<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1997
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______________________ to ______________________
Commission file number 0-19166
PaineWebber Preferred Yield Fund, L.P.
--------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 84-1130506
----------------------- ------------------
(State of organization) (IRS Employer)
(Identification No.)
7175 West Jefferson Avenue
Suite 4000
Lakewood, Colorado 80235
------------------ ----------
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code (303) 980-1000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|.
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PaineWebber Preferred Yield Fund, L.P.
Quarterly Report on Form 10-Q for the
Quarter Ended June 30, 1997
Table of Contents
Page
----
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited) 2
Balance Sheets - June 30, 1997 and
December 31, 1996 2
Statements of Income for the three months
ended June 30, 1997 and 1996 3
Statements of Income for the six months
ended June 30, 1997 and 1996 4
Statements of Partners' Equity for the six
months ended June 30, 1997 and 1996 5
Statements of Cash Flows for the six months
ended June 30, 1997 and 1996 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 6. Exhibits and Reports on Form 8-K 16
<PAGE> 3
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
PAINEWEBBER PREFERRED YIELD FUND, L.P.
BALANCE SHEETS --JUNE 30, 1997 AND DECEMBER 31, 1996
(unaudited)
1997 1996
---- ----
ASSETS
Cash and cash equivalents $ 5,899,881 $ 2,879,451
Rent and other receivables, net 437,433 685,850
Equipment held for sale or lease, net of
accumulated depreciation of $2,874,384
and $780,011 at 1997 and 1996 and write
downs of $116,225 and $83,922 at 1997
and 1996, respectively 692,834 206,624
Net investment in direct financing leases 2,364,165 2,970,314
Equipment on operating leases, net of
accumulated depreciation of $29,899,001
in 1997 and $30,258,762 in 1996 and
write downs of $270,500 in 1997 and $459,134
in 1996 27,352,767 34,346,204
Other assets, net 8,743 9,688
----------- -----------
Total assets $36,755,823 $41,098,131
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES:
Prepaid rent $ 7,494,635 $ 8,531,925
Accounts payable and accrued liabilities 432,203 370,940
Payable to affiliates (Note 2) 760,935 773,335
Interest payable 13,500 13,081
Deferred rental income and deposits 720,972 730,591
Distributions payable to partners 4,663,635 1,688,938
Discounted lease rentals 2,155,740 2,802,710
----------- -----------
Total liabilities 16,241,620 14,911,520
----------- -----------
Commitments and contingencies (Notes 2,3 and 4)
PARTNERS' EQUITY:
General Partners 932,500 1,216,120
Limited Partners:
Class A (142,128 Units outstanding) 16,958,418 21,828,653
Class B 2,623,285 3,141,838
----------- -----------
Total Partners' equity 20,514,203 26,186,611
----------- -----------
Total liabilities and partners' equity $36,755,823 $41,098,131
=========== ===========
The accompanying notes are an integral part of these financial statements.
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PAINEWEBBER PREFERRED YIELD FUND, L.P.
STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND 1996
(unaudited)
1997 1996
---- ----
REVENUE:
Rentals from operating leases $2,811,652 $ 3,609,797
Direct financing lease income 166,980 222,361
Gain (loss) on sales and dispositions
of equipment, net 147,326 73,349
Interest 46,128 67,832
---------- -----------
3,172,086 3,973,339
---------- -----------
EXPENSES:
Depreciation and amortization 1,889,298 2,352,813
Write downs -- 300,000
Management fees (Note 2) 123,892 147,868
Subordinated disposition fees -- 12,480
General and administrative (Note 2) 50,400 200,552
Interest 202,539 263,121
---------- -----------
2,266,129 3,276,834
---------- -----------
NET INCOME $ 905,957 $ 696,505
========== ===========
NET INCOME (LOSS) ALLOCATED:
To the General Partners $ 45,297 $ 34,825
To the Class A Limited Partners 700,969 681,906
To the Class B Limited Partner 159,691 (20,226)
---------- -----------
$ 905,957 $ 696,505
========== ===========
NET INCOME PER WEIGHTED AVERAGE
NUMBER OF UNITS OF CLASS A LIMITED
PARTNER INTEREST OUTSTANDING $ 4.93 $ 4.80
========== ===========
WEIGHTED AVERAGE NUMBER OF
UNITS OF CLASS A LIMITED PARTNER
INTERESTS OUTSTANDING 142,128 142,128
========== ===========
The accompanying notes are an integral part of these financial statements.
