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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
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OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-22300
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PW Preferred Yield Fund II, L.P.
--------------------------------
(Exact name of registrant as specified in its charter)
Delaware 84-1180783
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(State of organization) (I.R.S. Employer
Identification No.)
98 North Washington Street
Boston, Massachusetts 02114
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(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code (617)854-5800
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No .
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PW Preferred Yield Fund II, L.P.
Quarterly Report on Form 10-Q for the
Quarter Ended March 31, 1996
Table of Contents
<TABLE>
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Page
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<S> <C>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements 2
Balance Sheets - March 31, 1996 and
December 31, 1995 (unaudited) 2
Statements of Income for the three months
ended March 31, 1996 and 1995 (unaudited) 3
Statements of Partners' Equity for the
three months ended March 31, 1996
and 1995 (unaudited) 4
Statements of Cash Flows for the three
months ended March 31, 1996 and
1995 (unaudited) 5
Notes to Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 6. Exhibits and Reports on Form 8-K 15
</TABLE>
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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
PW PREFERRED YIELD FUND II, L.P.
BALANCE SHEETS -- MARCH 31, 1996 AND DECEMBER 31, 1995
(unaudited)
<TABLE>
<CAPTION>
1996 1995
---- ----
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 2,124,998 $ 1,141,970
Rent and other receivables, net 776,159 678,135
Equipment on operating leases, net of
accumulated depreciation of $17,397,885
and $15,875,879, respectively and an allowance 17,655,638 19,229,813
of equipment impairment of $568,737 at
March 31, 1996 and December 31, 1995
Other assets, net 14,883 17,233
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Total Assets $20,571,678 $21,067,151
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES:
Accounts payable and accrued liabilities $ 73,058 $ 84,590
Payable to affiliates (Note 2) 368,907 308,658
Deferred rental income 103,476 133,476
Distributions payable to partners 327,768 319,084
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Total Liabilities 873,209 845,808
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COMMITMENTS AND CONTINGENCIES (NOTE 3)
PARTNERS' EQUITY:
General Partners 566,535 530,336
Limited Partners:
Class A (54,027 Units
outstanding) 16,864,170 17,381,975
Class B 2,267,764 2,309,032
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Total Partners' Equity 19,698,469 20,221,343
----------- -----------
Total Liabilities and Partners' Equity $20,571,678 $21,067,151
=========== ===========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
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PW PREFERRED YIELD FUND II, L.P.
STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(unaudited)
<TABLE>
<CAPTION>
1996 1995
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<S> <C> <C>
REVENUE:
Rentals from operating leases $ 1,998,370 $2,123,990
Interest 19,266 16,060
(Loss)gain on disposition of equipment, net (1,746) 4,896
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2,015,890 2,144,946
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EXPENSES:
Depreciation and amortization 1,559,179 1,640,854
Management fees and disposition fees (Note 2) 83,800 99,036
General and administrative (Note 2) 27,359 33,020
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1,670,338 1,772,910
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NET INCOME $ 345,552 $ 372,036
=========== ==========
NET INCOME ALLOCATED:
To the General Partners $ 79,620 $ 152,122
To the Class A Limited Partners 225,066 182,170
To the Class B Limited Partner 40,866 37,744
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$ 345,552 $ 372,036
=========== ==========
NET INCOME PER WEIGHTED AVERAGE
NUMBER OF UNITS OF CLASS A LIMITED
PARTNER INTEREST OUTSTANDING $ 4.17 $ 3.37
=========== ==========
WEIGHTED AVERAGE NUMBER OF
UNITS OF CLASS A LIMITED PARTNER
INTEREST OUTSTANDING 54,027 54,027
=========== ==========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
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PW PREFERRED YIELD FUND II, L.P.
