<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) May 23, 1996
-----------------------------
PaineWebber Preferred Yield Fund, L.P.
- -----------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
Delaware 0-19166 84-1130506
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(State or Other Juristiction (Commission (IRS Employer
of Incorporation) File Number) Identification No)
7175 West Jefferson Avenue, Suite 3000, Lakewood, Colorado 80235
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (303) 980-1000
-------------------------
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(Former Name or Former Address, if Changed Since Last Report)
<PAGE> 2
ITEM 5. OTHER EVENTS
On May 23, 1996, the Partnership mailed its 1995 Annual Report to
holders of limited partnership interest {See Exhibit 7(c)(19)}.
<PAGE> 3
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(c) Exhibits
(19) Annual Report for the year ended December 31, 1995 provided to
owners of limited partnership interests.
<PAGE> 4
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PaineWebber Preferred Yield Fund, L.P. (Registrant)
By: General Equipment Management, Inc.
A General Partner
Date: May 23, 1996 By: /s/ Joseph P. Ciavarella
--------------------------
Joseph P. Ciavarella
Vice President, Treasurer and Chief
Financial and Accounting Officer
<PAGE> 5
EXHIBIT INDEX
Exhibit No. Description
- ---------- -----------
19 Annual Report for the year ended December 31, 1995
<PAGE> 1
PAINEWEBBER
PREFERRED
YIELD
FUND,
L.P.
ANNUAL REPORT 1995
<PAGE> 2
PAINEWEBBER PREFERRED YIELD FUND, L.P.
CONTENTS
MESSAGE TO CLASS A LIMITED PARTNERS
TWO
FINANCIAL HIGHLIGHTS
FOUR
THE YEAR IN REVIEW
FIVE
LOOKING AHEAD
SEVEN
ANSWERS TO FREQUENTLY ASKED QUESTIONS
EIGHT
SCHEDULE OF TYPE OF EQUIPMENT INVESTMENTS
NINE
FINANCIAL STATEMENTS
ELEVEN
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
TWENTY-THREE
PARTNERSHIP DIRECTORY
TWENTY-SEVEN
<PAGE> 3
PAINEWEBBER PREFERRED YIELD FUND, L.P.
MESSAGE TO CLASS A LIMITED PARTNERS
APRIL 15, 1996
Dear Limited Partner:
Enclosed is the Annual Report for the year ended December 31, 1995 for
PaineWebber Preferred Yield Fund, L.P. Following this letter, you will find
highlights of the financial statements, an overview of the industry, a review of
the Partnership's performance and audited financial statements for the year
ended December 31, 1995.
The Partnership's portfolio consisted of equipment with original purchase prices
(including acquisition fees) totalling approximately $78.2 million as of
year-end 1995. All equipment acquired is subject to triple net leases with
unaffiliated third party lessees. Based on original acquisition cost,
approximately 55% of the Partnership's remaining equipment portfolio at December
31, 1995 was leased to investment grade lessees.
At year-end 1995, appraised values of the Partnership's equipment totalled $37.0
million, as determined by an independent equipment appraisal firm. Based upon
the Partnership's liquidation methodology, the appraised value of the
Partnership's equipment plus the remaining net assets of the Partnership
resulted in a year-end estimated annual valuation of $230 per $500 Unit, down
from $255 per $500 Unit at year-end 1994.
During 1995, investors received distributions totalling $70 per $500 Unit.
Assuming an investor was admitted in the Partnership's initial closing,
cumulative cash distributions received through year-end 1995 totalled
approximately $387 per $500 Unit. The capital equipment owned by the Partnership
are depreciating assets and the ultimate value received at the time of the sale
of the equipment will be less than the original cost. Therefore, a portion of
each distribution during the life of the Partnership will constitute a return of
capital. While cash distributions have met the Partnership's original
distribution objective, the overall return is directly correlated to both lease
rates and the ultimate value of the equipment at the time of sale. Consequently,
an investor's total return on investment can only be estimated until all cash
flows from the releasing and sale of the equipment are received and the
Partnership is liquidated. During 1996, leases of equipment with original
purchase prices totalling approximately $16 million are scheduled to expire.
On December 11, 1995, the Partnership entered into a Master Lease Agreement
under which it assigned certain economic rights for specified user leases to an
unaffiliated third party in return for a series of payments under the Master
Lease, the amount and the term of which exceeded the underlying user leases
assigned. Shortly thereafter, the Partnership accepted prepayment of the present
value of the Master Lease rentals, which equalled approximately $11.3 million.
The Partnership entered into the Master Lease Agreement because it allowed the
Partnership to realize, on an economic basis, a premium on the estimated
economics (non-cancellable lease rentals and projected residual values) for the
related user leases and to purchase additional leased equipment that, based upon
the anticipated economics, would enhance the overall results of the Partnership.
This prepayment of the Master Lease rentals did, however, increase net taxable
income in 1995 to approximately $92 per $500 Unit.
TWO
<PAGE> 4
PAINEWEBBER PREFERRED YIELD FUND, L.P.
Since the reinvestment period ended on March 31, 1996, the Partnership has
entered the final stage of its operation. As a result, the Partnership will no
longer commit to purchase any additional equipment, and net cash flow from
operations and equipment sales will be distributed to the partners according to
allocation provisions of the Partnership Agreement. Prior to March 31, 1996, the
Partnership was able to commit to purchase additional equipment and the
Partnership will purchase such additional equipment during 1996. As described in
the "Looking Ahead" section of this report (page seven), the General Partners
are considering a possible change in the timing of cash distributions for the
second half of 1996.
Please feel free to call the Partnership at (800) 288-0922 with any questions
you have regarding your investment.
Very truly yours,
/s/John F. Olmstead /s/Stephen R. Dyer
- ------------------- ------------------
John F. Olmstead Stephen R. Dyer
President President
CAI Equipment Leasing Corporation General Equipment Management, Inc.
THREE
<PAGE> 5
PAINEWEBBER PREFERRED YIELD FUND, L.P.
FINANCIAL HIGHLIGHTS
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<TABLE>
<CAPTION>
As of December 31, 1990
or for the Period from the
Commencement of Operations
As of December 31 or (June 22, 1990) through
For the Year Ended December 31 December 31, 1990
- -------------------------------------------------------------------------------------------------------------------------
OPERATING RESULTS 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
Total Revenues(1) $16,383 $18,150 $21,469 $22,138 $17,491 $ 4,121
Net Income 3,957 2,671 2,686 5,488 5,906 1,291
Distributions 11,473 11,473 11,473 11,460 10,422 2,338
PER UNIT RESULTS
Net Income(2) 22.14 11.70 10.78 28.51 35.83 17.98
Distributions(3) 70.00 70.00 70.00 70.00 70.00 36.53
FINANCIAL POSITION
Total Assets 53,302 49,116 57,919 62,930 67,369 51,243
Total Partners' Equity(4) 34,113 41,629 50,432 59,219 64,742 49,653
</TABLE>
(1) Includes net losses on disposition of equipment and other of $278,882 and
$223,353 for the years ended December 31, 1994 and 1993, respectively, and
net gains on disposition of equipment of $179,352, $297,718 and $158,382 for
the years ended December 31, 1995, 1992 and 1991, respectively.
(2) Calculated based upon the weighted average number of units outstanding.
(3) Distribution amounts are reflected during the period in which the cash for
the distributions was generated and a portion of each distribution is a
return of capital. Distribution amounts shown are applicable to limited
partners admitted in the initial closing.
(4) Total Partners' Equity is increased by net income and capital contributions
to the Partnership, net of syndication costs, and is reduced by
distributions to the partners.
Total revenue for 1995 was $16.4 million, a decrease of $1.7 million, or 9.7%,
from 1994 revenues. Rentals from operating leases declined in 1995 due to a
reduction of the amount of equipment subject to leases, as sales and
dispositions of equipment exceeded purchases, and to the continued change from
shorter term, high rate leases to longer term, lower rate leases. The
Partnership generated net income of approximately $4.0 million in 1995, an
increase of approximately $1.3 million, or 48%, from the 1994 net income. The
reason for the increase was a reduction in the provision for losses and bad
debts. As a result of these provisions, the total expenses for 1995 were $12.4
million, a decrease of 19.7% from the 1994 expenses of $15.5 million. This
decrease in total expenses during 1995 was also a result of a reduction in
depreciation expense due to the reduction in the equipment base.
FOUR
<PAGE> 6
PAINEWEBBER PREFERRED YIELD FUND, L.P.
THE YEAR IN REVIEW
EQUIPMENT PORTFOLIO
As of December 31, 1995, the Partnership had purchased equipment with original
acquisition prices totalling approximately $131.7 million. As shown in the
following chart, after accounting for equipment sales upon lease termination,
approximately $78.2 million, or 59%, of the acquired equipment (based on
original cost) remained in the portfolio at year-end 1995 versus $84.2 million
at year-end 1994. The equipment had an appraised value of $37.0 million as of
December 31, 1995 as compared to $46.7 million at December 31, 1994. In addition
to the ongoing operation of the Partnership, including the economic depreciation
of the equipment portfolio, another factor in the decrease in the equipment
appraisal was the prepayment of the Master Lease Agreement ("Master Lease") in
December 1995. The prepayment of the Master Lease, which covered the remaining
original underlying lease term, a renewal period and an amount in excess of the
originally expected residual value of the equipment, resulted in no value being
ascribed to the related equipment in the 1995 appraisal. However, any equipment
acquired by year-end with the proceeds of the prepayment was included in the
1995 equipment appraisal. In addition, any remaining cash from the prepayment
was included in the per Unit estimated annual valuation calculation.
