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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 September 30, 1997
-----------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 0-22300
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 September 30, 1997
Table of Contents
<TABLE>
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Page
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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements 2
Balance Sheets - September 30, 1997 and
December 31, 1996 (unaudited) 2
Statements of Income for the three months
ended September 30, 1997 and 1996 (unaudited) 3
Statements of Income for the nine months
ended September 30, 1997 and 1996 (unaudited) 4
Statements of Partners' Equity for the
nine months ended September 30, 1997
and 1996 (unaudited) 5
Statements of Cash Flows for the nine
months ended September 30, 1997 and
1996 (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
</TABLE>
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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
PW PREFERRED YIELD FUND II, L.P.
BALANCE SHEETS -- SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
(unaudited)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 4,748,469 $ 2,524,801
Rent and other receivables, net 1,052,072 1,175,409
Equipment on operating leases, net of
accumulated depreciation of $20,407,047
and $15,875,879, and writedowns
of $363,630 and $568,737 at
September 30, 1997 and
December 31, 1996, respectively 12,221,027 14,736,716
Equipment held for sale or lease, net of
accumulated depreciation of $446,084
and $512,405, at September 30, 1997
and December 31, 1996, respectively 139,271 134,700
Other assets, net 18,355 25,405
----------- -----------
Total Assets $18,179,194 $18,597,031
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES:
Accounts payable and accrued liabilities $ 128,344 $ 129,281
Payable to affiliates (Note 2) 467,428 260,996
Deferred rental income 153,500 125,500
Distributions payable to partners 327,385 353,731
----------- -----------
Total Liabilities 1,076,657 869,508
----------- -----------
COMMITMENTS AND CONTINGENCIES (NOTE 3)
PARTNERS' EQUITY:
General Partners 823,612 653,082
Limited Partners:
Class A (54,027 Units
outstanding) 14,247,466 14,978,906
Class B 2,031,459 2,095,535
----------- -----------
Total Partners' Equity 17,102,537 17,727,523
----------- -----------
Total Liabilities and Partners' Equity $18,179,194 $18,597,031
=========== ===========
</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 SEPTEMBER 30, 1997 AND 1996
(unaudited)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
REVENUE:
Rentals from operating leases $1,795,249 $1,876,452
Gain on sale of equipment, net (Note 4) 1,044,415 4,895
Interest 39,432 29,504
---------- ----------
2,879,096 1,910,851
---------- ----------
EXPENSES:
Depreciation and amortization 1,177,992 1,317,211
Writedowns -- 175,000
Management fees (Note 2) 114,204 75,709
Subordinated disposition fees (Note 2) 3,531 893
General and administrative (Note 2) 23,838 27,475
---------- ----------
1,319,565 1,596,288
---------- ----------
NET INCOME $1,559,531 $ 314,563
========== ==========
NET INCOME ALLOCATED:
To the General Partners $ 47,365 $ 79,973
To the Class A Limited Partners 1,348,754 219,895
To the Class B Limited Partner 163,412 14,695
---------- ----------
$1,559,531 $ 314,563
========== ==========
NET INCOME PER WEIGHTED AVERAGE
NUMBER OF UNITS OF CLASS A LIMITED
PARTNER INTEREST OUTSTANDING $ 24.96 $ 4.07
========== ==========
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 NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(unaudited)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
REVENUE:
Rentals from operating leases $5,473,365 $ 5,810,893
Gain (loss) on sale of equipment, net
(Note 4) 958,945 (30,356)
Interest 76,338 78,085
---------- -----------
6,508,648 5,858,622
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EXPENSES:
Depreciation and amortization 3,931,157 4,388,770
Writedowns 200,000 250,000
Management fees (Note 2) 261,412 235,197
Subordinated disposition fees (Note 2) 53,656 6,062
General and administrative (Note 2) 82,131 95,395
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4,528,356 4,975,424
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NET INCOME $1,980,292 $ 883,198
========== ===========
NET INCOME ALLOCATED:
To the General Partners $ 300,793 $ 237,998
To the Class A Limited Partners 1,497,173 541,792
To the Class B Limited Partner 182,326 103,408
---------- -----------
$1,980,292 $ 883,198
========== ===========
NET INCOME PER WEIGHTED AVERAGE
NUMBER OF UNITS OF CLASS A LIMITED
PARTNER INTEREST OUTSTANDING $ 27.71 $ 10.03
========== ===========
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 NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(unaudited)
<TABLE>
<CAPTION>
Class A Class B
General Limited Limited
Partners Partners Partner Total
-------- -------- ------- -----
<S> <C> <C> <C> <C>
Balance, January 1, 1997 $ 653,082 $ 14,978,906 $ 2,095,535 $ 17,727,523
Net income 300,793 1,497,173 182,326 1,980,292
Distributions declared to partners (130,263) (2,228,613) (246,402) (2,605,278)
--------- ------------ ----------- ------------
Balance, September 30, 1997 $ 823,612 $ 14,247,466 $ 2,031,459 $ 17,102,537
========= ============ =========== ============
Balance, January 1, 1996 $ 530,336 $ 17,381,975 $ 2,309,032 $ 20,221,343
Net income 237,998 541,792 103,408 883,198
