<PAGE> 1
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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) (I.R.S. Employer
Identification No.)
7175 West Jefferson Avenue
Suite 4000
Lakewood, Colorado 80235
------------------ -----
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code (303) 980-1000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Units of Class A Limited Partner Interest
-----------------------------------------
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 of 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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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the Registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
State the aggregate market value of the voting stock held by
non-affiliates of the Registrant: Not applicable.
<PAGE> 2
PaineWebber Preferred Yield Fund, L.P.
Annual Report on Form 10-K for the
Fiscal Year Ended December 31, 1996
Table of Contents
<TABLE>
<CAPTION>
Page
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Part I
<S> <C> <C>
Item 1 Business................................................................................1
Item 2 Properties..............................................................................4
Item 3 Legal Proceedings.......................................................................5
Item 4 Submission of Matters to a Vote
of Security Holders.................................................................6
Part II
Item 5 Market for Registrant's Common Equity
and Related Stockholder Matters.....................................................7
Item 6 Selected Financial Data.................................................................8
Item 7 Management's Discussion and
Analysis of Financial Condition
and Results of Operations.......................................................... 9
Item 8 Financial Statements...................................................................F-1
Item 9 Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure...............................................................16
Part III
Item 10 Directors and Executive Officers
of the Registrant..................................................................16
Item 11 Executive Compensation.................................................................19
Item 12 Security Ownership of Certain
Beneficial Owners and Management...................................................19
Item 13 Certain Relationships and
Related Transactions...............................................................20
Part IV
Item 14 Exhibits, Financial Statement Schedules
and Reports on Form 8-K............................................................22
</TABLE>
<PAGE> 3
PART I
Item 1. Business
General
PaineWebber Preferred Yield Fund, L.P. (the "Partnership" or the
"Registrant") is a limited partnership organized under the laws of the State of
Delaware on December 18, 1989. The general partners of the Partnership are CAI
Equipment Leasing II Corp., the Managing General Partner, a Colorado corporation
that is a wholly-owned subsidiary of Capital Associates, Inc. ("CAI"), and
General Equipment Management, Inc., the Administrative General Partner, a
Delaware corporation that is 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 and capital for equipment acquisition to the
Partnership having an acquisition value equal to 12.5% of the aggregate
acquisition value of the equipment purchased with the net offering proceeds
received from the sale of the Units of Class A Limited Partner Interest
("Units") and the equipment and capital 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.
Although the Partnership was organized on December 18, 1989, the
Partnership conducted no activities and recognized no revenues, profits or
losses prior to the initial closing of the Units on June 22, 1990, at which time
the Partnership commenced operations.
The Partnership acquired or committed to acquire through March 31,
1996, on an all-cash basis, a portfolio of equipment (together with equipment
contributed by the Class B Limited Partner), subject to triple net leases with
unaffiliated third parties. The Partnership's portfolio of equipment consists of
general equipment, including, but not limited to, industrial, materials
handling, mining, medical, research and development, transportation, store
fixtures and manufacturing testing equipment, and office technology equipment,
including, but not limited to, computers and computer-related and
telecommunications equipment. Office technology equipment owned by the
Partnership cannot exceed 60% of the value of the Partnership's total equipment
portfolio.
1
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A substantial amount of the equipment held by the Partnership was
purchased by CAII directly from the manufacturer or from independent third
parties and resold to the Partnership. The balance of the equipment was
purchased directly from independent third parties by the Partnership. The
purchase price of the equipment acquired from CAII and the value of the
equipment contributed by the Class B 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.
The Partnership did not purchase an inventory of unleased equipment,
but only acquired equipment that was already subject to short-term leases
(generally, 5 years or less). The Partnership's business is not subject to
seasonal variations.
At least 65% of the Partnership's equipment acquired has been and will
be leased to lessees which are investment grade lessees, or which are 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.
The Partnership is required to dissolve and distribute all of its
assets not later than December 31, 2005. The General Partners currently
anticipate that all equipment will be sold and that the Partnership will be
liquidated between 1999 and 2000.
During the reinvestment period, which ended on March 31, 1996,
distributable cash flow in excess of current distributions to the Class A
Limited Partners at an annualized distribution rate of 14% of their contributed
capital, to the Class B Limited Partner at an annualized distribution rate of
11% of its contributed capital and to the General Partners was reinvested in
additional equipment. Beginning in the second quarter of 1996, the net cash flow
generated, less necessary reserves, is being distributed to the partners.
The Partnership's principal investment objectives are:
(i) to generate current cash distributions to the Class A
Limited Partners from lease revenues (a portion of
which will constitute a return of capital);
(ii) to preserve and protect Partnership capital; and
(iii) to generate additional cash distributions through
releasing, remarketing and sales after the end of the
reinvestment period, the commitment period for which
ended on March 31, 1996.
2
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In order to achieve these objectives, the General Partners adopted the
following policies: (a) to achieve investment diversification, reduce the
average age of the Partnership's portfolio of equipment and enhance the overall
return to Class A Limited Partners through reinvestment up to March 31, 1996 in
additional equipment during the reinvestment period; and (b) to manage the
Partnership's assets to maximize lease rentals and amounts received from the
sale of equipment in order to protect the Partnership's capital.
At a meeting of the Board of Directors of General Equipment Management,
Inc. ("Board") in March of 1997, the Board adopted the policy regarding requests
for Partner lists attached as Exhibit 11.
Equipment Portfolio
The following table describes the Partnership's equipment portfolio as
of December 31, 1996.
Schedule of Equipment Investments
As of December 31, 1996
<TABLE>
<CAPTION>
EQUIPMENT TYPE (1) ORIGINAL COST (2) % OF PORTFOLIO
-------------- ------------- --------------
<S> <C> <C>
Industrial (Includes Forklifts) $19,980,743 27.23%
Manufacturing 12,720,931 17.34
Transportation 10,356,577 14.11
Furniture and Fixtures 6,240,933 8.51
Communication 5,616,547 7.65
PCs and Workstations 5,677,443 7.74
Mining and Construction 4,799,590 6.54
Peripherals and Printers 4,791,003 6.53
Medical and Research 3,194,480 4.35
----------- ------
TOTAL $73,378,247 (3) 100.00%
=========== ======
</TABLE>
- ----------
(1) Includes equipment subject to direct financing leases.
(2) Such amounts include related acquisition fees.
(3) Excludes off lease equipment which had associated original cost of
$1,070,557. Substantially all of such equipment was computer related equipment.
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Significant Lessees
The Partnership leases its equipment to a significant number of
lessees. One lessee, CMA, the lessee under the Master Lease consummated in late
1995, accounted for more than 10% of the Partnership's leasing revenues during
the year ended December 31, 1996. The Master Lease was prepaid in December 1995
and thus no credit or financial risk exists.
As part of its investment objectives, the Partnership diversified its
equipment portfolio through the re-investment program. The Partnership will no
longer expend funds for equipment reinvestments.
Competition
The equipment leasing industry is highly competitive. Among the
numerous existing and potential competitors of the Partnership for leases are
equipment manufacturers, equipment dealers and brokers, leasing companies and
financial institutions, as well as other limited partnerships organized and
managed similarly to the Partnership. Many of these competitors have greater
financial resources than the Partnership and more experience in the industry
than the General Partners and their affiliates. Equipment manufacturers may
present particularly strong competition because they may also provide certain
ancillary services which the Partnership cannot offer directly, such as
maintenance services (including possible equipment substitution rights),
warranty services, purchase rights and trade-in privileges. However, because the
Partnership's reinvestment phase ceased at March 31, 1996, the Partnership
should not be materially impacted by competition for transactions.
