424B3 1 v238500_atel15-424b3.htm VintageFilings,LLC

  

Filed Pursuant to Rule 424(b)(3)
Registration No. 333-174418

ATEL 15, LLC

Limited Liability Company Units — $10 Per Unit
Minimum Offering — 120,000 Units ($1,200,000)
Maximum Offering — 15,000,000 Units ($150,000,000)

ATEL 15, LLC, or the “Fund,” will acquire a diversified portfolio of leased equipment, equipment financing transactions and other investments, with an emphasis on low-technology equipment leased to major corporations. ATEL Managing Member, LLC is the Fund’s Manager. The Fund will collect payments from its customers and other revenues and eventually sell the leased equipment and other portfolio investments. The Fund’s objective will be to distribute to investors the net revenues from its investments after it pays its expenses and fees. The Fund intends to use approximately 87% of the capital it raises from the sale of Units to purchase its portfolio investments. At least an additional one-half of one percent of its initial capital will be held as capital reserves. Of the remaining capital, 9% will be used to pay selling commissions, 1% will be used to pay additional selling compensation, and up to 2.5% will be used to pay other offering and organization expenses.

A PURCHASE OF UNITS INVOLVES SIGNIFICANT RISKS. See “Risk Factors” on page 13. Risks include:

Most of the Fund’s distributions will be, and most of the prior ATEL programs’ distributions have been, a return of capital and not a return on capital;
Economic recession and changes in general economic conditions, including fluctuations in demand for equipment and other portfolio assets, lease rates, and interest rates may result, and in certain past ATEL programs have resulted, in delays in investment and reinvestment, delays in leasing, re-leasing and disposition of equipment, and reduced returns on invested capital;
The Fund’s performance is subject to risks relating to lessee and borrower defaults;
The Fund’s performance is subject to risks relating to the value of equipment at the end of its leases and the value of its investments when the Fund seeks to sell them during its liquidation stage;
The Fund will borrow to acquire its investments and, if the Fund’s revenues are insufficient to repay borrowed funds, the Fund could incur a loss of its portfolio assets used as collateral;
No market exists for the Units or is expected to develop, the Fund’s Operating Agreement includes significant restrictions on the transferability of Units, and an investor may be unable to sell his Units or able to sell the Units only at a significant discount;
Initially, the Fund may be considered a “blind pool” because the Fund is a newly formed entity, has no prior operating history, and, except as may be set forth in a supplement to this Prospectus, the Fund has not specified any of its investments, so that investors cannot evaluate the risks or potential returns from such investments;
Investors must rely on the Manager to manage the Fund and investors will have limited voting rights under the Fund’s Operating Agreement;
The Fund will pay the Manager and its related companies substantial fees;
The Manager will be subject to certain conflicts of interest;
If the Fund receives only the minimum capital, it will be more difficult to diversify its investment portfolio and any single investment transaction will have a greater impact on its potential profits; and
The Fund does not guarantee its distributions or the return of investors’ capital.

The Fund is offering a total of 15,000,000 of its Units of limited liability company interest for a price of $10 per Unit. An investor must purchase a minimum of 500 Units. The Fund will deposit subscriptions in a bank escrow account and no Units will be sold unless a minimum of $1,200,000 in cash is received by October 28, 2012. If the minimum funding is achieved, the offering will continue until the earlier of sale of all 15,000,000 Units or October 28, 2013, unless it is terminated earlier in the Manager’s discretion. 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 allocated and distributed to subscribers on the basis of the respective amounts of the subscriptions and the number of days that such amounts were in the escrow account. Rejected subscriptions will be returned without interest or reduction within 30 days of receipt. The offering will be made by unaffiliated broker dealers in a selling group managed by ATEL Securities Corporation, a broker dealer affiliated with the Manager, acting as Dealer Manager. The brokers selling the Units are not required to sell any specific number of Units, but will use their best efforts to sell Units.

     
  Price to
Public
  Selling
Commissions
  Proceeds
to Fund
Per Unit   $ 10     $ 0.90     $ 9.10  
Total Minimum   $ 1,200,000     $ 108,000     $ 1,092,000  
Total Maximum   $ 150,000,000     $ 13,500,000     $ 136,500,000  

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

THE DATE OF THIS PROSPECTUS IS OCTOBER 28, 2011


 
 

TABLE OF CONTENTS

  

THE USE OF FORECASTS 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 THIS PROGRAM IS NOT PERMITTED.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]


 
 

TABLE OF CONTENTS

TABLE OF CONTENTS

 
WHO SHOULD INVEST     1  
SUMMARY OF THE OFFERING     7  
The Fund     7  
Management     7  
Risk Factors     7  
Who Should Invest     8  
Use of Capital     8  
ATEL’s Fees     9  
Organizational Diagram     9  
Investment Portfolio     10  
Borrowing Policies     10  
Income, Losses and Distributions     10  
Income Tax Consequences     10  
Summary of the Operating Agreement     11  
Plan of Distribution     11  
Glossary     12  
RISK FACTORS     13  
Most of the Fund’s distributions are expected to be a return of capital     13  
The success of the Fund will be subject to risks inherent in the equipment leasing business that may adversely affect the ability of the Fund to acquire, lease and sell equipment, and to finance its portfolio, on terms which will permit it to generate profitable rates of return for investors     13  
The Fund may be harmed if a lessee or borrower defaults and the Fund is unable to collect the revenue anticipated from the defaulted investment     13  
The amount of the Fund’s profit will depend in part on the value of its equipment when the leases end     14  
The Fund will borrow to acquire its investments and will bear the risks of borrowing, including the potential loss of assets used as collateral for Fund debt in the event the Fund is unable to satisfy its debt obligations     14  
There are significant limitations on the transferability of Units     14  
Initially, the Fund may be considered a “blind pool” because the Fund is a newly formed entity, has no prior operating history, and, except as may be set forth in a Supplement to this Prospectus, the Fund has not identified any of its investments, lessees or borrowers     15  
Investors will have limited voting rights and must rely on management for the success of the Fund     15  
The Manager will receive substantial compensation which may result in conflicts of interest     15  
The Fund does not guarantee its distributions or the return of investors’ capital     15  
The Fund may enter into financing transactions outside of the United States and foreign leases and loans may involve greater difficulty in enforcing transaction terms and a less predictable legal system     15  
If lease payments or other investment terms involve payments in foreign currency, the Fund will be subject to the risk of currency exchange rate fluctuations, which could reduce the Fund’s overall profit on an investment     15  

i


 
 

TABLE OF CONTENTS

 
The equipment financing industry is highly competitive and competitive forces could adversely affect the lease rates and resale prices the Fund may realize on its equipment lease investment portfolio and the prices the Fund has to pay to acquire its investments     16  
Equipment may be damaged or lost     16  
Some types of equipment are under special government regulation which may make the equipment more costly to acquire, own, maintain under lease and sell     16  
A portion of the Fund’s investment portfolio will consist of debt financing provided to entities without substantial operating histories or records of profitability which may pose a greater risk of lessee or borrower default     16  
Lending activities involve a risk that a court could deem the Fund’s financing rates usurious and therefore unenforceable     16  
The Fund will be subject to the risk of claims asserting theories of “lender liability” resulting in Fund liability for damages incurred by borrowers     17  
The Fund may not be able to register aircraft or marine vessels, which could limit the Fund’s ability to invest in these types of assets or could affect the value realized by the Fund from such investments     17  
The Manager is subject to certain potential conflicts of interest that could result in the Manager acting in its interest rather than that of the Fund     17  
The amount and terms of debt available to the Fund for the purchase of its investment portfolio may also determine the amount of cash distributed to investors and the amount of tax benefits they receive     17  
The Fund may borrow on terms that provide for a lump sum payment on the due date, which might increase the risk of default by the Fund     18  
The amount of capital actually raised by the Fund may determine its diversification and profitability     18  
Investors will not be able to withdraw their funds from the escrow account pending the satisfaction of the Fund’s minimum offering amount, and may therefore not have use of their invested capital for an extended period of time     18  
A potential change in United States accounting standards regarding operating leases may make the leasing of equipment or facilities less attractive to potential lessees, which could reduce overall demand for leasing services     18  
Investment by the Fund in joint ownership of investments may involve risks in coordinating its interests with those of its joint venture partner     19  
Risks Relating to Tax Matters     19  
If the IRS classifies the Fund as a corporation rather than a partnership, investor distributions would be reduced under current tax law     19  
The Fund could lose cost recovery or depreciation deductions if the IRS treats Fund leases as sales or financings     19  
Investors may incur tax liability in excess of cash distributions in a particular year     19  
The IRS may allocate more taxable income to investors than the Operating Agreement provides     19  
Tax-exempt organizations will have unrelated business taxable income from this investment     19  
This investment may cause investors to pay additional taxes     20  
Retirement Plan Risks     20  
An investment in Units by a retirement plan must meet the fiduciary and other standards under ERISA or the Internal Revenue Code or the investment could be subject to penalties     20  
ESTIMATED USE OF PROCEEDS     21  

ii


 
 

TABLE OF CONTENTS

 
MANAGEMENT COMPENSATION     23  
Summary Table     23  
Narrative Description of Compensation     23  
Limitations on Fees     25  
Defined Terms Used in Description of Compensation     27  
Affiliates of the Manager     27  
INVESTMENT OBJECTIVES AND POLICIES     28  
Principal Investment Objectives     28  
General Equipment Leasing Policies     28  
Types of Equipment     31  
Investment in Green Technologies     35  
Description of Lessees and Borrowers     35  
Foreign Equipment Leases     36  
Description of Equipment Leases     37  
Equipment Leasing Industry and Competition     38  
Growth Capital Financing     40  
Portfolio Diversification     41  
Borrowing Policies     49  
Joint Venture Investments     52  
General Restrictions     53  
Changes in Investment Objectives and Policies     53  
CONFLICTS OF INTEREST     54  
FIDUCIARY DUTY OF THE MANAGER     56  
MANAGEMENT     57  
The Manager     57  
Management of the Fund’s Operations and Administration     60  
Management Compensation     60  
Changes in Management     60  
The Dealer Manager     61  
PRIOR PERFORMANCE SUMMARY     62  
INCOME, LOSSES AND DISTRIBUTIONS     67  
Allocations of Net Income and Net Loss     67  
Timing and Method of Distributions     67  
Allocations of Distributions     67  
Reinvestment     68  
Return of Unused Capital     69  
Cash from Capital Reserve Account     70  
Sources of Distributions — Accounting Matters     70  
CAPITALIZATION     71  
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION     71  

iii


 
 

TABLE OF CONTENTS

 
FEDERAL INCOME TAX CONSEQUENCES     72  
Opinions of Derenthal & Dannhauser LLP     72  
Classification as a Partnership     73  
Allocations of Profits and Losses     74  
Income Recognition     75  
Taxation of Investors     76  
Tax Status of Leases     76  
Limitation on Deduction of Losses     76  
Tax Basis     76  
At Risk Rules     77  
Passive Loss Limitation     77  
Cost Recovery     78  
Tax Consequences Respecting Equity Interests     78  
Deductibility of Management Fees     79  
Tax Liabilities in Later Years     79  
Sales or Exchanges of Fund Property     79  
Disposition of Units     80  
Liquidation of the Fund     80  
Fund Elections     80  
Treatment of Gifts of Units     81  
Investment by Qualified Retirement Plans and IRAs     81  
Individual Tax Rates     81  
Alternative Minimum Tax     82  
Fund Tax Returns and Tax Information     83  
Audit of Tax Returns     84  
Tax Shelters and Reportable Transactions     84  
Penalties and Interest     85  
Miscellaneous Fund Tax Aspects     86  
Foreign Tax Considerations for U.S. Investors     86  
U.S. Taxation of Foreign Persons     86  
Future Federal Income Tax Changes     87  
State and Local Taxes     87  
Need for Independent Advice     87  
ERISA CONSIDERATIONS     87  
Prohibited Transactions Under ERISA and the Code     87  
Plan Assets     88  
Other ERISA Considerations     89  
SUMMARY OF THE OPERATING AGREEMENT     89  
The Duties of the Manager     90  
Liability of Holders     90  

iv


 
 

TABLE OF CONTENTS

 
Term and Dissolution     90  
Voting Rights of Members     91  
Dissenters’ Rights and Limitations on Mergers and Roll-Ups     92  
Meetings     92  
Books of Account and Records     92  
Status of Units     92  
Transferability of Units     93  
Repurchase of Units     95  
Indemnification of the Manager     95  
PLAN OF DISTRIBUTION     96  
Distribution     96  
Selling Compensation and Certain Expenses     97  
Escrow Arrangements     97  
Investments by Certain Persons     98  
State Requirements     99  
REPORTS TO HOLDERS     99  
SUPPLEMENTAL SALES MATERIAL     100  
LEGAL OPINIONS     101  
EXPERTS     101  
FORWARD-LOOKING STATEMENTS     101  
ADDITIONAL INFORMATION     101  
GLOSSARY     102  
FINANCIAL STATEMENTS     F-1  
Exhibit A — Prior Performance Information     A-1  
Exhibit B — Limited Liability Company Operating Agreement     B-1  
Exhibit C — Subscription Instructions and Documents     C-1  

v


 
 

TABLE OF CONTENTS

  

WHO SHOULD INVEST

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

The Fund has established basic suitability standards and certain state securities commissioners have established suitability standards different from the Fund’s basic standards which apply to investors in their states. The following are the suitability standards for each jurisdiction in which Units may be offered. Any additional or different requirements will be added by prospectus supplement. In the case of sales of Units to fiduciary accounts, the minimum Net Worth and income standards may be met by the beneficiary, the fiduciary account itself, or by the donor or grantor who directly or indirectly supplies the funds to purchase the Units if the donor or grantor is the fiduciary.

The Fund anticipates that it will liquidate approximately ten to eleven years following the termination of its offering (or 12 to 13 years from the commencement of its two year offering period), but there can be no assurance as to the final liquidation date. While four prior programs completed their liquidation within the periods initially anticipated in their prospectuses, three subsequent programs have experienced longer than anticipated liquidation stages. Although these programs, like the Fund, anticipated a 12 to 13 year term to completion, they will have extended to 13 to 18 years from commencement of their respective offerings as of year-end 2011, and may extend longer before they fully liquidate. Investors should therefore carefully consider the potential duration of the Fund when making a decision whether to invest.

Alabama.  Each Alabama investor must (i) have an annual gross income of at least $70,000 and a Net Worth (exclusive of home, home furnishings and automobiles) of at least $70,000 in excess of his Original Invested Capital; or (ii) have a Net Worth (determined with the same exclusions) of at least $250,000. In addition, by executing the subscription agreement the Alabama investor must represent that the investor has a liquid Net Worth which is at least ten times the amount invested in Units and other similar securities. Liquid Net Worth is defined as that portion of Net Worth which consists of cash, cash equivalents and readily marketable securities.

Alaska.  Each investor must (i) have an annual gross income of at least $70,000 and a Net Worth (exclusive of home, home furnishings and automobiles) of at least $70,000 in excess of his Original Invested Capital; or (ii) have a Net Worth (determined with the same exclusions) of at least $250,000.

Arizona.  Each investor must (i) have an annual gross income of at least $70,000 and a Net Worth (exclusive of home, home furnishings and automobiles) of at least $70,000 in excess of his Original Invested Capital; or (ii) have a Net Worth (determined with the same exclusions) of at least $250,000.

Arkansas.  Each investor must (i) have an annual gross income of at least $70,000 and a Net Worth (exclusive of home, home furnishings and automobiles) of at least $70,000 in excess of his Original Invested Capital; or (ii) have a Net Worth (determined with the same exclusions) of at least $250,000.

California.  Each investor must (i) have an annual gross income of at least $50,000 and a liquid Net Worth (exclusive of home, home furnishings and automobiles) of a least $75,000; or (ii) have a liquid Net Worth (determined with the same exclusions) of at least $150,000. California investors may not invest in Units an amount in excess of 10% of the investor’s liquid Net Worth, determined exclusive of the investor’s home, home furnishings and automobiles.

1


 
 

TABLE OF CONTENTS

  

Colorado.  Each investor 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.

Connecticut.  Each investor 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.

Delaware.  Each investor 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.

District of Columbia.  Each investor 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.

Florida.  Each investor 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.

Georgia.  Each investor 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.

Hawaii.  Each investor 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.

Idaho.  Each investor must (i) have an annual gross income of at least $70,000 and a Net Worth (exclusive of home, home furnishings and automobiles) of at least $70,000 in excess of his Original Invested Capital; or (ii) have a Net Worth (determined with the same exclusions) of at least $250,000. It is recommended by the Idaho Securities Bureau that Idaho investors not invest, in the aggregate, more than 10% of the investor’s liquid Net Worth in this offering and similar direct participation investments. For this purpose, “liquid Net Worth” is defined as that portion of Net Worth that consists of cash, cash equivalents and readily marketable securities.

Illinois.  Each investor 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.

Indiana.  Each investor must (i) have an annual gross income of at least $70,000 and a Net Worth (exclusive of home, home furnishings and automobiles) of at least $70,000 in excess of his Original Invested Capital; or (ii) have a Net Worth (determined with the same exclusions) of at least $250,000 in excess of his Original Invested Capital.

Iowa.  Each investor must (i) have an annual gross income of at least $70,000 and a Net Worth (exclusive of home, home furnishings and automobile) of at least $70,000 in excess of his Original Invested Capital; or (ii) have a Net Worth (determined with the same exclusions) of at least $250,000. An Iowa investor may not invest in Units an amount in excess of 10% of the investor’s liquid Net Worth.

Kansas.  Each investor must (i) have an annual gross income of at least $70,000 and a Net Worth (exclusive of home, home furnishings and automobiles) of at least $70,000 in excess of his Original Invested Capital; or (ii) have a Net Worth (determined with the same exclusions) of at least $250,000 in excess of his Original Invested Capital. It is recommended by the Office of the Kansas Securities Commissioner that Kansas investors should limit their aggregate investment in Units and similar investments to not more than 10% of their liquid net worth. Liquid net worth is defined as that portion of total net worth which consists of cash, cash equivalents and readily marketable securities.

2


 
 

TABLE OF CONTENTS

  

Kentucky.  Each investor must (i) have an annual gross income of at least $70,000 and a liquid Net Worth (exclusive of home, home furnishings and automobiles) of at least $70,000; or (ii) have a liquid Net Worth (determined with the same exclusions) of at least $250,000. Kentucky investors may not invest in Units an amount in excess of 10% of the investor’s liquid Net Worth, determined exclusive of the investor’s home, home furnishings and automobiles.

Louisiana.  Each investor 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.

Maine.  Each investor must (i) have an annual gross income of at least $70,000 and a Net Worth (exclusive of home, home furnishings and automobiles) of at least $70,000 in excess of his Original Invested Capital; or (ii) have a Net Worth (determined with the same exclusions) of at least $250,000. The Maine Office of Securities recommends that an investor’s aggregate investment in this offering and similar direct participation investments not exceed 10% of the investor’s liquid Net Worth. For this purpose, “liquid Net Worth” is defined as that portion of Net Worth that consists of cash, cash equivalents and readily marketable securities.

Maryland.  Each investor 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.

Massachusetts.  Each investor must (i) have an annual gross income of at least $70,000 and a Net Worth (exclusive of home, home furnishings and automobiles) of at least $70,000 in excess of his Original Invested Capital; or (ii) have a Net Worth (determined with the same exclusions) of at least $250,000. It is recommended by the Massachusetts Securities Division that Massachusetts investors not invest, in the aggregate, more than 10% of their liquid Net Worth in this and similar direct participation investments. Liquid Net Worth is defined as that portion of Net Worth which consists of cash, cash equivalents and readily marketable securities.

Michigan.  Each investor must (i) have an annual gross income of at least $70,000 and a Net Worth (exclusive of home, home furnishings and automobiles) of at least $70,000 in excess of his Original Invested Capital; or (ii) have a Net Worth (determined with the same exclusions) of at least $250,000 in excess of his Original Invested Capital. 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).

Minnesota.  Each investor must (i) have an annual gross income of at least $100,000 and a Net Worth (exclusive of home, home furnishings and automobiles) of at least $100,000 in excess of his Original Invested Capital; or (ii) have a Net Worth (determined with the same exclusions) of at least $350,000.

Mississippi.  Each investor 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.

Missouri.  Each 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; or (ii) have a Net Worth (determined with the same exclusions) of at least $225,000. No Missouri investor may invest in Units an amount in excess of 10% of the investor’s liquid Net Worth.

Montana.  Each investor 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.

Nebraska.  Each investor must (i) have an annual gross income of at least $70,000 and a Net Worth (exclusive of home, home furnishings and automobiles) of at least $70,000 in excess of his Original Invested Capital; or (ii) have a Net Worth (determined with the same exclusions) of at least $250,000. Nebraska investors may not invest in Units an amount in excess of 10% of the investor’s liquid Net Worth (exclusive of home, home furnishings and automobiles).

3


 
 

TABLE OF CONTENTS

  

Nevada.  Each investor 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.

New Hampshire.  Each investor must (i) have an annual gross income of at least $70,000 and a Net Worth (exclusive of home, home furnishings and automobiles) of at least $70,000 in excess of his Original Invested Capital; or (ii) a Net Worth (exclusive of home, home furnishings and automobiles) of at least $250,000 in excess of his Original Invested Capital.

New Jersey.  Each 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. It is recommended by the New Jersey Office of the Attorney General that New Jersey investors not invest, in the aggregate, more than 10% of their liquid Net Worth in this and similar direct participation investments. Liquid Net Worth is defined as that portion of Net Worth which consists of cash, cash equivalents and readily marketable securities.

New Mexico.  Each investor must (i) have an annual gross income of at least $70,000 and a Net Worth (exclusive of home, home furnishings and automobiles) of at least $70,000 in excess of his Original Invested Capital; or (ii) have a Net Worth (determined with the same exclusions) of at least $250,000.

New York.  Each investor 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.

North Carolina.  Each investor must (i) have an annual gross income of at least $70,000 and a Net Worth (exclusive of home, home furnishings and automobiles) of at least $70,000 in excess of his Original Invested Capital; or (ii) have a Net Worth (determined with the same exclusions) of at least $250,000 in excess of his Original Invested Capital.

North Dakota.  Each investor must (i) have an annual gross income of at least $70,000 and a Net Worth (exclusive of home, home furnishings and automobiles) of at least $70,000 in excess of his Original Invested Capital; or (ii) have a Net Worth (determined with the same exclusions) of at least $250,000.

Ohio.  Each Ohio investor must (i) have an annual gross income of at least $70,000 and a Net Worth (exclusive of home, home furnishings and automobiles) of at least $70,000 in excess of his Original Invested Capital; or (ii) have a Net Worth (determined with the same exclusions) of at least $250,000. An Ohio investor may not invest in the Fund or its Affiliates an amount in excess of 10% of the investor’s liquid Net Worth.

Oklahoma.  Each investor 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.

Oregon.  Each investor must (i) have an annual gross income of at least $70,000 and a Net Worth (exclusive of home, home furnishings and automobile) of at least $70,000 in excess of his Original Invested Capital; or (ii) have a Net Worth (determined with the same exclusions) of at least $250,000. An Oregon investor may not invest in Units an amount in excess of 10% of the investor’s liquid Net Worth.

Pennsylvania.  Each investor must (i) have an annual gross income of at least $70,000 and a Net Worth (exclusive of home, home furnishings and automobiles) of at least $70,000 in excess of his Original Invested Capital; or (ii) have a Net Worth (determined with the same exclusions) of at least $250,000. In addition, 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).

PENNSYLVANIA INVESTORS:  Because the minimum offering is less than $15 million, you are cautioned to evaluate carefully the Fund’s ability to accomplish fully its stated objectives and to inquire as to the current dollar volume of Fund subscriptions.

4


 
 

TABLE OF CONTENTS

  

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, 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.

Puerto Rico.  Each investor 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.

Rhode Island.  Each investor 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.

South Carolina.  Each investor must (i) have an annual gross income of at least $70,000 and a Net Worth (exclusive of home, home furnishings and automobiles) of at least $70,000 in excess of his Original Invested Capital; or (ii) have a Net Worth (determined with the same exclusions) of at least $250,000.

South Dakota.  Each investor 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.

Tennessee.  Each investor must (i) have an annual gross income of at least $70,000 and a Net Worth (exclusive of home, home furnishings and automobiles) of at least $70,000; or (ii) have a Net Worth (determined with the same exclusions) of at least $250,000. A Tennessee investor may not invest in Units an amount in excess of 10% of the investor’s liquid Net Worth.

Texas.  Each investor must (i) have an annual gross income of at least $70,000 and a Net Worth (exclusive of home, home furnishings and automobiles) of at least $70,000 in excess of his Original Invested Capital; or (ii) have a Net Worth (determined with the same exclusions) of at least $250,000.

Utah.  Each investor 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.

Vermont.  Each investor 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.

Virginia.  Each investor 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.

