SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 1996
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number 0-19164
CAPITAL PREFERRED YIELD FUND, A California
------------------------------------------
Limited Partnership (Exact name of
registrant as specified in its charter)
California 68-0190817
(State of organization) (I.R.S. Employer Identification Number)
7175 W. Jefferson Avenue, Lakewood, Colorado 80235
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 980-1000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Units of Class A
Limited Partner Interest
(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in part III of this Form 10-K or any amendment to this
Form 10-K [ ].
State the aggregate market value of the voting stock held by non-affiliates of
the registrant. Not applicable.
Exhibit Index Appears on Pages 36 and 37
Page 1 of 38 Pages
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<PAGE>
Item 1. Business
--------
Capital Preferred Yield Fund, a California limited partnership (the
"Partnership"), is engaged in the business of owning and leasing equipment. CAI
Partners Management Company, a Colorado corporation and affiliate of Capital
Associates, Inc. ("CAI"), is the general partner of the Partnership.
Capital Associates International, Inc. ("CAII"), an affiliate of the general
partner, is the sole Class B limited partner of the Partnership. In exchange for
the Class B limited partner interest, the Class B limited partner contributed
equipment totaling $5,538,805 (i.e., 10% of the net offering proceeds) to the
Partnership making CAII the largest single investor in the Partnership.
Since its formation, the Partnership has acquired equipment of various types
under lease to third parties on short-term leases (five years or less). All of
the equipment was purchased by CAII directly from manufacturers or from other
independent third parties and sold to the Partnership. The equipment generally
consisted of (among others), transportation and industrial equipment, computer
equipment, office furniture and medical equipment. See Item 13 of this report,
"Certain Relationships and Related Transactions" for the listing of equipment
purchased during 1996. The Partnership entered its liquidation period, as
defined in the Partnership Agreement, in April 1996. Accordingly, it is not
anticipated that the Partnership will acquire any material amount of equipment
in future periods.
The Partnership may assign the rentals from leases to financial institutions, or
acquire leases subject to such assignments, at fixed interest rates on a
non-recourse basis. The financial institution has a first lien on the assigned
rents and the underlying leased equipment, with no recourse against the
Partnership or any other Partnership assets in the event of default by a lessee.
Cash proceeds from such financings, or the assumption of such assignments
incurred in connection with the acquisition of leases, are recorded on the
balance sheet as discounted lease rentals. As lessees make payments to financial
institutions, leasing revenue and interest expense are recorded.
During 1996, the Partnership provided lease financing to investment grade and
non-investment grade lessees in the manufacturing, textile equipment, materials
handling and other industries. Since the Partnership's formation, approximately
53% of the Partnership's equipment under lease was leased to investment grade
lessees as of December 31, 1996. Pursuant to the Partnership Agreement, an
investment grade lessee is a company (1) with a credit rating of not less than
Baa as determined by Moody's Investor Services, Inc., (2) that has a comparable
credit rating as determined by other recognized credit rating services or, (3)
if the lessee is not rated, then a lessee whom the general partner believes
would have received a rating of Baa, or better, if the lessee would have been
rated. The Partnership may choose to manage its credit risk through selective
use of non-recourse debt financing of future lease rentals, as described above.
The Partnership only acquires equipment that is on lease at the time of
acquisition. After the initial term of its lease, each item of equipment will be
expected to produce additional investment income from its re-lease or ultimate
sale. Upon expiration of the initial lease, the Partnership attempts to re-lease
or sell the equipment to the existing lessee. If a re-lease or sale to the
lessee cannot be negotiated, the Partnership will attempt to lease or sell the
equipment to a third party.
The Partnership's business is not subject to seasonal variations.
-2-
<PAGE>
Item 1. Business, continued
--------
The ultimate rate of return on leases depends, in part, on the general level of
interest rates at the time the leases are originated. Because leasing is an
alternative to financing equipment purchases with debt, lease rates tend to rise
and fall with interest rates (although lease rate movements generally lag
interest rate changes in the capital markets). Interest rates declined from 1990
until the early part of 1994 (see table below). The lease rates on equipment
purchased by the Partnership during this period reflect this low interest rate
environment. This will result in corresponding reductions in the ultimate
overall yields to the partners. Annual average 5-year U.S.
Treasury yields for the past seven years were as follows:
Annual average 5-year U.S. Treasury Yield
Year Yield
---- -----
1990 8.37
1991 7.37
1992 6.19
1993 5.14
1994 6.69
1995 6.38
1996 6.18
The Partnership has no employees. The officers, directors and employees of the
general partner and its affiliates perform services on behalf of the
Partnership. The general partner is entitled to receive certain fees and expense
reimbursements in connection with the performance of these services. See Item 10
of this Report, "Directors and Executive Officers of the Partnership" and Item
13 of this Report, "Certain Relationships and Related Transactions".
The Partnership competes in the leasing marketplace as a lessor/seller with a
significant number of other companies including equipment manufacturers, leasing
companies and financial institutions. The Partnership is in its liquidation
period, as defined in the Partnership Agreement, therefore the Partnership
currently competes mainly on the basis of the expertise of its general partner
in remarketing equipment. Although the Partnership does not account for a
significant percentage of the leasing market, the general partner believes the
Partnership's remarketing strategies will enable it to continue to compete
effectively in the remarketing markets.
The Partnership leases equipment to a significant number of lessees. No one
lessee and its affiliates accounted for more than 10% of total rental revenue of
the Partnership during 1996.
The Partnership entered its liquidation period (as set forth in the Prospectus)
in April 1996.
The Partnership is required to dissolve and distribute all of its assets no
later than December 31, 2010. However, as set forth in the Prospectus, the
general partner anticipates that all equipment will be sold prior to that date
and that the Partnership will be liquidated earlier.
-3-
<PAGE>
Item 2. Properties
----------
The Partnership does not own or lease any physical properties other than the
equipment discussed in Item 1 of this Report, "Business".
Item 3. Legal Proceedings
-----------------
Neither the Partnership nor any of the Partnership's equipment is the subject of
any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
No matters were submitted to a vote of the limited partners of the Partnership,
through the solicitation of proxies or otherwise, during the fourth quarter of
1996.
Item 5. Market for the Partnership's Common Equity and Related Stockholder
-----------------------------------------------------------------------
Matters
-------
(a) The Partnership's Class A limited partner units and Class B interest are
not publicly traded. There is no established public trading market for
such units and interest, and none is expected to develop.
(b) As of December 31, 1996 the number of Class A limited partners was
4,141.
(c) Distributions
-------------
During 1996, the Partnership made twelve (12) monthly distributions (a
substantial portion of which constituted a return of capital) to Class
A limited partners as follows:
Distributions Per
$250 Class A limited
For the Payment partner unit (computed Total
Month Ended Made During on weighted average) Distributions
----------- ----------- -------------------- -------------
December 31, 1995 January 1996 $ 2.76 $ 700,127
January 31, 1996 February 1996 2.75 696,672
February 28, 1996 March 1996 2.58 651,654
March 31, 1996 April 1996 2.75 696,166
April 30, 1996 May 1996 2.66 673,549
May 31, 1996 June 1996 2.75 695,500
June 30, 1996 July 1996 2.66 673,485
July 31, 1996 August 1996 4.25 1,073,756
August 31, 1996 September 1996 4.75 1,199,715
September 30, 1996 October 1996 4.76 1,200,710
October 31, 1996 November 1996 4.75 1,199,715
November 30, 1996 December 1996 4.75 1,199,715
------- ------------
$ 42.17 $ 10,660,764
======= ============
-4-
<PAGE>
Item 5. Market for the Partnership's Common Equity and Related Stockholder
-----------------------------------------------------------------------
Matters, continued
-------
(c) Distributions, continued
-------------
A substantial portion of such distributions is expected to constitute a
return of capital. Distributions may be characterized for tax,
accounting and economic purposes as a return of capital, a return on
capital or both. The portion of each cash distribution by a partnership
which exceeds its net income for the fiscal period may be deemed a
return of capital for accounting purposes. However, the total
percentage of a partnership's return on capital over its life can only
be determined after all residual cash flows (which include proceeds
from the re-leasing and sale of equipment after initial lease terms
expire) have been realized at the termination of the Partnership. Total
distributions declared to Class A limited partners were $52,642,411
from the inception of the Partnership through December 31, 1996.
The distribution for the month ended December 31, 1996, totaling
$1,000,571, was paid to the Class A limited partners during January
1997. Distributions to the general partner and Class B limited partner
during 1997 are discussed in Item 13 of this Report, "Certain
Relationships and Related Transactions".
The general partner believes that the Partnership will generate
sufficient cash flow from operations during 1997 to enable it to (1)
meet current operating requirements and (2) fund cash distributions to
the Class A limited partners in accordance with the Partnership
Agreement. The Partnership entered its liquidation period (as defined
in the Partnership Agreement) in April 1996. During the liquidation
period, reinvestment ceases and the excess cash, if any, is distributed
to the partners in accordance with the Partnership Agreement. It is
anticipated that during the liquidation period, distributions will vary
and all distributions are expected to be a return of capital for
economic purposes.
