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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from__________________to________________
Commission file number 0-19166
PaineWebber Preferred Yield Fund, L.P.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 84-1130506
------------------------ ----------------------
(State of organization) (IRS Employer)
(Identification No.)
7175 West Jefferson Avenue
Suite 3000
Lakewood, Colorado 80235
------------------ --------------
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code (303) 980-1000
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______.
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PaineWebber Preferred Yield Fund, L.P.
Quarterly Report on Form 10-Q for the
Quarter Ended March 31, 1996
Table of Contents
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited) 2
Balance Sheets - March 31, 1996 and
December 31, 1995 2
Statements of Income for the three months
ended March 31, 1996 and 1995 3
Statements of Partners' Equity for the three
months ended March 31, 1996 and 1995 4
Statements of Cash Flows for the three months
ended March 31, 1996 and 1995 5
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 6. Exhibits and Reports on Form 8-K 14
</TABLE>
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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
PAINEWEBBER PREFERRED YIELD FUND, L.P.
BALANCE SHEETS --MARCH 31, 1996 AND DECEMBER 31, 1995
(unaudited)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
ASSETS
------
Cash and cash equivalents $ 6,155,178 $ 9,235,759
Rent and other receivables, net 576,755 837,380
Equipment held for sale or lease, net of
accumulated depreciation of
$864,364 and $847,848 at 1996 and
1995 and allowances for losses of
$180,222 and $152,227 at 1996 and 1995 23,719 56,395
Net investment in direct financing leases 3,494,671 3,527,277
Equipment on operating leases, net of
accumulated depreciation of $30,063,729
in 1996 and $29,400,612 in 1995 and
allowance for losses of $580,034 in
1996 and $724,212 in 1995 40,492,160 39,625,794
Other assets, net 17,920 19,406
----------- -----------
Total assets $50,760,403 $53,302,011
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
--------------------------------
LIABILITIES:
Prepaid rent $10,611,541 $11,124,724
Accounts payable and accrued liabilities 738,066 531,458
Payable to affiliates (Note 2) 657,856 639,846
Interest payable 18,760 22,288
Deferred rental income and deposits 832,557 911,517
Distributions payable to partners 1,239,806 1,211,123
Discounted lease rentals 4,153,418 4,747,859
---------- ----------
Total liabilities 18,252,004 19,188,815
---------- ----------
Commitments and contingencies (Notes 2,3 And 4)
PARTNERS' EQUITY:
General Partners 1,532,207 1,612,447
Limited Partners:
Class A (142,128 Units outstanding) 27,083,642 28,417,629
Class B 3,892,550 4,083,120
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Total Partners' equity 32,508,399 34,113,196
----------- -----------
Total liabilities and partners' equity $50,760,403 $53,302,011
==-======== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
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PAINEWEBBER PREFERRED YIELD FUND, L.P.
STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(unaudited)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
REVENUE:
Rentals from operating leases $3,695,584 $4,349,485
Direct financing lease income 155,110 119,633
Gain on sale of equipment 333,780 11,804
Interest 103,475 47,585
---------- ----------
4,287,949 4,528,507
---------- ----------
EXPENSES:
Depreciation and amortization 2,397,452 3,203,496
Provision for losses 75,000 150,000
Management and disposition fees (Note 2) 168,452 156,270
General and administrative (Note 2) 61,125 67,172
Interest 322,382 69,972
---------- ----------
3,024,411 3,646,910
---------- ----------
NET INCOME $1,263,538 $ 881,597
========== ==========
NET INCOME ALLOCATED:
To the General Partners $ 63,177 $ 207,467
To the Class A Limited Partners 1,153,253 630,655
To the Class B Limited Partner 47,108 43,475
---------- ----------
$1,263,538 $ 881,597
========== ==========
NET INCOME PER WEIGHTED AVERAGE
NUMBER OF UNITS OF CLASS A LIMITED
PARTNER INTEREST OUTSTANDING $ 8.11 $ 4.44
========= ==========
WEIGHTED AVERAGE NUMBER OF
UNITS OF CLASS A LIMITED PARTNER
INTEREST OUTSTANDING 142,128 142,128
========== ==========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
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PAINEWEBBER PREFERRED YIELD FUND, L.P.