Employees
The Partnership has no employees. The officers, directors and employees
of the General Partners and their affiliates perform services on behalf of the
Partnership. The General Partners are entitled to certain fees and
reimbursements of certain out-of-pocket expenses incurred in connection with the
performance of these management services. See Item 10 of this Report, "Directors
and Executive Officers of the Registrant", and Item 13 of this Report, "Certain
Relationships and Related Transactions".
Item 2. Properties
The Partnership does not own or lease any properties other than the
equipment which is discussed in Item 1 of this Report, "Business".
4
<PAGE> 7
Item 3. 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 ("District Court") 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
Partnership 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 interest in the Partnerships,
PaineWebber and the Administrative General Partner (1) failed to provide
adequate disclosure of the risks involved with the Partnerships; (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 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 Organization 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 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
agreed to settle the case. A definitive settlement was signed in July 1996 and
in March 1997, the District Court approved the settlement as fair and
reasonable. Under the terms of the settlement, PaineWebber agreed to pay $125
million and additional consideration to class members.
In February 1996, approximately 230 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. In
September 1996, the California Superior Court dismissed many of the
5
<PAGE> 8
plaintiffs' claims as barred by the applicable statutes of limitation. In March
1997, a settlement was reached in various cases, including the Abbate
litigation.
Under certain limited circumstances, pursuant to the Partnership
Agreement and other contractual obligations, PaineWebber and its affiliates,
including the Administrative General Partner, were entitled to indemnification
from the Partnership for expenses and liabilities in connection with the above
litigation. PaineWebber and its affiliates have agreed to not seek any
indemnification from the Partnership for any amounts payable in connection with
the New York Limited Partnership Actions. Additionally, the General Partners
believe that the Abbate settlement will not have a material impact on the
financial statements taken as a whole.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Limited Partners of the
Partnership, through the solicitation of proxies or otherwise, during the fourth
quarter of the fiscal year ended December 31, 1996.
6
<PAGE> 9
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
There is no organized trading market for the purchase and sale of the
Units and certain measures have been adopted and implemented to assure that no
organized trading market will develop.
As of March 1, 1997, the number of Class A Limited Partners was
approximately 3,500, representing 142,128 Units.
The Partnership made the following monthly and quarterly distributions
to its Class A Limited Partners out of cash flow during 1996 and 1995:
<TABLE>
<CAPTION>
Period From Which Amount Of
Distributable Cash Distribution
Was Generated Per Unit Record Date Payment Date
------------- -------- ----------- ------------
<S> <C> <C> <C>
January 1996 5.83 February 1, 1996 February 25, 1996
February 1996 5.83 March 1, 1996 March 25, 1996
March 1996 5.84 April 1, 1996 April 23, 1996
April 1996 5.83 May 1, 1996 May 25, 1996
May 1996 5.83 June 1, 1996 June 25, 1996
June 1996 5.84 July 1, 1996 July 23, 1996
July 1996 5.83 August 1, 1996 August 25, 1996
August 1996 5.83 September 1, 1996 September 24, 1996
October 1996
and prior 17.50 October 1, 1996 October 25, 1996
Period ended
December 31, 1996 10.00 January 1, 1997 January 25, 1997
January 1995 5.83 February 1, 1995 February 25, 1995
February 1995 5.83 March 1, 1995 March 25, 1995
March 1995 5.84 April 1, 1995 April 23, 1995
April 1995 5.83 May 1, 1995 May 25, 1995
May 1995 5.83 June 1, 1995 June 25, 1995
June 1995 5.84 July 1, 1995 July 23, 1995
July 1995 5.83 August 1, 1995 August 25, 1995
August 1995 5.83 September 1, 1995 September 24, 1995
September 1995 5.84 October 1, 1995 October 25, 1995
October 1995 5.83 November 1, 1995 November 24, 1995
November 1995 5.83 December 1, 1995 December 23, 1995
December 1995 5.84 January 1, 1996 January 25, 1996
</TABLE>
During the year the Partnership changed its cash distribution
convention from monthly to quarterly for all partners.
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<PAGE> 10
Total distributions to all partners for 1996 and 1995 were declared as
follows:
<TABLE>
<CAPTION>
1996 1995
----------- ------------
<S> <C> <C>
Class A Limited Partners $10,540,212 $ 9,948,960
Class B Limited Partner 1,035,177 950,714
General Partners 609,228 573,667
----------- -----------
$12,184,617 $11,473,341
=========== ===========
</TABLE>
Item 6. Selected Financial Data
The following selected financial data of the Partnership has been
derived from the audited financial statements for the indicated periods. The
information set forth below should be read in conjunction with the Partnership's
financial statements and notes thereto and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included in Items 8 and 7,
respectively, of this Report.
<TABLE>
<CAPTION>
As of December 31
or Year Ended
December 31,
- -------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Total Revenues $16,059,351 $16,382,650 $18,149,798 $21,469,262 $22,137,832
Net Income 4,258,032 2,670,613 2,686,038 5,488,318 3,957,086
Net Income per Class A Limited Partnership Unit 27.80 22.14 11.70 10.78 28.51
Total Assets 41,098,131 49,115,873 57,919,012 62,930,472 53,302,011
Discounted Lease Rentals 2,802,710 4,531,890 4,555,585 318,126 4,747,859
Partners' Equity 26,186,611 41,629,451 50,432,179 59,219,482 34,113,196
Distributions Declared to Partners 12,184,617 11,473,341 11,473,341 11,473,341 11,459,765
</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 $789,154, $179,352 and $297,718
for the years ended December 31, 1996, 1995 and 1992.
2 Calculated based upon the weighted average number of units outstanding.
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Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
The Partnership commenced operations on June 22, 1990.
Equipment acquisitions (including acquisition fees and expenses) since the
commencement of operations have been as follows:
<TABLE>
<CAPTION>
Purchased with Net Purchased
Proceeds from the Contributed by the Pursuant to
Total Acquisition Sale of Class A Class B Limited Reinvestment
Cost* Units Partner Program
----------------- ------------------ ------------------- -------------
<S> <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
1996 8,740,536 - - 8,740,536
------------ ----------- ----------- -----------
$140,469,697 $61,861,416 $ 8,642,850 $69,965,431
============ =========== =========== ===========
</TABLE>
* Includes investment in direct financing leases.
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<PAGE> 12
From inception through December 31, 1996, the Partnership sold
equipment with an original cost as follows:
<TABLE>
<CAPTION>
Original Cost
Associated
Year Ending with Equipment Sold
December 31, or Disposed of(1)(2)
------------- ---------------------
<S> <C>
1991 $ 1,074,780
1992 3,928,788
1993 14,916,752
1994 13,247,784
1995 20,352,539
1996 12,500,250
-----------
$66,020,893
===========
</TABLE>
(1) Includes investment in direct financing leases.
(2) See "Selected Financial Data", set forth elsewhere herein, for disclosure
of related gains and losses.
Rent and other receivables, net of the allowance for doubtful accounts,
decreased by $151,530 from $837,380 at December 31, 1995 to $685,850 at December
31, 1996. This decrease was primarily the result of the collection efforts
relating to rents receivable and the lease prepayment transaction discussed
below ("Prepayment of Leases") partially offset by the accounts receivable from
equipment sales recorded at December 31, 1996 in the amount of $337,627. Such
amount was collected in January 1997.
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, 1997, the Partnership's cash of approximately $3.8 million was
primarily invested in short-term commercial paper.
During 1995 and 1994, the Partnership received proceeds of $2,508,339
and $1,812,301, 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. The Partnership did not
complete any discountings in 1996.