CUMULATIVE EQUIPMENT ACQUISITIONS AND DISPOSITIONS
IN MILLIONS
[Customer must supply copy.
Not enough information to complete table]
From inception through year-end 1995, the Partnership had generated cash from
operations, sales and lease financings in excess of distribution requirements of
approximately $69.2 million, of which $61.2 million had been utilized to acquire
additional leased equipment pursuant to the Partnership's reinvestment program.
Approximately $14.3 million of equipment was acquired during 1995, pursuant to
the reinvestment program. The Partnership will no longer commit to acquire
additional equipment since the reinvestment program ended in March 1996. Please
note that as of December 31, 1995, the Partnership had $8.0 million available
for existing commitments to purchase additional equipment during 1996.
Approximately $3.6 million of additional equipment has actually been purchased
since December 31, 1995.
As discussed above, on December 11, 1995, the Partnership entered into the
Master Lease with an unaffiliated third party for a term of approximately 110
months. Under the terms of the Master Lease, the Partnership assigned certain
economic rights to specified user leases, with remaining lease terms ranging
from 10 to 55 months. The economic rights assigned consisted of future minimum
lease rentals under non-cancellable leases totalling approximately $7.6 million
at December 15, 1995, and estimated future residual
FIVE
<PAGE> 7
PAINEWEBBER PREFERRED YIELD FUND, L.P.
values of approximately $4.3 million. Shortly thereafter, the Partnership agreed
to accept on a discounted basis (at a rate of 8.25%) approximately $11.3 million
as full payment for the rent due under this Master Lease. Upon expiration of the
Master Lease, the economic benefits of all equipment still being leased by third
parties as well as a portion of the residual value, if any, of such equipment
based upon a formula will revert to the Partnership. This transaction was
primarily responsible for the increase in liquidity at December 31, 1995. Most
of the proceeds from the prepayment have been or will be utilized for equipment
reinvestment.
ESTIMATED ANNUAL VALUATIONS
The estimated annual valuation is based upon an independent appraisal that takes
into account the present value of both the future contracted lease payments and
the projected residual values of the equipment. Once the appraised value is
provided to the General Partners, the General Partners calculate an estimated
annual value per Unit by taking into account the remaining net assets of the
Partnership and the allocation and distribution provisions of the Partnership
Agreement. As of December 31, 1995, the estimated annual valuation was $230 per
$500 Unit. The reduction in the estimated annual valuation from $255 per Unit in
1994 is attributable to the distribution to limited partners of approximately
$11.5 million in cash that was generated in 1995 (the present value of which was
included in the 1994 estimated annual valuation). However, the reduction for the
1995 cash distribution was partially offset by the improved operations of the
Partnership and the net prepayment received pursuant to the Master Lease.
CUMULATIVE CASH DISTRIBUTIONS AND ESTIMATED ANNUAL VALUATIONS
[Customer must supply copy.
Not enough information provided to set table]
It is important to note, however, that the estimated annual valuation of $230
per $500 Unit does not necessarily represent a price that actually could be
realized if interests in the Partnership were sold today, or the future benefits
available if a limited partner holds his Units through the life of the
Partnership. Similarly, this estimated value does not necessarily represent the
amount an investor would have received if the Partnership had liquidated at
year-end, nor does it take into account any discount to reflect that there is no
public market for the Units.
SIX
<PAGE> 8
PAINEWEBBER PREFERRED YIELD FUND, L.P.
As you are aware, the Partnership Units were designed for long-term investment.
While the values for most other securities are generally obtained by looking at
market trading prices as quoted on the stock exchanges, the Units are not traded
on any organized stock exchange and only a limited number of shares change hands
during the year. As a result, prices obtained from isolated secondary market
transactions may not be a reliable indicator of the value of a Unit in the
Partnership.
The General Partners are aware that, pursuant to the regulations of the Internal
Revenue Service (the "IRS"), custodians of Individual Retirement Accounts
("IRAs") annually provide to the IRS and IRA holders year-end estimated values
for securities held in their clients' IRAs. Some custodians may choose to meet
this obligation by obtaining estimated values of limited partnership interests
from a third party valuation firm, which estimates may differ from the estimated
annual valuation reported in this Annual Report due to, among other things,
differences in methodology. Further, independent valuation firms discount their
values to account for a lack of marketability, lack of control and other
relevant factors to arrive at their third party estimated values. Investors
should discuss with their custodian any questions about estimates of value
communicated by that custodian.
LOOKING AHEAD
The General Partners believe that the Partnership will generate sufficient cash
flow from operations during 1996 to enable the Partnership to meet its current
operating requirements, to fund cash distributions to the Class A limited
partners at an annualized rate of 14% on their capital contributions, and to the
Class B limited partner at an annualized rate of 11% on its capital
contributions. During 1996, leases of equipment with original purchase prices
totalling approximately $16 million are scheduled to expire. The Partnership's
success in extending the leases of, re-marketing or selling equipment upon lease
expiration will determine the ultimate performance of the Partnership. With the
expiration of the reinvestment period in March 1996, the Partnership has entered
its final stage where net cash flow from operations and equipment sales will be
distributed to the partners in accordance with the allocation provisions of the
Partnership Agreement. Prior to March 31, 1996, the Partnership was able to
commit to purchase additional equipment and will purchase such additional
equipment during 1996. As of December 31, 1996, the Partnership had $8.0 million
available for existing commitments to purchase additional equipment during 1996.
Approximately $3.6 million of additional equipment has actually been purchased
since December 31, 1995.
While distributions will continue to be paid to limited partners on a monthly
basis throughout the first half of 1996, the General Partners are considering
paying distributions on a quarterly basis thereafter, in order to minimize
administrative expenses while the portfolio is reduced by sales of the
equipment.
SEVEN
<PAGE> 9
PAINEWEBBER PREFERRED YIELD FUND, L.P.
ANSWERS TO FREQUENTLY ASKED QUESTIONS
1. WHY IS AN INVESTOR'S ORIGINAL CAPITAL RETURNED CONTINUOUSLY AND NOT AT THE
TERMINATION OF THE PARTNERSHIP AS IT WOULD AT THE MATURITY OF A BOND?
The capital equipment owned by the Partnership are depreciating assets and
the ultimate value received at the time of the sale of the equipment will be
less than the original cost. Therefore, until an investor receives their
initial investment back, at least a portion of the distributions received
will constitute a return of capital. It is important to note that, because
the ultimate value of the equipment cannot be determined until the time it
is sold, the exact amount of the distributions that represents a return of
capital is an estimate only and the actual amount can only be determined at
the end of the Partnership. Also, estimates of equipment residual values can
vary from year to year and the estimated annual values in future years will
reflect changes in the portfolio.
2. WHY IS MY INVESTMENT IN THE PARTNERSHIP APPRAISED AT A LOWER AMOUNT THAN
LAST YEAR?
The equipment owned by the Partnership are depreciating assets, since the
equipment will over time be worth less as it is utilized by the lessee. As
discussed above, distributions generated from the rental payments of the
assets include a return of investors' original capital as well as a return
on investment. At the end of every year the Partnership has the equipment
appraised and this valuation is used to calculate the estimated annual
valuation per Unit. As of December 31, 1995, the per Unit valuation was $230
per $500 Unit, which is down from $255 per $500 Unit at the end of 1994.
3. WHEN IS THE PARTNERSHIP LIKELY TO TERMINATE?
While the Partnership is required to dissolve and distribute all of its
assets no later than December 31, 2005, the General Partners currently
anticipate that all equipment could be sold and that the Partnership could
be liquidated by late 1998. With the expiration of the reinvestment period,
distributable cash flow in excess of the operating requirements will be
distributed to the limited partners in accordance with the allocation
provisions of the Partnership Agreement.
4. HOW WILL THE CASH RECEIVED FROM THE PREPAYMENT OF THE MASTER LEASE BE
UTILIZED?
A significant portion of the approximate $11.3 million of rent proceeds was
utilized to acquire equipment or was committed to acquire additional
equipment pursuant to the reinvestment program.
5. WHY WAS THE NET TAXABLE INCOME OF $91.88 PER $500 UNIT IN 1995 SO MUCH
HIGHER THAN THE NET TAXABLE INCOME IN 1994?
The cash received in December 1995 from the prepaid rent of the Master Lease
was taxable income in 1995 and accounted for most of the increase in taxable
income when compared to 1994. For further details, please see footnote 11 to
the financial statements on page twenty.
EIGHT
<PAGE> 10
PAINEWEBBER PREFERRED YIELD FUND, L.P.
SCHEDULE OF TYPE OF EQUIPMENT INVESTMENTS
AS OF DECEMBER 31, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
EQUIPMENT TYPE(1) ORIGINAL COST(2) % OF PORTFOLIO
- --------------------------------------------------------------------------------
<S> <C> <C>
Industrial (Includes Forklifts) $ 15,076,312 19.55%
Manufacturing 13,743,150 17.81
Transportation 11,211,669 14.53
Furniture and Fixtures 8,708,234 11.29
Communication 6,836,554 8.87
PCs and Workstations 6,286,595 8.14
Mining and Construction 5,743,665 7.44
Peripherals and Printers 5,651,602 7.32
Medical and Research 3,152,582 4.09
Other 741,685 0.96
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TOTAL $77,152,048(3) 100.00%
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</TABLE>
(1) Includes equipment subject to direct financing leases.
