<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to _________________________
Commission file number 0-22300
PW Preferred Yield Fund II, L.P.
(Exact name of registrant as specified in its charter)
Delaware 84-1180783
(State of organization) (I.R.S. Employer
Identification No.)
98 North Washington Street
Boston, Massachusetts 02114
(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 June 30, 1996
Table of Contents
Page
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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements 2
Balance Sheets - June 30, 1996 and
December 31, 1995 (unaudited) 2
Statements of Income for the three months
ended June 30, 1996 and 1995 (unaudited) 3
Statements of Income for the six months
ended June 30, 1996 and 1995 (unaudited) 4
Statements of Partners' Equity for the
six months ended June 30, 1996
and 1995 (unaudited) 5
Statements of Cash Flows for the six
months ended June 30, 1996 and
1995 (unaudited) 6
Notes to Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 6. Exhibits and Reports on Form 8-K 16
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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
PW PREFERRED YIELD FUND II, L.P.
BALANCE SHEETS -- JUNE 30, 1996 AND DECEMBER 31, 1995
(unaudited)
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 2,040,354 $ 1,141,970
Rent and other receivables, net 1,070,318 678,135
Equipment on operating leases, net of
accumulated depreciation of $18,504,348
and $15,875,879 and an allowance 16,686,340 19,229,813
of equipment impairment of $643,737 and
$568,737 at June 30, 1996 and
December 31, 1995, respectively
Other assets, net 12,533 17,233
----------- -----------
Total Assets $19,809,545 $21,067,151
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES:
Accounts payable and accrued liabilities $ 64,967 $ 84,590
Payable to affiliates (Note 2) 297,107 308,658
Deferred rental income 57,893 133,476
Distributions payable to partners 336,452 319,084
----------- -----------
Total Liabilities 756,419 845,808
----------- -----------
COMMITMENTS AND CONTINGENCIES (NOTE 3)
PARTNERS' EQUITY:
General Partners 601,519 530,336
Limited Partners:
Class A (54,027 Units
outstanding) 16,218,130 17,381,975
Class B 2,233,477 2,309,032
----------- -----------
Total Partners' Equity 19,053,126 20,221,343
----------- -----------
Total Liabilities and Partners' Equity $19,809,545 $21,067,151
=========== ===========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
2
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PW PREFERRED YIELD FUND II, L.P.
STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 1996 AND 1995
(unaudited)
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
REVENUE:
Rentals from operating leases $ 1,936,071 $ 2,043,151
Interest 29,315 25,925
Loss on dispositions of equipment, net (33,505) (109,757)
----------- -----------
1,931,881 1,959,319
----------- -----------
EXPENSES:
Depreciation and amortization 1,512,380 1,584,078
Provision for equipment impairment 75,000 250,000
Management and Disposition fees (Note 2) 80,857 96,516
General and administrative (Note 2) 40,561 26,463
----------- -----------
1,708,798 1,957,057
----------- -----------
NET INCOME $ 223,083 $ 2,262
=========== ===========
NET INCOME (LOSS) ALLOCATED (NOTE 3):
To the General Partners $ 78,405 $ 79,275
To the Class A Limited Partners 96,831 (82,737)
To the Class B Limited Partner 47,847 5,724
----------- -----------
$ 223,083 $ 2,262
=========== ===========
NET INCOME (LOSS) PER WEIGHTED AVERAGE
NUMBER OF UNITS OF CLASS A LIMITED
PARTNER INTEREST OUTSTANDING $ 1.79 $ (1.53)
=========== ===========
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.
3
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PW PREFERRED YIELD FUND II, L.P.
STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(unaudited)
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
REVENUE:
Rentals from operating leases $ 3,934,441 $ 4,167,141
Interest 48,581 41,985
Loss on dispositions of equipment, net (35,251) (104,861)
----------- -----------
3,947,771 4,104,265
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EXPENSES:
Depreciation and amortization 3,071,559 3,224,932
Provision for equipment impairment 75,000 250,000
Management and Disposition fees (Note 2) 164,657 195,552
General and administrative (Note 2) 67,920 59,483
----------- -----------
3,379,136 3,729,967
----------- -----------
NET INCOME $ 568,635 $ 374,298
=========== ===========
NET INCOME ALLOCATED (NOTE 3):
To the General Partners $ 158,025 $ 231,397
To the Class A Limited Partners 321,897 99,433
To the Class B Limited Partner 88,713 43,468
----------- -----------
$ 568,635 $ 374,298
=========== ===========
NET INCOME PER WEIGHTED AVERAGE
NUMBER OF UNITS OF CLASS A LIMITED
PARTNER INTEREST OUTSTANDING $ 5.96 $ 1.84
=========== ===========
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 SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(unaudited)
<TABLE>
<CAPTION>
Class A Class B
General Limited Limited
Partners Partners Partner Total
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance, January 1, 1996 $ 530,336 $ 17,381,975 $ 2,309,032 $ 20,221,343
Net income 158,025 321,897 88,713 568,635
Distributions declared to partners (86,842) (1,485,742) (164,268) (1,736,852)
------------ ------------ ------------ ------------
Balance, June 30, 1996 $ 601,519 $ 16,218,130 $ 2,233,477 $ 19,053,126
============ ============ ============ ============
Balance, January 1, 1995 $ 281,500 $ 20,174,448 $ 2,555,570 $ 23,011,518
Net income 231,397 99,433 43,468 374,298
Distributions declared to partners (86,843) (1,485,742) (164,268) (1,736,853)
------------ ------------ ------------ ------------
Balance, June 30, 1995 $ 426,054 $ 18,788,139 $ 2,434,770 $ 21,648,963
============ ============ ============ ============
</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 SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(unaudited)
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 568,635 $ 374,298
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 3,071,559 3,224,932
Provision for equipment impairment 75,000 250,000
Loss on dispositions of equipment, net 35,251 104,861
Change in assets and liabilities:
Rent and other receivables (253,681) (85,463)
Accounts payable and accrued liabilities (19,623) 25,556
Payable to affiliates (11,551) 178,507
Deferred rental income (75,583) 120,725
----------- -----------
Net cash provided by operating activities 3,390,007 4,193,416
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales and dispositions of equipment 33,800 392,046
Purchases of equipment on operating leases (805,938) (622,379)
----------- -----------
Net cash used in investing activities (772,138) (230,333)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Partners' capital contributions
Commissions and expenses paid in connection
with the sale of Class A Limited Partner Units
Cash distributions paid to partners (1,719,485) (1,736,853)
----------- -----------
Net cash used in financing activities (1,719,485) (1,736,853)
----------- -----------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 898,384 2,226,230
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 1,141,970 906,848
----------- -----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 2,040,354 $ 3,133,078
=========== ===========
</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
JUNE 30, 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 June 30, 1996 and the results of its
operations, changes in partners' equity and cash flows for the quarter and six
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 has acquired, on an all-cash basis, certain leased equipment from
AFG, an affiliate of the Managing General Partner. See footnote 3 for a
discussion of the AFG agreement.
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 purchased equipment for purchase
prices aggregating $782,464 during the quarter ended June 30, 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. The partnership paid acquisition fees of $23,474 during the
quarter and six months ended June 30, 1996.
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Management Fees The General Partners are entitled to 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 $76,156 and $159,488 were earned by the General
Partners with respect to the rentals earned by the Partnership during the
quarter and six months ended June 30, 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 June 30, 1996. Subordinated disposition fees payable with respect
to sales and dispositions during the quarter and six months ended June 30, 1996
aggregated $4,701 and $5,169 respectively. Cumulative subordinated disposition
fees totaled $46,046 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 ("District Court") to be used to
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resolve the litigation. On July 17, 1996, the District Court granted
preliminary approval of the proposed settlement of the class action litigation.
