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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 June 30, 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 June 30, 1996
Table of Contents
<TABLE>
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Page
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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited) 2
Balance Sheets - June 30, 1996 and
December 31, 1995 2
Statements of Income for the three months
ended June 30, 1996 and 1995 3
Statements of Income for the six months
ended June 30, 1996 and 1995 4
Statements of Partners' Equity for the six
months ended June 30, 1996 and 1995 5
Statements of Cash Flows for the six months
ended June 30, 1996 and 1995 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 6. Exhibits and Reports on Form 8-K 16
</TABLE>
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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
PAINEWEBBER PREFERRED YIELD FUND, L.P.
BALANCE SHEETS --JUNE 30, 1996 AND DECEMBER 31, 1995
(unaudited)
<TABLE>
<CAPTION>
1996 1995
----------- -----------
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 4,210,173 $ 9,235,759
Rent and other receivables, net 419,809 837,380
Equipment held for sale or lease, net of accumulated
depreciation of $425,210
and $847,848 at 1996 and 1995 and allowances for losses of
$36,118 and $152,227 at 1996 and 1995 151,627 56,395
Net investment in direct financing leases 3,385,962 3,527,277
Equipment on operating leases, net of
accumulated depreciation of $31,630,759
in 1996 and $29,400,612 in 1995 and
allowance for losses of $480,422 in
1996 and $724,212 in 1995 38,985,925 39,625,794
Other assets, net 17,617 19,406
----------- -----------
Total assets $47,171,113 $53,302,011
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES:
Prepaid rent $10,049,298 $11,124,724
Accounts payable and accrued liabilities 339,966 531,458
Payable to affiliates (Note 2) 661,373 639,846
Interest payable 15,300 22,288
Deferred rental income and deposits 876,947 911,517
Distributions payable to partners 1,268,489 1,211,123
Discounted lease rentals 3,623,171 4,747,859
----------- -----------
Total liabilities 16,834,544 19,188,815
----------- -----------
Commitments and contingencies (Notes 2,3 and 4)
PARTNERS' EQUITY:
General Partners 1,423,615 1,612,447
Limited Partners:
Class A (142,128 Units outstanding) 25,278,308 28,417,629
Class B 3,634,646 4,083,120
----------- -----------
Total Partners' equity 30,336,569 34,113,196
----------- -----------
Total liabilities and partners' equity $47,171,113 $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 JUNE 30, 1996 AND 1995
(unaudited)
<TABLE>
<CAPTION>
1996 1995
---------- -----------
<S> <C> <C>
REVENUE:
Rentals from operating leases $3,609,797 $ 3,966,778
Direct financing lease income 222,361 97,952
Gain (loss) on sales and dispositions of equipment, net 73,349 (18,107)
Interest 67,832 63,738
Other -- 135,530
---------- -----------
3,973,339 4,245,891
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EXPENSES:
Provision for loss 300,000 --
Depreciation and amortization 2,352,813 2,722,318
Management and disposition fees (Note 2) 160,348 204,519
General and administrative (Note 2) 200,552 66,620
Interest 263,121 61,517
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3,276,834 3,054,974
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NET INCOME $ 696,505 $ 1,190,917
========== ===========
NET INCOME ALLOCATED:
To the General Partners $ 34,825 $ 287,582
To the Class A Limited Partners 681,906 836,657
To the Class B Limited Partner (20,226) 66,678
---------- -----------
$ 696,505 $ 1,190,917
========== ===========
NET INCOME PER WEIGHTED AVERAGE
NUMBER OF UNITS OF CLASS A LIMITED
PARTNER INTEREST OUTSTANDING $ 4.80 $ 5.88
========== ===========
WEIGHTED AVERAGE NUMBER OF
UNITS OF CLASS A LIMITED PARTNER
INTERESTS OUTSTANDING 142,128 142,128
========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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PAINEWEBBER PREFERRED YIELD FUND, L.P.
STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(unaudited)
<TABLE>
<CAPTION>
1996 1995
---------- -----------
<S> <C> <C>
REVENUE:
Rentals from operating leases $7,305,381 $ 8,316,263
Direct financing lease income 377,471 217,585
Gain (loss)on sales and dispositions of equipment, net 407,129 (6,303)
Interest 171,307 111,323
Other -- 135,530
---------- -----------
8,261,288 8,774,398
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EXPENSES:
Depreciation and amortization 4,750,265 5,925,814
Provision for losses 375,000 150,000
Management and disposition fees (Note 2) 328,800 360,789
General and administrative (Note 2) 261,677 133,792
Interest 585,503 131,489
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6,301,245 6,701,884
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NET INCOME $1,960,043 $ 2,072,514
========== ===========
NET INCOME ALLOCATED:
To the General Partners $ 98,002 $ 495,049
To the Class A Limited Partners 1,835,159 1,467,312
To the Class B Limited Partner 26,882 110,153
---------- -----------
$1,960,043 $ 2,072,514
========== ===========
NET INCOME PER WEIGHTED AVERAGE
NUMBER OF UNITS OF CLASS A LIMITED
PARTNER INTEREST OUTSTANDING $ 12.91 $ 10.32
========== ===========
WEIGHTED AVERAGE NUMBER OF
UNITS OF CLASS A LIMITED PARTNER
INTERESTS OUTSTANDING 142,128 142,128
========== ===========
</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 PARTNERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 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 98,002 1,835,159 26,882 1,960,043
Distributions declared (286,834) (4,974,480) (475,356) (5,736,670)
---------- ----------- ---------- -----------
Balance, June 30, 1996 $1,423,615 $25,278,308 $3,634,646 $30,336,569
========== =========== ========== ===========
Balance, January 1, 1995 $1,453,727 $35,219,952 $4,955,772 $41,629,451
Net income 495,049 1,467,312 110,153 2,072,514
Distributions declared (286,834) (4,974,480) (475,356) (5,736,670)
---------- ----------- ---------- -----------
Balance, June 30, 1995 $1,661,942 $31,712,784 $4,590,569 $37,965,295
========== =========== ========== ===========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
5
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PAINEWEBBER PREFERRED YIELD FUND, L.P.
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(unaudited)
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,960,043 $ 2,072,514
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 4,750,265 5,925,814
Provision for losses 375,000 150,000
(Gain) loss on sales and disposition of equipment, net (407,129) 6,303
Change in assets and liabilities:
Rent and other receivables 417,571 23,681
Accounts payable and accrued liabilities (191,492) (128,887)
Payable to affiliates 21,527 365,175
Interest payable (6,988) (5,094)
Deferred rental income and deposits (34,570) 40,790
Prepaid rent (1,075,426) --
----------- -----------
Net cash provided by operating activities 5,808,801 8,450,296
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Recovery of investment in direct financing leases 943,559 756,604
Proceeds from sale of equipment 953,013 2,015,934
Purchase of equipment on operating leases (Note 2) (5,834,856) (4,948,495)
Investment in direct financing leases (Note 2) (90,912) --
----------- -----------
Net cash used in investing activities (4,029,196) (2,175,957)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of discounted lease rentals (1,124,688) (1,070,234)
Cash distributions paid to partners (5,680,503) (5,736,670)
----------- -----------
Net cash used in financing activities (6,805,191) (6,806,904)
----------- -----------
NET DECREASE IN CASH
AND CASH EQUIVALENTS (5,025,586) (532,565)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 9,235,759 3,870,361
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,210,173 $ 3,337,796
=========== ===========
Supplemental schedule of cash flow information:
Interest paid $ 592,491 $ 136,583
=========== ===========
</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 SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(unaudited)
<TABLE>
<CAPTION>
1996 1995
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<S> <C> <C>
NON CASH TRANSACTIONS
Equipment subject to operating leases
converted to direct financing leases at renewal $ 656,282 $ --
=========== ===========
Distributions declared but not paid to partners $ 1,268,489 $ 1,211,123
=========== ===========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
7
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PAINEWEBBER PREFERRED YIELD FUND, L.P.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 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 six months ended June 30, 1996, the Partnership
acquired equipment on an all cash basis from CAII, an affiliate of the Managing
General Partner, for purchase prices aggregating $2,521,742 (excluding
acquisition fees) of which $252,010 was purchased during the quarter ended June
30, 1996. 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 aggregating $3,231,806, excluding acquisition fees
of which $1,799,423 was purchased during the quarter ended June 30, 1996. 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 $61,543 and $172,220 of
acquisition fees attributable to the acquisition of equipment during the quarter
and six months ended June 30, 1996, respectively.
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 $147,868 and $299,415 were earned by the General
Partners with respect to the rental revenues earned by the Partnership during
the quarter and six months ended June 30, 1996.
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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 $12,480 and $29,385 are payable to the Managing General Partner with respect
to dispositions which occurred during the quarter and six months ended June 30,
1996, respectively. 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 June 30, 1996 totaled $372,046.
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 $12,500 during the six months ended June 30, 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.
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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 ("District Court") to be used to resolve the litigation. On July 17, 1996,
the District Court granted preliminary approval of the proposed settlement of
the class action litigation. As a part of the class action settlement,
PaineWebber agreed to pay $125 million and additional consideration to class
members. The order entered by the District Court provides for notice to be
mailed to class members and schedules a final hearing on the proposed settlement
for October 25, 1996.
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 the Abbate
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
$10,049,298 and $11,124,724 remained outstanding at June 30, 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
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Leases 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 $ 5,925,768 of additional equipment (inclusive of
related acquisition fees) pursuant to the reinvestment program during the six
months ended June 30, 1996 ("1996 Period"). Equipment purchased pursuant to the
reinvestment program from the inception of the Partnership through June 30, 1996
totaled $ 67,150,663. Cash available for reinvestment at June 30, 1996 totaled
approximately $2,200,000 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 $ 1,271,000 (including
sales of equipment subject to direct financing of leases) during the six months
ended June 30, 1996. The equipment sold during the six months ended June 30,
1996 had been purchased for original purchase prices aggregating approximately
$3,920,000.
