owens Corning Fiberglas         Material Handling           Oct-90         21,920     Oct-95     10,750        24,521
  Corporation
Owens Corning Fiberglas         Material Handling           Dec-89         21,331     May-96      4,100        27,834
  Corporation
Quaker Coal Company             Crawler Dozer               Feb-94        558,301     Apr-96    255,000       356,875
Ran-Bar Corporation             Boom lift                   Aug-93          7,950     Sep-95          1        19,152
Regents of the University       Communication               Jan-89         80,386     Dec-93     25,500        87,434
  of California
Rocky Mountain                  Aircraft                    Oct-89      2,150,000     Dec-93  1,472,413     1,383,000
  Helicopters, Inc.
Rohr Industries, Inc.           Motor Vehicles              Apr-89         36,263     Apr-89      7,667        35,328
Rohr Industries, Inc.           Motor Vehicles              Apr-89         12,393     Jan-92      2,313        12,086
Rohr Industries, Inc.           Motor Vehicles              Jan-89         14,990     Feb-92      3,509        12,925
Rohr Industries, Inc.           Motor Vehicles              Apr-89         35,762     Apr-92      9,019        34,793
Rohr Industries, Inc.           Motor Vehicles              Jan-89         14,990     May-92      5,538        13,776
Rohr Industries, Inc.           Motor Vehicles              Apr-89         11,921     May-92      3,058        11,597
Rohr Industries, Inc.           Motor Vehicles              Jan-90         16,378     May-92     13,340         9,100
Rohr Industries, Inc.           Motor Vehicles              Apr-89         11,920     Jul-92      2,973        11,597
Rohr Industries, Inc.           Motor Vehicles              Apr-89         24,343     Jul-92      5,146        23,683
Rohr Industries, Inc.           Motor Vehicles              Apr-89         72,014     Jul-92     20,088        68,396
Rohr Industries, Inc.           Motor Vehicles              Jul-89         17,801     Jul-92      3,823        15,948
Rohr Industries, Inc.           Motor Vehicles              Dec-88         95,039     Jan-93     22,012        99,184
Rohr Industries, Inc.           Motor Vehicles              Jul-89         17,639     Feb-93     11,810        14,614
Rohr Industries, Inc.           Motor Vehicles              Mar-90         14,382     Feb-93      6,756        12,658
Rohr Industries, Inc.           Motor Vehicles              Oct-88         23,341     May-93      5,534        24,406
Rohr Industries, Inc.           Motor Vehicles              May-89         11,380     May-93      2,772        12,955
Rohr Industries, Inc.           Motor Vehicles              Oct-88         45,369     Aug-93     19,095        61,845
Rohr Industries, Inc.           Motor Vehicles              Oct-88         10,854     Dec-93      3,977        13,300
Rohr Industries, Inc.           Motor Vehicles              Dec-88         14,863     Dec-93      4,777        17,664
Rohr Industries, Inc.           Motor Vehicles              Aug-89         13,910     Dec-93      3,695        15,270
Rohr Industries, Inc.           Motor Vehicles              Jan-89          9,532     Apr-94      3,300        12,375
Rohr Industries, Inc.           Motor Vehicles              Apr-89         21,759     Jul-94      8,500        25,267
Rohr Industries, Inc.           Motor Vehicles              May-89         16,760     Jul-94      3,677        18,710
Rohr Industries, Inc.           Motor Vehicles              Feb-89          9,359     Aug-94      3,177        12,851
Rohr Industries, Inc.           Auto                        Dec-88         15,642     Jan-95      3,077        21,521
Rohr Industries, Inc.           Pickup Truck                Nov-89          9,652     Jan-95      4,100        10,720
Sebastiani Vineyards, Inc.      Wine Barrels                May-89         33,919     Jun-94      4,340        41,682
Sebastiani Vineyards, Inc.      Wine Barrels                Oct-88         13,728     Jun-96      6,535        36,137
Shell Mining Company            Crawler Tractor             Oct-89      1,013,257     Dec-94    390,000     1,048,122
Shell Mining Company            Miner Machine               Feb-90        640,995     Mar-95    130,000       648,032
Shell Mining Company            Miner Machine               Feb-90        640,427     Mar-95    130,000       647,458
St. Luke's-Roosevelt            Medical Furniture,          Feb-90      1,075,795     Apr-93    404,654     1,116,417
  Hospital Center                 Fixtures & Equipment
The Budd Company                Lift Trucks                 May-90        154,260     Mar-96     29,000       158,330
The Dow Chemical Company        Lift Truck                  Jul-87         26,198     Aug-92      4,300        25,820
The Dow Chemical Company        Material Handling           Jul-87        991,409     Aug-92    382,160       877,628
The Dow Chemical Company        Rail car Mover              Jul-87        145,822     Jan-93     43,650       125,152
The Dow Chemical Company        Material Handling           May-88        281,424     Jul-93     74,300       290,517
The Dow Chemical Company        Material Handling           May-88         17,045     Jan-94      5,800        16,340
The Dow Chemical Company        Material Handling           May-88         33,943     Jun-94     10,900        32,539
The Dow Chemical Company        Medical Furniture,          May-88         33,119     Jan-95     10,000        39,517
                                  Fixtures & Equipment
USX Steel Corporation           Haul Truck                  Dec-89      1,017,631     Dec-94    324,300     1,003,483
USX Steel Corporation           Haul Truck                  Dec-89      1,017,631     Dec-94    324,300     1,003,483
USX Steel Corporation           Haul Truck                  Dec-89      1,013,766     Dec-94    324,300       999,671
                                                                        =========               =====================
                                                                      $33,874,148           $13,133,987   $29,250,612
                                                                        =========               =====================
ATEL CASH DISTRIBUTION FUND III
American President Trucking     Tractors                    Feb-90        $64,510     Jun-96    $18,738       $62,791
  Co., Ltd.
American President Trucking     Tractors                    Feb-90         64,510     May-96     19,738        62,791
  Co., Ltd.
American President Trucking     Tractors                    Feb-90         64,863     Jun-96     18,788        63,134
  Co., Ltd.
American President Trucking     Tractors                    Apr-90        322,551     Jun-96     97,892       300,307
  Co., Ltd.
American President Trucking     Tractors                    May-90        129,021     Jun-96     37,934       120,123
  Co., Ltd.
American President Trucking     Tractors                    May-90        387,062     Jun-96    150,839       343,988
  Co., Ltd.
A.O. Smith Corporation          Lift trucks                 Nov-90         22,516     Jan-96      9,000        23,215
A.O. Smith Corporation          Lift trucks                 Nov-90         17,860     Mar-96      3,950        18,414
A.O. Smith Corporation          Carton Clamps               Nov-90         22,469     Jan-96      9,000        26,166
A.O. Smith Corporation          Towmotors                   Nov-90        120,865     Jan-96     44,000       124,614
A.O. Smith Corporation          Lift trucks                 Nov-90         25,315     Jan-96      8,250        26,100
Carrier Corporation             Lift trucks                 Jun-90        113,195     Apr-95     27,950       114,228
Carrier Corporation             Lift trucks                 Jun-90        359,305     Apr-95     89,800       369,875
Carrier Corporation             Lift trucks                 Aug-90        200,008     Apr-95     43,100       203,148
FMC Gold Company                Haul Truck                  Jun-90        560,232     Jan-94    295,000       427,663
Fred Meyer, Inc.                Data Processing             Nov-90      3,340,551     Dec-92  2,715,033     2,338,583
Fred Meyer, Inc.                Data Processing             Oct-90      3,244,649     Aug-95  1,060,276     3,608,683
Koppers Industries, Inc.        Material Handling           Aug-90         45,485     Jan-94     33,383        31,471
Koppers Industries, Inc.        Material Handling           Jul-90         54,156     Sep-95     23,000        64,020
Koppers Industries, Inc.        Material Handling           Dec-90        200,911     Dec-95    102,500       237,614
Koppers Industries, Inc.        Hydraulic Excavator         Mar-91        114,492     Apr-96     57,500       129,848
Kraft Genersl Foods, Inc.       Material Handling           Jul-91         46,694     Aug-94     24,248        22,701
Midway Airlines, Inc.           Commercial Aircraft         Jun-90      2,405,081     Sep-91  1,656,694       226,541    11
Mobil Oil Corporation           Material Handling           Apr-92         35,662     Jun-95     13,040        29,673
Mobil Oil Corporation           Material Handling           Jul-92         36,249     Jun-95     10,611        30,163
Pepsico, Inc., d/b/a/ PFS       Material Handling           Jul-90         73,050     Jun-95      8,470        52,933
Pilgrim's Pride Corporation     Chicken Processing          Dec-90      3,791,002     Oct-95  1,400,000     4,000,050
Southern Ohio Coal Company      Mining                      Mar-92      3,795,152     Jun-92  4,469,135       207,307
Stone Container Corporation     Material Handling           Nov-90         15,984     Mar-93      5,500        14,058
Stone Container Corporation     Material Handling           Nov-90         43,850     Apr-93      9,000        36,268
Stone Container Corporation     Material Handling           Nov-90        227,384     May-93     54,500       163,622
Stone Container Corporation     Material Handling           Nov-90        299,787     Aug-93    115,700       301,446
Stone Container Corporation     Material Handling           Nov-90         23,674     Oct-93      5,800        24,262
Stone Container Corporation     Material Handling           Nov-90         45,669     Apr-94     17,500        45,093
Stone Container Corporation     Material Handling           Nov-90         18,611     Jul-94      3,500        16,737
Stone Container Corporation     Material Handling           Nov-90         50,097     Oct-94     17,735        52,700
Stone Container Corporation     Tractor                     Nov-90         17,227     Jan-95      6,000        18,431
Stone Container Corporation     Tractor                     Nov-90         53,694     Jan-95     30,500        50,456
Stone Container Corporation     Material Handling           Nov-90         15,625     Feb-95      4,000        14,480
Stone Container Corporation     Tractor                     Nov-90        137,327     Mar-95     75,842       124,820
Stone Container Corporation     Material Handling           Nov-90         33,498     Mar-95     14,500        35,136
Stone Container Corporation     Material Handling           Apr-91        128,314     Dec-93    117,236        59,610
Stone Container Corporation     Material Handling           Nov-90         96,611     Jun-95     29,500       107,181
Stone Container Corporation     Material Handling           Nov-90         51,420     Jun-95     14,500        54,541
Stone Container Corporation     Material Handling           Nov-90        216,936     Jun-95     72,500       199,500
Stone Container Corporation     Material Handling           Nov-90         17,250     Jul-95      5,500        15,176
Stone Container Corporation     Material Handling           Nov-90        116,700     Jul-95     23,750       133,201
Stone Container Corporation     Material Handling           Nov-90         63,433     Sep-95     14,000        69,970
Stone Container Corporation     Material Handling           Nov-90         22,308     Jul-95      5,500        23,453
Stone Container Corporation     Material Handling           Nov-90         49,232     Jul-95     14,500        54,618
Stone Container Corporation     Material Handling           Nov-90        110,836     Jul-95     21,750       125,403
Stone Container Corporation     Material Handling           Nov-90         17,124     Jul-95      4,300        19,535
Stone Container Corporation     Material Handling           Nov-90         25,898     Jul-95     12,000        26,586
Stone Container Corporation     Sweeper                     Nov-90         14,203     Oct-95      2,100        10,440
Stone Container Corporation     Material Handling           Nov-90         15,810     Jul-95      8,500        16,230
Stone Container Corporation     Material Handling           Nov-90         12,949     Jul-95      6,000        13,293
Stone Container Corporation     Material Handling           Nov-90        183,825     Jul-95    105,500       188,712
Stone Container Corporation     Material Handling           Nov-90         46,928     May-96      8,400        57,267
Stone Container Corporation     Material Handling           Nov-90         68,950     Mar-96     21,500        85,665
Stone Container Corporation     Material Handling           Nov-90         46,492     Mar-96     13,500        41,148
Stone Container Corporation     Material Handling           Nov-90        136,838     Jun-96     60,670       164,020
Stone Container Corporation     Material Handling           Nov-90         22,561     Jan-96      2,000        29,525
Teledyne Industries, Inc.       Material Handling           Nov-90         56,635     Jan-94     13,714        52,309
Teledyne Industries, Inc.       Material Handling           Nov-90         24,073     Apr-94     11,100        22,234
Teledyne Industries, Inc.       Material Handling           Nov-90         41,301     Apr-96     15,000        42,464
The Dow Chemical Company        Material Handling           Oct-91         50,478     Aug-93     12,000        47,859
The Dow Chemical Company        Research Equipment          Apr-91        930,833     Feb-96    214,500     1,013,116
The Helen Mining Company        Mining                      Jun-91        211,129     Aug-93     14,321       227,537    10
Wal-mart Stores, Inc.           Forklifts, Trucks           Jun-94        189,632     Jan-96    165,000       188,817
                                  & Trailers                              ========              =====================
                                                                      $23,608,542           $13,816,787   $17,253,064
                                                                          ========              =====================
ATEL CASH DISTRIBUTION FUND IV
Burlington Northern Railroad    Locomotives                 Dec-92    $ 7,950,000     Dec-94   5,595,000    4,161,000
Canadian Pacific Limited        Rail Car                    Oct-92          5,704     Apr-96      21,772          520
H. E. Butt Grocery Company      Trailers                    Nov-92         37,957     Jan-96      35,624       18,607
Kraft General Foods             Tractors                    Dec-93        419,267     Jan-95     363,510      337,986
Midwest Power Systems, Inc.     Coal Hopper Car             Dec-92         17,500     Sep-93      20,543        3,915
Midwest Power Systems, Inc.     Coal Hopper Car             Dec-92      2,222,500     Apr-96   1,730,291    1,993,170
Mobil Oil Corportion            Boom Trucks                 Nov-92         69,903     Jan-94      46,026       19,329
Mobil Oil Corportion            Tractors                    Nov-92        182,949     Jun-96      48,000      136,246
Mobil Oil Corportion            Tractors                    Nov-92         62,312     Jan-96      25,500       43,963
Mobil Oil Corportion            Tractors                    Nov-92         62,312     Mar-96      25,500       43,963
Mobil Oil Corportion            Tractors                    Dec-92         23,500     Feb-96       8,950       21,126
The Helen Mining Company        Mining                      May-92        641,854     Aug-93      44,235      679,436    10
Trans Ocean Container           Intermodal Containers       Sep-93          6,744     Jul-94       7,398          825
  Corporation
Trans Ocean Container           Intermodal Containers       Sep-93         13,223     Apr-95      12,095        3,016
  Corporation
Trans Ocean Container           Intermodal Containers       Sep-93          6,706     Jul-95       6,394        2,069
  Corporation
Trans Ocean Container           Intermodal Containers       Sep-93         10,196     Oct-95       6,112        3,595
  Corporation
Trans Ocean Container           Intermodal Containers       Sep-93         13,870     Dec-95      10,608        5,537
  Corporation
Union Tank Car                  Box Car                     Oct-92         25,000     Feb-95      23,158       21,678
Union Tank Car Company          Rail Car                    Dec-92         13,000     Jan-93      14,569          880
Union Tank Car Company          Rail Car                    Oct-92         12,000     Apr-95      11,088       12,752
Union Tank Car Company          Rail Car                    Oct-92      1,222,542     Jul-95   1,383,118      601,100
Union Tank Car Company          Rail Car                    Oct-92        389,367     Sep-95     441,332      203,680
Union Tank Car Company          Rail Car                    Oct-92        389,367     Oct-95     442,564      209,760
Union Tank Car Company          Rail Car                    Oct-92         12,000     Jan-96      10,371        8,202
Union Tank Car Company          Rail Car                    Oct-92         26,000     Apr-96      21,695       18,920
                                                                        ==========              =====================
                                                                      $13,835,773             10,355,453    8,551,275
                                                                        ==========              =====================

