TRABAJOS DERIVADOS

Our General Partner and our Investment Manager may be subject to various conflicts of interest arising out of their relationship to us. Because of our General Partner’s and our Investment Manager’s organizational and operational control over us, these conflicts will not be resolved through arm’s-length negotiations but, rather, through the exercise of our General Partner’s and Investment Manager’s judgment consistent with their fiduciary responsibilities to you and us. Some provisions of our partnership agreement are designed to protect the interests of you and our other partners if conflicts arise. In this regard, you should read Article IX of our partnership agreement and, in particular, Section 9.5. These sections do the following:

• limit the actions our General Partner may take on our behalf;

• limit the compensation and fees we will pay our General Partner, our Investment Manager and their affiliates; and

• limit the expenses for which we will reimburse our General Partner, our Investment Manager and their affiliates.

However, our partnership agreement does not necessarily directly respond to each potential conflict, and there will be no established mechanism to resolve these conflicts. In these situations, our Investment Manager will rely solely on its judgment, subject to its fiduciary duties, to resolve the conflict. The potential conflicts include those set forth below.

Our General Partner, Our Investment Manager and Their Affiliates Will Receive Fees and Other Substantial Compensation From Us

We will pay fees and other substantial compensation to our General Partner, our Investment Manager and their affiliates. Further, we may reimburse our General Partner, our Investment Manager and their affiliates for costs incurred by them in managing us and our portfolio.

Subject to its fiduciary duties and the terms of our partnership agreement, our Investment Manager has sole discretion with respect to the terms and timing of our investments, although it is anticipated that those investments will be consistent with our investment objectives and policies. The agreements and arrangements, including those relating to compensation, between us and our General Partner, our Investment Manager and their affiliates are not the result of arm’s-length negotiations and may create conflicts between the interests of our General Partner, our Investment Manager and their affiliates on the one hand and us and our limited partners on the other hand. However, our General Partner believes that the compensation and fees provided for in our partnership agreement are consistent with practices in the industry and the NASAA Guidelines in effect as of the date of this prospectus.

Actions Taken by Our General Partner and Our Investment Manager Will Affect the Amount of Distributable Cash to Limited Partners and Our General Partner’s and Our Investment Manager’s Compensation

The amount of cash we have available for distribution to you and our other partners will be affected by decisions of our General Partner and our Investment Manager regarding various matters, including:

• the amount and timing of asset and equipment purchases and sales; • cash expenditures;

• financing; and

• the creation, reduction or increase of reserves.

See the “Management Compensation” section of this prospectus beginning on page 15.

Our General Partner will be liable for our obligations to the extent that they exceed our assets. As a result, our General Partner has the right to cause us to establish and maintain cash reserves that it believes are

necessary to meet our obligations. Because our General Partner may be exposed to liability to our creditors if our reserves are insufficient to pay our contingent liabilities, our General Partner may have a conflict of interest in allocating our cash flow between distributions to you and our other partners or to our reserve accounts. To the extent that our General Partner increases the amount of cash it allocates to reserves, the amount of Distributable Cash to you and our other partners will decrease and our General Partner’s exposure to our contingent liabilities may be lessened.

Our General Partner, Our Investment Manager and Their Affiliates Will Engage in Activities That Compete With Us

Our partnership agreement does not prohibit our General Partner, our Investment Manager or their affiliates from investing in, acquiring or leasing equipment or other assets, and they will continue to engage in equipment and other asset acquisitions, leasing and re-leasing opportunities on their own behalf or on behalf of other partnerships or entities. None of our General Partner, our Investment Manager or their affiliates may, however, publicly offer for sale interests in more than one direct participation program simultaneously unless the programs:

• have different investment objectives; or

• are specified equipment programs, as defined under relevant securities regulations or state securities guidelines.

Our General Partner, our Investment Manager and their affiliates have the right to take for their own accounts, or to recommend to any program they manage, any particular investment opportunity, subject to the limitations set forth in our partnership agreement.

Any conflicts in determining and allocating investments between us and our General Partner, our

Investment Manager or their affiliates, or between us and another program managed by our General Partner, our Investment Manager or their affiliates, will be resolved by our Investment Manager’s investment committee, which also serves as the Prior Funds’ investment committee as discussed in the “Management — Investment Committee” section of this prospectus beginning on page 46. Generally, if an investment is appropriate for more than one program our Investment Manager’s investment committee will allocate the investment to a program (which includes us) after taking into consideration at least the following factors:

• which program has been seeking investments for the longest period of time; • whether the program has the cash required for the investment;

• whether the amount of debt to be incurred with respect to the investment is acceptable for the program; • the effect the investment would have on the program’s cash flow;

• whether the investment would further diversify, or unduly concentrate, the program’s investments in a particular lessee, class or type of equipment or other asset, location, industry, etc.; and

• whether the term of the investment is within the term of the program.