3
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PAINEWEBBER PREFERRED YIELD FUND, L.P.
STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(unaudited)
1997 1996
---- ----
REVENUE:
Rentals from operating leases $6,005,981 $ 7,305,381
Direct financing lease income 272,341 377,471
Gain on sales and dispositions
of equipment, net 201,042 407,129
Interest 86,008 171,307
---------- -----------
6,565,372 8,261,288
---------- -----------
EXPENSES:
Depreciation and amortization 3,928,334 4,750,265
Write downs -- 375,000
Management fees (Note 2) 258,599 299,415
Subordinated disposition fees (Note 2) -- 29,385
General and administrative (Note 2) 101,000 261,677
Interest 417,878 585,503
---------- -----------
4,705,811 6,301,245
---------- -----------
NET INCOME $1,859,561 $ 1,960,043
========== ===========
NET INCOME ALLOCATED:
To the General Partners $ 92,977 $ 98,002
To the Class A Limited Partners 1,596,589 1,835,159
To the Class B Limited Partner 169,995 26,882
---------- -----------
$1,859,561 $ 1,960,043
========== ===========
NET INCOME PER WEIGHTED AVERAGE
NUMBER OF UNITS OF CLASS A LIMITED
PARTNER INTEREST OUTSTANDING $ 11.23 $ 12.91
========== ===========
WEIGHTED AVERAGE NUMBER OF
UNITS OF CLASS A LIMITED PARTNER
INTERESTS OUTSTANDING 142,128 142,128
========== ===========
The accompanying notes are an integral part of these financial statements.
4
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PAINEWEBBER PREFERRED YIELD FUND, L.P.
STATEMENTS OF PARTNERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(unaudited)
<TABLE>
<CAPTION>
Class A Class B
General Limited Limited
Partners Partners Partner Total
-------- -------- ------- -----
<S> <C> <C> <C> <C>
Balance, January 1, 1997 $ 1,216,120 $ 21,828,653 $ 3,141,838 $ 26,186,611
Net income 92,977 1,596,589 169,995 1,859,561
Distributions declared (376,597) (6,466,824) (688,548) (7,531,969)
----------- ------------ ----------- ------------
Balance, June 30, 1997 $ 932,500 16,958,418 2,623,285 $ 20,514,203
=========== ============ =========== ============
Balance, January 1, 1996 $ 1,612,447 $ 28,417,629 $ 4,083,120 $ 34,113,196
Net income 98,002 1,835,159 26,882 1,960,043
Distributions declared (286,834) (4,974,480) (475,356) (5,736,670)
----------- ------------ ----------- ------------
Balance, June 30, 1996 $ 1,423,615 $ 25,278,308 $ 3,634,646 $ 30,336,569
=========== ============ =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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PAINEWEBBER PREFERRED YIELD FUND, L.P.
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(unaudited)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,859,561 $ 1,960,043
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 3,928,334 4,750,265
Write downs -- 375,000
Gain on sales and disposition of
equipment, net (201,042) (407,129)
Change in assets and liabilities:
Rent and other receivables 248,417 417,571
Accounts payable and accrued liabilities 61,263 (191,492)
Payable to affiliates (12,400) 21,527
Interest payable 419 (6,988)
Deferred rental income and deposits (9,619) (34,570)
Prepaid rent (989,037) (1,075,426)
Other assets 945 --
----------- -----------
Net cash provided by operating activities 4,886,841 5,808,801
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Recovery of investment in direct financing leases 693,918 943,559
Proceeds from sale of equipment 2,647,842 953,013
Purchase of equipment on operating leases (Note 2) (3,929) (5,834,856)
Investment in direct financing leases (Note 2) -- (90,912)
----------- -----------
Net cash provided by(used in) investing activities 3,337,831 (4,029,196)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of discounted lease rentals (646,970) (1,124,688)
Cash distributions paid to partners (4,557,272) (5,680,503)
----------- -----------
Net cash used in financing activities (5,204,242) (6,805,191)
----------- -----------
NET INCREASE(DECREASE) IN CASH
AND CASH EQUIVALENTS 3,020,430 (5,025,586)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 2,879,451 9,235,759
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,899,881 $ 4,210,173
=========== ===========
Supplemental schedule of cash flow information:
Interest paid $ 417,459 $ 592,491
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
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PAINEWEBBER PREFERRED YIELD FUND, L.P.