Distributions declared to partners (130,263) (2,228,613) (246,402) (2,605,278)
--------- ------------ ----------- ------------
Balance, September 30, 1996 $ 638,071 $ 15,695,154 $ 2,166,038 $ 18,499,263
========= ============ =========== ============
</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 NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(unaudited)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,980,292 $ 883,198
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 3,931,157 4,388,770
Provisions for writedowns 200,000 250,000
(Gain) loss on sale of equipment, net (958,945) 30,356
Rent and other receivables 304,299 (630,350)
Increase in other assets -- (11,326)
Accounts payable and accrued liabilities (937) 4,261
Payable to affiliates 206,432 176,335
Deferred rental income 28,000 11,087
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Net cash provided by operating activities 5,690,298 5,102,331
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment 2,421,949 75,400
Purchases of equipment on operating leases (3,256,955) ( 805,938)
----------- -----------
Net cash used in investing activities (835,006) ( 730,538)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
. Cash distributions paid to partners (2,631,624) (2,579,226)
----------- -----------
Net cash used in financing activities (2,631,624) (2,579,226)
----------- -----------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 2,223,668 1,792,567
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 2,524,801 1,141,970
----------- -----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 4,748,469 $ 2,934,537
=========== ===========
</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
SEPTEMBER 30, 1997
(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 September 30, 1997 and the results of its
operations, changes in partners' equity and cash flows for the quarter and nine
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, 1996. Certain reclassifications have been made to the 1996 financial
statements to conform to the classification used in 1997.
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
Equis Financial Group L.P. ("EFG") (formerly American Financial Group or "AFG"),
an affiliate of the Managing General Partner.
The purchase price of the equipment acquired from EFG 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 ("EFG carrying
value"). The adjusted cost of the equipment is equal to the price paid by EFG,
plus the cost of an appraisal, EFG's cost of interim financing for the equipment
and any taxes paid by EFG, less certain interim rentals received by EFG with
respect to the equipment. The Partnership purchased equipment for purchase
prices aggregating $3,161,972 during the nine months then ended September 30,
1997(none during the quarter then ended).
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
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Partner's cash contributions. The Partnership paid acquisition fees of $94,983
during the nine months ended September 30, 1997 (none during the quarter then
ended).
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 $114,204 and $261,412 were earned by the General
Partners with respect to the rentals earned by the Partnership during the
quarter and nine months ended September 30, 1997.
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. Subordinated disposition fees payable with respect to sales
and dispositions during the quarter and nine months ended September 30, 1997
aggregated $3,531 and $53,656 respectively. Cumulative subordinated disposition
fees totaled $101,224 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. LITIGATION
In November 1994, a series of purported class actions (the "New York
Limited Partnership Actions") were filed in the United States District Court for
the Southern District of New York concerning PaineWebber Incorporated sale and
sponsorship of various limited partnership investments, including those offered
by the Partnership. The lawsuits were brought against PaineWebber Incorporated
and PaineWebber 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 the Partnership; (2) made false
and misleading representations about the safety of the investments and the
Partnership's anticipated performance; and (3) marketed the Partnership to
investors for whom such investments were not suitable. The plaintiffs also
alleged that following the sale of the Partnership investments, PaineWebber and
the Administrative General Partner misrepresented financial information about
the Partnership's value and performance. The amended complaint alleged that
PaineWebber and the
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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 U.S. District Court certified class action
treatment of the plaintiff's claims in the class action entitled, In re:
PaineWebber Limited Partnerships Litigation.
In January 1996, PaineWebber signed a memorandum of understanding with
the plaintiffs in the class action outlining the terms under which the parties
agreed to settle the case. A definitive settlement agreement was signed in July
1996 and in March 1997, the District Court approved the settlement as fair and
reasonable. Under the terms of the settlement, PaineWebber agreed to pay $125
million and additional consideration to class members. The investors who had
objected to the settlement have appealed the District Court's approval to the
United States Court of Appeals for the Second Circuit. In July 1997, the U.S.