During 1995, the Partnership made twelve (12) monthly distributions (a
substantial portion of which constituted a return of capital) to Class
A limited partners as follows:
Distributions Per
$250 Class A limited
For the Payment partner unit (computed Total
Month Ended Made During on weighted average) Distributions
----------- ----------- -------------------- -------------
December 31, 1994 January 1995 $ 2.76 $ 702,885
January 31, 1995 February 1995 2.76 702,885
February 29, 1995 March 1995 2.46 634,863
March 31, 1995 April 1995 2.76 701,916
April 30, 1995 May 1995 2.67 679,209
May 31, 1995 June 1995 2.76 701,653
June 30, 1995 July 1995 2.67 679,019
July 31, 1995 August 1995 2.76 700,936
August 31, 1995 September 1995 2.76 700,847
September 30, 1995 October 1995 2.67 678,239
October 31, 1995 November 1995 2.76 700,734
November 30, 1995 December 1995 2.67 677,756
------- -----------
$ 32.46 $ 8,260,942
======= ===========
-5-
<PAGE>
Item 6. Selected Financial Data
-----------------------
The following selected financial data relates to 1996 through 1992. The data
should be read in conjunction with Item 7, "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the financial statements
and notes thereto appearing elsewhere herein.
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total revenue $11,319,825 $15,975,029 $20,833,137 $21,098,376 $19,695,554
Net income 2,239,112 2,943,220 2,793,164 556,417 1,776,709
Net income per weighted average
Class A limited partner unit outstanding 6.23 9.24 8.67 0.51 5.40
Total assets 22,981,183 37,516,977 53,791,269 73,668,153 66,234,996
Discounted lease rentals 4,363,104 9,146,266 20,324,037 33,425,426 17,872,004
Distributions declared to partners 12,106,228 9,276,551 9,286,099 9,256,647 8,631,653
Distributions declared to Class A limited
partners per weighted average Class A
limited partner unit outstanding 43.38 32.50 32.46 32.32 30.00
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
-------------
Results of Operations
- ---------------------
Presented below are schedules (prepared solely to facilitate the discussion of
results of operations that follows) showing condensed income statement
categories and analyses of changes in those condensed categories derived from
the Statements of Income.
<TABLE>
<CAPTION>
Condensed Condensed
Statements of Income Statements of Income
for the years The effect on for the years The effect on
ended December 31, net income of ended December 31, net income of
-------------------------- changes ------------------------- changes
1996 1995 between years 1995 1994 between years
------------ ----------- ------------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Leasing margin $ 3,064,878 $ 3,776,911 $ (712,033) $ 3,776,911 $ 4,658,200 $ (881,289)
Equipment sales margin 1,350,258 976,149 374,109 976,149 364,170 611,979
Interest income 188,628 144,913 43,715 144,913 65,247 79,666
Provision for losses (1,130,000) (605,000) (525,000) (605,000) (492,628) (112,372)
Management fees paid to general partner (702,219) (1,035,316) 333,097 (1,035,316) (1,375,497) 340,181
Direct services from general partner (101,145) (90,270) (10,875) (90,270) (99,279) 9,009
General and administrative (431,288) (224,167) (207,121) (224,167) (327,049) 102,882
----------- ----------- ----------- ----------- ----------- -----------
Net income $ 2,239,112 $ 2,943,220 $ (704,108) $ 2,943,220 $ 2,793,164 $ 150,056
=========== =========== =========== =========== =========== ===========
</TABLE>
-6-
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations, continued
-------------
Results of Operations, continued
- ---------------------
The Partnership entered its liquidation period (as set forth in the Partnership
Agreement) in April 1996. As the liquidation period continues, purchases of
equipment under lease will cease (other than for prior commitments and equipment
upgrades), initial leases will expire and the amount of equipment being
remarketed (i.e., re-leased, renewed, or sold) will increase. Because a leasing
portfolio declines in size as it matures, these circumstances have resulted in a
decline in the Partnership's leasing portfolio (referred to in further
discussions as "portfolio run- off").
LEASING MARGIN
Leasing margin consists of the following:
Years ended December 31,
------------------------------------------------
1996 1995 1994
------------- ------------- ---------------
Operating lease rentals $ 8,584,425 $ 13,253,954 $ 18,555,024
Direct finance lease income 1,196,514 1,600,013 1,848,696
Depreciation and amortization (6,124,604) (9,944,160) (13,670,774)
Interest expense on related
discounted lease rentals (591,457) (1,132,896) (2,074,746)
------------ ------------ ------------
Leasing margin $ 3,064,878 $ 3,776,911 $ 4,658,200
============ ============ ============
Leasing margin ratio 31% 25% 23%
============ ============ ============
The components of leasing margin have declined and are expected to decline
further due to portfolio run-off. Leasing margin ratio increased primarily
because a portion of the Partnership's portfolio consists of operating leases
financed with non-recourse debt (including both discounted lease rentals and
financed operating lease rentals). Leasing margin and the related leasing margin
ratio for an operating lease financed with non-recourse debt increases during
the term of the lease since rents and depreciation are typically fixed while
interest expense declines as the related non-recourse debt is repaid.
The ultimate rate of return on leases depends, in part, on the general level of
interest rates at the time the leases are originated. Because leasing is an
alternative to financing equipment purchases with debt, lease rates tend to rise
and fall with interest rates (although lease rate movements generally lag
interest rate changes in the capital markets). Interest rates declined from 1990
until the early part of 1994 (see table below). The lease rates on equipment
purchased by the Partnership during this period reflect this low interest rate
environment. This will result in corresponding reductions in the ultimate
overall yields to the partners. Annual average 5-year U.S. Treasury yields for
the past seven years were as follows:
-7-
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations, continued
-------------
Results of Operations, continued
- ---------------------
Annual average 5-year U.S. Treasury Yield
Year Yield
---- -----
1990 8.37
1991 7.37
1992 6.19
1993 5.14
1994 6.69
1995 6.38
1996 6.18
EQUIPMENT SALES MARGIN
Equipment sales margin consists of the following:
Years ended December 31,
-----------------------------------------
1996 1995 1994
----------- ----------- -----------
Equipment sales revenue $ 4,868,827 $ 3,868,324 $ 2,645,500
Cost of equipment sales (3,518,569) (2,892,175) (2,281,330)
----------- ----------- -----------
Equipment sales margin $ 1,350,258 $ 976,149 $ 364,170
=========== =========== ===========
The Partnership is in its liquidation period. During the liquidation period, as
initial leases terminate, the equipment is being remarketed (i.e., re-leased or
sold to either the original lessee or a third party) and, accordingly, the
timing and amount of equipment sales cannot be projected accurately.
INTEREST INCOME
Interest income increased due to an increase in cash available for investment as
well as an increase in interest rates.
PROVISION FOR LOSSES
The remarketing of equipment for an amount greater than its book value is
reported as equipment sales margin (if the equipment is sold) or leasing margin
(if the equipment is re-leased). The realization of less than the carrying value
of equipment (which is typically not known until remarketing subsequent to the
initial lease termination has occurred) is recorded as provision for losses.
-8-
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations, continued
-------------
Results of Operations, continued
- ---------------------
PROVISION FOR LOSSES, continued
Residual values are established equal to the estimated value to be received from
the equipment following termination of the lease. In estimating such values, the
Partnership considers all relevant facts regarding the equipment and the lessee,
including, for example, the likelihood that the lessee will re-lease the
equipment. The nature of the Partnership's leasing activities is that it has
credit exposure and residual value exposure and, accordingly, in the ordinary
course of business, it will incur losses from those exposures. The Partnership
performs ongoing quarterly assessments of its assets to identify
other-than-temporary losses.
The provision for losses recorded during 1996 primarily related to the
following:
* Certain equipment was returned to the Partnership. The Partnership had
previously expected to realize the carrying value of this equipment through
lease renewals and proceeds from the sale of this equipment to the original
lessees. The fair market value of the equipment re-leased or sold to a
third party is less than anticipated as described below:
- $150,000 related to a lessee returning an aircraft, with a
carrying value of $1,250,000, to the Partnership.
- $130,000 related to a lessee experiencing severe financial
difficulties. The lessee has notified the Partnership that it
will be returning the equipment currently under lease.
- $420,000 related to lessees returning modular buildings,
computer equipment, a telephone system and hospital equipment to
the Partnership.
- $110,000 related to the sale of equipment having a lower fair
market value than originally anticipated.
* $320,000 related to bankrupt lessees.
The provision for losses recorded during 1995 were primarily related to the
following:
- $370,000 deficiency resulting from a lessee default on a note.