ATEL CASH DISTRIBUTION FUND V
Burris Foods                    Trailers                    Apr-94       $108,442     Dec-95    $121,000      $53,210
IBM Corporation                 Office furniture            Sep-93        693,896     Jun-95     516,291      666,576
Mobil Administrative Services   Helicopter                  Jun-93        844,525     Mar-95     920,000      308,000
PV Trucking                     Tractors                    Jun-94         75,333     Jan-96      50,000       36,000
Quaker Coal Company             Mining equipment            Jun-94        595,000     Jun-95     505,775      173,253
Quaker Coal Company             Mining equipment            Jun-94      1,118,880     Jun-95     930,251      347,926
Quaker Coal Company             Mining equipment            Dec-94      3,000,000     Jun-95   2,696,718      794,600
The Atchison Topeka & Santa Fe  Intermodal Containers       Jun-94          9,787     Jan-95      10,107          611
  Railroad Company
The Atchison Topeka & Santa Fe  Intermodal Containers       Oct-94          9,635     Jan-95      10,123          306
  Railroad Company
The Atchison Topeka & Santa Fe  Intermodal Containers       Apr-94          9,787     Jan-96       9,612        1,832
  Railroad Company
The Atchison Topeka & Santa Fe  Intermodal Containers       May-94          9,787     Jan-96       9,612        1,832
  Railroad Company
The Atchison Topeka & Santa Fe  Intermodal Containers       Jun-94          9,787     Jan-96       9,612        1,832
  Railroad Company
The Dow Chemical Company        Copiers                     Jul-94         42,694     Jul-95      31,150       13,588
The Dow Chemical Company        Copiers                     Jan-95         37,493     Dec-95      20,750       12,437
The Dow Chemical Company        Copiers                     Apr-95         13,455     Dec-95      14,080        2,199
The Dow Chemical Company        Copiers                     Jul-94        195,975     Jan-96     139,400      224,830
The Dow Chemical Company        Copiers                     Oct-94        230,577     Jan-96     204,000       76,459
The Dow Chemical Company        Copiers                     Jan-95        110,900     Jan-96      98,750       38,074
The Dow Chemical Company        Staplers                    Apr-95        109,800     Jan-96     119,000       18,576
Tom's Foods, Inc.               Tractors                    Jun-94         61,908     Feb-96      36,800       49,982
Trans Ocean Container           Intermodal Containers       Sep-93         18,054     Jul-94      18,898        2,371
  Corporation
Trans Ocean Container           Intermodal Containers       Sep-93          3,372     Oct-94         3,675        1,674
  Corporation
Trans Ocean Container           Intermodal Containers       Sep-93         10,116     Apr-95         5,246        2,345
  Corporation
Trans Ocean Container           Intermodal Containers       Sep-93          5,814     Jul-95         5,263        1,866
  Corporation
Trans Ocean Container           Intermodal Containers       Sep-93          4,647     Oct-95         4,405          850
  Corporation
Trans Ocean Container           Intermodal Containers       Sep-93         53,507     Dec-95        46,560       21,970
  Corporation
Trans Ocean Container           Intermodal Containers       Sep-93          2,245     Jun-96         2,468        1,041
  Corporation
Trans Ocean Container           Intermodal Containers       Sep-93         25,925     Apr-96        19,257       10,817
  Corporation                                                           =========                ======================
                                                                       $7,411,341               $6,558,803   $2,865,057
                                                                        =========                ======================

ATEL CASH DISTRIBUTION FUND VI
Perdue Transportation           Tractors                    Nov-95        $47,038     Feb-96       $45,838       $3,900
  Corporation
The Atchison Topeka &           Intermodal Containers       Jan-94         20,068     Jan-95        21,084          567
  Santa Fe Railroad Company
The Atchison Topeka &           Intermodal Containers       Sep-94         10,034     Jan-95        10,446          335
  Santa Fe Railroad Company
The Atchison Topeka &           Intermodal Containers       Nov-94         10,034     Feb-95        10,446        1,159
  Santa Fe Railroad Company
The Atchison Topeka &           Intermodal Containers       Sep-94         20,068     Jan-96        19,973        2,543
  Santa Fe Railroad Company
The Atchison Topeka &           Intermodal Containers       Nov-94          9,633     Apr-96         9,588        1,240
  Santa Fe Railroad Company
The Atchison Topeka &           Intermodal Containers       Nov-94         10,034     Jan-96        10,113          968
  Santa Fe Railroad Company
The Atchison Topeka &           Intermodal Containers       Nov-94          6,453     Apr-96         6,567          788
Tracy Locke, Inc.               Printers                    Mar-95         12,470     Sep-95        12,179        1,662
Trans Ocean Container           Intermodal Containers       Dec-95          9,529     Jun-96        11,167          700
  Corporation                                                              ======                =======================
                                                                         $155,361                 $157,401      $13,862
                                                                           ======                =======================

                                          TOTALS OF ALL FUNDS:        $87,898,330              $47,137,157  $66,525,434
                                                                      ============             =========================
</TABLE>
Notes

(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.