As part of the class action settlement, PaineWebber agreed to pay $125 million
and additional consideration to class members. The order entered by the District
Court provides for notice to be mailed to class members and schedules a final
hearing on the proposed settlement for October 25, 1996.
In February 1996, approximately 150 plaintiffs filed an action entitled
Abbate v. PaineWebber Inc. in Sacramento, California Superior Court against
PaineWebber Incorporated and various affiliated entities concerning the
plaintiff's purchases of various limited partnership interests. The complaint
alleges, among other things, that PaineWebber and its related entities committed
fraud and misrepresentation and breached fiduciary duties allegedly owed to the
plaintiffs by selling or promoting limited partnership investments that were
unsuitable for the plaintiffs and by overstating the benefits, understating the
risks and failing to state material facts concerning the investments. The
complaint seeks compensatory damages of $15 million plus punitive damages.
Under certain limited circumstances, pursuant to the Partnership Agreement
and other contractual obligations, PaineWebber and 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.
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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 June 30, 1996, equipment purchased
pursuant to the reinvestment program including acquisition fees and expenses
totaled $13,266,686 of which $805,938 was acquired during the quarter ended June
30, 1996. As of June 30, 1996, the Partnership had approximately $1,668,000 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. These investments are
primarily short-term commercial paper issued
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by large domestic corporations. At June 30, 1996, the Partnership's cash of
approximately $2,040,000 was primarily invested in commercial paper.
Cash and cash equivalents increased $898,384 from $1,141,970 at December
31, 1995 to $2,040,354 at June 30, 1996. This increase primarily represented the
amount by which cash generated by operating activities and cash from sales
exceeded distribution requirements and leased equipment purchased pursuant to
the reinvestment program during the six months ended June 30, 1996.
Rent and other receivables increased $392,183 from $678,135 at December
31, 1995 to $1,070,318 at June 30, 1996. Accounts receivable established with
respect to equipment sales and dispositions increased $122,900 from $65,400 at
December 31, 1995 to $188,300 at June 30, 1996; in addition, there was an
overall increase in other receivables.
During the quarter and six months ended June 30, 1996, the Partnership
declared distributions of cash flow received from operations in the amount of
$868,426 and $1,736,852 respectively. 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 87%,
respectively, of the 11% cash distributions to the Class A Limited Partners for
the quarter ended June 30, 1996 (78% for the six months then ended) constituted
a return of capital. Additionally, since inception, approximately 80% 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 June 30, 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 quarter and six months ended
June 30, 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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<PAGE> 15
1996 Compared to 1995
The Partnership reported net income of $223,083 and $568,635 for the
quarter and six months ended June 30, 1996 (1996 Quarter and 1996 Period) as
compared to $2,262 and $374,298 for the quarter and six months ended June 30,
1995 (1995 Quarter and 1995 Period). The principal reason for the increase in
net income in the 1996 Quarter and 1996 Period as compared to the 1995 Quarter
and 1995 Period was that a provision for equipment impairment of $250,000 was
provided in the 1995 Quarter as compared to $75,000 in the 1996 Quarter.
Rental income decreased by $107,080 and $232,700, or 5% and 6%,
respectively during the 1996 Quarter and 1996 Period as compared to the 1995
Quarter and 1995 Period, 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 June 30, 1995.
Interest income increased by $3,390 and $6,596 or 13% and 16% in the 1996
Quarter and 1996 Period, respectively, as compared to the 1995 Quarter and 1995
Period 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 $71,698 and $153,373 or
5% and 5% in the 1996 Quarter and 1996 Period, respectively, as compared to the
1995 Quarter and 1995 Period 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 16% or
$15,659 in the 1996 Quarter as compared to the 1995 Quarter. Of such decrease,
$7,614 represented a decrease in subordinated disposition fees incurred with
respect to equipment sold or disposed during the 1996 Quarter ($4,701) as
compared to the 1995 Quarter ($12,315). Management fees decreased by
approximately 11% or $8,045 in the 1996 Quarter as compared to the 1995 Quarter
based on the decrease in rental revenues upon which such fees are based.