(2) Such amounts include related acquisition fees.
(3) Excludes off lease equipment held for sale or re-lease that had associated
original cost of $1,056,470. Substantially all of such equipment was
computer related equipment.
NINE
<PAGE> 11
PAINEWEBBER PREFERRED YIELD FUND, L.P.
FINANCIAL STATEMENTS
BALANCE SHEETS
TWELVE
STATEMENTS OF INCOME
THIRTEEN
STATEMENTS OF PARTNERS' EQUITY
FOURTEEN
STATEMENTS OF CASH FLOWS
FIFTEEN
NOTES TO FINANCIAL STATEMENTS
SIXTEEN
REPORT OF INDEPENDENT ACCOUNTANTS
TWENTY-TWO
ELEVEN
<PAGE> 12
PAINEWEBBER PREFERRED YIELD FUND, L.P.
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
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<S> <C> <C>
ASSETS
Cash and cash equivalents (Note 4) $ 9,235,759 $ 3,870,361
Rent and other receivables, net of allowances for bad
debts of $144,421 and $75,000 at December 31, 1995
and 1994, respectively (Note 5) 837,380 1,387,287
Equipment held for sale or lease, net of accumulated depreciation of $847,848
and 2,619,651 in 1995 and 1994, respectively, and allowances for losses of
$152,227 and $431,765 at December 31,1995 and 1994, respectively (Note 7) 56,395 306,319
Net investment in direct financing leases (Note 6) 3,527,277 3,643,733
Equipment on operating leases, net of accumulated depreciation of $29,400,612
and $32,279,366 at December 31, 1995, and 1994, respectively, and allowances
for equipment impairment of $724,212 and $1,983,288 at
December 31, 1995 and 1994, respectively (Note 7) 39,625,794 39,902,131
Other assets, net 19,406 6,042
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Total Assets $53,302,011 $49,115,873
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LIABILITIES AND PARTNERS' EQUITY
Liabilities:
Prepaid rent (Note 7) $11,124,724 $ -
Accounts payable and accrued liabilities 531,458 408,887
Payables to affiliates (Note 10) 639,846 410,071
Interest payable 22,288 21,841
Deferred rental income and deposits 911,517 902,610
Distributions payable to partners 1,211,123 1,211,123
Discounted lease rentals (Note 8) 4,747,859 4,531,890
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Total Liabilities 19,188,815 7,486,422
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Commitments and Contingencies (Note 12)
Partners' Equity:
General Partners 1,612,447 1,453,727
Limited Partners:
Class A (142,128 Units outstanding at December 31, 1995 and 1994) 28,417,629 35,219,952
Class B 4,083,120 4,955,772
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Total Partners' Equity 34,113,196 41,629,451
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Total Liabilities and Partners' Equity $53,302,011 $49,115,873
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
TWELVE
<PAGE> 13
PAINEWEBBER PREFERRED YIELD FUND, L.P.
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUE:
Rentals from operating leases $15,249,237 $17,656,811 $20,916,760
Direct finance lease income 602,486 620,797 543,084
Gain (loss) on sale of equipment and other 179,352 (278,882) (223,353)
Interest income 202,126 151,072 232,771
Other Income 149,449 - -
- -------------------------------------------------------------------------------------------------------------------
16,382,650 18,149,798 21,469,262
- -------------------------------------------------------------------------------------------------------------------
EXPENSES:
Depreciation and amortization 10,764,228 12,426,729 16,122,424
Management and disposition fees (Note 10) 649,516 669,055 794,231
Provision for losses and bad debts 447,900 1,797,472 1,632,629
General and administrative (Note 10) 287,493 280,141 189,566
Interest 276,427 305,788 44,374
- -------------------------------------------------------------------------------------------------------------------
12,425,564 15,479,185 18,783,224
- -------------------------------------------------------------------------------------------------------------------
NET INCOME $ 3,957,086 $ 2,670,613 $ 2,686,038
- -------------------------------------------------------------------------------------------------------------------
NET INCOME ALLOCATED:
To the General Partners $ 732,387 $ 903,363 $ 1,017,791
To the Class A Limited Partners 3,146,637 1,663,093 1,531,496
To the Class B Limited Partner 78,062 104,157 136,751
- -------------------------------------------------------------------------------------------------------------------
$ 3,957,086 $ 2,670,613 $ 2,686,038
- -------------------------------------------------------------------------------------------------------------------
NET INCOME PER WEIGHTED AVERAGE NUMBER
OF UNITS OF CLASS A LIMITED PARTNER
INTEREST OUTSTANDING $ 22.14 $ 11.70 $ 10.78
- -------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF UNITS OF
CLASS A LIMITED PARTNER INTEREST
OUTSTANDING 142,128 142,128 142,128
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
THIRTEEN
<PAGE> 14
PAINEWEBBER PREFERRED YIELD FUND, L.P.
STATEMENTS OF PARTNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
CLASS A CLASS B
GENERAL LIMITED LIMITED
PARTNERS PARTNERS PARTNER TOTAL
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, December 31, 1992 $ 679,907 $51,923,283 $6,616,292 $ 59,219,482
Net income 1,017,791 1,531,496 136,751 2,686,038
Distributions declared to partners (573,667) (9,948,960) (950,714) (11,473,341)
- -------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1993 1,124,031 43,505,819 5,802,329 50,432,179
Net income 903,363 1,663,093 104,157 2,670,613
Distributions to Partners (573,667) (9,948,960) (950,714) (11,473,341)
- -------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 1,453,727 35,219,952 4,955,772 41,629,451
Net income 732,387 3,146,637 78,062 3,957,086
Distributions declared to partners (573,667) (9,948,960) (950,714) (11,473,341)
- -------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 $1,612,447 $28,417,629 $4,083,120 $ 34,113,196
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
FOURTEEN
<PAGE> 15
PAINEWEBBER PREFERRED YIELD FUND, L.P.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,957,086 $ 2,670,613 $ 2,686,038
Adjustments to reconcile net income to net
cash used for operating activities:
Depreciation and amortization 10,764,228 12,426,729 16,122,424
Provision for losses and bad debts 447,900 1,797,472 1,803,353
(Gain) loss on sale of equipment (179,352) 278,882 223,353
Decrease (increase) in rent and other receivables 400,056 (573,955) (13,094)
Increase in accounts payable and accrued liabilities 122,571 52,363 279,400
Increase (decrease) in payables to affiliates 229,775 62,745 (86,918)
Increase in accrued interest payable 447 9,388 9,934
Increase (decrease) in deferred rental income
and deposits 8,907 (101,212) (78,897)
Increase in other assets (19,406) - -
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 15,732,212 16,623,025 20,945,593
- -------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Recovery of investment in direct financing leases 1,518,138 1,057,836 716,835
Proceeds from sale of equipment and other 2,594,979 2,965,115 3,691,210
Purchases of equipment on operating leases (13,747,672) (10,535,586) (14,993,945)
Investment in direct financing leases (599,611) (852,472) (2,401,457)
- -------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (10,234,166) (7,365,107) (12,987,357)
- -------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Prepaid rent 11,124,724 - -
Proceeds from discounted lease rentals 2,508,339 1,812,301 4,520,052
Repayment of discounted lease rentals (2,292,370) (1,835,996) (282,593)
Cash distributions paid to partners (11,473,341) (11,473,341) (11,588,074)
- -------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (132,648) (11,497,036) (7,350,615)
- -------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 5,365,398 (2,239,118) 607,621
- -------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 3,870,361 6,109,479 5,501,858
- -------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 9,235,759 $ 3,870,361 $ 6,109,479
- -------------------------------------------------------------------------------------------------------------------
Supplemental schedule of cash flow information:
Interest paid $ 275,980 $ 296,400 $ 34,440
- -------------------------------------------------------------------------------------------------------------------
NONCASH TRANSACTIONS
Distribution to partners accrued but not paid $ 1,211,123 $ 1,211,123 $ 1,211,123
- -------------------------------------------------------------------------------------------------------------------
Equipment subject to operating leases converted to
direct financing leases at renewal $ 879,978 $ - $ -
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
FIFTEEN
<PAGE> 16
PAINEWEBBER PREFERRED YIELD FUND, L.P.
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION PaineWebber Preferred Yield Fund, L.P. (the
"Partnership"), a Delaware limited partnership, maintains its accounting records
and prepares financial statements on the accrual basis of accounting. 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 dates of the financial statements and
the reported amounts of revenues and expenses during the reporting periods. The
most significant estimates by management relate to the allowance for losses and
estimated residual or salvage values. Actual results could differ from these
estimates.
CASH AND CASH EQUIVALENTS The Partnership invests working capital and cash flow
from operations prior to its distribution to the partners or its reinvestment in
additional equipment in short-term, highly liquid investments. These investments
are recorded at cost which approximates fair market value.
For purposes of the balance sheets and the statements of cash flows, the
Partnership considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
DIRECT FINANCING LEASES At lease commencement, the Partnership records the lease
receivable, estimated residual value of the equipment and unearned income. The
original unearned income is equal to the receivable plus the estimated residual
value less the cost of the equipment, including the acquisition fees paid to the
Managing General Partner. The unearned income is recognized as revenue over the
lease term at a constant rate of return on the net investment in the lease.