STATEMENTS OF PARTNERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(unaudited)
<TABLE>
<CAPTION>
Class A Class B
General Limited Limited
Partners Partners Partner Total
--------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Balance, January 1, 1996 $ 530,336 $ 17,381,975 $ 2,309,032 $ 20,221,343
Net income 79,620 225,066 40,866 345,552
Distributions declared to partners (43,421) (742,871) (82,134) (868,426)
--------- ------------ ----------- ------------
Balance, March 31, 1996 $ 566,535 $ 16,864,170 $ 2,267,764 $ 19,698,469
========= ============ =========== ============
Balance, January 1, 1995 $ 281,500 $ 20,174,448 $ 2,555,570 $ 23,011,518
Net income 152,122 182,170 37,744 372,036
Distributions declared to partners (43,421) (742,871) (82,134) (868,426)
--------- ------------ ----------- ------------
Balance, March 31, 1995 $ 390,201 $ 19,613,747 $ 2,511,180 $ 22,515,128
========= ============ =========== ============
</TABLE>
The accompanying notes are an integral part
of these financial statements.
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PW PREFERRED YIELD FUND II, L.P.
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(unaudited)
<TABLE>
<CAPTION>
1996 1995
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 345,552 $ 372,036
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,559,179 1,640,854
Loss(gain) on disposition of equipment, net 1,746 (4,896)
Change in assets and liabilities:
Rent and other receivables (116,224) 62,916
Accounts payable and accrued liabilities (11,532) 26,468
Payable to affiliates 60,249 148,020
Deferred rental income (30,000) 143,220
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Net cash provided by operating activities 1,808,970 2,388,618
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment on operating leases -- (622,379)
Proceeds from sales of equipment 33,800 130,000
Net cash provided by (used in) investing activities 33,800 (492,379)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions paid to partners (859,742) (868,426)
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Net cash used in financing activities (859,742) (868,426)
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NET INCREASE IN CASH AND
CASH EQUIVALENTS 983,028 1,027,813
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 1,141,970 906,848
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CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 2,124,998 $ 1,934,661
=========== ===========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
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PW PREFERRED YIELD FUND II, L.P.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
(unaudited)
1. GENERAL
The accompanying unaudited interim financial statements include all
adjustments (consisting solely of normal recurring adjustments) which are, in
the opinion of the General Partners, necessary to fairly present the financial
position of the Partnership as of March 31, 1996 and the results of its
operations, changes in partners' equity and cash flows for the three months then
ended.
These financial statements should be read in conjunction with the
Significant Accounting Policies and other Notes to Financial Statements included
in the Partnership's audited financial statements for the year ended December
31, 1995.
2. TRANSACTIONS WITH AFFILIATES
Acquisition and Operating Stages
Acquisition of Equipment Pursuant to its investment objectives, the
Partnership acquires, on an all-cash basis, certain leased equipment from AFG,
an affiliate of the Managing General Partner.
The purchase price of the equipment acquired from AFG is 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 ("AFG carrying
value"). The adjusted cost of the equipment is equal to the price paid by AFG,
plus the cost of an appraisal, AFG's cost of interim financing for the equipment
and any taxes paid by AFG, less certain interim rentals received by AFG with
respect to the equipment. The Partnership did not acquire any equipment during
the quarter ended March 31, 1996.
Acquisition Fee The Managing General Partner, or its affiliates,
receives or is entitled to receive a fee equal to (i) 2.25% of the purchase
price of equipment purchased with net 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 purchased with the Class B Limited
Partner's cash contributions. There were no acquisition fees earned during the
three months ended March 31, 1996.
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Management Fees The General Partners receive a monthly fee in an amount
equal to 2.0% of gross rentals for Full Payout Leases, as defined in the
Partnership Agreement (in general, leases for which rent due over the
non-cancelable lease term exceeds the Partnership's cost of the equipment), and
5.0% of gross rentals for other leases (payable 66.67% to the Managing General
Partner and 33.33% to the Administrative General Partner) as compensation for
services rendered in connection with the management of the equipment. Management
fees of $83,332 were earned by the General Partners with respect to the rentals
earned by the Partnership during the three months ended March 31, 1996.