(5) "Sale Price" represents cash and non-cash amounts distributed by Lessee as a
result  of  U.S.  Bankruptcy  Court-approved  Chapter  11  Reorganization  Plan.
Distributions  were as  follows:  Cash  $9,512;  Senior  Secured  Notes  $1,000;
Convertible  Subordinated  Notes $700;  Common  Stock $296  (market  value as of
7/16/92).

(6) The  original  lease  included a mobile MRI unit and a tractor.  The tractor
leased  under the original  lease was sold to the lessee.  The MRI unit has been
leased to a third party on a 24 month term with a bargain  purchase option to be
exercised at the end of the lease term. The Equipment  under this lease is owned
1/3 by ATEL Cash Distribution Fund and 2/3 By ATEL Cash Distribution Fund II.

(7) "Sale Price" represents cash and non-cash amounts distributed by Lessee as a
result  of  U.S.  Bankruptcy   Court-approved   pre-packaged  Chapter  11  Plan.
Distributions  were as follows:  Cash  $602,435;  Senior  Secured Notes $72,800;
Convertible Subordinated Notes $50,900; Common Stock $21,482 (market value as of
7/16/92).

(8) "Sales Price" represents cash and non-cash amounts  distributed by Lessee as
a  result  of U.S.  Bankruptcy  Court-approved  pre-packaged  Chapter  11  Plan.
Distributions  were as follows:  Cash  $431,499;  Senior  Secured Notes $51,600;
Convertible Subordinated Notes $36,100; Common Stock $15,233 (market value as of
7/16/92).

(9) "Equipment  Acquisition  Price" represents a 2/3 beneficial  interest in the
transaction.  The Equipment was foreclosed in September 1990 by the non-recourse
lender,  John  Hancock  Leasing.  Actual  cash/equity  amount  paid by the prior
program for the Equipment was $1,430,345,  the balance of the Acquisition  Price
was financed with  non-recourse  debt. "Sale Price" represents the amount of the
non-recourse debt written off at the time of foreclosure.

(10) The "Sales Price"  represents the sum of cash received from the sale of the
aircraft pre-bankruptcy  petition, plus all amounts received by the lessor under
its unsecured claim filed in the lessee's Chapter 11 reorganization, through the
date of this  table.  Through  September  30,  1996,  such claim  payments  have
amounted to 40% of the allowed claim amount of $776,542, or $310,617.

(11) "Equipment  Acquisition Price" represents a 1/3 beneficial  interest in the
transaction.  The Equipment was foreclosed in September 1990 by the non-recourse
lender,  John  Hancock  Leasing.  Actual  cash/equity  amount  paid by the prior
program for the Equipment was $715,172, the balance of the Acquisition Price was
financed  with  non-recourse  debt.  "Sale Price"  represents  the amount of the
non-recourse debt written off at the time of foreclosure.


                                      A-37

<PAGE>


                                                                   EXHIBIT B



                      ATEL CAPITAL EQUIPMENT FUND VII, L.P.

                              AMENDED AND RESTATED

                        AGREEMENT OF LIMITED PARTNERSHIP


                                  November 29, 1996

atel7-2/lpa.3

<PAGE>



                      ATEL CAPITAL EQUIPMENT FUND VII, L.P.

                              AMENDED AND RESTATED

                        AGREEMENT OF LIMITED PARTNERSHIP

                                TABLE OF CONTENTS

                                                                          Page
 1.      NAME AND PRINCIPAL PLACE OF BUSINESS............................ B-1

 2.      DEFINITIONS..................................................... B-1

 3.      BUSINESS AND PURPOSE............................................ B-8

 4.      TERM............................................................ B-9

 5.      GENERAL PARTNER................................................. B-9

 6.      INITIAL AND ADDITIONAL LIMITED PARTNERS......................... B-9
         Section 6.1  Initial Limited Partners........................... B-9
         Section 6.2  Additional Limited Partners........................ B-9
         Section 6.3  Conditions to Admission............................ B-9
         Section 6.4  Admission as a Limited Partner..................... B-10
         Section 6.5  Limitation on Additional Insurance................. B-10
         Section 6.6  Escrow............................................. B-10
         Section 6.7  Capital Account.....................................B-10

 7.      LIABILITY AND STATUS OF LIMITED PARTNERS.........................B-11

 8.      COMPENSATION TO THE GENERAL PARTNER AND/OR
           AFFILIATES OF THE GENERAL PARTNER..............................B-11
         Section 8.1  General Limitation..................................B-11
         Section 8.2  Acquisition Stage...................................B-11
         Section 8.3  Operating Stage.....................................B-11
         Section 8.4  Payment of Fees on Removal..........................B-14
         Section 8.5  Employment of Broker-Dealers........................B-14

 9.      FUND EXPENSES AND RESERVES.......................................B-14
         Section 9.1  Reimbursement of General Partner....................B-14
         Section 9.2  Limitation on Reimbursement.........................B-14
         Section 9.3  Fund Expenses.......................................B-15
         Section 9.4  Reserves............................................B-16

10.      ALLOCATION OF INCOME, LOSS AND DISTRIBUTIONS... .................B-16
         Section 10.1  Allocation of Net Income and Net
                         Loss Prior to Initial Closing Date...............B-17
         Section 10.2  Allocation of Net Income and Net
                         Loss After Initial Closing Date..................B-17
         Section 10.3  Special Allocations................................B-19
         Section 10.4  Distribution of Cash From Operations...............B-19


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                                       B-i

<PAGE>



         Section 10.5   Distribution of Cash From Sales
                          or Refinancing..................................B-19
         Section 10.6   Distributions of Cash From
                          Reserve Account.................................B-20
         Section 10.7   Determination of Amounts to
                          be Distributed..................................B-21
         Section 10.8   Consent to Allocations............................B-21
         Section 10.9   Limitation on Distributions.......................B-21
         Section 10.10  Allocation to General Partner.....................B-21
         Section 10.11  Return of Unused Capital..........................B-21
         Section 10.12  General Partner Interest..........................B-21
         Section 10.13  Distributions in Kind.............................B-21
         Section 10.14  Withholding Taxes.................................B-22

11.      ASSIGNMENT OF FUND INTERESTS.....................................B-22
         Section 11.1  Limitations on Transfer............................B-22
         Section 11.2  Distributions and Effective
                         Date of Transfer ................................B-23
         Section 11.3  Governmental Restrictions..........................B-24
         Section 11.4  Non-Complying Transfers............................B-24
         Section 11.5  Misrepresentations and Forfeit.....................B-24

12.      SUBSTITUTED LIMITED PARTNERS.....................................B-24
         Section 12.1  Limitations on Substitution........................B-24
         Section 12.2  Consent to Admission...............................B-25
         Section 12.3  Amendment of Agreement.............................B-25

13.      REPURCHASE OF FUND INTERESTS.....................................B-25

14.      BOOKS, RECORDS, ACCOUNTINGS AND REPORTS..........................B-26
         Section 14.1  Books of Account and Records.......................B-26
         Section 14.2  Audited Annual Financial Statements................B-28
         Section 14.3  Other Annual Reporting.............................B-28
         Section 14.4  Quarterly Reports..................................B-29
         Section 14.5  Unaudited Quarterly
                         Financial Statements.............................B-29
         Section 14.6  Other Quarterly Reports............................B-29
         Section 14.7  Tax Returns........................................B-29
         Section 14.8  Governmental Reports...............................B-30
         Section 14.9  Maintenance of Suitability Records.................B-30

15.      RIGHTS, AUTHORITY, POWERS AND RESPONSIBILITIES
         OF THE GENERAL PARTNER...........................................B-30
         Section 15.1  Services of the General Partner....................B-30
         Section 15.2  Authority of the General Partner...................B-30
         Section 15.3  General Powers and Fiduciary Duty..................B-34
         Section 15.4  Limitations on General
                          Partner's Authority.............................B-34
         Section 15.5  Limitation on General Partner's
                          Liability.......................................B-39
         Section 15.6  Tax Matters Partner................................B-39
         Section 15.7  Minimum Investment in Equipment /
                          Maximum Front-End Fees..........................B-39

atel7-2/lpa.3
                                      B-ii

<PAGE>



         Section 15.8  Reliance on General Partner's Authority............B-40

16.      RIGHTS, POWERS AND VOTING RIGHTS OF
         THE LIMITED PARTNERS.............................................B-41
         Section 16.1  Limitation on Limited Partner Authority............B-41
         Section 16.2  Voting Rights......................................B-41
         Section 16.3  Voting Procedures..................................B-41
         Section 16.4  Limitations on Limited Partner Rights..............B-43
         Section 16.5  Limitations on Power to Amend Agreement............B-43
         Section 16.6  Limited Partner List...............................B-44
         Section 16.7  Dissenters' Rights and Limitations on
                          Mergers and Roll-ups............................B-44

17.      TERMINATION OF A GENERAL PARTNER AND TRANSFER
         OF A GENERAL PARTNER'S INTEREST..................................B-46
         Section 17.1  Removal or Withdrawal..............................B-46
         Section 17.2  Other Terminating Events...........................B-46
         Section 17.3  Election of Successor General Partner;
                         Continuation of Fund Business....................B-46
         Section 17.4  Admission of Successor or
                         Additional General Partner.......................B-47
         Section 17.5  Effect of a Terminating Event......................B-47
         Section 17.6  Election of Additional General Partner.............B-48
         Section 17.7  Assignment of General
                         Partner's Interest...............................B-48
         Section 17.8  Limited Partners' Participation
                         in General Partner's Bankruptcy..................B-48

18.      CERTAIN TRANSACTIONS.............................................B-49

19.      TERMINATION AND DISSOLUTION OF THE FUND..........................B-49
         Section 19.1  Termination and Dissolution........................B-49
         Section 19.2  Accounting and Liquidation.........................B-50

20.      SPECIAL POWER OF ATTORNEY........................................B-50
         Section 20.1  Execution of Power of Attorney.....................B-50
         Section 20.2  Special Power of Attorney..........................B-51

21.      INDEMNIFICATION..................................................B-51
         Section 21.1  Indemnification of the General Partner.............B-51
         Section 21.2  Limitations on Indemnification.....................B-52
         Section 21.3  Insurance..........................................B-53

22.      MISCELLANEOUS....................................................B-53
         Section 22.1  Counterparts.......................................B-53
         Section 22.2  Successors and Assigns.............................B-53
         Section 22.3  Severability.......................................B-53
         Section 22.4  Notices............................................B-53
         Section 22.5  Captions...........................................B-53
         Section 22.6  Number and Pronouns................................B-53
         Section 22.7  General Partner Address............................B-54
         Section 22.8  Limited Partner Address............................B-54
         Section 22.9  Construction.......................................B-54

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                                      B-iii

<PAGE>



         Section 22.10 Qualification to Do Business.......................B-54


atel7-2/lpa.3
                                      B-iv

<PAGE>





                              AMENDED AND RESTATED
                        AGREEMENT OF LIMITED PARTNERSHIP
                    OF ATEL CAPITAL EQUIPMENT FUND VII, L.P.

