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, 1998
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
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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 executive offices) Zip Code
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 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 |_|
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.
Exhibit Index Appears on Page 36
Page 1 of 37
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PaineWebber Preferred Yield Fund, L.P.
Annual Report on Form 10-K for the
Fiscal Year Ended December 31, 1998
Table of Contents
Page
----
Part I
Item 1 Business 3
Item 2 Properties 5
Item 3 Legal Proceedings 5
Item 4 Submission of Matters to a Vote of Security Holders 5
Part II
Item 5 Market for Registrant's Common Equity and Related
Stockholder Matters 5
Item 6 Selected Financial Data 6
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
Item 8 Financial Statements F-1
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 32
Part III
Item 10 Directors and Executive Officers of the Registrant 32
Item 11 Executive Compensation 34
Item 12 Security Ownership of Certain Beneficial Owners
and Management 34
Item 13 Certain Relationships and Related Transactions 35
Part IV
Item 14 Exhibits, Financial Statement Schedules and Reports
on Form 8-K 36
2
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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 and commenced on June 22, 1990. The general
partners of the Partnership are CAI Equipment Leasing II Corp., the Managing
General Partner, a Colorado corporation wholly-owned by Capital Associates, Inc.
("CAI"), and General Equipment Management, Inc., the Administrative General
Partner, a Delaware corporation wholly-owned by PaineWebber 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 cash to the Partnership valued at an amount
equal to 12.5% of the aggregate 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.
The Partnership is required to dissolve and distribute all of its assets
not later than December 31, 2005. The general partners approved a plan of
liquidation in 1998 and the Partnership commenced liquidation as of December 31,
1998. As a result, the Partnership has changed its basis of accounting for
periods subsequent to December 31, 1998 from the going-concern to the
liquidation basis of accounting. The Managing General Partner is exploring
opportunities for the sale of the remaining equipment during 1999. The
Partnership gives no assurance that final liquidation will occur in 1999,
however, liquidation expenses have been accrued based on the assumption that
1999 will be the final year of operations.
The Partnership acquired, on an all-cash basis, a portfolio of equipment,
subject to triple net leases with unaffiliated third parties. The Partnership's
portfolio of equipment included industrial, materials handling, mining, medical,
research and development, transportation equipment, store fixtures and
manufacturing testing and office technology equipment, including, computers and
computer-related and telecommunications equipment. Office technology equipment
owned by the Partnership could not exceed 60% of the value of the Partnership's
total equipment portfolio.
A substantial amount of the equipment initially acquired by the Partnership
was purchased by CAII directly from the manufacturer or from independent third
parties and resold or contributed 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 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.
3
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Item 1. Business, continued
General, continued
At least 64% of the Partnership's equipment acquired over the life of the
Partnership was leased to lessees which were investment grade lessees, or which
were operating subsidiaries of entities which were investment grade companies.
An investment grade lessee was defined as 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.
After the reinvestment period, which ended on March 31, 1996, cash in
excess of operating requirements was distributed to the partners.
The Partnership's principal investment objectives were:
(i) to generate cash distributions to the Class A Limited Partners
from lease revenues (a portion of which constituted 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.
In order to achieve these objectives, the General Partners adopted the
following policies: (a) reinvest the Partnership's excess cash flows in
additional equipment during the reinvestment period 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, and (b)
manage the Partnership's assets to maximize lease rentals and amounts received
from the sale of equipment.
Equipment Portfolio
The following table describes the Partnership's remaining equipment
portfolio as of December 31, 1998.
EQUIPMENT TYPE ORIGINAL COST(1) % OF PORTFOLIO
-------------- ---------------- --------------
Manufacturing $2,918,736 100.0%
(1) Amount includes related acquisition fees.
Significant Lessees
The Partnership leased its equipment to a significant number of lessees.
One lessee accounted for more than 48% of the Partnership's leasing revenues
during the year ended December 31, 1998, and another lessee accounted for more
than 24% of leasing revenues during the same period. The Partnership is no
longer acquiring equipment. At December 31, 1998, the Partnership had one
remaining lessee.
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", which are incorporated herein by
reference.
4
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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", which is
incorporated herein by reference.
Item 3. Legal Proceedings
Neither the Partnership nor any of the Partnership's equipment is the
subject of any material pending legal proceedings.
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, 1998.
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, 1999, the number of Class A Limited Partners was 3,461,
representing 142,128 Units.
The Partnership made the following quarterly distributions to its Class A
Limited Partners out of cash flows during 1998 and 1997:
Period From Which Amount Of
Distributable Cash Distribution
Was Generated Per Unit Record Date Payment Date
------------------ ------------ ----------- ------------
QUARTER ENDED
March 31, 1998 $ 8.00 April 1, 1998 April 25, 1998
QUARTER ENDED
December 31, 1997 95.00 January 1, 1998 January 23, 1998
QUARTER ENDED
September 30, 1997 8.00 October 1, 1997 October 24, 1997
QUARTER ENDED
June 30, 1997 28.00 July 1, 1997 July 25, 1997
QUARTER ENDED
March 31, 1997 17.50 April 1, 1997 April 25, 1997
5
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Item 5. Market for Registrant's Common Equity and Related Stockholder Matters,
continued
Total distributions to all partners for 1998 and 1997 were declared as
follows:
1998 1997
---- ----
Class A Limited Partners $ 1,137,024 $ 21,106,008
Class B Limited Partners 197,959 2,929,016
General Partners 50,155 1,179,965
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$ 1,385,138 $ 25,214,989
=========== ============
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, which are incorporated herein by reference.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total Revenues(1) $ 4,315,468 $10,632,297 $16,059,351 $16,382,650 $18,149,798
Net Income 1,315,762 2,072,522 4,258,032 3,957,086 2,670,613
Net Income per Class A Limited
Partnership Unit(2) 7.70 12.50 27.80 22.14 11.70
Total Assets 4,929,301 28,944,212 41,098,131 53,302,011 49,115,873
Discounted Lease Rentals 969,404 1,523,570 2,802,710 4,747,859 4,531,890
Partners' Equity 2,633,017 3,044,144 26,186,611 34,113,196 41,629,451
Distributions Declared to Partners 1,385,139 25,214,989 12,184,617 11,473,341 11,473,341
</TABLE>
(1) Includes net losses on disposition of equipment and other of $278,882 for
the year ended December 31, 1994 and net gains on disposition of equipment
of $ 1,236,378, $461,994, $789,154 and $179,352 for the years ended
December 31, 1998, 1997, 1996 and 1995, respectively.
(2) Calculated based upon the weighted average number of units outstanding.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussions should be read in conjunction with the "Selected
Financial Data" and the Consolidated Financial Statements of the Partnership and
the Notes thereto. This report contains, in addition to historical information,
forward-looking statements regarding the Partnership's business and the outcome
of the liquidation that include risks and other uncertainties. The Partnership's
actual results may differ materially from those anticipated in these
forward-looking statements. Factors that might cause such a difference include
those discussed below, as well as general economic and business conditions,
competition and other factors discussed elsewhere in this report. The
Partnership undertakes no obligation to release publicly any revisions to these
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of anticipated or unanticipated events.