- $125,000 related to a lessee returning medical equipment to the
Partnership.
- $110,000 due to a settlement with a bankrupt lessee.
The provision for losses recorded during 1994 were primarily related to
identified other-than-temporary losses in the value of off-lease equipment.
-9-
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations, continued
-------------
Results of Operations, continued
- ---------------------
EXPENSES
Management fees paid to the general partner decreased primarily as a result of
portfolio run-off.
General and administrative expenses increased primarily due to (i) $104,027
reimbursed to the general partner during the second quarter of 1996 for
insurance costs related to prior years and (ii) increased storage costs for
warehoused inventory.
Liquidity and Capital Resources
- -------------------------------
The Partnership funds its operating activities principally with cash from rents,
non-recourse debt, interest income and sales of off-lease equipment. Available
cash and cash reserves of the Partnership are invested in interest bearing cash
accounts and short-term U.S. Government securities pending distributions to the
partners.
During 1996, 1995 and 1994, the Partnership acquired equipment and direct
finance leases for a total equipment purchase price of $1,266,569, $2,095,491,
and $3,086,763, respectively. All such equipment was purchased from Capital
Associates International, Inc. ("CAII"), the Class B limited partner and an
affiliate of the general partner. The Partnership entered its liquidation period
(as defined in the Partnership Agreement) in April 1996. During the liquidation
period, purchases of equipment under lease will cease (other than for prior
commitments or for equipment upgrades).
During 1996, 1995 and 1994, the Partnership declared distributions to the
partners of $12,106,228, $9,276,551, and $9,286,099, respectively. A substantial
portion of such distributions constituted a return of capital for accounting
purposes. Distributions may be characterized for tax, accounting and economic
purposes as a return of capital, a return on capital or both. The portion of
each cash distribution by a Partnership which exceeds its net income for the
fiscal period may be deemed a return of capital. However, the total percentage
of a partnership's return on capital over its life can only be determined after
all residual cash flows (which include proceeds from the re-leasing and sale of
equipment after initial lease terms expire) have been realized at the
termination of the Partnership .
The general partner believes that the Partnership will generate sufficient cash
flow from operations during 1997 to enable it to (1) meet current operating
requirements and (2) fund cash distributions to the Class A limited partners in
accordance with the Partnership Agreement. The Partnership entered its
liquidation period (as defined in the Partnership Agreement) in April 1996.
During the liquidation period, excess cash, if any, will be distributed to the
partners in accordance with the Partnership Agreement. It is anticipated that
during the liquidation period, distributions will vary and all distributions are
expected to be a return of capital for economic purposes.
-10-
<PAGE>
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
Index to Financial Statements and
Financial Statement Schedule
Page
Number
------
Financial Statements
--------------------
Independent Auditors' Report 12
Balance Sheets at December 31, 1996 and 1995 13
Statements of Income for the years ended
December 31, 1996, 1995 and 1994 14
Statements of Partners' Capital for the years
ended December 31, 1996, 1995 and 1994 15
Statements of Cash Flows for the years
ended December 31, 1996, 1995 and 1994 16
Notes to Financial Statements 17-29
Financial Statement Schedule
----------------------------
Independent Auditors' Report 30
Schedule II - Valuation and Qualifying Accounts 31
-11-
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
THE PARTNERS
CAPITAL PREFERRED YIELD FUND, A
A CALIFORNIA LIMITED PARTNERSHIP
We have audited the accompanying balance sheets of Capital Preferred Yield Fund,
a California Limited Partnership, as of December 31, 1996 and 1995, and the
related statements of income, partners' capital, and cash flows for each of the
years in the three-year period ended December 31, 1996. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Capital Preferred Yield Fund, a
California Limited Partnership, as of December 31, 1996 and 1995, and the
results of its operations and its cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally accepted
accounting principles.
/s/KPMG Peat Marwick LLP
------------------------
KPMG Peat Marwick LLP
Denver, Colorado
January 31, 1997
-12-
<PAGE>
CAPITAL PREFERRED YIELD FUND
A California Limited Partnership
BALANCE SHEETS
ASSETS
December 31,
-------------------------
1996 1995
----------- ------------
Cash and cash equivalents $ 2,672,112 $ 4,492,487
Accounts receivable 390,607 435,466
Equipment held for sale or re-lease 1,081,841 -
Net investment in direct finance leases 5,316,787 8,730,002
Leased equipment, net 13,519,836 23,859,022
----------- -----------
Total assets $22,981,183 $37,516,977
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Payable to affiliates $ 65,370 $ 121,065
Accounts payable and accrued liabilities 821,791 587,399
Rents received in advance 230,501 260,394
Distributions payable to partners 1,317,409 955,382
Discounted lease rentals 4,363,104 9,146,266
Financed operating lease rentals 1,329,087 1,594,646
----------- -----------
Total liabilities 8,127,262 12,665,152
----------- -----------
Partners' capital:
General partner - -
Limited partners:
Class A
360,000 units authorized; 252,047 and
253,664 units issued and outstanding
in 1996 and 1995, respectively 12,199,688 21,715,744
Class B 2,654,233 3,136,081
----------- -----------
Total partners' capital 14,853,921 24,851,825
----------- -----------
Total liabilities and partners' capital $22,981,183 $37,516,977
=========== ===========
See accompanying notes to financial statements.
-13-
<PAGE>
CAPITAL PREFERRED YIELD FUND
A California Limited Partnership
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------------------
1996 1995 1994
------------ ---------- -----------
<S> <C> <C> <C>
Revenue:
Operating lease rentals $ 8,584,425 $13,253,954 $18,555,024
Direct finance lease income 1,196,514 1,600,013 1,848,696
Equipment sales margin 1,350,258 976,149 364,170
Interest income 188,628 144,913 65,247
----------- ----------- -----------
Total revenue 11,319,825 15,975,029 20,833,137
----------- ----------- -----------
Expenses:
Depreciation and amortization 6,124,604 9,944,160 13,670,774
Interest on discounted lease rentals 501,872 1,132,896 2,074,746
Interest on financed operating lease receivables 89,585 - -
Management fees paid to general partner 702,219 1,035,316 1,375,497
Provision for losses 1,130,000 605,000 492,628
Direct services from general partner 101,145 90,270 99,279
General and administrative 431,288 224,167 327,049
----------- ----------- -----------
Total expenses 9,080,713 13,031,809 18,039,973
----------- ----------- -----------
Net income $ 2,239,112 $ 2,943,220 $ 2,793,164
=========== =========== ===========
Net income allocated:
To the general partner $ 544,780 $ 417,444 $ 418,279
To the Class A limited partners 1,575,257 2,348,293 2,208,003
To the Class B limited partner 119,075 177,483 166,882
----------- ----------- -----------
$ 2,239,112 $ 2,943,220 $ 2,793,164
=========== =========== ===========
Net income per weighted average Class A
limited partner unit outstanding $ 6.23 $ 9.24 $ 8.67
=========== =========== ===========
Weighted average Class A limited
partner units outstanding 252,689 254,130 254,643
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
-14-
<PAGE>
CAPITAL PREFERRED YIELD FUND
A California Limited Partnership
STATEMENTS OF PARTNERS' CAPITAL
Years ended December 31, 1996, 1995, and 1994
<TABLE>
<CAPTION>
Class A
Limited Class A Class B
General Partner Limited Limited
Partner Units Partners Partner Total
------- ------- -------- ------- -----
<S> <C> <C> <C> <C> <C>
Partners' capital January 1, 1994 $ - 254,643 $ 33,794,488 $ 3,993,562 $ 37,788,050
Net income 418,279 - 2,208,003 166,882 2,793,164
Distributions declared to partners (418,279) - (8,266,897) (600,923) (9,286,099)
---------- -------- ------------ ----------- ------------
Partners' capital, December 31, 1994 - 254,643 27,735,594 3,559,521 31,295,115
Redemptions - (979) (109,959) - (109,959)
Net income 417,444 - 2,348,293 177,483 2,943,220
Distributions declared to partners (417,444) - (8,258,184) (600,923) (9,276,551)
---------- -------- ------------ ----------- ------------
Partners' capital, December 31, 1995 - 253,664 21,715,744 3,136,081 24,851,825
Redemptions - (1,617) (130,788) - (130,788)
Net income 544,780 - 1,575,257 119,075 2,239,112
Distributions declared to partners (544,780) - (10,961,208) (600,923) (12,106,228)
---------- -------- ------------ ----------- ------------
Partners' capital, December 31, 1996 $ - 252,047 $ 12,199,688 $ 2,654,233 $ 14,853,921
========== ======== ============ =========== ============
</TABLE>
See accompanying notes to financial statements.