   
This PARTNERSHIP AGREEMENT (the "Agreement"), entered into as of the 17th day of
May,  1996, by and between ATEL  Financial  Corporation  ("ATEL"),  a California
Corporation,  as the General Partner (the "General Partner"), and Eliza Cash and
Linda Batt as the initial Limited Partners,  whereby the parties together agrees
to  form a  limited  partnership  pursuant  to the  California  Revised  Limited
Partnership  Act is hereby amended and restated in its entirety this 29th day of
November, 1996, as set forth below:     

1.       NAME AND PRINCIPAL PLACE OF BUSINESS

         The name of the Fund shall be ATEL Capital  Equipment Fund VII, L.P. or
such other name as the General Partner shall  hereafter  designate in writing to
the Limited  Partners.  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  General  Partner  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
Partner, the deficit balance if any, in such Partner's Capital Account as of the
end  of  the  relevant  fiscal  year,  after  giving  effect  to  the  following
adjustments:  (a)  Crediting  to such  Capital  Account any  amounts  which such
Partner 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 to
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

atel7-2/lpa.3
                                       B-1

<PAGE>



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.

          "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.

           "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  Partnership  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.

           "Capital  Account"  shall mean,  with  respect to any  Partner,  such
Partner's Capital Account determined in accordance with Section 6.7.

           "Cash from  Operations"  shall mean the excess of Gross Revenues over
cash  disbursements   (including  the  Equipment   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
General  Partner.  Cash from  Operations  shall not  include  Cash from Sales or
Refinancing or Cash from Reserve Account.


atel7-2/lpa.3
                                       B-2

<PAGE>



           "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
(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 (including,  subject to the subordination  provisions
of Section 8.3.2,  the Equipment Resale Fee);  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 General  Partner for
the termination of the offering of Units,  but not later than November 29, 1998.
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,  tax  credits  or other  property
allocated  to or  distributed  to Holders and the General  Partner  arising from
their  respective  interests in the Fund, but shall not include any compensation
payable to the General  Partner 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 the fee payable to an Affiliate
of the General Partner under the provisions of Section 8.3.1 of this Agreement.


atel7-2/lpa.3
                                       B-3

<PAGE>



         "Equipment  Re-lease Fee" shall mean the fee payable to an Affiliate of
the General Partner under the provisions of Section 8.3.3 of this Agreement.

         "Equipment  Resale Fee" shall mean the fee payable to an  Affiliate  of
the General Partner, under the provisions of Section 8.3.2 of this 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 General Partner.

         "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 partnership created under this
Agreement.

         "Fund  Manager"  shall  mean  the  General   Partner,   ATEL  Financial
Corporation or its successor as General Partner of the Fund.

         "Fund  Minimum  Gain" shall have the  meaning set forth in  Regulations
section 1.704-2(d)(1).

         "General  Partner" shall mean ATEL Financial  Corporation  ("ATEL"),  a
California corporation,  or any other Person or Persons which succeed it in such
capacity. The General Partner is referred to throughout the Prospectus as "ATEL"
or the "Fund Manager."

         "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  Revenues"  shall mean all revenues from the operation and lease
of 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

atel7-2/lpa.3
                                       B-4

<PAGE>



least 90% of the original purchase price paid by the Fund for the
Equipment.

         "Holders"  shall  mean  owners  of Units  who are  either  Partners  or
Assignees of Record,  and  reference to a "Holder"  shall be to any one of them.
The General  Partner shall not be considered to be a Holder except to the extent
it also owns Units.

         "Incentive  Management  Fee" shall mean the fee payable to an Affiliate
of the General Partner under the provisions of Section 8.3.4 of this Agreement.

         "Independent  Expert"  shall mean a person with no current  material or
prior business or personal  relationship  with the General Partner 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.

         "Limited Partners" shall mean the initial limited partners and
any other Persons who are admitted to the Fund as additional or
substituted limited partners.  Reference to a "Limited Partner"
shall refer to any one of them.

         "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

atel7-2/lpa.3
                                       B-5

<PAGE>



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" has the meaning given it in
Regulations section 1.704-2(b)(1).

         "Nonrecourse  Liability" means a Partnership  liability with respect to
which no Partner or Related Person bears the economic risk of loss.

         "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.

         "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 amount in cash contributed
by each Partner 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.

         "Partner Nonrecourse Debt" has the meaning given it in
Regulations section 1.704-2(b)(4).

         "Partners" shall mean  collectively the General Partner and Holders who
are admitted to the Fund as Limited  Partners and reference to a "Partner" shall
be to any one of the Partners.

         "Partnership  Agreement" or  "Agreement"  shall mean this  Agreement of
Limited  Partnership  of ATEL Capital  Equipment  Fund VII,  L.P.,  as it may be
amended from time to time.

         "Person"  shall  mean any  natural  person,  partnership,  corporation,
association or other legal entity.

         "Priority  Distribution"  for any  calendar  year or other period shall
mean,  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

atel7-2/lpa.3
                                       B-6

<PAGE>



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 Fund 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 an relationship  with a Partner
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:

                  (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 Limited Partners voting rights;

atel7-2/lpa.3
                                       B-7

<PAGE>



                           (ii)     the term of existence of the Fund;
                           (iii)    the terms of compensation of the General
                                    partner 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 General Partner
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  General  Partner  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
General  Partner 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 General Partner may not make any material change to
such investment objectives without first obtaining the

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                                       B-8

<PAGE>



written  consent or  approval  of Limited  Partners  owning more than 50% of the
total outstanding Units entitled to vote.

4.       TERM

         The Fund  commenced as of the 17th day of May, 1996 and shall  continue
until the 31st day of December, 2017, unless previously terminated in accordance
with the provisions of this Agreement.

5.       GENERAL PARTNER

         5.1 The General Partner has contributed $100 in cash to the Fund and at
all times  during the  existence  of the Fund the General  Partner  shall have a
present and  continuing  interest in Net  Income,  Net Losses and  Distributions
according to the provisions of Article 10.

         5.2 In the event that, immediately prior to the dissolution of the Fund
referred to in Article 19, the General  Partner  shall have a deficiency  in its
Capital Account as determined in accordance with generally  accepted  accounting
principles,  then the General Partner shall contribute in cash to the capital of
the Fund an amount  equal to the  lesser of (a) the  deficiency  in the  General
Partner's  Capital Account or (b) 1.01% of the Original  Invested  Capital which
has not been returned pursuant to Section 10.12. This Section 5.2 is intended to
comply with Regulation Section 1.704-1(b),  and shall be interpreted and applied
in a manner consistent with such regulation.

6.       INITIAL AND ADDITIONAL LIMITED PARTNERS

     6.1 Initial  Limited  Partners.  Linda Batt and Eliza Cash,  as the initial
Limited  Partners,  have each  contributed the sum of $250 to the capital of the
Fund and each has received 25 Units in return therefor.

     6.2  Additional  Limited  Partners.  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  Limited  Partners 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 Limited Partner 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 Limited Partner and requests admission to the Fund in that
capacity,  together  with such other  instruments  as the  General  Partner  may
atel7-2/lpa.3 B-9

<PAGE>



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 General Partner of a special
power of attorney, the form, style and content of which are more fully described
herein, and (iv) the General Partner accepts such Person as a Limited Partner in
the Fund.

     6.4 Admission as a Limited  Partner.  Each Person who  subscribes for Units
under  Section  6.2 shall be  admitted  to the Fund  promptly  after the General
Partner'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 First Trust
of California, National Association, San Francisco,  California, or in any other
banking institution  designated by the General Partner, 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 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  Partner.  The Capital  Account of a Partner  shall consist of the Original
Invested Capital of such Partner,  increased by (i) any additional contributions
to capital and (ii) such  Partner's  share of Fund Net Income,  and decreased by
(i)  Distributions  to such  Partner and (ii) such  Partner's  share of Fund Net
Loss.  In the  event a Partner  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

atel7-2/lpa.3
                                      B-10

<PAGE>



interpreted and applied in a manner consistent with such Regulations.

7.       LIABILITY AND STATUS OF LIMITED PARTNERS

         Holders  shall  not be bound  by,  or be  personally  liable  for,  the
expenses,  liabilities or obligations of the Fund.  However,  in accordance with
Section 15666 of the California  Revised Limited  Partnership Act, Partners will
be  obligated  to return  any  Distribution  from the Fund to the  extent  that,
immediately after giving effect to the Distribution, all liabilities of the Fund
(other than liabilities as to which recourse of creditors is limited to specific
Fund property and  liabilities  to Partners on account of their  interest in the
Fund) exceed the fair value of its assets  (including,  as to assets  serving as
security  for  nonrecourse  liabilities,  only that portion of the fair value of
such assets which exceeds the amount of such nonrecourse liabilities).

8.       COMPENSATION TO THE GENERAL PARTNER AND/OR AFFILIATES OF THE
GENERAL PARTNER

         8.1      General Limitation. The General Partner and its Affiliates
shall receive compensation only as specified by this Agreement.

         8.2 Acquisition  Stage.  The Fund shall pay no Acquisition  Fees to the
General  Partner or any of its  Affiliates,  and,  except as expressly  provided
herein,  no other leasing  commission,  Equipment  purchase fee, finder's fee or
other  compensation  shall be paid or payable by the Fund to the General Partner
or to any Affiliate of the General Partner in connection with the acquisition of
specific Equipment  (including  Equipment acquired upon the reinvestment of Cash
from Operations or Cash from Sales or Refinancing).

         8.3      Operating Stage

                  8.3.1  Equipment  Management  Fee.  As  compensation  for  its
         services  rendered  generally  in  supervising  the  management  of the
         Equipment and other ongoing  services and activities  including,  among
         others,  arranging for necessary  maintenance  and repair of Equipment,
         collecting  revenues,  paying operating expenses,  determining that the
         Equipment is being used in accordance  with all  operative  contractual
         arrangements,   property  and  sales  tax  monitoring,  preparation  of
         financial  data, and  supervising  the performance of such services (it
         being  understood  and agreed that the  provision of such services does
         not  constitute  a part of the  duties or  obligations  of the  General
         Partner as general partner of the Fund), ATEL Equipment Corporation, an
         Affiliate of the General Partner,  or another  Affiliate of the General
         Partner,  shall be  entitled to receive the  Equipment  Management  Fee
         which shall be payable for each fiscal quarter and shall be an amount

atel7-2/lpa.3
                                      B-11

<PAGE>



         equal to (i) 3.5% of the Gross Revenues from Operating  Leases,  except
         that if the services are performed by  nonaffiliated  Persons under the
         active  supervision of the General  Partner or its Affiliate,  then the
         amount payable to the General  Partner 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. It
         is the intention of the Fund that the Equipment Management Fee shall be
         a fixed management fee with respect to each item of Equipment.