The Partnership has changed its basis of accounting from the going-concern to
the liquidation basis as of December 31, 1998 in accordance with a plan of
liquidation adopted by the General Partners effective December 31, 1998. The
liquidation basis of accounting presents assets at the amounts expected to be
realized in liquidation and liabilities at amounts expected to be paid to
creditors. Amounts expected to be paid to creditors to finalize the liquidation
were accrued at December 31, 1998, and are discussed in detail under general and
administrative expenses in Item 7.
6
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations, continued
Liquidity and Capital Resources
Equipment acquisitions (including acquisition fees and expenses) since the
commencement of operations have been as follows:
PURCHASED WITH
TOTAL NET PROCEEDS CONTRIBUTED BY PURCHASED PURSUANT
ACQUISITION FROM THE SALE THE CLASS B TO REINVESTMENT
COST OF CLASS A UNITS LIMITED PARTNER PROGRAM
----------- ---------------- --------------- ------------------
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
1997 3,929 - - 3,929(1)
------------ ------------ ------------ ------------
$140,473,626 $ 61,861,416 $ 8,642,850 $ 69,969,360
============ ============ ============ ============
(1) Represents upgrade to an existing lease.
From inception through December 31, 1998, the Partnership sold equipment
with an original cost as follows:
Original Cost Associated
Year Ending with Equipment Sold
December 31, or Disposed of (1)(2)
------------ ------------------------
1991 $ 1,074,780
1992 3,928,788
1993 14,916,752
1994 13,247,784
1995 20,352,539
1996 12,500,250
1997 48,987,055
1998 22,546,942
-------------
$ 137,554,890
=============
(1) Includes investment in direct finance leases.
(2) See "Selected Financial Data", set forth elsewhere herein, for disclosure
of related gains and losses.
The Partnership invests working capital and cash flow from operations prior
to its distribution to the partners in short-term highly liquid investments.
These investments are primarily short-term commercial paper issued by large
domestic corporations. In the year ended December 31, 1998, approximate
distributions of net cash flows provided by operations declared and paid by the
Partnership were $1.4 million. Distributions declared were $25.2 million and
$12.2 million respectively, in the years ended December 31, 1997 and 1996.
7
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations, continued
Liquidity and Capital Resources, continued
Year 2000 Issues
An affiliate provides accounting and other administrative services,
including data processing services to the Partnership. The affiliate has
conducted a comprehensive review of its computer systems to identify systems
that could be affected by the Year 2000 issue. The Year 2000 issue results from
computer programs being written using two digits rather than four to define the
applicable year. Certain computer programs which have time-sensitive software
could recognize a date using "00" as the year 1900 rather than the year 2000.
This could result in major system failures or miscalculations. Certain of the
affiliate's software has already been updated to correctly account for the Year
2000 issue. In addition, the affiliate is engaged in a system conversion,
whereby the affiliate's primary lease tracking and accounting software is being
replaced with new systems which will account for the Year 2000 correctly. The
affiliate expects that the new system will be fully operational by December 31,
1999, and therefore will be fully Year 2000 compliant. The affiliate does not
expect any other changes required for the Year 2000 to have a material effect on
its financial position or results of operations. As such, the affiliate has not
developed any specific contingency plans in the event it fails to complete the
conversion to a new system by December 31, 1999. In addition, the affiliate does
not expect any Year 2000 issues relating to its customers and vendors to have a
material effect on its financial position or results of operations. The
Partnership does not expect that the impact of the Year 2000 issue will have a
significant effect on its net assets in liquidations in any event, given its
significantly reduced scope of operations.
Equipment Sale
In October 1997, the Partnership entered into an agreement with an
unaffiliated third party to sell certain equipment subject to leases for an
aggregate sale price of $15,338,420. The equipment, which included printers,
transportation, industrial, communication, manufacturing and research equipment
was originally purchased for purchase prices aggregating $29,855,031 and had an
aggregate net book value of $16,323,645 at September 30, 1997. The equipment had
generated aggregate rents of approximately $19,000,000 for the Partnership
through the date of sale. The Partnership recorded a writedown of $1,000,000 at
September 30, 1997 to reflect the difference between the sale price and the
depreciated value of the equipment. The sale was consummated and the sales
proceeds were received on October 30, 1997. Of the proceeds received, $156,476
was utilized to repay related non-recourse debt and the balance less any amount
required for operations, was distributed to the partners in January 1998. The
equipment sold represented approximately 57% of the Partnership's remaining
equipment on a net book value basis at September 30, 1997, and approximately 70%
of the September 1997 monthly rental billings. The Managing General Partner of
the Partnership determined that such sale represented a dissolution event, as
defined in the Partnership Agreement, and began investigating sales
opportunities with respect to the remaining portfolio of equipment in order to
complete the expeditious liquidation of the Partnership.
Sale of Prepaid Leases
Effective September 30, 1998, the Partnership sold the title and its
interest in certain equipment to an unaffiliated third party (Buyer). The lease
rentals had previously been discounted for cash and were recorded as a prepaid
rent obligation on the balance sheet. The Buyer assumed the prepaid rent
obligation of approximately $4,569,000 at September 30, 1998 and paid an
additional amount of cash to the Partnership resulting in a net gain of
approximately $528,000 which is included in Gain on sale of equipment.
8
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Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations, continued
Liquidity and Capital Resources, continued
Partnership equity declined by $411,127, or 14%, from December 31, 1997 to
the December 31, 1998 balance of net assets as a result of the declaration of
cash distributions to the partners of cash flow from operating activities which
were 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, after deducting the related repayment of associated
financings, is the source of funds utilized to make cash distributions to
partners, and is not reduced by depreciation expense, cost of equipment sold,
and provisions for equipment impairment attributable to the Partnership's
equipment.
Distributions may be characterized for tax, financial reporting and
economic purposes as a return of capital, a return on capital or both. The
portion of each distribution by the Partnership, which exceeds its net income
for the fiscal period, may be deemed a return of capital.
As of December 31, 1998, the Partnership has sold substantially all of its
assets and the Managing General Partner is exploring the sale of the remaining
equipment. In January 1998, the Partnership distributed a substantial portion of
the proceeds generated by the October 1997 equipment sale discussed above. A
final distribution will be made upon receipt of proceeds for the remaining
equipment. The calculation of such distribution will be net of the reserve for
current and contingent liabilities, if any, incidental to the liquidation.
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.
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, 1998 have been paid by the lessees. The Partnership records
depreciation expense pertaining to the equipment and incurs management fees and
certain general and administrative expenses in connection with the operation of
the Partnership. General and administrative expenses consist primarily of
investor reporting expenses and transfer agent and audit fees.
The Partnership performs ongoing assessments of the likelihood of lessee
defaults on existing leases and the effect that any such defaults may have on
the collectability of the Partnership's recorded amounts and the recoverability
of recorded equipment residual values based on independent and internal
evaluations of the estimated future value of equipment. Impairment losses are
recognized when expected future undiscounted cash flows are less than the
assets' carrying value. Accordingly, when indicators of impairment are present,
the Company evaluates the carrying value of property, plant and equipment in
relation to the operating performance and future undiscounted cash flows of the
underlying business. In that event, the Company adjusts the net book value of
the underlying assets by the difference between the sum of expected future
discounted cash flows and book value.