-15-
<PAGE>
CAPITAL PREFERRED YIELD FUND
A California Limited Partnership
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------------------------
1996 1995 1994
------------- ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 2,239,112 $ 2,943,220 $ 2,793,164
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 6,124,604 9,944,160 13,670,774
Provision for losses 1,130,000 605,000 492,628
Cost of equipment sales 3,474,892 4,370,077 2,137,618
Recovery of investment in direct finance leases 2,955,733 5,306,706 5,699,624
Changes in assets and liabilities:
Decrease in accounts receivable 296,759 200,772 957,139
Increase (decrease) in payable to affiliates (55,695) 14,289 (1,182)
Increase (decrease) in accounts payable
and accrued liabilities 234,392 (221,315) (79,176)
Decrease in rents received in advance (29,893) (37,747) (163,023)
------------ ------------ ------------
Net cash provided by operating activities 16,369,904 23,125,162 25,507,566
------------ ------------ ------------
Cash flows from investing activities:
Purchases of equipment on operating leases from affiliate (1,142,624) (1,038,727) (817,486)
Investment in direct finance leases, acquired from affiliate (123,945) (1,056,764) (1,838,000)
------------ ------------ ------------
Net cash used in investing activities (1,266,569) (2,095,491) (2,655,486)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from financing of operating lease receivables - 1,594,646 -
Principal payments on discounted lease rentals (4,876,162) (11,177,771) (13,395,844)
Principal payments on financed operating lease rentals (172,559) - -
Distributions to partners (11,744,201) (9,279,655) (9,289,595)
Redemptions of Class A limited partner units (130,788) (109,959) -
------------ ------------ ------------
Net cash used in financing activities (16,923,710) (18,972,739) (22,685,439)
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents (1,820,375) 2,056,932 166,641
Cash and cash equivalents at beginning of year 4,492,487 2,435,555 2,268,914
------------ ------------ ------------
Cash and cash equivalents at end of year $ 2,672,112 $ 4,492,487 $ 2,435,555
============ ============ ============
Supplemental disclosure of cash flow information:
Interest paid on discounted lease rentals $ 501,872 $ 1,132,896 $ 2,074,746
Interest paid on financed operating lease receivables 89,585 - -
Supplemental disclosure of noncash investing
and financing activities:
Discounted lease rentals assumed in
equipment acquisitions - - 431,277
</TABLE>
See accompanying notes to financial statements.
-16-
<PAGE>
CAPITAL PREFERRED YIELD FUND
A California Limited Partnership
NOTES TO FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies
-----------------------------------------------------------
Organization
Capital Preferred Yield Fund, A California Limited Partnership (the
"Partnership"), was organized on July 13, 1989 as a limited partnership
under the laws of the State of California pursuant to an Agreement of
Limited Partnership (the "Partnership Agreement"). The Partnership was
formed for the purpose of acquiring and leasing a diversified portfolio
of equipment to unaffiliated third parties. The Partnership will continue
until December 31, 2010 unless terminated earlier in accordance with the
terms of the Partnership Agreement. The Partnership entered its
liquidation period in April of 1996 and the current intent is to
liquidate the Partnership between 1998 and 1999. The general partner of
the Partnership is CAI Partners Management Company, a wholly owned
subsidiary of Capital Associates International, Inc. ("CAII").
The general partner manages the Partnership, including investment of
funds, purchase and sale of equipment, lease negotiation and other
administrative duties. The Partnership commenced business operations on
January 23, 1990 and from the commencement of operations through January
5, 1992 sold 254,643 Class A limited partner units to approximately 4,100
investors at a price of $250 per Class A limited partner unit.
CAII is the Class B limited partner. The Class B limited partner was
required to contribute $5,538,805 of equipment to the Partnership in
exchange for its Class B interest, which represents 10% of the net
offering proceeds. The Class B limited partner has no remaining
obligation to contribute cash and/or equipment to the Partnership.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reporting period. For leasing entities, this includes the
estimate of residual values, as discussed below. Actual results could
differ from those estimates.
-17-
<PAGE>
CAPITAL PREFERRED YIELD FUND
A California Limited Partnership
NOTES TO FINANCIAL STATEMENTS, continued
1. Organization and Summary of Significant Accounting Policies, continued
-----------------------------------------------------------
Partnership Cash Distributions and Allocations of Profit and Loss:
Cash Distributions
------------------
During the Reinvestment Period, as defined in the Partnership
Agreement, cash distributions were made as follows:
First, the general partner and the Class A limited partners receive
4.5% and 95.5%, respectively, of available cash until the Class A
limited partners receive annual, non-compounded cumulative
distributions equal to 12% of their contributed capital during the
first three years after the initial closing date (January, 23, 1990)
and 13% of their contributed capital thereafter.
Second, the general partner and the Class B limited partner receive
4.5% and 95.5%, respectively, of available cash until the Class B
limited partner receives annual non-compounded cumulative
distributions equal to 11% of its contributed capital. Any remaining
available cash is to be reinvested or distributed to the partners as
specified in the Partnership Agreement.
During the Liquidation Period, as defined in the Partnership
Agreement, cash distributions are to be made as follows:
First, in accordance with the first and second allocations during
the Reinvestment Period as described above.
Second, 95.5% to the Class A limited partners and 4.5% to the
general partner, until the Class A limited partners have received
aggregate distributions from all sources equal to their capital
contributions plus their Priority Return, as defined in the
Partnership Agreement.
Third, 85.5% to the Class B limited partner, 10% to the Class A
limited partners and 4.5% to the general partner until the Class B
limited partner has received aggregate distributions from all
sources equal to its capital contributions plus its Subordinated
Priority Return, as defined in the Partnership Agreement.
Thereafter, 90% to the Class A limited partners and the Class B
limited partner (and among them in proportion to their respective
capital contributions as of the first day of the calendar month for
which the amount of such distribution is being determined), and 10% to
the general partner.
-18-
<PAGE>
CAPITAL PREFERRED YIELD FUND
A California Limited Partnership
NOTES TO FINANCIAL STATEMENTS, continued
1. Organization and Summary of Significant Accounting Policies, continued
-----------------------------------------------------------
Federal Income Tax Basis Profits and Losses
-------------------------------------------
Profits for any fiscal period are allocated according to the following
provisions:
First, profit is allocated to the partners in proportion to, and to
the extent of, any excess losses allocated to the partners as
described in the Partnership Agreement.
Second, any remaining profit is allocated to the partners in
proportion to, and to the extent of, all losses allocated to the
partners for all prior fiscal periods in reverse chronological order.
Third, any remaining profit is allocated 85.5% to the Class A limited
partners, 10% to the Class B limited partner, and 4.5% to the general
partner, until the Class A limited partners have been allocated an
amount equal in the aggregate to the greater of (i) a 10% annual
cumulative return, non-compounded, or (ii) a 9% annual cumulative
return compounded daily on the Class A limited partners' adjusted
purchase price of units, calculated from the first day of the month
following the month each Class A limited partner (or a predecessor)
was admitted to the Partnership.
Fourth, any remaining profit is allocated 10% to the Class A limited
partners, 4.5% to the general partner, and 85.5% to the Class B
limited partner until the Class B limited partner has been allocated
an amount equal to a 9% annual cumulative return compounded daily on
the Class B limited partner's unreturned subordinated capital
contribution calculated from the first day of the month following the
month in which any subordinated capital contribution is first made.
Fifth, any remaining profit is allocated 90% to the Class A limited
partners and Class B limited partner (and among them in proportion to
their respective capital contributions) and 10% to the general
partner.
Losses for any fiscal period are allocated according to the following
priorities:
First, to the partners in proportion to, and to the extent of, any
profits allocated for such fiscal period and all prior fiscal periods
in reverse chronological order and priority.
Second, 91.08% to the Class A limited partners, 7.92% to the Class B
limited partner, and 1% to the general partner.
-19-
<PAGE>
CAPITAL PREFERRED YIELD FUND
A California Limited Partnership
NOTES TO FINANCIAL STATEMENTS, continued
1. Organization and Summary of Significant Accounting Policies, continued
-----------------------------------------------------------
Federal Income Tax Basis Profits and Losses, continued
-------------------------------------------
Losses allocated to a partner in the first and second paragraphs above
cannot cause or increase an adjusted capital account deficit with
respect to such partner as of the end of any fiscal period. To the
extent losses allocated to a partner would exceed this limitation, such
losses will be allocated first to other partners in proportion to, and
to the extent of, their positive capital account balances, and then to
the general partner.
Pursuant to Sections 10.8 and 15.2.11(vi) of the Partnership Agreement,
the general partner amended the Partnership Agreement during the last
quarter of the year ended December 31, 1991 to correct a "misallocated
item" (as defined in Section 10.8 of the Partnership Agreement),
effective as of January 1, 1991. The amendment provides as follows:
SECTION 10.9 GENERAL PARTNER DEFICIT CAPITAL ACCOUNT RESTORATION.