                  8.3.2 Equipment  Resale Fee. As  compensation  for remarketing
         services  rendered  in  connection  with  the sale of  Equipment,  ATEL
         Equipment Corporation,  an Affiliate of the General Partner, or another
         of the Affiliates of the General Partner,  shall be entitled to receive
         an  amount  equal to 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.  Such fee
         is  payable  only  after the  Holders  have  received a return of their
         Original  Invested Capital plus a Priority  Distribution.  In addition,
         the total  commissions  paid to all parties in connection with the sale
         of Equipment by the Fund shall not exceed the normal  competitive sales
         commission  charged by  unaffiliated  parties  for such  services.  The
         subordination  provisions  referred  to in the second  sentence of this
         paragraph shall only apply to the amounts earned by the General Partner
         and its Affiliates.

                  8.3.3  Equipment  Re-lease Fee.  Subject to the  provisions of
         Section  15.4.28,  ATEL  Equipment  Corporation,  an  Affiliate  of the
         General  Partner,  or another of the Affiliates of the General Partner,
         may provide Equipment  re-leasing  services to the Fund,  provided that
         all of the following conditions are met:

                           (i)  The General Partner or its Affiliates have and
                  will maintain adequate staff to render such services to
                  the Fund;

                      (ii) The fee for such services shall not exceed the lesser
                  of the  competitive  rate for comparable  services for similar
                  equipment  or 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,  and such
                  fee is payable as each rental  payment is received by the Fund
                  over the term of the re-lease;

                     (iii)  No such re-lease fee is payable in connection
                  with the re-lease of Equipment to a previous lessee or
                  its Affiliates;


atel7-2/lpa.3
                                      B-12

<PAGE>



                      (iv) The General  Partner or its Affiliates  have rendered
                  substantial   re-leasing  services  in  connection  with  such
                  re-lease; and

                           (v)  The  General   Partner  or  its  Affiliates  are
                  compensated  for  rendering   Equipment   management  services
                  pursuant to Section 8.3.1.

                  8.3.4  Incentive  Management  Fee.  As  compensation  for  the
         services  rendered in  establishing  and maintaining the composition of
         the Fund's Equipment portfolio and its acquisition and debt strategies,
         and  for  supervising  Fund   administration   and  investor  services,
         including the  preparation of reports and  maintenance of financial and
         operating  data of the Fund,  Securities  and Exchange  Commission  and
         Internal  Revenue  Service  filings,  returns and reports,  the General
         Partner or an  Affiliate of the General  Partner,  shall be entitled to
         receive an Incentive Management Fee 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 Compensation 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 General Partner.

                  8.3.5 Other  Services.  Except as set forth in this  Article 8
         and Article 9 hereof, no other services may be performed by the General
         Partner  or  its  Affiliates  for  the  Fund  except  in  extraordinary
         circumstances  (which  shall  be  defined  as  an  emergency  situation
         requiring  immediate action by the General Partner 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 and shall be on
         competitive  terms, (ii) the fees and other terms of the contract shall
         be fully  disclosed  to  Holders,  (iii)  the  General  Partner  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 General Partner, and (iv) all services for which
         the General Partner or its Affiliates are to receive compensation

atel7-2/lpa.3
                                      B-13

<PAGE>



         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.

         8.4  Payment of Fees on  Removal.  Should a General  Partner be removed
from the Fund  according to  provisions of Article 17, any portion of any fee or
commission  payable to the General  Partner  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 General  Partner in cash within 30 days of the date of  expulsion as
stated in the  written  notice of  expulsion,  except to the  extent  any amount
payable under Section 8.3.4 is included in  calculating  the purchase  price for
the General Partner's interest in the Fund under Section 17.5.2 hereof.

         8.5 Employment of Broker-Dealers.  The Fund may employ underwriters and
selected  broker-dealers,  including  Affiliates  of the General  Partner as set
forth in the Prospectus, for the sale of Units.

9.       FUND EXPENSES AND RESERVES

     9.1  Reimbursement of General Partner.  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 General  Partner 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 General  Partner;
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 General Partner and its
Affiliates will not be reimbursed by the Fund for the following expenses:

                  9.2.1 Services for which the General Partner or its Affiliates
          are entitled to compensation in the form of a separate fee pursuant to
          Article 8 hereof;

                  9.2.2 Rent or depreciation, utilities or capital equipment and
          other administrative items of the Sponsor;


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                                      B-14

<PAGE>



                  9.2.3   Salaries,   fringe   benefits,   travel   expenses  or
         administrative items incurred by or allocated to any Controlling Person
         of the  General  Partner  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
         General  Partner  or its  Affiliates  similar  to  those  of  executive
         management or senior management,  and directors, or those holding 5% or
         more  equity  interest  in the General  Partner or its  Affiliates;  or
         persons  having  the  power to direct  or cause  the  direction  of the
         General Partner 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 General  Partner  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 General  Partner 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

atel7-2/lpa.3
                                      B-15

<PAGE>



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  General  Partner  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.

         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 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 General  Partner and 1% to the
initial Holders.




atel7-2/lpa.3
                                      B-16

<PAGE>



         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
         General Partner.

                  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 and  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 Partners in the manner described below:

          (i)     Gain  characterized as recapture income under Sections 1245 or
                  1250 of the Code  shall be  allocated  to those  Partners  who
                  claimed the deductions giving rise to such recapture income.

         (ii)     Except as  provided in Section  10.3.2(iii),  in the event any
                  Partner unexpectedly receives any adjustments,  allocations or
                  distributions described in sections 1.704-  1(b)(2)(ii)(d)(4),
                  (5) or (6) of the Regulations,  items of Fund gross income and
                  gain (consisting of a pro rata

atel7-2/lpa.3
                                      B-17

<PAGE>



                  portion of each item of the  Fund's  income,  including  gross
                  income,  and gain for such year)  shall be  allocated  to such
                  Partner in an amount and manner  sufficient to  eliminate,  to
                  the extent  required  by  Regulations,  the  Negative  Capital
                  Account  balances  (or any  increase  in the  amount  thereof)
                  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 Fund Minimum Gain during
                  any Fund fiscal year, each Partner 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 Partner's share of the net decrease in Fund Minimum
                  Gain during such year.  The items to be so allocated
                  shall be determined in accordance with Section 1.704-
                  2(f)(6) of the Regulations.  This Section 10.3.2(iii) is
                  intended to comply with the minimum gain chargeback
                  requirement in such Section of the Regulations and shall
                  be interpreted consistently therewith.

         (iv)     After giving effect to the allocations set forth in
                  Sections 10.3.2(ii) and 10.3.2(iii), in the event any
                  Partner 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  Partner's  interest in
                  the  Fund  at  the  end  of  such  taxable  year   (determined
                  immediately before giving effect to such  distribution),  such
                  Partner  shall be  allocated an amount of gross income or gain
                  equal to such excess.

      (v)         In the  event  any fee to  which  the  General  Partner  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 General  Partner or
                  an   Affiliate   thereof  in  an  amount  equal  to  any  such
                  recharacterized fee for that taxable year.

         (vi)     The General Partner 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.


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                                      B-18

<PAGE>



    (vii)         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 Fiscal
                  Year, and any such Net Loss shall instead be allocated to
                  the General Partner.  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.

   (viii)         To the extent an adjustment to the adjusted tax basis of
                  any Fund asset pursuant to Code Section 734(b) or Code
                  Section 743(b) is required, pursuant to Regulations
                  Section 1.704-1(b)(2)(iv)(m), to be taken into account in
                  determining Capital Accounts, the amount of such
                  adjustment to the Capital Accounts shall be treated as an
                  item of gain (if the adjustment increases the basis of
                  the asset) or loss (if the adjustment decreases such
                  basis) and such gain or loss shall be specially allocated
                  to the Partners in a manner consistent with the manner in
                  which their Capital Accounts are required to be adjusted
                  pursuant to such Section of the Regulations.

         (ix)     Except as otherwise provided herein,  Nonrecourse  Liabilities
                  and  Nonrecourse  Deductions  shall be allocated  92.5% to the
                  Holders and 7.5% to the General Partner.

         (x)      Any deduction  attributable to Partner  Nonrecourse Debt shall
                  be allocated to the  Partners  that bear the economic  risk of
                  loss for the Partner Nonrecourse Debt.

         10.4  Distribution of Cash From Operations.  Cash from
Operations shall be distributed as follows:

                  10.4.1  First,  88.5%  to the  Holders,  7.5%  to the  General
         Partner and 4% to the General  Partner or its  Affiliate  designated as
         the recipient of the Incentive  Management  Fee,  until each Holder has
         received aggregate Distributions from all sources in an amount equal to
         his Original  Invested Capital plus a Priority  Distribution (so that a
         Holder  will 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); and

                  10.4.2  Thereafter,  85% to the  Holders,  7.5% to the General
         Partner and 7.5% to the General Partner or its Affiliate  designated as
         the recipient of the Incentive Management Fee.

         10.5  Distribution of Cash From Sales or Refinancing.  Cash
from Sales or Refinancing shall be distributed as follows:

                  10.5.1  First,  92.5% to the  Holders  and 7.5% to the General
          Partner until each Holder has received aggregate Distributions from

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                                      B-19

<PAGE>



          all sources in an amount equal to his Original Invested Capital plus a
          Priority  Distribution  (so  that a  Holder  will  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); and

                  10.5.2  Thereafter,  85% to the  Holders,  7.5% to the General
         Partner and 7.5% to the General Partner or its Affiliate  designated as
         the recipient of the Incentive Management Fee.