STATEMENTS OF PARTNERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(unaudited)
<TABLE>
<CAPTION>
Class A Class B
General Limited Limited
Partners Partners Partner Total
-------- -------- ------- -----
<S> <C> <C> <C> <C>
Balance, January 1, 1996 $1,612,447 $28,417,629 $4,083,120 $34,113,196
Net income 63,177 1,153,253 47,108 1,263,538
Distributions declared (143,417) (2,487,240) (237,678) (2,868,335)
---------- ----------- ---------- -----------
Balance, March 31, 1996 $1,532,207 $27,083,642 $3,892,550 $32,508,399
========== =========== ========== ==========
Balance, January 1, 1995 $1,453,727 $35,219,952 $4,955,772 $41,629,451
Net income 207,467 630,655 43,475 881,597
Distributions declared (143,417) (2,487,240) (237,678) (2,868,335)
---------- ----------- ---------- -----------
Balance, March 31, 1995 $1,517,777 $33,363,367 $4,761,569 $39,642,713
========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
4
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PAINEWEBBER PREFERRED YIELD FUND, L.P.
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(unaudited)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,263,538 $ 881,597
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,397,452 3,203,496
Provision for losses 75,000 150,000
Gains on sale of equipment, net (333,780) (11,804)
Change in assets and liabilities:
Rent and other receivables 260,625 217,321
Accounts payable and accrued liabilities 133,856 (43,829)
Payable to affiliates 15,827 194,379
Interest payable (3,528) (2,698)
Deferred rental income and deposits (78,960) 38,353
Prepaid rent (513,183) --
Other assets 1,486 --
----------- -----------
Net cash provided by operating activities 3,218,333 4,626,815
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Recovery of investment in direct financing leases 280,932 218,197
Proceeds from sale of equipment and other 592,104 422,172
Purchase of equipment on operating leases (Note 2) (3,721,880) (131,328)
Investment in direct financing leases (Note 2) (90,912) (847,164)
Accounts payable arising from equipment purchase 72,752 --
Payable to affiliates arising from equipment purchase 2,183 --
----------- -----------
Net cash used in investing activities (2,864,821) (509,041)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of discounted lease rentals (594,441) (527,739)
Cash distributions paid to partners (2,839,652) (2,868,335)
----------- -----------
Net cash used in financing activities (3,434,093) (3,396,074)
----------- -----------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (3,080,581) 1,739,782
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 9,235,759 3,870,361
=========== ===========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
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PAINEWEBBER PREFERRED YIELD FUND, L.P.
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(unaudited)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $6,155,178 $5,610,143
========== ==========
Supplemental schedule of cash flow information:
Interest paid $ 325,910 $ 72,470
========== ==========
NON CASH TRANSACTIONS
Equipment subject to operating leases
converted to direct financing leases at renewal 157,414 --
========== ==========
Distributions declared but not paid to partners 1,239,806 1,211,123
========== ==========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
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PAINEWEBBER PREFERRED YIELD FUND, L.P.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
(unaudited)
1. GENERAL
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and disclosures
required by generally accepted accounting principles for annual financial
statements. In the opinion of the General Partners, all adjustments
(consisting of normal recurring adjustments) considered necessary for a fair
presentation have been included. The balance sheet at December 31, 1995 has
been derived from the audited financial statements included in the
Partnership's Annual Report on Form 10-K. For further information, refer to
the financial statements of PaineWebber Preferred Yield Fund, L.P. (the
"Partnership"), and the related notes, included in the Partnership's Annual
Report on Form 10-K for the year ended December 31, 1995, previously filed with
the Securities and Exchange Commission.
2. TRANSACTIONS WITH AFFILIATES
Acquisition Fees During the quarter ended March 31, 1996, the
Partnership acquired equipment on an all cash basis from CAII, an affiliate of
the Managing General Partner, for purchase prices aggregating $2,269,732
(excluding acquisition fees). The purchase prices of the equipment acquired
from CAII was 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. The Partnership also acquired leased
equipment directly from third parties for purchase prices aggregrating
$1,432,383, excluding acquisition fees. The Managing General Partner receives
a fee equal to 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. The Managing
General Partner earned $110,677 of acquisition fees attributable to the
acquisition of equipment during the three months ended March 31, 1996.
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 $151,547 were earned by the General Partners
with respect to the rental revenues earned by the Partnership during the three
months ended March 31, 1996.
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
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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 $16,905 are payable to the
Managing General Partner with respect to dispositions which occurred during the
three months ended March 31, 1996. These fees, which were charged to
operations, are not currently payable since their payment is subordinated to
the Class A Limited Partners receiving cash distributions equal to their
capital contributions, plus an 8% annual cumulative return (as defined in the
Partnership Agreement). Cumulative disposition fees payable at March 31, 1996
totaled $359,566.
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 paid to the Managing General
Partner, amounted to $6,250 during the three months ended March 31, 1996.
3. 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 each Partnership; (2) made false
and misleading representations about the safety of the investments and the
partnership's anticipated performance; and (3) marketed the partnerships to
investors for whom such investments were not suitable. The plaintiffs also
alleged that following the sale of the Partnership investments 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 partnerships, as well as disgorgement of all
fees and other income derived by PaineWebber from the limited partnerships. 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
8
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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 Partnership's financial statements
taken as a whole.