In the year ended December 31, 1996, cash distributions of net cash
flows provided by operations declared and paid by the Partnership were $12.2
million and $11.7 million, respectively. In each of 1995 and 1994, distributions
declared and paid were $11.5 million. Net cash provided by operating activities
was $11.7 million for 1996, $15.7 million for 1995 and $16.6 million for 1994.
In the aggregate, for this three-year period net cash provided by operating
activities totaled $44.0 million and cash distributions declared by the
Partnership totaled $35.2 million ($34.7 million paid). Additionally, the
Partnership generated proceeds from the sale of equipment of $2.8 million, $2.6
million and $3.0 million during 1996, 1995 and 1994, respectively (excluding
direct financing leases), and repaid discounted lease rentals in the amount of
$1.9 million, $2.3 million and $1.8 million in 1996, 1995 and 1994,
respectively. During 1997, excluding leases subject to the Master Lease
discussed below, leases of equipment originally acquired for purchase prices of
approximately $16.3 million are scheduled to expire, unless renewed. To the
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<PAGE> 13
extent that leases are not renewed or remarketed 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
(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 $8,531,925 and $11,124,724 remained unamortized at December 31, 1996
and 1995, respectively, 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 equipment subject
to the user leases, on an undiscounted basis. 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 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. Substantially all of the proceeds from the Prepayment of Leases was
invested in additional equipment prior to the expiration of the reinvestment
period.
Partnership equity declined by $7,926,585, or 23%, from December 31,
1995 to December 31, 1996 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
write downs for equipment impairment attributable to the Partnership's
equipment.
Distributions may be characterized for tax, financing reporting 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 financial reporting purposes,
approximately 63%, 68% and 83%, respectively, of the annual cash distributions
to financial reporting the Class A Limited Partners for the years ended December
31, 1996, 1995 and 1994 constituted a return of capital. Also, based on the
amount of net income reported by the Partnership for financial reporting
purposes, approximately 68% of the cash distributions paid to the Class A
Limited Partners from inception of the Partnership through December 31, 1996
constituted a return of capital. However, the total actual return on capital 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.
11
<PAGE> 14
Litigation
See Item 3, "Legal Proceedings" for a discussion of certain class
action lawsuits.
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 most of 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, 1996 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 collectibility 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 or write downs 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.
1996 Compared to 1995
The Partnership's net income was $4,258,032 in the (year ended December
31, 1996 "1996 Period") as compared to net income of $3,957,086 for the year
ended December 31, 1995 ("1995 Period").
Rentals from operating leases decreased by $976,342, or 6%, in the 1996
Period, as compared to the 1995 Period. The decrease in the 1996 Period compared
to the 1995 Period is attributable to the expiration of leases in accordance
with their respective terms and either the sale of equipment or the remarketing
of the equipment at the lower lease rates, partially offset by rents generated
by equipment acquired during 1996.
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
write downs totaling $775,000 in the 1996 Period, as compared to $275,000 for
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<PAGE> 15
the 1995 Period. The Partnership recorded bad debt expense of $27,854 in the
1996 Period as compared to $172,900 in the 1995 Period.
Depreciation and amortization expense decreased by $1,515,442, or 14%,
in the 1996 Period, as compared to the 1995 Period which was consistent with the
decrease in rental income and the equipment subject to depreciation.
Management fees increased by $41,037 or 7% in the 1996 Period as
compared to the 1995 Period based principally on the leases in place during the
respective periods (full payment and operating leases, as defined in the
Partnership Agreement) which serve as the base upon which the fees are
calculated and their related fee structures.
At December 31, 1996, the Partnership reversed previously accrued
subordinated disposition fees composed of $61,693 recorded during the first nine
months of 1996 and $342,661 recorded in prior years because the Managing General
Partner concluded that it is no longer probable that these subordinated
disposition fees will ever be paid. At December 31, 1996, including $18,474
accrued for the fourth quarter of 1996, the subordinated disposition fees
totaled $422,828. However, the Partnership will not accrue these, or any future
amounts, unless and until the payment of these subordinated disposition fees by
the Partnership becomes probable.
Interest expense incurred during the 1996 Period increased
substantially as compared to the 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 financial reporting 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
entered into in December 1995 and did not materially impact 1995 operating
results.
General and administrative expenses increased by $170,357 or 59% in the
1996 Period as compared to the 1995 Period. The increase in the 1996 Period is
attributable to state income taxes incurred at the Partnership level and an
increase in insurance premiums incurred by the Partnership.
1995 Compared to 1994
Net income for the 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 that the provisions for bad debts and write downs of
$1,797,472 in 1994 Period as compared to only $447,900 in the 1995 Period.
13
<PAGE> 16
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 1996.
Interest income increased by $51,054 or approximately 34% in the 1995
period as compared to the 1994 period 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 write downs taken in prior periods
which reduced the depreciable base. The decrease in depreciation and
amortization was consistent with the decrease in rental income.
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 collectibility estimates related to certain financially troubled and
bankrupt lessees and provided write downs (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 the 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.
14
<PAGE> 17
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, 1996.
However, inflation and changing prices, in addition to other factors, may affect
the eventual selling price of the Partnership's equipment.
15
<PAGE> 18
PAINEWEBBER PREFERRED YIELD FUND, L.P.
Item 8. Financial Statements and Supplementary Data
List of Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants F-2
Balance Sheets - December 31, 1996 and 1995 F-3
Statements of Income for the years ended
December 31, 1996, 1995 and 1994 F-4
Statements of Partners' Equity for the years
ended December 31, 1996, 1995 and 1994 F-5
Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 F-6
Notes to Financial Statements F-8
</TABLE>
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission have been omitted since
(1) the information required is disclosed in the financial statements and notes
thereto, (2) schedules are not required under the related instructions; or (3)
the schedules are inapplicable.
F-1
<PAGE> 19
REPORT OF INDEPENDENT ACCOUNTANTS
To the Limited Partners of
PaineWebber Preferred Yield Fund, L.P.
We have audited the financial statements as listed in the index on page
F-1 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, 1996 and 1995, and the results of
its operations and its cash flows for the years ended December 31, 1996, 1995
and 1994 in conformity with generally accepted accounting principles.
Coopers & Lybrand L L P
New York, New York
March 19, 1997.
F-2
<PAGE> 20
PAINEWEBBER PREFERRED YIELD FUND, L.P.
BALANCE SHEETS -- DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
ASSETS 1996 1995
----------- -----------
<S> <C> <C>
Cash and cash equivalents (Note 4) $ 2,879,451 $ 9,235,759
Rent and other receivables, net of allowances for
bad debts of $172,900 and $144,421 at
December 31, 1996 and 1995, respectively (Note 5) 685,850 837,380
Equipment held for sale or lease, net of accumulated
depreciation of $780,011 and $847,848 at December 31, 1996
and 1995, respectively and write downs of $83,922 and
$152,227 at December 31,1996 and 1995, respectively (Note 7) 206,624 56,395
Net investment in direct financing leases (Note 6) 2,970,314 3,527,277
Equipment on operating leases, net of accumulated
depreciation of $30,258,762 and $29,400,612 at December
31, 1996, and 1995, respectively, and write downs of
$459,134 and $724,212 at December 31, 1996 and 1995,
respectively (Note 7) 34,346,204 39,625,794
Other assets 9,688 19,406
----------- -----------
Total Assets $41,098,131 $53,302,011
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES:
Prepaid rent (Note 7) $ 8,531,925 $11,124,724
Accounts payable and accrued liabilities 370,940 531,458
Payables to affiliates (Note 10) 773,335 639,846
Interest payable 13,081 22,288
Deferred rental income and deposits 730,591 911,517
Distributions payable to partners 1,688,938 1,211,123
Discounted lease rentals (Note 8) 2,802,710 4,747,859
----------- -----------
Total Liabilities 14,911,520 19,188,815
----------- -----------
Commitments and Contingencies (Notes 10 and 12)
PARTNERS' EQUITY:
General Partners 1,216,120 1,612,447
Limited Partners:
Class A (142,128 Units outstanding at December 31, 1996 and 1995) 21,828,653 28,417,629
Class B 3,141,838 4,083,120
----------- -----------
Total Partners' Equity 26,186,611 34,113,196
----------- -----------
Total Liabilities and Partners' Equity $41,098,131 $53,302,011
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 21
PAINEWEBBER PREFERRED YIELD FUND, L.P.