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 $417,571, from $837,380 at December 31, 1995 to $419,809 at June 30,
1996, due principally to continued collection efforts.
Deferred rental income and deposits decreased $34,570 from $911,517 at
December 31, 1995 to $876,947 at June 30, 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. 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 balance of the year. Beginning in the second quarter
of 1996, the Partnership has entered into the Liquidation Stage and will no
longer commit to new equipment purchases. Future distribution rates and timing
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
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amount of net income reported by the Partnership for accounting purposes,
approximately 63% of the 14% annualized cash distributions to the Class A
Limited Partners for the three months ended June 30, 1996 constituted a return
of capital (58% for the six months then ended). 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 June 30, 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
See Footnote 3, "Litigation", for a discussion of certain litigation to
which the Partnership is a party.
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 $696,505 and $1,960,043 in the 1996
Quarter and 1996 Period as compared to net income of $1,190,917 and $2,072,514
for the quarter and six months ended June 30, 1995 ("1995 Quarter" and "1995
Period", respectively).
Rentals from operating leases decreased by $356,981 and $1,010,882 or 9%
and 12%, respectively in the 1996 Quarter and 1996 Period as compared to the
1995 Quarter and 1995 Period, 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 $375,000 in the 1996 Period as compared to $150,000 during
the 1995 Period.
Depreciation and amortization expense decreased by $369,505 and $1,175,549
or 14% and 20% in the 1996 Quarter and 1996 Period as compared to the 1995
Quarter and 1995 Period, 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.
The percentage decrease was smaller in the 1996 Quarter than it was in the 1996
Period compared to the corresponding prior year periods due to the depreciation
associated with leased equipment acquired throughout the 1996 Period,
principally from the proceeds of the Prepayment of leases (see Footnote 4,
"Prepayment of Leases".)
Management and disposition fees incurred during the 1996 Quarter decreased
by 22% and 9% or $44,171 and $31,989 in comparison to the 1995 Quarter and 1995
Period, respectively. Subordinated disposition fees were $12,480 in the 1996
Quarter and $29,385 in the 1996 Period as compared to $58,733 in the 1995
Quarter and $70,362 in the 1995 Period as a result of a decrease in proceeds
from sales of equipment. Management fees were $147,868 and $299,415 during the
1996 Quarter and 1996 Period as compared to $145,786 and $290,427 during the
1995 Quarter and 1995 Period based upon the leases in place (and related fee
structures) in the respective periods.
Interest expense incurred during the 1996 Quarter and 1996 Period increased
substantially in the 1996 Quarter as compared to the 1995 Quarter and 1995
Period. 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 Period.
General and administrative expense increased significantly in the 1996
Quarter and 1996 Period as compared to the 1995 Quarter and 1995 Period,
principally due to losses incurred at the Partnership level.
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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 ("District Court") to be used to resolve the litigation. On July 17, 1996,
the District Court granted preliminary approval of the proposed settlement of
the class action litigation. As a part of the class action settlement,
PaineWebber agreed to pay $125 million and additional consideration to class
members. The order entered by the District Court provides for notice to be
mailed to class members and schedules a final hearing on the proposed settlement
for October 25, 1996.
15
<PAGE> 17
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 the Abbate
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 filed a Form 8-K during the second quarter of
the fiscal year ending December 31, 1996, dated June 10, 1996
reporting the partnership annual report and the December 31,
1995 net asset value on a per unit basis.
16
<PAGE> 18
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: August 12, 1996 By: /s/Joseph P. Ciavarella
-----------------------
Joseph P. Ciavarella
Vice President, Treasurer
and Chief Financial
and Accounting Officer
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from (a) Form
10-Q for the quarter ended June 10, 1996 for PaineWebber Preferred Yield Fund,
LP and is qualified in its entirety by reference to such (b) Form 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 4,210,173
<SECURITIES> 0
<RECEIVABLES> 418,809
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,629,982
<PP&E> 71,710,061
<DEPRECIATION> 32,272,509<F3>
<TOTAL-ASSETS> 47,471,113<F4>
<CURRENT-LIABILITIES> 16,834,544
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 30,636,569<F2>
<TOTAL-LIABILITY-AND-EQUITY> 47,471,113
<SALES> 0
<TOTAL-REVENUES> 3,973,339
<CGS> 0
<TOTAL-COSTS> 2,513,161
<OTHER-EXPENSES> 200,552
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 263,121
<INCOME-PRETAX> 996,505
<INCOME-TAX> 0
<INCOME-CONTINUING> 996,505
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 996,505
<EPS-PRIMARY> 0<F1>
<EPS-DILUTED> 0
<FN>
<F1>Income per unit of limited partnership interest (6.55)
<F2>Includes partners' capital and accumulated earnings and distribution to
partners.
<F3>Includes allowances for equipment impairment.
<F4>Unclassified balance all liabilities reflected.
</FN>
</TABLE>