Notwithstanding anything in this [Partnership] Agreement to the
contrary, and before any other allocation is made under this Section 10,
items of income and gain for each fiscal period shall be allocated, as
quickly as possible during such fiscal period, to the general partner to
the extent of any deficit balance existing in the general partner's
capital account as of the close of such fiscal period in order to
restore the balance in the general partner's capital account to zero.
Any allocations of income and/or gain to the general partner under this
paragraph shall offset, dollar for dollar, against any allocations of
profit to the general partner under any other provision of this
[Partnership] Agreement.
The purpose of this amendment is (1) to allocate gross revenue (which is
fully taxable) to the general partner in an amount equal to the
available cash distributions to the general partner, and (2) to
eliminate the allocation of income or gain to the limited partners
(which would be taxable to them) that is attributable to such available
cash distributions to the general partner.
Pursuant to Section 15.2.11(iv) of the Partnership Agreement, the
general partner also amended the Partnership Agreement during the first
quarter of the year ended December 31, 1992 to correct an ambiguity in
the allocation and distribution provisions with respect to the Class A
limited partners. The amendment provides that profit and losses
allocated, and available cash distributed, to the Class A limited
partners (as a class) will be shared by the individual Class A limited
partners in proportion to their capital contributions and the number of
days that each such Class A limited partner is a partner during each
fiscal period. This amendment reflects the actual method of allocations
and distributions to the Class A limited partners that the Partnership
has used since its inception.
-20-
<PAGE>
CAPITAL PREFERRED YIELD FUND
A California Limited Partnership
NOTES TO FINANCIAL STATEMENTS, continued
1. Organization and Summary of Significant Accounting Policies, continued
-----------------------------------------------------------
Financial Reporting
-------------------
For financial reporting purposes, net income is allocated to the
partners in a manner consistent with the allocation of cash
distributions.
Reclassifications
Certain reclassifications have been made to prior years' financial
statements to conform to the current year's presentation.
Recently Issued Financial Accounting Standards
The Partnership adopted Statement of Financial Accounting Standards No.
121, Accounting for the Impairment of Long-lived Assets and for
Long-lived Assets to be Disposed Of ("SFAS No. 121"), effective January
1, 1996. SFAS No. 121 requires that long-lived assets, including
operating leases, and certain identifiable intangibles to be held and
used by an entity be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not
be recoverable. In performing the review for recoverability, the entity
should estimate the future cash flows expected to result from the use of
the asset and its eventual disposition. If the sum of the expected
future cash flows (undiscounted and without interest charges) is less
than the carrying amount of the asset, an impairment loss is recognized.
Otherwise, an impairment loss is not recognized. Measurement of an
impairment loss for long-lived assets, including operating leases, and
identifiable intangibles held by the Partnership is based on the fair
value of the asset calculated by discounting the expected future cash
flows at an appropriate interest rate. The adoption of this statement
did not have a material effect on the Partnership's financial condition
or results of operations.
Lease Accounting
Statement of Financial Accounting Standards No. 13, Accounting for
Leases, requires that a lessor account for each lease by the direct
finance, sales-type or operating lease method. The Partnership currently
utilizes the direct financing and operating methods for all of the
Partnership's equipment under lease. Direct finance leases are defined
as those leases which transfer substantially all of the benefits and
risks of ownership of the equipment to the lessee. For all types of
leases, the determination of profit considers the estimated value of the
equipment at lease termination, referred to as the residual value. After
the inception of a lease, the Partnership may engage in financing of
lease receivables on a nonrecourse basis (i.e., "non-recourse debt" or
"discounted lease rentals") and/or equipment sale transactions to reduce
or recover its investment in the equipment.
-21-
<PAGE>
CAPITAL PREFERRED YIELD FUND
A California Limited Partnership
NOTES TO FINANCIAL STATEMENTS, continued
1. Organization and Summary of Significant Accounting Policies, continued
-----------------------------------------------------------
The Partnership's accounting methods and their financial reporting effects
are described below.
Net Investment in Direct Financing Leases ("DFLs")
The cost of the equipment, including acquisition fees paid to the
general partner, is recorded as net investment in DFLs on the
accompanying balance sheet. Leasing revenue, which is recognized over
the term of the lease, consists of the excess of lease payments plus the
estimated residual value over the equipment's cost. Earned income is
recognized monthly to provide a constant yield and is recorded as direct
finance lease income on the accompanying income statements. Residual
values are established at lease inception equal to the estimated value
to be received from the equipment following termination of the initial
lease (which in certain circumstances includes anticipated re-lease
proceeds), as determined by the general partner. In estimating such
values, the general partner considers all relevant information regarding
the equipment and the lessee.
Equipment on Operating Leases ("OLs")
Leasing revenue consists principally of monthly rentals. The cost of
equipment, including acquisition fees paid to the general partner, is
recorded as leased equipment in the accompanying balance sheets and is
depreciated on a straight-line basis over the lease term to an amount
equal to the estimated residual value at the lease termination date.
Leasing revenue consists principally of monthly rents and is recognized
as operating lease rentals in the accompanying income statements.
Residual values are established at lease inception equal to the
estimated value to be received from the equipment following termination
of the initial lease (which in certain circumstances includes
anticipated re-lease proceeds), as determined by the general partner. In
estimating such values, the general partner considers all relevant
information and circumstances regarding the equipment and the lessee.
Because revenue, depreciation expense and the resultant profit margin
before interest expense are recorded on a straight-line basis, and
interest expense on discounted lease rentals (discussed below) is
recorded on the interest method, lower returns are realized in the early
years of the term of an OL and higher returns in later years.
Non-recourse Discounting of Rentals
The Partnership may assign the future rentals from leases to financial
institutions, or acquire leases subject to such assignments, at fixed
interest rates on a nonrecourse basis. In return for such assigned
future rentals, the Partnership receives the discounted value of the
rentals in cash. In the event of default by a lessee, the financial
institution has a first lien on the underlying leased equipment, with no
further recourse against the Partnership. Cash proceeds from such
financings, or the assumption of such financings, are recorded on the
balance sheet as discounted lease rentals. As lessees make payments to
financial institutions, leasing revenue and interest expense are
recorded.
-22-
<PAGE>
CAPITAL PREFERRED YIELD FUND
A California Limited Partnership
NOTES TO FINANCIAL STATEMENTS, continued
1. Organization and Summary of Significant Accounting Policies, continued
-----------------------------------------------------------
Non-recourse Financing of Operating Lease Rentals
The Partnership may assign substantially all of its rights under certain
operating leases to a purchaser and subsequently the purchaser may
assign the rentals from such leases to a financial institution at fixed
interest rates on a non-recourse basis. The Partnership receives the
discounted value of the rentals in cash from the financial institution.
As with discounted lease rentals discussed above, in the event of
default by a lessee, the financial institution has a first lien on the
underlying leased equipment, with no further recourse against the
Partnership or the Partnership's assets. The purchaser cannot be the
owner of the equipment for financial reporting purposes because the
purchaser has not made a sufficient investment in the equipment and does
not have significant risks of ownership. Therefore, the transaction
cannot be recorded as a sale. Accordingly, cash proceeds from financings
related to such transactions are recorded on the balance sheet as
financed operating lease rentals. As lessees make payments to financial
institutions, leasing revenue and interest expense are recorded.
Allowance for Losses
An allowance for losses is maintained at levels determined by the
general partner to adequately provide for any other-than-temporary
declines in asset values. In determining losses, economic conditions,
the activity in the used equipment markets, the effect of actions by
equipment manufacturers, the financial condition of lessees, the
expected courses of action by lessees with regard to leased equipment at
termination of the initial lease term, and other factors which the
general partner believes are relevant, are considered. Asset chargeoffs
are recorded upon the termination or remarketing of the underlying
assets. The lease portfolio is reviewed quarterly to determine the
adequacy of the allowance for losses.
Transactions Subsequent to Initial Lease Termination
After the initial lease term of equipment on lease expires, the
equipment is either sold or re-leased to the existing lessee or another
third party. The remaining net book value of equipment sold is removed
and gain or loss recorded when equipment is sold. The accounting for
re-leased equipment is consistent with the accounting described under
"Net Investment in Direct Finance Leases" and "Equipment on Operating
Leases" above.
Income Taxes
No provision for income taxes has been made in the financial statements
since taxable income or loss is recorded in the tax returns of the
individual partners.
-23-
<PAGE>
CAPITAL PREFERRED YIELD FUND
A California Limited Partnership
NOTES TO FINANCIAL STATEMENTS, continued
1. Organization and Summary of Significant Accounting Policies, continued
-----------------------------------------------------------
Cash Equivalents
The Partnership considers short-term, highly liquid investments that are
readily convertible to known amounts of cash to be cash equivalents.
Cash equivalents of $2,595,000 and $4,418,000 at December 31, 1996 and
1995, respectively, are comprised of an investment in a money market
fund which invests solely in U.S. Government securities having
maturities of 90 days or less.