Washington.  Each investor must (i) have an annual gross income of at least $70,000 and a Net Worth (exclusive of home, home furnishings and automobiles) of at least $70,000 in excess of his Original Invested Capital; or (ii) have a Net Worth (determined with the same exclusions) of at least $250,000 in excess of his Original Invested Capital.

West Virginia.  Each investor must (i) have an annual gross income of at least $70,000 and a Net Worth (exclusive of home, home furnishings and automobiles) of at least $70,000 in excess of his Original Invested Capital; or (ii) have a Net Worth (determined with the same exclusions) of at least $250,000.

Wisconsin.  Each investor 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.

Wyoming.  Each investor 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.

5


 
 

TABLE OF CONTENTS

  

By executing the Subscription Agreement, an investor represents that he meets the minimum income and/or Net Worth standards and other minimum investor standards applicable to him, and agrees that such standards may be applied to any proposed transferee of his Units. Each participating broker-dealer who sells Units has the affirmative duty, confirmed in the Selected Dealer Agreement entered into with the Dealer Manager, to determine prior to the sale of Units that an investment in Units is a suitable investment for its subscribing customer, must execute a representation in the Subscription Agreement regarding such suitability, and must maintain information concerning suitability for at least six years following the date of investment. The selling broker and the sponsor must make every reasonable effort to determine that the purchase of Units is a suitable and appropriate investment for each purchaser, based on relevant information concerning the investor, including the investor’s age, investment objectives, investment experience, income, Net Worth, financial situation, and other investments, as well as any other pertinent factors.

The minimum number of Units that an investor may purchase is 500, representing a total minimum investment of $5,000. Additional investments may be made in a minimum amount of 50 Units ($500) per subscription, and minimum additional increments of one Unit ($10). Investors seeking to acquire additional Units after their initial subscription need not complete a second subscription agreement. In addition to restrictions on transfer imposed by the Fund, an investor seeking to transfer his Units after his initial investment may be subject to the securities or “Blue Sky” laws of the state in which the transfer is to take place.

Fund income realized by an IRA or a qualified pension plan, profit-sharing plan, stock bonus plan or Keogh Plan will be taxable to the plan as “unrelated business taxable income” under the Internal Revenue Code. In considering an investment in the Fund, plan fiduciaries should consider, among other things, the diversification requirements of Section 401(a)(1)(C) of the Internal Revenue Code, additional legal requirements under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) and the prudent investment standards generally imposed on plan fiduciaries.

Investors should also note that the Fund is required by the Operating Agreement to distribute its available cash to the extent necessary to allow a Holder in a 31% federal income tax bracket to pay the federal income taxes due on his income from the Fund for the year. So it is possible that a Holder in a higher tax bracket might not receive enough cash from the Fund to pay his tax liabilities. However, the Manager is also required to make cash distributions in certain minimum amounts prior to any reinvestment in equipment and must distribute all available revenues after the sixth year following the year the offering closes. The Manager expects distributions will be in amounts that will exceed the expected tax liabilities resulting from allocations of income regardless of the investors’ tax brackets. Distributions to nonresident or foreign investors may be subject to withholding taxes, which would reduce the amount of cash actually received by such investors. It is anticipated that Fund cash distributions allocable to Units may exceed taxable income allocable to Units in a given year, particularly in the early years of the Fund, resulting in a deferral of taxable income until later years. However, the Fund is not an appropriate investment for Investors seeking to generate losses to shelter other sources of income from taxation.

Under federal law, certain types of equipment, including aircraft and marine vessels, may not be operated unless they are owned by United States Citizens. To assure that the Fund will not exceed relevant federal limits on foreign ownership, the Manager will not permit more than 20% of the outstanding Units to be held by persons other than U.S. Citizens, and 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 may be required to tender his Units to the Fund for repurchase at a price determined pursuant to the formula described under “Summary of Operating Agreement — Repurchase of Units.” A UNIT HOLDER WHO FAILS TO CONFORM TO HIS REPRESENTATIONS ABOUT CITIZENSHIP OR MISREPRESENTS HIS CITIZENSHIP MAY FORFEIT AND NO LONGER BE ENTITLED TO CASH DISTRIBUTIONS, TAX ALLOCATIONS, RECEIPT OF REPORTS AND VOTING PRIVILEGES, ALTHOUGH HE MAY REALIZE PROCEEDS UPON THE TRANSFER OF HIS UNITS TO AN ELIGIBLE INVESTOR, WHO WOULD BE ENTITLED TO THE FULL ECONOMIC BENEFITS AND OTHER PRIVILEGES ATTRIBUTABLE TO SUCH UNITS.

6


 
 

TABLE OF CONTENTS

  

SUMMARY OF THE OFFERING

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

The Fund:  The Fund is a California limited liability company, which intends to invest in a variety of types of equipment, equipment financing transactions and other investment assets. The Fund’s primary portfolio investment objective will be the acquisition of capital equipment subject to leases to established corporate lessees. In addition to its portfolio of equipment leased to High Quality Corporate Credits, the Fund expects to make growth capital investments providing equipment and other financing to other public and private companies, including emerging growth companies. The Fund will seek to acquire investments that will produce revenues, including eventual sales proceeds, that will provide regular cash distributions to its investors and a favorable overall return on its investments.

Management:  The Manager of the Fund is ATEL Managing Member, LLC. The Manager and its family of ATEL companies will provide various services to the Fund, including asset management and Fund administration. ATEL will be responsible for supervising all of the Fund’s business and affairs. The Manager and its Affiliates will act as a fiduciary to the Fund, and, consequently, are required to exercise good faith and integrity in all dealings with respect to Fund affairs. The Fund will have no direct employees, though it will reimburse the Manager and its Affiliates for the cost of their personnel engaged in the business of the Fund. The Manager and its Affiliates will make all business decisions on behalf of the Fund. The offices of the Fund and ATEL are located at 600 California Street, 6th Floor, San Francisco, California 94108, and its telephone numbers are (415) 989-8800 and (800) 543-ATEL (2835).

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

Most of the Fund’s distributions will be, and most of the prior ATEL programs’ distributions have been, a return of capital. The portion of total distributions that will be a return of capital and the portion that will be investment income, or return on capital, at the end of the Fund will depend on a number of factors in the Fund’s operations, and cannot be determined until all of its equipment is sold and an investor can compare the total amount of all cash distributions to the total capital invested. For more information on aggregate distributions by prior completed ATEL programs, see Exhibit A — Prior Performance Information, Table IV — Results of Completed Programs.
The Fund’s performance will be subject to risks relating to changes in general economic conditions, including fluctuations in demand for equipment and other portfolio assets, acquisition prices, lease rates and interest rates. These changes may, and in certain past programs have, resulted in delays in investment and reinvestment, delays in leasing, re-leasing and disposition of investments, and reduced returns on invested capital. The success of the Fund will be subject to these risks inherent in the leasing and asset finance business that may adversely affect the ability of the Fund to acquire, lease and sell its equipment and other portfolio investments, and to finance its portfolio, on terms which will permit it to generate profitable rates of return for investors.
The Fund’s performance is subject to risks relating to lessee and borrower defaults. The Fund may be harmed if a lessee or borrower defaults on its payment obligations to the Fund and the Fund is unable to collect the revenue anticipated from the defaulted leases and loans.
The Fund’s performance is subject to risks relating to the value of equipment and other assets at end of its leases and when it otherwise seeks to liquidate its investments. In negotiating the pricing and other terms of its leases, the Manager will assume a value for the leased assets at the end of the lease. The Fund cannot assure that its value assumptions will be accurate or that the leased assets will not lose value more rapidly than anticipated.
The Fund will borrow to acquire its investments and will leverage its investments to acquire additional portfolio assets. If Fund revenues are insufficient to repay borrowed funds, the Fund could incur a loss of the portfolio investments used as collateral. The Fund can expect to make a profit on

7


 
 

TABLE OF CONTENTS

  

investments purchased with debt only if the assets acquired produce more than enough cash from lease and other payments and sales proceeds to pay the principal and interest on the debt, recover the purchase price and cover fees and other operating expenses.
No market exists for the Units, the Fund’s Operating Agreement includes significant restrictions on the transfer of Units, and an investor may be unable to sell his Units or able to sell the Units only at a significant discount. Investors will probably not be able to sell their Units for full value if they need to in an emergency. Consequently, investors should consider the purchase of Units only as a long-term investment.
Initially, the Fund may be considered a “blind pool” because the Fund is a newly formed entity, has no prior operating history, and, except as may be set forth in a supplement to this Prospectus, the Fund has not specified any of its investments, so that investors cannot evaluate the risks or potential returns from such investments. An investor cannot assess all of the potential risks of an investment in Units because all of the investments to be purchased and the lessees and borrowers have not been identified. Investors must rely on the prior performance information of the Manager’s affiliates to evaluate the judgment and ability of the Manager, and Investors will not know the size and scope of the Fund’s investment portfolio prior to investment.
Investors must rely on ATEL to manage the Fund’s business. The success of the Fund will, to a large extent, depend on the quality of its management, particularly decisions on the purchase, leasing and sale of its portfolio investments. Investors will have limited voting rights under the terms of the Fund’s Operating Agreement.
The Fund will pay ATEL substantial fees which may result in conflicts of interest. The Fund will pay substantial fees to the Manager and its related companies before distributions are paid to investors even if the Fund does not produce profits.
The Manager will be subject to potential conflicts between its interests and the interests of the Fund and investors. Such conflicts could result in the Manager acting in its interest rather than that of the Fund.
The Fund has a minimum and maximum amount of capital. To the extent that its final capitalization is less than the maximum, it will affect its ability to diversify its investment portfolio and any single investment transaction may have a greater impact on its potential profits.
The Fund does not guarantee its distributions or the return of investors’ capital. Accordingly, investors must rely on the performance of the Fund’s portfolio investments to generate distributions in return of capital and a return on their invested capital.
A portion of the Fund’s investment portfolio will consist of financing provided to entities without substantial operating histories or records of profitability which may pose a greater risk of lessee or borrower default.

See the discussion under “Risk Factors” for a more complete description of these and other risks relating to an investment in Units.

Who Should Invest:  The Units are a long-term investment, with a primary objective of regular cash distributions. Investors must satisfy minimum Net Worth and income requirements. The Fund has established minimum suitability standards and many state securities commissioners have established suitability standards different from these minimum standards which apply to investors in their respective jurisdictions. See the discussion below in this prospectus under “Who Should Invest” for the suitability standards imposed by each of the states for investors in their respective jurisdictions.

Use of Capital:  The Fund expects to invest approximately 87% of its capital in the cash portion of the purchase price of its portfolio investments. It intends to retain an additional 0.5% as reserves for general working capital purposes, and to use the balance to pay selling commissions equal to 9%, and other offering and organization expenses in the estimated amount of from 2.5% to 3.5% of the capital raised.

8


 
 

TABLE OF CONTENTS

  

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

ATEL Securities Corporation will organize and manage the group of broker-dealers selling the Units. It will receive selling commissions, most of which it will pay to the participating broker dealers. ATEL Securities Corporation may retain up to 1.5% of the sale price of Units.
The Fund will pay ATEL an annual asset management fee equal to 4% of the Fund’s gross revenues from its leases and loans, and net sales proceeds from any disposition of the Fund’s investment assets, subject to fee limits.
ATEL will have an interest equal to 7.5% of all of the Fund’s income, loss and cash distributions.

Total annual fees and compensation payable to ATEL and its affiliates will be subject to an Asset Management Fee Limit, which will equal the maximum fees that would be payable under guidelines established by the North American Securities Administrators Association for equipment leasing programs.

The Fund will also reimburse ATEL for offering expenses and administrative expenses ATEL incurs on behalf of the Fund, subject to some limitations. For a more complete description of compensation payable to ATEL, the limitations on compensation and the reimbursement of offering and operating expenses, see the discussion below under “Management Compensation — Narrative Description of Compensation” and “— Limitations on Fees.”

Organizational Diagram:  The following diagram shows the relationships among the Fund, the Manager and certain Affiliates of the Manager, including ATEL Equipment (“AEC”), ATEL Investor Services, Inc. (“AIS”), ATEL Financial Services, LLC (“AFS”), ATEL Securities Corporation (“ASC” or the “Dealer Manager”), and ATEL Leasing Corporation (“ALC”) that may perform services for the Fund (solid lines denote ownership and control and dotted lines denote other relationships).

[GRAPHIC MISSING]

9


 
 

TABLE OF CONTENTS

  

Dean L. Cash holds voting control over 100% of ATEL Capital Group’s outstanding capital stock. ATEL Capital Group controls 100% of the outstanding capital stock of each of AFS, ALC, AIS and AEC. The sole member of the Manager, ATEL Managing Member, LLC, is AFS. See “Management” for further information concerning the above entities and their respective officers and directors.

Investment Portfolio:  The Fund expects to invest primarily in a portfolio of equipment subject to leases to lessees that are High Quality Corporate Credits. See the discussion of “High Quality Corporate Credits” under “Investment Objectives and Policies — Description of Lessees and Borrowers” below in this prospectus. The Fund’s portfolio of equipment is expected to be mostly low-technology equipment such as the core operating equipment used by companies in the manufacturing, mining and transportation industries. The equipment lease portfolio will also include some relatively high-technology equipment, such as communications equipment, medical equipment and office equipment. Upon the full commitment of its offering proceeds, at least 75% of the Fund’s investment portfolio (by cost) will consist of equipment leased to these High Quality Corporate Credits. In addition to its portfolio of equipment leased to High Quality Corporate Credits, up to 20% of the Fund’s investment portfolio (by cost) upon the full commitment of offering proceeds may consist of growth capital investments, including secured loans and leases, to finance other public and private companies, including emerging growth companies. In some cases in connection with these growth capital investments, the Fund will acquire equity interests, warrants and rights to purchase equity interests in the borrower or lessee. Under net leases such as those which the Fund intends to acquire with its portfolio investments, the lessee is generally required to pay substantially all of the costs associated with operating and maintaining the leased equipment, such as maintenance, insurance, taxes, and other operating expenses. Leases with such terms are generally referred to as triple-net leases. The Fund’s leased equipment will generally be depreciated using the straight line method for financial accounting and reporting purposes.

Borrowing Policies:  The Fund expects to borrow a total amount of up to 50% of the original aggregate cost of its portfolio investments, the maximum permitted under the Operating Agreement, regardless of the amount of equity capital raised from the sale of Units.

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

pays its expenses, including fees paid to ATEL,
establishes or restores its capital reserves, and
to the extent permitted, sets aside amounts for reinvestment in additional portfolio investments.

After achieving its minimum offering amount, and during the Fund’s offering and operating stages, through the end of a six-year period following the end of the offering of Units, the Fund expects to make regular cash distributions to investors. Until the end of this period, the Fund may invest available revenues in additional portfolio investments. Before it can reinvest its revenues in a given year, however, it must first satisfy conditions which, after the end of the offering period, include making distributions to each investor for the year equal to at least 9% of the purchase price of the Units. After the end of the Fund’s operating stage, the Fund will not reinvest operating revenues, but intends to distribute to investors all available cash through the final liquidation of the Fund, which is expected to occur ten to eleven years following the end of the offering period. During this liquidation stage, the timing and amount of distributions are expected to be less regular than during the operating stage. The amount and timing of any and all Fund distributions, and the final liquidation of the Fund, are all subject to Fund operations.

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

10


 
 

TABLE OF CONTENTS

  

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

Voting Rights of Members.  Each investor will become a member of the Fund, and will be entitled to cast one vote for each Unit owned as of the record date for any vote of all the members. The members are entitled to vote on only certain fundamental organizational matters affecting the Fund, and have no voice in Fund operations or policies.
Meetings.  ATEL or Members holding 10% or more of the total outstanding Units may call a meeting of the Members or a vote of the Members without a meeting, on matters on which they are entitled to vote.
Dissenters’ Rights and Limitations on Mergers and Roll-ups.  The Operating Agreement provides Members with protection in a proposed reorganization in which the investors would be issued new securities in the resulting entity.
Transferability of Units.  ATEL may condition any proposed transfer of Units on, among other things, legal opinions confirming that the proposed transfer does not violate securities laws and will not result in adverse tax consequences to the Fund. The Manager will take such actions as may be deemed necessary to assure that no public trading market develops for the Units in order to protect the anticipated tax consequences of an investment in the Fund. The Fund will not permit any transfer which does not follow the rules in the Operating Agreement.
Liability of Investors.  Under the Operating Agreement and California law, an investor complying with the Operating Agreement will not personally be liable for any debt of the Fund.
Status of Units.  Under the Operating Agreement, each Unit will be fully paid and non-assessable and all Units have equal voting and other rights, except there are limitations on the voting of Units held by ATEL.
Term of the Fund.  The Fund intends to begin selling its assets and distributing all available cash to its Members beginning after the end of the sixth full year following the end of the offering, with the final distribution expected approximately ten to eleven years after the termination of the offering. There can be no assurance as to the final liquidation date, however, as the Manager will direct the liquidation of Portfolio Assets in a manner it believes will best accomplish the Fund’s primary investment objectives.
Books of Account and Records.  ATEL is responsible under the Operating Agreement for keeping books of account and records of the Fund showing all of the contributions to the capital of the Fund and all of the expenses and transactions of the Fund. These books of account and records will be kept at the principal place of business of the Fund in the State of California, and each Member and his authorized representatives shall have, at all times during reasonable business hours, free access to and the right to inspect and copy at their expense the books of the Fund, and each Member shall have the right to compel the Fund to deliver copies of certain of these records on demand.
Indemnification of ATEL.  The Operating Agreement provides that ATEL and its related companies who perform services for the Fund will be indemnified against certain liabilities.

Plan of Distribution:  The Units will be offered through ATEL Securities Corporation (the “Dealer Manager”), who will organize a group of other broker-dealers who are members of the Financial Industry Regulatory Authority (“FINRA”). The offering price of $10 per Unit was arbitrarily determined by the Manager.

The Dealer Manager will receive selling commissions equal to 9% of the sale price of Units, of which it will pay 7.5% to the participating broker dealers, and will retain up to 1.5%. The Fund, the Manager or its affiliates will pay or reimburse the Dealer Manager or other broker dealers, or will otherwise bear certain underwriters’ expenses, in an aggregate amount of up to 1% of the sale price of Units as additional selling

11


 
 

TABLE OF CONTENTS

  

compensation. The Manager, the Dealer Manager or the broker-dealers engaged by the Dealer Manager to sell the Units, or any of their Affiliates or employees, and clients of certain registered investment advisors, may purchase Units in this offering net of the 7.5% retail selling commissions at a per Unit price of $9.25. The Fund will therefore receive a net sales price in the amount of $9.10 per Unit on every Unit sold. There is no limit on the number of Units which may be sold net of the retail selling commission.

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

Glossary:  See the definitions listed in “Glossary” below for a complete list of defined terms used in this Prospectus and the Operating Agreement.

12


 
 

TABLE OF CONTENTS

RISK FACTORS

The purchase of Units involves various risks. Therefore, investors should consider the following material risk factors before making a decision to purchase Units.

Most of the Fund’s distributions are expected to be a return of capital.  The portion of total distributions that will be a return of capital and the portion that will be investment income at the end of the Fund will depend on a number of factors in the Fund’s operations, and cannot be determined until all of its equipment and other investments are sold and an investor can compare the total amount of all cash distributions to the total capital invested. For more information on aggregate distributions by prior completed ATEL programs, see Exhibit A — Prior Performance Information, Table IV — Results of Completed Programs.

The success of the Fund will be subject to risks inherent in the equipment leasing business that may adversely affect the ability of the Fund to acquire, lease and sell equipment, and to finance its portfolio, on terms which will permit it to generate profitable rates of return for investors.  A number of economic conditions and market factors, many of which neither the Manager nor the Fund can control, could threaten the Fund’s ability to operate profitably. These include:

changes in economic conditions, including fluctuations in demand for equipment, lease rates, interest rates and inflation rates,
the timing of purchases and the ability to forecast technological advances for equipment,
technological and economic obsolescence, and
increases in Fund expenses (including labor, energy, taxes and insurance expenses).

Demand for equipment fluctuates and periods of weak demand could adversely affect the lease rates and resale prices the Fund may realize on its investment portfolio while periods of high demand could adversely affect the prices the Fund has to pay to acquire its investments. Such fluctuations in demand could therefore adversely affect the ability of a leasing program to invest its capital in a timely and profitable manner. Equipment lessors have experienced a more difficult market in which to make suitable investments during historical periods of reduced growth and recession in the U.S. economy as a result of the softening demand for capital equipment during these periods. Such periods of adverse economic conditions have affected the timing and terms of leasing, remarketing and re-leasing efforts by certain of the prior ATEL programs. An extended remarketing cycle and lower lease rates have limited the ability of certain of these programs, which, like the Fund, require minimum distributions to investors prior to reinvestment of cash flow, to generate sufficient cash flow to permit such reinvestment of cash flow in significant amounts. Economic recession resulting in lower levels of capital expenditure by businesses may result in more used equipment becoming available on the market and downward pressure on prices and lease rates due to excess inventory. Periods of low interest rates exert downward pressure on lease rates and may result in less demand for lease financing. Furthermore, a decline in corporate expansion or demand for capital goods could delay investment of the Fund’s capital, and its production of lease revenues. There can be no assurance as to what future developments may occur in the economy in general or in the demand for equipment and other asset based financing in particular.

The Fund may be harmed if a lessee or borrower defaults and the Fund is unable to collect the revenue anticipated from the defaulted investment.  If a lessee does not make lease payments or a borrower does not make loan payments to the Fund when they are due or violates the terms of its contract in another important way, the Fund may be forced to cancel the lease or loan and recover the leased asset or seek disposition of the collateral, or may be required to pursue other legal remedies. The default may occur at a time when the Manager may be unable to arrange for a new lease or the sale of the leased asset or collateral right away. The Fund would then lose the expected revenues and might not be able to recover the entire amount of its original investment. If a lessee or borrower files for protection under the bankruptcy laws, the Fund may experience difficulties and delays in recovering the leased asset from the defaulting lessee or obtaining a judgment on the defaulted debt. Leased equipment may be returned in poor condition and the Fund may be unable to enforce important lease or loan provisions against an insolvent lessee, including the contract provisions that require the lessee to return leased equipment in good condition. In some cases, a

13


 
 

TABLE OF CONTENTS

lessee’s or borrower’s deteriorating financial condition may make trying to recover what the lessee or borrower owes the Fund impractical. The costs of recovering leased assets or collateral upon a default, enforcing the lessee’s or borrower’s obligations under the lease or loan terms, and transporting, storing, repairing and finding a new lessee or purchaser for leased assets or recovered collateral may be high and may affect the Fund’s profits.

The amount of the Fund’s profit will depend in part on the value of its equipment when the leases end.  In general, leased equipment loses value over a lease term. In negotiating leases, the Manager will estimate a value for the equipment at the end of the lease. The Manager will seek lease payments plus equipment value at the end of the lease which is enough to return the Fund’s investment in the equipment and provide a profit. Nevertheless, most, if not all, of the Fund’s equipment leases will provide for total lease payments that are less than the original price of the equipment. At the end of these leases, the Fund must either renew the lease, find a new lessee or sell the equipment to cover its investment and make a profit.

The value of the equipment at the end of a lease will depend on a number of factors, including:

the condition of the equipment;
the cost of similar new equipment;
the supply of and demand for similar equipment; and
whether the equipment has become obsolete.

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

The Fund will borrow to acquire its investments and will bear the risks of borrowing, including the potential loss of assets used as collateral for Fund debt in the event the Fund is unable to satisfy its debt obligations.  The Fund will borrow to finance the acquisition of its investment portfolio. The Fund expects to borrow a total amount equal to the maximum leverage permitted under the Operating Agreement, which is an amount equal to 50% of the aggregate contract purchase price of its investment portfolio as of the date of the final commitment of its net offering proceeds and thereafter as of the date any indebtedness is incurred by the Fund. The Fund can expect to make a profit on investments purchased with debt only if the investments produce more than enough cash from lease and other payments and sales proceeds to pay the principal and interest on the debt, recover the purchase price and cover fees and other operating expenses.

The Fund intends to use both:

debt in which only the asset financed by the lender is collateral securing the obligation, and
debt in which all of the Fund’s assets or a selected pool of the assets are collateral securing the obligation.

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

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

14


 
 

TABLE OF CONTENTS

investors should not expect to be able to redeem their Units. Consequently, investors should consider the purchase of Units only as a long-term investment. In this regard, the Fund anticipates that it will liquidate approximately ten to eleven years following the termination of its offering, but there can be no assurance as to the final liquidation date.

Initially, the Fund may be considered a “blind pool” because the Fund is a newly formed entity, has no prior operating history, and, except as may be set forth in a Supplement to this Prospectus, the Fund has not identified any of its investments, lessees or borrowers.  An investor cannot assess all of the potential risks of an investment in Units because all of the investments to be acquired and the lessees and borrowers have not been identified. A prospective investor will not have complete information as to the manufacturers of the Fund’s equipment, the number of leases to be entered into, the specific types and models of equipment to be acquired, the identity, financial condition and creditworthiness of the companies for whom equipment will be financed, or the characteristics and terms of other investments to be made by the Fund. The Fund was formed in 2011, and has no operating history. Investors therefore have no historical operating information for the Fund to evaluate, and must rely upon prior performance information of similar programs sponsored by the Manager’s affiliates in order to evaluate the judgment and ability of the Manager in its selection and management of equipment financing investments and the negotiation of their terms. Investors will not know the size and scope of the Fund or its investment portfolio prior to investment.