Court of Appeals for the Second Circuit affirmed the District Court's approval
of the settlement.
Under certain circumstances, pursuant to the Partnership Agreement and
other contractual obligations, PaineWebber and its affiliates, including the
Administrative General Partner were entitled to indemnification from the
Partnership for expenses and liabilities in connection with the above
litigation. PaineWebber and the affiliates have agreed to not seek
indemnification from the Partnership for any amounts payable in connection with
the aforementioned litigation.
4. EQUIPMENT SALES
During 1997, a lessee prepaid and terminated the leases with respect to
certain equipment schedules and purchased the equipment for negotiated prices.
The lease termination payment in the amount of $814,384 was included in gains
on sale of equipment, net, on the statements of income presented.
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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 September 30, 1997, equipment
purchased pursuant to the reinvestment program including acquisition fees and
expenses totaled $17,760,563 of which $3,256,955 was acquired during the nine
months ended September 30, 1997(none of which in the quarter then ended). As of
September 30, 1997, the Partnership had approximately $4,386,000 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 1997 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
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liquid investments. These investments are primarily short-term commercial paper
issued by large domestic corporations. At September 30, 1997, the Partnership's
cash was primarily invested in commercial paper.
Cash and cash equivalents increased from $2,524,801 at December 31,
1996 to $4,748,469 at September 30, 1997. This increase primarily represented
the amount by which cash from operating activities (including cash from the
lease prepayments) and cash from sales exceeded distributions to partners and
leased equipment purchased pursuant to the reinvestment program.
Rent and other receivables decreased $123,337 from $1,175,409 at
December 31, 1996 to $1,052,072 at September 30, 1997. Accounts receivable
established with respect to equipment sales and dispositions increased by
$180,962 from December 31, 1996 to September 30, 1997; this was offset by an
overall decrease in rents receivable.
During the quarter and nine months ended September 30, 1997, the
Partnership declared distributions of cash flow received from operations in the
amount of $868,426 and $2,605,278 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 1997 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 33%,
respectively, of the 11% cash distributions to the Class A Limited Partners for
the nine months ended September 30, 1997 constituted a return of capital. Such
amount was approximately 76% in the comparable prior year period in the deemed
amount representing return of capital. The reason for the decrease was the
recognition in the 1997 Period of the lease prepayments received. Additionally,
since inception, approximately 73% 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.
11
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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 quarter and
nine months ended September 30, 1997 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 nine months
ended September 30, 1997 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.
12
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1997 Compared to 1996
The Partnership reported net income of $1,559,531 and $1,980,292 for
the quarter and nine months ended September 30, 1997 ("1997 Quarter" and "1997
Period") as compared to $314,563 and $883,198 for the quarter and nine months
ended September 30, 1996 ("1996 Quarter" and "1996 Period"). The principal
reasons for the increase in net income in the 1997 Quarter and 1997 Period as
compared to the 1996 Quarter and 1996 Period was the lease prepayments and
related sale of equipment pursuant to six equipment schedules during the 1997
Quarter resulting in a difference between gains and losses on dispositions of
equipment generated during the comparative periods.
Rental income decreased by $81,203 and $337,528, or 4% and 6%,
respectively during the 1997 Quarter and 1997 Period as compared to the 1996
Quarter and 1996 Period, principally due to the sale of equipment upon lease
expiration subsequent to the 1997 Quarter (which was earning rental revenue in
the 1996 Quarter) and the renewal of certain equipment at lower rates, partially
offset by rentals from equipment purchased subsequent to September 30, 1996.
Interest income increased by $9,928 but decreased by ($1,747) or 34%
and (2%) in the 1997 Quarter and 1997 Period, respectively, as compared to the
1996 Quarter and 1996 Period due principally to the balances of 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 $139,219 and
$457,613 or 11% and 10% in the 1997 Quarter and 1997 Period, respectively, as
compared to the 1996 Quarter and 1996 Period due to a decrease in equipment
subject to operating leases (attributable to equipment sold subsequent to the
1996 Quarter offset by equipment purchased subsequent to the 1996 Quarter), and
was consistent with the decrease in rental income.
Based upon the evaluation of equipment owned, the Partnership provided
for writedowns of $200,000 (none in the 1997 Quarter) and $250,000 ($175,000 in
the 1996 Quarter) during the 1997 Period and 1996 Period, respectively.