Disposition Fees The General Partners, or their affiliates, are
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 (payable
50% to the Managing General Partner or its affiliates and 50% to the
Administrative General Partner) as compensation for negotiating and consummating
sales of equipment. There were no subordinated disposition fees payable to the
General Partners, or their affiliates, with respect to dispositions that
occurred during the three months ended March 31, 1996. Subordinated disposition
fees payable with respect to sales and dispositions during the quarter ended
March 31, 1996 aggregated $468. Cumulative subordinated disposition fees totaled
$41,345 at such date. These fees, which were charged to operations, are not
currently payable since their payment is subordinated to the Class A Limited
Partners having received cash distributions equal to their capital
contributions, plus an 8% annual cumulative return (as defined in the
Partnership Agreement).
3. OTHER EVENTS
a. AFG Agreement
On January 1, 1995, AFG entered into a series of agreements with PLM
International, Inc., a Delaware corporation headquartered in San Francisco,
California ("PLM"), whereby PLM would: (i) purchase in multi-step transactions,
certain of AFG's assets and (ii) provide accounting, asset management and
investor services to AFG and certain of AFG's affiliates, including the
Partnership and all other equipment leasing programs managed by AFG (the
"Investment Programs").
On January 3, 1996, AFG and PLM executed an amendment to the 1995
agreements whereby PLM purchased: (i) AFG's lease origination business and
associated contracts, (ii) the rights to the name "American Finance Group" and
associated logo , and (iii) certain furniture, fixtures and computer software.
Effective January 1, 1996, PLM hired AFG's marketing force and certain other
support personnel in connection with the transaction and relinquished its
responsibilities under the 1995 agreements to provide accounting, asset
management and investor services to AFG, its affiliates and the Investment
Programs after December 31, 1995. Accordingly, AFG and its affiliates retain
ownership and control and all authority and rights with respect to each of the
general partners or managing trustees of the Investment Programs; and AFG, as
Manager, will continue to provide asset management services to the Partnership.
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Pursuant to the 1996 amendment to the 1995 agreements, AFG and certain
of its affiliates agreed not to compete with the lease origination business sold
to PLM for a period of five years. AFG reserved the right to satisfy all
equipment needs of the Partnership and all other Investment Programs and
reserved certain other rights not material to the Partnership. AFG also agreed
to change its name, except where it is used in connection with the Investment
Programs. AFG's management considers the amendment to the 1995 agreements to be
in the best interests of AFG and the Partnership. In early 1996, AFG changed its
name to Equis Financial Ltd.
b. Legal Matters
In November 1994, a series of purported class actions (the "New York
Limited Partnership Actions") were filed in the United States District Court for
the Southern District of New York concerning PaineWebber Incorporated sale and
sponsorship of various limited partnership investments, including those offered
by the Partnership. The lawsuits were brought against PaineWebber Incorporated
and Paine Webber Group, Inc. (together, "PaineWebber"), among others, by
allegedly dissatisfied partnership investors. In March 1995, after the actions
were consolidated under the title In re: PaineWebber Limited Partnerships
Litigation, the plaintiffs amended their complaint to assert claims against a
variety of other defendants, including the Administrative General Partner of the
Partnership.
The amended complaint in the New York Limited Partnership Actions
alleged that, in connection with the sale of interests in the Partnership,
PaineWebber and the Administrative General Partner (1) failed to provide
adequate disclosure of the risks involved with each partnership; (2) made false
and misleading representations about the safety of the investments and the
partnership's anticipated performance; and (3) marketed the partnerships to
investors for whom such investments were not suitable. The plaintiffs also
alleged that following the sale of the partnership investments PaineWebber and
the Administrative General Partner misrepresented financial information about
the partnership's value and performance. The amended complaint alleged that
PaineWebber and the Administrative General Partner violated the Racketeer
Influenced and Corrupt Organizations Act ("RICO") and the federal securities
laws. The plaintiffs sought unspecified damages, including reimbursement for all
sums invested by them in the partnerships, as well as disgorgement of all fees
and other income derived by PaineWebber from the limited partnerships. In
addition, the plaintiffs also sought treble damages under RICO.