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

The Manager will receive substantial compensation which may result in conflicts of interest.  The Fund will pay substantial fees to the Manager and its related companies before distributions are paid to investors even if the Fund does not produce profits.

The Fund does not guarantee its distributions or the return of investors’ capital.  Accordingly, investors must rely on the performance of the Fund’s portfolio investments to generate distributions that provide both a return of capital and a return on their invested capital.

The Fund may enter into financing transactions outside of the United States and foreign leases and loans may involve greater difficulty in enforcing transaction terms and a less predictable legal system.  The Fund may lease equipment or make loans to foreign subsidiaries of United States corporations and to foreign lessees. The Fund may also lease equipment or make loans to U.S. lessees, in which the leased equipment or collateral is to be used outside the United States. The Manager will seek to limit the Fund’s total investment in such foreign investments to not more than 20% of the Fund’s investment portfolio (by cost) upon the full commitment of offering proceeds. The laws, courts and tax authorities of a foreign country may govern the Fund’s financing transactions, leased assets and collateral in that country. The Fund will attempt to require foreign lessees and borrowers to consent to the jurisdiction of U.S. courts if disputes should arise under the transaction documents. Even if the Fund is successful in this effort, if a foreign lessee or borrower defaults, the Fund may find it difficult or impossible to enforce judgments against foreign party, recover leased equipment or collateral or otherwise enforce the Fund’s rights under the lease or loan. Also, the use and operation of equipment in foreign countries may result in unanticipated taxes or confiscation without fair compensation. See “Investment Objectives and Policies — Foreign Equipment Leases.”

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

15


 
 

TABLE OF CONTENTS

The equipment financing industry is highly competitive and competitive forces could adversely affect the lease rates and resale prices the Fund may realize on its equipment lease investment portfolio and the prices the Fund has to pay to acquire its investments.  Equipment manufacturers, corporations, partnerships and others offer users an alternative to the purchase of most types of equipment with payment terms that vary widely depending on the type of financing, the lease or loan term and type of equipment. In seeking equipment financing transactions, the Fund will compete with financial institutions, manufacturers and public and private leasing companies, many of which may have greater financial resources than the Fund.

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

Some types of equipment are under special government regulation which may make the equipment more costly to acquire, own, maintain under lease and sell.  The use, maintenance and ownership of certain types of equipment are regulated by federal, state and/or local authorities. Regulations may impose restrictions and financial burdens on the Fund’s ownership and operation of equipment. Changes in government regulations, industry standards or deregulation may also affect the ownership, operation and resale value of equipment. For example, certain types of equipment, such as railcars, marine vessels and aircraft, are subject to extensive safety and operating regulations imposed by government and/or industry self-regulatory organizations which may make these types of equipment more costly to acquire, own, maintain under lease and sell. These agencies or organizations may require changes or improvements to equipment and the Fund may have to spend its own capital to comply. These changes may also require the equipment to be removed from service for a period of time. The terms of leases may provide for rent reductions if the equipment must remain out of service for an extended period or is removed from service. The Fund may then have reduced operating revenues from the leases for these items of equipment. If the Fund did not have the capital to make a required change, it might be required to sell the affected equipment or to sell other items of its equipment in order to obtain the necessary cash; in either event, the Fund could suffer a loss on its investment and might lose future revenues, and the Fund might also have adverse tax consequences.

A portion of the Fund’s investment portfolio will consist of debt financing provided to entities without substantial operating histories or records of profitability which may pose a greater risk of lessee or borrower default.  The Fund will primarily lease equipment to large and established publicly held corporations and other High Quality Corporate Credits. However, the Fund expects to invest a portion of its capital in providing financing to companies that are not publicly held, that do not have substantial operating histories or records of profitability, and that may be developing products or services prior to bringing them to market, including development of some new and untested technologies. Such financing will generally be provided through loans secured by equipment acquired by the borrower, and, in many cases, other assets of the borrower. Because of their stage of development and the types of products and technologies they are seeking to develop, these companies will be more subject to changes and fluctuations in financial, technology and product markets. These borrowers and lessees therefore will involve greater risks of default than financing, and investment in, more established, seasoned, or profitable entities. If a borrower does not make debt service payments to the Fund when they are due under its loan, or violates the terms of its loan in another important way, the Fund may be forced to foreclose on the loan and sell the equipment and other assets held as collateral. The Fund’s rights in the other assets used as collateral may be junior to other lenders and creditors of the borrower. The Fund would lose the expected loan revenues from any foreclosed loan and might not be able to recover the entire amount of its original investment through the collateral. If a borrower files for protection under the bankruptcy laws, the Fund may experience difficulties and delays in enforcing its rights against the defaulting borrower. The equipment may be in poor condition and therefore of lower value than anticipated when the investment was made. In some cases, a borrower’s deteriorating financial condition may make trying to recover what it owes the Fund impractical. The costs of enforcing the borrower’s obligations under the loan, and realizing any value from the collateral securing the loan may be high and may affect the Fund’s profits.

Lending activities involve a risk that a court could deem the Fund’s financing rates usurious and unenforceable.  In addition to credit risks, the Fund may be subject to other risks in equipment financing transactions in which it is deemed to be a lender. Some courts have held that certain loan features, such as

16


 
 

TABLE OF CONTENTS

equity interests, constitute additional interest. State laws determine what rates of interest are deemed usurious, when the applicable rate of interest is determined and how it is calculated. A finding that an equity interest is additional interest could result in a court determining that the rate of interest charged by the Fund is usurious, the “interest” obligation under the Fund’s loan could be declared void, and the Fund could be deemed liable for damages or penalties under the applicable state law.

The Fund will be subject to the risk of claims asserting theories of “lender liability” resulting in Fund liability for damages incurred by borrowers.  Various common law and statutory theories have been advanced to hold lenders liable to their borrowers. The general principle underlying this theory of liability is that lenders have a form of duty similar to a quasi fiduciary duty to their borrowers, regardless of the terms of the loan agreements and other financing documents. Breach of that duty by the lender can lead to liability for damages to the borrower. The Fund and its Manager intend to act in good faith in all dealings with the Fund’s borrowers and in a manner designed to mitigate any potential for such liability, and to date no prior investment programs managed the Manager and its Affiliates has incurred any such liability nor has any prior program been otherwise adversely affected by the imposition of duties to borrowers. Nevertheless, this area of law is rapidly changing and there can be no assurance that actions the Fund believes are appropriate to take in protecting the Fund’s interests as lender might not cause it to be liable for a deemed breach of a duty to a borrower.

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

The Manager is subject to certain potential conflicts of interest that could result in the Manager acting in its interest rather than that of the Fund.  These include potential conflicts relating to the following matters:

The Manager engages in other, potentially competing activities
The Fund may be in competition for investments with prior, current and future programs sponsored by the Manager
The Fund expects to borrow up to 50% of the aggregate cost of its investment portfolio, and this will result in higher Asset Management Fees than if less debt were incurred
Agreements between the Fund and the Manager and its Affiliates are not at arm’s length
No independent managing underwriter has been engaged for the distribution of Units
The Fund, the Manager and prospective holders are not represented by separate counsel and
The Fund may, under certain conditions and restrictions, enter into joint ventures with other programs affiliated with the Manager

See the discussion under “Conflicts of Interest” for a more complete description of the foregoing matters.

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

17


 
 

TABLE OF CONTENTS

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

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

Investors will not be able to withdraw their funds from the escrow account pending the satisfaction of the Fund’s minimum offering amount, and may therefore not have use of their invested capital for an extended period of time.   All subscription proceeds will be deposited in an escrow account until the Fund has received subscriptions for Units with gross proceeds of not less than $1,200,000 deposited in the escrow account. The offering will be terminated if the Fund has not reached such minimum funding by a date twelve months from the date of this Prospectus. If the offering is terminated prior to achieving the minimum funding level, all subscription proceeds will be returned, together with any interest earned thereon, to subscribers. Investors will have no right to withdraw invested capital during the escrow period, so investors may not have access to or use of their invested capital, and such capital may not be put to use by the Fund, for a period of up to one year.

A potential change in United States accounting standards regarding operating leases may make the leasing of equipment or facilities less attractive to potential lessees, which could reduce overall demand for leasing services.  Under Accounting Standards Codification (ASC) Topic 840 Leases, a lease is classified by a lessee as a capital lease if the significant risks and rewards of ownership are considered to reside with the lessee. This situation is considered to be met if, among other things, the non-cancelable lease term is more than 75% of the useful life of the asset or if the present value of the minimum lease payments equals 90% or more of the leased asset’s fair value. Under capital lease accounting for a lessee, both the leased asset and liability are reflected on the lessee’s balance sheet in a manner similar to direct ownership of a leveraged asset. If the lease does not meet any of the criteria for a capital lease, the lease is considered an operating lease by the lessee. A lessee’s operating lease obligation does not appear on the lessee’s balance sheet, and the contractual future minimum lease payment obligations are only disclosed in the financial statement footnotes. Thus, entering into an operating lease can appear to enhance a lessee’s balance sheet in comparison to direct ownership or a capital lease. In July 2006, the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) announced a joint project to re-evaluate lease accounting. In February 2009, the Securities and Exchange Commission proposed a timetable for potential use by U.S. companies of the International Financial Reporting Standards issued by the IASB, replacing the use of current standards imposed by FASB for U.S. companies. Use of the IASB standards could result in a change in the methodology used to characterize leases as capital leases or operating leases. In August of 2010, each of the FASB and IASB published exposure drafts reflecting proposed changes to accounting guidance on leases, with comment periods ending in December 2010. In July 2011, the FASB and IASB reopened the proposed changes to further comment. As of the date of this Prospectus, these proposed accounting changes have not been finalized. Changes to the accounting guidance could affect both the Fund’s accounting for leases as well as that of its current and potential future customers. These changes may affect how the leasing business is conducted both domestically and internationally. For example, if the accounting standards regarding the financial statement classification of operating leases are revised, then companies may be less willing to enter into leases in general or desire to enter into leases with shorter terms because the apparent benefits to their balance sheets could be reduced or eliminated. This in turn could cause a delay in investing the Fund’s offering proceeds, and make it more difficult for it to enter into leases on terms it finds favorable.

18


 
 

TABLE OF CONTENTS

Investment by the Fund in joint ownership of investments may involve risks in coordinating its interests with those of its joint venture partner.  Some of the Fund’s investments may be owned by joint ventures between the Fund and unaffiliated third parties or, under certain circumstances, programs related to the Fund or the Manager, or as co-owners with such parties. The investment by the Fund in joint ownership, instead of acquiring an investment directly or as the sole owner, may involve risks such as:

the Fund’s co-venturer might become bankrupt,
the co-venturer may have interests or goals that are inconsistent with those of the Fund,
the parties may reach an impasse on joint venture decisions,
the co-venturer may be in a position to take action contrary to the instructions or the requests of the Fund or contrary to the Fund’s policies or objectives, or
actions by a co-venturer might have the result of subjecting assets owned by the joint venture to liabilities in excess of those contemplated by the terms of the joint venture agreement or might have other adverse consequences for the Fund.

Risks Relating to Tax Matters

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

If the IRS classifies the Fund as a corporation rather than a partnership, investor distributions would be reduced under current tax law.  Although counsel has rendered an opinion that the Fund will be taxed as a partnership and not as a corporation, the opinion is not binding on the IRS, and the IRS has not ruled on any federal income tax issue relating to the Fund. If the IRS successfully contends that the Fund should be treated as a corporation for federal income tax purposes rather than as a partnership, then the income of the Fund would be taxed at tax rates applicable to corporations. This would reduce the Fund’s cash available to distribute to investors, and investor distributions would be taxed as dividend income to the extent of current and accumulated earnings and profits.

The Fund could lose cost recovery or depreciation deductions if the IRS treats Fund leases as sales or financings.  The Manager expects that, for federal income tax purposes, the Fund will be treated as the owner and lessor of most of the equipment it owns or co-owns and/or leases. However, the IRS may challenge the Fund’s characterization of a lease and instead assert that the transaction is a sale or loan. No opinion of counsel has been rendered in this regard. If the IRS determines that the Fund is not the owner of its equipment involved in any transaction, the Fund would not be entitled to cost recovery, depreciation or amortization deductions in connection with the transaction, and its income from the transaction might be deemed to be portfolio income instead of passive income.

Investors may incur tax liability in excess of cash distributions in a particular year.  Tax liability from an investment in the Fund may exceed cash distributions from it. While the Manager expects that taxable income from this investment for most years will be less than cash distributions in those years, to the extent any Fund debt is repaid with rental income or proceeds from equipment sales, taxable income could exceed the related cash distributions. Additionally, a sale of Fund property may result in taxes in any year that are greater than the amount of cash from the sale and result in tax liability in excess of cash distributions.

The IRS may allocate more taxable income to investors than the Operating Agreement provides.  The IRS might successfully challenge Fund allocations of profits or losses. If so, the IRS would require reallocation of taxable income and loss, resulting in more taxable income or less loss for than the Operating Agreement allocates.

Tax-exempt organizations will have unrelated business taxable income from this investment.  Tax-exempt organizations are nevertheless subject to unrelated business income tax on unrelated business taxable income (“UBTI”). Such organizations are required to file federal income tax returns if they have UBTI from

19


 
 

TABLE OF CONTENTS

all sources in excess of $1,000 per year. The Fund’s leasing income will constitute UBTI. Furthermore, a tax-exempt organization in the form of charitable remainder trust realizing any UBTI will incur an excise tax. Thus, an investment in the Fund may not be appropriate for a charitable remainder trust and such entities should consult their own tax advisors with respect to an investment in the Fund.

This investment may cause investors to pay additional taxes.  Investors may be required to pay alternative minimum tax in connection with this investment, since they will be allocated a proportionate share of the Fund’s tax preference items.

In addition, investors may be required to file tax returns and pay state, local and/or foreign taxes as a result of an investment in the Fund. Also, investors may be subject to withholding.

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

Retirement Plan Risks

An investment in Units by a retirement plan must meet the fiduciary and other standards under ERISA or the Internal Revenue Code or the investment could be subject to penalties.  There are special considerations that apply to pension or profit sharing trusts or IRAs investing in Units. Retirement plans investing the assets of a pension, profit sharing, 401(k), Keogh or other qualified retirement plan or the assets of an IRA in Units should be satisfied that the investment will not constitute a prohibited transaction under Section 406 of ERISA or Section 4975 of the Internal Revenue Code. Civil penalties and excise taxes may be imposed on prohibited transactions.

Failure to satisfy the fiduciary standards of conduct and other applicable requirements of ERISA and the Internal Revenue Code may result in imposition of civil and criminal penalties, and can subject the fiduciary to equitable remedies. Fiduciary standards include the following:

whether the investment is made in accordance with the documents and instruments governing the retirement plan;
whether the investment satisfies the prudence and diversification requirements of ERISA and the Internal Revenue Code;
whether the investment will impair the liquidity of the retirement plan;
whether the investment will produce “unrelated business taxable income” for the retirement plan; and
whether the assets of the plan can be valued annually.

ERISA and the Internal Revenue Code may apply what is known as the “look-through” rule to an investment in Units. Under that rule, the assets of an entity in which a retirement or profit sharing plan subject to ERISA or an IRA has made an equity investment may constitute assets of the plan or IRA. A fiduciary of an ERISA retirement or profit sharing plan or IRA should consult with his or her advisors and carefully consider the effect of that treatment if that were it to occur.

For a discussion of these matters please see “ERISA Considerations.”

20


 
 

TABLE OF CONTENTS

ESTIMATED USE OF PROCEEDS

Many of the figures set forth below, such as the amount of offering and organization expenses and capital reserves, are only estimates and not statements of expenditures already incurred. The actual amounts will depend on the course of the offering of the Units and the operations of the Fund. The Fund expects to commit approximately 87% of the Gross Proceeds of this offering to the cash portion of the purchase price of its portfolio of equipment financing and other investments. At least an additional one-half of one percent of its initial capital will be held as capital reserves.

       
  Minimum Offering   Maximum Offering
     Amount   Percent   Amount   Percent
Gross Offering Proceeds   $ 1,200,000       100.00 %    $ 150,000,000       100.00 % 
Less Offering and Organization Expenses:
                                   
Selling Commissions     108,000       9.00 %      13,500,000       9.00 % 
Additional Selling Compensation     12,000       1.00 %      1,500,000       1.00 % 
Other Offering and Organization Expenses     30,000       2.50 %      3,750,000       2.50 % 
Net Offering Proceeds     1,050,000       87.50 %      131,250,000       87.50 % 
Capital Reserves     6,000       0.50 %      750,000       0.50 % 
Amount Available for Cash Payments for Equipment   $ 1,044,000       87.00 %    $ 130,500,000       87.00 % 

The Fund will pay selling commissions equal to 9% of the selling price of Units to ATEL Securities Corporation, an Affiliate of the Manager acting as the Dealer Manager for the group of selling broker-dealers. ATEL Securities Corporation will in turn pay to participating broker-dealers selling commissions equal to 7.5% of the price of Units sold by them, retaining the balance of 1.5%. The line item “Additional Selling Compensation” reflects amounts of up to 1% of Gross Proceeds that will be paid or reimbursed to the Dealer Manager and participating broker dealers, as well as certain expenses that will borne by the Fund that are deemed “underwriters’ expenses.” All of such amounts paid to the Dealer Manager or participating broker dealers is additional selling compensation payable for the sale of Units, and all such additional selling compensation and all selling commissions are together deemed “underwriting compensation” paid in connection with the offering. The total of all such underwriting compensation may not exceed an amount equal to 10% of the Gross Proceeds.

In addition to such amounts considered to be “underwriting compensation,” the Fund or the Manager may reimburse participating broker dealers for bona fide due diligence expenses subject to detailed, itemized invoices for such amounts. Bona fide due diligence expenses will include actual costs incurred by broker-dealers to review the business, financial statements, transactions, and investments of ATEL and its prior programs to determine the accuracy and completeness of information provided in this Prospectus, the suitability of the investment for their clients and the integrity and management expertise of ATEL and its personnel. Costs may include telephone, postage and similar communication costs incurred in communicating with ATEL personnel and ATEL’s outside accountants and counsel in this pursuit; travel and lodging costs incurred in visiting the ATEL offices, reviewing ATEL’s books and records and interviewing key ATEL personnel; the cost of outside counsel, accountants and other due diligence investigation specialists engaged by the broker-dealer; and the internal costs of time and materials expended by broker-dealer personnel in this due diligence effort. ATEL will require full itemized documentation of any claimed due diligence expenditure and will determine whether the expenditure can be fairly allocated to bona fide due diligence investigation before permitting reimbursement.

Certain persons, including the Manager, the Dealer Manager or the broker-dealers engaged by the Dealer Manager to sell the Units, or any of their Affiliates or employees, and others may purchase Units in this offering with reduced selling commissions under specific circumstances described under “Plan of Distribution  — Investments By Certain Persons.” In such event, the amount of “Gross Offering Proceeds” and “Selling Commissions” would be reduced, but such reduced commissions would not affect the amount of “Net Offering Proceeds.”

21


 
 

TABLE OF CONTENTS

Other offering and organization expenses include “issuer expenses” incurred in the organization of the Fund, legal, accounting and escrow fees, printing costs, filing and qualification fees, and “underwriters’ expenses” in the form of disbursements and reimbursements to broker-dealers participating in the sale of Units. These underwriters’ expenses include amounts paid to the Dealer Manager and participating broker dealers relating to sales seminar expenses, advertising and promotion expenses, travel, food and lodging costs, telephone expenses and an allocable portion of the Dealer Manager’s salary expenses and legal fees borne by the Manager and its Affiliates. The Manager has agreed to pay all Organization and Offering Expenses, without reimbursement from the Fund, that exceed an amount equal to 15% of the offering proceeds, provided, however, that if the Fund’s final offering proceeds are less than $2,000,000, the Manager has agreed to pay all Organization and Offering Expenses that exceed an amount equal to 13% of the total offering proceeds. Payment of these expenses by the Manager will be without reimbursement by the Fund.

The Fund will initially establish capital reserves in an amount equal to 0.5% of offering proceeds for general working capital purposes. This amount may fluctuate from time to time as the Manager determines the level of reserves necessary for the proper operation of the Fund in the exercise of its business judgment. Any net offering proceeds not used to acquire portfolio investments or needed as capital reserves will be returned to Unit holders as described under “Investment Objectives and Policies — General Policies” below.

The line item for “Amounts Available for Cash Payments for Equipment” is the amount available to pay the cash portion of the purchase price of equipment plus related acquisition expenses, which are treated for tax and accounting purposes as capitalized costs added to the basis of the items of equipment to which they relate.

22


 
 

TABLE OF CONTENTS

MANAGEMENT COMPENSATION

Summary Table

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

   
Entity Receiving
Compensation
  Type of Compensation   Estimated Amount Assuming
Maximum Units Sold
OFFERING AND ORGANIZATION STAGES
The Dealer Manager   Selling Commissions (1.5% of offering proceeds will be retained by the Dealer Manager) plus additional selling compensation of up to 1% of offering proceeds through payment or reimbursement of underwriters’ expenses   $2,250,000 (plus additional selling compensation not to exceed $1,500,000)
Manager and Affiliates   Reimbursement of Organization and Offering Expenses (when added to selling commissions and additional selling compensation, not to exceed a total equal to 15% of all offering proceeds)   $3,750,000
OPERATIONAL STAGE
Manager and Affiliates   Asset Management Fee (an annual fee equal to 4% of Gross Operating Revenues plus all Cash From Sales or Refinancing, subject to limitations based on Fund operations)   Not determinable at this time
Manager and Affiliates   Reimbursement of Operating Expenses, subject to certain limitations   Not determinable at this time
CARRIED INTEREST IN FUND
Manager and Affiliates   Interest equal to 7.5% of all Fund taxable income, tax losses and cash distributions   Not determinable at this time

Narrative Description of Compensation

Selling Commissions.  The Dealer Manager will receive selling commissions on all sales of Units equal to 9% of Gross Proceeds. The Dealer Manager will reallow to participating broker-dealers 7.5% of the Gross Proceeds from Units sold by them. In addition to selling commissions, the Fund, the Manager or its affiliates will pay or reimburse the Dealer Manager, or otherwise bear certain expenses, in an amount of up to 1% of the Gross Proceeds, as additional selling compensation. It is not anticipated that the Dealer Manager or other Affiliates of the Manager will directly effect any sales of the Units, although the Dealer Manager will provide certain wholesaling services.

23


 
 

TABLE OF CONTENTS

Reimbursement of Organization and Offering Expenses.  The Manager and its Affiliates will be reimbursed for certain expenses in connection with the organization of the Fund and the offering of Units. Total Organization and Offering Expenses payable or reimbursable by the Fund, including selling commissions payable directly by the Fund, and any additional selling compensation, may not exceed 15% of all offering proceeds, provided, however, that if the Fund’s final offering proceeds are less than $2,000,000, the Manager has agreed to pay all Organization and Offering Expenses that exceed an amount equal to 13% of the total offering proceeds.

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

all amounts derived by the Fund from the Portfolio Assets, including, without limitation, all lease and other financing revenues and all debt service payments, but excluding security deposits paid by lessees, and
net cash remaining from the sale or refinancing of any assets after payment of all expenses related to the transaction.

The Asset Management Fee will be paid on a monthly basis. The amount of the Asset Management Fee payable in any year will be reduced for that year to the extent it would otherwise exceed the Asset Management Fee Limit, as described below. The Asset Management Fee will be paid for services rendered by the Manager and its Affiliates in determining portfolio and investment strategies and generally managing or supervising the management of the investment portfolio. The Manager will supervise performance of all management activities, including, among other activities: the acquisition and financing of the investment portfolio; the collection of lease and loan revenues; monitoring compliance by lessees and borrowers with their contract terms; assuring that investment assets are 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.

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

the actual cost to the Manager or its Affiliates of services, goods and materials used for and by the Fund and obtained from unaffiliated parties; and
the cost of administrative services provided by Affiliates of the Manager and necessary to the prudent operation of the Fund, provided that reimbursement for administrative services will be at the lower of
the actual cost of such services, or
the amount that the Fund would be required to pay to independent parties for comparable services.

The Manager estimates that the total amount of reimbursable administrative expenses during the Fund’s first full year of operations after completion of the offering, assuming receipt of the maximum Gross Proceeds, will be approximately $1 million to $1.2 million.

