<PAGE> 1
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
-------------------------------------------------------
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
---------------------- -----------------------
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
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Units of Class A Limited Partner Interest
-----------------------------------------
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 of 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the Registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
State the aggregate market value of the voting stock held by
non-affiliates of the Registrant: Not applicable.
<PAGE> 2
PW Preferred Yield Fund II, L.P.
Annual Report on Form 10-K for the
Fiscal Year Ended December 31, 1996
Table of Contents
Page
Part I
Item 1 Business ............................................................ 1
Item 2 Properties .......................................................... 5
Item 3 Legal Proceedings ................................................... 5
Item 4 Submission of Matters to a Vote
of Security Holders ............................................... 6
Part II
Item 5 Market for Registrant's Common Equity
and Related Stockholder Matters ................................... 7
Item 6 Selected Financial Data ............................................. 9
Item 7 Management's Discussion and
Analysis of Financial Condition
and Results of Operations ......................................... 19
Item 8 Financial Statements ................................................ F-1
Item 9 Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure .............................................. 14
Part III
Item 10 Directors and Executive Officers
of the Registrant ................................................ 15
Item 11 Executive Compensation ............................................. 18
Item 12 Security Ownership of Certain
Beneficial Owners and Management ................................. 18
Item 13 Certain Relationships and
Related Transactions ............................................. 19
Part IV
Item 14 Exhibits, Financial Statement Schedules
and Reports on Form 8-K .......................................... 21
<PAGE> 3
PART I
Item 1. Business
General
PW Preferred Yield Fund II, L.P. (the "Partnership" or the
"Registrant") is a limited partnership organized under the laws of the State of
Delaware on October 1, 1991. The general partners of the Partnership are
Pembroke Financial Limited Partnership, the Managing General Partner, a
Massachusetts limited partnership, and General Equipment Management II, Inc.,
the Administrative General Partner, a Delaware corporation that is a
wholly-owned subsidiary of Paine Webber Group Inc. The Managing General Partner
is owned by Equis Financial Group Limited Partnership ("EFG") formerly known as
American Finance Group ("AFG"), a Massachusetts limited partnership, which acts
as Equipment Manager for the Partnership. (The Managing General Partner and the
Administrative General Partner are sometimes hereinafter collectively referred
to as the "General Partners".)
PYB Limited Partnership, a Massachusetts limited partnership, is the
Class B Limited Partner ("Class B Limited Partner"). AFG originally acquired all
of the equity ownership interest in PYB Limited Partnership as of November 1,
1993. The Class B Limited Partner contributed 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 the Units of Class A
Limited Partner Interest ("Units") and the cash contributed by the Class B
Limited Partner.
Upon formation of the Partnership, the General Partners each
contributed $500 to the Partnership. On September 10, 1992, the Partnership
commenced a "best efforts" offering of 200,000 Units at $500 per Unit
($100,000,000). Through December 31, 1993 the Partnership had received gross
proceeds of $25,118,000 representing 50,236 units. The Partnership's fifth
closing for the sale of Units was held on January 13, 1994, at which time the
Partnership received $1,467,000 of gross offering proceeds from the sale of
2,934 Units and $178,858 of capital contributions from the Class B Limited
Partner. The Partnership had its final closing for the sale of units on July 26,
1994 at which time it received $428,500 of gross offering proceeds from the sale
of 857 units and $52,240 of capital contributions from the Class B Limited
Partner. The Partnership's six closings representing gross proceeds of
$27,013,500 are summarized below:
<TABLE>
<CAPTION>
Number Gross
of Offering
Date Units Proceeds
---- ------ --------
<S> <C> <C>
November 16, 1992 23,086 $11,543,000
December 23, 1992 10,521 5,260,500
March 31, 1993 9,958 4,979,000
August 19, 1993 6,671 3,335,500
January 13, 1994 2,934 1,467,000
July 26, 1994 857 428,500
------ -----------
54,027 $27,013,500
====== ===========
</TABLE>
1
<PAGE> 4
The Partnership incurred $3,260,594 of sales commissions and other offering
expenses in connection with the sale of these Units, thus receiving $23,752,906
of net offering proceeds.
In the aggregate, the Class B Limited Partner contributed $231,098,
$1,022,543 and $2,031,736 during 1994, 1993 and 1992, respectively.
The Partnership is acquiring, on an all-cash basis, a portfolio of
equipment subject to triple net leases with unaffiliated third parties. The
equipment purchased by the Partnership consists of industrial equipment,
including, but not limited to, materials handling, mining, transportation and
manufacturing testing equipment, and business equipment, including, but not
limited to, computers and computer-related and telecommunications equipment. The
Partnership expects that the equipment purchased in the future will be similar
equipment. Business equipment owned by the Partnership is limited to 60% of the
value of the Partnership's total equipment.