         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 General Partner
shall have sole  discretion  in  determining  the  amount of any  Distributions.
Subject to provisions of Section 15.4.18 of this Agreement,  the General Partner
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 General  Partner  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 Prior to the end of the year in which the Final Closing
         Date  occurs,  an  amount  equal to the  lesser  of (i) a 10% per annum
         noncumulative, noncompounded return on their Original Invested Capital,
         or (ii) 90% of such amounts which are available for Distributions;

                  10.7.2 In each of the six  years  after the end of the year in
         which the Final Closing Date occurs, an amount equal to a noncumulative
         and  noncompounded  return on the Holders' Original Invested Capital of
         10% per annum; and

                  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.

atel7-2/lpa.3
                                      B-20

<PAGE>




         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  Partner as an express
condition to becoming a Partner.

         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 General Partner.  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 General Partner,  such deduction
shall be allocated for federal income tax purposes to such General Partner.

          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
General Partner 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  General  Partner  Interest.  In  no  event  shall  the  General
Partner's  interest in each  material  item of income,  gain,  loss,  deduction,
credit or distributions be less than 1% of each such item at any time during the
existence of the Fund.

          10.13  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 Partnership Agreement.


atel7-2/lpa.3
                                      B-21

<PAGE>



         10.14  Withholding Taxes.

                  10.14.1  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 General  Partner
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 General Partner
may require  from a Holder the  appropriate  documentation  with  respect to any
distribution hereunder.

                  10.14.2 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 General  Partner 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 as to:

                  11.1.1 such  assignments  or transfers 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;

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                                      B-22

<PAGE>




                  11.1.2  the assignee not being a minor or an incompetent;

                  11.1.3  the transfer or assignment not violating federal or
         state securities laws;

                  11.1.4  the  transferor  or the  assignee  not  holding  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 being a Citizen of the United States;

                  11.1.6  such assignment or transfer not causing the assets of
         the Fund to be deemed "plan assets" for ERISA purposes;

                  11.1.7 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; and

                  11.1.8 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 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  General
         Partner.

         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  General  Partner  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

atel7-2/lpa.3
                                      B-23

<PAGE>



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
General  Partner,  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
subsequent transferee of Units is not or fails to remain a Citizen of the United
States,  such Person may, in the General  Partner'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 LIMITED PARTNERS

         12.1 Limitations on  Substitution.  No Assignee shall have the right to
become a substituted Limited Partner 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

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                                      B-24

<PAGE>



         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 Limited Partner.

                  12.1.2 The  assignor  and  Assignee  shall have  executed  and
         acknowledged  such other  instruments  as the General  Partner 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 General  Partner of a special power
         of attorney, the form and content of which are described herein;

                  12.1.3  The  written  consent of the  General  Partner to such
         substitution  shall have been  obtained,  the  granting of which may be
         withheld by the General Partner in its sole discretion;

                  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  General  Partner  and to any  Assignee  becoming  a  substituted
Holder, in accordance with the provisions herein.

         12.3  Amendment  of  Agreement.  The General  Partner  shall cause this
Agreement to be amended to reflect the admission and/or  substitution of Limited
Partners 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 General
Partner'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
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 General Partner may otherwise use available Reserves to
repurchase Units, in its discretion and on terms it determines to be appropriate

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                                      B-25

<PAGE>



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
Partners to incur an adverse tax consequence as a result of such repurchase.

         13.3 The General  Partner  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 General  Partner 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  General  Partner  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 Partner 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  Partner,  which  list  shall be
                  updated  at  least   quarterly  to  reflect   changes  in  the
                  information contained therein;

                           (ii) A copy of the certificate of limited partnership
                  and all  certificates  of  amendment,  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


atel7-2/lpa.3
                                      B-26

<PAGE>



                           (vi) The Fund's  books and  records  for at least the
                  current and past three fiscal years.

                  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 Limited Partner 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 Limited  Partner,  the  General
         Partner  shall  mail to such  Limited  Partner  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 General Partner  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 General Partner shall
         be liable to the Limited  Partner  requesting the  information  for the
         costs,  including  attorneys' fees, incurred by the Limited Partner for
         compelling  production  of  the  information  and  for  actual  damages
         suffered by the Limited  Partner 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 Limited  Partners 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 Limited  Partner  relative to the affairs of the Fund. The General
         Partner may require that a Limited  Partner  requesting the information
         in Section 14.1.1(i) above represent that the list is not requested for
         a commercial purpose unrelated to the Limited Partner's interest in the
         Fund. The remedies  provided  hereunder to Limited Partners  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
         Partners 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

atel7-2/lpa.3
                                      B-27

<PAGE>



         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 General Partner 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  Partners'  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 General  Partner 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,  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  General  Partner  deems  appropriate,
including  the method used as basis for  valuation;  (iv) a statement  as to the
compensation  received by the General  Partner and its Affiliates  from the Fund
during the year, which statement shall set forth the services  rendered or to be
rendered  by the  General  Partner  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 General  Partner 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
General  Partner and its  Affiliates  on a  program-by-program  basis and may be
reimbursed  to the  General  Partner or its  Affiliates  to the extent that such
reimbursement,

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                                      B-28

<PAGE>



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  General  Partner  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 General
Partner  during such quarter from the Fund which  statement  shall set forth the
services  rendered or to be rendered by the General  Partner 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 General  Partner
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 General Partner 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 General  Partner such notice may be prepared and  distributed to each Holder
more frequently than quarterly.

         14.7  Tax Returns.   The General Partner, at Fund expense, shall cause
income tax returns for the Fund to be prepared and timely filed with appropriate
authorities.


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                                      B-29

<PAGE>


         14.8 Governmental Reports. The General Partner, 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 General Partner, at Fund
expense,  shall  maintain  for a period of at least four 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 GENERAL PARTNER

         15.1  Services of the General Partner.   The General Partner 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  General  Partner'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  General  Partner.  The  conduct  of the Fund's
business shall be controlled  solely by the General  Partner in accordance  with
this Agreement.  The General Partner 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

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                                      B-30

<PAGE>



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 General Partner 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  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  General  Partner  deems  necessary  or  appropriate  for the
         protection of the Fund and the General Partner, 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 General
         Partner 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  General  Partner  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,

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                                      B-31

<PAGE>



         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 General  Partner 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  Partners  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  General
         Partner  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
         General  Partner  has  personal  liability  with  respect  to any  such
         obligation,  the General Partner may require its satisfaction  prior to
         obligations  with respect to which the General  Partner 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 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   certificate  of  Limited   Partnership,   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  (other  than an  Affiliate  which is a  limited  or  general
         partnership,  joint  venture,  unincorporated  association  or  similar
         organization,  other than a  corporation,  formed and  operated for the
         primary  purpose of  investment in and the operation of or gain from an
         interest  in  equipment)  or in the  name of a  nominee,  a trust  or a
         corporation or otherwise and hold title thereto on a temporary or

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                                      B-32

<PAGE>



          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  General   Partner  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 General
          Partner or Affiliate and the time acquired by the Fund;  (iv) there is
          no benefit  arising out of such  transaction to the General Partner 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 General Partner, 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 General
         Partner, without the consent of any of the Holders

                           (i)      to add to the representations, duties or
                  obligations of the General Partner or its Affiliates or
                  surrender any right or power granted to the General
                  Partner 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

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                                      B-33

<PAGE>



                  provided that no amendment hereunder will change the voting
                  rights of Holders;

                     (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  Partners  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  General  Partner  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 General  Partner 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 General  Partner  shall deem  necessary or
         appropriate.

         15.3 General  Powers and Fiduciary  Duty.  The General  Partner  shall,
except as otherwise  provided in this Agreement,  have all the rights and powers
and  shall be  subject  to all the  restrictions  and  liabilities  of a general
partner of a limited  partnership or a partner in a partnership  without limited
partners as provided under the laws of the State of California.  Notwithstanding
any other  provision  of this  Agreement,  in no event may the  General  Partner
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 General Partner's Authority.     Neither the
General Partner 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
         General Partner, or continue the business of the Fund with Fund assets

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                                      B-34

<PAGE>



         after the occurrence of such an event;

                  15.4.2   Grant to the General Partner 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;

                  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 General  Partner and its
         Affiliates;

                  15.4.7  Sell or lease any  Equipment  to any entity in which a
         General  Partner 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) it is a general partnership,  equipment trust
         or other form of joint venture, but not a limited partnership; (ii) the
         other partner or joint owner is not a General Partner (but it may be an
         Affiliate of a General Partner,  provided the Affiliate is a limited or
         general  partnership,  joint  venture,  unincorporated  association  or
         similar organization,  other than a corporation formed and operated for
         the primary  purpose of  investment in and operation of or gain from an
         interest in equipment,  which has  substantially  identical  investment
         objectives  to those of the Fund);  (iii) such general  partnership  or
         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  general  partnership,  or  joint  venture;  (iv) the
         agreement of  partnership  or joint venture does not authorize the Fund
         to do  anything  as a partner  or joint  venturer  with  respect to the
         Equipment which the Fund, or a General  Partner,  could not do directly
         because of the provisions of this Agreement;  (v) the Fund's investment
         is on substantially the same terms and conditions as the investment of

atel7-2/lpa.3
                                      B-35

<PAGE>



         any Affiliate; (vi) no compensation (other than as provided for by this
         Agreement) is received in connection  therewith by the General  Partner
         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;  (vii) the joint venture is in the best
         interest of both co-venturers; and (viii) in joint venture arrangements
         with  an  Affiliate  of a  General  Partner,  if all  of the  following
         additional  conditions are met: the compensation of the General Partner
         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  General  Partner 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
         General Partner or Affiliate of a General Partner;

                  15.4.11  Cause  the Fund to  borrow  from  any of the  General
         Partner  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 legder'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;

                  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;

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                                      B-36

<PAGE>




                  15.4.16   Admit a Person as a General Partner 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 general partner 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 General  Partner 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  General  Partner  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

atel7-2/lpa.3
                                      B-37

<PAGE>



         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;

                  15.4.24 Except as otherwise provided herein, cause the Fund to
         enter  into any  transaction  with  any  other  partnership  in which a
         General Partner 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 General  Partner 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  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
         General  Partner or any  Affiliate of a General  Partner  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 an  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.


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                                      B-38

<PAGE>



         15.5  Limitation on General  Partner's  Liability.  The General Partner
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, except as otherwise provided in Section 5.2.

         15.6 Tax Matters Partner. ATEL is hereby designated as the "Tax Matters
Partner" 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 Limited Partners.  The designation made
in this paragraph is hereby consented to by each Partner as an express condition
to  becoming a Partner.  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  partner,  subject to the same  conditions
under  which  indemnification  is  provided  the  General  Partner in Article 21
hereof.