24


 
 

TABLE OF CONTENTS

Carried Interest in Fund Net Income, Net Loss and Distributions.  The Fund Manager will have a Carried Interest in the Fund as a Member equal to 7.5% of all allocations of Net Income, Net Loss and Distributions. The Carried Interest in the Fund will compensate the Manager for organizing the Fund and arranging for supervision of Fund administration (e.g., investor communications and services, regulatory reporting, accounting and transfers of Units). The Manager will not contribute any cash to the Fund in return for the Carried Interest, so that the equity interest of each Member will be diluted by an amount equal to such Carried Interest immediately upon acceptance of the Member’s capital contribution. The relative capital contributions and interests in Fund Net Income, Net Loss and Distributions is set forth in the following bar chart:

[GRAPHIC MISSING]

Limitations on Fees

The Fund has adopted a single Asset Management Fee plus the Carried Interest as a means of compensating the Manager for sponsoring the Fund and managing its operations. While this compensation structure is intended to simplify management compensation for purposes of investors’ understanding, state securities administrators use a more complicated compensation structure in their review of equipment program offerings in order to assure that those offerings are fair under the states’ merit review guidelines. The total of all Front End Fees, the Carried Interest and the Asset Management Fee will be subject to the Asset Management Fee Limit in order to assure these state administrators that the Fund will not bear greater fees than permitted under the state merit review guidelines. The North American Securities Administrators Association, Inc. (“NASAA”) is an organization of state securities administrators, those state government agencies responsible for qualifying securities offerings in their respective states. NASAA has established standards for the qualification of a number of different types of securities offerings and investment products, including its Statement of Policy on Equipment Programs (the “NASAA Equipment Leasing Guidelines”). Article IV, Sections C through G of the NASAA Equipment Leasing Guidelines establishes the standards for payment to program sponsors of reasonable carried interests, promotional interests and fees for equipment acquisition, management, resale and releasing services, and sets the maximum compensation payable to the sponsor and its affiliates from an equipment leasing program such as the Fund. The Asset Management Fee Limit will equal the maximum compensation payable under Article IV, Sections C through G, and Article V, Section F, of the NASAA Equipment Leasing Guidelines as in effect on the date of the Fund’s prospectus (the “NASAA Fee Limitation”). Under the Asset Management Fee Limit, the Fund will calculate the maximum fees payable under the NASAA Fee Limitation and guarantee that the Asset Management Fee it will pay the Manager and its Affiliates, when added to its Carried Interest, will never exceed the fees and interests payable to a sponsor and its affiliates under the NASAA Fee Limitation.

25


 
 

TABLE OF CONTENTS

Asset Management Fee Limit.  The Asset Management Fee Limit will be calculated each year during the Fund’s term by calculating the total fees that would be paid to the Manager if the Manager were to be compensated on the basis of the maximum compensation payable under the NASAA Fee Limitation through the end of such year, including the Manager’s Carried Interest, as described below. To the extent that the amount paid as Front End Fees, the Asset Management Fee, and the Carried Interest for any year would, when added to amounts paid in all prior years, cause the total fees through the end of such year to exceed the aggregate amount of fees calculated under the NASAA Fee Limitation for the same period, the Asset Management Fee and/or Carried Interest for that year will be reduced so that the total of all such compensation paid through the end of the period will not exceed the maximum aggregate fees under the NASAA Fee Limitation. To the extent any such fees are reduced, the amount of such reduction will be accrued and deferred, and such accrued and deferred compensation would be paid to the Manager in a subsequent period, but only to the extent that the deferred compensation would be within the Asset Management Fee Limit as calculated through that later period. Any deferred fees that cannot be paid under the applicable limitations through the date of liquidation would be forfeited by the Manager at liquidation.

Under the NASAA Equipment Leasing 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 Operating Agreement requires the Fund to commit at least 85.875% of the Gross Proceeds to Investment in Equipment. Based on the formula in the NASAA Guidelines, the Fund’s minimum Investment in Equipment would equal 76.875% of Gross Proceeds (80% – [50% × .0625%] = 76.875%), and the Fund’s minimum Investment in Equipment would therefore exceed the NASAA Fee Limitation minimum by 9%.

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

With the additional carried interest calculated as described above, the maximum aggregate fees payable to the Manager and Affiliates under the NASAA Guidelines as carried interest and promotional interest would equal 11.5% of Distributions of Cash from Operations (6.5% + 5% = 11.5%), and 7.5% of Distributions of Sale or Refinancing Proceeds (6.5% + 1% = 7.5%), before the subordination level was reached, and 21.5% of all Distributions thereafter. The maximum amounts to be paid under the terms of the Operating Agreement are subject to the application of the Asset Management Fee Limit provided in Section 8.3 of the Agreement, which limits the annual amount payable to the Manager and its Affiliates as the Asset Management Fee and the Carried Interest to an aggregate not to exceed the total amount of fees that would be payable to the Manager and its Affiliates under the NASAA Fee Limitation.

Upon completion of the offering of Units, final commitment of offering proceeds to acquisition of equipment and establishment of final levels of permanent portfolio debt, the Manager will calculate the maximum carried interest and promotional interest payable to the Manager and its Affiliates under the NASAA Fee Limitation and compare such total permitted fees to the total of the Asset Management Fee and Manager’s Carried Interest. If and to the extent that the Asset Management Fee and Manager’s Carried

26


 
 

TABLE OF CONTENTS

Interest would exceed the fees calculated under the NASAA Fee Limitation, the fees payable to the Manager and its Affiliates will be reduced by an amount sufficient to cause the total of such compensation to comply with the NASAA Fee Limitation. The adjusted Asset Management Fee Limit will then be applied to the Asset Management Fee and Carried Interest as described above. A comparison of the Front End Fees actually paid by the Fund and the NASAA Fee Limitation maximums will be repeated, and any required adjustments will be made, at least annually thereafter.

Defined Terms Used in Description of Compensation

Definitions of certain capitalized terms used in the foregoing narrative description of compensation payable to the Manager are as follows:

“Asset Management Fee Limit” means the total fees calculated pursuant to the NASAA Fee Limitation plus the Carried Interest, determined in the manner described therein.

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

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

“Front-End Fees” shall mean fees and expenses paid by any party for any services rendered during the Fund’s organization and acquisition phase including organization and offering expenses, leasing fees, acquisition fees, acquisition expenses, and any other similar fees, however designated. Notwithstanding the foregoing, Front-End Fees shall not include any acquisition fees or acquisition expenses paid by a manufacturer of equipment to any of its employees unless such persons are Affiliates of the Manager.

“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.

Affiliates of the Manager

The Operating Agreement permits the Manager to delegate its responsibilities for various management functions to one or more of its affiliates, to assign its compensation to such affiliates and to cause the Fund to reimburse such affiliates for expenses incurred on the Fund’s behalf.

All of such affiliates are under common control with the Manager as all are directly or indirectly controlled by Dean L. Cash, the controlling shareholder, chairman of the board, president and chief executive officer of the Manager, ATEL Capital Group and ATEL Financial Services, LLC, among other related entities. See the information under “Summary of the Offering — Organizational Diagram” above in the Prospectus and the discussion under “Management” below.

27


 
 

TABLE OF CONTENTS

INVESTMENT OBJECTIVES AND POLICIES

Principal Investment Objectives

The Fund’s principal objectives are to invest in a diversified portfolio of investments that will:

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

(ii) generate regular cash distributions to Unit holders during the offering and operating stages of the Fund, any balance remaining after required minimum distributions to be used to purchase additional investments during the first six years after the year the offering terminates; and

(iii) provide additional cash distributions during the liquidation stage, commencing with the end of the operating/reinvestment period and until all investment portfolio assets have been sold or otherwise disposed.

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

The Fund expects to invest primarily in a portfolio of equipment subject to “triple net” leases to High Quality Corporate Credits. See “Description of Lessees and Borrowers.” The Fund’s portfolio of equipment is expected to be mostly low-technology equipment such as the core capital equipment used by companies in the manufacturing, mining and transportation industries. The equipment lease portfolio may also include some relatively high-technology equipment, such as communications equipment, medical equipment and office equipment. At least 75% of the Fund’s investment portfolio (by cost) upon the full commitment of offering proceeds will consist of equipment leased to High Quality Corporate Credits. In addition to its portfolio of equipment leased to High Quality Corporate Credits, the Fund expects to make growth capital financing investments, including secured loans and leases, to finance the acquisition of capital equipment and other financing needs for public and private companies, including emerging growth companies. In some cases in connection with these growth capital investments, the Fund will acquire equity interests, warrants and rights to purchase equity interests in the borrower or lessee. See the discussion under “Growth Capital Financing” below. Under “triple net” leases such as those which the Fund intends to acquire with its portfolio investments, the lessee is generally required to pay substantially all of the costs associated with operating and maintaining the leased equipment, such as maintenance, insurance, taxes and other operating expenses.

The Fund’s investment decisions in structuring its portfolio will be driven by the projected economic consequences of each transaction, primarily the cash return on cash invested. While the tax consequences of the Fund’s structure, including the pass through of income and loss, and those relating to specific investments, including the status of investments as true leases and rates of amortization and cost recovery, are expected to affect the rates of return that may be realized by the Fund and its Unit holders, the Fund’s investment decisions will not generally be based on tax consequences, but primarily on the lease and loan rates and projected sale and other residual proceeds to be realized from the investments.

General Equipment Leasing Policies

The Fund intends to acquire various types of new and used equipment subject to leases. The Fund’s investment objective is to acquire primarily low-technology, low-obsolescence capital equipment such as materials handling equipment, manufacturing equipment, mining equipment, and transportation equipment. A portion of the portfolio will include some more technology-dependent equipment such as certain types of communications equipment, medical equipment, manufacturing equipment and office equipment.

While there is no widely understood definition of “high technology” versus “low obsolescence, low technology” types of equipment, the Fund uses these terms to distinguish between those types of equipment which can be expected to retain relatively little residual value after completion of the lease term (so called “high technology” equipment) and those types of equipment which may be expected to retain some material value for extended useful lives (so called “low technology, low obsolescence” equipment). Some equipment,

28


 
 

TABLE OF CONTENTS

such as certain types of aircraft, may involve relatively sophisticated technology, but would be included in the category of “low technology, low obsolescence” equipment because the technology involved would not be expected to render the equipment vulnerable to the same type of rapid obsolescence as would be the case with other types of equipment, such as certain computer and telecommunications equipment, considered to be in the “high technology” category. It should also be noted that equipment cannot always be clearly characterized as in one category or the other, but will fall somewhere on a scale of relative technology and vulnerability to obsolescence.

In a lease of higher technology, rapid obsolescence equipment, the lessor must negotiate a lease rate that both recovers the full capital investment plus the target rate of return before the lease expires or the asset reaches the end of its useful life due to obsolescence. With lower technology, low obsolescence equipment, the lessor can structure lease terms and rates based on an assumed residual value, and can seek to acquire equipment that will enjoy a strong resale or re-lease market in order to achieve the return of invested capital plus targeted profit on the investment. The Operating Agreement does not limit the Fund’s ability to invest in high technology equipment, but the Manager estimates that approximately 20% of the Fund’s portfolio, by equipment cost, will consist of high technology equipment types as of the final investment of net offering proceeds.

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

The Fund will be subject to fluctuations in interest rates and inflation as it establishes its portfolio. Lease and other financing rates tend to move in concert with prevailing market interest rates, so the Fund’s lease and other financing rates may reflect changes in market interest rates. On the other hand, during recent periods of relatively low interest rates, the scarcity of available capital from institutional lenders and other traditional financing sources has enhanced demand for equipment lease financing and has resulted in more favorable lease rates than would be expected during typical periods of low interest rates. Nevertheless, to the extent that market rates drop over the course of the Fund’s term, favorable lease and financing rates for Fund transactions already in place will typically be locked in for the balance of the Fund’s investment terms, but rates available to the Fund on its reinvestment of cash flow during the reinvestment stage may be lower as market rates drop. On the other hand, if interest rates rise during the term of the Fund, existing rates on Fund investments will likewise typically be locked in for the duration of investment term, but the rates available to the Fund on reinvestment of its cash flow or on lease renewals and re-leases upon lease expirations may provide a hedge against such rising market interest rates as the lease and financing rates may be expected to rise accordingly. As the portfolio will consist substantially of capital assets, the residual values of these assets may be expected to rise with increases in the rate of inflation during the Fund’s term. While this may cause equipment prices to increase for new portfolio acquisitions, the existing portfolio will act as a hedge against the effects of inflation as the residual values realized by the Fund on the renewal, re-lease and sale of equipment upon the termination of leases may be expected to keep pace with increases in the prices for new and used equipment generally.

The Manager will seek to maintain an appropriate balance and diversity in the types of equipment acquired and the types of leases entered into by the Fund. The Manager will seek to invest not more than 20% of the net offering proceeds invested in equipment in items of equipment acquired from a single manufacturer. However, this limitation is a general guideline only, and the Fund may acquire equipment from a single manufacturer in excess of the stated percentage during the offering period and before the offering proceeds are fully invested, or if the Manager deems such a course of action to be in the Fund’s best interest.

29


 
 

TABLE OF CONTENTS

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

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

the type of equipment,
the terms of the lease,
the credit quality of the lessee, and
prevailing lease and financial market conditions.

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

The Manager will seek to structure a portfolio that is:

diversified as to investment type, equipment type, industry, lessee and geographic location;
capable of generating sufficient net cash flow to meet the minimum distribution requirements to permit reinvestment; and
capable of generating sufficient cash flow to provide funds for additional investment in equipment.

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

As set forth above under “Principal Investment Objectives,” it will be the Fund’s objective to reinvest in additional portfolio assets any revenues remaining after payment of certain minimum distributions during the reinvestment period. The Fund will not acquire portfolio assets after the reinvestment period, ending six years after the offering is completed, except if necessary to satisfy obligations entered into prior to the end of the reinvestment period or to maintain or improve portfolio assets already owned at that time.

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

Before completing any acquisition of a single item of equipment that has a contract purchase price more than $3,000,000, the Fund will obtain a future value appraisal for the equipment from a qualified independent third party appraiser. The Manager may also, in its discretion, obtain appraisals for certain smaller acquisitions if it deems an appraisal to be appropriate because of the type of equipment, the size of a transaction or otherwise. It should be noted, however, that appraisals represent only the appraiser’s opinion of the value of the equipment, and do not necessarily represent the actual amount the Fund might receive on sale of the equipment.

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

the transaction is in the best interest of the Fund;

30


 
 

TABLE OF CONTENTS

the equipment is purchased by the Fund for a purchase price no greater than the cost to the Manager or Affiliate (including any out-of-pocket carrying costs), except for compensation permitted by the Operating Agreement;
there is no difference in interest terms of the loans secured by the equipment at the time acquired by the Manager or Affiliate and the time acquired by the Fund;
there is no benefit arising out of such transaction to the Manager or its Affiliate apart from the compensation otherwise permitted by the Operating Agreement; and
all income generated by, and all expenses associated with, equipment so acquired shall be treated as belonging to the Fund.

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

Types of Equipment

The Fund intends to acquire, lease and otherwise finance a diversified portfolio of equipment transactions. 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 that are not dependent on high technology design or applications for their usefulness to lessees, and are expected to be less subject to rapid obsolescence than types that are so dependent.

Equipment acquisition will be subject to the Manager or its agents obtaining information and reports, and undertaking inspections and surveys the Manager deems appropriate to determine the probable economic life, reliability and productivity of the equipment, its competitive position with respect to other equipment and its suitability and desirability as compared with other equipment. Purchases of new equipment for lease will typically be made directly from a manufacturer or its authorized dealers, either under a purchase agreement for large quantities of such equipment, through lease brokers, or on an ad hoc basis to meet the needs of a particular lessee. There can be no assurance that favorable purchase agreements can be negotiated with equipment manufacturers or their authorized dealers or lease brokers. In addition, the Fund may enter into sale/leaseback transactions in which the Fund will purchase equipment from companies that will then simultaneously lease the equipment from the Fund. In some cases, the Fund may purchase equipment jointly with other Affiliates or with unaffiliated third parties, and hold title directly or through special purpose entities, in which case the Fund would co-own the special purpose entity with such other Affiliates of unaffiliated third parties. See “Joint Venture Investments” under this caption below.

The following is a more detailed description of the various types of equipment that 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.”

31


 
 

TABLE OF CONTENTS

Aircraft.  The Fund may invest in cargo and freight aircraft, corporate aircraft and aircraft used for medical evacuation and rescue purposes. Cargo and freight aircraft are used by commercial freight carriers and national and international mail and package delivery services exclusively for the hauling of cargo. Corporate aircraft, including both helicopters and fixed-wing aircraft, are used by many businesses to move employees from city to city or to locations without scheduled air service and for the express delivery of personnel, components and products at various manufacturing and service facilities. The Fund will not invest in commercial passenger aircraft. 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 Subtitle VII — Aviation Programs, of Title 49, United States Code (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. A literal reading of the Act could lead to the conclusion that aircraft in which the Fund has an interest are not eligible for registration because the term United States Citizen is defined in the Act to include a partnership in which each member is an “individual” who is a citizen of the United States or one of its possessions, and the Fund has a corporate Manager. The FAA has indicated informally that it will permit registration of an aircraft under the Act 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). However, such representations are not binding on the FAA; therefore, the possibility exists that the FAA would challenge such a registration. In addition, a registration may be challenged and rendered invalid if a Member is not, contrary to his representation to the Fund, a United States Citizen or if a Member ceases to be a United States Citizen. 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.

Based on the advice of counsel and ongoing established industry practice, the manager has determined that, for purposes of aircraft and for the types of investments contemplated by the Fund, the Fund may qualify as a “U.S. Citizen'' if not more than 25% of the Units are owned by persons other than U.S. Citizens as defined under applicable federal statutes (14 CFR §47.1 et. seq.). The Fund would invest in aircraft through a trust structure as described in the foregoing paragraph, which is the established industry method used for ownership by partnership type entities, and would obtain appropriate opinions of counsel concerning registration at the time it consummated such an investment. In order to assure ongoing compliance with the citizenship limitation, the Fund will limit ownership by other than U.S. Citizens to 20% of the Units outstanding at any time, and has included in the Subscription Agreement and Operating Agreement provisions that will permit it to monitor and adjust Unit ownership to assure such compliance.

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 will have temporary or permanent authority to operate the aircraft. If such authority were not obtainable because of failure of registration, the lease would typically provide that the lessor would be entitled to void the transaction and the lease would not take effect.

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.

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 that 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 others can apply up to eight colors. Phototype

32


 
 

TABLE OF CONTENTS

setters are used for the setting of type for publications such as newspapers and magazines. Computerized type-setters have become common in recent years, as they simplify type-setting, correction of mistakes and lay-out of printed pages. Automatic drafting machines are computer controlled visual displays of drawings, which enable designers to make changes in engineering drawings without the time required to make a completely new drawing by hand.

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

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

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

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

Materials Handling Equipment.  Materials handling equipment includes many varieties of fork and other types of lift trucks and carriers. They are either diesel powered, battery-powered or propane gas-powered, and are used in warehouses, plant facilities 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 and imaging equipment such as 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.

Mining Equipment. The Fund may also acquire various types of mining equipment, including, but not limited to, long-wall miners or shearers, draglines, shovels, haul trucks, conveyors, and related equipment.

Oil and Gas Equipment.  This category includes oil and gas field equipment, oil services equipment, drilling and well equipment, petrochemical plants, natural gas plants, booster stations, production equipment,

33


 
 

TABLE OF CONTENTS

refineries, off-shore and on-shore oil and gas production equipment, pipeline equipment and exploration and production equipment. Equipment includes diesel generator sets, drilling rigs, rotating and static equipment, industrial steam turbines and gas turbines, turbo and radial expanders, centrifugal compressors, generators and oil brakes, reactors and steam condensers for refineries, tubular reactors, large high-pressure heat exchangers, skid-mounted packages for fiscal metering and gas treatment systems.

Plant and Production Facilities.  Plant and production facilities for manufacturing, such as, air separation plants, production lines, bottling lines, storage tanks. Large facility lease financing are likely to include an interest in the underlying real property where the equipment is located, and in certain cases, the cash flows generated from the project and the value of the equipment will become a significant factor in the credit analysis and investment decision by the Fund.

Power Generation and other Energy Industry Equipment.  This category includes cogeneration power production plants, natural gas plants, gas compression stations, power plants, petrochemical plants, refineries and peak power and baseline power generation plants. It also includes transmission lines, other power generation facilities, compression and pumping equipment and other processing and treatment equipment, as well as energy management systems. Equipment is used by commercial, industrial and institutional customers within various industries including the oil and gas industry, clean coal producers as well as most electric utilities. The equipment includes cogeneration heat recovery systems, steam and gas turbine generators, boilers, cooling towers, and combustion turbine generators. Power generation equipment also includes renewable wind energy generation facilities as well as hydroelectric power generating equipment.

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

Over the Road Tractors, Trailers and Trucks.  Tractors, trailers and trucks are used for the shipment of various products and goods from one location to another on public roadways. 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 electronic test equipment; office automation equipment; furniture and fixtures; automobiles; dairy production equipment; video projection and production equipment; store fixtures; display cases and freezers; computer related high technology equipment such as small computer systems, computer peripheral equipment, mainframe and server computers, and computer aided engineering, design and manufacturing equipment; various equipment used in medical laboratories, hospitals and clinics; photocopying and document duplication, reproduction and printing equipment; research and experimentation equipment used in businesses

34


 
 

TABLE OF CONTENTS

and laboratories engaged in ongoing research and development activities; and telecommunications equipment such as telephone, radio, television communications and broadcasting equipment, satellite communications equipment and related peripheral communications, connection, switching, transmission, control and support equipment.

Incidental Property Acquisitions.  Incidental to an acquisition of equipment, the Fund may acquire certain rights (including, by way of example, puts, calls, options or warrants), 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 entity formed for the purpose of holding title to leased equipment, which special purpose entity could be in the form of a limited partnership, limited liability company, or corporation. Nothing in the Operating Agreement prohibits the Fund from acquiring any such incidental property rights or indirect ownership interest, provided the acquisition does not otherwise violate or circumvent any provision of the Operating Agreement.

Investment in Green Technologies

The Fund will seek to cause approximately 25% of its investment portfolio, by cost, to comprise investments in equipment or financing of equipment and businesses involving “green” technologies and applications. For purposes of this investment guideline, “green technologies” are those in which the environmental sciences are applied to conserve the natural environment and resources, or to remedy or reduce the negative impacts of human activity. Included in these technologies and applications are a variety of types of equipment and businesses that are aimed at fostering sustainable development.

Some environmental technologies that would be included in this category of intended Fund investment would be equipment and companies involved in the following activities: materials recycling, water purification, sewage treatment, pollution remediation, gas and other emission treatment, solid waste management, renewable energy generation, as well as many other similar industries and activities. Some technologies assist directly with energy conservation, while other technologies are emerging that enhance the environment by reducing the amount of waste produced by human activities. Alternative energy sources such as wind, hydroelectric and solar power are considered “green” or environmentally friendly applications. Companies and equipment involved in production of energy efficient appliances and products, or those that have a reduced environmental impact, whether as a result of technological design or due to the materials used, will be considered “green” investments.

These “green” investments will otherwise be made with the same investment criteria, policies and standards as the rest of the investment portfolio, and may include leases, loans, established lessees and borrowers or growth capital investments. The Manager has determined that, while such investments may in some cases be more difficult to identify, acquire or structure financing, they should nevertheless provide the same opportunities for satisfying the Fund’s principal investment objectives and should not involve any material risks beyond those presented by other types of investment and discussed in detail in this Prospectus.

Description of Lessees and Borrowers

As of the date of the final commitment of its proceeds from the sale of Units, at least 75% of the Fund’s investment portfolio (by cost), will consist of equipment leased to lessees that the Manager deems to be High Quality Corporate Credits and/or leases guaranteed by such High Quality Corporate Credits. “High Quality Corporate Credits” means, for purposes of this investment policy, lessees or guarantors who:

have a credit rating by Moody’s Investors Service, Inc. of “Baa3” or better, or the credit equivalent as determined by the Manager; or
are public or private corporations with substantial revenues and histories of profitable operations, as well as established hospitals with histories of profitability or municipalities.

The Manager may determine that the credit equivalent of a Moody’s Baa3 rating applies to those lessees or guarantors that are not rated by Moody’s, but which:

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

35


 
 

TABLE OF CONTENTS

although not rated by nationally recognized credit rating services, are believed by the Manager to have comparable creditworthiness; or
in the Manager’s opinion, as a result of guarantees provided, collateral given, deposits made or other security interests granted, have provided such safeguards of the Fund’s interest in the investment that the risk is equivalent to that involved in a transaction with a company with a credit rating of Baa3.

The remaining 25% of the initial investment portfolio may include equipment lease transactions and other debt or equity financing for companies which, although deemed creditworthy by the Manager, would not satisfy the specific credit criteria for the portfolio described above. Included in this balance of the portfolio may be growth capital investments, which are described below under “Growth Capital Equipment Financing.” No more than 20% of the initial portfolio, by cost, will consist of these growth capital financing investments.