Residual values are recorded at lease inception equal to the estimated value of
the Partnership's leased equipment at lease termination (which in certain
circumstances includes anticipated re-lease proceeds). In estimating such
values, independent appraisals and other circumstances regarding the equipment
and the lessee are considered. Thereafter, residual estimates are re-evaluated
each quarter.
OPERATING LEASES Rentals from operating leases are recognized on a straight-line
basis over the term of the lease. Equipment on operating leases is stated at
cost, including the acquisition fees paid to the Managing General Partner, less
accumulated depreciation. Depreciation is calculated on a straight-line basis
over the lease terms, ranging from two to seven years, to an amount equal to the
equipment's estimated fair market residual value at the lease termination date.
In estimating such values, independent appraisals and other circumstances
regarding the equipment and the lessee are considered. Thereafter, residual
estimates are re-evaluated each quarter. If the General Partners believe that
the value of an item of equipment has been other than temporarily impaired, the
Partnership will record a provision for loss to reflect the recoverability of
the Partnership's investment in the item of equipment.
IMPACT OF FUTURE ADOPTION OF RECENTLY ISSUED ACCOUNTING STANDARD The Financial
Accounting Standards Board recently issued FASB 121, "Accounting for the
Impairment of Long-lived Assets and Long-lived Assets to be Disposed of" ("FAS
121"). FAS 121 requires companies to review their long-lived assets, such as the
Partnership's leased equipment, and certain identifiable intangibles for
impairment whenever events and changes in circumstances indicate that the
carrying value of a long-lived asset may not be recoverable. The Partnership
will be required to adopt the provisions of FAS 121 as of January 1996. The
General Partners believe that based upon current operations and current methods
used to evaluate declines in market value, the future adoption of FAS 121 will
not have a material impact on the Partnership's financial condition or results
of operations.
NONRECOURSE DISCOUNTING OF RENTALS The Partnership may assign the rentals from
leases to financial institutions at fixed interest rates on a non-recourse
basis. In return for such future lease payments, the Partnership receives the
discounted value of the rental payments in cash. The notes are collateralized by
the lease, the related lease payments and the underlying equipment. Cash
proceeds from such financings are recorded on the balance sheet as discounted
lease rentals. As lessees make payments to the financial institutions, interest
expense is recorded and the outstanding balance of discounted lease rentals is
reduced.
DISPOSITION OF EQUIPMENT When equipment is sold or disposed of, the asset and
related accumulated depreciation and allowance for loss, if any, are removed
from the accounts and a gain or loss is recognized.
ORGANIZATION COSTS Organization costs, which are included in other assets, are
amortized using the straight-line method over a period of five years.
DEFERRED RENTAL INCOME Lease revenues received but not yet earned are deferred
and recognized as income when earned.
INCOME TAXES No provision for income taxes has been made in the financial
statements since taxes on Partnership income are the responsibility of the
individual partners rather than the Partnership.
NET INCOME PER UNIT OF CLASS A LIMITED PARTNER INTEREST The net income per Unit
of Class A Limited Partner Interest is computed by dividing the net income
allocated to the Class A Limited Partners by the weighted average number of
Units of Class A Limited Partner Interest outstanding during the period.
2. ORGANIZATION OF THE PARTNERSHIP
The Partnership was formed on December 18, 1989 for the purpose of acquiring and
leasing general equipment and office technology equipment. The Partnership
acquired and will con-
SIXTEEN
<PAGE> 17
PAINEWEBBER PREFERRED YIELD FUND, L.P.
tinue to acquire on an all-cash basis, a portfolio of equipment subject to
triple net leases (i.e. repairs, insurance and taxes are paid by the lessees)
with unaffiliated third parties.
The Managing General Partner of the Partnership is CAI Equipment Leasing II
Corp., a wholly-owned subsidiary of Capital Associates, Inc., and the
Administrative General Partner is General Equipment Management, Inc., a
wholly-owned subsidiary of Paine Webber Group Inc. (The Managing General Partner
and the Administrative General Partner are sometimes hereinafter collectively
referred to as the "General Partners.")
Capital Associates International, Inc. ("CAII"), an affiliate of the Managing
General Partner, is the Class B Limited Partner. The Class B Limited Partner
contributed equipment to the Partnership having a fair market value equal to
12.5% of the aggregate acquisition value of the equipment purchased with the
offering proceeds received from the sale of the Units of Class A Limited Partner
Interest ("Units") and the equipment contributed by the Class B Limited Partner.
The Class B Limited Partner satisfied its contribution obligation during 1992.
On March 12, 1990, the General Partners each contributed $100 to the capital of
the Partnership. Between May 21, 1990 and April 19, 1991, 142,128 Units were
sold at a price of $500 per Unit. Nine closings were held pursuant to which the
Partnership received $71,064,000 of gross offering proceeds, of which
$51,726,500 was received during 1990 and $19,337,500 was received during 1991.
The Partnership incurred $8,952,640 of commissions and other offering expenses
in connection with the sale of these Units, thus receiving $62,111,360 of net
offering proceeds.
The Partnership conducted no activities and recognized no profits or losses
prior to the initial closing on June 22, 1990, at which time the Partnership
commenced operations. The Partnership has acquired a total of $131,729,161 of
leased equipment, of which $14,347,283, $11,388,058, and 16,937,818 was acquired
during 1995, 1994 and 1993, respectively. Additional equipment will be acquired
by the Partnership during the remainder of the reinvestment period. The
Partnership will not commit funds for reinvestment beyond March 31, 1996.
3. PARTNERSHIP ALLOCATIONS
CASH DISTRIBUTIONS
Cash distributions, which are based upon the results of operations and cash
generated from operations other than liquidating distributions, are distributed
5% to the General Partners and 95% to the Class A Limited Partners and the Class
B Limited Partner (collectively, the "Limited Partners"). The 95% distributed to
the Limited Partners is generally allocated between the Class A Limited Partners
and the Class B Limited Partner in the manner set forth in the following table.
<TABLE>
<CAPTION>
CLASS A CLASS B
LIMITED LIMITED
PARTNERS PARTNER REINVESTED
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. DURING THE REINVESTMENT PERIOD:
(A) Until the Class A Limited Partners have received a 3.5% quarterly (14%
annualized), cumulative distribution on their capital contributions 100.0% -- --
(B) Cash remaining after (A) above and until the Class B Limited Partner has
received a 2.75% quarterly (11% annualized) distribution on its capital
contributions -- 100.0% --
(C) Cash remaining after (B) above is to be reinvested in additional equipment -- -- 100.0%
2. AFTER THE REINVESTMENT PERIOD:
(A) Until the Class A Limited Partners have received a 3.5% quarterly (14%
annualized), cumulative distribution on their capital contributions 100.0% -- --
(B) Cash remaining after (A) above and until the Class B Limited Partner has
received 2.75% quarterly (11% annualized) distribution on its capital
contributions -- 100.0% --
(C) Cash remaining after (B) above and until the Class A Limited Partners
receive a return of their capital contributions, plus a 10% annual,
cumulative distribution compounded quarterly on their adjusted capital
contributions ("Payout") 87.5% 12.5% --
(D) Cash remaining after (C) above and until the Class B Limited Partner has
received any previously undistributed portion of its 2.75% quarterly (11%
annualized) distribution on its capital contributions -- 100.0% --
(E) Cash remaining after (D) above and until the Class B Limited Partner
achieves Payout 12.5% 87.5% --
(F) Cash remaining after (E) above 70.0% 30.0%* --
</TABLE>
*subject to certain specified limitations.
SEVENTEEN
<PAGE> 18
PAINEWEBBER PREFERRED YIELD FUND, L.P.
Upon liquidation of the Partnership, cash available for distribution will be
distributed in accordance with the respective partners' capital accounts after
all allocations of profits and losses.
PROFITS AND LOSSES
Profits (not including the special allocations discussed below) are first
allocated to offset prior year losses, if any. Remaining profits are then
allocated among the partners in the same manner that cash distributions are
allocated, or would be allocated (as set forth above) if cash distributions were
equal to the allocable profits.
Losses (not including the special allocations discussed below) are first
allocated to offset prior year profits and then 1% to the General Partners and
99% to the Limited Partners. The 99% allocated to the Limited Partners is shared
87.5% to the Class A Limited Partners and 12.5% for the Class B Limited Partner.
There are several special allocation provisions included in the Partnership
Agreement of which the two most significant are as follows: First, commissions
and expenses paid in connection with the sale of Units are allocated 1% to the
General Partners and 99% to the Limited Partners. The 99% allocated to the
Limited Partners is shared 87.5% for the Class A Limited Partners and 12.5% for
the Class B Limited Partner. Second, depreciation with respect to the equipment
and any losses resulting from the sale of equipment are allocated 1% to the
General Partners and 99% to the Limited Partners, until the cumulative amount of
depreciation and losses so allocated to the Limited Partners equal their
aggregate capital contributions, net of the commissions and other expenses paid
in connection with the sale of the Units. The 99% allocated to the Limited
Partners is shared by the Class A Limited Partners and the Class B Limited
Partner in proportion to their respective net capital contributions. The General
Partners are also specially allocated items of income to offset their 1%
allocation of these two items.
4. CASH EQUIVALENTS
The Partnership invests working capital and cash flows from operations prior to
its distribution to the partners or its reinvestment in additional equipment, in
short-term, highly liquid investments. These investments are primarily
short-term commercial paper issued by large domestic corporations. At December
31, 1995, the Partnership held short-term commercial paper issued by Ford Motor
Credit Company, which was purchased for a price of $4,964,475 with a maturity
value of $4,975,000 and commercial paper issued by Marsh McLellan, Inc., which
was purchased for a price of $3,995,707 and had a maturity value of $4,000,000.