Equipment Held for Sale or Re-lease
Equipment held for sale or re-lease, recorded at the lower of cost or
market value expected to be realized, consists of equipment previously
leased to end users which has been returned to the Partnership following
lease expiration.
Net Income Per Class A Limited Partner Unit
Net income per Class A limited partner unit is computed by dividing the
net income allocated to the Class A limited partners by the weighted
average number of Class A limited partner units outstanding during the
period.
2. Net Investment in Direct Finance Leases
---------------------------------------
The components of the net investment in direct finance leases as of
December 31, 1996 and 1995 were:
1996 1995
---- ----
Minimum lease payments receivable $ 4,961,017 $ 8,375,043
Estimated residual values 1,904,751 2,307,402
Deferred initial leasing costs, net 9,112 27,899
Less unearned income (1,558,093) (1,980,342)
----------- -----------
$ 5,316,787 $ 8,730,002
=========== ===========
-24-
<PAGE>
CAPITAL PREFERRED YIELD FUND
A California Limited Partnership
NOTES TO FINANCIAL STATEMENTS, continued
3. Leased Equipment
----------------
The Partnership's investments in equipment on operating leases by major
classes as of December 31, 1996 and 1995 were:
1996 1995
---- ----
Transportation and industrial equipment $ 25,383,364 $ 38,962,304
Computers and peripherals 2,547,947 7,408,261
Office furniture and equipment 2,316,692 3,552,482
Medical and research equipment 1,200,140 1,572,460
Other 508,293 1,585,429
------------ -------------
Total 31,956,436 53,080,936
Less:
Accumulated depreciation (18,193,840) (28,548,911)
Allowance for losses (242,760) (673,003)
------------ -------------
$ 13,519,836 $ 23,859,022
============ =============
Depreciation expense for 1996, 1995 and 1994 was $6,093,950, $9,883,414 and
$13,525,868, respectively.
4. Future Minimum Lease Payments
-----------------------------
Future minimum lease payments receivable from leases at December 31, 1996
are as follows:
Year Ending December 31, DFLs OLs
------------------------ ---- ---
1997 $ 2,789,234 $ 5,145,955
1998 1,376,883 2,888,812
1999 619,197 486,938
2000 152,268 42,192
2001 23,435 -
----------- -----------
Total $ 4,961,017 $ 8,563,897
=========== ===========
-25-
<PAGE>
CAPITAL PREFERRED YIELD FUND
A California Limited Partnership
NOTES TO FINANCIAL STATEMENTS, continued
5. Discounted Lease Rentals
------------------------
Discounted lease rentals outstanding at December 31, 1996 bear interest at
rates primarily ranging between 5.40% to 9.25%. Aggregate maturities of
such non-recourse obligations are as follows:
Year Ending December 31,
------------------------
1997 $ 3,287,432
1998 1,008,328
1999 67,344
-----------
Total $ 4,363,104
===========
6. Financed Operating Lease Rentals
--------------------------------
Financed operating lease rentals outstanding at December 31, 1996 bear
interest at 8.25%. Aggregate maturities of such non-recourse financings
are as follows:
Year Ending December 31,
------------------------
1997 $ 746,257
1998 311,274
1999 271,556
-----------
Total $ 1,329,087
===========
7. Transactions With the General Partner and Affiliates
----------------------------------------------------
Maximum Front-end Fee
---------------------
Pursuant to the Partnership Agreement, the total of all front-end fees
(sales commissions, organization and offering costs, acquisition fees and
reimbursements and initial leasing costs) may not exceed an amount which
would cause the Partnership's investment in equipment (total cost of
equipment excluding front-end fees) to be less than the greater of (1) a
percentage amount of total Class A limited partners' capital
contributions equal to 80% minus .0625% for each 1% of the aggregate
purchase price of equipment that is borrowed by the Partnership
(determined by dividing the principal amount of all such indebtedness
incurred by the Partnership by the aggregate purchase price of the
equipment) or (2) 75% of the total Class A limited partners capital
contributions. The maximum fee was reached in July 1993. Equipment
purchases after July 1993 did not (and will not in the future) include
any acquisition fees, reimbursements or initial lease cost payments to
the general partner.
-26-
<PAGE>
CAPITAL PREFERRED YIELD FUND
A California Limited Partnership
NOTES TO FINANCIAL STATEMENTS, continued
7. Transactions With the General Partner and Affiliates, continued
----------------------------------------------------
Management Fees
---------------
As permitted under the terms of the Partnership Agreement, the general
partner receives management fees as compensation for services performed
in connection with managing the Partnership's equipment equal to the
lesser of (a) 5% of gross rentals received (limited to 2% of gross
rentals received in the case of full payout leases) or (b) the fee which
the general partner reasonably believes to be competitive with that which
would be charged by a non-affiliate for rendering comparable services.
Such fees totaled $702,219, $1,035,316 and $1,375,497 in 1996, 1995 and
1994, respectively.
Direct Services
---------------
The general partner and its affiliates provide accounting, investor
relations, billing, collecting, asset management, and other
administrative services to the Partnership. The Partnership reimburses
the general partner for these services performed on its behalf as
permitted under the terms of the Partnership Agreement. Such
reimbursements totaled $101,145, $90,270 and $99,279 in 1996, 1995 and
1994, respectively.
Equipment Purchases
-------------------
The Partnership purchased equipment from CAII with a total purchase price
of $1,266,569, $2,095,491 and $3,086,763, (including $0, $0, and
$431,277, of discounted lease rentals) during 1996, 1995 and 1994,
respectively. The Partnership purchased the equipment at CAII's cost,
plus reimbursement of other acquisition costs subject to the limitations
discussed above, as provided for in the Partnership Agreement.
Payable to Affiliates
---------------------
Payable to affiliates consists primarily of management fees and direct
services payable to the general partner.
-27-
<PAGE>
CAPITAL PREFERRED YIELD FUND
A California Limited Partnership
NOTES TO FINANCIAL STATEMENTS, continued
8. Tax Information (Unaudited)
---------------------------
The following reconciles net income for financial reporting purposes to
income (loss) for federal income tax purposes for the years ended December
31,:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net income per financial statements $ 2,239,112 $ 2,943,220 $ 2,793,164
Differences due to:
Direct finance leases 2,949,142 6,912,037 3,850,926
Depreciation (2,802,075) (3,451,073) (5,962,181)
Provision for losses 1,130,000 605,000 483,383
Gain (loss) on sale of equipment (2,624,981) 1,482,212 (241,732)
Other 302,689 232,461 49,587
------------ ------------ ------------
Partnership income (loss) for
federal income tax purposes $ 1,193,887 $ 8,723,857 $ 973,147
============ ============ ============
</TABLE>
As of December 31, 1996, the partners' capital accounts per the
accompanying financial statements totaled $14,853,921 compared to partners'
capital accounts for federal income tax purposes of $19,440,267. The
difference arises primarily from commissions reported as a reduction in
partners' capital for financial reporting purposes but not for federal
income tax purposes, and temporary differences related to direct finance
leases, depreciation and provisions for losses.
9. Concentration of Credit Risk
----------------------------
As of December 31, 1996, approximately 53% of the Partnership's equipment
under lease was leased to investment grade lessees. Pursuant to the
Partnership Agreement, an investment grade lessee is a company (1) with a
credit rating of not less than Baa as determined by Moody's Investor
Services, Inc., (2) that has a comparable credit rating as determined by
other recognized credit rating services or, (3) if the lessee is not rated,
then a lessee whom the general partner believes would have received a
rating of Baa, or better, if the lessee would have been rated.
The Partnership's cash balance is maintained with a high credit quality
financial institution. At times such balances may exceed the FDIC insurance
limit due to the receipt of lockbox amounts that have not cleared the
presentment bank (generally for less than two days). As funds become
available, they are invested in a money market mutual fund.
-28-
<PAGE>
CAPITAL PREFERRED YIELD FUND
A California Limited Partnership
NOTES TO FINANCIAL STATEMENTS, continued
10. Bankrupt Lessees
----------------
Anchor Glass filed for protection under Chapter 11 of the bankruptcy code
on September 13, 1996. The aggregate net book value with this lessee was
$269,085 at December 31, 1996. Potential outcomes are (i) the lessee
affirms its leases and the Partnership collects all rents due under the
leases or (ii) the lessee rejects the leases and returns the underlying
equipment to the Partnership. If the leases are rejected and the equipment
is returned to the Partnership or sold to a third party, it is possible
that remarketing proceeds will be less than the net book value of the
equipment. However, if the lessee affirms the leases, the Partnership would
not be subject to a loss. The lessee has not made its intentions known at
this time and, accordingly, the amount of loss, if any, cannot be
determined as of December 31, 1996. Regardless of the lessee's decision to
accept or reject the leases, the general partner believes that the ultimate
outcome will not have a material adverse impact on the Partnership's
financial position or results of operations.