In arranging equipment and other financing transactions on behalf of corporate investors and securing institutional financing for such transactions, the Manager and its Affiliates have been required to analyze and evaluate the creditworthiness of potential lessees and borrowers. However, neither the Manager nor any of its Affiliates is in the business of regularly providing credit rating analyses as an independent activity. In order to analyze whether a prospective lessee’s credit risk is comparable or equivalent to a Moody’s Baa3 rating, the Manager will attempt to apply the standards applicable to securities qualifying for the Baa3 rating. Such securities are generally deemed to be of “investment grade,” neither highly protected nor poorly secured, with earnings and asset protection which appear adequate at present, but which may be questionable over any great length of time. Notwithstanding the Manager’s best efforts to assure the lessees’ creditworthiness, there can be no assurance that lease defaults will not occur.

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

The Manager will seek to limit the amount invested in equipment leased to any single lessee to not more than 20% of the aggregate purchase price of investments as of the final commitment of net offering proceeds; and
In no event will the Fund’s equity investment in equipment leased to a single lessee exceed an amount equal to 20% of the maximum capital from the sale of Units (or $30,000,000).

In equipment leasing transactions, the Fund will only purchase or finance equipment for which a lessee exists or for which a lease will be entered into at the time of purchase.

Foreign Equipment Leases

There is no limit on the amount of equipment that may be leased to foreign subsidiaries of United States corporations, to foreign lessees or that may otherwise be permitted to be used predominantly outside the United States. However, the Manager will seek to limit the aggregate amount of the Fund’s equity invested in all equipment leased to foreign lessees or that is otherwise to be used primarily outside the United States to not more than 20% of the total equipment portfolio by cost. For the purposes of this description of the Fund’s policies, any lessee under a lease guaranteed by a United States corporation will not be deemed a “foreign lessee” and the lease will not be deemed a “foreign lease.” The Manager does not have any specific objective with regard to the amount of equipment to be subject to foreign leases, but intends to pursue desirable foreign leasing opportunities for the Fund to the extent consistent with the Fund’s overall investment objectives and the guidelines described in this discussion.

Of the total purchase price of equipment leased to foreign lessees as of the final commitment of net offering proceeds, the Manager will require that a minimum of 75% must represent equipment leased to lessees which have a credit risk equivalent to a credit rating by Moody’s Investors Service, Inc. of “Baa3” (within Moody’s investment grade category) or better, as determined by a credit rating agency which is generally recognized in the financial services industry or, if no such credit rating is available, as determined by the Manager. Any leases to foreign lessees that do not meet the foregoing credit standard will involve lessees that have assets located in the United States with a value equal to or greater than the original purchase cost of the equipment subject to the lease.

36


 
 

TABLE OF CONTENTS

Furthermore, in order to attempt to mitigate certain risks relating to foreign leases, the Fund will attempt to negotiate lease provisions, which require:

payment in U.S. currency;
reimbursement for any foreign taxes billed to the Fund; and
insurance covering the risk of confiscation.

There can be no assurance, however, that the Fund will be successful in negotiating such provisions.

Description of Equipment Leases

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

the type of equipment;
the anticipated residual value of the equipment;
the business of the lessee;
the lessee’s credit rating;
the cost of alternative financing services; and
competitive pricing and other market factors.

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

The equipment will be leased to third parties primarily pursuant to leases with scheduled rents that will return less than the purchase price of the equipment during the initial term of the lease. These include leases where rental payments are based upon equipment usage. Lease rentals during comparable terms are ordinarily higher under leases that provide rents that are less than the full purchase price than those that return the full purchase price to the lessor. As a result, the Manager believes that well-structured leases of this type will help the Fund satisfy its investment objectives.

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

The Manager believes that the Fund will be able to lease or sell its equipment profitably after the initial lease terms although no assurances can be given that it will. Many of the Fund’s initial lessees may be expected to renew their leases or purchase the equipment they are leasing and using in their business. Because of potential replacement costs on the open market, and the costs avoided by continuing to use the equipment they already have under lease, a lessee may generally be expected to pay substantially greater than the wholesale value of the equipment on a re-lease or purchase of the equipment under lease. The Fund’s ability to renew or extend the terms of its leases or to re-lease or sell the equipment on expiration of the initial lease terms is dependent on many factors, including possible economic or technological obsolescence of the equipment, competitive practices and conditions and generally prevailing economic conditions.

The lease contract provides additional security to the Fund and its investors because the lessee is obligated to make lease payments before paying dividends to its shareholders or making payments to its

37


 
 

TABLE OF CONTENTS

unsecured bond holders. This factor makes most lease contracts “bankruptcy remote.” While all investments involve some level of risk, the Fund’s ownership of leased equipment provides collateral for the lessee payment obligations, while most corporate debt is a general obligation of the issuer.

An aspect of a lease which provides security is the fact that ATEL leases are non-cancellable contracts that obligate the lessee to remit a fixed payment every month for a specified term. Further security is provided because most Fund leases are expected to be considered “triple net” from the standpoint that the lessee (rather than the lessor) is required to (1) repair and maintain the equipment, (2) carry property and liability insurance and (3) pay sales and property taxes.

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

In addition to “triple net leases,” the Fund may enter into some “full service operating leases.” Full service operating leases are typically rail or intermodal container leases, where the lessor, not the lessee, is responsible for some, or perhaps all of the maintenance, insurance, and tax obligations. Generally such leases have higher rent obligations due to the lessor by the lessee. In such cases, the Manager may engage and supervise a 3rd party equipment manager to manage the full service leases as part of a managed program, or, alternatively, the Manager may manage the leases directly.

Most of the Fund’s lease agreements will require the lessees to maintain:

casualty insurance in an amount equal to the greater of the full value of the equipment or a specified amount set forth in the lease, and
liability insurance naming the Fund as an additional insured with a minimum limit of $1,000,000 in coverage.

In certain circumstances, however, the Fund may permit a lessee who can demonstrate adequate financial resources, to “self insure” by providing indemnities, guarantees and other contractual commitments that will protect the Fund against exposure to casualty and/or liability losses.

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

Equipment Leasing Industry and Competition

Leasing has become one of the major methods by which American businesses finance their capital equipment needs. Businesses, both large and small, often lease rather than buy equipment in order to deploy capital and manage cash flows efficiently. According to information published by the Equipment Leasing and Finance Association (the “ELFA”), a leasing industry trade association, each year American businesses, nonprofits and government agencies invest in excess of $1 trillion in capital goods and software (excluding real estate) of which approximately 55% or $600 billion is financed through loans, leases and other financial instruments. According to the ELFA, “Each increase of $1 Billion in equipment investment creates approximately 30,000 jobs. Leasing not only equips America, it helps put America to work!” America’s equipment finance companies are the source of such financing, providing access to capital. Investment in plant and equipment impacts every sector of the economy, including the manufacturing, energy, transportation,

38


 
 

TABLE OF CONTENTS

services, agriculture, healthcare and government sectors. Equipment finance companies also finance the export of U.S. manufactured products abroad. In addition, ELFA’s recent annual State of the Industry provided IHS Global Insights’ projections for strong equipment finance volume growth.

Both large and small businesses often lease rather than buy equipment in order to deploy capital effectively and to match revenues and expenses; thus enabling them to manage cash flows efficiently. In fact more than 80% of U.S. businesses lease all or some of their equipment. In summary, leasing provides businesses with the ability to preserve capital while keeping their lines of credit available for operating requirements.

The following chart illustrates equipment acquisition methods used by large firms (defined as those having more than 1,000 employees):

[GRAPHIC MISSING]

The volume of equipment lease financing usually reflects general economic conditions, and as the economy slows or builds momentum, the demand for productive equipment generally slows or builds, and equipment lease financing volume generally decreases or increases. The Equipment Leasing and Finance Association’s Monthly Leasing and Finance Index (MLFI-25), which reports economic activity for the equipment finance sector, was up 23% in 2010 compared to the same period in 2009. This improvement in leasing activity was the largest year-over-year increase since 2008. In addition to fluctuations in demand for equipment, investment returns from equipment leasing may be affected by prevailing interest rates, as alternative financing structures and costs affect lease pricing. The U.S. economy has recently experienced a period of relatively low interest rates. While low interest rates may initially enhance the value of existing long term lease investments with higher locked in lease rates, lower interest rates will potentially reduce the lease rates available on new lease financing transactions.

Although ATEL anticipates growth in the economy and in demand for equipment in the future, many uncertainties may affect the equipment financing industry. These uncertainties range from the effects of international conflict, to the effects of changes in applicable laws and regulations. See the discussion under the “Risk Factors” above. ATEL is unable to predict what, if any, effect these and other developments will have on the economy in general and on capital investment in equipment by U.S. business and lease financing in particular.

In obtaining lessees, the Fund will compete with manufacturers of equipment that provide leasing programs and with established leasing companies, banks and bank leasing subsidiaries, and equipment brokers. Manufacturers of equipment may offer certain incentives including maintenance services and trade-in or replacement privileges that the Fund cannot offer. The Fund may also be competing with manufacturers and others who offer leases that provide for longer terms and lower rates than leases that the Fund will offer. There are numerous other potential entities, including entities organized and managed similarly to the Fund, seeking to purchase equipment subject to leases. Major national and international leasing companies, banks and bank leasing subsidiaries are much larger than the Fund and the Manager, with lower costs of capital, and greater financial and personnel resources, and may therefore be able to offer lessees a broader range of lease and financing options on better terms than the Fund. The Fund, on the other hand, may be able to react more quickly and flexibly to lessee needs than larger leasing organizations.

39


 
 

TABLE OF CONTENTS

Growth Capital Financing

As discussed above, at least 75% of the Fund’s investment portfolio, by cost, as of the final commitment of offering proceeds, will consist of equipment leased to High Quality Corporate Credits. In the rest of its portfolio, the Fund may finance equipment for a variety of public and non-public companies that may not meet the High Quality Corporate Credit criteria. Included in this portion of its portfolio will be investments providing financing to young, growing, privately held companies, primarily in the form of secured loans used to acquire equipment. Privately held companies have not yet “gone public” by publicly selling their equity securities. These investments involving privately held companies are referred to below in this discussion as “growth capital financing” investments or transactions.

In its growth capital financing transactions, the Fund will seek to obtain terms from its non-public borrowers that may include, as additional consideration to the Fund, the granting of warrants, options or other rights to purchase equity securities of the lessee or borrower, or the opportunity to purchase such equity securities outright (such rights to purchase equity interests and direct equity investments are referred to in this Prospectus as the “equity interests”). Growing young companies often have more difficulty obtaining financing for equipment essential to the development and growth of their business, and, as a result, may offer lenders and lessors substantial cash deposits, equity participation or other extraordinary consideration to obtain financing for the equipment. The Fund intends to focus up to 20% of its initial portfolio in this market to achieve investment returns from both its direct loan revenues and gains it may realize from the equity interests.

The Manager will look to provide growth capital financing for those companies that show solid potential for consistent profitability within a specific time period, or that have obtained or are expected to attract sufficient equity venture capital to finance their operations through the stage of their expected profitability. The Manager will seek to identify companies that are at an early enough stage in their capitalization to require these types of financing solutions, but which demonstrate the potential to both satisfy their payment obligations and provide attractive equity participation to the Fund. The Manager may also seek to identify more mature, privately-held companies that seek creative financing solutions involving the granting of equity interests to the Fund. The Fund would expect these transactions to involve as collateral more high technology, low residual value equipment than the leases in the primary portion of its portfolio. As noted above, the Fund’s equipment portfolio will consist primarily of low obsolescence equipment that will be expected to retain significant residual value upon expiration of the initial leases. In contrast, the portion of the Fund’s portfolio invested in growth capital financing transactions is expected to be relatively high-technology equipment, and to return invested capital and a targeted return on investment through a more accelerated schedule of regular cash payments due during the initial term of the financing transaction.

The Fund will provide growth capital financing primarily pursuant to secured loans with fixed periodic installment obligations for payment of interest and amortization of principal. Growth capital financing investments may also be made in the form of finance leases which are structured as leases, but which are treated as installment loans for tax purposes, as well as through true net leases requiring fixed periodic lease payment installments. The Fund will also provide certain borrowers with working capital financing secured by liens on all or part of the borrowers’ assets. In a true lease transaction, the Fund as lessor would be considered the owner of the equipment for tax purposes, and is therefore entitled to cost recovery deductions allocable to the equipment. A “lease intended for security” or finance lease may be nominally structured as a lease, but is analogous to an installment sale contract or loan agreement, and is treated as a loan for tax purposes, with the “lessor” as lender and the “lessee” as the borrower. In a secured loan agreement, the Fund would be the lender and the borrower would be deemed the owner for tax purposes of any equipment financed or other collateral and would retain, as part of the economic structure of the transaction, all of the rights to cost recovery deductions and other tax aspects of ownership.

Fund growth capital financing investments will typically provide for regular scheduled payments by the borrower or lessee over the term of the loan or lease in aggregate amounts in excess of the purchase price paid by a Fund for the equipment or the principal amount of the loan. The Funds will nevertheless be subject to the risk that the borrower or lessee may not fully perform its obligations. The Manager will attempt to

40


 
 

TABLE OF CONTENTS

structure these transactions so that the payments of principal and interest, together with any equity interests involved, will return the Fund’s investment and provide a desirable rate of return on investment in view of the associated financing risks. In addition to financing equipment, the Fund’s secured loan transactions may also provide working capital to a borrower.

In secured loans and finance leases, the Fund will have a security interest in any equipment financed in the transaction. Collateral for the Fund’s secured loan transactions may also include the borrower’s accounts receivable, equipment, inventory or other tangible or intangible assets. The Fund’s security interest may be a senior lien on the financed assets, providing the Fund with the right, on any default under the financing arrangement, to foreclose on the assets that are collateral, and to take possession and or sell the assets in order to satisfy the borrower’s obligation. The Fund may also provide financing as a junior or subordinate lender under appropriate circumstances, often with an inter-creditor agreement with the senior creditors establishing the relative enforcement rights, remedies, and priorities to the debtor or borrower’s collateral in the event of a default by such entity under any of its debt obligations to the creditors. In such cases, the Fund’s right to enforce its obligations against the collateral may be subject to the priority of any senior lender’s rights, or may exclude an identified pool of assets financed by the Fund, with a sharing in the remaining assets of the debtor on a pro-rata basis. To secure working capital loans, the Fund will generally seek a blanket lien on all of a borrower’s assets, or all assets except certain excluded assets. Borrowers may need to exclude intellectual property rights as collateral in order to comply with the terms of other outstanding or future financing obligations.

The Fund will generally acquire equity interests in conjunction with the Fund’s growth capital financing transactions, including financing provided to the issuer of the equity interests or to a parent, subsidiary or affiliate of the issuer. In many cases, the Fund expects to acquire equity interests, such as warrants and options to purchase securities, in consideration of its financing and without any other cash investment by the Fund at the time it acquires such rights. In such cases, cash investment by the Fund would be made upon exercise of the rights, and the Fund expects to use operating cash flow to fund such exercises. In other cases, the Fund may obtain the right to make a direct cash investment in such securities at the time the financing is provided, for which the Fund would use proceeds from the offering of Units. In some cases, the Fund may have an opportunity to make a growth capital financing investment by acquiring equity interests of a company independent of a financing transaction. The objective of the acquisition of these equity interests is to benefit from the appreciation of the growth capital customer’s equity capital as its business grows and matures. At some time in the future, typically at the time of, or soon after, the growth capital customer’s equity securities become publicly registered or traded, such as may occur upon its initial public offering, merger or reorganization, the Fund would exercise its rights represented by the equity interests, acquire the growth capital customer’s publicly-traded securities and seek to dispose of the securities at a profit. The equity interests may also mature upon the negotiated sale of the growth capital customer through the sale of all of the growth capital customer’s equity securities or a sale of all its assets and liquidation of the proceeds to the equity holders. The Manager will determine when and whether to exercise rights to convert or acquire securities subject to the equity interests. To exercise warrant or option rights the Fund will generally pay an exercise price, which may be financed out of the disposition proceeds to be realized upon an immediate resale of the purchased securities. There can be no assurance that the issuers of the equity interests will achieve capital growth and that the equity interests will generate any profit, or that such growth and profits will be achieved during the Fund’s anticipated holding period.

In order to assure that the Fund will not be deemed an “investment company” under the Investment Company Act of 1940, the Manager will not permit the aggregate value of the equity interests, secured loans and any other assets held by the Fund and deemed investment securities under such Act to exceed 40% of the value of the Fund’s total assets. The Fund’s primary portfolio of equipment subject to true leases will not be deemed investment securities.

Portfolio Diversification

As discussed above, the Fund’s objective will be to acquire a diversified portfolio of investments. At least 75% of the Fund’s investment portfolio (by cost) upon the full commitment of offering proceeds will consist of equipment leased to High Quality Corporate Credits, regardless of the amount of capital ultimately raised

41


 
 

TABLE OF CONTENTS

by the Fund. The Fund will seek to acquire a portfolio of such investments that is diversified by types of equipment, lessees, industries and geographic location. The ability to attain such diversification may be affected by the amount of capital raised, in that the portfolio may be more widely diversified if the Fund raises at or near the maximum offering amount, while diversification would be more limited if the Fund raises only the minimum offering amount.

In order to further diversify its investment portfolio, the Fund may acquire growth capital financing investments. Not more than 20% of the Fund’s investment portfolio (by cost) upon the full commitment of offering proceeds will consist of growth capital investments. There is no maximum amount of the net proceeds that may be used to acquire equipment leased to High Quality Corporate Credits.

The Fund’s objective is to invest approximately 25% of its capital in assets that involve “green” technologies or applications. There is no minimum or maximum amount that can be invested in such assets, and such green investments may be made in any investments in equipment leased to High Quality Corporate Credits or growth capital investments.

Set forth below is a table illustrating the foregoing portfolio objectives and limitations.

[GRAPHIC MISSING]

42


 
 

TABLE OF CONTENTS

Prior Program Diversification

ATEL finances the equipment that Cargill uses to grow and harvest its grain which is then transported using ATEL-leased railcars operated by Union Pacific to the manufacturer where equipment leased by ATEL to Kraft produces consumer foods which are sold by retailers such as Walmart which uses ATEL equipment to distribute their goods.

Equipment lessees and manufacturers depicted and identified herein are from prior ATEL Funds. Although representative of the types of equipment, lessees and manufacturers intended to be acquired by the Fund, investors in the Fund will not acquire an interest in any of the equipment or transactions described herein.

[GRAPHIC MISSING]

The prior public equipment leasing programs sponsored by the Manager and its Affiliates have had equipment portfolio objectives substantially identical to those of the Fund. The first chart set forth below represents the actual equipment portfolio diversification by equipment type for all prior ATEL public programs as of December 31, 2010; the second chart set forth below represents the actual equipment portfolio diversification by lessee industry for all prior ATEL public programs as of December 31, 2010; 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 December 31, 2010. Diversification of the Fund’s portfolio will depend on a number of variables, including the amount of capital raised and market conditions, which cannot be predicted in advance. Although there can be no assurance that the Fund will achieve diversification similar to that of the prior programs, achieving such diversification will be one of the primary investment objectives and policies of the Fund.

43


 
 

TABLE OF CONTENTS

[GRAPHIC MISSING]

DIVERSIFICATION BY EQUIPMENT AS OF DECEMBER 31, 2010

 
Equip Type Description   % of Total Cost
AGRICULTURE     0.01 % 
AVIATION     3.22 % 
COMPUTERS     0.59 % 
CONSTRUCTION     7.28 % 
CONTAINERS     10.88 % 
FURNITURE & FIXTURES     0.01 % 
MANUFACTURING     0.94 % 
MARINE     0.44 % 
MATERIAL HANDLING     16.97 % 
MEDICAL     0.28 % 
MINING     9.43 % 
MISCELLANEOUS     2.08 % 
MOTOR VEHICLES     2.49 % 
PETROLEUM & NATURAL GAS     1.40 % 
RAILROAD     33.55 % 
RESEARCH     1.23 % 
STORAGE FACILITY     3.08 % 
TRUCKS AND TRAILERS     6.12 % 
Grand Total      100.00 % 

44


 
 

TABLE OF CONTENTS

[GRAPHIC MISSING]

DIVERSIFICATION BY INDUSTRY AS OF DECEMBER 31, 2010

 
 
Customer Industry Description   Total
AGRICULTURAL SERVICES     0.96 % 
AIR TRANSPORTATION     3.22 % 
APPAREL MANUFACTURING     0.35 % 
APPLIANCES AND TOOL     1.12 % 
BUSINESS SERVICES     1.44 % 
CHEMICALS AND ALLIED PRODUCTS     2.44 % 
COAL MINING     13.05 % 
ELECTRIC/GAS/SANITARY SERVICES     0.19 % 
ELECTRONIC/OTHER ELECTRIC EQUP     0.56 % 
FOOD AND KINDRED PRODUCTS     3.22 % 
HEALTH SERVICES     3.49 % 
HEAVY CONSTRUCTION, EX. BUILDING     1.06 % 
INDUSTRIAL MACHINERY/EQUIPMENT     2.04 % 
INSTRUMENTS & RELATED PRODUCTS     0.79 % 
LUMBER AND WOOD PRODUCTS     3.49 % 
METAL MINING     0.31 % 
MISC MANUFACTURING INDUSTRIES     3.44 % 
MISC RETAIL     2.35 % 
MUNICIPALITY     0.28%  

 
 
Customer Industry Description   Total
NONMETALLIC MINERALS, EXPT. FUEL     1.06 % 
OIL AND GAS EXTRACTION     2.83 % 
PAPER AND ALLIED PRODUCTS     4.13 % 
PETROLEUM AND COAL PRODUCTS     0.75 % 
PRIMARY METAL INDUSTRIES     0.85 % 
RAILROAD TRANSPORTATION     16.05 % 
RESEARCH DEVELOPMENT & TESTING SERVICES     0.43 % 
RUBBER/MISC PLASTICS PRODUCTS     1.38 % 
TRANSPORTATION EQUIPMENT     2.28 % 
TRANSPORTATION SERVICES     5.87 % 
UTILITIES/GAS     0.45 % 
WASTE RECYCLING     0.10 % 
WATER TRANSPORTATION     10.88 % 
WHOLESALE TRADE-DURABLE GOODS     2.02 % 
WHOLESALE TRADE-NONDURABLE GOODS     7.12 % 
Grand Total      100.00 % 

45


 
 

TABLE OF CONTENTS

[GRAPHIC MISSING]

DIVERSIFICATION BY LOCATION AS OF DECEMBER 31, 2010

 
 
Adjusted Equip Location   Total
AL     3.91 % 
AR     1.93 % 
CA     3.43 % 
CT     1.04 % 
FL     1.25 % 
GA     0.42 % 
IA     2.45 % 
IL     0.74 % 
IN     5.48 % 
KS     0.95 % 
KY     0.68 % 
LA     0.67 % 
MD     0.03 % 
ME     0.93%  

 
 
Adjusted Equip Location   Total
MI     1.18 % 
MN     0.79 % 
MO     0.18 % 
MS     0.19 % 
NC     0.05 % 
NE     0.38 % 
NH     2.23 % 
NM     0.01 % 
NY     0.67 % 
OH     0.96 % 
OK     0.51 % 
OR     0.55 % 
PA     2.47 % 
SC     2.50%  

 
 
Adjusted Equip Location   Total
SD     0.01 % 
TX     8.13 % 
UT     0.20 % 
VA     0.52 % 
VT     0.81 % 
WA     0.33 % 
WI     2.09 % 
WV     0.14 % 
WY     7.24 % 
US-INTERSTATE     37.77 % 
INTERNATIONAL     6.18 % 
Grand Total      100.00 % 

46


 
 

TABLE OF CONTENTS

The charts depicted below further summarize diversification of equipment types of prior ATEL public Fund investments and compare the concentration of equipment types in the portfolios of the last nine ATEL public equipment leasing programs to the concentration of equipment types in total market leasing volume as reported in the 2010 Survey of Equipment Finance Activity Report published by the Equipment Leasing and Finance Association.

[GRAPHIC MISSING]

  

[GRAPHIC MISSING]

47


 
 

TABLE OF CONTENTS

Diversification Objectives

The Fund’s objective will be to diversify its portfolio with respect to equipment type, industry sector, geographic location and asset class, as has been the objective of prior ATEL sponsored programs for which portfolio diversification data are set forth above. The Fund’s diversification objective is illustrated by the following chart:

[GRAPHIC MISSING]

Diversification of an investor’s own investment portfolio across several asset classes can reduce overall investment portfolio risk in the same manner as may be accomplished by the prior ATEL Funds with respect to their Portfolio Assets as they diversify their portfolios with respect to equipment type, industry sector, geographic location and asset class. Ibbotson Associates, Inc. has published the following graph representing reduction of investment portfolio risk, measured by standard deviation, based on the number of randomly selected assets in a portfolio. Note that this chart does not illustrate any specific portfolio performance, only the risk as a statistical probability measured by standard deviation when the number of randomly selected assets in a portfolio is increased.