5. RENTS AND OTHER RECEIVABLES
Rents and other receivables consist primarily of accrued rents, accrued interest
receivable, and property taxes billed but not collected. The Partnership
provided allowances for uncollectable accounts of $144,421 and $75,000 at
December 31, 1995 and 1994, respectively, with respect to such receivables.
6. NET INVESTMENT IN DIRECT FINANCING LEASES
The investment in direct financing leases at December 31, 1995 and 1994
consisted of the following:
<TABLE>
<CAPTION>
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Minimum lease payments
receivable $ 4,092,438 $ 3,844,282
Estimated unguaranteed
residual value 519,582 760,921
Unearned lease income (984,743) (961,470)
Provision for losses (100,000) --
- --------------------------------------------------------------------------------
$ 3,527,277 $ 3,643,733
- --------------------------------------------------------------------------------
</TABLE>
Direct financing lease receivables at December 31, 1995 are due in installments
as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------------------------------------------------------------
<S> <C>
1996 $1,575,299
1997 1,058,265
1998 521,832
1999 439,748
2000 328,574
Thereafter 168,720
------------------------------------------------------------------
$4,092,438(1)
------------------------------------------------------------------
</TABLE>
(1) Includes a total of $470,355 relating to a lessee in bankruptcy. The
Partnership has provided an allowance for loss of $100,000 with
respect to the related carrying value.
At December 31, 1995, rental streams relating to 37% of the direct financing
lease receivables have been discounted.
7. EQUIPMENT ON OPERATING LEASES
The following schedule provides an analysis of the Partnership's investment in
equipment on operating leases as of December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Office technology and
communications equipment $ 16,960,659 $ 15,996,303
General equipment 52,789,959 58,168,482
- --------------------------------------------------------------------------------
69,750,618 74,164,785
- --------------------------------------------------------------------------------
Less: Accumulated depreciation (29,400,612) (32,279,366)
Allowances for losses (724,212) (1,983,288)
- --------------------------------------------------------------------------------
$ 39,625,794 $ 39,902,131
- --------------------------------------------------------------------------------
</TABLE>
Additionally, the Partnership owned equipment purchased for purchase prices
aggregating $1,056,470 and $3,357,735 (net book value of $56,395 and $306,319),
which was off-lease at December 31, 1995 and 1994, respectively.
EIGHTEEN
<PAGE> 19
PAINEWEBBER PREFERRED YIELD FUND, L.P.
The following is a schedule by years of minimum future rentals on operating
leases as of December 31, 1995:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
----------------------------------------------------
<S> <C>
1996 $11,796,574
1997 8,307,943
1998 5,034,686
1999 2,361,218
2000 572,733
----------------------------------------------------
$28,073,154
----------------------------------------------------
</TABLE>
a.) PREPAYMENT OF LEASES
On December 11, 1995, the Partnership entered into a lease ("Master Lease") with
an unaffiliated third party ("Master Lessee") for a term of approximately 110
months. Under the terms of the Master Lease, the Partnership assigned to the
Master Lessee certain economic rights to certain user leases (with remaining
lease terms ranging from 10 to 55 months) originally acquired by the Partnership
for purchase prices aggregating $13,879,929 (including related acquisition fees)
("Master Lease Equipment") and which represented future minimum lease rentals
under non-cancelable leases totaling $7,563,186. The Master Lessee prepaid
("Prepayment of Leases"), on a discounted basis at a rate of 8.25%, the rent due
to the Partner-ship under the Master Lease in the amount of $11,257,741 of which
$11,124,724 remained outstanding at December 31, 1995 and which is carried as
prepaid rent on the balance sheet at such date and accounted for as a financing.
The Master Lease term exceeds the related original user lease terms.
Additionally, at the inception of the Master Lease the amount of the Prepayment
of Leases exceeded the aggregate of the remaining rental payment due under the
user leases and the residual (salvage) value estimates for the Master Lease
Equip-ment subject to the user leases, on an undiscounted basis. The Partnership
does not have any economic obligations relating to the Master Lease Equipment
subject to the Master Lease until such equipment is returned upon the expiration
of the Master Lease. Upon expiration of the Master Lease, the economic benefits
of all Master Lease Equipment still being leased by third parties as well as a
portion of the residual value of such equipment based upon a formula will revert
to the Partnership.
8. DISCOUNTED LEASE RENTALS
Discounted lease rentals outstanding at December 31, 1995 bear interest at rates
ranging from 5.31% to 10.83%. Aggregate maturities of these non-recourse
obligations are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
-------------------------------------------------------
<S> <C>
1996 $1,945,667
1997 1,173,913
1998 658,875
1999 969,404
-------------------------------------------------------
$4,747,859
-------------------------------------------------------
</TABLE>
9. CONCENTRATION OF CREDIT RISK
Approximately 66% of the Partnership's equipment acquired since inception based
upon original cost was subject to lease to lessees which were investment grade
lessees, or which were operating subsidiaries of entities which are investment
grade companies. An investment grade lessee is a company with a credit rating of
not less than Baa, as determined by Moody's Investor Services, Inc. or
comparable credit ratings, as determined by other recognized credit rating
services. No single lessee accounted for more than 10% of the Partnership's
leasing revenue during 1995, 1994 and 1993.
The following table (which includes equipment accounted for as direct financing
leases) describes the Partnership's equipment portfolio as of December 31, 1995
and 1994 by significant equipment industry type. This table excluded equipment
held in inventory, which had original cost of $1,056,470 and $3,357,735 (net
book value of $56,395 and $306,319) at December 31, 1995 and 1994, respectively.
<TABLE>
<CAPTION>
DECEMBER 31 DECEMBER 31
1995 1994
EQUIPMENT TYPE(1) % OF PORTFOLIO % OF PORTFOLIO
- -------------------------------------------------------------------------------------
<S> <C> <C>
Industrial
(Includes Forklifts) 19.55% 18.30%
Manufacturing 17.81 13.98
Transportation 14.53 15.20
Furniture and Fixtures 11.29 13.62
Communications 8.87 6.49
PCs and Workstations 8.14 6.54
Mining and Construction 7.44 6.28
Peripherals and Printers 7.32 4.13
Medical and Research 4.09 9.50
Other 0.96 --
Computer Mainframes -- 5.96
- -------------------------------------------------------------------------------------
Total 100.00% 100.00%
- -------------------------------------------------------------------------------------
</TABLE>
(1) Includes equipment subject to direct financing leases.
10. TRANSACTIONS WITH AFFILIATES
ACQUISITION AND OPERATING STAGES
ACQUISITION OF EQUIPMENT The Partnership acquired, on an all-cash basis,
equipment from CAII, an affiliate of the Managing General Partner, at purchase
prices aggregating $9,148,443, $3,545,037 and $12,706,675 (not including
acquisition fees) during 1995, 1994 and 1993, respectively. During 1995, 1994
and 1993, the Partnership also acquired equipment subject to lease for purchase
prices aggregating $4,782,289, $7,511,115 and $3,737,589, respectively, from
unaffiliated third parties.
The purchase price of the equipment acquired from CAII and the value of the
equipment contributed by CAII, the Class B
NINETEEN
<PAGE> 20
PAINEWEBBER PREFERRED YIELD FUND, L.P.
Limited Partner, were equal to the lesser of the adjusted cost of the equipment
or the appraised value of the equipment at the time of its acquisition by the
Partnership. The adjusted cost of the equipment was equal to the price paid by
CAII, plus the cost of an appraisal, CAII's cost of interim financing for the
equipment and any taxes paid by CAII, less certain interim rentals received by
CAII with respect to the equipment.
ACQUISITION FEE The Managing General Partner receives a fee equal to (i) 2.25%
of the purchase price of equipment purchased with gross offering proceeds from
the sale of Units, and (ii) 3.0% of the purchase price of equipment purchased
with reinvested Partnership income as compensation for evaluating, selecting,
negotiating and consummating the acquisition of the equipment. There is no
acquisition fee payable with respect to the equipment contributed by the Class B
Limited Partner. The Managing General Partner earned $416,551, $331,906 and
$493,555 of acquisition fees attributable to the acquisition of equipment during
1995, 1994 and 1993, respectively. Acquisition fees are capitalized and
depreciated with the related equipment for equipment subject to operating leases
and are capitalized and included in investment in direct financing leases for
equipment subject to such leases.
MANAGEMENT FEES The General Partners receive a quarterly fee in an amount equal
to 2.0% of gross rentals for Full Payout Leases, as defined in the Partnership
Agreement, and 5.0% of gross rentals for other leases (payable 55% to the
Managing General Partner and 45% to the Administrative General Partner) as
compensation for services rendered in connection with the management of the
equipment. Management fees of $549,780, $607,514 and $699,426 were earned by the
General Partners with regard to the rentals earned by the Partnership during
1995, 1994 and 1993, respectively.
DISPOSITION FEES The Managing General Partner is entitled to receive a
subordinated disposition fee in an amount equal to the lesser of (i) 50% of the
fee that would be charged by an unaffiliated party, or (ii) 3% of the gross
contract price relating to each sale of equipment as compensation for
negotiating and consummating sales of equipment. Subordinated disposition fees
of $99,736, $61,541 and $94,805 are payable to the Managing General Partner with
respect to equipment sales occurring during 1995, 1994 and 1993, respectively.