4. 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 Partnership under the Master Lease in the amount
of $11,257,741 of which $10,611,541 and $11,124,724 remained outstanding at
March 31, 1996 and December 31, 1995, respectively. The Prepayment of Leases
is carried as prepaid rent on the balance sheets at such dates and is 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 the Master Lease approximated the aggregate of the remaining
rental payments due under the user leases and the residual (salvage) value
estimates for the equipment subject to the user leases. The Partnership does
not have any economic obligations relating to the 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
equipment (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.
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
The Partnership purchased $ 3,812,792 of additional equipment
(inclusive of related acquisition fees) pursuant to the reinvestment program
during the three months ended March 31, 1996 ("1996 Quarter"). Equipment
purchased pursuant to the reinvestment program from the inception of the
Partnership through March 31, 1996 totaled $ 65,037,687. Cash available for
reinvestment at March 31, 1996 totaled approximately $4,900,000 which was fully
committed for acquisition. Upon the completion of the expenditure of the
committed funds, the Partnership's reinvestment phase will end and no
additional leased equipment will be purchased, other than upgrades to existing
equipment as necessary.
Proceeds from equipment sales totaled approximately $ 563,000 during
the three months ended March 31, 1996. The equipment sold during the three
months ended March 31, 1996 had been purchased for original purchase prices
aggregating approximately $1,745,000.
The Partnership invests working capital and cash flow from operations
prior to its distribution to the partners or its reinvestment in additional
equipment (the commitment period for which ended March 31, 1996) in short-term
highly liquid investments.
Rent and other receivables, net of the allowance for doubtful
accounts, decreased $260,625, from $837,380 at December 31, 1995 to $576,755
at March 31, 1994 March 31, 1996, due principally to continued collection
efforts.
Deferred rental income and deposits decreased $78,960 from $911,517 at
December 31, 1995 to $832,557 at March 31, 1994 March 31, 1996. The principal
portion of this decrease was attributable to a slight increase in the amount of
rental payments received during the last week of the current quarter which were
due on the first day of the succeeding quarter.
During the 1996 Quarter, the Partnership declared distributions of cash
flow received from operations and cash from sales in the aggregate amount of $
2,868,335. The distributions declared for the 1996 Quarter were at an
annualized distribution rate of 14% of contributed capital to the Class A
Limited Partners and an annualized distribution of 11% of contributed capital to
the Class B Limited Partner. The Administrative General Partner did not receive
its share of the fourth Quarter distribution payable in January 1996. A
substantial portion of each distribution constitutes a return of capital.
Distributions will be determined based upon cash flow and obligations. The
Partnership anticipates being able to maintain the current distribution rate for
the next several quarters. Beginning in the second quarter of 1996, the
Partnership has entered into the Liquidation Stage and will no longer commit to
new equipment purchases. Distribution rates will be determined based upon cash
flow from leases, equipment sales and cash obligations.
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 54% of the
14% annualized cash distributions to the Class A Limited Partners for the three
months ended
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March 31, 1996 constituted a return of capital. Also, based on the amount of
net income reported by the Partnership for accounting purposes, approximately
68% of the cash distributions paid to the Class A Limited Partners from
inception of the Partnership through March 31,March 31, 1996 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.
LITIGATION
There is a purported class action lawsuit in which the Administrative
General Partner and affiliates of the Administrative General Partner, amongst
others, are defendants. Allegations include lack of adequate disclosure in
sales materials, false and misleading representations and sales to unsuitable
investors. The lawsuit alleges the Administrative General Partner and its
affiliates violated the Racketeer Influenced and Corrupt Organizations Act and
the federal securities laws. The Plaintiffs seek unspecified damages. The
General Partners believe these actions will be resolved without material
adverse effect on the Partnership's financial statements, taken as a whole.
RESULTS OF OPERATIONS
Substantially all of the Partnership's revenue and cashflow during the
1996 Quarter was generated from the leasing of the Partnership's equipment to
unaffiliated third parties under triple net leases. The balance of the
Partnership's cashflow consisted of proceeds from the sale of equipment and
interest income from temporary investments.
Under the terms of the triple net leases, substantially all of the
expenses related to the ownership and operation of the equipment are paid for
by the lessees. For equipment subject to operating leases, the Partnership
records depreciation expense pertaining to the equipment and related management
fees. The Partnership also records general and administrative expenses
consisting primarily of warehouse costs, investor reporting expenses and
transfer agent and audit fees as well as interest expenses incurred in
connection with discounted transactions.
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 evaluations 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.