On May 30, 1995, the US District Court certified class action treatment
of the plaintiffs' claims in the class action entitled, In re: PaineWebber
Limited Partnerships Litigation.
In January 1996, PaineWebber signed a memorandum of understanding with
the plaintiffs in the class action outlining the terms under which the parties
have agreed to settle the case. Pursuant to that memorandum of understanding,
PaineWebber irrevocably deposited $125 million into an escrow fund under the
supervision of the United States District Court for the Southern District of New
York to be used to resolve the litigation in
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accordance with a definitive settlement agreement and a plan of allocation which
the parties expect to submit to the court for its consideration and approval
within the next several months. Until a definitive settlement and plan of
allocation is approved by the court, there can be no assurance what, if any,
payment or non-monetary benefits will be made available to unitholders in the
Partnership.
In February 1996, approximately 150 plaintiffs filed an action entitled
Abbate v. PaineWebber Inc. in Sacramento, California Superior Court against
PaineWebber Incorporated and various affiliated entities concerning the
plaintiff's purchases of various limited partnership interests. The complaint
alleges, among other things, that PaineWebber and its related entities committed
fraud and misrepresentation and breached fiduciary duties allegedly owed to the
plaintiffs by selling or promoting limited partnership investments that were
unsuitable for the plaintiffs and by overstating the benefits, understating the
risks and failing to state material facts concerning the investments. The
complaint seeks compensatory damages of $15 million plus punitive damages.
Under certain limited circumstances, pursuant to the Partnership
Agreement and other contractual obligations, PaineWebber and certain affiliates
including the Administrative General Partner could be entitled to
indemnification from the Partnership for expenses and liabilities in connection
with this litigation. The General Partners are unable to determine the impact,
if any, that these actions will have on the Partnership's financial statements,
taken as a whole.
9
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
Upon formation of the Partnership, the General Partners each
contributed $500 to the capital of the Partnership. On September 10, 1992, the
Partnership commenced a "best efforts" offering of 200,000 Units of Class A
Limited Partner Interest ("Units") at $500 per Unit ($100,000,000).
The Partnership had its final admission of Class A Limited Partners on
July 26, 1994 receiving gross proceeds of $428,500 from the sale of 857 units.
In total, the Partnership received gross offering proceeds of $27,013,500 from
the sale of 54,027 Units, of which $1,895,500 was received during 1994,
$8,314,500 was received during 1993 and $16,803,500 was received during 1992.
The Partnership incurred $3,260,594 of aggregate sales commissions and other
offering expenses in connection with the sale of these Units, thus receiving
$23,752,906 of net offering proceeds.
The Class B Limited Partner was required to contribute cash to the
Partnership in an amount equal to 12.5% of the aggregate purchase price of the
equipment purchased with the offering proceeds received from the sale of Units
and the cash contributed by the Class B Limited Partner. The Class B Limited
Partner contributed $231,098, $1,022,543 and $2,031,736 during 1994, 1993 and
1992, respectively.
The Partnership conducted no activities and recognized no profits or
losses prior to the initial closing for the sale of Units on November 16, 1992,
at which time the Partnership commenced operations. The Partnership acquired a
portion of its equipment portfolio following each of the five closings which
have been held for the sale of Units. The Partnership used the net contributed
capital to purchase $27,002,464 of equipment, of which $1,898,275, $8,415,175
and $16,689,014 was purchased during 1994, 1993 and 1992, respectively (not
including equipment purchased pursuant to the Partnership's reinvestment
program) and the balance of $35,819 was retained as working capital.