Management fees and subordinated disposition fees decreased by $30,895 or 16% in
the 1996 Period as compared to the 1995 Period, Subordinated disposition fees
decreased by $15,921 in the 1996 Period ($5,169) as compared to the 1995 Period
($21,090). Management fees decreased by 9% or $14,974 in the 1996 Period as
compared to the 1995 Period based on the decrease in rental revenue upon which
such fees are based.
General and administrative expenses increased by $14,098 and $8,437 or 53%
and 14% in the 1996 Quarter and 1996 Period as compared to the 1995 Quarter and
1995 Period, due principally to an increase in partnership level income taxes in
the 1996 Period as compared to the 1995 Period.
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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 ("District Court") to be used to resolve the litigation. On July 17, 1996,
the District Court granted preliminary approval of the proposed settlement of
the class action litigation. As part of the class action settlement, PaineWebber
agreed to pay $125 million and additional consideration to class members. The
order entered by the District Court provides for notice to be mailed to class
members and schedules a final hearing on the proposed settlement for October 25,
1996.
15
<PAGE> 17
In February 1996, approximately 150 plaintiffs filed an action entitled
Abbate v. PaineWebber Inc. in Sacramento, California Superior Court against
PaineWebber Incorporated and various affiliated entities concerning the
plaintiff's purchases of various limited partnership interests. The complaint
alleges, among other things, that PaineWebber and its related entities committed
fraud and misrepresentation and breached fiduciary duties allegedly owed to the
plaintiffs by selling or promoting limited partnership investments that were
unsuitable for the plaintiffs and by overstating the benefits, understating the
risks and failing to state material facts concerning the investments. The
complaint seeks compensatory damages of $15 million plus punitive damages.
Under certain limited circumstances, pursuant to the Partnership Agreement
and other contractual obligations, PaineWebber and 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 filed a Form 8-K during the second quarter of
the fiscal year ending December 31, 1996 dated June 10, 1996
reporting the Partnership's Annual Report and the December 31,
1995 Net Asset Value on a per unit basis.
16
<PAGE> 18
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PW Preferred Yield Fund II, L.P.
(Registrant)
By: General Equipment Management II, Inc.
A General Partner
Date: August 12, 1996 By: /s/ Joseph P. Ciavarella
------------------------
Joseph P. Ciavarella
Vice President, Secretary,
Treasurer and Chief Financial
and Accounting Officer
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from (a) Form
10-Q for the quarter ended June 10, 1996 for 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,040,354
<SECURITIES> 0
<RECEIVABLES> 1,145,318
<ALLOWANCES> (75,000)
<INVENTORY> 0
<CURRENT-ASSETS> 3,110,672
<PP&E> 35,834,425<F3>
<DEPRECIATION> 19,148,085<F3>
<TOTAL-ASSETS> 19,148,085
<CURRENT-LIABILITIES> 756,419
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 19,053,126<F2>
<TOTAL-LIABILITY-AND-EQUITY> 19,809,545
<SALES> 0
<TOTAL-REVENUES> 1,931,881
<CGS> 0
<TOTAL-COSTS> 1,668,237
<OTHER-EXPENSES> 40,561
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 223,083
<INCOME-TAX> 0
<INCOME-CONTINUING> 223,083
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 223,083
<EPS-PRIMARY> 0<F1>
<EPS-DILUTED> 0
<FN>
<F1>Income per unit of limited partnership interest (1.79)
<F2>Includes partners' capital and accumulated earnings and distribution to
partners.
<F3>Includes allowances for equipment impairment.
</FN>
</TABLE>