11. Disclosures about Fair Value of Financial Instruments
-----------------------------------------------------
Statement of Financial Standards No. 107 ("SFAS No. 107"), Disclosures
about Fair Value of Financial Instruments specifically excludes certain
items from its disclosure requirements such as the Partnership's investment
in leased assets. The carrying amounts at December 31, 1996 for cash and
cash equivalents, accounts receivable, accounts payable and accrued
liabilities, payable to affiliates, rents and sale proceeds received in
advance and distributions payable to partners approximate their fair values
due to the short maturity of these instruments.
-29-
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
THE PARTNERS
CAPITAL PREFERRED YIELD FUND, A
A CALIFORNIA LIMITED PARTNERSHIP:
Under date of January 31, 1997, we reported on the balance sheets of Capital
Preferred Yield Fund, a California Limited Partnership, as of December 31, 1996
and 1995, and the related statements of income, partners' capital, and cash
flows for each of the years in the three-year period ended December 31, 1996, as
contained in the Partnership's annual report on Form 10-K for the year 1996. In
connection with our audits of the aforemen tioned financial statements, we have
also audited the related financial statement Schedule II, as listed in the
accompanying index. This financial statement schedule is the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
this financial statement schedule based on our audits.
In our opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.
/s/KPMG Peat Marwick LLP
------------------------
KPMG Peat Marwick LLP
Denver, Colorado
January 31, 1997
-30-
<PAGE>
CAPITAL PREFERRED YIELD FUND
A California Limited Partnership
SCHEDULE II - VALUATION AND QUALIFYING
ACCOUNTS for the years ended December 31,
1996, 1995 and 1994
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ------------------------------- ----------- ------------------------------ ------------- ---------
Additions
(Deductions)
Balance at Additions charged to Balance
beginning charged to other accounts - Deductions - at end
Classification of period expenses describe (1)-(2) describe (3) of period
- -------------- ----------- ---------- ----------------- ------------- ---------
1996
- -------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for losses:
Accounts receivable $ 5,000 $ - $ - $ - $ 5,000
Equipment on operating leases 673,003 1,130,000 (749,298) (810,945) 242,760
---------- ---------- ---------- ---------- -----------
Totals $ 678,003 $ 1,130,000 $ (749,298) $ (810,945) $ 247,760
========== ========== ========== ========== ===========
1995
- -------------------------------
Allowance for losses:
Accounts receivable $ 5,000 $ - $ - $ - $ 5,000
Equipment on operating leases 1,200,614 605,000 (279,290) (853,321) 673,003
---------- ---------- ---------- ---------- -----------
Totals $1,205,614 $ 605,000 $ (279,290) $ (853,321) $ 678,003
========== ========== ========== ========== ===========
1994
- -------------------------------
Allowance for losses:
Accounts receivable $ 195,362 $ 25,000 $ (206,117) $ (9,245) $ 5,000
Equipment on operating leases 265,544 467,628 467,442 - 1,200,614
---------- ---------- ---------- ---------- -----------
Totals $ 460,906 $ 492,628 $ 261,325 $ (9,245) $ 1,205,614
========== ========== ========== ========== ===========
</TABLE>
(1) Primarily represents reclassifications between allowance categories.
(2) Represents offsetting entries to the individual accounts comprising the net
investment in direct finance leases for adjustments made to estimated
residual values.
(3) Represents charge-offs against allowance and recoveries.
See accompanying independent auditors' report.
-31-
<PAGE>
Item 9. Disagreements on Accounting and Financial Disclosure
----------------------------------------------------
None
Item 10. Directors and Executive Officers of the Partnership
---------------------------------------------------
The Partnership has no officers and directors. The general partner manages and
controls the affairs of the Partnership and has general responsibility and
authority in all matters affecting its business. Information concerning the
directors and executive officers of the general partner is as follows:
CAI Partners Management Company
Name Positions Held
---- --------------
John F. Olmstead President and Director
Dennis J. Lacey Senior Vice President and Director
John E. Christensen Senior Vice President, Principal Financial and
Chief Administrative Officer and Director
Anthony M. DiPaolo Senior Vice President, Assistant Secretary and
Director
Daniel J. Waller Vice President and Director
Richard H. Abernethy Vice President and Director
John A. Reed Vice President, Assistant Secretary and Director
Robert A. Golden Vice President and Director
David J. Anderson Chief Accounting Officer and Secretary
JOHN F. OLMSTEAD, age 52, joined CAII as Vice President in December, 1988, is a
Senior Vice President of CAI and CAII and is head of CAII's Public Equity
division. He has served as Chairman of the Board for Neo-kam Industries, Inc.,
Matchless Metal Polish Company, Inc. and ACL, Inc. for more than 5 years. He has
over 20 years of experience holding various positions of responsibility in the
leasing industry. Mr. Olmstead holds a Bachelor of Science degree from Indiana
University and a Juris Doctorate degree from Indiana Law School.
-32-
<PAGE>
Item 10. Directors and Executive Officers of the Partnership, continued
---------------------------------------------------
DENNIS J. LACEY, age 43, joined CAI as Vice President, Operations, in October
1989. Mr. Lacey was appointed Treasurer on January 1, 1991, Chief Financial
Officer on April 11, 1991, a director on July 19, 1991, and President and Chief
Executive Officer on September 6, 1991. Prior to joining CAI, Mr. Lacey was an
audit partner for the public accounting firm of Coopers & Lybrand. Mr. Lacey is
also a director and senior officer of CAII, CAI Equipment Leasing I Corp., CAI
Equipment Leasing II Corp., CAI Equipment Leasing III Corp., CAI Equipment
Leasing IV Corp., CAI Equipment Leasing V Corp., CAI Leasing Canada, Ltd., CAI
Partners Management Company, CAI Securities Corporation, CAI Lease
Securitization I Corp. and Capital Equipment Corporation (collectively referred
to herein as the "CAI Affiliates"), all of which are first- or second-tier
wholly-owned subsidiaries of CAI.
JOHN E. CHRISTENSEN, age 49, joined CAII as Vice President and Treasurer in
November 1988. He now serves as Senior Vice President, Finance and Chief
Financial Officer of CAI and CAII. Mr. Christensen previously held senior
management positions at Maxicare Health Plans, Inc., Global Marine, Inc. and
Santa Fe International, Inc. Mr. Christensen obtained his MBA in Finance from
the University of Michigan and his Bachelor of Arts degree from Michigan State
University.
ANTHONY M. DIPAOLO, age 37, joined CAII in July 1990 as an Assistant Treasurer
and is currently Senior Vice President-Business Development. He has also held
the positions of Senior Vice President-Controller and Assistant Vice
President-Credit Administration for the Company. Mr. DiPaolo has held financial
management positions as Chief Financial Officer for Mile High Kennel Club, Inc.
from 1988 to 1990 and was Vice President/Controller for VICORP Restaurants, Inc.
from 1986 through 1988. Mr. DiPaolo holds a Bachelor of Science degree in
Accounting from the University of Denver.
DANIEL J. WALLER, age 38, joined CAII in July 1990, as a manager of Investor
Relations. Mr. Waller assumed the responsibility for the asset management
department a short time later, and is currently Vice President, Capital Markets
Group. Prior to joining CAII, Mr. Waller was an audit manager with Coopers &
Lybrand for over three years and gained considerable experience in the leasing
industry. While at Coopers & Lybrand, Mr. Waller held positions with the
International Accounting and Auditing Committee as well as the national Auditing
Directorate. Mr. Waller holds a Bachelor of Arts degree in accounting from the
University of Northern Iowa.
RICHARD H. ABERNETHY, age 42, joined CAII in April 1992 as Equipment Valuation
Manager and currently serves as Vice President of Asset Management. Mr.
Abernethy has thirteen years experience in the leasing industry, including prior
positions with Barclays Leasing Inc., from November 1986 to February 1992, and
Budd Leasing Corporation, from January 1981 to November 1986. Mr. Abernethy
holds a Bachelor of Arts in Business Administration from the University of North
Carolina at Charlotte.
JOHN A. REED, age 41, joined CAII in January 1990 as the Tax Director and
Assistant Secretary. Mr. Reed is currently the Vice President of Marketing and
is responsible for all lease documentation and management of transaction
structuring and processing. Prior to joining the Marketing Department, Mr. Reed
was Vice President of Credit and Debt Administration. He spent seven and one
half years with Coopers & Lybrand in the Tax Department and served on CAII's tax
consulting engagement during that time. Mr. Reed holds a Bachelor of Arts degree
in Social Sciences and Masters of Science in Accounting, from Colorado State
University.
-33-
<PAGE>
Item 10. Directors and Executive Officers of the Partnership, continued
---------------------------------------------------
ROBERT A. GOLDEN, age 51, is Vice President and the National Sales Manager of
the Company. Mr. Golden joined the Company in 1993 as a Branch Manager. He was
promoted to his current position in September 1994. Prior to joining the
Company, he was an Executive Vice President with the U.S. Funds Group, President
of BoCon Capital Group and Vice President with Ellco/GE Capital for fifteen
years. Mr. Golden is an officer, but not a director, of CAII.