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ----------- ------------
<S> <C> <C> <C>
REVENUE:
Rentals from operating leases $ 14,272,895 $15,249,237 $ 17,656,811
Direct finance lease income 696,247 602,486 620,797
Gain (loss) on sale of equipment and other 789,154 179,352 (278,882)
Interest income 255,463 202,126 151,072
Other income 45,592 149,449 -
------------ ----------- ------------
16,059,351 16,382,650 18,149,798
------------ ----------- ------------
EXPENSES:
Depreciation and amortization 9,248,786 10,764,228 12,426,729
Interest (Notes 7 and 8) 1,043,673 276,427 305,788
Management fees (Note 10) 590,817 549,780 607,514
Disposition fees (Note 10) (342,661) 99,736 61,541
Provision for bad debts and write downs 802,854 447,900 1,797,472
General and administrative (Note 10) 457,850 287,493 280,141
------------ ----------- ------------
11,801,319 12,425,564 15,479,185
------------ ----------- ------------
NET INCOME $ 4,258,032 $ 3,957,086 $ 2,670,613
============ =========== ============
NET INCOME ALLOCATED:
To the General Partners $ 212,901 $ 732,387 $ 903,363
To the Class A Limited Partners 3,951,236 3,146,637 1,663,093
To the Class B Limited Partner 93,895 78,062 104,157
------------ ----------- ------------
$ 4,258,032 $ 3,957,086 $ 2,670,613
============ =========== ============
NET INCOME PER WEIGHTED
AVERAGE NUMBER OF UNITS
OF CLASS A LIMITED PARTNER
INTEREST OUTSTANDING $ 27.80 $ 22.14 $ 11.70
============ =========== ============
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.
F-4
<PAGE> 22
PAINEWEBBER PREFERRED YIELD FUND, L.P.
STATEMENTS OF PARTNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Class A Class B
General Limited Limited
Partners Partners Partner Total
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
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
Net income 212,901 3,951,236 93,895 4,258,032
Distributions declared to partners (609,228) (10,540,212) (1,035,177) (12,184,617)
----------- ------------ ----------- ------------
Balance, December 31, 1996 $ 1,216,120 $ 21,828,653 $ 3,141,838 $ 26,186,611
=========== ============ =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 23
PAINEWEBBER PREFERRED YIELD FUND, L.P.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $ 4,258,032 $ 3,957,086 $ 2,670,613
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 9,248,786 10,764,228 12,426,729
Provision for bad debts and write downs 802,854 447,900 1,797,472
(Gain) loss on sale of equipment (789,154) (179,352) 278,882
Decrease (increase) in rent and other
receivables 461,303 400,056 (573,955)
(Decrease) increase in accounts payable and
accrued liabilities (160,518) 122,571 52,363
Increase in payables to affiliates 476,150 229,775 62,745
Reversal of subordinated disposition fees (Note 10) (342,661) - -
(Decrease) increase in accrued interest payable (9,207) 447 9,388
(Decrease) Increase in deferred rental income
and deposits (180,926) 8,907 (101,212)
Decrease (increase) in other assets 9,718 (19,406) -
Decrease in prepaid rent (2,116,612) - -
------------ ------------ ------------
Net cash provided by operating activities 11,657,765 15,732,212 16,623,025
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Recovery of investment in direct financing leases 1,606,599 1,518,138 1,057,836
Proceeds from sale of equipment 2,771,818 2,594,979 2,965,115
Purchases of equipment on operating leases (8,649,624) (13,747,672) (10,535,586)
Investment in direct financing leases (90,912) (599,611) (852,472)
------------ ------------ ------------
Net cash used in investing activities (4,362,119) (10,234,166) (7,365,107)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Prepaid rent - 11,124,724 -
Proceeds from discounted lease rentals - 2,508,339 1,812,301
Repayment of discounted lease rentals (1,945,149) (2,292,370) (1,835,996)
Cash distributions paid to partners (11,706,805) (11,473,341) (11,473,341)
------------ ------------ ------------
Net cash used in financing activities (13,651,954) (132,648) (11,497,036)
------------ ------------ ------------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (6,356,308) 5,365,398 (2,239,118)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 9,235,759 3,870,361 6,109,479
------------ ------------ ------------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 2,879,451 $ 9,235,759 $ 3,870,361
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 24
PAINEWEBBER PREFERRED YIELD FUND, L.P.
STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---------- ----------- -----------
<S> <C> <C> <C>
Supplemental schedule of cash flow information:
Interest paid $1,052,880 $ 275,980 $ 296,400
========== ============ ============
NON-CASH TRANSACTIONS
Cumulative distributions to partners accrued but not paid $1,688,938 $ 1,211,123 $ 1,211,123
========== ============ ============
Equipment subject to operating leases converted to
direct financing leases at renewal $ 958,724 $ 879,978 $ -
========== ============ ============
Prepaid rent applied in equipment sale $ 476,187 $ - $ -
========== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE> 25
PAINEWEBBER PREFERRED YIELD FUND, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
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 and 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. 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.
Equipment on 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 salvage
value at the lease termination date. In estimating such values, independent
appraisals and other circumstances
F-8
<PAGE> 26
PAINEWEBBER PREFERRED YIELD FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
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 write down the equipment to reflect the recoverability of
the Partnership's investment in the item of equipment.
Non-recourse Discounting of Rentals The Partnership has assigned 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 write down, if any, are
removed from the accounts and a gain or loss is recognized.
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.
Reclassifications Certain reclassifications have been made to the 1994
and 1995 financial statements to conform to the classifications used in 1996.
F-9
<PAGE> 27
PAINEWEBBER PREFERRED YIELD FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
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 a portfolio of equipment subject to triple net leases (e.g.
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 commenced operations on June 22, 1990. The Partnership
acquired a total of $140,469,697 of leased equipment, of which $8,740,536,
$14,347,283 and $11,388,058 was acquired during 1996, 1995 and 1994,
respectively. The Partnership will no longer commit funds for reinvestment.
F-10
<PAGE> 28
PAINEWEBBER PREFERRED YIELD FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 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
table below.
1. During the reinvestment period.
<TABLE>
<CAPTION>
Class A Class B
Limited Limited
Partners Partner Reinvested
-------- ------- ----------
<S> <C> <C> <C>
(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 a 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% -
</TABLE>
F-11
<PAGE> 29
PAINEWEBBER PREFERRED YIELD FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Class A Class B
Limited Limited
Partners Partner Reinvested
-------- ------- ----------
<S> <C> <C> <C> <C>
(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.
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 was 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 equaled
their aggregate capital contributions, net
F-12
<PAGE> 30
PAINEWEBBER PREFERRED YIELD FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
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 were 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, 1996, the Partnership held short-term commercial paper issued by
Associates Corp., which was purchased for prices aggregating $2,662,068 with
maturity values aggregating $2,675,000 and commercial paper issued by United
Parcel Service, Inc. which was purchased for a price of $99,656 and had a
maturity value of $100,000.