9
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Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations, continued
Results of Operations, continued
1998 Compared to 1997
The Partnership's net income decreased to $1,315,762 for the year ended
December 31, 1998 ("1998 Period") as compared to net income of $2,072,522 for
the year ended December 31, 1997 ("1997 Period") due to portfolio run-off and
sales of equipment offset by corresponding decreases in depreciation and
interest expenses. However, net income as a percent of total revenue increased
by 11% in the current year.
Rentals from operating leases decreased by $6,524,524 or 70%, in the 1998
Period as compared to the 1997 Period. The decrease is attributable to the
expiration of leases in accordance with their respective terms and the sale of
equipment subject to operating leases.
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
writedowns when the value of the equipment has been impaired on an other than
temporary basis. Based upon managements assessments as noted above, the
Partnership recorded writedowns totaling $566,670 in the 1998 Period. In the
1997 Period, the Partnership provided writedowns aggregating $1,000,000.
Depreciation expense decreased by $4,615,862, or 75% in the 1998 Period as
compared to the 1997 Period. The decrease was attributable to the continued sale
of equipment.
Management fees to general partners during the 1998 Period decreased by
$144,754, or 62%, in comparison to the 1997 Period, based upon the reduction of
leases in place and was consistent with the decline in rental revenues.
Interest expense incurred during the 1998 Period decreased by $308,888 or
38%, as compared to the 1997 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 amortization of the prepaid rent received pursuant to the
Master Lease transaction. For accounting purposes, the prepaid rent was treated
as a financing. Income was recognized ratably over the terms of the leases and
the related interest was charged to operations. The decreases reflect the
continued repayment of discounted leases, reducing outstanding balances, and the
final amortization of the prepaid rent in September 1998.
General and administrative expenses decreased by $57,235 or 16%, in the
1998 Period as compared to the 1997 Period. The decrease is attributable
principally to a decrease in costs associated with the remarketing of equipment
at lease maturity.
There are no comparative figures for the liquidation expenses which are
recorded in the Statement of Changes in Shareholders' Equity and Net Assets in
Liquidation as this amount was recorded at December 31, 1998 to accrue for
estimated expenses associated with the liquidation of the Partnership in
accordance with the liquidation basis of accounting. Liquidation expenses are
estimates comprised primarily of a reserve associated with sales and property
tax audits, financial statement audit and tax return preparation for 1999,
investor record maintenance, and expenses reimbursable to the General Partner.
10
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Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations, continued
Results of Operations, continued
1997 Compared to 1996
The Partnership's net income was $2,072,522 in the year ended December 31,
1997 ("1997 Period") as compared to net income of $4,258,032 for the year ended
December 31, 1996 ("1996 Period"). The principal reason for the decrease was
that components of income (including rent, direct financing lease income and
gains on disposition of equipment) decreased by a greater percentage than
depreciation expense due to the expiration of leases, additional writedowns and
increases to interest expense. Additionally in 1996, the net income included a
reversal of certain fees previously accrued. Generally these decreases are
consistent with expectations based upon the expiration of the reinvestment phase
in 1996 and the continued sale of equipment upon lease expirations as well as
the October 1997 sale.
Rentals from operating leases decreased by $4,894,066 or 34%, in the 1997
Period as compared to the 1996 Period. The decrease 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 lower lease rates.
As discussed above, the Partnership performs ongoing assessments of
accounts receivable and recorded equipment residual values based on actual sales
of similar equipment and other evaluations of estimated future equipment values
and provides for writedowns when the value of the equipment has been impaired on
an other than temporary basis. Based upon managements assessments as noted
above, the Partnership recorded writedowns totaling $1,000,000 in the 1997
Period. In the 1996 Period, the Partnership provided writedowns aggregating
$775,000 and wrote off an uncollectible receivable of $27,854.
Depreciation and amortization expense decreased by $3,096,866, or 30% in
the 1997 Period as compared to the 1996 Period. The decrease was attributable to
the continued sale of equipment at the end of the scheduled lease terms.
Management fees during the 1997 Period decreased by $355,966, or 60%, in
comparison to the 1996 Period, based upon the deduction of leases in place and
was consistent with the decline in rental revenues.
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 was no longer probable that these
subordinated dispositions fees would be paid. Of such amount, $61,693 was
incurred during 1996.
Interest expense incurred during the 1997 Period decreased by $234,055 or
22%, as compared to the 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. The decreases reflect the
continued repayment of discounted leases, reducing outstanding balances, and the
continued amortization and recognition of the prepaid rent.
11
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Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations, continued
Results of Operations, continued
1997 Compared to 1996, continued
General and administrative expenses decreased by $94,464 or $21%, in the
1997 Period as compared to the 1996 Period. The decrease in the 1997 Period is
attributable principally to a decrease in insurance premiums incurred by the
Partnership in the 1997 Period as compared to the 1996 Period.
Inflation and Changing Prices
Inflation has not had a material impact on the operations or financial
condition of the Partnership from inception through December 31, 1998. However,
inflation and changing prices, in addition to other factors, may affect the
eventual selling price of the Partnership's equipment.
Risks and Uncertainties
As discussed throughout Item 7, the Partnership sold substantially all of
its remaining assets during 1998, and the Managing General Partner is exploring
opportunities to sell the remaining equipment during 1999. Accordingly,
estimated liquidation expenses for the remaining life of the Partnership have
been recorded in the accompanying financial statements for the period ended
December 31, 1998.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities ("Statement 133").
Statement 133 establishes accounting and reporting standards for derivative
instruments and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. Statement 133 is effective
for fiscal years beginning after June 15, 1999, with earlier application
permitted. The Partnership will adopt Statement 133 in the first quarter of
1999. The General Partner does not expect the adoption to have an impact on its
financial reporting.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income
("Statement 130"), which requires comprehensive income to be displayed
prominently within the financial statements. Comprehensive income is defined as
all recognized changes in equity during a period from transactions and other
events and circumstances except those resulting from investments by owners and
distributions to owners. Net income and items that previously have been recorded
directly in equity are included in comprehensive income. Statement 130 affects
only the reporting and disclosure of comprehensive income but does not affect
recognition or measurement of income. Statement 130 is effective for fiscal
years beginning after December 15, 1997, with earlier application permitted. The
Partnership adopted Statement 130 in the first quarter of 1998. The adoption did
not have an impact on its financial reporting.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information ("Statement 131"). Statement 131 provides
guidance for reporting information about operating segments in annual financial
statements and requires reporting of selected information about operating
segments in interim financial reports of public companies. An operating segment
is defined as a component of a business that engages in business activities from
which it may earn revenue and incur expenses, a component whose
12
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations, continued
Results of Operations, continued
New Accounting Pronouncements, continued
operating results are regularly reviewed by the company's chief operating
decision maker, and a component for which discrete financial information is
available. Statement 131 establishes quantitative thresholds for determining
operating segments of a company. Statement 131 is effective for fiscal years
beginning after December 15, 1997, with earlier application permitted. The
Partnership adopted Statement 131 in the first quarter of 1998. The adoption did
not have an impact on its financial reporting.