         15.7 Minimum  Investment  in Equipment / Maximum  Front-End  Fees.  The
General  Partner  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.  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 Fund 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 Fund 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 Fund 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 Limited

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                                      B-39

<PAGE>



Partners 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 Fund 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 amounts to be paid under the terms hereof will equal 11.5% of  Distributions
of Cash from  Operations  (4% as the Incentive  Management  Fee plus 7.5% as the
Fund  Manager's  Interest  in the  Fund)  and 7.5% of  Distributions  of Sale or
Refinancing  Proceeds (as the Fund  Manager's  7.5% Interest in the Fund) before
the  Priority  Return,  and 15% of all  Distributions  thereafter  (7.5%  as the
Incentive  Management Fee plus 7.5% as the Fund Manager's Interest in the Fund).
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 Fund Manager shall calculate the
maximum carried  interest and promotional  interest  payable to the Fund Manager
and its Affiliates  under the NASAA  Guidelines and compare such total permitted
fees to the total of the Incentive  Management Fees and Fund Manager's  Interest
in the Fund.  If and to the extent that the fees payable to the Fund Manager and
its Affiliates as the Incentive  Management Fee and the Fund Manager's  Interest
in the Fund should exceed the maximum promotional interest plus carried interest
permitted under the NASAA  Guidelines,  as described  above, the fees payable to
the Fund Manager and its  Affiliates  shall be reduced as described  herein.  In
such  event,  this  Agreement  shall be amended  immediately  to reduce the Fund
Manager's Interest in the Partnership by an amount sufficient to cause the total
of  the  Incentive  Management  Fees  and  such  Interest  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.

         15.8 Reliance on General Partner's Authority. The General Partner 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 General
Partner may rely upon a certificate  signed by the General  Partner as authority
with respect to: (i) the identity of the General  Partner or any Holder  hereof;
(ii) the  existence  or  non-existence  of any fact or facts which  constitute a
condition  precedent  to acts by the General  Partner 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 atel7-2/lpa.3
                                      B-40

<PAGE>



whatsoever involving the Fund or any Partners.

16.   RIGHTS, POWERS AND VOTING RIGHTS OF THE LIMITED PARTNERS

         16.1 Limitation on Limited Partner  Authority.  Limited  Partners 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.  Limited Partners shall have the right, by the vote
of  Limited  Partners  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 General Partner;

                  16.2.2     Subject to the further requirements of Article
         17, continuation of the Fund and election of a successor General
         Partner upon the termination of a General Partner;

                  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 Limited  Partners 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  Limited  Partners,  each
Limited  Partner  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 General  Partner or an  Affiliate  of a General
Partner  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 General Partner and the Fund,  including,
but not  limited  to, any vote on the  proposed  removal or  withdrawal  of such
General  Partner or on any  proposed  amendment  to this  Agreement  which would
expand or extend the rights, authorities or powers of such General Partner.

                  16.3.1       Meetings of the Limited Partners to vote upon
         any matters as to which the Limited Partners are authorized to

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                                      B-41

<PAGE>



         take action under this Agreement,  as the same may be amended from time
         to time, may be called at any time by the General  Partner or by one or
         more Limited Partners holding more than 10% of the outstanding Units by
         delivering  written notice,  either in person or by registered mail, of
         such meeting to the General Partner.  Promptly, but in any event within
         10 days following  receipt of such request,  the General  Partner shall
         cause a written  notice,  either in person or by certified  mail, to be
         given to the Limited Partners  entitled to vote at such meeting,  which
         notice  shall  state  that a  meeting  will be held at a time and place
         fixed by the General Partner, which is to be convenient to the Partners
         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 Limited  Partners 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 Limited  Partners 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 Partners of record  entitled
         to act upon matters by vote or written consent,  the General Partner or
         Limited  Partners 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 Partner of record entitled to vote at the meeting.

                  16.3.4  Personal presence of the Limited Partners at a
         meeting shall not be required, provided that sufficient Units

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                                      B-42

<PAGE>



         are represented at the meeting, by Limited Partners appearing in person
         and/or by duly executed proxies, to take any action proposed for a vote
         at such  meeting.  Attendance  by a Limited  Partner at any meeting and
         voting in person  shall  revoke  any  proxies of such  Limited  Partner
         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  Limited  Partners  holding  Units  as of  the  Record  Date
         established for such meeting shall be counted.

                  16.3.5  Any  matter  as to  which  the  Limited  Partners  are
         authorized  to take  action  under this  Agreement  or under law may be
         taken by the Limited  Partners  without a meeting and shall be as valid
         and effective as action taken by the Limited Partners at a meeting duly
         assembled,  if written  consents to such action by the Limited Partners
         are (i)  signed  by the  Limited  Partners  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 General  Partner 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 Limited Partners have signed the consent and
         shall be  effective  immediately  if the  General  Partner  and Limited
         Partners holding at least 90% of the outstanding Units as of the Record
         Date have signed the consent.

                  16.3.6 In the event  that there  shall be no General  Partner,
         the Limited  Partners may take action  without a meeting by the written
         consent of Limited  Partners  having the requisite  voting power of the
         Limited Partners entitled to vote.

         16.4  Limitations on Limited Partner  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

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                                      B-43

<PAGE>



Partners who would be adversely affected thereby, be amended to:

                  16.5.1          Convert a Holder into a general partner;

                  16.5.2          Modify the limited liability of a Holder;

                  16.5.3          Alter the interest of any Partner 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  Limited  Partner  List.  Upon the  written  request  of a Limited
Partner,  the  General  Partner  will  furnish  to such  Limited  Partner or his
representative,  at his expense,  a list  containing the name and address of the
Units held of record by each Limited Partner, 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  Limited  Partners  of not  less  than 90% of the
         outstanding  Units.  Limited  Partners  who dissent  with  respect to a
         Roll-Up  proposal will have the rights of a dissenting  limited partner
         as provided under Sections  15679.1 through  15679.14 of the California
         Revised  Limited  Partnership  Act.  The Fund shall not  reimburse  the
         sponsor of a proposed Roll-Up for the costs of its proxy contest in the
         event the Roll-Up is not  approved by the Limited  Partners 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 General Partner 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  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

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                                      B-44

<PAGE>



          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.


atel7-2/lpa.3
                                      B-45

<PAGE>



17.  TERMINATION OF A GENERAL PARTNER AND TRANSFER OF A GENERAL
PARTNER'S INTEREST

         17.1      Removal or Withdrawal.  The following conditions shall
govern the voluntary withdrawal or removal of a General Partner:

                  17.1.1 The General Partner may not  voluntarily  withdraw from
         the Fund without the approval of Limited Partners holding more than 50%
         of the total outstanding Units entitled to vote.

                  17.1.2 A General Partner may be removed upon a vote of Limited
         Partners owning more than 50% of the total  outstanding  Units entitled
         to vote. Written notice of removal of a General Partner 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 a General Partner (each of such events,  as well as
removal,  resignation and withdrawal of a General Partner, 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  General  Partner;  Continuation  of Fund
Business.  The  following  provisions  shall  govern the election of a successor
General Partner and continuation of the business of the Fund upon the occurrence
of a Terminating  Event with respect to a General Partner (the "Retiring General
Partner"):

                  17.3.1 If at the time of a Terminating  Event the Fund has one
         or more General Partners other than the Retiring  General Partner,  any
         remaining  General  Partner or a  majority-in-interest  of the  Limited
         Partners  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  General  Partner  which so elects,  or if a
         majority-in-interest  of the Limited  Partners so elect and a remaining
         General Partner does not so elect, any remaining  General Partner 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 Limited Partners.

                  17.3.2  If at the time of a  Terminating  Event  the  Retiring
         General Partner is the sole remaining  General Partner,  the Fund shall
         be  dissolved  unless a  majority-in-interest  of the Limited  Partners
         elect to continue the Fund business. In the event of such election, the
         Fund  business  may be continued  if the Limited  Partners  making such
         election,

atel7-2/lpa.3
                                      B-46

<PAGE>



         within 90 days after the occurrence of the Terminating  Event,  elect a
         successor  General Partner 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
         General Partner.

         17.4      Admission of Successor or Additional General Partner.
The following conditions shall be satisfied before any Person shall
become a successor General Partner or an additional General
Partner:

                  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  General  Partner  and  to be  bound  by  this
         Agreement; and

                  17.4.4 Any  amendments  and filings  required  or  appropriate
         under the California  Revised  Limited  Partnership 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 General Partner shall immediately cease to
         be a General Partner and shall not have any right to participate in the
         management of the affairs of the Fund or to receive any fees under this
         Agreement  not  already  paid or earned;  provided,  however,  that the
         Retiring  General  Partner  shall  receive all amounts then accrued and
         payable by the Fund and shall be, and shall remain, liable as a General
         Partner 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 General Partner 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  General  Partner  and  the
         remaining  or new  General  Partners,  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  General  Partner,  and  such
         arbitration  shall be conducted  in San  Francisco,  California  unless
         otherwise  agreed by both parties.  The Fund shall forthwith pay to the
         Retiring General Partner

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                                      B-47

<PAGE>



         an amount  equal to the then  present fair market value of the interest
         so  determined.   If  the  Retiring  General  Partner  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 General Partner would otherwise have
         received  under  this  Agreement  had  such  General  Partner  not been
         terminated.  If  the  Retiring  General  Partner  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 General Partner
         is entitled in respect to such interest.

                  17.5.3  All  executory  contracts  between  the  Fund  and the
         Retiring  General  Partner  or  any  Affiliate   thereof  (unless  such
         Affiliate is also an Affiliate of the remaining or new General  Partner
         or  Partners)  may be  terminated  by the Fund  effective  upon written
         notice to the party so terminated.  The Retiring General Partner or any
         Affiliate  thereof  (unless such  Affiliate is also an Affiliate of the
         remaining or new General  Partner or Partners)  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 General Partner or Partners, if any, or to the Fund.

         17.6 Election of Additional General Partner. Limited Partners owning in
excess  of 50% of the  outstanding  Units  may at any time and from time to time
elect an additional  General Partner,  and, upon  satisfaction of the conditions
set forth in  Section  17.4,  the  Person so  elected  shall be  admitted  as an
additional General Partner. Admission of an additional General Partner shall not
cause dissolution of the Fund.

         17.7  Assignment of General  Partner's  Interest.  A General  Partner's
interest  in the Fund shall not be  assignable  without  the  consent of Limited
Partners 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
General Partner 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  General  Partner.  Any  entity to which the  entire
interest of a General  Partner in the Fund is assigned in  compliance  with this
Section  17.7  shall be  substituted  as a  General  Partner  by the  filing  of
appropriate amendments to this Agreement.