[GRAPHIC MISSING]

An investor’s ability to achieve portfolio diversification objectives can also be enhanced by including investments in markets that are not expected to be correlated with one another. A diversification of investments into multiple markets can be expected to reduce the volatility of the investor’s portfolio as a whole. So, for example, investors often invest in both stocks and bonds in order to reduce their overall

48


 
 

TABLE OF CONTENTS

investment portfolio volatility. As the markets for capital equipment and leasing investments are not typically correlated with the stock or bond markets, adding an equipment leasing investment may help an investor achieve market diversification, and thereby assist in reducing the investor’s overall investment portfolio volatility. The S&P 500 stock index for the five years ending in July 2011 is set forth in the graph below. While investments in stocks may provide many potential benefits to an investment portfolio, including ready liquidity and potential capital appreciation, the portion of an investment portfolio represented by stocks may be expected to experience market fluctuations that are not correlated to the equipment and leasing markets.

[GRAPHIC MISSING]

Furthermore, many investment professionals believe asset allocation is one of the most important factors in determining the performance of an investor’s investment portfolio. The following graphic illustrates the results of one study of investment portfolio performance.

[GRAPHIC MISSING]

Borrowing Policies

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

49


 
 

TABLE OF CONTENTS

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 finance its equipment portfolio, regardless of the amount of equity capital raised from the sale of Units. While the Manager maintains short-term lines of credit, there can be no assurance that such short-term credit or permanent financing will be available to the Fund in the amounts desired or on terms considered reasonable by the Manager at the time the Fund seeks to finance a specific acquisition.

Financing for the Fund may consist of both recourse and non-recourse debt. Non-recourse borrowing, in the context of the type of business to be conducted by the Fund, generally means that the lender providing the funds would only be able to look to the equipment purchased with such loan proceeds and the proceeds derived from the leasing or reselling of such equipment as security. A non-recourse lender would nevertheless typically have recourse to a borrower’s other assets for claims relating to breach of certain representations, warranties or covenants in the loan agreements, such as warranties as to genuineness of the transaction parties’ signatures, as to the genuineness of the lease chattel paper or the transaction as a whole, or as to the registrant’s good title to or perfected interest in the secured collateral, as well as similar representations, warranties and covenants typically provided by non-recourse borrowers and customary in the equipment finance industry, and are viewed by the such industry as being consistent with a non-recourse discount financing obligation.

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 may participate with other affiliated programs and the Manager in a common recourse debt facility to provide temporary or short-term bridge financing of transactions approved for acquisition by the Fund and such Affiliates, as further described below. In such instances, lease transactions may be held in the name of an Affiliate of ATEL for convenience, notwithstanding that the transaction has been approved for one or more participants. The ultimate acquisition of the financed transaction will depend on many factors, including without limitation, the Fund’s available cash, portfolio makeup and investment objectives at the time of closing.

The 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 the Fund’s borrowings, reducing its yield on leveraged investments or reducing the desirability of leverage. Increases or decreases in prevailing interest rates would generally result in corresponding increases or decreases in available lease rates on new leases. Except as discussed below, interest rate fluctuations would generally have little or no effect on existing leases, as rates on such leases would generally be fixed without any adjustment related to interest rates.

In the event that the Fund does not have sufficient funds to purchase an item of equipment at the time it is acquired, the Fund may borrow from third parties on a short-term basis, and repay the loans out of the proceeds from the subsequent sale of Units. Any short-term loans may be unsecured or secured by the assets acquired and/or other assets of the Fund. The Fund short-term bridge financing may bear a variable interest rate, but borrowings under such a credit facility are expected to involve limited risk to the Fund of increased interest rates due to the limited term of such short-term financing.

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 non-recourse 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. The Manager expects that an asset securitization financing would involve borrowing at a variable interest rate based on an established reference rate, such as a bank’s prime or reference rate, LIBOR/Eurocurrency rates, U.S. treasury notes or bills, or interest rate swaps. The Manager would seek to limit the Fund’s exposure to increases in the interest rate by engaging in interest rate swap or hedging transactions that would effectively fix the interest rate obligation of the Fund. While market conditions may limit the availability of this form of financing, the Fund may seek to enter into such financing if it does become available on desirable terms during the course of the Fund’s operations.

50


 
 

TABLE OF CONTENTS

Other than short-term bridge financing or asset securitization financing, the Manager will seek to avoid borrowing under terms which provide for a rate of interest that may vary with the prime or reference rate of interest of a lender. The Manager will attempt to limit any other variable interest rate borrowing to those instances in which the lessee agrees to bear the cost of any increase in the interest rate, or where the effects of the variable interest rate have been otherwise mitigated (such as by entering into an interest rate swap or hedging transaction). If such debt is incurred without a corresponding variable lease payment obligation, swap or hedge transaction or other means of interest rate fluctuation mitigation, 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 that the Fund may be charged under such circumstances cannot be predicted. Except in connection with asset securitization financing, fixed interest rate financing has historically been readily available to the Manager’s prior programs.

As noted above, the Fund may participate through the Manager and certain of its affiliated programs and affiliates in a revolving master credit facility provided by a syndicate of financial institutions for the short-term bridge financing of the acquisition of lease transactions. Any such credit facility would likely be comprised of, among others, an acquisition sub-facility to finance the purchase of specific equipment by a specific ATEL program, and a warehouse sub-facility, used by ATEL to acquire and hold equipment pending determination of the appropriate ATEL program or programs to which the equipment will be allocated. As a precondition to the credit facility, the lending syndicate providing the credit facility will likely insist on a blanket lien on all of the Fund’s assets as collateral for any and all borrowings by the Fund under the acquisition facility, and on a pro-rata basis under the warehouse facility.

Lease transactions financed through a warehouse sub-facility would remain on that facility only until the transactions are allocated to the Fund or another ATEL program for purchase or are otherwise disposed by the Manager or its affiliate. When a warehoused lease transaction is allocated to the Fund or ATEL program for purchase, the purchaser would repay the warehouse sub-facility debt associated with the lease transaction and the lease transaction will then be removed from the warehouse facility collateral pool, and ownership of the lease transaction and any debt obligation associated with the lease transaction will be assumed solely by the purchasing entity.

A master credit facility may include certain financial and non-financial covenants applicable to each borrower, including the Fund. If a breach of any material term of such a credit facility covenant should occur, the lenders could then, at their option, increase borrowing rates, accelerate the obligations in advance of their stated maturities, terminate the facility, and exercise rights of collection available to them under the express terms of the credit facility, or by operation of law.

The Fund may also participate in an asset securitization facility such as a receivables funding program with a receivables financing lender that would issue commercial paper to be secured by a pool of the Fund’s leased assets, and rated by major credit rating agency, such as Standard & Poor’s or Moody’s Investors Services. Under such a receivable financing program, the lender would typically hold a blanket lien against all of the Fund’s assets or against a specified pool of assets, and possibly a subordinated or shared position against the remaining assets of the Fund. A receivables funding program may be used by the Fund if it would provide a more cost effective means of obtaining debt financing than available for individual non-recourse debt transactions. Such a receivable funding program may provide for borrowing at a variable interest rate, as discussed above.

In conjunction with a receivables funding program, the lender under the receivables funding program may require an inter-creditor agreement with the lenders under any master credit facility of the type described above with respect to the sharing of any collateral pools of the Fund’s assets. The provisions of any such inter-creditor agreement would likely include cross-default provisions and acceleration provisions requiring payment before stated maturity in a default situation.

In the case of any Fund borrowing or any credit facility in which the Fund participates, the lender would not be entitled to look to the individual assets of any investor for repayment of such loans. If, under tax

51


 
 

TABLE OF CONTENTS

principles, it is determined that the Manager or one of its Affiliates bears the economic risk of loss for such recourse debt, then the recourse debt will be allocated to the Manager or its Affiliate for tax basis purposes and all deductions attributable to the recourse debt will be allocated to the Manager or its Affiliate.

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

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

Joint Venture Investments

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

(i) the joint venture agreement does not authorize or require the Fund to do anything with respect to the portfolio investments that the Fund, or the Manager, could not do directly because of the policies set forth in the Operating Agreement, and

(ii) the transaction does not result in payment of duplicate fees.

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

(i) the Affiliate will be required to have substantially identical investment objectives to those of the Fund;

(ii) there are no duplicate 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 Manager or Affiliates from commitments entered into under Section 15.2.15 of the Operating Agreement or similar provisions governing the Affiliate; and

(vi) the Fund has a right of first refusal should a co-venturer decide to sell the portfolio investments owned by the venture.

Because both the Fund and its Affiliate will be required to approve decisions pertaining to the portfolio investments, a management impasse may develop. If one party, but not the other, wishes to sell the portfolio investments, the party not desiring to sell will have a right of first refusal to purchase the other party’s interest in the portfolio investments. 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.

52


 
 

TABLE OF CONTENTS

General Restrictions

The Fund will not: (i) issue any Units after the offering terminates or issue Units in exchange for property, (ii) make loans to the Manager or its Affiliates, (iii) underwrite or, except as expressly described herein, invest in 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 Manager or its Affiliates, or (vi) except as expressly provided herein, grant the Manager or any of its Affiliates any rebates or give-ups or participate in any reciprocal business arrangements with such parties that would circumvent the restrictions in the Operating Agreement, including the restrictions applicable to transactions with Affiliates.

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

Changes in Investment Objectives and Policies

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

53


 
 

TABLE OF CONTENTS

CONFLICTS OF INTEREST

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

The Manager engages in other, potentially competing, activities.  The Manager serves in the capacity of manager or general partner in other public programs engaged in the equipment leasing business, and it and its Affiliates also engage in the business of purchasing and selling equipment and arranging leases for their own account and for the accounts of others. The Manager will have conflicts of interest in allocating management time, services and functions among the prior programs, the Fund, any future investment programs and activities for its own account. The Manager believes that it has or can employ sufficient staff, equipment and other resources to discharge fully their responsibilities to each such activity. This conflict results in a potential benefit to the Manager and its Affiliates by permitting them to make more efficient use of their personnel and resources, but may impose a burden on them by requiring the Manager and its Affiliates to maintain sufficient staff to discharge their responsibilities to all parties.

Competition for Investments.  The Manager will have conflicts of interest to the extent that its prior or future investment programs may compete with the Fund for opportunities in the acquisition and leasing of investment portfolio assets. Prior programs currently in operation and expected to acquire additional equipment leasing and growth capital investments include: ATEL Capital Equipment Fund X, LLC; ATEL Capital Equipment Fund XI, LLC; ATEL 12, LLC; and ATEL 14, LLC; and, with respect to growth capital investments only, ATEL Growth Capital Fund, LLC; ATEL Growth Capital Fund II, LLC; ATEL Growth Capital Fund III, LLC; ATEL Growth Capital Fund IV, LLC; ATEL Growth Capital Fund V, LLC; and ATEL Growth Capital Fund VI, LLC. These prior programs have investment objectives similar to those of the Fund and may have funds available for investment in additional transactions at a time when the Fund is also active in seeking to invest or reinvest in such transactions. Certain of the investments owned and to be acquired by these and other prior programs and the Fund may be similar and may be purchased from the same sellers or leased to the same lessees. Furthermore, the Manager and its Affiliates may in the future form additional investment programs having similar objectives, and accordingly, the Fund may be in competition with any such future programs formed by the Manager.

Any time two or more investment programs (including the Fund) affiliated with the Manager have capital available to acquire and lease the same types of investments, conflicts of interest may arise as to which of the programs should proceed to acquire available transactions. In such situations, the Manager will analyze the assets already purchased by, and investment objectives of, each program involved, and will determine which program will purchase the new transaction 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 investment 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 Manager determines that such acquisition would be equally suitable for more than one program, then the Manager will purchase the transaction 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 transactions allocated first to the program that has had funds available for investment the longest. This potential conflict may represent a benefit to the Manager and its Affiliates as the availability of a number of different investment programs may permit the Manager to more aggressively seek leasing transactions which may be suitable for a variety of portfolios. It may also result in difficulty in determining which program will participate in which transactions.

The Manager and Affiliates will receive substantial fees and other compensation.  Fund operations will result in certain compensation to the Manager and its Affiliates. The Manager has absolute discretion in all

54


 
 

TABLE OF CONTENTS

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

In all cases where the Manager or its Affiliate may have a conflict of interest in determining the terms or timing of a transaction by the Fund, the Manager or its Affiliate will exercise its discretion strictly in accordance with its fiduciary duty to the Fund and the Holders. The ability to determine the amount or timing of a transaction could nevertheless be a benefit to the Manager and increase the costs incurred by the Fund.

Agreements are not Arm’s-Length.  Agreements between the Fund and the Manager or any of its Affiliates are not the result of arm’s-length negotiations and performance by the Manager and its Affiliates will not be supervised or enforced at arm’s-length. This is a benefit to the Manager, as it has unilaterally determined the terms of such agreements. It could be adverse to the interests of Unit holders, as they will not have the opportunity to negotiate terms or change terms of such agreements.

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

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

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

55


 
 

TABLE OF CONTENTS

FIDUCIARY DUTY OF THE MANAGER

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

Under California law and subject to certain conditions, a Member may file a lawsuit on behalf of the Fund (a derivative action) to recover damages from a third party or to recover damages resulting from a breach by a Manager of its fiduciary duty. In addition, a Member may sue on behalf of himself and all other Members (a class action) to recover damages for a breach by a Manager of its fiduciary duty, subject to class action procedural rules. This area of the law is complex and rapidly changing, and investors who have questions regarding the duties of a Manager and the remedies available to Members should consult with their counsel. The Operating Agreement does not modify the Manager’s fiduciary duty under California law.

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

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

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

56


 
 

TABLE OF CONTENTS

MANAGEMENT

The Manager

The Manager is ATEL Managing Member, LLC (the “Manager”). The Manager was formed as a Nevada limited liability company in 2009 under the name “ATEL Associates 14, LLC.” The sole member of the Manager is ATEL Financial Services, LLC (“AFS”), a subsidiary of its sole member, ATEL Capital Group (“ACG”). The ATEL group of companies was founded upon the incorporation of the original leasing business in 1977, and the affiliated group was reorganized under the parent company, ATEL Capital Group, in 2001. ATEL Capital Group, the Manager and their Affiliates are sometimes collectively referred to below as “ATEL” for convenience. ATEL’s and the Manager’s offices are located at 600 California Street, 6th Floor, San Francisco, California 94108, and its telephone numbers are 415/989-8800 and 800/543-ATEL. ATEL’s officers have extensive experience with transactions involving the acquisition, leasing, financing and disposition of equipment, as more fully described below and in Exhibit A hereto. The Fund itself will have no employees, but will use the services of ATEL and its Affiliates and their employees to fulfill the Fund’s administrative and operating needs. ATEL Managing Member, LLC is the Fund’s initial Member and, together with its parent entities, AFS and ACG, founded and organized the Fund.

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, (iii) consulting on the pricing and structuring of equipment lease transactions for banks, leasing companies and corporations, and (iv) originating financing transactions for, and an investing in, venture start-up and “growth capital” companies.

ATEL Financial Services, LLC (“AFS”) is a subsidiary of ATEL Capital Group (“ACG”), its sole member. ATEL Leasing Corporation (“ALC”) originates “true” lease transactions primarily with Fortune 500 companies. ATEL Ventures, Inc. (“AVI”) is ATEL’s originating affiliate for venture and growth capital transactions. Each of AFS, ALC, and AVI is a wholly-owned subsidiary of ACG. ATEL Equipment (“AEC”) is a division of ALC, and ATEL Investor Services (“AIS”) is a division of AFS. ALC, AEC, AFS, AIS and AVI will perform services for the Fund under the direction of the Manager. ALC and AVI will perform acquisition services for the Fund; AEC will perform equipment management and asset disposition services; and AFS and AIS will perform partnership management, administration and investor services. Finally, the Dealer Manager, ATEL Securities Corporation (“ASC”), is a wholly-owned subsidiary of AFS. ACG is responsible for all aspects of the performance by its affiliates of services necessary to the operation of the Fund and for the facilities, personnel, equipment, financial and other resources used by its affiliates in the performance of those services.

The officers and directors of ACG, AFS and their Affiliates are as follows:

 
Name   Positions
Dean L. Cash   Chairman of the Board, President and Chief Executive Officer — the Manager, ACG, AFS, AVI and AEC; Director, President and Chief Executive Officer of ALC, AIS and ASC
Paritosh K. Choksi   Director, Executive Vice President, Chief Financial Officer and Chief Operating Officer — the Manager, ACG, AFS, ALC, AIS, AVI and AEC
Vasco H. Morais   Executive Vice President and General Counsel — ACG, AFS, ALC, AIS, AVI and AEC
Russell H. Wilder   Executive Vice President — ALC; Chief Credit Officer — ACG, AFS, ALC, AVI and AEC
William Bullock   Senior Vice President/National Sales Manager — ALC
Steven R. Rea   Executive Vice President — AVI
Thomas P. Monroe, Jr.   Senior Vice President — AEC
Samuel Schussler   Vice President and Chief Accounting Officer — the Manager, ACG, AFS, ALC, AEC, AVI and AIS
James E. Ryan   Executive Vice President — ASC and AIS
John W. Hart   Executive Vice President — National Sales Manager — ASC

57


 
 

TABLE OF CONTENTS

Dean L. Cash, age 60, became chairman, president and chief executive officer of ATEL in April 2001. Mr. Cash joined ATEL as director of marketing in 1980 and served as 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 FINRA.

Paritosh K. Choksi, age 58, joined ATEL in 1999 as a director, senior vice president and its chief financial officer, and has been its chief financial officer, executive vice president and chief operating officer since April 2001. Prior to joining ATEL, Mr. Choksi was chief financial officer at Wink Communications Inc. from 1997 to 1999. From 1977 to 1997, Mr. Choksi was with Phoenix American Incorporated, a financial services and management company, where he held various positions during his tenure, and was senior vice president, chief financial officer and director when he left the company. Mr. Choksi was involved in all corporate matters at Phoenix and was responsible for Phoenix’s capital market needs. He also served on the credit committee overseeing all corporate investments, including its growth capital lease portfolio. Mr. Choksi was part of the executive management team which caused Phoenix’s portfolio to grow from $50 million in assets to over $2 billion. Mr. Choksi has served as a member of the board of directors of Syntel, a public company, since 1997. Mr. Choksi received a Bachelor of Technology degree in mechanical engineering from the Indian Institute of Technology, Bombay in 1975; and an M.B.A. degree from the University of California, Berkeley in 1977.

Vasco H. Morais, age 53, joined ATEL in 1989 as general counsel. Mr. Morais manages ATEL’s legal department, which provides legal and contractual support in the negotiating, drafting, documenting, reviewing and funding of lease transactions. In addition, Mr. Morais advises on general corporate law matters, and assisting on securities law issues. From 1986 to 1989, Mr. Morais was employed by the BankAmeriLease Companies, Bank of America’s equipment leasing subsidiaries, providing in-house legal support on the documentation of tax-oriented and non-tax oriented direct and leveraged lease transactions, vendor leasing programs and general corporate matters. Prior to the BankAmeriLease Companies, Mr. Morais was with the Consolidated Capital Companies in the Corporate and Securities Legal Department involved in drafting and reviewing contracts, advising on corporate law matters and securities law issues. Mr. Morais received a B.A. degree in 1982 from the University of California in Berkeley; a J.D. degree in 1986 from Golden Gate University Law School; and an M.B.A. (Finance) degree from Golden Gate University in 1997. Mr. Morais, an active member of the State Bar of California since 1986, served as co-chair of the Uniform Commercial Code Committee of the Business Law Section of the State Bar of California and was inducted as a fellow of the American College of Commercial Finance Lawyers in 2010.

Russell H. Wilder, age 57, joined ATEL in 1992 as vice president of ATEL Business Credit, Inc. and in 1995 became its senior vice president of operations. He has also served as chief credit officer to ATEL Financial Corporation since October 1992. From 1990 to 1992 Mr. Wilder was a personal property broker specializing in equipment leasing and financing and an outside contractor in the areas of credit and collections. Prior to 1990, Mr. Wilder had numerous assignments in the credit and operations departments for small, mid-size and big ticket lease transactions with Westinghouse Credit, Wells Fargo Leasing and Fireside Thrift Co., a Teledyne subsidiary. Mr. Wilder holds a BS 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 United Association of Equipment Lessors.

William Bullock, age 47, joined ATEL in February 2006 as senior vice president to manage the Direct Sales and Capital Markets divisions of ATEL Leasing Corporation. Mr. Bullock began his leasing career in asset management with Equitable Life Leasing Corporation in 1987 followed by a tenure at Boeing Capital Corporation from 1989 to 1991 before joining ATEL in 1991 to create the asset management department. After 12 years within the asset management field, Mr. Bullock changed technical disciplines and moved to a

58


 
 

TABLE OF CONTENTS

sales position at Mellon US Leasing in 1999. Mr. Bullock was the recipient of Mellon’s National Sales Force “MVP” Award in 2000 in recognition as the top sales person within the entire company. After Mellon was sold to GE Capital and liquidated in 2001, Mr. Bullock joined Wells Fargo Equipment Finance to help establish an equipment finance program with Wells’ commercial loan officers and business bankers. Mr. Bullock joined KeyCorp in the Key Equipment Finance division in October 2004 and was responsible for originating debt, tax loans and leases until his departure in February 2006 to re-join ATEL. Mr. Bullock is currently the Chairman, of the 4,600 member Independent Middle Market Business Council of the ELFA. Mr. Bullock was a member of the ELFA’s Equipment Management Committee, has received President’s Club recognition multiple times, has authored several articles for financial and leasing publications and has been a featured speaker at many industry events. Mr. Bullock received a B.S. degree in Finance from San Diego State University in 1987.

Steven R. Rea, age 43, joined ATEL in 2000 and serves as executive vice president of ATEL Ventures, Inc. Prior to joining ATEL, Mr. Rea was employed at Imperial Bank (now Comerica) from 1999 to 2000, where he managed the venture leasing department for the emerging growth division. From 1997 to 1999, Mr. Rea was employed at LINC Capital, Inc., a specialty finance and venture leasing company, where he was responsible for originating, structuring and negotiating equipment leasing and other asset-backed financing for emerging growth companies. From 1994 to 1997, Mr. Rea was an account executive and later vice president of business development at Interlease Group Ltd., a diversified financial services company, specializing in financings for venture backed companies. From 1992 to 1994, Mr. Rea was with Automatic Data Processing as a senior district sales manager. Mr. Rea received a B.S. degree in finance from San Diego State University in 1991.

Thomas P. Monroe, Jr., age 47, joined ATEL in 1998 as a portfolio manager in the asset management department. In July 2002, Mr. Monroe was named vice president and in 2004 senior vice president of ATEL Equipment Corporation. In this function, Mr. Monroe manages ATEL’s asset management department, which is responsible for residual valuation, due diligence, equipment inspections, negotiating renewal and purchase options and remarketing offlease equipment. Prior to joining ATEL, Mr. Monroe was employed by GE Capital for six years as a portfolio manager in the computer leasing division. Mr. Monroe received a B.A. degree in Psychology from the University of California, Berkeley in 1987 and an M.B.A. degree with a concentration in International Marketing from the University of Notre Dame in 1990. Mr. Monroe is a candidate member of the American Society of Appraisers and has successfully completed four course levels required for the Machinery and Equipment Valuation specialty.

Samuel Schussler, age 58, was appointed chief accounting officer of ATEL Capital Group and its affiliates in August 2006. Mr. Schussler served as senior vice president — finance for Velocity Express Corporation, Westport, Connecticut, from 2004 through March of 2006, and was employed as an independent financial consultant from March 2006 through August 2006. From 2001 through 2003, he served as chief operating officer and chief financial officer of New Century Packaging LLC in Scottsdale, Arizona. From 1999 through 2001, Mr. Schussler served as vice president — finance and chief financial officer of Biogenix Laboratories, Inc. in San Ramon, California. Mr. Schussler received his B.B.A. in Accounting Practice from Pace University  — New York in 1974, and his M.B.A. in Finance from the New York University Graduate School of Business Administration in 1977. He was granted licensure as a C.P.A. in New York and in Arizona.

James E. Ryan, age 56, serves as senior vice president of ATEL Capital Group and executive vice president of ATEL Securities Corporation. Mr. Ryan joined ATEL in 2007 and assumed responsibility as vice president of ATEL Capital Group for strategic initiatives. He is currently also responsible for ATEL's Investor Services and Compliance Group. From 2003 to 2007, Mr. Ryan participated in a number of business ventures including being an authorized dealer for the Harley-Davidson Motor Company in the San Francisco Bay Area. Starting in 1996, and continuing through 2002, Mr. Ryan served as Ernst & Young's client coordinating partner for the ATEL Capital Group, culminating a public accounting career that began in 1982. Mr. Ryan was an adjunct professor teaching federal corporate taxation for Golden Gate University's Masters in Tax program from 1990 to 2000. He received his Bachelor of Science degree from Santa Clara University (1977) and an MBA from Golden Gate University (1981). He is licensed as a CPA in California.