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1996 Compared to 1995
The Partnership's net income was $1,263,538 in the 1996 Quarter as
compared to net income of $881,597 for the quarter ended March 31, 1995 ("1995
Quarter"). Net income was higher in 1996 as compared to 1995 principally
because depreciation decreased by a higher amount than rental income and
because gains on sale or disposition of equipment increased in the 1996 Quarter
compared to the 1995 Quarter. Both of these variances in results were caused
by allowances for losses provided in prior years which reduced the depreciable
bases of certain equipment.
Rentals from operating leases declined by approximately 15% or
$653,901 in the 1996 Quarter as compared to the 1995 Quarter, due to the
continued sale of equipment upon the scheduled expiration of leases subsequent
to the 1995 Quarter partially offset by the rentals from equipment purchased
subsequent to the 1995 Quarter.
As discussed above, the Partnership performs ongoing assessments of
recorded equipment residual values based on actual sales of similar equipment
and other evaluations of estimated future equipment values and provides for
losses when the value of the equipment has been impaired on an other than
temporary basis. Based upon such assessments, the Partnership recorded
provision for losses totaling $75,000 in the 1996 Quarter as compared to
$150,000 during the 1995 Quarter.
Depreciation and amortization expense decreased by approximately 25%
or $806,044 in the 1996 Quarter as compared to the 1995 Quarter, principally
due to provisions for losses (reflecting other than temporary impairment to the
value of the related equipment) recognized during 1995 which reduced the
depreciable bases in certain equipment.
Management and disposition fees incurred during the 1996 Quarter
increased by 8% or $12,182 in comparison to the 1995 Quarter. Subordinated
disposition fees were $16,905 in the 1996 Quarter as compared to $11,629 in the
1995 Quarter (an increase of $5,276) as a result of an increase in proceeds
from sales of equipment. Management fees increased 5% or $6,906 in the 1996
Quarter as compared to the 1995 Quarter based upon the leases in place (and
related fee structures) in the respective periods.
General and administrative expenses incurred during the 1996 Quarter
decreased by approximately 9% or $6,047 in comparison to the 1995 Quarter
primarily due to a decrease in accounting related expenses.
Interest expense incurred during the 1996 Quarter increased
substantially in the 1996 Quarter as compared to the 1995 Quarter. Interest
expense is composed of two components; (i) interest expense incurred in
connection with the discounting of certain leases with unaffiliated lenders and
(ii) interest incurred in connection with the application of the prepaid rent
received pursuant to the Master Lease transaction. For accounting purposes,
the prepaid rent is treated as a financing. Income is recognized ratably over
the terms of the leases and the related interest is charged to operations. The
Master Lease was not in place in the 1995 Quarter.
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Part II. OTHER INFORMATION
Item 1. 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 each partnership; (2) made false
and misleading representations about the safety of the investments and the
partnership's anticipated performance; and (3) marketed the partnerships to
investors for whom such investments were not suitable. The plaintiffs also
alleged that following the sale of the partnership investments 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 partnerships, as well as disgorgement of all
fees and other income derived by PaineWebber from the limited partnerships. 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
13
<PAGE> 15
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.
Item 6. Exhibits and Reports on Form 8-K
(a) None.
(b) The Partnership did not file any reports on Form 8-K during
the first quarter of the fiscal year ending December 31, 1996.
14
<PAGE> 16
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 14, 1996 By: /s/Joseph P. Ciavarella
--------------------------------
Joseph P. Ciavarella
Vice President, Treasurer
and Chief Financial
and Accounting Officer
15
<PAGE> 17
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 14, 1996 By:
______________________________
Joseph P. Ciavarella
Vice President, Treasurer
and Chief Financial
and Accounting Officer
16
<PAGE> 18
EXHIBIT INDEX
-------------
Exhibit 27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from (a)
Painewebber Preferred Yield Fund L.P. Form 10-Q for the quarter ended March
31, 1996 and is qualified in its entirety by reference to such (b) Form 10-Q
for the quarter ended March 31, 1996.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 6,155,178
<SECURITIES> 0
<RECEIVABLES> 721,176
<ALLOWANCES> (144,421)
<INVENTORY> 0
<CURRENT-ASSETS> 600,474
<PP&E> 72,204,228
<DEPRECIATION> 31,688,349
<TOTAL-ASSETS> 50,760,403
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 32,508,399<F1>
<TOTAL-LIABILITY-AND-EQUITY> 50,760,403
<SALES> 0
<TOTAL-REVENUES> 4,287,949
<CGS> 0
<TOTAL-COSTS> 2,640,904
<OTHER-EXPENSES> 61,125
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 322,382
<INCOME-PRETAX> 1,263,538
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,263,538
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,263,538
<EPS-PRIMARY> 0<F2>
<EPS-DILUTED> 0
<FN>
<F1>Partners capital and accumulated earnings and distributions to partners.
<F2>$8.11 per unit of limited partnership interest.
</FN>
</TABLE>