"Safe Harbor" Statement Under the Private Securities Litigation Reform Act of
1995
The statements contained in this report which are not historical facts may be
deemed to contain forward- looking statements with respect to events, the
occurrence of which involve risks and uncertainties, and are subject to factors
that could cause actual future results to differ both adversely and materially
from currently anticipated results, including, without limitation; the level of
lease originations; realization of residual values; customer credit risk;
competition from other lessors, specialty finance lenders or banks; and the
availability and cost of financing sources. Certain specific risks associated
with particular aspects of the Partnership's business are discussed in detail
throughout Parts I and II when and where applicable.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The partnership adopted the liquidation basis of accounting as of December 31,
1998 and all assets and liabilities were stated at anticipated liquidation
value. Consequently, the partnership has no market risk exposure.
13
<PAGE>
PAINEWEBBER PREFERRED YIELD FUND, L.P.
Item 8. Financial Statements and Supplementary Data
List of Financial Statements
Page
----
Report of Independent Accountants F-2
Statement of Net Assets in Liquidation - December 31, 1998 F-3
Balance Sheets - December 31, 1997 F-4
Statements of Operations for the years ended
December 31, 1998, 1997 and 1996 F-5
Statement of Changes in Shareholders' Equity for the years
ended December 31, 1998, 1997, and 1996 F-6
Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996 F-7
Notes to Financial Statements F-8
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>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
PaineWebber Preferred Yield Fund, L.P.
We have audited the accompanying statements of net assets in liquidation as
of December 31, 1998 and the balance sheet as of December 31, 1997 of
PaineWebber Preferred Yield Fund, L.P. and the related statements of operations,
cash flows and changes in partners' equity and net assets in liquidation for
each of the three years ended December 31, 1998. These financial statements are
the responsibility of the Partnership's General Partners. 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. in liquidation as of December 31, 1998 and as of December 31, 1997
and the results of its operations and its cash flows for each of the respective
periods stated in the first paragraph, in conformity with generally accepted
accounting principles.
As described in Note 1 to the financial statements, the General Partners of
the Partnership approved a plan of liquidation and the Partnership commenced
liquidation, effective December 31, 1998. As a result, the Partnership has
changed its basis of accounting as of and for periods subsequent to December 31,
1998 from the going concern to the liquidation basis of accounting.
/s/PricewaterhouseCoopers LLP
-----------------------------
PricewaterhouseCoopers LLP
New York, New York
March 19, 1999
F-2
<PAGE>
PAINEWEBBER PREFERRED YIELD FUND, L.P.
STATEMENT OF NET ASSETS IN LIQUIDATION AS OF
DECEMBER 31, 1998
ASSETS
Cash and cash equivalents $3,198,407
Rents and other receivables, net 163,529
Equipment on operating leases, at liquidation value 1,567,365
----------
Total Assets $4,929,301
==========
LIABILITIES AND NET ASSETS
LIABILITIES:
Accounts payable and accrued liabilities 731,971
Accrued liquidation expenses 341,750
Payables to affiliates 246,884
Accrued interest payable 6,275
Discounted lease rentals 969,404
----------
Total Liabilities 2,296,284
----------
NET ASSETS: 2,633,017
----------
Total Liabilities and Net Assets $4,929,301
==========
The accompanying notes are an integral
part of these financial statements.
F-3
<PAGE>
PAINEWEBBER PREFERRED YIELD FUND, L.P.
BALANCE SHEET -- DECEMBER 31, 1997
ASSETS
Cash and cash equivalents $19,606,352
Rents and other receivables, net 175,075
Equipment held for sale or lease, net 729,481
Net investment in direct finance leases 170,230
Equipment on operating leases, net 8,253,386
Other assets, net 9,688
-----------
Total Assets $28,944,212
===========
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES:
Prepaid rent $ 6,072,331
Accounts payable and accrued liabilities 1,299,791
Payables to affiliates 263,591
Accrued interest payable 7,792
Deferred rental income and deposits 246,840
Distributions payable to partners 16,486,153
Discounted lease rentals 1,523,570
-----------
Total Liabilities 25,900,068
-----------
PARTNERS' EQUITY:
General Partners 110,227
Limited Partners:
Class A (142,128 Units outstanding at
December 31, 1998 and 1997) 2,498,859
Class B 435,058
-----------
Total Partners' Equity 3,044,144
-----------
Total Liabilities and Partners' Equity $28,944,212
===========
The accompanying notes are an integral
part of these financial statements.
F-4
<PAGE>
PAINEWEBBER PREFERRED YIELD FUND, L.P.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1998 1997 1996
---- ---- ----
REVENUE:
Rentals from operating leases $ 2,854,305 $ 9,378,829 $ 14,272,895
Direct finance lease income 13,422 351,997 696,247
Gain on sale of equipment 1,236,378 461,994 789,154
Interest income 185,924 302,541 255,463
Other income 25,439 136,936 45,592
----------- ------------ ------------
4,315,468 10,632,297 16,059,351
----------- ------------ ------------
EXPENSES:
Depreciation 1,536,058 6,151,920 9,248,786
Provision for losses on equipment 566,670 1,000,000 802,854
Interest 500,730 809,618 1,043,673
Management fees to general partners 90,097 234,851 590,817
Disposition fees - - (342,661)
General and administrative 306,151 363,386 457,850
----------- ------------ ------------
2,999,706 8,559,775 11,801,319
----------- ------------ ------------
NET INCOME $ 1,315,762 $ 2,072,522 $ 4,258,032
=========== ============ ============
NET INCOME ALLOCATED:
To the General Partners $ 65,788 $ 74,072 $ 212,901
To the Class A Limited Partners 1,093,727 1,776,214 3,951,236
To the Class B Limited Partner 156,247 222,236 93,895
----------- ------------ ------------
$ 1,315,762 $ 2,072,522 $ 4,258,032
=========== ============ ============
NET INCOME PER WEIGHTED AVERAGE
NUMBER OF UNITS OF CLASS A LIMITED
PARTNER INTERESTS OUTSTANDING $ 7.70 $ 12.50 $ 27.80
=========== ============ ============
WEIGHTED AVERAGE NUMBER OF UNITS
OF CLASS A LIMITED PARTNER
INTERESTS OUTSTANDING 142,128 142,128 142,128
=========== ============ ============
The accompanying notes are an integral
part of these financial statements.
F-5
<PAGE>
PAINEWEBBER PREFERRED YIELD FUND, L.P.