59


 
 

TABLE OF CONTENTS

John W. Hart, age 61, has over 34 years of experience in the securities industry as a sales leader and manager. Mr. Hart has served as Executive Vice President and National Sales Manager since 2008 at ATEL Securities Corporation. From 2006 to 2008, Mr. Hart served as Vice President Marketing for JP Morgan and at Eaton Vance Investment Managers. Prior to 2006, Mr. Hart spent thirteen years (1993 – 2006) at Berkeley Capital Management where he started as a Senior Vice President of the Western Region and in 1997 was promoted to National Sales Manager and, then to President in 2002. He has been a frequent keynote speaker at national wire house and regional broker-dealer training functions. Mr. Hart graduated from the University of Oregon with a Bachelor of Science in 1972, and received his Juris Doctorate from California Western School of Law in 1976. He is a Certified Investment Consultant, Certified Investment Specialist and Accredited Investment Fiduciary.

Management of the Fund’s Operations and Administration

ATEL Leasing Corporation (“ALC”) and ATEL Ventures, Inc. have the primary responsibility for selecting and negotiating potential portfolio acquisitions, financing transactions and leases, subject to the Manager’s supervision and approval. The Manager’s Investment Committee will approve any Fund investment before it is consummated. The Investment Committee with respect to all portfolio investments currently consists of Dean L. Cash, Paritosh K. Choksi, and Russell H. Wilder.

ATEL Equipment (“AEC”), a division of ALC, will manage the Fund’s portfolio of equipment, subject to the Manager’s supervision. Management services to be provided by AEC include re-leasing services upon termination of leases, inspection of equipment, acting as a liaison between lessees and vendors, general supervision of lessees and vendors to ensure that the equipment is being properly used and operated by lessees, arranging for maintenance and related services with respect to the equipment and the supervision, monitoring and review of others performing services for the Fund. Third parties who are not Affiliates of the Manager may participate in managing or may separately manage equipment for which they will receive a fee from the Fund which is in addition to the fees paid to the Manager. AEC will be responsible for supervision, monitoring and review of all such third party management services.

AFS will be primarily responsible for Fund administration and reporting. AFS will be responsible for the design and operation of the Fund’s disclosure controls and procedures to comply with federal securities law reporting requirements, and will be responsible for performing periodic evaluations of these controls and procedures.

Management Compensation

The Fund does not pay the officers or directors of the Manager or its Affiliates any compensation. However, the Fund will pay the Manager and its Affiliates the fees and other compensation described under “Management Compensation” above in this Prospectus. Furthermore, the Fund will reimburse the Manager and its Affiliates for certain costs incurred on behalf of the Fund, including the cost of certain personnel (excluding controlling persons of the Manager) who will be engaged by the Manager to perform administrative, accounting, secretarial, transfer and other services required by the Fund. Such individuals may also perform similar services for the Manager, its Affiliates and other investment programs to be formed in the future.

Changes in Management

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

If the Manager is removed and was the sole remaining Manager, the Fund will be dissolved unless a majority-in-interest of the Members elect to continue the Fund business. In the event of such election, the Fund business may be continued if the Members making such election, within 90 days after the removal of the Manager, elect a successor Manager and continue the Fund’s business on the same terms and conditions,

60


 
 

TABLE OF CONTENTS

but with a name which does not include or in any way refer to the name of the removed Manager. If the business of the Fund is continued, the removed Manager is entitled to receive from the Fund the then present fair market value of its interest in the Fund, determined by agreement of the removed Manager and the remaining or new Managers, or, if they cannot agree, by arbitration. The Fund will pay to the removed Manager an amount equal to the then present fair market value of the interest so determined. If the removed Manager has voluntarily withdrawn from the Fund, payment shall be in the form of a non-interest bearing unsecured promissory note with principal payable, if at all, out of revenues and distributions the Manager would otherwise have received under the Operating Agreement had such Manager not withdrawn. If the Manager has been removed 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. See Section 17 of the Operating Agreement attached as Exhibit B to this Prospectus.

The Dealer Manager

ATEL Securities Corporation (the “Dealer Manager”) was organized in October 1985 principally for the purpose of assisting in the distribution of securities of programs to be sponsored by ATEL. The Dealer Manager became a member of the National Association of Securities Dealers, Inc. (now the Financial Industry Regulatory Authority or “FINRA”) in February 1986. The Dealer Manager is a wholly-owned subsidiary of ATEL Financial Services, LLC. The Dealer Manager will provide certain wholesaling services to the Fund in connection with the distribution of the Units offered hereby.

61


 
 

TABLE OF CONTENTS

PRIOR PERFORMANCE SUMMARY

ATEL Managing Member, LLC, the Manager of the Fund, and its affiliates have extensive experience in the equipment leasing industry, including: (i) originating and financing leveraged and single investor lease transactions for corporate investors, (ii) acting as a broker / packager by arranging equity and debt participants for equipment leasing transactions originated by other companies, (iii) consulting on the pricing and structuring of equipment lease transactions for banks, leasing companies and corporations, (iv) organizing and offering individual ownership and limited partnership investment leasing programs and (v) supervising and arranging for the supervision of equipment management and marketing on leasing transactions.

In addition to the Fund, the Manager and / or its affiliates has sponsored thirteen prior public equipment leasing and financing programs (the “Prior Programs”) and seven private equipment leasing and financing programs.

The first Prior Program, ATEL Cash Distribution Fund (“ACDF”), commenced a public offering of up to $10,000,000 of its equity interests on March 11, 1986. ACDF terminated its offering on December 18, 1987 after raising a total of $10,000,000 in offering proceeds from a total of approximately 1,000 investors, all of which proceeds were committed to equipment acquisitions, organization and offering expenses and capital reserves. ACDF acquired a variety of types of equipment with a total purchase cost of approximately $11,133,679. All of such equipment had been sold and the partnership was terminated as of December 31, 1997.

The second Prior Program, ATEL Cash Distribution Fund II (“ACDF II”), commenced a public offering of up to $25,000,000 (with an option to increase the offering to $35,000,000) of its equity interests on January 4, 1988. ACDF II terminated its offering on January 3, 1990 after raising a total of $35,000,000 in offering proceeds from a total of approximately 3,100 investors, all of which proceeds were committed to equipment acquisitions, organization and offering expenses and capital reserves. ACDF II acquired a variety of types of equipment with a total purchase cost of approximately $52,270,536. All of such equipment had been sold and the partnership was terminated as of December 31, 1998.

The third Prior Program, ATEL Cash Distribution Fund III (“ACDF III”), commenced a public offering of up to $50,000,000 (with an option to increase the offering to $75,000,000) of its equity interests on January 4, 1990. ACDF III terminated its offering on January 3, 1992 after raising a total of $73,855,840 in offering proceeds from a total of approximately 4,822 investors, all of which proceeds were committed to equipment acquisitions, estimated organization and offering expenses and capital reserves. ACDF III acquired a variety of types of equipment with a total purchase cost of approximately $99,629,942. All of such equipment had been sold and the partnership was terminated as of December 31, 2000.

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 were committed to equipment acquisitions, organization and offering expenses and capital reserves. ACDF IV acquired a variety of types of equipment with a total purchase cost of $108,734,880. All of such equipment had been sold as of December 31, 2004.

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 on February 22, 1993. ACDF V terminated its offering on November 15, 1994. As of that date, $125,000,000 of offering proceeds had been received from approximately 7,217 investors. All of the proceeds were committed to equipment acquisitions, organization and offering expenses and capital reserves. ACDF V acquired a variety of types of equipment with a total purchase cost of $187,595,762 as of March 31, 2011. Of such equipment, items representing an original purchase cost of $163,704,020 had been sold as of March 31, 2011. ACDF V originally anticipated that it would liquidate approximately ten to eleven years following the November 1994 termination of its offering. Due to a variety of market and operating conditions it has experienced a longer than anticipated liquidation stage.

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 on November 23, 1994. ACDF VI terminated its

62


 
 

TABLE OF CONTENTS

offering on November 22, 1996. As of that date, $125,000,000 of offering proceeds had been received from approximately 6,401 investors. All of the proceeds were committed to equipment acquisitions, organization and offering expenses and capital reserves. ACDF VI acquired a variety of types of equipment with a total purchase cost of $208,320,158 as of March 31, 2011. Of such equipment, items representing an original purchase cost of $184,307,562 had been sold as of March 31, 2011. ACDF VI originally anticipated that it would liquidate approximately ten to eleven years following the November 1996 termination of its offering. Due to a variety of market and operating conditions it has experienced a longer than anticipated liquidation stage.

The seventh Prior Program, ATEL Capital Equipment Fund VII (“ACEF VII”), commenced a public offering of up to $150,000,000 of its limited partnership interests on November 29, 1996. ACEF VII terminated its offering on November 29, 1998. As of that date, $150,000,000 of offering proceeds had been received from approximately 5,386 investors. All of the proceeds were committed to equipment acquisitions, organization and offering expenses and capital reserves. ACEF VII had acquired a variety of types of equipment with a total purchase cost of $306,123,226 as of March 31, 2011. Of such equipment, items representing an original purchase cost of $244,188,290 had been sold as of March 31, 2011. ACDF VII originally anticipated that it would liquidate approximately ten to eleven years following the November 1998 termination of its offering. Due to a variety of market and operating conditions it has experienced a longer than anticipated liquidation stage.

The eighth Prior Program, ATEL Capital Equipment Fund VIII (“ACEF VIII”), commenced a public offering of up to $150,000,000 of its limited liability company member interests on December 7, 1998. ACEF VIII terminated its offering on November 30, 2000. As of that date, $135,701,380 of offering proceeds had been received from approximately 3,625 investors. All of the proceeds were committed to equipment acquisitions, organization and offering expenses and capital reserves. ACEF VIII had acquired a variety of types of equipment with a total purchase cost of $248,513,253 as of March 31, 2011. Of such equipment, items representing an original purchase cost of approximately $205,481,053 had been sold as of March 31, 2011.

The ninth Prior Program, ATEL Capital Equipment Fund IX (“ACEF IX”), commenced a public offering of up to $150,000,000 of its limited liability company member interests on January 16, 2001. ACEF IX terminated its offering as of January 15, 2003. As of that date, $120,652,160 of offering proceeds had been received from approximately 3,238 investors. All of the proceeds were committed to equipment acquisitions, organization and offering expenses and capital reserves. ACEF IX had acquired a variety of types of equipment and invested in notes receivable with a total cost of $192,299,637 as of March 31, 2011. Of such equipment, items representing an original purchase cost of approximately $75,487,916 had been sold or disposed as of March 31, 2011.

The tenth prior public program, ATEL Capital Equipment Fund X (“ACEF X”), commenced a public offering of up to $150,000,000 of its limited liability company member interests on March 12, 2003. ACEF X terminated its offering on March 11, 2005. As of that date, $140,192,575 of offering proceeds had been received from approximately 3,228 investors. All of the proceeds were committed to equipment acquisitions, organization and offering expenses, working capital and capital reserves. ACEF X had acquired a variety of types of equipment and invested in notes receivable with a total purchase cost of $205,516,869 as of March 31, 2011. Of such equipment, items representing an original purchase cost of approximately $43,606,028 had been sold or disposed as of March 31, 2011.

The eleventh prior public program, ATEL Capital Equipment Fund XI (“ACEF XI”), commenced a public offering of up to $150,000,000 of its limited liability company member interests on April 11, 2005. The offering was terminated as of April 30, 2006. As of March 31, 2011, $52,311,070 of offering proceeds had been received. All of the proceeds were committed to equipment acquisitions, organization and offering expenses, working capital and capital reserves. ACEF XI had acquired a variety of types of equipment and invested in notes receivable with a total purchase cost of $80,841,156 as of March 31, 2011. Of such equipment, items representing an original purchase cost of approximately $28,463,636 had been sold or disposed as of March 31, 2011.

63


 
 

TABLE OF CONTENTS

The twelfth prior public program, ATEL 12 (“ATEL 12”), commenced a public offering of up to $200,000,000 of its limited liability company member interests on September 26, 2007. The offering was terminated as of September 25, 2009. As of March 31, 2011, $30,021,320 of offering proceeds had been received. All of the proceeds were committed to equipment acquisitions, organization and offering expenses, working capital and capital reserves. ATEL 12 had acquired equipment and invested in notes receivable with a total purchase cost of $26,219,970 as of March 31, 2011. Of such equipment, items representing an original purchase cost of approximately $635,055 had been sold or disposed as of March 31, 2011.

The thirteenth prior public program, ATEL 14 (“ATEL 14”), commenced a public offering of up to $150,000,000 of its limited liability company member interests on October 7, 2009. As of March 31, 2011, $49,113,160 of offering proceeds had been received. All of the proceeds were committed to equipment acquisitions, organization and offering expenses, working capital and capital reserves. ATEL 14 had acquired equipment and invested in notes receivable with a total purchase cost of $22,947,020 as of March 31, 2011. Of such equipment, items representing an original purchase cost of approximately $946,238 had been sold or disposed as of March 31, 2011.

As discussed elsewhere in this Prospectus, fluctuations in demand for equipment may affect the ability of a leasing program to invest and reinvest its capital in a timely manner. Prior programs in their reinvestment stage may seek to acquire additional portfolio investments using leverage. Equipment lessors experienced a more difficult market in which to make suitable investments during recent periods of reduced growth and recession in the U.S. economy as a result of the softening demand for capital equipment during these periods. Delays in investment may have a negative impact on ACEF X, ACEF XI, ATEL 12 and ATEL 14. The Manager believes that it has identified industry segments, lease markets and potential transaction structures that will permit these Prior Programs to pursue their investment objectives.

Each of the Prior Programs has had, as an investment objective, the reinvestment of cash flow after payment of debt service and certain minimum distributions. Reinvestment is intended to increase the size, diversification and return on their equipment portfolios. Adverse economic conditions during 1999 through 2003 affected the timing and terms of remarketing and re-leasing efforts by these Prior Programs. An extended remarketing cycle and lower lease rates have limited the ability of ACDF V, ACDF VI, ACEF VII and ACEF VIII to generate sufficient cash flow to permit significant reinvestment. In the future, adverse conditions in the general economy and equipment demand may also result in delays in leasing, re-leasing and disposition of equipment, and in reduced returns on invested capital. Factors which have in the recent past adversely affected the leasing market include: economic recession resulting in lower levels of capital expenditure by businesses; economic conditions have resulted in more used equipment becoming available on the market in turn resulting in downward pressure on prices and lease rates due to excess inventory; and, finally, the lowest interest rates in forty years have exerted downward pressure on lease rates and resulted in less demand for lease financing. In any event, there can be no assurance as to what future developments may occur in the economy in general or in the demand for equipment and lease financing in particular. These general economic factors and the stages in Prior Programs’ investment and disposition cycles have also affected the rates of distributions by Prior Programs. In particular, during the liquidation stages of Prior Programs, rates of distributions have varied from their operating stages and distributions have in some cases been suspended while a program’s debt is repaid from disposition proceeds before remaining net disposition proceeds are available to be distributed to investors.

As of March 31, 2011, the Prior Programs have acquired and financed equipment with a total purchase cost of approximately $1.7 billion during a period of over 20 years since the date the first Prior Program commenced operations. This single-minded approach has allowed the Prior Programs to avoid the pitfalls of investing in real estate, working capital lines, distressed credits, high-yield bonds and other investment vehicles that did not perform well during the credit dislocation that began in 2007. Aggregate losses from material lessee defaults on these transactions have been approximately $8.3 million, or approximately 0.040% of the assets acquired per annum, substantially less than the amount assumed by ATEL in structuring these portfolios as the losses to be anticipated in the ordinary course of leasing business. There is no identifiable trend in the frequency or amount of lessee defaults experienced by prior programs.

64


 
 

TABLE OF CONTENTS

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.

Other than as described above, none of the Prior Programs has experienced major adverse business developments which the Fund Manager believes will impair its ability to meet its investment objectives. Each of the Prior Programs has provided its investors with regular cash distributions throughout its operating stage.

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

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 Sponsor
Table III     Operating Results of Prior Public Programs
Table IV     Results of Completed Programs
Table V     Acquisition of Portfolio Investments by Prior Programs
Table VI     Sales or Disposals of Portfolio Investments by Prior Programs

In Table I information is presented with respect to all Prior Programs sponsored by ATEL that completed their offerings of interests within the three-year period ended December 31, 2010, except that ATEL 14 had not completed its offering as of that date.

In Table II information is presented with respect to all Prior Programs sponsored by ATEL that completed their offerings of interests within the three-year period ended December 31, 2010, except that ATEL 14 had not completed its offering as of that date.

In Table III information is presented with respect to all Prior Programs sponsored by ATEL that completed their offerings of interests within the five-year period ended December 31, 2010, except that ATEL 14 had not completed its offering as of that date, so the tabular information concerning ATEL 14 does not reflect results of an operating period after completion of its funding.

Table IV includes information concerning the Prior Programs that had completed their respective operations during the five-year period ended December 31, 2010.

Table V includes information regarding all acquisitions of portfolio investments by Prior Programs during the three-year period ended December 31, 2010.

Table VI includes information regarding all dispositions of portfolio investments by Prior Programs during the three-year period ended December 31, 2010.

The Manager will provide to any investor, upon written request and without charge, copies of the most recent Annual Reports on Form 10-K filed with the Securities and Exchange Commission by each of the Prior Programs, and will provide to any investor, for a reasonable fee, copies of the exhibits to such reports. Investors may request such information by writing to ATEL Investor Services, Inc. at 600 California Street, 6th Floor, San Francisco, California 94108 or by calling the Manager at (415) 989-8800.

In addition to the Prior Programs, ATEL has sponsored seven prior private programs, six of which have completed their placements of equity interests during the ten years ended January 22, 2011. These private programs were formed to engage exclusively in growth lending and capital leasing, investment objectives that are significantly different than those of the Prior Programs.

65


 
 

TABLE OF CONTENTS

ATEL Venture Fund (“AVF”), commenced a private offering of up to $25,000,000 of its limited liability company shares on September 1, 1999. AVF terminated its offering as of August 31, 2001. As of that date, $8,846,000 of offering proceeds had been received from approximately 147 investors. All of the proceeds were committed to growth capital financing transactions, organization and offering expenses, working capital and capital reserves. AVF had acquired growth capital financing transactions representing a total capital investment of $11,560,698 as of March 31, 2011. Of such portfolio investments, transactions representing an original capital investment of approximately $11,551,648 had been sold or disposed as of March 31, 2011.

ATEL Growth Capital Fund (“AGCF”), commenced a private offering of up to $25,000,000 of its limited liability company shares on June 1, 2003. AGCF terminated its offering as of May 31, 2005. As of that date, $21,010,000 of offering proceeds had been received from approximately 329 investors. AGCF had acquired growth capital financing transactions representing a total capital investment of $37,405,223 as of March 31, 2011. Of such portfolio investments, transactions representing an original capital investment of approximately $26,588,598 had been sold or disposed as of March 31, 2011.

ATEL Growth Capital Fund II, LLC (“AGCF II”), commenced a private offering of up to $25,000,000 of its limited liability company shares on September 1, 2005. AGCF II terminated its offering as of November 28, 2006. As of that date, $25,000,000 of offering proceeds had been received and accepted. AGCF II had acquired growth capital financing transactions representing a total capital investment of $35,672,039 as of March 31, 2011. Of such portfolio investments, transactions representing an original capital investment of approximately $25,042,731 had been sold or disposed as of March 31, 2011.

ATEL Growth Capital Fund III, LLC (“AGCF III”), commenced a private offering of up to $35,000,000 of its limited liability company shares effective November 29, 2006. AGCF III terminated its offering as of August 15, 2007. As of that date, $35,000,000 of offering proceeds had been received and accepted. AGCF III had acquired growth capital financing transactions representing a total capital investment of $38,634,118 as of March 31, 2011. Of such portfolio investments, transactions representing an original capital investment of approximately $18,054,747 had been sold or disposed as of March 31, 2011.

ATEL Growth Capital Fund IV, LLC (“AGCF IV”), commenced a private offering of up to $35,000,000 of its limited liability company shares effective August 1, 2007. AGCF IV terminated its offering as of January 22, 2009. As of that date, $34,995,000 of offering proceeds had been received and accepted. AGCF IV had acquired growth capital financing transactions representing a total capital investment of $29,178,014 as of March 31, 2011. Of such portfolio investments, transactions representing an original capital investment of approximately $9,824,757 had been sold or disposed as of March 31, 2011.

ATEL Growth Capital Fund V, LLC (“AGCF V”), commenced a private offering of up to $35,000,000 of its limited liability company shares effective January 22, 2009. AGCF V terminated its offering as of July 31, 2010. As of that date, $17,085,000 of offering proceeds had been received and accepted. AGCF V had acquired growth capital financing transactions representing a total capital investment of $10,893,540 as of March 31, 2011. Of such portfolio investments, transactions representing an original capital investment of approximately $840,684 had been sold or disposed as of March 31, 2011.

ATEL Growth Capital Fund VI, LLC (“AGCF VI”), commenced a private offering of up to $35,000,000 of its limited liability company shares effective September 15, 2010. As of February 17, 2011, AGCF VI had received offering proceeds of $1,075,000 and commenced operations. An additional $255,000 of equity proceeds had been received as of March 31, 2011, bringing the total offering proceeds to $1,330,000 as of that date. As of March 31, 2011, AGCF VI had acquired one growth capital financing transaction for $147,603.

66


 
 

TABLE OF CONTENTS

INCOME, LOSSES AND DISTRIBUTIONS

The taxable income and taxable loss of the Fund (the “Net Income and Net Loss”) and all Fund cash distributions shall be allocated 92.5% to investors and 7.5% to the Manager as the Carried Interest.

Allocations of Net Income and Net Loss

The Fund will close its books as of the end of each quarter and allocate Net Income, Net Loss and cash distributions on a daily basis, i.e., Fund items will be allocated to the investors in the ratio in which the number of Units held by each of them bears to the total number of Units held by all as of the last day of the fiscal quarter with respect to which such Net Income, Net Loss and cash 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 will be allocated to Units repurchased by the Fund during such quarter, and such Units will not be deemed to have been outstanding during such quarter for purposes of the foregoing allocations. Transfers of Member interests will not be effective for any purpose until the first day of the following quarter.

Timing and Method of Distributions

Fund cash distributions are generally made and allocated to Holders on a quarterly basis. However, the Manager will determine amounts available for distributions on a monthly rather than quarterly basis. All investors will be entitled to elect to receive distributions monthly rather than quarterly by designating such election in a written request delivered to the Manager. An initial election to receive monthly rather than quarterly distributions may be made at the time of subscription by designating such election on the Subscription Agreement. Thereafter, each investor may, during each fiscal quarter, designate an election to change the timing of distributions payable to the investor for the ensuing fiscal quarter by delivering to the Manager a written request. Investors who have previously elected monthly distributions may at such time elect to return to quarterly distributions and those receiving quarterly distributions may elect monthly distributions for the following quarter. Distributions will be made by check payable to the record Holder unless another payee is designated in writing executed by the Holder. Holders may elect in writing to have distributions paid by wire transfer to designated accounts. Wire transfer instructions may be given upon subscription or may be provided at any time thereafter for subsequent distributions.

During the Fund’s offering and operating stages, extending through the end of a six-year period following the end of the offering of Units, the Fund expects to make regular cash distributions to investors. After the end of the Fund’s operating stage, the Fund intends to distribute to investors all available cash through the final liquidation of the Fund, which is expected to occur ten to eleven years following the end of the offering period. During this liquidation stage, the timing and amount of distributions are expected to be less regular than during the operating stage.

Allocations of Distributions

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

A significant portion of each distribution is expected to constitute a return of capital for tax and accounting purposes. The Fund anticipates that income taxes on a portion of its distributions will be deferred by depreciation available from its equipment. To the extent Net Income is reduced by depreciation deductions, distributions will be considered return of capital for tax purposes and income tax will be deferred until subsequent years. Until investors receive total distributions equal to their original investment, a portion of

67


 
 

TABLE OF CONTENTS

each distribution will be deemed a return of capital rather than a return on capital for investment purposes. Notwithstanding the foregoing, however, the Manager intends to make distributions only out of cash from operations and cash from sales or refinancing and not out of capital reserves or offering proceeds held pending investment.

The Fund is intended to be self-liquidating. After the sixth year following the year in which the offering terminates, the Fund will distribute all available cash, other than reserves deemed required for the proper operation of its business, including reserves for the upgrading of equipment to preserve its value or to purchase equipment the Fund has committed to buy prior to the end of the reinvestment period. During this liquidation stage, rates of distributions may vary and distributions may be suspended while Fund debt is repaid from disposition proceeds before net disposition proceeds are distributed to Unit holders.

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

Reinvestment

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

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

(ii) through the first full fiscal quarter ending at least six months after termination of the offering of Units, an amount equal to the lesser of:

(a) a rate of return on their original capital contribution equal to 2.5% over the average yield on five-year United States Treasury Bonds for the fiscal quarter immediately preceding the date of distribution, as published in a national financial newspaper from time to time (with a minimum of 8% per annum and a maximum of 9% per annum), or

(b) 90% of the total amount of cash available for distributions; and

(iii) for each quarter during the rest of the reinvestment period, an amount equal to 9% per annum on their original capital contribution.