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 uncollectible accounts of $172,900 and
$144,421 at December 31, 1996 and 1995, respectively, with respect to such
receivables.
F-13
<PAGE> 31
PAINEWEBBER PREFERRED YIELD FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
6. NET INVESTMENT IN DIRECT FINANCING LEASES
The investment in direct financing leases at December 31, 1996 and 1995
consisted of the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Minimum lease payments receivable $ 3,016,804 $ 4,092,438
Estimated unguaranteed residual values 611,639 519,582
Unearned lease income (658,129) (984,743)
Provision for losses - (100,000)
----------- -----------
$ 2,970,314 $ 3,527,277
=========== ===========
</TABLE>
Direct financing lease receivables at December 31, 1996 are due in
installments as follows:
<TABLE>
<CAPTION>
Year Ending December 31, Amount
------------------------ ------
<S> <C>
1997 $1,390,200
1998 596,672
1999 492,514
2000 366,754
2001 170,664
----------
$3,016,804
==========
</TABLE>
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, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
----------- ------------
<S> <C> <C>
Office technology and
communications equipment $ 15,372,523 $ 16,960,659
General equipment 49,691,577 52,789,959
------------ ------------
65,064,100 69,750,618
------------ ------------
Less: Accumulated depreciation (30,258,762) (29,400,612)
Write downs (459,134) (724,212)
------------ ------------
$ 34,346,204 $ 39,625,794
============ ============
</TABLE>
F-14
<PAGE> 32
PAINEWEBBER PREFERRED YIELD FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
Additionally, the Partnership owned equipment purchased for purchase
prices aggregating $1,070,557 and $1,056,470 (net book value of $206,624 and
$56,395), which was off-lease at December 31, 1996 and 1995, respectively.
a.) Minimum Future Rentals
The following is a schedule by years of minimum future rentals on
operating leases as of December 31, 1996:
<TABLE>
<CAPTION>
Year Ending
December 31, Amount
------------ ------
<S> <C>
1997 $ 9,813,235
1998 7,268,632
1999 4,479,790
2000 2,842,012
2001 1,445,157
Thereafter 1,307,146
-----------
$27,155,972
===========
</TABLE>
Included in the table are rentals associated with the transaction
discussed below which aggregated $9,755,206 at December 31, 1996.
b.) 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 $8,531,925 remained outstanding at December 31, 1996 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 equipment subject
to the user leases, on an undiscounted basis. 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.
F-15
<PAGE> 33
PAINEWEBBER PREFERRED YIELD FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
8. DISCOUNTED LEASE RENTALS
Discounted lease rentals outstanding at December 31, 1996 and 1995 were
$2,802,710 and $4,747,859, respectively and bare interest at rates ranging from
5.31% to 10.83%. Aggregate maturities of these non-recourse obligations at
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
Year Ending
December 31, Amount
------------ ------
<S> <C>
1997 $1,173,913
1998 658,875
1999 969,922
----------
$2,802,710
==========
</TABLE>
9. CONCENTRATION OF CREDIT RISK
Approximately 66% of the Partnership's equipment acquired since
inception based upon original cost was leased to lessees which were investment
grade lessees, or entities which were operating subsidiaries of 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.
The following table (which includes equipment accounted for as direct
financing leases) describes the Partnership's equipment portfolio as of December
31, 1996 and 1995 by significant equipment industry type. This table excludes
equipment held for sale or lease at December 31, 1996 and 1995 respectively.
<TABLE>
<CAPTION>
DECEMBER 31 1996 DECEMBER 31 1995
EQUIPMENT TYPE(1) % OF PORTFOLIO % OF PORTFOLIO
----------------- -------------- --------------
<S> <C> <C>
Industrial (Includes Forklifts) 27.23% 19.55%
Manufacturing 17.34 17.81
Transportation 14.11 14.53
Furniture and Fixtures 8.51 11.29
Communications 7.65 8.87
PCs and Workstations 7.74 8.14
Mining and Construction 6.54 7.44
Peripherals and Printers 6.53 7.32
Medical and Research 4.35 4.09
Other - 0.96
------ ------
Total 100.00% 100.00%
====== ======
</TABLE>
1 Includes equipment subject to direct financing leases.
F-16
<PAGE> 34
PAINEWEBBER PREFERRED YIELD FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
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 $2,542,028, $9,148,443 and $3,545,037 (not including
acquisition fees) during 1996, 1995 and 1994, respectively. During 1996, 1995
and 1994, the Partnership also acquired equipment subject to lease for purchase
prices aggregating $5,944,610, $4,782,289 and $7,511,115, 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 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
$253,898, $416,551 and $331,906 of acquisition fees attributable to the
acquisition of equipment during 1996, 1995 and 1994, respectively. Acquisition
fees are capitalized in the cost of equipment and depreciated with the related
equipment for equipment subject to operating leases and are capitalized and
amortized as a part of the 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 $590,817, $549,780 and $607,514 were earned by the
General Partners with regard to the rentals earned by the Partnership during
1996, 1995 and 1994, respectively.
F-17
<PAGE> 35
PAINEWEBBER PREFERRED YIELD FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
Disposition Fees The Managing General Partner was 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. At December 31, 1996, the
Partnership reversed previously accrued subordinated disposition fees composed
of $61,693 recorded during the first nine months of 1996, $18,474 which would
have accrued in the fourth quarter and $342,661 recorded in prior years because
the Managing General Partner concluded that it is no longer probable that these
subordinated disposition fees will ever be paid. At December 31, 1996, the
subordinated disposition fees totaled $422,828. However, the Partnership will
not accrue these, or any future amounts, unless and until the payment of these
subordinated disposition fees by the Partnership becomes probable.
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 for each of the years ended December 31,
1996, 1995 and 1994.
As part of the class action settlement, (see footnote 12,
"Litigation"), beginning January 1996, all fees and distribution payable to the
Administrative General Partner and all future fees and distributions earned by
the Administrative General Partner have been assigned by an affiliate to an
escrow account for the benefit of class members.
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>
1996 1995 1994
----------- ------------ -----------
<S> <C> <C> <C>
Net income per financial statements $ 4,258,032 $ 3,957,086 $ 2,670,613
Increase (decrease) resulting from:
Depreciation (2,012,678) (2,129,473) (2,598,811)
Direct financing leases 1,272,639 1,175,166 851,770
Prepaid rental income and deposits 180,926 8,907 (398,358)
Provisions for losses and bad debts 802,854 447,900 1,797,272
Gain on sale of equipment 259,071 639,453 (588,146)
Prepaid rent (2,592,799) 11,124,724 --
Other (155,367) (4,361) 330,110
----------- ------------ -----------
Taxable income per federal
income tax return $ 2,012,678 $ 15,219,402 $ 2,064,450
=========== ============ ===========
</TABLE>
F-18
<PAGE> 36
PAINEWEBBER PREFERRED YIELD FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
The following is a reconciliation of the amount of the Partnership's
net equity as shown in the accompanying financial statements to the tax bases of
the Partnership's net assets:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Net Partnership equity per financial
statements $26,186,611 $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 8,952,640
Distributions payable to partners 1,688,938 1,211,123 1,211,123
Direct financing lease income 4,266,016 2,993,378 2,390,892
Deferred rental income and deposits 730,591 911,517 902,610
Allowances for losses 715,956 876,439 2,415,053
Accumulated depreciation and
basis of contributed equipment (17,088,688) (16,281,133) (17,995,183)
Other 325 022 34,580 683,817
Prepaid rent 8,531,925 11,124,724 -
----------- ----------- -----------
Tax bases of net assets $34,309,011 $43,936,464 $40,190,403
=========== =========== ===========
</TABLE>
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 ("District Court") 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
Partnership 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 interest in the Partnerships,
PaineWebber and the Administrative General Partner (1) failed to provide
adequate disclosure of the risks involved with the Partnerships; (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
F-19
<PAGE> 37
PAINEWEBBER PREFERRED YIELD FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
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
Organization 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 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
agreed to settle the case. A definitive settlement agreement was signed in July
1996 and in March 1997 the District Court approved the settlement as fair and
reasonable. Under the terms of the settlement, PaineWebber agreed to pay $125
million and additional consideration to class members.