STATEMENT OF CHANGES IN PARTNERS' EQUITY
AND NET ASSETS IN LIQUIDATION
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
CLASS A CLASS B
GENERAL LIMITED LIMITED
PARTNERS PARTNERS PARTNER TOTAL
------------ -------- ------- -----
<S> <C> <C> <C> <C>
Balance, December 31, 1995 $ 1,612,447 $ 28,417,629 $ 4,083,120 $ 34,113,196
Net income and comprehensive 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
Net income and comprehensive income 74,072 1,776,214 222,236 2,072,522
Distributions declared to partners (1,179,965) (21,106,008) (2,929,016) (25,214,989)
------------ ------------ ------------ ------------
Balance, December 31, 1997 110,227 2,498,859 435,058 3,044,144
Net income and comprehensive income 65,788 1,093,727 156,247 1,315,762
Distributions declared and paid
to partners (50,156) (1,137,024) (197,959) (1,385,139)
------------ ------------ ------------ ------------
Net assets before accrued liquidation
expenses 125,809 2,455,562 393,346 2,974,767
Accrued liquidation expenses (17,087) (284,080) (40,583) (341,750)
------------ ------------ ------------ ------------
Net assets in liquidation,
December 31, 1998 $ 108,772 $ 2,171,482 $ 352,763 $ 2,633,017
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-6
<PAGE>
PAINEWEBBER PREFERRED YIELD FUND, L.P.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,315,762 $ 2,072,522 $ 4,258,032
Adjustments to reconcile net income to net cash
used in) provided by operating activities:
Depreciation 1,536,058 6,151,920 9,248,786
Provision for losses on equipment 566,670 1,000,000 802,854
Gain on sale of equipment (1,236,378) (461,994) (789,154)
Reversal of subordinated disposition fees - - (342,661)
Change in assets and liabilities:
Decrease in rents and other receivables (567) 222,148 461,303
Decrease in other assets 9,688 - 9,718
(Decrease) increase in accounts payable and accrued
liabilities (567,820) 928,851 (160,518)
(Decrease) increase in payables to affiliates (16,707) (509,744) 476,150
Decrease in interest payable (1,517) (5,289) (9,207)
Decrease in deferred rental income and deposits (246,840) (483,751) (180,926)
Decrease in prepaid rent (6,072,331) (1,731,189) (2,116,612)
------------ ------------ ------------
Net cash (used in) provided by operating activities (4,713,982) 7,183,474 11,657,765
----------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Recovery of investment in direct financing leases 30,109 1,281,404 1,606,599
Proceeds from sale of equipment including direct
financing leases 6,701,385 19,962,866 2,771,818
Purchases of equipment on operating leases - (3,929) (8,649,624)
Investment in direct financing leases - - (90,912)
------------ ------------ ------------
Net cash provided by (used in) investing activities 6,731,494 21,240,341 (4,362,119)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of discounted lease rentals (554,166) (1,279,140) (1,945,149)
Cash distributions paid to partners (17,871,291) (10,417,774) (11,706,805)
------------ ------------ ------------
Net cash used in financing activities (18,425,457) (11,696,914) (13,651,954)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (16,407,945) 16,726,901 (6,356,308)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 19,606,352 2,879,451 9,235,759
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 3,198,407 $ 19,606,352 $ 2,879,451
============ ============ ============
Supplemental schedule of cash flow information:
Interest paid $ 502,247 $ 814,907 $ 1,052,880
============ ============ ============
NON-CASH TRANSACTIONS
Distribution to partners accrued but not paid $ - $ 16,486,153 $ 1,688,938
============ ============ ============
Equipment subject to operating leases converted
to direct financing leases at renewal $ - $ 87,769 $ 958,724
============ ============ ============
Prepaid rent applied in equipment sales $ 5,146,636 $ 728,405 $ 476,187
============ ============ ============
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-7
<PAGE>
PAINEWEBBER PREFERRED YIELD FUND, L.P.
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
---------------------
PaineWebber Preferred Yield Fund, L.P. (the "Partnership"), a Delaware
limited Partnership, maintained its accounting records and prepared
financial statements on the accrual basis of accounting. The General
Partners approved a plan of liquidation in 1998 and commenced liquidation
as of December 31, 1998. Accordingly, the Partnership has changed its basis
of accounting from the going-concern to the liquidation basis effective
December 31, 1998. The liquidation basis of accounting presents assets at
the amounts expected to be realized in liquidation and liabilities at
amounts expected to be paid to creditors. 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 for the years prior to 1998 relate
to the allowance for losses and estimated residual or salvage values. The
liquidating value of assets and liabilities in liquidation are based upon
management's best estimates of their liquidation value at December 31,
1998. Such values could differ substantially from amounts ultimately
realized in the future as the Partnership completes its plan of
liquidation. The Managing General Partner is exploring opportunities for
the sale of the remaining equipment during 1999. The Partnership gives no
assurance that final liquidation will occur in 1999, however, liquidation
expenses have been accrued based on the assumption that 1999 will be the
final year of operations.
Risks and Uncertainties
-----------------------
As discussed in Note 7, the Partnership has sold substantially all of its
assets at December 31, 1998. No material net realizable value adjustments
to accounts in the financial statements were deemed necessary after
adoption of the liquidation basis of accounting by the General Partner.
Cash and Cash Equivalents
-------------------------
The Partnership invests working capital and cash flow from operations prior
to its distribution to the partners in short-term highly liquid
investments. These investments are recorded at cost which approximates fair
market value. For purposes of the statement of net assets in liquidation
and 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 Finance Leases
---------------------
At lease commencement, the Partnership recorded the lease receivable,
estimated residual value of the equipment and unearned income. The original
unearned income was 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 was recognized as revenue over the
lease term at a constant rate of return on the net investment in the lease.
Residual values were 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 were considered. Thereafter,
residual estimates were re-evaluated each quarter.
F-8
<PAGE>
PAINEWEBBER PREFERRED YIELD FUND, L.P.
NOTES TO FINANCIAL STATEMENTS, continued
1. SIGNIFICANT ACCOUNTING POLICIES, continued
Equipment on Operating Leases
-----------------------------
Prior to the adoption of the liquidation basis of accounting, rentals from
operating leases were recognized on a straight-line basis over the term of
the lease. Equipment on operating leases was stated at cost, including the
acquisition fees paid to the Managing General Partner, less accumulated
depreciation. Depreciation was 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 value at the lease termination date. In
estimating such values, independent appraisals and other circumstances
regarding the equipment and the lessee were considered. Thereafter,
residual estimates were re-evaluated each quarter. Impairment losses were
recognized when expected future cash flows were less than the assets'
carrying value. Accordingly, when indicators of impairment were present,
the Partnership evaluated the carrying value of property, plant and
equipment and intangibles in relation to the operating performance and
future undiscounted cash flows of the underlying business. In that event,
the Partnership adjusted the net book value of the underlying assets by the
difference between the sum of expected future discounted cash flows and
book value.
The remaining piece of manufacturing equipment under operating lease as of
December 31, 1998 is recorded at fair market value in the Statement of Net
Assets in Liquidation. Such value was determined by an independent
appraiser at the end of 1998. The equipment will be evaluated on an
on-going basis for other-than-temporary declines in fair market value and
written down if appropriate. In accordance with the liquidation basis of
accounting, adopted as of December 31, 1998, no further depreciation will
be recorded.
Non-recourse Discounting of Rentals
-----------------------------------
The Partnership 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 received the discounted value of the rental
payments in cash. The notes were collateralized by the lease, the related
lease payments and the underlying equipment. Cash proceeds from such
financings were 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 was sold or disposed of, the asset and related accumulated
depreciation and write down for loss, if any, were removed from the
accounts and a gain or loss was recognized.
Deferred Rental Income
----------------------
Lease revenues received but not yet earned were deferred and recognized as
income when earned.
Income Taxes
------------
No provision for income taxes was 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 was 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.
F-9
<PAGE>
PAINEWEBBER PREFERRED YIELD FUND, L.P.