The Partnership commenced its equipment reinvestment phase during 1993
by investing excess cash flows available after the payment of the distributions
to the partners in additional equipment. As of March 31, 1996, equipment
purchased pursuant to the reinvestment program including acquisition fees and
expenses totaled $12,460,748, none of which was acquired during the quarter
ended March 31, 1996. As of March 31, 1996, the Partnership had approximately
$1,760,000 of cash generated from operating activities and sales of equipment in
excess of accrued distributions which is available for reinvestment in
additional equipment. Additional equipment will be purchased pursuant to the
reinvestment program during 1996 and in future years during the reinvestment
period (which will end in either 1999 or 2000, at the General Partners'
discretion).
The Partnership invests working capital and cash flow from operations
prior to its distribution to the partners or its reinvestment in additional
equipment in short-term highly liquid investments. Theses investments are
primarily short-term commercial paper issued
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by large domestic corporations. At March 31, 1996, the Partnership's cash of
approximately $2,125,000 was primarily invested in commercial paper.
Cash and cash equivalents increased $983,028, from $1,141,970 at
December 31, 1995 to $2,124,998 at March 31, 1996. This increase primarily
represented the amount by which cash generated by operating activities and cash
from sales exceeded distribution requirements. Further, no equipment purchases
pursuant to the reinvestment program were made during the quarter ended March
31, 1996.
Rent and other receivables increased $98,024 from $678,135 at December
31, 1995 to $776,159 at March 31, 1996. Accounts receivable established with
respect to equipment sales and dispositions decreased $18,200 from $65,400 at
December 31, 1995 to $47,200 at March 31, 1996; this amount was partially offset
by an overall increase in other receivables.
During the three months ended March 31, 1996, the Partnership declared
distributions of cash flow received from operations in the amount of $868,426.
$549,342 of these distributions were paid to partners during the three months
ended March 31, 1996, with the balance payable subsequent to March 31, 1996. In
addition, $310,400 of distributions declared in 1995 were paid to the partners
during the three months ended March 31, 1996. The Administrative General Partner
did not receive its share of the distribution ($8,684). All distributions to the
Class A Limited Partners represented an annualized distribution rate of 11% of
their contributed capital and all distributions to the Class B Limited Partner
represented an annualized distribution rate of 10% of its contributed capital.
The General Partners believe that the Partnership will generate
sufficient cash flow from operations during 1996 to enable the Partnership to
meet current operating requirements, to continue to fund cash distributions to
the Class A Limited Partners at an annualized rate of 11% on their capital
contributions and to the Class B Limited Partner at an annualized rate of 10% on
its capital contributions (substantial portions of which will constitute returns
of capital) and to provide excess cash for reinvestment in additional leased
equipment.
Distributions may be characterized for tax, accounting and economic purposes as
a return of capital, a return on capital or both. The portion of each cash
distribution by a partnership, which exceeds its net income for the fiscal
period, may be deemed a return of capital. Based upon the amount of net income
reported by the Partnership for accounting purposes, approximately 70%,
respectively, of the 11% cash distributions to the Class A Limited Partners for
the quarter ended March 31, 1996 constituted a return of capital. Additionally,
since inception, approximately 79% of the Class A Limited Partner's 11% cash
distributions constituted a return of capital. However, the total actual return
on capital over a leasing partnership's life can only be determined at the
termination of the Partnership after all residual cash flows (which include
proceeds from the re-leasing and sale of equipment after initial lease terms
expire) have been realized.
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Litigation
See Footnote 3, "Legal Matters", for a discussion of certain litigation
to which the Partnership is a party.
RESULTS OF OPERATIONS
Substantially all of the Partnership's revenue during the three months
ended March 31, 1996 was generated from the leasing of the equipment to
unaffiliated third parties under triple net leases 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 net gain on sales and dispositions of equipment.