These fees, which were charged to operations, are not currently payable since
their payment is subordinated to the Class A Limited Partners having received
cash distributions equal to their capital contributions, plus an 8% annual
cumulative return (as defined in the Partnership Agreement). At December 31,
1995, cumulative subordinated disposition fees payable to the Managing General
Partner totaled $342,661.
ACCOUNTABLE GENERAL AND ADMINISTRATIVE EXPENSES The General Partners are
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, all of which were reimbursable to the Managing General
Partner, amounted to $25,000, $25,000 and $28,531 during 1995, 1994 and 1993,
respectively.
11. RECONCILIATION TO INCOME TAX METHOD OF ACCOUNTING
The following is a reconciliation of the net income as shown in the accompanying
financial statements to the taxable income reported for federal income tax
purposes:
<TABLE>
<CAPTION>
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income per
financial statements $ 3,957,086 $ 2,670,613 $ 2,686,038
Increase (decrease)
resulting from:
Depreciation (2,129,473) (2,598,811) (792,959)
Direct financing
leases 1,175,166 851,770 644,248
Prepaid rental
income and
deposits 8,907 (398,358) (134,546)
Provisions for losses
and bad debts 447,900 1,797,272 1,803,354
Gain on sale of
equipment 639,453 (588,146) (479,155)
Prepaid rent 11,124,724 -- --
Other (4,361) 330,110 89,139
- --------------------------------------------------------------------------------
Taxable income per
federal income tax
return $ 15,219,402 $ 2,064,450 $ 3,816,119
- --------------------------------------------------------------------------------
</TABLE>
The following is a reconciliation of the amount of the Partner-ship's net equity
as shown in the accompanying financial statements to the tax bases of the
Partnership's net assets:
<TABLE>
<CAPTION>
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Net Partnership equity per
financial statements $ 34,113,196 $ 41,629,451
Increase (decrease)
resulting from:
Commission and expenses
paid in connection with the
sale of Class A limited
partner units 8,952,640 8,952,640
Distributions payable
to partners 1,211,123 1,211,123
Direct financing lease
income 2,993,378 2,390,892
Deferred rental income
and deposits 911,517 902,610
Allowances for losses 876,439 2,415,053
Accumulated depreciation (15,990,348) (17,533,111)
Basis of contributed equipment (290,785) (462,072)
Other 34,580 683,817
Prepaid rent 11,124,724 --
- --------------------------------------------------------------------------------
Tax bases of net assets $ 43,936,464 $ 40,190,403
- --------------------------------------------------------------------------------
</TABLE>
TWENTY
<PAGE> 21
PAINEWEBBER PREFERRED YIELD FUND, L.P.
12. LITIGATION
In November 1994, a series of purported class actions (the "New York Limited
Partnership Actions") were filed in the United States District Court for the
Southern District of New York concerning PaineWebber Incorporated sale and
sponsorship of various limited Partnership investments, including those offered
by the Partnership. The lawsuits were brought against PaineWebber Incorporated
and Paine Webber Group, Inc. (together, "PaineWebber"), among others, by
allegedly dissatisfied Partnership investors. In March 1995, after the actions
were consolidated under the title In re: PaineWebber Limited Partnerships
Litigation, the plaintiffs amended their complaint to assert claims against a
variety of other defendants, including the Administrative General Partner of the
Partnership.
The amended complaint in the New York Limited Partnership Actions alleged that,
in connection with the sale of interests in the Partnership, PaineWebber and the
Administrative General Partner (1) failed to provide adequate disclosure of the
risks involved with the Partnership; (2) made false and misleading
representations about the safety of the investments and the Partnership's
anticipated performance; and (3) marketed the Partnership to investors for whom
such investments were not suitable. The plaintiffs also alleged that following
the sale of the Partnership, PaineWebber and the Administrative General Partner
misrepresented financial information about the Partnership's value and
performance. The amended complaint alleged that PaineWebber and the
Administrative General Partner violated the Racketeer Influenced and Corrupt
Organizations Act ("RICO") and the federal securities laws. The plaintiffs
sought unspecified damages, including reimbursement for all sums invested by
them in the Partnership, as well as disgorgement of all fees and other income
derived by PaineWebber from the Partnership. In addition, the plaintiffs also
sought treble damages under RICO.
On May 30, 1995, the US District Court certified class action treatment of the
plaintiffs' claims in the class action entitled In re: PaineWebber Limited
Partnerships Litigation.
In January 1996, PaineWebber signed a memorandum of understanding with the
plaintiffs in the class action outlining the terms under which the parties have
agreed to settle the case. Pursuant to that memorandum of understanding,
PaineWebber irrevocably deposited $125 million into an escrow fund under the
supervision of the United States District Court for the Southern District of New
York to be used to resolve the litigation in accordance with a definitive
settlement agreement and a plan of allocation which the parties expect to submit
to the court for its consideration and approval within the next several months.
Until a definitive settlement and plan of allocation is approved by the court,
there can be no assurance what, if any, payment or non-monetary benefits will be
made available to unitholders in the Partnership.
In February 1996, approximately 150 plaintiffs filed an action entitled Abbate
v. PaineWebber Inc. in Sacramento, California Superior Court against PaineWebber
Incorporated and various affiliated entities concerning the plaintiff's
purchases of various limited partnership interests. The complaint alleges, among
other things, that PaineWebber and its related entities committed fraud and
misrepresentation and breached fiduciary duties allegedly owed to the plaintiffs
by selling or promoting limited partnership investments that were unsuitable for
the plaintiffs and by overstating the benefits, understating the risks and
failing to state material facts concerning the investments. The complaint seeks
compensatory damages of $15 million plus punitive damages.
Under certain limited circumstances, pursuant to the Partnership Agreement and
other contractual obligations, PaineWebber and its affiliates, including the
Administrative General Partner, could be entitled to indemnification from the
Partnership for expenses and liabilities in connection with this litigation. The
General Partners are unable to determine the amount, if any, of the impact of
these actions on the Partner-ship's financial statements taken as a whole.
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," ("SFAS
No. 107") requires disclosure of fair value of certain financial instruments,
whether or not reported on the balance sheet. SFAS No. 107 excludes certain
items from its disclosure requirements such as the Partnership's equipment
subject to operating leases.
The methods and assumptions used to estimate the fair value of each class of the
financial instruments are described below.
CASH EQUIVALENTS. For cash equivalents, the carrying value approximates fair
value.
RENTS AND OTHER RECEIVABLES, NET. For accounts receivable net, the carrying
value approximates fair value.
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES. For accounts payable and accrued
liabilities, the carrying value approximates fair value.
PREPAID RENT. For prepaid rent, the carrying value approximates fair value.
PAYABLE TO AFFILIATES. For payable to affiliates, the carrying value
approximates fair value.
INTEREST PAYABLE. For interest payable, the carrying value approximates fair
value.
DEFERRED RENTAL INCOME AND DEPOSITS. For deferred rental income and deposits,
the carrying value approximates fair value.
DISTRIBUTIONS PAYABLE TO PARTNERS. For distributions payable to partners, the
carrying value approximates fair value.
DISCOUNTED LEASE RENTALS. For discounted lease rentals, the carrying values
reflect market interest rates.
TWENTY-ONE
<PAGE> 22
PAINEWEBBER PREFERRED YIELD FUND, L.P.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Limited Partners of PaineWebber Preferred Yield Fund, L.P.
We have audited financial statements as listed in the index on page eleven
herein. 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 PaineWebber Preferred Yield
Fund, L.P. as of December 31, 1995 and 1994, and the results of its operations
and its cash flows for the years ended December 31, 1995, 1994 and 1993 in
conformity with generally accepted accounting principles.
As discussed in Note 12 to the Financial Statements there is litigation pending
against, amongst others, the Administrative General Partner, and affiliates of
the Administrative General Partner. The ultimate outcome of this litigation and
its effects, if any, on the Partnership cannot presently be determined.
COOPERS & LYBRAND L.L.P.
New York, New York
March 22, 1996
TWENTY-TWO
<PAGE> 23
PAINEWEBBER PREFERRED YIELD FUND, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Partnership was formed on December 18, 1989, and, on March 12, 1990, the
General Partners each contributed $100 to the capital of the Partnership.
Between May 21, 1990 and April 19, 1991, 142,128 Units were sold at a price of
$500 per Unit. Nine closings were held pursuant to which the Partnership
received $71,064,000 of gross offering proceeds, of which $51,726,500 was
received during 1990 and $19,337,500 was received during 1991. The Partnership
incurred $8,952,640 of sales commissions and other expenses in connection with
the sale of the Units, thus receiving $62,111,360 of net offering proceeds.
Although the Partnership was organized on December 18, 1989, the Partnership
conducted no activities and recognized no profits or losses prior to the initial
closing of Units on June 22, 1990, at which time the Partnership commenced
operations.
Equipment acquisitions (including acquisition fees and expenses) since the
commencement of operations have been as follows:
<TABLE>
<CAPTION>
PURCHASED
WITH NET CONTRIBUTED PURCHASED
PROCEEDS BY THE PURSUANT
TOTAL FROM THE SALE CLASS B TO
ACQUISITION OF CLASS A LIMITED REINVESTMENT
COST* UNITS PARTNER PROGRAM
- --------------------------------------------------------------------------------
<C> <C> <C> <C> <C>
1990 $ 45,278,316 $ 39,529,865 $ 5,470,464 $ 277,987
1991 27,997,203 19,292,333 2,723,225 5,981,645
1992 15,780,483 3,039,218 449,161 12,292,104
1993 16,937,818 -- -- 16,937,818
1994 11,388,058 -- -- 11,388,058
1995 14,347,283 -- -- 14,347,283
- --------------------------------------------------------------------------------
$131,729,161 $ 61,861,416 $ 8,642,850 $ 61,224,895
- --------------------------------------------------------------------------------
</TABLE>
* Includes investment in direct financing leases.