In February 1996, approximately 230 plaintiffs filed an action entitled
Abbate v. PaineWebber Inc. in Sacramento, California Superior Court against
PaineWebber Incorporated and various affiliated entities concerning the
plaintiffs' 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, understanding the
risks and failing to state material facts concerning the investments. The
complaint seeks compensatory damages of $15 million plus punitive damages. In
September 1996, the California Superior Court dismissed many of the plaintiffs'
claims as barred by the applicable statutes of limitation. In March 1997, a
settlement was reached in various cases, including the Abbate litigation.
Under certain limited circumstances, pursuant to the Partnership
Agreement and other contractual obligations, PaineWebber and its affiliates,
including the Administrative General Partner, were entitled to indemnification
from the Partnership for expenses and liabilities in connection with the above
litigation. PaineWebber and its affiliates have agreed to not seek any
indemnification from the Partnership for any amounts payable in connection with
the New York Limited Partnership Actions. Additionally, the General Partners
believe that the Abbate settlement will not have a material impact on the
Partnership's financial statements taken as a whole.
F-20
<PAGE> 38
PART III
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
There were no changes in accountants or disagreements with accountants
with respect to accounting or financial disclosure issues during 1996 or 1995.
Item 10. Directors and Executive Officers of the Registrant
The Partnership has no officers and directors. The General Partners
jointly manage and control the affairs of the Partnership and have general
responsibility and authority in all matters affecting its business. Information
concerning the directors and executive officers of the General Partners is as
follows:
CAI Equipment Leasing II Corp.
<TABLE>
<CAPTION>
Name Positions Held
---- --------------
<S> <C>
John F. Olmstead President and Director
Dennis J. Lacey Senior Vice President and Director
Anthony M. DiPaolo Senior Vice President and Director
Daniel J. Waller Director
Richard H. Abernethy Director
John A. Reed Vice President, Assistant Secretary
and Director
David J. Anderson Assistant Vice President and
Chief Accounting Officer
</TABLE>
John F. Olmstead, age 52, joined CAII as Vice President in December
1988. He is responsible for overseeing and directing CAII's equity department
programs, including all of its public and private investor sales. Mr. Olmstead
has a Bachelor of Science degree in Accounting from Indiana University, has
completed the CPA Exam and received a Juris Doctorate from Indiana Law School.
He has been involved in the equipment leasing business since 1969, as a
co-founder of Finalco, Incorporated, for which he served as President from 1976
through March 1983. From 1983 to 1988 he operated his own leasing company as
well as several manufacturing companies.
F-16
<PAGE> 39
Dennis J. Lacey, age 43, became associated with CAII as Vice President,
Operations in October of 1989. Mr. Lacey has served as Treasurer and Chief
Financial Officer of CAI and currently serves as its President and Chief
Executive Officer and is a Director of CAII. Mr. Lacey was formerly an audit
partner with Coopers & Lybrand. Mr. Lacey holds a degree in Accounting and
Finance from the University of West Florida.
Anthony M. DiPaolo, age 38, joined CAII in July 1990 as an Assistant
Treasurer and is currently Senior Vice President/Director for the company. He
has held financial management positions as Chief Financial Officer for Mile High
Kennel Club, Inc. from 1988 to 1990 and was Vice President/Controller for VICORP
Restaurants, Inc. from 1986 to 1988. Mr. DiPaolo holds a Bachelor of Science
degree in Accounting from the University of Denver.
Daniel J. Waller, age 38, joined CAII in July 1990, as a manager of
Investor Relations. Mr. Waller is currently the Vice President, Capital Markets
Group. Prior to joining CAII, Mr. Waller was an audit manager with Coopers &
Lybrand for over three years and gained considerable experience in the leasing
industry. While at Coopers & Lybrand, Mr. Waller held positions with the
company's International Accounting and Auditing Committee as well as the
national Auditing Directorate. Mr. Waller holds a Bachelor of Arts degree in
Accounting from the University of Northern Iowa.
Richard H. Abernethy, age 42, joined CAII in April 1992 as Equipment
Valuation Manager and currently serves as Vice President of Asset Management.
Mr. Abernethy has 13 years experience in the leasing industry, including prior
positions with Barclays Leasing Inc., from November 1986 to February 1992, and
Budd Leasing Corporation, from January 1981 to November 1986. Mr. Abernethy
holds a Bachelor of Arts in Business Administration from the University of North
Carolina at Charlotte.
John A. Reed, age 41, joined CAII in January 1990 as the Tax Director
and Assistant Secretary. Mr. Reed is currently the Vice President of Marketing
and is responsible for all lease documentation and management of transaction
structuring and processing. Prior to joining the Marketing Department, Mr. Reed
was Vice President of Credit and Debt Administration. He spent seven and one
half years with Coopers & Lybrand in the Tax Department and served on CAII's tax
consulting engagement during that time. Mr. Reed obtained degrees Bachelor of
Arts in Social Sciences and Masters of Science in Accounting, from Colorado
State University.
David J. Anderson, age 43, joined CAII in August 1990 as Manager of
Billing & Collections and currently serves as Assistant Vice-President/Chief
Accounting Officer. Prior to joining CAII, Mr. Anderson was Vice
President/Controller for Systems Marketing, Inc., from 1985 to 1990, and
previous to that working in several senior staff positions at the Los Alamos
National Laboratory and with Ernst & Whinney. Mr. Anderson holds a Bachelor of
Business Administration degree in Accounting from the University of Wisconsin.
17
<PAGE> 40
General Equipment Management, Inc.
<TABLE>
<CAPTION>
Name Positions Held
---- --------------
<S> <C>
Gerald F. Goertz, Jr. Chairman of the Board
Stephen R. Dyer President and Director
Joseph P. Ciavarella Vice President, Secretary, Treasurer, Chief Financial
and Accounting Officer.
Clifford B. Wattley Vice President, Assistant Secretary and Director
</TABLE>
Gerald F. Goertz, Jr., age 39, is Chairman of the Board of Directors of
the Administrative General Partner. Mr. Goertz joined PaineWebber Incorporated
in December 1990 and holds the position of Senior Vice President and Director of
Specialized Investment Services. Prior to joining PaineWebber Incorporated, Mr.
Goertz was associated with CG Realty Advisors and The Freeman Company. He
received his Bachelor of Arts degree in Business Administration in 1979 from
Vanderbilt University and his Juris Doctorate and Masters of Business
Administration from Memphis State University in 1982.
Stephen R. Dyer, age 37, is President and a Director of the
Administrative General Partner. He joined PaineWebber Incorporated in June 1988
as a Divisional Vice President and is currently a Corporate Vice President and
Director of Private Investments. Prior to joining PaineWebber Incorporated, Mr.
Dyer had been employed, since June 1987, as an Assistant Vice President in the
Retail National Products Group of L.F. Rothschild & Co. Incorporated. Prior to
joining L.F. Rothschild, he was employed, beginning in January 1985, as an
Associate in the Real Estate Department of Thomson McKinnon Securities Inc. From
July 1981 to August 1983, Mr. Dyer was on the audit staff of the accounting firm
of Arthur Young & Company. He received his Bachelor of Science degree in
Accounting in 1981 from Boston College and a Masters of Business Administration
from Indiana University in December 1984. Mr. Dyer is a Certified Public
Accountant.