Under the terms of the triple net leases, all expenses related to the
ownership and operation of the equipment during the three months ended March 31,
1996 were paid for by the lessees. The Partnership recorded depreciation expense
pertaining to the equipment and incurred management fees and certain general and
administrative expenses in connection with the operations of the Partnership.
General and administrative expenses consisted primarily of investor reporting
expenses and transfer agent and audit fees.
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1996 Compared to 1995
The Partnership reported net income of $345,552 for the three months
ended March 31, 1996 (1996 Quarter) as compared to $372,036 for the three months
ended March 31, 1995 (1995 Quarter). However, Net income per Unit of Class A
Limited Partner Interest ("Unit") increased to $4.17 from $3.37 for the 1996
Quarter in comparison to the 1995 Quarter due to the allocation methodologies of
the Partnership Agreement.
Rental income decreased by 6% or $125,620 during the 1996 Quarter as compared to
the 1995 Quarter, principally due to the sale of equipment upon lease expiration
subsequent to the 1995 Quarter (which was earning rental revenue in the 1995
Quarter) and the renewal of certain equipment at lower rates, partially offset
by rentals from equipment purchased on or after March 31, 1995.
Interest income increased by 20% or $3,206 in the 1996 Quarter as compared to
the 1995 Quarter due to an increase in funds available for reinvestment. These
funds are invested in short term highly liquid investments until utilized to
purchase additional equipment.
Depreciation and amortization expense decreased by 5% or $81,675 in the 1996
Quarter as compared to the 1995 Quarter due to a decrease in equipment subject
to operating leases (attributable to equipment sold subsequent to the 1995
Quarter offset by equipment purchased subsequent to the 1995 Quarter), and was
consistent with the decrease in rental income.
Management fees and subordinated dispositions fees decreased by 15% or $15,236
in the 1996 Quarter as compared to the 1995 Quarter. Of such decrease, $8,307
represented a decrease in subordinated disposition fees incurred with respect to
equipment sold or disposed during the 1996 Quarter ($468) as compared to the
1995 Quarter ($8,775). Management fees decreased by approximately 8% or $6,929
in the 1996 Quarter as compared to the 1995 Quarter based upon the decrease in
rental revenues upon which such fees are based.
General and administrative expenses decreased by 17% or $5,661 in the 1996
Quarter as compared to the 1995 Quarter which reflected a reduction in
accounting related expenses.
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Part II. OTHER INFORMATION
Item 1. Legal Proceedings
In November 1994, a series of purported class actions (the "New York Limited
Partnership Actions") were filed in the United States District Court for the
Southern District of New York concerning PaineWebber Incorporated sale and
sponsorship of various limited partnership investments, including those offered
by the Partnership. The lawsuits were brought against PaineWebber Incorporated
and Paine Webber Group, Inc. (together, "PaineWebber"), among others, by
allegedly dissatisfied partnership investors. In March 1995, after the actions
were consolidated under the title In re: PaineWebber Limited Partnerships
Litigation, the plaintiffs amended their complaint to assert claims against a
variety of other defendants, including the Administrative General Partner of the
Partnership.
The amended complaint in the New York Limited Partnership Actions
alleged that, in connection with the sale of interests in the Partnership,
PaineWebber and the Administrative General Partner (1) failed to provide
adequate disclosure of the risks involved with each partnership; (2) made false
and misleading representations about the safety of the investments and the
partnership's anticipated performance; and (3) marketed the partnerships to
investors for whom such investments were not suitable. The plaintiffs also
alleged that following the sale of the partnership investments PaineWebber and
the Administrative General Partner misrepresented financial information about
the partnership's value and performance. The amended complaint alleged that
PaineWebber and the Administrative General Partner violated the Racketeer
Influenced and Corrupt Organizations Act ("RICO") and the federal securities
laws. The plaintiffs sought unspecified damages, including reimbursement for all
sums invested by them in the partnerships, as well as disgorgement of all fees
and other income derived by PaineWebber from the limited partnerships. In
addition, the plaintiffs also sought treble damages under RICO.