NOTES TO FINANCIAL STATEMENTS, continued
1. SIGNIFICANT ACCOUNTING POLICIES, continued
Accrued Liquidation Expenses
----------------------------
Liquidation expenses are estimates comprised primarily of a reserve
associated with sales and property tax audits, financial statement audit
and tax return preparation for 1999, investor record maintenance, and
expenses reimbursable to the General Partner.
Recently Issued Financial Accounting Standards
----------------------------------------------
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income
("Statement 130"), which requires comprehensive income to be displayed
prominently within the financial statements. Comprehensive income is
defined as all recognized changes in equity during a period from
transactions and other events and circumstances except those resulting from
investments by owners and distributions to owners. Net income and items
that previously have been recorded directly in equity are included in
comprehensive income. Statement 130 affects only the reporting and
disclosure of comprehensive income but does not affect recognition or
measurement of income. Statement 130 is effective for fiscal years
beginning after December 15, 1997, with earlier application permitted. The
Partnership adopted Statement 130 in the first quarter of 1998. The
adoption did not have an impact on its financial statements.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information ("Statement 131"). Statement 131
provides guidance for reporting information about operating segments in
annual financial statements and requires reporting of selected information
about operating segments in interim financial reports of public companies.
An operating segment is defined as a component of a business that engages
in business activities from which it may earn revenue and incur expenses, a
component whose operating results are regularly reviewed by the company's
chief operating decision maker, and a component for which discrete
financial information is available. Statement 131 establishes quantitative
thresholds for determining operating segments of a company. Statement 131
is effective for fiscal years beginning after December 15, 1997, with
earlier application permitted. The Partnership adopted Statement 131 in the
first quarter of 1998. The adoption did not have an impact on its financial
reporting.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities ("Statement
133"). Statement 133 establishes accounting and reporting standards for
derivative instruments and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair
value. Statement 133 is effective for fiscal years beginning after June 15,
1999, with earlier application permitted. The General Partner does not
expect the adoption to have an impact on its financial reporting.
Long-lived Assets
-----------------
Prior to the adoption of the liquidation basis of accounting, the
Partnership accounted for long-lived assets under the provisions of
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to be Disposed Of
("SFAS No. 121"). SFAS No. 121 requires that long-lived assets, including
operating leases, and certain identifiable intangibles to be held and used
by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. In performing the review for recoverability, the entity should
F-10
<PAGE>
PAINEWEBBER PREFERRED YIELD FUND, L.P.
NOTES TO FINANCIAL STATEMENTS, continued
1. SIGNIFICANT ACCOUNTING POLICIES, continued
Long-lived Assets, continued
-----------------
estimate the future cash flows expected to result from the use of the asset
and its eventual disposition. If the sum of the expected future cash flows
(undiscounted and without interest charges) was less than the carrying
amount of the asset, an impairment loss was recognized. Measurement of an
impairment loss for long-lived assets, including operating leases, and
identifiable intangibles held by the Partnership was based on the fair
value of the asset calculated by discounting the expected future cash flows
at an appropriate interest rate.
2. ORGANIZATION OF THE PARTNERSHIP
The Partnership was formed on December 18, 1989 for the purpose of
acquiring and leasing 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 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. 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 and acquired a total
of $140,473,626 of leased equipment over the life of the Partnership, of
which $3,929 (for an upgrade) and $8,740,536 were acquired during 1997 and
1996, respectively.
The Partnership is required to dissolve and distribute all of its assets
not later than December 31, 2005. The Partnership liquidated substantially
all of its remaining leased equipment, and all of its off-lease equipment,
in 1998. The Managing General Partner is negotiating for the sale of the
remaining equipment.
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.
F-11
<PAGE>
PAINEWEBBER PREFERRED YIELD FUND, L.P.
NOTES TO FINANCIAL STATEMENTS, continued
3. PARTNERSHIP ALLOCATIONS, continued
1. During the reinvestment period (ended March 31, 1996).
<TABLE>
<CAPTION>
Class A Class B
Limited Limited
Partners Partner Reinvested
-------- ------- ----------
<S> <C> <C> <C>
(A) Until the Class A Limited Partners receive 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 receives a 2.75% quarterly (11%
annualized) distribution on its capital contributions - 100.0% -
(C) Cash remaining after (B) above is reinvested in additional
equipment - - 100.0%
2. After the reinvestment period:
(A) Until the Class A Limited Partners receive 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 receives 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% -
(D) Cash remaining after (C) above and until the Class B Limited
Partner receives 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%* -
*subject to certain specified limitations.
</TABLE>
F-12
<PAGE>
PAINEWEBBER PREFERRED YIELD FUND, L.P.
NOTES TO FINANCIAL STATEMENTS, continued
3. PARTNERSHIP ALLOCATIONS, continued
In 1997, the Partnership sold a substantial portion of its portfolio,
thereby triggering an event of dissolution as defined in the Partnership
Agreement. As a result, the fourth quarter 1997 and first quarter 1998
distribution, and all future distributions, have been and will be based on
the respective partners' capital accounts after all allocations of profits
and losses, as provided for in the Partnership Agreement.
Profits and Losses
Profits (not including the special allocations discussed below) were first
allocated to offset prior year losses, if any. Remaining profits were then
allocated among the partners in the same manner that cash distributions
were 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) were 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
was shared 87.5% for 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 were
allocated 1% to the General Partners and 99% to the Limited Partners. The
99% allocated to the Limited Partners was 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 of the commissions and other expenses paid in connection
with the sale of the Units. The 99% allocated to the Limited Partners was
shared by the Class A Limited Partners and the Class B 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 AND CASH EQUIVALENTS
Cash equivalents are primarily short-term commercial paper issued by large
domestic corporations. At December 31, 1998, the Partnership held
short-term commercial paper issued as follows:
Ford Motor Company purchased on December 29, 1998 for $1,995,777 (Par Value
2,000,000), and commercial paper issued by American Express Inc. purchased
on December 29, 1998 for a price of $299,665 (Par Value $300,000).
5. RENTS AND OTHER RECEIVABLES, NET
Rents and other receivables, net consists primarily of rents and property
taxes that had been billed and were due, but have not been collected, and
accrued interest receivable.
F-13
<PAGE>
PAINEWEBBER PREFERRED YIELD FUND, L.P.
NOTES TO FINANCIAL STATEMENTS, continued
6. NET INVESTMENT IN DIRECT FINANCE LEASES
During 1998, the remaining direct finance leases were sold to the original
lessee or to third parties. The investment in direct finance leases at
December 31, 1997 consisted of the following:
1997
----
Minimum lease payments receivable $ 144,121
Estimated unguaranteed residual values 57,961
Unearned lease income (31,852)
---------
$ 170,230
=========
7. EQUIPMENT ON OPERATING LEASES, NET
The following schedule provides an analysis of the Partnership's investment
in equipment on operating leases as of December 31, 1998 and 1997:
1998 1997
---- ----
Office technology and communications
equipment $ - $ 2,434,870
General equipment, at estimated liquidation
value in 1998 1,567,365 18,085,571
----------- ------------
20,520,441
Less:
Accumulated depreciation - (11,966,110)
Allowances for losses - (300,945)
----------- ------------
$ 1,567,365 $ 8,253,386
=========== ============
Additionally, equipment with original costs aggregating $4,945,237 (net
book value of $729,481), was off-lease and being held for sale at December
31, 1997.