Joseph P. Ciavarella, age 41, is Vice President, Secretary, Treasurer
and Chief Financial and Accounting Officer of the Administrative General
Partner. He joined PaineWebber Incorporated in May 1995 as a Corporate Vice
President. Immediately prior to joining PaineWebber Incorporated, he was
associated from August 1993 to May 1995 with the Aviation Capital Group. From
1983 to 1993, he was a financial officer of Integrated Resources Inc. and a
senior officer in the Equipment Leasing Division, Aircraft Finance and capital
market areas. He is a graduate of Hofstra University and is a Certified Public
Accountant.
Clifford B. Wattley, age 47, is a Vice President, Assistant Secretary
and a Director of the Administrative General Partner. Mr. Wattley is a Corporate
Vice President with PaineWebber Incorporated, having joined the firm in 1986. He
also was employed previously by Paine, Webber, Jackson & Curtis from 1979 to
1980. From 1986 to 1992, Mr. Wattley participated in PaineWebber's Principal
Transactions Group. From 1992, Mr. Wattley has been a member of the Private
Investment Department. He holds a Bachelor of Science degree in engineering from
Columbia University and a Masters in Business Administration from Harvard
University.
18
<PAGE> 41
Item 11. Executive Compensation
No compensation was paid by the Partnership to the officers and
directors of the General Partners. See Item 13 of this Report, "Certain
Relationships and Related Transactions", which is incorporated herein by
reference, for a description of the compensation and fees paid to the General
Partners and their affiliates by the Partnership during 1996.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) As of the date hereof, no person is known by the
Partnership to be the beneficial owner of more than
5% of the Units of the Partnership. The Partnership
has no directors or officers, and neither the General
Partners nor the Class B Limited Partner of the
Partnership own any Units. ATL, Inc. an affiliate of
the Administrative General Partner, own 1,551 Units
purchased pursuant to legal settlements with certain
partnerships.
CAII, an affiliate of the Managing General Partner,
owns 100% of the Partnership's Class B Units.
The names and addresses of the General Partners and
the Class B Limited Partner are as follows:
Managing General Partner:
CAI Equipment Leasing II Corp.
7175 W. Jefferson Avenue
Suite 3000
Lakewood, CO 80235
Administrative General Partner:
General Equipment Management, Inc.
1200 Harbor Boulevard, 5th Floor
Weehawken, NJ 07087
Class B Limited Partner:
Capital Associates International,
Inc.
7175 W. Jefferson Avenue
Suite 3000
Lakewood, CO 80235
19
<PAGE> 42
(b) No directors or officers of the Managing General
Partner, the Administrative General Partner or the
Class B Limited Partner owned any Units as of March
1, 1997.
(c) The Partnership knows of no arrangements, the
operation of the terms of which may at a subsequent
date result in a change in control of the
Partnership.
Item 13. Certain Relationships and Related Transactions
The General Partners and their affiliates have received or will receive
certain types of compensation, fees, or other distributions in connection with
the operations of the Partnership. The fees and compensation were determined in
accordance with the applicable provisions of the Partnership Agreement.
Following is a summary of the amounts paid or payable to the General
Partners and their affiliates during 1996.
Acquisition and Operating Stages
Acquisition of Equipment During 1996, the Partnership acquired, on an
all-cash basis, equipment from CAII, an affiliate of the Managing General
Partner, at a purchase price of $2,542,028 (not including acquisition fees).
The purchase price of the equipment acquired from CAII and the value of
the equipment contributed by the Class B 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 received 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
$253,898 of acquisition fees attributable to the acquisition of equipment during
1996.
Management Fees The General Partners receive a quarterly fee in an
amount equal to 2.0% of gross rentals for full payout leases 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 $590,817
were earned by the General Partners with regard to the rentals earned by the
Partnership during 1996.
20
<PAGE> 43
Disposition Fees At December 31, 1996, the Partnership reversed
previously accrued subordinated disposition fees composed of $61,693 recorded
during the first nine months of 1996 and $342,661 recorded in prior years
because the Managing General Partner concluded that it is no longer probable
that these subordinated disposition fees will ever be paid. At December 31,
1996, the subordinated disposition fees (including amounts attributable to the
fourth quarter of 1996) totaled $422,828. However, the Partnership will not
accrue these, or any future amounts, unless and until the payment of these
subordinated disposition fees by the Partnership becomes probable.
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 amounted to $25,000 during 1996, all of which was
reimbursable to the Managing General Partner.
As part of the class action settlement (see Footnote 12, "Litigation"),
beginning January 1996, all fees and distribution payable to the Administrative
General Partner and all future fees and distributions earned by the
Administrative General Partner have been assigned by an affiliate to an escrow
account for the benefit of class members.
21
<PAGE> 44
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K
(a) and (d) The following documents are filed as part of this Report:
1. Financial Statements: (Incorporated by reference to
Item 8 of this Report, "Financial Statements and
Supplementary Data").
(b) The Partnership did not file any reports on Form 8-K
during the quarter ended December 31, 1996.
(c) Exhibits required to be filed.
Exhibit No. Description
4.1 Amended and Restated Agreement of Limited
Partnership of PaineWebber Preferred Yield
Fund, L.P. dated June 22, 1990. Filed as
Exhibit 4.1 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended
June 30, 1990.
4.2 Amendment No. 7 to the Amended and Restated
Agreement of Limited Partnership of
PaineWebber Preferred Yield Fund, L.P.,
dated February 7, 1991. Filed as Exhibit 4.2
to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1990.*
4.3 Amendment No. 8 to the Amended and Restated
Agreement of Limited Partnership of
PaineWebber Preferred Yield Fund L.P., dated
August 31, 1992. Filed as Exhibit 4(d) to
the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30,
1992.*
4.4 Amendment No. 11 to the Amended and Restated
Agreement of Limited Partnership of
PaineWebber Preferred Yield Fund, L.P.,
dated April 30, 1993. Filed as Exhibit 4.4
to the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1993.*
10.1 Net Worth Maintenance Agreement, dated March
1, 1990, by and among Capital Associates,
Inc., CAI Equipment Leasing II Corp. and the
Registrant. Filed as Exhibit 10(c) to
Amendment No. 2 to the Registrant's
Registration Statement on Form S-1
(Commission File No. 33-33025) on March 16,
1990.*
11 Partnership's policy regarding requests for
partner lists.
- --------------------------
(2) Not filed herewith. In accordance with Rule 12b-32 of the General Rules
and Regulations under Securities Exchange Act of 1934, reference is
made to the document previously filed with the Commission which is
incorporated herein by reference.
22
<PAGE> 45
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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.
Dated: March 31, 1997
PaineWebber Preferred Yield Fund, L.P.
By: General Equipment Management, Inc.
Administrative General Partner
By: /s/ Stephen R. Dyer
-----------------------------------
Stephen R. Dyer
President and Director
By: /s/ Joseph P. Ciavarella
-----------------------------------
Joseph P. Ciavarella
Vice President, Secretary,
Treasurer, Chief Financial
and Accounting Officer
By: CAI Equipment Leasing II Corp.
Managing General Partner
By: /s/ John F. Olmstead
-----------------------------------
John F. Olmstead
President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on March 31, 1997.
<TABLE>
<CAPTION>
Signature Title
- --------- -----
<S> <C>
/s/ John F. Olmstead President and Director of
- --------------------------------- CAI Equipment Leasing II Corp.