On May 30, 1995, the US District Court certified class action treatment
of the plaintiffs' claims in the class action entitled, In re: PaineWebber
Limited Partnerships Litigation.
In January 1996, PaineWebber signed a memorandum of understanding with
the plaintiffs in the class action outlining the terms under which the parties
have agreed to settle the case. Pursuant to that memorandum of understanding,
PaineWebber irrevocably deposited $125 million into an escrow fund under the
supervision of the United States District Court for the Southern District of New
York to be used to resolve the litigation in accordance with a definitive
settlement agreement and a plan of allocation which the parties expect to submit
to the court for its consideration and approval within the next several months.
Until a definitive settlement and plan of allocation is approved by the court,
there can be no assurance what, if any, payment or non-monetary benefits will be
made available to unitholders in the Partnership.
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<PAGE> 16
In February 1996, approximately 150 plaintiffs filed an action entitled
Abbate v. PaineWebber Inc. in Sacramento, California Superior Court against
PaineWebber Incorporated and various affiliated entities concerning the
plaintiff's purchases of various limited partnership interests. The complaint
alleges, among other things, that PaineWebber and its related entities committed
fraud and misrepresentation and breached fiduciary duties allegedly owed to the
plaintiffs by selling or promoting limited partnership investments that were
unsuitable for the plaintiffs and by overstating the benefits, understating the
risks and failing to state material facts concerning the investments. The
complaint seeks compensatory damages of $15 million plus punitive damages.
Under certain limited circumstances, pursuant to the Partnership
Agreement and other contractual obligations, PaineWebber and certain affiliates
including the Administrative General Partner could be entitled to
indemnification from the Partnership for expenses and liabilities in connection
with this litigation. The General Partners are unable to determine the impact,
if any, that these actions will have on the Partnership's financial statements,
taken as a whole.
Item 6. Exhibits and Reports on Form 8-K
(a) None
(b) The Partnership did not file any reports on Form 8-K during
the first quarter of the fiscal year ending December 31, 1996.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PW Preferred Yield Fund II, L.P.
(Registrant)
By: General Equipment Management II, Inc.
A General Partner
Date: May 12, 1996 By: /s/ Joseph P. Ciavarella
------------------------
Joseph P. Ciavarella
Vice President, Secretary,
Treasurer and Chief Financial
and Accounting Officer
16
<PAGE> 18
EXHIBIT INDEX
-------------
Exhibit 27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from (a) Form
10-Q for the quarter ended March 31, 1996 for PW Preferred Yield Fund II, LP and
is qualified in its entirety by reference to such (b) Form 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 2,124,998
<SECURITIES> 0
<RECEIVABLES> 851,159
<ALLOWANCES> (75,000)
<INVENTORY> 0
<CURRENT-ASSETS> 2,901,157
<PP&E> 35,622,260
<DEPRECIATION> (17,966,622)<F3>
<TOTAL-ASSETS> 20,571,678
<CURRENT-LIABILITIES> 873,209
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 19,698,469<F2>
<TOTAL-LIABILITY-AND-EQUITY> 20,571,678
<SALES> 0
<TOTAL-REVENUES> 2,015,890
<CGS> 0
<TOTAL-COSTS> 1,642,979
<OTHER-EXPENSES> 27,359
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 345,552
<INCOME-TAX> 0
<INCOME-CONTINUING> 345,552
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 345,552
<EPS-PRIMARY> 0<F1>
<EPS-DILUTED> 0
<FN>
<F1>Income per unit of limited partnership interest $4.17.
<F2>Includes partners capital plus accumulated earnings and distribution to
partners.
<F3>Includes allowances for equipment impairment.
</FN>
</TABLE>