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(unaudited)
1997 1996
---- ----
NON CASH TRANSACTIONS
Equipment subject to operating leases
converted to direct financing leases at renewal $ 87,769 $ 656,282
========== ==========
Distributions declared but not paid to partners $4,663,635 $1,268,489
========== ==========
Prepaid rent applied in equipment sale $ 48,253 $ --
========== ==========
The accompanying notes are an integral part of these financial statements.
7
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PAINEWEBBER PREFERRED YIELD FUND, L.P.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
(unaudited)
1. GENERAL
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and disclosures required
by generally accepted accounting principles for annual financial statements. In
the opinion of the General Partners, all adjustments (consisting solely of
normal recurring adjustments) considered necessary for a fair presentation have
been included. The balance sheet at December 31, 1996 has been derived from the
audited financial statements included in the Partnership's Annual Report on Form
10-K. For further information, refer to the financial statements of PaineWebber
Preferred Yield Fund, L.P. (the "Partnership"), and the related notes, included
in the Partnership's Annual Report on Form 10-K for the year ended December 31,
1996, previously filed with the Securities and Exchange Commission.
2. TRANSACTIONS WITH AFFILIATES
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 $123,892 and $258,599 were earned by the General
Partners with respect to the rental revenues earned by the Partnership during
the quarter and six months ended June 30, 1997.
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 totaling
$422,828 because the Managing General Partner concluded that it is no longer
probable that these subordinated disposition fees will ever be paid. Of such
amount $29,385 was incurred during the six months ended June 30, 1996. However,
the Partnership will not accrue any future amounts, unless and until the payment
of 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
8
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paid to the Managing General Partner, amounted to $12,500 during the six months
ended June 30, 1997.
3. LITIGATION
In November 1994, a series of purported class actions (the "New York
Limited Partnership Actions") were filed in the United States District Court for
the Southern District of New York concerning PaineWebber Incorporated sale and
sponsorship of various limited partnership investments, including those offered
by the Partnership. The lawsuits were brought against PaineWebber Incorporated
and Paine Webber Group, Inc. (together, "PaineWebber"), among others, by
allegedly dissatisfied partnership investors. In March 1995, after the actions
were consolidated under the title in re: PaineWebber Limited 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 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 U.S. 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. The investors who had
objected to the settlement have appealed the District Court's approval to the
United States Court of Appeals for the Second Circuit. In July 1997, the U.S.
Court of Appeals for the Second Circuit affirmed the District Court's approval
of the settlement.
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
9
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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 plaintiff's
claims as barred by the applicable statutes of limitation. In March 1997, a
settlement was reached in various cases, including the Abbate litigation.
4. PREPAYMENT OF LEASES
On December 11, 1996, 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 $8,531,925 and
$7,494,635 remained outstanding at December 31, 1996 and June 30, 1997,
respectively. The Prepayment of Leases is carried as prepaid rent on the balance
sheets at such dates and is accounted for as a financing. The Master Lease term
exceeds the related original user lease terms. Additionally, at the inception of
the Master Lease the amount of the Prepayment of Leases approximated the
aggregate of the remaining rental payments due under the user leases and the
residual (salvage) value estimates for the equipment subject to the user leases.
The Partnership does not have any economic obligations relating to the equipment
subject to the Master Lease until such equipment is returned upon the expiration
of the Master Lease. Upon expiration of the Master Lease, the economic benefits
of all equipment (Master Lease equipment) still being leased by third parties as
well as a portion of the residual value of such equipment based upon a formula
will revert to the Partnership.