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 writedowns when the value of the equipment has been impaired
on an other than temporary basis. Based upon managements assessments as
noted above, the Partnership recorded writedowns totaling $566,670 in the
1998 Period. In the 1997 Period, the Partnership provided writedowns
aggregating $1,000,000.
a.) Minimum Future Rentals
The following is a schedule by years of minimum future rentals on
operating leases as of December 31, 1998:
Eight Months Ending
August 31, Amount
------------------- ------
1999 $ 461,464
F-14
<PAGE>
PAINEWEBBER PREFERRED YIELD FUND, L.P.
NOTES TO FINANCIAL STATEMENTS, continued
7. EQUIPMENT ON OPERATING LEASES, NET, continued
The rentals in the table represent rentals assigned to partially repay
the discounted lease rentals ($969,404). The General Partner expects to
collect the remainder of the discounted lease rentals from the sale of
the equipment.
b.) Sale of Prepaid Leases
Effective September 30, 1998, the Partnership sold the title and its
interest in certain equipment to an unaffiliated third party (Buyer).
The lease rentals had previously been discounted for cash and were
recorded as prepaid rent on the balance sheet. The Buyer assumed the
prepaid rent obligation of approximately $4,569,000 at September 30,
1998 and paid a nominal amount of cash to the Partnership resulting in
a net gain of approximately $528,000 which is included in Gain on sale
of equipment.
8. DISCOUNTED LEASE RENTALS
Discounted lease rentals outstanding at December 31, 1998 and 1997 were
$969,404 and $1,523,570, respectively. Only one obligation remained
outstanding at December 31, 1998, which carried interest at 10.83%. The
non-recourse obligation of $969,404 matures September 30, 1999 (including a
balloon of $570,441).
9. CONCENTRATION OF CREDIT RISK
Approximately 64% of the Partnership's equipment acquired since inception,
based upon original cost, was leased to lessees that were investment grade
lessees, or entities that 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
finance leases) describes the Partnership's equipment portfolio as of
December 31, 1998 and 1997 by significant equipment type. This table
excludes equipment held for sale or lease at December 31, 1997.
December 31 1998 December 31 1997
Equipment Type(1) % of Portfolio % of Portfolio
----------------- ---------------- ----------------
Industrial (Includes Forklifts) 43.43%
Manufacturing 100% 16.31
Transportation 11.25
Furniture and Fixtures 7.50
Communication 1.57
PCs and Workstations 3.98
Mining and Construction 6.74
Peripherals and Printers 6.31
Medical and Research 2.91
--- ------
Total 100% 100.00%
=== ======
(1)Includes equipment subject to direct finance leases.
F-15
<PAGE>
PAINEWEBBER PREFERRED YIELD FUND, L.P.
NOTES TO FINANCIAL STATEMENTS, continued
10. TRANSACTIONS WITH AFFILIATES
Acquisition and Operating Stages
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 was 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. No acquisition fees were earned during the years
ended December 31, 1998 and 1997. Acquisition fees were capitalized in the
cost of equipment and depreciated or amortized according to lease type.
Management Fees to General Partners
-----------------------------------
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 $90,097, $234,851 and $590,817 were earned by
the General Partners with regard to the rentals earned by the Partnership
during 1998, 1997 and 1996, respectively.
As part of the class action settlement, beginning January 1996, all fees
and distributions paid to the Administrative General Partner and all future
fees and distributions paid to the Administrative General Partner have been
assigned by an affiliate to an escrow account for the benefit of class
members.
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 of $422,828
because the Managing General Partner concluded that it was no longer
probable that these subordinated disposition fees would be paid.
Accountable General and Administrative Expenses
-----------------------------------------------
The General Partners are entitled to reimbursement of certain expenses, up
to $25,000 per year, paid on behalf of the Partnership which are incurred
in connection with the administration and management of the Partnership.
The Managing General Partner, billed, for administrative services, $25,000
for each of the years ended December 31, 1998, 1997 and 1996.
F-16
<PAGE>
PAINEWEBBER PREFERRED YIELD FUND, L.P.
NOTES TO FINANCIAL STATEMENTS, continued
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>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net income per financial statements $ 1,315,762 $ 2,072,522 $ 4,258,032
Increase (decrease) resulting from:
Depreciation 92,153 (491,034) (2,012,678)
Direct finance leases (13,422) 929,406 1,272,639
Provisions for losses on equipment 566,670 1,000,000 802,854
(Loss) gain on sale of equipment (1,759,946) 5,859,007 259,071
Prepaid rent (1,173,420) (2,885,416) (2,411,873)
Liquidation expenses (341,750)
Other 137,347 (78,167) (155,367)
----------- ----------- -----------
Taxable (loss) income per federal income tax return $(1,176,606) $ 6,406,318 $ 2,012,678
=========== =========== ===========
</TABLE>
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>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net assets per financial statements $ 2,633,017 $ 3,044,144 $ 26,186,611
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 - 16,485,153 1,688,938
Direct finance lease income and other - 119,165 5,728,510
Deferred rental income and deposits - 153 483,904
Writedowns - 586,599 715,956
Accumulated depreciation (541,674) (5,029,304) (17,688,688)
Basis of contributed equipment - - (290,785)
Prepaid rent/payables 139,000 6,072,331 8,531,925
------------ ------------ ------------
Tax bases of net assets $ 11,182,983 $ 30,230,881 $ 34,309,011
============ ============ ============
</TABLE>
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires disclosure of fair value of certain financial instruments, whether
or not reported in the balance sheet. Where quoted market prices are
unavailable, the values are based on estimates using present value or other
valuation techniques. The results are significantly affected by the
assumptions used including the discount rate and estimates of future cash
flows. In addition, because SFAS No. 107 excludes certain assets such as
leased equipment owned by the Partnership, the aggregate fair value amounts
discussed below do not purport to represent and should not be considered
representative of the underlying market value of the Partnership.
F-17
<PAGE>
PAINEWEBBER PREFERRED YIELD FUND, L.P.
NOTES TO FINANCIAL STATEMENTS, continued
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The methods and assumptions used to estimate the fair value of each class
of the financial instruments are described below.
Cash equivalents and rents and other receivables. For these balances,
carrying value approximates fair value due to their short-term nature.
Discounted lease rentals. For discounted lease rentals, carrying value
approximates fair value based upon the current rate offered for a note of
similar maturity.
Accounts payable and accrued expenses, payable to affiliates, and accrued
interest payable. For these balances carrying value approximates fair value
due to their short-term nature.
F-18
<PAGE>
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 1998 or 1997.
PART III
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.
------------------------------
NAME POSITIONS HELD
-------------------- ----------------------------------
John F. Olmstead President and Director
Anthony M. DiPaolo Senior Vice President and Director
Richard H. Abernethy Vice President and Director
Joe Bukofski Vice President and Director
Robert A. Golden Director
Mick Myers Director
John F. Olmstead, age 54, joined CAII as Vice President in December, 1988, is a
Senior Vice President of CAI and CAII and is head of CAII's Public Equity
division. He has served as Chairman of the Board for Neo-kam Industries, Inc.,
Matchless Metal Polish Company, Inc. and ACL, Inc. for more than 5 years. He has
over 20 years of experience holding various positions of responsibility in the
leasing industry. Mr. Olmstead holds a Bachelor of Science degree from Indiana
University and a Juris Doctorate degree from Indiana Law School.