From inception through December 31, 1995, the Partnership sold equipment with an
original cost as follows:
<TABLE>
<CAPTION>
ORIGINAL COST
YEAR ENDING ASSOCIATED WITH
DECEMBER 31, EQUIPMENT SOLD(1)(2)
--------------------------------------------------------------
<S> <C>
1991 $ 1,074,780
1992 3,928,788
1993 14,916,752
1994 13,247,784
1995 20,352,539
--------------------------------------------------------------
$53,520,643
--------------------------------------------------------------
</TABLE>
(1) Includes investment in direct financing leases.
(2) See "Selected Financial Data", set forth elsewhere herein, for
disclosure of related gains and losses.
It is anticipated that additional equipment will be purchased (or committed for
purchase) pursuant to the reinvestment program through its expiration on March
31, 1996. Cash available for reinvestment in additional leased equipment at
December 31, 1995 was approximately $8,000,000. At December 31, 1995, the
General Partners had identified transactions to fully commit such amount for
acquisition, of which approximately $3,600,000 has actually been purchased since
December 31, 1995.
Rent and other receivables, net of the allowance for doubtful accounts,
decreased by $549,907 from $1,387,287 at December 31, 1994 to $837,380 at
December 31, 1995. This decrease was primarily the result of the collection
efforts relating to rents receivable and the lease prepayment transaction
discussed below ("Prepayment of Leases") as well as an increase in the allowance
for bad debts from $75,000 at December 31, 1994 to $144,421 at December 31,
1995.
The Partnership invests working capital and cash flow from operations prior to
its distribution to the partners or its reinvestment in additional equipment, in
short-term, highly liquid investments. These investments are primarily
short-term commercial paper issued by large domestic corporations. At March 1,
1996, the Partnership's cash of approximately $6 million was primarily invested
in short-term commercial paper.
During 1995, 1994 and 1993, the Partnership received proceeds of $2,508,339,
$1,812,301 and $4,520,052, respectively, by discounting, on a nonrecourse basis,
certain future rental payments due the Partnership pursuant to the terms of the
related leases. The notes issued for the above are collateralized by the related
leases, the related lease payments and the underlying equipment.
Cash distributions of net cash flow provided by operations both declared and
paid by the Partnership were $11.5 million in 1995 and 1994. In 1993, $11.5
million of distributions were declared and $11.6 million were paid. Net cash
provided by operating activities was $15.7 million for 1995, $16.6 million for
1994 and $20.9 million for 1993. In the aggregate, for this three-year period
net cash provided by operating activities totaled $53.3 million and cash
distributions declared by the Partnership totaled $34.5 million ($34.6 million
paid). Additionally, the Partnership generated proceeds from the sale of
equipment of $3.2 million, $3.0 million and $3.7 million during 1995, 1994 and
1993, respectively, and repaid discounted lease rentals in the amount of $2.3
million, $1.8 million and $0.3 million in 1995, 1994 and 1993, respectively.
During 1996, leases of equipment originally acquired for purchase prices of
approximately $16 million are scheduled to expire, unless renewed. To the extent
that leases are not renewed or re-marketed or if there are delays in selling
equipment, cash flow and thus distributions could be impacted.
On December 11, 1995, the Partnership entered into a lease ("Master Lease") with
an unaffiliated third party ("Master Lessee") for a term of approximately 110
months. Under the terms of the Master Lease, the Partnership assigned to the
Master Lessee certain economic rights to certain user leases
TWENTY-THREE
<PAGE> 24
PAINEWEBBER PREFERRED YIELD FUND, L.P.
(with remaining lease terms ranging from 10 to 55 months) originally acquired by
the Partnership for purchase prices aggregating $13,879,929 (including related
acquisition fees) ("Master Lease Equipment") and which represented future
minimum lease rentals under non-cancelable leases totaling $7,563,186 at
December 31, 1995. The Master Lessee prepaid ("Prepayment of Leases"), on a
discounted basis at a rate of 8.25%, the rent due to the Partnership under the
Master Lease in the amount of $11,257,741 of which $11,124,724 remained
unamortized at December 31, 1995 and which is carried as prepaid rent on the
balance sheet at such date. The Master Lease term exceeds the related original
user lease terms. Additionally, at the inception of the Master Lease the
Prepayment of Leases exceeded the aggregate of the remaining rental payments due
under the user leases and the residual (salvage) value estimates for the Master
Lease Equipment subject to the user leases, on an undiscounted basis. The
Partnership does not have any economic obligations relating to the Master Lease
Equipment subject to the Master Lease until such equipment is returned upon the
expiration of the Master Lease. Upon expiration of the Master Lease, the
economic benefits of all Master Lease Equipment still being leased by third
parties as well as a portion of the residual value of such equipment based upon
a formula will revert to the Partnership. This transaction was primarily
responsible for the increase in liquidity at December 31, 1995. It is
anticipated that the proceeds from the Prepayment of Leases have been or will be
utilized primarily for equipment reinvestment.
Partnership equity declined by $7,516,255, or 18%, from December 31, 1994 to
December 31, 1995 as a result of the declaration of cash distributions to the
partners in excess of the Partnership's net income. This resulted from the fact
that, unlike net income, cash flow from operating activities and proceeds from
sales of equipment, which, after deducting the related repayment of discounted
lease rentals, is the source of the cash utilized to make cash distributions to
partners, and is not reduced by depreciation expense and provisions for
equipment impairment attributable to the Partnership's equipment.
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
distribution by a partnership, which exceeds its net income for the fiscal
period, may be deemed a return of capital. Based on the amount of net income
reported by the Partnership for accounting purposes, approximately 68%, 83% and
85%, respectively, of the 14% yearly cash distributions to the Class A Limited
Partners for the years ended December 31, 1995, 1994 and 1993 constituted a
return of capital. Also, based on the amount of net income reported by the
Partnership for accounting purposes, approximately 69% of the cash distributions
paid to the Class A Limited Partners from inception of the Partnership through
December 31, 1995 constituted a return of capital. However, the total actual
return on capital over the Partnership's life can only be determined at the
termination of the Partnership after all residual cash flows (which include
proceeds from the re-leasing and sale of the equipment after initial lease terms
expire) have been realized.
LEGAL PROCEEDINGS
In November 1994, a series of purported class actions (the "New York Limited
Partnership Actions") were filed in the United States District Court for the
Southern District of New York concerning PaineWebber Incorporated's sale and
sponsorship of various limited partnership investments, including those offered
by the Partnership. The lawsuits were brought against PaineWebber Incorporated
and Paine Webber Group, Inc. (together, "PaineWebber"), among others, by
allegedly dissatisfied partnership investors. In March 1995, after the actions
were consolidated under the title In re: PaineWebber Limited Partnerships
Litigation, the plaintiffs amended their complaint to assert claims against a
variety of other defendants, including the Administrative General Partner of the
Partnership.
The amended complaint in the New York Limited Partnership Actions alleged that,
in connection with the sale of interests in the Partnership, PaineWebber and the
Administrative General Partner (1) failed to provide adequate disclosure of the
risks involved with the Partnership; (2) made false and misleading
representations about the safety of the investments and the Partnership's
anticipated performance; and (3) marketed the Partnership to investors for whom
such investments were not suitable. The plaintiffs also alleged that following
the sale of the Partnership, PaineWebber and the Administrative General Partner
misrepresented financial information about the Partnership's value and
performance. The amended complaint alleged that PaineWebber and the
Administrative General Partner violated the Racketeer Influenced and Corrupt
Organizations Act ("RICO") and the federal securities laws. The plaintiffs
sought unspecified damages, including reimbursement for all sums invested by
them in the Partnership, as well as disgorgement of all fees and other income
derived by PaineWebber from the Partnership. In addition, the plaintiffs also
sought treble damages under RICO.
On May 30, 1995, the US District Court certified class action treatment of the
plaintiffs' claims in the class action entitled, In re: PaineWebber Limited
Partnerships Litigation.
In January 1996, PaineWebber signed a memorandum of understanding with the
plaintiffs in the class action outlining the terms under which the parties have
agreed to settle the case. Pursuant to that memorandum of understanding,
PaineWebber irrevocably deposited $125 million into an escrow fund under the
supervision of the United States District Court for the Southern District of New
York to be used to resolve the litigation in accordance with a definitive
settlement agreement and a plan of allocation which the parties expect to submit
to the court for its consideration and approval within the next several months.
Until a definitive settlement and plan of allocation is
TWENTY-FOUR
<PAGE> 25
PAINEWEBBER PREFERRED YIELD FUND, L.P.
approved by the court, there can be no assurance what, if any, payment or
non-monetary benefits will be made available to unitholders in the Partnership.