10
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
LIQUIDITY AND CAPITAL RESOURCES
The Partnership completed its reinvestment phase in 1996 and is currently
distributing all cash generated from operations and sales, less required
reserves. As equipment leases expire, the leases will either be renewed or the
equipment remarketed or sold. Thus, it is anticipated that cash flow and
distributions to partners will decrease over time.
Proceeds from equipment sales totaled approximately $ 2,647,842 during the
six months ended June 30, 1997. The equipment sold during the six months ended
June 30, 1997 had been purchased for original purchase prices aggregating
approximately $4.4 million.
Rent and other receivables, net of the allowance for doubtful accounts,
decreased $248,417, from $685,850 at December 31, 1996 to $437,433 at June 30,
1997, due principally to continued collection efforts.
Deferred rental income and deposits decreased from $730,591 at December
31, 1996 to $720,972 at June 30, 1997. The decrease was attributable to a slight
increase in the amount of rental payments received during the last week of the
current quarter which were due on the first day of the succeeding quarter.
During the 1997 Quarter, the Partnership declared distributions of cash
flow received from operations and cash from sales in the aggregate amount of
$4,663,635, a substantial portion of which represented cash generated by
equipment sales. As of March 31, 1996, the Partnership ceased committing funds
for invesment in additional equipment and is distributing cash flow generated,
less certain operating reserves. A substantial portion of each distribution
constitutes a return of capital. Future distributions will be determined based
upon cash flow and Partnership obligations.
Distributions may be characterized for tax, accounting and economic
purposes as a return of capital, a return on capital or both. The portion of
each distribution by a partnership, which exceeds its net income for the fiscal
period, may be deemed a return of capital. Based on the amount of net income
reported by the Partnership for accounting purposes, approximately 82% of the
annualized cash distributions to the Class A Limited Partners for the three
months ended June 30, 1997 constituted a return of capital (75% for the six
months then ended). Also, based on the amount of net income reported by the
Partnership for accounting purposes, approximately 70% of the cash distributions
paid to the Class A Limited Partners from inception of the Partnership through
June 30, 1997 constituted a return of capital. However, the total actual return
on capital over the Partnership's life can only be determined at the termination
of the Partnership after all residual cash flows (which include proceeds from
the re-leasing and sale of the equipment after initial lease terms expire) have
been realized.
11
<PAGE> 13
LITIGATION
See Footnote 3, "Litigation", for a discussion of certain litigation to
which the Partnership is a party.
RESULTS OF OPERATIONS
Substantially all of the Partnership's revenue and cash flow during the
1997 Quarter was generated from the leasing of the Partnership's equipment to
unaffiliated third parties under triple net leases. The balance of the
Partnership's cash flow consisted of proceeds from the sale of equipment and
interest income from temporary investments.
Under the terms of the triple net leases, substantially all of the
expenses related to the ownership and operation of the equipment are paid for by
the lessees. For equipment subject to operating leases, the Partnership records
depreciation expense pertaining to the equipment and related management fees.
The Partnership also records general and administrative expenses consisting
primarily of warehouse costs, investor reporting expenses and transfer agent and
audit fees as well as interest expenses incurred in connection with discounted
transactions.
The Partnership performs ongoing assessments of the likelihood of lessee
defaults on existing leases and the effect that any such defaults may have on
the collectability of the Partnership's recorded accounts receivable, and the
recoverability of recorded equipment residual values based on independent and
internal evaluations of the estimated future value of equipment. Provisions for
losses are recorded when it is determined that it is probable that the value of
a recorded asset has declined on an other than temporary basis.
12
<PAGE> 14
1997 Compared to 1996
The Partnership's net income was $905, 957 and $1,859,561 in the 1997
Quarter and 1997 Period as compared to net income of $696,505 and $1,960,043 for
the quarter and six months ended June 30, 1996 ("1996 Quarter" and "1996
Period", respectively).
Rentals from operating leases decreased by $798,145 and $1,299,400 or 22%
and 18%, respectively in the 1997 Quarter and 1997 Period as compared to the
1996 Quarter and 1996 Period, due to the continued sale of equipment upon the
scheduled expiration of leases subsequent to the 1996 Quarter partially offset
by the rentals from equipment purchased subsequent to the 1996 Quarter.