Notwithstanding the foregoing, our Investment Manager’s investment committee may make exceptions to these general policies when, in its judgment, other circumstances make application of these policies inequitable or uneconomic.

We May Enter Into Joint Ventures With Affiliated Programs

We may invest in joint ventures with other programs that are sponsored by our General Partner, our Investment Manager or their affiliates. These investments may result in conflicts of interest resulting from the differing financial positions of the co-venturers. For example, it may be in the interest of one entity to sell jointly-held equipment while it may be in the interest of the other entity to continue holding the equipment. However, we will not participate in a joint venture unless:

• we and the other program have substantially similar investment objectives; • we and the other program invest on substantially the same terms;

• there are no duplicate fees;

• our General Partner’s compensation in us and the other program is substantially the same; • we have the right of first refusal to buy any investment the other program wants to sell; and

• the joint venture is entered into either for the purpose of effecting appropriate diversification for us and the other program, or for the purpose of relieving our General Partner or its affiliates from a commitment entered into for the purposes of:

– facilitating our acquisition of equipment or other assets or investments; or – any other lawful purpose related to our business.

Notwithstanding, there may be an impasse on joint venture decisions since neither we nor the other program will have complete control over the joint venture’s equipment and, although we will have the right to buy the equipment from the other joint venturer in the event of a sale, we may not have the resources do so.

We Do Not Have Any Employees and Rely on the Employees of Our General Partner, Our Investment Manager and Their Affiliates

We will not have any independent employees or officers, and will rely solely on our General Partner and Investment Manager to manage us and our operations. Our General Partner and our Investment Manager will provide us with those administrative services necessary for our prudent operation in accordance with the terms of our partnership agreement. Those employees are not required to spend all of their time on affairs which affect us and in fact may devote significant time to the affairs of our General Partner, our Investment Manager or their affiliates and will be compensated by our General Partner, our Investment Manager or their affiliates for those services. The availability or lack thereof of these employees to provide services to us may create significant conflicts between us and our General Partner, our Investment Manager and their affiliates.

We May Reimburse Our General Partner, Our Investment Manager and Their Affiliates for Expenses We may reimburse our General Partner, our Investment Manager and their affiliates for costs incurred by them in managing us and our portfolio, including specified costs incurred by them in providing corporate staff and support services properly allocable to us. See the “Management Compensation” section of this prospectus beginning on page 15.

We Have Not Retained Separate Counsel or Other Professionals

Troutman Sanders LLP, the legal counsel that represents our General Partner, our Investment Manager and their affiliates, including the initial selling agent, also represents us. You and our other limited partners, as a group, have not been represented by legal counsel. Prospective investors should seek independent counsel if they so desire or if any legal matters discussed in this prospectus are unclear.

Lack of Independent Underwriter and Due Diligence Investigation in This Offering

No independent lead underwriter has been engaged for the distribution of our units. Therefore, we will not have the benefit of an independent “due diligence” review and investigation of the type normally performed by an unaffiliated, independent lead underwriter in connection with an offering of securities. Although the initial selling agent believes that its investigation of us, our General Partner and our Investment Manager for purposes of this offering of units has been as complete as would be the case in dealing with unaffiliated parties, there is no assurance that the due diligence has been performed in the same manner as that of an independent lead underwriter.

Conflicts Regarding Redemption of Units

You and our other partners may present your units to us for redemption at any time. This creates the following conflicts of interest between you and our General Partner:

• We have no obligation to redeem your units at any time for any reason. Our General Partner may decline your redemption request in its sole discretion. For example, if our General Partner determines that we do not have the necessary cash flow, taking into account future distributions to our other partners and foreseeable investments, reinvestments, and operating expenses, your request may be declined. In addition, our General Partner may conclude that the requested redemption might cause our total unit transfers in the year to exceed 2% of our total capital or profits interests, which is not permitted under our partnership agreement. See Appendix A to this prospectus. All of these determinations will be made in our General Partner’s sole discretion.

• Our General Partner also has determined the redemption price of our units. To the extent the redemption price, or the provisions for determining the redemption price in certain circumstances, includes any subjective decisions, they will fall within the discretion of our General Partner.

See the “Redemption of Units” section of this prospectus beginning on page 111. Our General Partner is Our Tax Matters Partner

Our General Partner will serve as our tax matters partner and represent us before the IRS and all other taxing authorities. As tax matters partner, our General Partner will have broad authority to act on behalf of you and our other partners in any administrative or judicial proceeding involving the IRS or other tax agencies, and this authority may involve conflicts of interest. For example, a potential conflict would include whether to contest or settle a proposed adjustment by the IRS to the amount of our depreciation deductions under our operating leases, which are allocated 99% to you and our other partners, which would also affect your personal income tax returns. While our General Partner will take into account the interests of you and our other partners as a whole, there is no assurance that any settlement would be in the best interests of you or any other particular partner given your or his particular tax situation.