In February 1996, approximately 150 plaintiffs filed an action entitled Abbate
v. PaineWebber Inc. in Sacramento, California Superior Court against PaineWebber
Incorporated and various affiliated entities concerning the plaintiff's
purchases of various limited partnership interests. The complaint alleges, among
other things, that PaineWebber and its related entities committed fraud and
misrepresentation and breached fiduciary duties allegedly owed to the plaintiffs
by selling or promoting limited partnership investments that were unsuitable for
the plaintiffs and by overstating the benefits, understating the risks and
failing to state material facts concerning the investments. The complaint seeks
compensatory damages of $15 million plus punitive damages.
Under certain limited circumstances, pursuant to the Partnership Agreement and
other contractual obligations, PaineWebber and its affiliates, including the
Administrative General Partner, could be entitled to indemnification from the
Partnership for expenses and liabilities in connection with this litigation. The
General Partners are unable to determine the impact, if any, of these actions on
the Partnership's financial statements taken as a whole.
IMPACT OF FUTURE ADOPTION OF RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board recently issued FASB 121, "Accounting
for the Impairment of Long-lived Assets and Long-lived Assets to be Disposed of"
("FAS 121"). FAS 121 requires companies to review their long-lived assets, such
as the Partnership's leased equipment, and certain identifiable intangibles for
impairment whenever events and changes in circumstances indicate that the
carrying value of a long-lived asset may not be recoverable. The Partnership
will be required to adopt the provisions of FAS 121 as of January 1996. The
General Partners believe that based upon current operations and current methods
used to evaluate declines in market value, the future adoption of FAS 121 will
not have a material impact on the Partnership's financial position or results of
operations.
RESULTS OF OPERATIONS
Substantially all of the Partnership's revenue since the inception of the
Partnership has been generated from the leasing of the Partnership's equipment
to unaffiliated third parties under triple net leases, which were in effect at
the time the equipment was acquired by the Partnership. The balance of the
Partnership's revenue consisted of interest income from temporary investments
and gains realized on the sale of equipment. The Partnership collected
approximately $133,000 in final settlement of claims in a bankruptcy case, which
was included in other income on the 1995 Statement of Income. The related
equipment had been liquidated in prior years.
Under the terms of the Partnership's triple net leases, all expenses related to
the ownership and operation of the equipment from inception through December 31,
1995 have been paid by the lessees. The Partnership records depreciation expense
pertaining to the equipment and incurs management fees and certain general and
administrative expenses in connection with the operation of the Partnership.
General and administrative expenses consist primarily of investor reporting
expenses and transfer agent and audit fees.
The Partnership performs ongoing assessments of the likelihood of lessee
defaults on existing leases and the effect that any such defaults may have on
the collectability of the Partnership's recorded accounts receivable, and the
recoverability of recorded equipment residual values based on independent and
internal evaluation of the estimated future value of equipment. Provisions for
losses are recorded when it is determined that it is probable that the value of
a recorded asset has declined on an other-than-temporary basis.
1995 COMPARED TO 1994
Net income for the year ended December 31, 1995 ("1995 Period") was $3,957,086
as compared to $2,670,613 for the year ended December 31, 1994 ("1994 Period").
The reason for the increase in net income was the provision for losses and bad
debts of $1,797,472 in the 1994 Period as compared to only $447,900 in the 1995
Period.
Rentals from operating leases decreased by $2,407,574, or approximately 14%, in
the 1995 Period as compared to the 1994 Period due to a decline in the amount of
equipment subject to leases (sales and dispositions exceeded equipment
purchases) as well as the effect of the continued change in the mix of equipment
from shorter term, high rate leases to longer term, lower rate leases.
Direct financing lease income decreased by $18,311, or 3%, in the 1995 Period as
compared to the 1994 Period, which was consistent with the financing leases in
place.
The Partnership generated net gains on the sale of equipment of $179,352 in the
1995 Period as compared to the net losses of $278,882 in the 1994 Period.
Generally, this was attributable to the provisions for losses taken in prior
years on equipment which was sold in 1995.
Interest income increased by $51,054, or approximately 34%, due to an increase
in the amount of funds available for reinvestment.
Depreciation and amortization decreased by $1,662,501, or approximately 13%, in
the 1995 Period as compared to the 1994 Period due to a decline in equipment
subject to leases and the provisions for losses taken in prior periods which
reduced the depreciable base. The decrease in depreciation and amortization was
consistent with the decrease in rental income.
TWENTY-FIVE
<PAGE> 26
PAINEWEBBER PREFERRED YIELD FUND, L.P.
Management and disposition fees decreased by $19,539, or 3%, in the 1995 Period
as compared to the 1994 Period. Subordinated disposition fees increased by
$38,195, or 62%, due to an increase in sales and disposition activity during the
year and an increase in the sales proceeds generated. Management fees decreased
by $57,734, or approximately 10%, due to the decreased rental income (including
rental payments associated with financing leases) on which such fees are based.
The Partnership provided allowances for bad debts of $197,900 based upon the
collectability estimates related to certain financially troubled and bankrupt
lessees and provided allowances for losses (impairment to equipment value) of
$250,000 for aggregate losses of $447,900 in the 1995 Period as compared to
$1,797,472 in the 1994 Period. Such amounts were based upon the Partnership's
analysis of recoverability at the end of each of the periods based upon third
party appraisals, market conditions and anticipated cash flows as well as
receivable collectability.
General and administrative expenses increased by $7,352, or approximately 3%, in
the 1995 Period as compared to the 1994 Period, which was consistent with
Partnership's level of activities.
Interest expense decreased by $29,361, or 10%, in the 1995 Period as compared to
the 1994 Period due to the continued repayment of debt offset by the
non-recourse financing obtained in November 1995.
1994 COMPARED TO 1993
The Partnership's net income was $2,670,613 for the year ended December 31, 1994
as compared to $2,686,038 for the year ended December 31, 1993, or $11.70 per
Unit as compared to $10.78 per Unit. Rental income and depreciation each
decreased during 1994 and management fees decreased in conjunction with the
decrease in rental income on which management fees are based. Additionally, the
provisions for losses required in 1994 increased by $164,843, or 10%, as
compared to the provisions required in 1993.
Rentals from operating leases declined by approximately 15% for 1994 as compared
to 1993. The reason for the decrease in rental revenue was:
(i) A significant amount of equipment was sold in late 1993 which had
been generating rental income for all or a portion of 1993.
(ii) Equipment sold upon lease expiration (based on original equipment
cost) exceeded equipment acquired in 1994.
(iii) A significant portion of the equipment acquired in 1994 was
subject to longer term leases than the equipment replaced.
Income from direct finance leases increased by $77,713, or 14%, in 1994 as
compared to 1993 principally because of the full-year effect of certain
additions to investments in direct finance leases in late 1993 as well as the
addition of direct financing leases in early 1994, which exceeded the effect of
the sale of certain equipment subject to direct financing leases upon their
respective expirations during 1994.
The losses on sale of equipment and other, net were $278,882 in 1994 as compared
to $223,353 in 1993.
Interest income decreased by 35%, or $81,699, in 1994 as compared to 1993
principally because of a reduction in the amounts available for investment.
Depreciation decreased by 23%, or $3,695,695, in 1994 as compared to 1993
principally due to the reduction in the equipment base subject to depreciation,
which was caused by sales and dispositions.
Management fees and disposition fees decreased by approximately 16%, or
$125,176, in 1994 as compared to 1993. Management fees decreased due to a
reduction in rental revenue, upon which such fees are based. Disposition fees
are based upon proceeds from sale of equipment and are subordinated to the Class
A Partners receiving specified preferred return of an 8% annual cumulative
return on adjusted capital.
The Partnership recorded aggregate provisions for equipment impairment totalling
$1,797,472 for 1994 as compared to $1,632,629 during 1993. The increase in the
provision for losses of 10%, or $164,843, in 1994 as compared to 1993 was due
principally to the recognition of loss in value with respect to certain
technological equipment (computer mainframes, communication equipment, computer
peripherals and PCs and workstations).
General and administrative expenses increased by 48%, or $90,575, in 1994 as
compared to 1993. This increase was attributable principally due to warehouse
expenses relating to off-lease equipment (inventory) during 1994.
Interest expense increased by $261,414 in 1994 as compared to 1993 because
substantially all of the discounting of lease rentals took place in late 1993
and during 1994.
INFLATION AND CHANGING PRICES
Inflation has not had any material impact on the operations or financial
condition of the Partnership from inception through December 31, 1995. However,
inflation and changing prices, in addition to other factors, may affect
subsequent leasing rates and the eventual selling price of the Partnership's
equipment.
TWENTY-SIX
<PAGE> 27
PAINEWEBBER PREFERRED YIELD FUND, L.P.
PARTNERSHIP
DIRECTORS
PAINEWEBBER PREFERRED YIELD FUND, L.P.
-----------------
2424 South 130th Circle
Omaha, Nebraska 68144-2596
(800) 288-0922
MANAGING GENERAL PARTNER
-----------------
CAI Equipment Leasing II Corp.
ADMINISTRATIVE GENERAL PARTNER
-----------------
General Equipment Management, Inc.
INDEPENDENT PUBLIC ACCOUNTANTS
-----------------
Coopers & Lybrand
New York, New York
LEGAL COUNSEL
-----------------
Ballard, Spahr, Andrews & Ingersoll
Denver, Colorado
TRANSFER AGENT
-----------------
Service Data Corporation
Omaha, Nebraska
FORM 10-K AVAILABILITY
-------------------------------
A copy of the Annual Report on Form 10-K, as filed with the
Securities and Exchange Commission, will be furnished without charge
to Class A limited partners upon request.
TWENTY-SEVEN