John F. Olmstead
/s/ John E. Christensen Senior Vice President,
- --------------------------------- Principal Financial and
John E. Christensen Chief Administrative Officer
and Director of CAI
Equipment Leasing II Corp.
</TABLE>
23
<PAGE> 46
<TABLE>
<S> <C>
/s/ Dennis J. Lacey Senior Vice President
- --------------------------------- and Director of CAI
Dennis J. Lacey Equipment Leasing II Corp.
/s/ Anthony M. DiPaolo Senior Vice President,
- --------------------------------- Assistant Secretary and Director
Anthony M. DiPaolo of CAI Equipment Leasing II Corp.
/s/ Richard H. Abernethy Vice President and Director of
- --------------------------------- CAI Equipment Leasing II Corp.
Richard H. Abernethy
/s/ John A. Reed Vice President, Assistant Secretary
- --------------------------------- and Director of CAI Equipment
John A. Reed Leasing II Corp.
/s/ Daniel J. Waller Director of CAI Equipment
- --------------------------------- Leasing II Corp.
Daniel J. Waller
/s/ Gerald F. Goertz, Jr. Chairman of the Board of General
- --------------------------------- Equipment Management, Inc.
Gerald F. Goertz, Jr.
/s/ Stephen R. Dyer President and Director of General
- --------------------------------- Equipment Management, Inc.
Stephen R. Dyer
/s/ Joseph P. Ciavarella Vice President, Secretary, Treasurer,
- --------------------------------- Chief Financial and Accounting
Joseph P. Ciavarella Officer and Director of General
Equipment Management, Inc.
/s/ Clifford B. Wattley Vice President, Assistant Secretary
- -------------------------------- Director of General Equipment
Clifford B. Wattley Management, Inc.
</TABLE>
24
<PAGE> 47
Exhibit Index
<TABLE>
<CAPTION>
Exhibit No. Description Page
- ----------- ----------- ----
<S> <C> <C>
4.1 Amended and Restated Agreement of Limited Partnership of
PaineWebber Preferred Yield Fund, L.P., dated June 22,
1990. (Incorporated by Reference.) *
4.2 Amendment No. 7 to the Amended and Restated Agreement of
Limited Partnership of PaineWebber Preferred Yield Fund,
L.P., dated February 7, 1991. (Incorporated by
Reference.) *
4.3 Amendment No. 8 to the Amended and Restated Agreement of
Limited Partnership of PaineWebber Preferred Yield Fund,
L.P., dated August 31, 1992. (Incorporated by
Reference.) *
4.4 Amendment No. 11 to the Amended and Restated Agreement
of Limited Partnership of PaineWebber Preferred Yield
Fund, L.P., dated April 30, 1993. (Incorporated by
Reference.) *
10.1 Net Worth Maintenance Agreement, dated March 1, 1990, by
and among Capital Associates, Inc., CAI Equipment
Leasing II Corp. and the Registrant. (Incorporated by
Reference.) *
11 Partnership's policy regarding requests for
partner lists.
</TABLE>
- ---------------------
* See Item 14(c) for statement of location of exhibits incorporated by
reference.
<PAGE> 1
Exhibit 11
Policy Regarding Requests for Partners Lists
--------------------------------------------
In accordance with the Delaware Revised Uniform Limited Partnership Act
(the "Act"), and without limiting its rights under the Partnership Agreement or
the Act, as each may be amended from time to time, the General Partner of the
Partnership has established standards applicable to requests for lists of
Limited Partners. These standards have been established in order to assure (1)
that the lists are not used for and improper or inappropriate purpose or in any
way that might be detrimental to the Partnership or the Limited Partners; (2)
that the Limited Partners have sufficient information and opportunity to decide
how they should react in response to any solicitation or other communication
addressed to them; and (3) that the Partnership and the Limited Partners do not
face an increased risk of adverse tax consequences as a direct or indirect
result of any such solicitation or communication.
The General Partner requires any request to be made in writing by a
record holder of limited partner interests with standing to request the list,
to comply strictly with all applicable requirements of law and the Partnership
Agreement, to state the purpose for which the request is made with sufficient
specificity to enable the General Partner to make the determinations specified
above, and to include an undertaking under oath by the person requesting the
list and the persons or entities on whose behalf it is requested (1) to hold
the list in strict confidence, and not to give any information derived from
the list to any third party for any purpose whatsoever, (2) to reimburse the
Partnership for costs incurred in connection with the request and for a list,
including confirming compliance with the undertakings required hereby and (3)
to submit to the jurisdiction of the courts of the State of Delaware in any
dispute arising in connection with such request and to appoint and maintain
RL&F Service Corp., One Rodney Square, Tenth Floor, Wilmington, New Castle
County, Delaware 19801 (whose reasonable fees and expenses will be paid by the
Partnership) as such person's or entity's agent in the State of Delaware for
acceptance of legal process in connection therewith. In addition, in the case
of requests made for the purpose of soliciting tenders of the Limited Partners'
interests or units in the Partnership or soliciting proxies or consents from
Limited partners or facilitating, assisting or supporting any such
solicitation, the General Partner will, if and to the extent required by
applicable law and the Partnership Agreement, make lists available or agree to
disseminate such solicitations on behalf of requesting Limited Partners only
upon receipt of an undertaking under oath by the person requesting the list and
the persons or entities on whose behalf it is requested (1) to conduct the
solicitation in accordance with the requirements of the Securities and Exchange
Act of 1934 and the rules of the Securities and Exchange Commission thereunder,
including full disclosure of all material facts and, in the case of any tender
offer, rights of proration and withdrawal rights, irrespective of the number of
interests or units sought, and (2) to refrain from acquiring interests or
units of any number if the General Partners, based upon advice from counsel,
conclude that such acquisition would increase the risk of adverse tax
consequences to the Partnership or the Partners.
The General Partner shall endeavor to inform the requesting party
within 30 days of receipt of the requisite undertakings whether they consider
that the proposed use of the list is improper or inappropriate or would
increase the risk of such adverse tax consequences, and may request such
further assurances as may be necessary in order to enable them to make any of
the determinations specified above.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PAINEWEBBER
PREFERRED YIELD FUND LP FORM 10-K.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996<F1>
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,879,451
<SECURITIES> 0
<RECEIVABLES> 858,750
<ALLOWANCES> 172,900
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 66,134,657
<DEPRECIATION> (31,581,829)
<TOTAL-ASSETS> 41,098,131
<CURRENT-LIABILITIES> 0
<BONDS> 2,802,710
0
0
<COMMON> 0
<OTHER-SE> 26,186,611
<TOTAL-LIABILITY-AND-EQUITY> 41,098,131
<SALES> 0
<TOTAL-REVENUES> 16,059,351
<CGS> 0
<TOTAL-COSTS> 9,496,942
<OTHER-EXPENSES> 457,850
<LOSS-PROVISION> 802,854
<INTEREST-EXPENSE> 1,043,673
<INCOME-PRETAX> 4,258,032
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,258,032
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,258,032
<EPS-PRIMARY> 27.80
<EPS-DILUTED> 0
<FN>
<F1>5.02(13) AND 5.02(14) SUCH AMOUNTS INCLUDE EQUIPMENT HELD FOR SALE
OR LEASE BUT DO NOT INCLUDE DIRECT FINANCING LEASES.
5.03(31) REFLECT THE CAPITAL ACCOUNTS OF BOTH LIMITED PARTNERS AND GENERAL
PARTNERS, ADJUSTED FOR ACCUMULATED EARNINGS, DISTRIBUTORS AND SYNDICATION COST.
</FN>
</TABLE>