DAVID J. ANDERSON, age 43, joined CAII in August 1990 as Manager of Billing &
Collections and currently serves as Assistant Vice-President/Chief Accounting
Officer. Prior to joining CAII, Mr. Anderson was Vice- President/Controller for
Systems Marketing, Inc., from 1985 to 1990, and previous to that working in
several senior staff positions at the Los Alamos National Laboratory and with
Ernst & Whinney. Mr. Anderson holds a Bachelor of Business Administration degree
in Accounting from the University of Wisconsin.
Item 11. Executive Compensation
----------------------
No compensation was paid by the Partnership to the officers and directors of the
general partner. See Item 13 of this Report, "Certain Relationships and Related
Transactions", for a description of the compensation and fees paid to the
general partner and its affiliates by the Partnership during 1996.
Item 12. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
(a) As of he date hereof, no person is known by the Partnership to
be the beneficial owner of more than 5% of the Class A limited
partner units of the Partnership. The Partnership has no
directors or officers, and neither the general partner nor the
Class B limited partner of the Partnership own any Class A
limited partner units.
CAII, the parent of the general partner, owns 100% of the
Partnership's Class B limited partner interest.
CAI Partners Management Company owns 100% of the Partnership's
general partner interest.
The names and addresses of the general partner and the Class B
limited partner are as follows:
General Partner
---------------
CAI Partners Management Company
7175 West Jefferson Avenue
Suite 4000
Lakewood, Colorado 80235
-34-
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management,
-----------------------------------------------------------------------
continued
Class B Limited Partner
-----------------------
Capital Associates International, Inc.
7175 West Jefferson Avenue
Suite 4000
Lakewood, Colorado 80235
(b) No directors or officers of the general partner or the Class B
limited partner owned any Class A limited partner units as of
December 31, 1996.
(c) The Partnership knows of no arrangements, the operation of which
may at a subsequent date result in a change in control of the
Partnership.
Item 13. Certain Relationships and Related Transactions
----------------------------------------------
The general partner and its affiliates receive certain types of compensation,
fees or other distributions in connection with the operations of the
Partnership.
Following is a summary of the amounts paid or payable to the general partner and
its affiliates during 1996:
Management Fees
- ---------------
The general partner receives a monthly fee as compensation for services rendered
in connection with managing the Partnership's equipment in an amount equal to
the lesser of (i) 5% of gross rentals received by the Partnership (but limited
to 2% of gross rentals received in the case of full payout leases), or (ii) the
fee which the general partner reasonably believes to be competitive with that
which would be charged by a non-affiliate for rendering comparable services.
Management fees of $702,219 were earned by the general partner during 1996.
Accountable General and Administrative Expenses
- -----------------------------------------------
The general partner is entitled to reimbursement of certain expenses paid on
behalf of the Partnership which are incurred in connection with the
Partnership's operations. Such reimbursable expenses amounted to $101,145 during
1996.
Additionally, the general partner receives 4.5% of Partnership cash
distributions, and is allocated certain Partnership income and gain, relating to
its general partner interest in the Partnership. Distributions paid and net
income allocated to the general partner totaled $544,780 for 1996. Distributions
paid and net income allocated to the Class B limited partner totaled $600,923
and $119,075, respectively, for 1996.
-35-
<PAGE>
Item 13. Certain Relationships and Related Transactions, continued
----------------------------------------------
During 1996, the Partnership acquired the equipment described below from CAII:
<TABLE>
<CAPTION>
Cost to
Partnership
Including
Date Cost to Acquisition Debt Annual
Purchased Lessee Term Equipment Description CAII Fees* Assumed Rents
- --------- ------ ---- --------------------- ------- ----------- ------- ------
<C> <C> <C> <C> <C> <C> <C> <C>
02/06/96 Consolidated Diesel Co 36 Copier $ 11,945 $ 11,945 $ 0 $ 4,213
03/01/96 Consolidated Diesel Co 36 Boring machine 28,500 28,500 0 8,587
04/26/96 Alliant Techsystems, Inc. 36 Computer equipment 210,160 210,160 0 62,217
05/01/96 Wagner College 24 Computer equipment 68,722 68,722 0 29,300
06/01/96 Henry General Hospital 60 Medical equipment 112,000 112,000 0 56,244
07/01/96 Wagner College 24 Computer equipment 76,854 76,854 0 32,767
07/16/96 Wagner College 24 Computer equipment 33,604 33,604 0 24,509
08/22/96 Wagner College 24 Computer equipment 67,527 67,527 0 29,204
09/18/96 Sarif 36 Manufacturing 610,000 610,000 0 211,987
10/23/96 Wagner College 24 Computer equipment 47,257 47,257 0 40,703
----------- ----------- --- ---------
$ 1,266,569 $ 1,266,569 $ 0 $ 499,731
=========== =========== === =========
</TABLE>
* The lower of (a) the price for the equipment plus all costs incurred in
maintaining the equipment (including, without limitation, the reasonable,
necessary and actual expenses, as determined in accordance with generally
accepted accounting principles, of storage, carrying, warehousing, repair,
marketing, financing and taxes) from the date of acquisition thereof,
provided that any proceeds accrued from the first basic rent date thereof
and retained by the general partner or an affiliate thereof from leasing
the equipment or any other arrangement with respect to the equipment shall
be deemed a credit towards the purchase price paid by the Partnership, or
(b) the fair market value of such equipment, as determined by an
independent nationally recognized appraiser selected by the general
partner.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
---------------------------------------------------------------
(a)
and
(d) The following documents are filed as part of this Report:
1. Financial Statements
2. Financial Statement Schedule
(b) The Partnership did not file any reports on Form 8-K during the
three months ended December 31, 1996.
-36-
<PAGE>
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
---------------------------------------------------------------
(c) Exhibits required to be filed.
Exhibit Exhibit
Number Name
------- -------
4.1* Capital Preferred Yield Fun d Limited Partnership
Agreement dated July 13, 1989 filed as Exhibit 4.1 to
the Partnership's Annual Report on Form 10-K for the
year ended December 31, 1990.
4.2* First Amendment to Limited Partnership Agreement dated
December 31, 1991. (Filed April 1, 1992.)
4.3* Second Amendment to Limited Partnership Agreement
dated March 31, 1992. (Filed May 15, 1992.)
* Not filed herewith. In accordance with Rule 12b-32 of the
General Rules and Regulations under the Securities Exchange
Act of 1934, reference is made to the document previously
filed with the Commission.
-37-
<PAGE>
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Partnership has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated: March 10, 1997 Capital Preferred Yield Fund,
A California Limited Partnership
By: CAI Partners Management Company
By: /s/John F. Olmstead
--------------------------------
John F. Olmstead
President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the general partner
of the Partnership and in the capacities indicated on March 10, 1997.
Signature Title
- --------- -----
/s/John F. Olmstead
- ------------------------
John F. Olmstead President and Director
/s/Dennis J. Lacey
- ------------------------
Dennis J. Lacey Senior Vice President and Director
/s/John E. Christensen
- ------------------------
John E. Christensen Senior Vice President, Principal Financial and
Chief Administrative Officer and Director
/s/Anthony M. DiPaolo
- ------------------------
Anthony M. DiPaolo Senior Vice President, Assistant Secretary and
Director
/s/Daniel J. Waller
- ------------------------
Daniel J. Waller Vice President and Director
/s/Richard H. Abernethy
- ------------------------
Richard H. Abernethy Vice President and Director
/s/John A. Reed
- ------------------------
John A. Reed Vice President, Assistant Secretary and Director
/s/Robert A. Golden
- ------------------------
Robert A. Golden Vice President and Director
/s/David J. Anderson
- ------------------------
David J. Anderson Chief Accounting Officer and Secretary
-38-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the balance
sheets and statements of income and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,672,112
<SECURITIES> 0
<RECEIVABLES> 390,607
<ALLOWANCES> 0
<INVENTORY> 1,081,841
<CURRENT-ASSETS> 0
<PP&E> 13,519,836
<DEPRECIATION> 0
<TOTAL-ASSETS> 22,981,183
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 14,853,921
<TOTAL-LIABILITY-AND-EQUITY> 22,981,183
<SALES> 1,350,258
<TOTAL-REVENUES> 11,319,825
<CGS> 0
<TOTAL-COSTS> 9,080,713
<OTHER-EXPENSES> 803,364
<LOSS-PROVISION> 1,130,000
<INTEREST-EXPENSE> 591,457
<INCOME-PRETAX> 2,239,112
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,239,112
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,239,112
<EPS-PRIMARY> 6.23
<EPS-DILUTED> 6.23
</TABLE>