The following chart illustrates the anticipated cycle of distributions to investors during the Fund’s three basic stages, funding, operations and liquidation. The amount of distributions is expected to vary during the initial funding stage of the Fund, as it raises equity capital through the sale of Units, acquires its initial investment portfolio and leverages its portfolio. Then, distributions are expected to become level as the Fund is required during its six year operations stage to make minimum distributions to investors prior to any reinvestment of the Fund’s operating cash flow. There can be no assurance, however, as to the rate or availability of distributions during any period, or the rate of reinvestment, if any, during the operations stage. The availability of cash for distributions, and the rate of distributions, if any, during all stages will be

68


 
 

TABLE OF CONTENTS

dependent on the success of Fund operations and the Fund’s need to pay operating expenses, to repay debt, the terms of which may require suspension of distributions during some periods, and to establish necessary capital reserves. After the operations stage, the Fund is expected to enter into a two to four year liquidation stage during which all cash flow not required for Fund obligations, including repayment of debt and establishment of capital reserves, will be distributed to investors. Distributions during this period are expected to fluctuate as amounts vary depending on the rate of liquidation of the portfolio, the residual values realized upon expiration of leases and disposition of investment assets, the amount of remaining lease revenues, the amount of operating expenses incurred, the need to repay portfolio debt, and the establishment of necessary capital reserves. Investors should note that there can be no assurance as to the amount or timing of any distributions, or as to the duration of the Fund’s liquidation period and term to final liquidation, which, as described above, will depend on a number of factors affecting Fund operations.

ATEL 15 LIFE CYCLE

[GRAPHIC MISSING]

Funding Period:
Units are only sold during the offering period • Your money goes to work immediately • ATEL has 6 months to invest it after the offering is terminated • Investment dollars are used to purchase equipment • Investors are extremely limited in their ability to sell units during the life of the Fund • Cash distributions are expected to begin immediately after minimum funding and are expected to be paid monthly or quarterly

Operating and Reinvestment Period:
Equity raised during the offering period and, if available, excess operating revenues, may be used to make additional investments in equipment • Cash distributions are expected to be paid monthly or quarterly and are largely tax deferred • Depreciation on equipment leases may offset a portion of income to investors • The investment portfolio is actively managed throughout the life of the Fund

Liquidation Period:
Liquidation period is expected to last around 2+ years • Investments will be sold at maturity and no new investments will be made • Distributions are paid periodically to investors and the amount will fluctuate

Return of Unused Capital

Any net offering proceeds received by the Fund during the first twelve months of the offering not committed to investment in portfolio assets by eighteen months after the beginning of the offering, and any offering proceeds received in a second year of the offering not committed to investment by a date six months after the end of the offering (except amounts used to pay operating expenses or required as 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 Manager has agreed to contribute to the Fund, and the Fund will distribute to investors pro rata, the amount by which the unused capital so distributed, divided by the percentage of offering proceeds remaining after payment of all Front End Fees, exceeds the amount of unused capital distributed.

69


 
 

TABLE OF CONTENTS

Cash from Capital Reserve Account

The Operating Agreement requires that the Fund initially establish a cash reserve for general working capital purposes in an amount equal to not less than ½ of 1% of the offering proceeds (equal to $6,000 if the minimum Units are sold and $750,000 if the maximum Units are sold). Any cash reserves used need not be restored, and, if restored, may be restored from the operating revenues of the Fund. Distributions of cash reserves will be allocated and distributed in the same manner as cash proceeds from sales of equipment. Cash reserves that the Manager deems no longer required as capital reserves may be distributed or invested by the Fund.

Sources of Distributions — Accounting Matters

The amount of cash the Fund will distribute to investors each year is not the same as the amount of taxable income that is passed through to the investor. For example, the Fund may have tax deductions that do not represent direct cash expenses, so the Fund may have more cash available to distribute than it has taxable income. When an investor receives a distribution of more cash in a year than his share of income, he will be deemed to be receiving a return of his invested capital rather than investment income. Distributions by the Fund may be characterized differently for tax, accounting and economic purposes as a return of capital, investment income or a portion of each.

70


 
 

TABLE OF CONTENTS

CAPITALIZATION

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

     
  As of the
Date hereof
  Minimum
120,000 Units
  Maximum
15,000,000 Units
Units of Member Interest ($10 per Unit)     500       1,200,500       150,000,500  
Total Capitalization   $ 500     $ 1,200,500     $ 150,000,500  
Less Estimated Organization and Offering Expenses           150,000       18,750,000  
Net Capitalization   $ 500     $ 1,050,500     $ 131,250,500  

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

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

After the minimum capital is received, subscription proceeds will be released to the Fund from escrow and applied to the payment or reimbursement of Organization and Offering Expenses, leaving estimated net proceeds available for investment and operations of $1,050,000. As additional subscriptions for Units are received, the Fund will experience a relative increase in liquidity and the Fund will experience a corresponding decrease in liquidity as capital is expended in the purchase of its portfolio investments.

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

Until required for the acquisition or operation of portfolio investments, the offering proceeds will be held in short-term, liquid investments. The Fund is required by the Operating Agreement to establish an initial working capital reserve in the amount of ½ of 1% of the Gross Proceeds.

For financial reporting purposes, equipment on operating leases will generally be depreciated using the straight-line method, over periods equal to the terms of the related leases to the equipment, down to an amount equal to the estimated residual value of the equipment at the end of the related leases. The treatment for financial reporting purposes differs from cost recovery for tax purposes in which the IRS prescribes certain useful lives for each type of equipment and the Code provides specific accelerated rates of depreciation over those useful lives.

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

Fluctuations in prevailing interest rates could also affect the Fund. The cost of capital reflected in interest rates is a significant factor in determining market lease rates and the pricing of lease financing generally. Higher interest rates could affect the cost of Fund borrowing, reducing its yield on leveraged investments or reducing the desirability of leverage. The Fund would also expect that increases or decreases in prevailing

71


 
 

TABLE OF CONTENTS

interest rates would generally result in corresponding increases or decreases in available lease rates on new leases. Except as discussed below, interest rate fluctuations would generally have little or no effect on existing leases, as rates on such leases would generally be fixed without any adjustment related to interest rates.

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

FEDERAL INCOME TAX CONSEQUENCES

Preface

This section of the Prospectus addresses all material federal income tax considerations which may be relevant to a “typical” investor. ATEL considers a typical investor to be a natural person who is a citizen of the United States. This section is not exhaustive of all possible tax considerations and is not tax advice. Moreover, this section does not deal with all aspects that might be relevant to a particular prospective investor, in light of the investor’s personal circumstances. The tax treatment for non-typical investors may differ significantly from the tax consequences outlined in this section. Non-typical investors include trusts, corporations, tax-exempt organizations, employee benefit plans, and foreign investors. State and local tax consequences may differ from the federal income tax consequences described below.

It is impractical to set forth in this Prospectus all aspects of federal, state, local and foreign tax law which may affect an investment in the Fund. Nevertheless, as noted above, this section of the Prospectus addresses all material federal income tax considerations which may be relevant to a “typical” investor. The tax consequences of investing in Units will not be the same for all investors. A careful analysis of by each investor of the investor’s particular tax situation is required to evaluate this investment properly. Furthermore, the discussion of various aspects of federal, state, local and foreign taxation and of counsel’s opinion contained herein is based on the Internal Revenue Code, existing laws, judicial decisions and administrative regulations, rulings and practice, all of which are subject to change. Therefore, ATEL urges each investor to consult with the investor’s own tax advisor prior to investing in Units.

As set forth in this Prospectus under “Investment Objectives and Policies — Principal Investment Objectives,” the Fund’s investment decisions in structuring its portfolio will be driven by the projected economic consequences of each transaction, primarily the cash return on cash invested. While the tax consequences of the Fund’s structure, including the pass through of income and loss, and of specific investments, including “true lease” status, amortization and cost recovery, are expected to affect the rates of return that may be realized by the Fund and its investors, the Fund’s investment decisions will not generally be based on tax consequences, but primarily on the lease and loan rates and projected sale and other residual proceeds to be realized from the investments.

Opinions of Derenthal & Dannhauser LLP

Derenthal & Dannhauser LLP is of the opinion that, for federal income tax purposes:

The Fund is classified as a partnership and not as an association taxable as a corporation.

72


 
 

TABLE OF CONTENTS

The Fund will not be treated as a publicly traded partnership.
Upon admission to the Fund, an investor will be a Member of the Fund.
Each investor will be able to include in the tax basis of the investor’s Units the investor’s share of bona fide Fund nonrecourse liabilities.
The IRS will not significantly modify the allocations of taxable income and tax loss under the Operating Agreement.

In addition, to the extent the summaries of federal income tax consequences herein contain statements or conclusions of law, counsel is of the opinion that these statements or conclusions are correct under the Internal Revenue Code, applicable current and proposed IRS regulations, current published administrative positions of the IRS and judicial decisions.

The opinions of Derenthal & Dannhauser LLP are based upon the facts described in this Prospectus, and the assumption that the Fund will operate its business as described in this Prospectus. Any alteration of the facts may adversely affect the opinions rendered. Furthermore, the opinions of counsel are based upon existing law, which is subject to change either prospectively or retroactively.

Counsel’s tax opinions represent only Derenthal & Dannhauser LLP’s best legal judgment. The opinions have no binding effect on, or official status with, the IRS or any other government agency. The Fund has not requested an IRS ruling on any matter. There can be no assurance that the IRS will not challenge any of Derenthal & Dannhauser LLP’s conclusions.

There is one material federal income tax issue as to which counsel is unable to render, and therefore has not rendered an opinion. Counsel has not rendered an opinion as to the status of the Fund’s leases for federal tax purposes, inasmuch as such status is subject to the facts and circumstances of each lease transaction, and the specific terms of such transactions will not be known until the transactions are entered into by the Fund, and no such transactions are yet in place. Nevertheless, the Manager expects that most of the Fund’s leases will be treated by the Fund as “true leases” (see the discussion under “Tax Status of Leases” below). The Fund will use industry standard contracts and other agreements for such leases, and although no opinion of counsel will be rendered in this regard, the Manager, based on the extensive experience of its affiliates in the equipment leasing industry, does not believe there is any appreciable risk as a consequence. If a leasing transaction is treated as a sale or financing rather than a true lease, the investors would not be entitled to cost recovery deductions with respect to such leases. On the other hand, a portion of the lease rental payments would be deemed to constitute amortization of such financing or sales proceeds which would not be taxable. Inasmuch as the facts and circumstances of each lease transaction, and the tax consequences of each lease transaction, will not be known until the transactions are entered into by the Fund, counsel can render no opinion as to such tax consequences or as to the risk resulting from the absence of such opinion.

The Fund’s management will prepare its income tax information returns. The Fund will make a number of decisions on such tax matters as the expensing or capitalizing of particular items, the proper period over which capital costs may be depreciated or amortized, the allocation of acquisition costs between equipment and management fees, and other similar items. Such matters will be handled by the Fund. Tax counsel to the Fund will not prepare or review the Fund’s income tax information returns.

Classification as a Partnership

The Manager and the Fund have represented to counsel that the Fund will not elect to be treated as a corporation for federal income tax purposes under the Internal Revenue Code Section 7701 Treasury Regulations. Based on such representation, Derenthal & Dannhauser LLP is of the opinion that the Fund will be classified as a partnership and will not be treated as an association taxable as a corporation for federal income tax purposes. Derenthal & Dannhauser LLP’s opinion is based upon ATEL’s factual representations and the continued effectiveness of the Treasury Regulations. If the Treasury Department were to amend its Regulations, it is possible that the Fund would not qualify as a partnership under the amended regulations.

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

73


 
 

TABLE OF CONTENTS

Fund will be treated as publicly traded if Units are traded on an established securities market, or readily tradable on a secondary market or the substantial equivalent thereof. An established securities market includes a securities exchange as well as a regular over-the-counter market. Treasury Regulations under Internal Revenue Code Section 7704 state that a secondary market for an entity’s interests generally is indicated by the existence of a person standing ready to make a market in the interests, or where the holder of an interest has a readily available, regular and ongoing opportunity to sell or exchange his interest through a public means of obtaining or providing information on offers to buy, sell or exchange interests. Complicity or participation of the entity is relevant in determining whether there is public trading of its interests. A partnership will be considered as participating in public trading where trading in its interests is in fact taking place and the partnership’s governing documents impose no meaningful limitation on the holders’ ability to readily transfer their interests. A partnership’s right to refuse to recognize transfers is not a meaningful limitation unless such right actually is exercised.

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

The Fund has no control over an independent third person establishing a secondary market in Units. However, the Fund’s operating agreement requires that an investor obtain the consent of ATEL prior to any transfers of Units. ATEL intends to exercise its discretion in granting and withholding its consent to transfers so as to fall within the parameters of the 2% safe harbor. If the Fund complies with the 2% safe-harbor provision of the Treasury Regulations, Derenthal & Dannhauser LLP is of the opinion that the Fund will not be considered a publicly traded partnership.

If the Fund were treated for federal income tax purposes as a corporation in any year, (i) instead of there being no tax at the Fund level, the Fund would be required to pay federal income taxes upon its taxable income; (ii) state and local income taxes could be imposed on the Fund; (iii) losses of the Fund would not be reportable by the investors on their personal income tax returns; (iv) any distributions would be taxable to an investor as (a) ordinary income to the extent of current or accumulated earnings and profits, and (b) gain from the sale of the investor’s Units to the extent any distribution exceeded such earnings and profits and the tax basis of such Units; (v) distributions would be classified as portfolio income which would not be available to offset passive activity losses. See “Limitation on Deduction of Losses — Passive Loss Limitation” below. Also, a change in status from a partnership to a corporation could result in taxable income to an investor. The amount of taxable income would equal his share of the liabilities of the Fund over the adjusted basis of his Units.

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

Allocations of Profits and Losses

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

An allocation has economic effect under the Treasury Regulations if: (i) each partner’s share of partnership items is reflected by an increase or decrease in the partner’s capital account; (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.

An allocation can have 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; and (ii) if the operating or partnership agreement contains a qualified income offset. An agreement

74


 
 

TABLE OF CONTENTS

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

Special rules apply to the allocation of deductions attributable to nonrecourse debt. Such allocations will be respected under the Treasury Regulations if the partners who are allocated the deductions bear the burden of the future income related to the previous deductions. In particular, the following additional elements must be satisfied: (i) the operating or partnership agreement must provide for allocations of nonrecourse deductions in a manner consistent with allocations of some other significant partnership item related to the property securing the nonrecourse debt, provided such other allocations have substantial economic effect; (ii) all other material allocations and capital account adjustments under the operating or partnership agreement are recognized under the Treasury Regulations; and (iii) the operating or partnership agreement contains a minimum gain chargeback.

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

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

The economic effect of a partnership’s allocations also must be “substantial.” Under Section 1.704-1(b)(2)(iii) of the Treasury Regulations, the economic effect of an allocation is substantial if there is a reasonable possibility that the allocation will affect substantially the dollar amounts to be received by the partners from the partnership, independent of tax consequences. Notwithstanding the foregoing, the economic effect is not substantial if, at the time that the allocation becomes part of the partnership agreement, (i) the after-tax economic consequences of at least one partner may, in present value terms, be enhanced compared to such consequences if the allocation were not contained in the partnership agreement, and (ii) there is a strong likelihood that the after-tax economic consequences of no partner will, in present value terms, be substantially diminished compared to such consequences if the allocations were not contained in the partnership agreement. The Regulations include a presumption that the book value of depreciable partnership property is presumed to be its fair market value, and adjustments to book value will be presumed to be matched by corresponding changes in fair market value. Counsel is of the opinion that the economic effect of the allocations in the Operating Agreement are substantial.

Income Recognition

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

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

75


 
 

TABLE OF CONTENTS

allocations of taxable income or reduced allocations of loss in earlier years, without any increase in distributions until subsequent years. An additional consequence could be a conversion of a portion of the Fund’s rental income from any such lease to interest income. Rental income generally constitutes passive income. Interest income generally constitutes portfolio income. See “Limitation on Deduction of Losses — Passive Loss Limitation.”

Taxation of Investors

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

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

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

(i) an interest in inventory items which have substantially appreciated in value, or

(ii) unrealized receivables

will generally result in the receipt of ordinary income. The terms inventory items and unrealized receivables are specially defined for this purpose. The term unrealized receivables includes depreciation recapture, but only to the extent of the amount which would be treated as ordinary income upon a sale of the property.

Tax Status of Leases

Whether a specific lease is categorized as a lease (a “true lease”) rather than as a sale or a financing for federal income tax purposes involves a factual determination. Accordingly, no guarantee can be given that the Fund’s leases of equipment will be treated as leases by the IRS. A “true lease” means the Fund retains ownership of the equipment for tax purposes. The Fund has not yet entered into any leases, so no opinion of counsel has been rendered as to lease status. Moreover, the Fund does not expect to obtain an opinion of counsel regarding the status of any Fund leases. The Fund will utilize industry-standard leases for those leases that the Fund intends to treat as true leases. Consequently, the Manager does not believe there is any appreciable risk to the absence of an opinion of tax counsel.

If a leasing transaction is treated as a sale or financing rather than a true lease, the investors would not be entitled to cost recovery deductions with respect to such leases. On the other hand, a portion of the lease rental payments would be deemed to constitute amortization of such financing or sales proceeds which would not be taxable.

Limitation on Deduction of Losses

There are limitations on an investor’s ability to deduct his distributive share of Fund losses. Among them are: (i) losses will be limited to the extent of the investor’s tax basis in his Units; (ii) losses will be limited to the amounts for which the investor is deemed at risk; and (iii) losses will be limited to the investor’s income from passive activities. Deduction of losses attributable to activities not engaged in for profit also are limited. As the investment objectives of the Fund do not include generating deductible tax losses, the Manager does not anticipate that the following limitations will be of particular import to investors.

Tax Basis.  Initially, an investor’s tax basis for his Units will be equal to the price paid for the Units. Each investor will increase the tax basis for his Units by (i) his allocable share of the Fund’s taxable income; and (ii) any increase in his share of the Fund’s nonrecourse liabilities, and will decrease the tax basis for his Units by

76


 
 

TABLE OF CONTENTS

his allocable share of the Fund’s tax loss,
the amount of any distributions, and
any reduction in his share of Fund nonrecourse liabilities.

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

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

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

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

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

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

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

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

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

The Fund may have portfolio income:

77


 
 

TABLE OF CONTENTS

to the extent of any interest income,
to the extent its investments constitute financing leases or secured loans, rather than true leases, and
to the extent of any dividends it receives from equity interests in growth capital lease investments.

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

The Manager anticipates that an insubstantial portion of the Fund’s income may constitute portfolio income.

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

Cost Recovery

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

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

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

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

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

property used predominantly outside the United States,
property used by a foreign or tax-exempt entity, and
property owned by a partnership which has both a tax-exempt entity and a person who is not a tax-exempt entity as holders, unless certain exceptions apply.

In addition, under Internal Revenue Code Section 470, losses attributable to the leasing of tax-exempt use property (including property described in the preceding bullets) cannot be deducted currently, but must be deferred until there is income derived from such property or when the interest therein is completely disposed of, unless the lease complies with certain requirements. Because these facts depend upon leases that will be acquired or entered into in the future, no conclusion can be expressed now regarding the possible application of Internal Revenue Code Section 470 to leases of Fund property to tax-exempt entities.

Tax Consequences Respecting Equity Interests

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

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

78


 
 

TABLE OF CONTENTS

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

whether or not the transfer of the equity interests by the Fund is subject to restriction, and
the nature of the equity interests. For example, the receipt of marketable stock for no payment would almost always result in the recognition of income.

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

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

Deductibility of Management Fees

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

the amount thereof is excessive,
all or a portion thereof is payment for other services performed by, or other value provided by, the recipient thereof, or
payments for such services is not deductible.

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

Tax Liabilities in Later Years

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

Sales or Exchanges of Fund Property

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

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

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

to purchase equipment for investment only,
to engage in the business of owning and operating such equipment, and
to make occasional sales thereof.

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

As stated above, the Fund’s gain on a disposition of property will be measured by the difference between the disposition proceeds, and the Fund’s basis in the property. Disposition proceeds include the amount of any debt encumbering the property. Consequently, the amount of tax payable by an investor as a result of the

79


 
 

TABLE OF CONTENTS

disposition may exceed his share of the cash proceeds therefrom. In the event of a foreclosure of a debt on property owned by the Fund, the Fund would realize gain equal to the excess of such indebtedness over its adjusted tax basis of the property. In such event the investors would realize taxable income although they may not receive any cash distributions as a result of the foreclosure.

Disposition of Units

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

the amount realized by the investor, over
the investor’s tax basis in the Units.

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

the investor’s tax basis, over
the amount realized for the Units.

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

Such gain or loss generally will be capital gain or loss. In the case of an individual, any such gain will be subject to tax at a maximum rate of 15%, if the Units have been held for more than 12 months. However, any gain realized on the disposition of a Unit by an investor which is attributable to unrealized receivables or inventory items will be taxed at ordinary income rates. Unrealized receivables would include the investor’s share of previous Fund equipment cost recovery deductions. An investor must recognize such cost recovery recapture in the year of disposition, regardless of the amount of proceeds received in the year of disposition.

Liquidation of the Fund

The Operating Agreement provides that on liquidation of the Fund its assets will be sold. The sale proceeds will be distributed pursuant to the terms of the operating agreement. Each investor will realize his share of the gain or loss on the sale of Fund assets. In addition, each investor will recognize gain or loss measured by the difference between the cash he receives in liquidation and the adjusted tax basis of his Units. The cash an investor receives will include the cash constructively received as a result of relief of liabilities. Gain or loss recognized generally will constitute capital gain or loss. However, gain attributable to the recapture of equipment cost recovery deductions will be taxable as ordinary income. See “Sales or Exchanges of Fund Property.” It is anticipated that all or substantially all of any gains will be attributable to such deductions and taxed as ordinary income.

Fund Elections

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

upon the transfer of units by sale or exchange or on the death of a holder, and
upon the distribution of property by the fund to a holder.

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

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

80


 
 

TABLE OF CONTENTS

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

Treatment of Gifts of Units

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

Investment by Qualified Retirement Plans and IRAs

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

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

gain which is characterized as ordinary income due to the recapture of cost recovery, or
gain from equipment which is inventory or property held primarily for sale to customers in the ordinary course of a trade or business

will be unrelated business taxable income.

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

it is subject to income tax on the excess, and
it is obligated to file a tax return for such year.

Notwithstanding the preceding, a charitable remainder trust that recognizes unrelated business taxable income will be subject to an excise tax equal to 100% of such income. Any tax due should be paid directly from the tax-exempt entity. Payment of the tax by the beneficiary could have other adverse tax consequences.

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

Individual Tax Rates

General.  The highest individual federal income tax rate currently is 35%.

Capital Gains and Losses.  The excess of net long-term capital gains over short-term capital losses is referred to in the Internal Revenue Code as net capital gain. Currently, net capital gain of individuals is taxed at a 15% maximum rate for most types of capital assets, increasing to 20% in later years.

81


 
 

TABLE OF CONTENTS

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

Two Percent Floor on Miscellaneous Itemized Deductions.  Noncorporate investors may deduct itemized expenses only subject to certain limitations. Itemized deductions include expenses paid or incurred

for the production or collection of income,
for the management, conservation, or maintenance of property held for the production of income, or
in connection with the determination, collection or refund of a tax.

Alternative Minimum Tax

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

the taxpayer’s taxable income,
subject to alternative minimum tax adjustments,
increased by items of tax preference, and
reduced by the applicable exemption amount for the year in question,

all as described below.

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

The itemized deductions allowable in computing alternative minimum taxable income include the following:

charitable contributions,
medical deductions in excess of 10% of adjusted gross income,
casualty losses,
interest on personal housing, and
other interest to the extent of net investment income.

No standard deduction is allowed, but an exemption amount is available as discussed below.

For corporations, the Internal Revenue Code requires an addition to taxable income of 75% of the amount by which adjusted current earnings exceeds alternative minimum taxable income.

In addition to the adjustments described above, alternative minimum taxable income is increased by the amount of items of tax preference. Tax preferences include excess depletion deductions, excess intangible drilling costs, tax-exempt interest, with certain exceptions, and the difference between the fair market value and the exercise price of stock acquired by exercise of an incentive stock option. No deduction is allowed for losses from a tax shelter farm activity.

Certain tax credits cannot be used to offset alternative minimum tax. Any excess tax credits are first carried back one year and then forward 20 years.

The alternative minimum tax for individuals is equal to:

26% of so much of the taxable excess as does not exceed $175,000, plus
28% of so much of the taxable excess as exceeds $175,000.

82


 
 

TABLE OF CONTENTS

For this purpose, taxable excess means the amount by which alternative minimum taxable income exceeds the exemption amount. The exemption amounts are:

$45,000 for a married couple filing a joint return or a surviving spouse,