Anthony M. DiPaolo, age 40, joined CAII in July 1990 as Assistant Treasurer and
is currently Senior Vice President-Chief Financial Officer. He also held the
positions of Senior Vice President-Controller and Assistant Vice
President-Credit Administration for the Company. Mr. DiPaolo has held similar
senior financial management positions with two public companies between 1986 and
June 1990, and prior to then was an audit manager for the public accounting firm
of Coopers & Lybrand. Mr. DiPaolo holds a Bachelor of Science degree in
Accounting from the University of Denver.
Richard H. Abernethy, age 45, joined CAII in April 1992 as Equipment Valuation
Manager and currently serves as Vice President of Portfolio Management. Mr.
Abernethy has thirteen 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.
32
<PAGE>
Item 10. Directors and Executive Officers of the Registrant, continued
Joseph F. Bukofski, age 43, joined CAII in June 1990 as a Financial Analyst. Mr.
Bukofski is currently the Vice President-Pricing. Prior to joining the Marketing
Department, Mr. Bukofski was Assistant Vice President and Controller. Prior to
joining the Company, he was a geologist with Barringer Geoservices, Inc. for
eleven years. Mr. Bukofski holds a Bachelor of Science degree in Secondary
Education - Earth Science from Bloomsburg University and a Masters of Science in
Accounting from the University of Colorado.
Robert A. Golden, age 53, is Vice President and the National Sales Manager of
the Company. Mr. Golden joined the Company in 1993 as a Branch Manager. He was
promoted to his current position in September 1994. Prior to joining the
Company, he was an Executive Vice President with the U.S. Funds Group, President
of BoCon Capital Group and Vice President with Ellco/GE Capital for fifteen
years. Mr. Golden is an officer, but not a director, of CAII.
Mick Myers, age 41, joined CAI in February 1992 as a Senior Portfolio Manager.
Currently he is Assistant Vice President of Asset Management. Mr. Myers has nine
years experience in the leasing industry. Previously, he has held the position
of Senior End of Lease Negotiator with ELLCO/GE Capital. Mr. Myers holds a
Bachelor of Science degree from the University of Wyoming.
General Equipment Management, Inc.
----------------------------------
NAME POSITIONS HELD
-------------------- -------------------------------------------
Stephen R. Dyer President and Director
Carmine Fusco Vice President, Secretary, Treasurer, Chief
Financial and Accounting Officer
Clifford B. Wattley Vice President, Assistant Secretary and
Director
Stephen R. Dyer, age 39, 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 Senior 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.
Carmine Fusco, age 30, is Vice President, Secretary, Treasurer and Chief
Financial and Accounting Officer of the Administrative General Partner, he also
serves as an Assistant Vice President within the Private Investments Department
of PaineWebber Incorporated. Mr. Fusco had previously been employed as a
Financial Valuation Consultant in the Business Valuation Group of Deloitte &
Touche, LLP from January 1997 to August 1998. He was employed as a Commodity
Fund Analyst in the Managed Futures Department of Dean Witter Reynolds
Incorporated, from October 1994 to November 1995. Prior to joining Dean Witter,
Mr. Fusco was a Mutual Fund Accountant with the Bank of New York Company
Incorporated. He received his Bachelor of Science degree in Accounting and
Finance in May 1991 from Rider University and a Master of Business
Administration from Seton Hall University in June 1996.
33
<PAGE>
Item 10. Directors and Executive Officers of the Registrant, continued
Clifford B. Wattley, age 49, 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.
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 1998.
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, owns 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 4000
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 4000
Lakewood, CO 80235
(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, 1999.
34
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management,
continued
(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 1998.
Acquisition and Operating Stages
Acquisition of Equipment
- - ------------------------
The Partnership did not acquire any equipment from CAII during 1998. The
Partnership ceased committing funds for reinvestment as of March 31, 1996. There
were no acquisition fees earned by the Managing General Partner during the year
ended December 31, 1998.
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 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 $90,097 were
earned by the General Partners with regard to the rentals earned by the
Partnership during 1998.
As part of the class action settlement, beginning January 1996, all fees and
distributions paid to the Administrative General Partner and all future fees and
distributions paid to the Administrative General Partner have been assigned by
an affiliate to an escrow account for the benefit of class members.
Disposition Fees
- - ----------------
At December 31, 1996, the Partnership reversed previously accrued subordinated
disposition fees of $422,828 recorded in prior years because the Managing
General Partner concluded that it is no longer probable that these subordinated
disposition fees would be paid.
Accountable General and Administrative Expenses
- - -----------------------------------------------
The Managing General Partner is entitled to reimbursement of certain expenses,
up to $25,000 per year, paid on behalf of the Partnership which are incurred in
connection with the administration and management of the Partnership. The
Managing General Partner billed $25,000 for administrative services during 1998.
35
<PAGE>
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, 1998.
(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 a Exhibit 4.1 to the
Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1990.(1,2)
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. 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.
27 Financial Data Schedule
36
<PAGE>
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, thereunto duly authorized.
Date: April 15, 1999 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: General Equipment Management, Inc.
Administrative General Partner
By: /s/Carmine Fusco
-------------------------------------------
Carmine Fusco
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 April 15, 1999.
Signature Title
/s/John F. Olmstead President and Director of CAI Equipment Leasing
- - ---------------------------- II Corp.
John F. Olmstead
/s/Anthony M. DiPaolo Senior Vice President , Assistant Secretary and
- - ---------------------------- Director of CAI Equipment Leasing II Corp.
Anthony M. DiPaolo
/s/Richard H. Abernethy Vice President and Director of CAI Equipment
- - ---------------------------- Leasing II Corp.
Richard H. Abernethy
/s/Stephen R. Dyer President and Director of General Equipment
- - ---------------------------- Management, Inc.
Stephen R. Dyer
/s/Carmine Fusco Vice President, Secretary, Treasurer, Chief
- - ---------------------------- Financial and Financial and Accounting Officer
Carmine Fusco
/s/Clifford B. Wattley Vice P resident, Assistant Secretary, and
- - ---------------------------- Director of General Equipment Management, Inc.
Clifford B. Wattley
37
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
consolidated balance sheets and consolidated statements of income and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 3,198,407
<SECURITIES> 0
<RECEIVABLES> 163,529
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,567,365
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,929,301
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 2,633,017
<TOTAL-LIABILITY-AND-EQUITY> 4,929,301
<SALES> 1,236,378
<TOTAL-REVENUES> 4,315,468
<CGS> 0
<TOTAL-COSTS> 2,999,706
<OTHER-EXPENSES> 90,097
<LOSS-PROVISION> 566,670
<INTEREST-EXPENSE> 500,730
<INCOME-PRETAX> 1,315,762
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,315,762
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,315,762
<EPS-PRIMARY> 7.70
<EPS-DILUTED> 7.70
</TABLE>