As discussed above, the Partnership performs ongoing assessments of
recorded equipment residual values based on actual sales of similar equipment
and other evaluations of estimated future equipment values and provides for
losses when the value of the equipment has been impaired on an other than
temporary basis. Based upon such assessments, the Partnership recorded provision
for losses totaling $375,000 in the 1996 Period, as no such amount was required
during the 1997 Period.
Depreciation and amortization expense decreased by $463,515 and $821,931
or 20% and 17% in the 1997 Quarter and 1997 Period as compared to the 1996
Quarter and 1996 Period, principally due to the continued sale and disposition
of leased equipment as leases expire, the Partnership is no longer reinvesting
in additional leased equipment.
Management fees incurred during the 1997 Quarter and 1997 Period decreased
by 16% and 14% or $23,976 and $40,816 in comparison to the 1996 Quarter and 1996
Period, respectively. Subordinated disposition fees were $12,480 in the 1996
Quarter and $29,385 in the 1996 Period. The reduction in management fees were
consistent with the decrease in rental income (and rents associated with direct
financing leases) based upon the leases in place (and related fee structures) in
the respective periods.
Interest expense incurred during the 1997 Quarter and 1997 Period
decreased by $60,582 and $167,625, or 23% and 29%, respectively in the 1997
Quarter and 1997 Period as compared to the 1996 Quarter and 1996 Period.
Interest expense is composed of two components; (i) interest expense incurred in
connection with the discounting of certain leases with unaffiliated lenders and
(ii) interest incurred in connection with the application of the prepaid rent
received pursuant to the Master Lease transaction. For accounting purposes, the
prepaid rent is treated as a financing. Income is recognized ratably over the
terms of the leases and the related interest is charged to operations. Interest
expense decreased in the current year periods as compared to the prior year
periods due to reduced balances outstanding.
General and administrative expenses decreased in the 1997 Quarter and 1997
Period by $150,152 and $160,677 or 75% and 61%, respectively, as compared to the
1996 Quarter and 1996 Period due principally to the recognition of certain
insurance expense and partnership level taxes incurred during the 1996 Quarter
and 1996 Period.
13
<PAGE> 15
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
In November 1994, a series of purported class actions (the "New York
Limited Partnership Actions") were filed in the United States District Court for
the Southern District of New York concerning PaineWebber Incorporated 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 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 U.S. 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. The investors who had
objected to the settlement have appealed the District Court's approval to the
United States Court of Appeals for the Second Circuit. In July 1997, the U.S,
Court of Appeals for the Second Circuit affirmed the District Court's approval
of the settlement.
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, understanding the
risks and failing to state material facts
14
<PAGE> 16
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 plaintiff's claims as barred by the applicable statutes of
limitation. In March 1997, a settlement was reached in various cases, including
the Abbate litigation.
Item 6. Exhibits and Reports on Form 8-K
(a) None.
(b) The Partnership did not file a report on Form 8-K during the second
quarter of the fiscal year ending December 31, 1997.
15
<PAGE> 17
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PaineWebber Preferred Yield Fund, L.P.
(Registrant)
By: General Equipment Management, Inc.
A General Partner
Date: August 12, 1997 By: /s/ Joseph P. Ciavarella
-----------------------------------------
Joseph P. Ciavarella
Vice President, Treasurer
and Chief Financial
and Accounting Officer
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) PAINE
WEBBER PREFERRED YIELD FUND, LP
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 5,899,881
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,346,057
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 36,755,231
<CURRENT-LIABILITIES> 2,155,740
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 20,514,203
<TOTAL-LIABILITY-AND-EQUITY> 36,755,823
<SALES> 6,005,981
<TOTAL-REVENUES> 6,565,372
<CGS> 0
<TOTAL-COSTS> 4,186,933
<OTHER-EXPENSES> 101,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 417,878
<INCOME-PRETAX> 1,859,561
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,859,561
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,859,561
<EPS-PRIMARY> 11.23
<EPS-DILUTED> 0
<FN>
<F2>INCLUDES WRITEDOWNS
<F1>PER CLASS A LIMITED PARTNERSHIP UNTIL OUTSTANDING
</FN>
</TABLE>