Management fees increased by $38,495 and $26,215 or 51% and 11% in the
1997 Quarter and 1997 Period as compared to the corresponding periods in the
prior year. The principal reason for the increase was the lease termination
payments received in the 1997 Quarter relating to six equipment schedules (the
equipment under which was ultimately sold) aggregating approximately $800,000.
Subordinated disposition fees increased $2,638 and $47,594 in the 1997
Quarter and 1997 Period as compared to the 1996 Quarter and 1996 Period. The
increase is attributable to an increase in equipment sales and equipment sales
proceeds generated which is the basis for such fee.
General and administrative expenses decreased by $3,637 and $13,264 or
13 % and 14% in the 1997 Quarter and 1997 Period as compared to the 1996
Quarter and 1996
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Period. The reason for the decrease in the 1997 Period as compared to the 1996
Period was due principally to a decrease in partnership level income taxes; the
general and administrative expenses for the 1997 Quarter were consistent with
prior 1997 Quarters and consistent with the Partnership's level of operations.
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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 PaineWebber Group, Inc. (together, "PaineWebber"), among others, by
allegedly dissatisfied partnership investors. In March 1997, 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 the Partnership; (2) made false
and misleading representations about the safety of the investments and the
Partnership's anticipated performance; and (3) marketed the Partnership to
investors for whom such investments were not suitable. The plaintiffs also
alleged that following the sale of the Partnership investments PaineWebber and
the Administrative General Partner misrepresented financial information about
the Partnership's value and performance. The amended complaint alleged that
PaineWebber and the Administrative General Partner violated the Racketeer
Influenced and Corrupt 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 U.S. District Court certified class action
treatment of the plaintiff's claims in the class action entitled, In re:
PaineWebber Limited Partnerships Litigation.
In January 1996, PaineWebber signed a memorandum of understanding with
the plaintiffs in the class action outlining the terms under which the parties
agreed to settle the case. A definitive settlement agreement was signed in July
1996 and in March 1997, the District Court approved the settlement as fair and
reasonable. Under the terms of the settlement, PaineWebber agreed to pay $125
million and additional consideration to class members. The investors who had
objected to the settlement have appealed the District Court's approval to the
United States Court of Appeals for the Second Circuit. In July 1997, the U.S.
Court of Appeals for the Second Circuit affirmed the District Court's approval
of the settlement.
Under certain circumstances, pursuant to the Partnership Agreement and
other contractual obligations, PaineWebber and its affiliates, including the
Administrative General Partner were entitled to indemnification from the
Partnership for expenses and
15
<PAGE> 17
liabilities in connection with the above litigation. PaineWebber and the
affiliates have agreed to not seek indemnification from the Partnership for any
amounts payable in connection with the aforementioned litigation.
Item 6. Exhibits and Reports on Form 8-K
(a) None
(b) The Partnership did not file a report on Form 8-K during the
third quarter of the fiscal year ending December 31, 1997
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: November 7, 1997 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 FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1997 OF PAINEWEBBER PREFERRED YIELD
FUND II LP AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 4,748,469
<SECURITIES> 0
<RECEIVABLES> 1,127,072
<ALLOWANCES> (75,000)
<INVENTORY> 0
<CURRENT-ASSETS> 5,800,541
<PP&E> 33,577,059
<DEPRECIATION> (21,216,761)<F3>
<TOTAL-ASSETS> 18,179,194
<CURRENT-LIABILITIES> 1,076,657
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 17,102,537<F2>
<TOTAL-LIABILITY-AND-EQUITY> 18,179,194
<SALES> 0
<TOTAL-REVENUES> 6,508,648
<CGS> 0
<TOTAL-COSTS> 4,446,225
<OTHER-EXPENSES> 82,131
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,980,292
<INCOME-TAX> 0<F4>
<INCOME-CONTINUING> 1,980,292
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,980,292
<EPS-PRIMARY> 27.71<F1>
<EPS-DILUTED> 0
<FN>
<F1>REPRESENTS NET INCOME PER CLASS A LIMITED PARTNERSHIP UNIT OUTSTANDING
<F2>REPRESENTS AGGREGATE PARTNERSHIP CAPITAL
<F3>INCLUDES PROVISIONS FOR WRITEDOWNS
<F4>INCOME TAXES ARE PROVIDED FOR ON THE FINANCIAL STATEMENTS, INCOME TAXES ARE
THE DIRECT RESPONSIBILITY OF THE PARTNERS.
</FN>
</TABLE>