         17.8  Limited Partners' Participation in General Partner's Bankruptcy.
In the event the General Partner is subject to a voluntary or involuntary
petition for reorganization or liquidation under the federal Bankruptcy Act, the
General Partner will cause separate counsel to be retained on behalf of the

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                                      B-48

<PAGE>



Fund,  at Fund  expense,  to represent  the Limited  Partners'  interests in the
bankruptcy  action.  In such event,  the Fund will also bear any  reasonable and
necessary  expenses of a duly appointed  committee of Limited Partners  incurred
while acting on behalf of all of the Limited  Partners as a group in  connection
with such bankruptcy action.

18.      CERTAIN TRANSACTIONS

         The General Partner and its Affiliates,  the Holders,  any shareholder,
officer,  director, partner 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
General Partner 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 General Partner 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 General
         Partner unless a remaining General Partner or a majority-in-interest of
         the Limited Partners,  within 90 days of the date of such event, elects
         to continue  the  business of the Fund,  and,  if  necessary,  elects a
         replacement  general  partner,  in the manner  provided  in Article 17;
         provided that expenses incurred on behalf of the General Partner and/or
         Limited  Partners 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 Limited Partners 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.

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                                      B-49

<PAGE>




         19.2 Accounting and  Liquidation.  Upon the dissolution and termination
of the Fund for any reason,  the General  Partner 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
         General Partner to the Fund; and

                  19.2.3 To the General  Partner 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 General
         Partner 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  General  Partner's  Capital  Account  with the  General
         Partner'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 General  Partner 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  General  Partner  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 General  Partner 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, any separate certificates of
         limited partnership, as well as any amendments to the
         foregoing which, under the laws of the State of California or

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                                      B-50

<PAGE>



         the laws of any other state, are required to be filed or which
         the General Partner 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 General  Partner 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 Partners.

         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 a single  General  Partner  acting
         alone for each Holder by a facsimile  signature of such General Partner
         or by one of its officers,  or by listing all of the Holders  executing
         any instrument with a single signature of a General Partner,  or of one
         of   the   corporate    General   Partner's    officers,    acting   as
         attorney-in-fact; and

                  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 General  Partner 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 General
         Partner to execute,  acknowledge  and file any  instrument  or document
         necessary to effect such substitution.

21.      INDEMNIFICATION

         21.1  Indemnification of the General Partner. The Fund, its receiver or
its trustee,  shall  indemnify,  save  harmless and pay all judgments and claims
against the General  Partner 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 General Partner or Affiliates who perform services
for the

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                                      B-51

<PAGE>



Fund, the General  Partner 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 General  Partner 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 General  Partner,  wherein a
General  Partner is entitled to  indemnification,  must first be satisfied  from
Fund  assets  before  such  General  Partner  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 General Partner
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 General Partner 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 Exchange Commission with respect to

atel7-2/lpa.3
                                      B-52

<PAGE>



indemnification for securities laws violations before seeking court approval for
indemnification.  Furthermore,  the General  Partner  shall  indemnify  the Fund
against any loss or liability which it may incur as a result of the violation by
the General Partner 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  General  Partner  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
General  Partner  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 Partners.

         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.


atel7-2/lpa.3
                                      B-53

<PAGE>



         22.7      General Partner Address.  The address of the General
Partner is:

                           ATEL Financial Corporation
                           235 Pine Street, 6th Floor
                           San Francisco, California  94104

         22.8      Limited Partner Addresses.  The names, addresses and
capital contributions of the Limited Partners are set forth on
Exhibit I attached hereto, which exhibit shall be maintained at the
principal place of business of the Fund.

         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  Revised
Limited Partnership Act, as amended, governing limited partnerships 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 General  Partner may qualify the Fund to conduct
business in such states. The power of attorney granted to the General Partner by
each Holder in Article 20 shall constitute  authority for the General Partner 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 General Partner.


GENERAL PARTNER:                                  INITIAL LIMITED PARTNERS:

ATEL FINANCIAL CORPORATION

By:________________________________               _____________________________
                                                  Linda Batt

                                                  -----------------------------
                                                  Eliza Cash


atel7-2/lpa.3
                                      B-54

<PAGE>


                                    EXHIBIT I


                          Schedule of Limited Partners


                                                   Capital
Name                Address                      Contribution

Linda Batt          c/o ATEL Financial           $250/25 Units
                    Corporation
                    235 Pine Street
                    6th Floor
                    San Francisco, CA 94104

Eliza Cash          c/o ATEL Financial          $250/25 Units
                    Corporation
                    235 Pine Street
                    6th Floor
                    San Francisco, CA 94104






atel7-2/lpa.3
                                      B-55

<PAGE>
EXHIBIT C

                                 HOW TO INVEST

TO THE INVESTOR:

Make your check payable to "ATEL CAPITAL  EQUIPMENT FUND VII".  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 (page no. ).

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 7A - 7D) 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 VII 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 General  Partners  have 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.

TO THE SELLING REPRESENTATIVE:

Please complete the Broker/Dealer  Information section (Box 5) 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.

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
and 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 800
SAN FRANCISCO, CA 94104
(415) 989-8800
(800)  543-ATEL


                                       C-1
<PAGE>


     ATEL CAPITAL  EQUIPMENT FUND VII, L.P. The investor whose signature appears
in Section 2 on the reverse side hereof (the  "Investor")  hereby  subscribe for
the number of Units of ATEL Capital  Equipment  Fund VII,  L.P. (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 "Bank of
America  NT&SA-ACEF  VII 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,  checks
should be made payable to "ATEL Capital  Equipment  Fund VII".  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 Agreement of Limited
Partnership  set forth as Exhibit B to the  Prospectus,  including  the  special
power of attorney set forth  therein.  The  subscription  may be canceled 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.

INSTRUCTIONS FOR COMPLETING THE SUBSCRIPTION AGREEMENT

Note- Please type or print legibly when completing the Subscription Agreement.

Section 1: Units Purchased.
o 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.
o 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-2
<PAGE>

Section 2: Registered Owner.
o Fill in the name(s) and addresses for the investment as they should appear
in the registration.
o Check the applicable citizen status boxes.
o 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. o
Check whether monthly or quarterly  distributions are desired. o Please read the
Subscription  Agreement,  then sign and date the form. o Single  Ownership - one
signature  required o Joint Tenants - all parties must sign o Community Property
- one  signature  required o Tenants in Common - all parties must sign o Tenants
in  Entirety - one  signature  required  o 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: Legal Form of Ownership.
o Mark  only  one  box.  Fill  in  any  information  requested  and  note  whose
signature(s) is (are) required in Section 2.

Section 4:  Optional Check Addresses.
o Complete this section only if you want your  distribution  checks mailed to an
address other than that shown in Section 2.

Section 5: Broker/Dealer Information.
o 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.  o 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.
o 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 800
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.


                                       C-3
<PAGE>

ATEL CAPITAL EQUIPMENT FUND VII, L.P. o SUBSCRIPTION AGREEMENT
SUBSCRIPTION AGREEMENT  Please type or print the following information:

1.UNITS PURCHASED
Make checks  payable to "ATEL Capital  Equipment Fund VII"  $________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______Zip       Code______________________
Investor Phone  Number_____________________________________________________  Fax
Number__________________E-Mail address________________________________ Account #
(if any)________________________________________________________

X__________________________________________________Date___________________
Subscriber's Signature

X__________________________________________________Date___________________
Subscriber/Custodian/Nominee or Authorized Signature

__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.
__Check if you are a U.S. citizen residing outside the U.S.

Enter your taxpayer identification number.
Note: If the account is in more than one name, the  number  should  be that
of the first person listed.
Taxpayer Identification Number_____________________________________________
Social Security No.________________________________________________________
Include BOTH numbers for IRAs and Keoughs.

HAVE YOU INVESTED IN ANY PRIOR ATEL FUND?  __YES  __NO

DISTRIBUTION OPTION
(check one)  __Quarterly  __Monthly

                                       C-4
<PAGE>

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
General  Partner 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.

3. LEGAL FORM OF OWNERSHIP (Check Only One) __Single  Ownership  __Joint Tenants
with  Rights  of  Survivorship  __Profit  Sharing  Plan  __Husband  and  Wife as
Community  Property __Tenants in  CommonPartnership  __Tenants in Entirety __Sep
IRA  __IRA  __regular  __rollover  Trust  Date:(MM/DD/YY)____/____/____  __Trust
__Custodian __Custodian  for______________________________ __UGMA / UTMA - State
of:_______  __Pension  Plan  __Profit  Sharing Plan  __Corporation  __Non-Profit
Organization __Other__________________

4. INVESTOR MAILING ADDRESS
(if different from above, as with IRA's and Keogh's)
Name_______________________________________________________________________
Name_______________________________________________________________________
Address____________________________________________________________________
City___________________________________State______Zip Code_________________
Investor Phone Number______________________________________________________
Fax Number______________________E-mail address_____________________________

5.  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.

Licensed Firm Name__________________________________________________________
Mr. Ms._____________________________________________________________________
Account Executive Name_________________________________B/D rep #____________
A/E Mailing Address_______________________________________Suite#____________
City___________________________________State______Zip Code__________________
Telephone Number____________________________________________________________
Fax Number____________________________E-mail address________________________

X___________________________________________________________________________
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 GENERAL PARTNER
FOR GENERAL PARTNER'S USE ONLY
Received and Subscription Accepted
ATEL Financial Corporation, General Partner
Amount______________________________________________Date____________________
By__________________________________________________B/D rep #_______________

                                       C-5
<PAGE>

6. OPTIONAL CHECK ADDRESS If you would like your  distribution  checks mailed to
an address other than shown at left, please complete. __Designated for all Units
or,       __Designated       for       Partial       Units______       Receiving
Entity____________________________________________________________
Address_____________________________________________________________________
City_____________________________________State____Zip     Code__________________
Fund Name_________________________________________Acct No.__________________

7. SUBSCRIBER AGREES AS FOLLOWS (EACH ITEM MUST BE INITIALED):
In order to induce the General Partner 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  $75,000  in  excess  of his
investment in Units, or (b) has a net worth of at least $30,000 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 $30,000  annual gross  income.  In
all cases net worth is exclusive of home, home furnishings and automobiles.  The
investor  further  represents  that he/she  satisfies any other  minimum  income
and/or net worth standards  imposed by the jurisdiction in which he/she resides,
if any  different  standards are set forth in the  Prospectus or any  supplement
thereto. 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______

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
SUITE 800
SAN FRANCISCO, CA 94104


                                       C-6
<PAGE>