Our General Partner or Its Affiliates May Purchase Units as Investors

In connection with our formation, our General Partner made a cash capital contribution to us of $100 and our Original Limited Partner contributed $1,000. In addition, our General Partner loaned us $1,000 for incidental costs that may arise in connection with our formation. Accordingly, we had an initial equity capitalization of only $1,100 until the minimum offering amount was raised in this offering. We refunded the $1,000 capital contribution of our Original Limited Partner and it withdrew as a limited partner.

Our General Partner or its affiliates may, but are not obligated to, make additional capital contributions to us. Subscriptions made by our General Partner or its affiliates, if any, were not included in the minimum number of units required for us to begin operations. Thus these partners generally will, to the extent they make additional capital contributions:

• share in our income, losses and distributions on the same basis as you and our other partners as described in the “Income, Losses and Distributions” section of this prospectus beginning on page 68; and

• have the same voting rights, except that they are prohibited from voting on the removal of our General Partner as general partner and the appointment of a successor general partner.

Any purchase of units by our General Partner, its officers, directors, or other affiliates as limited partners will dilute the voting rights of you and our other partners and there may be a conflict with respect to certain matters. See the “Summary of Our Partnership Agreement — Voting Rights of Limited Partners” section of this prospectus beginning on page 108.

General Restrictions

To reduce, but not eliminate, certain conflicts of interest we will not:

• issue any units after this offering terminates or issue units in exchange for property; • make loans to our General Partner, our Investment Manager or their affiliates;

• receive loans from our General Partner, our Investment Manager or their affiliates unless the loan has a term of 12 months or less from the date on which it was made and any interest or other financing charges or fees we pay do not exceed the lower of the following:

– if our General Partner, our Investment Manager or an affiliate borrowed to make the loan, the rate of interest and other amounts paid or payable by our General Partner, our Investment Manager or the affiliate in connection with the borrowing; or

– if our General Partner, our Investment Manager or an affiliate did not borrow to make the loan, the rate of interest and other amounts paid or payable in an arm’s-length borrowing that we could obtain, without reference to our General Partner’s, our Investment Manager’s or the affiliate’s financial abilities or guarantees;

• invest in or underwrite the securities of other partnership programs;

• operate in a manner that would cause us to be classified as an “investment company” for purposes of the Investment Company Act of 1940, as amended;

• grant our General Partner, our Investment Manager or any of their affiliates exclusive listing rights to sell our investments or other assets;

• permit our General Partner, our Investment Manager or any of their affiliates to receive a fee or commission in connection with the reinvestment of our cash from sales or operations, or the resale, re- lease, exchange or refinancing of equipment, except as permitted by our partnership agreement and in the “Management Compensation” section of this prospectus beginning on page 15;

• grant our General Partner, our Investment Manager or any of their affiliates any rebates or give-ups or participate in any reciprocal business arrangements with them that would circumvent the restrictions in our partnership agreement, including the restrictions applicable to transactions with affiliates of our General Partner;

• permit our General Partner, directly or indirectly, to pay or award any commissions or other

compensation to any person engaged by a potential investor for investment advice as an inducement to the advisor to advise the purchaser of our units; but this does not prohibit the normal sales commissions and other compensation payable to the selling agent as described in the “Plan of Distribution” section of this prospectus beginning on page 115;

• purchase or lease any equipment or other asset from, or sell or lease equipment or other assets to our General Partner, our Investment Manager or their affiliates or any investment program in which they have an interest. However, if the conditions set forth below are met, we expect that we will acquire substantially all of our equipment and other assets from our Investment Manager or its affiliates (other than affiliated equipment leasing and finance programs), provided that they acquire the equipment or other assets on a temporary or interim basis in order to facilitate our acquisition of the equipment or other assets or our financing needs. The conditions referred to above are the following:

– we shall not purchase or lease equipment from nor sell or lease equipment to, our General Partner including equipment in which our General Partner has an interest, except that we may lease equipment to our General Partner under a lease arrangement made at the outset and on terms no more favorable to our General Partner than those offered other persons and fully described in this prospectus. Notwithstanding the foregoing, we may purchase new equipment from our General Partner if such person is in the business of manufacturing and selling such equipment to persons not affiliated with us, the transaction occurs at the formation of our offering and the terms thereof are

fully described in this prospectus, the equipment is sold at the lower of manufacturer’s cost without