The equipment is purchased by EFG directly from the manufacturer or
from independent third parties and resold to the Partnership. The Partnership's
purchase price for the equipment 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. 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 interim rentals
received by EFG. However, if in the future there are delays in identifying
transactions for reinvestment, the Partnership might develop alternative sources
for transactions including outside brokers. This may make it more difficult to
find transactions that fit the Partnership's objectives because generally
brokers will either charge a fee (which would be additional to fees already
charged) or mark up the price of equipment for sale. (See below for further
discussion regarding the purchase of AFG's lease origination business by PLM.)
The Partnership does not purchase an inventory of unleased equipment,
but only acquires equipment that is already subject to short-term leases
(generally, 5 years or less). The Partnership's business is not subject to
seasonal variations.
At least 65% of the Partnership's initial equipment has been and will
be leased to lessees which are investment grade lessees, or which are operating
subsidiaries of entities which are investment grade companies. An investment
grade lessee is a company with a credit rating of not less than Baa, as
determined by Moody's Investor Services, Inc. or comparable credit ratings, as
determined by other recognized credit rating services. No more than 15% of the
equipment will be leased to a single lessee or its affiliates.
The Partnership is required to dissolve and distribute all of its
assets no later than December 31, 2005. However, the General Partners anticipate
that all equipment will be sold and that the Partnership will be liquidated
between 2000 and 2003.
During the reinvestment period (which will end in either 1999 or 2000,
at the General Partners' discretion) distributable cash flow in excess of
current distributions to the Class A Limited Partners at an annualized
distribution rate of 11% of their contributed capital, to the Class B Limited
Partner at an annualized distribution rate of 10% of its contributed capital and
to the General Partners, if any, will be reinvested in additional leased
equipment. Upon the termination of the
2
<PAGE> 5
reinvestment period, all available cash flow will be distributed to the
partners through the liquidation date.
The Partnership's principal investment objectives are:
(i) to generate current cash distributions to the Class A
Limited Partners from lease revenues (a substantial
portion of which will constitute a return of
capital);
(ii) to preserve and protect Partnership capital; and
(iii) to generate additional cash distributions after the
end of the reinvestment period (which will end in
either 1999 or 2000, at the General Partners'
discretion) from sales of equipment.
In order to achieve these objectives, the General Partners have adopted
the following policies: (a) to achieve investment diversification, reduce the
average age of the Partnership's portfolio of equipment and enhance the overall
return to Class A Limited Partners through reinvestment in additional equipment
during the reinvestment period; and (b) to manage the Partnership's assets to
maximize lease rentals and amounts received from the sale of equipment in order
to protect the Partnership's capital.
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 a multi-step transaction,
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
Managing General Partner, will continue to provide acquisition and asset
management services to the Partnership.
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. AFG also agreed to
3
<PAGE> 6
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 EFG (see above description).
At a meeting of the Board of Directors of General Equipment Management
II, Inc. ("Board") in March of 1997, the Board adopted the policy regarding
requests for Partner lists attached as Exhibit 11.
Equipment Portfolio
The following table describes the Partnership's equipment portfolio as
of December 31, 1996.
<TABLE>
<CAPTION>
Type Cost
---- ----
<S> <C>
Materials Handling $12,207,854
Construction and Mining 4,870,081
Transportation 3,445,627
Medical, Research and Testing 2,275,259
Manufacturing Testing 611,600
Computers and Printers 6,193,531
Retail Sales 2,893,144
Tele-Communication 1,953,611
Furniture and Fixtures 1,501,832
-----------
$35,952,539
===========
</TABLE>
The above table includes computers and printers with original purchase prices
aggregating $391,206 and materials handling equipment with original purchase
prices aggregating $255,900 which were off lease at December 31, 1996.
Significant Lessees
The Partnership leases its equipment to a significant number of
lessees. Revenue from leases to AT&T Corp accounted for 12% of total rental
revenues and rentals from leases to General Motors, Inc. and its affiliates
accounted for approximately 10% of the total rental revenue of the Partnership
during 1996.
The Partnership is not dependent on any one or more of these lessees
for future business. The Managing General Partner believes that alternative
lessees are available in the event current lessees decide to no longer do
business with EFG or the Partnership. As part of its investment objectives, the
Partnership intends to further diversify its equipment portfolio in the future.
4
<PAGE> 7
Competition
The equipment leasing industry is highly competitive. Among the
numerous existing and potential competitors of the Partnership for leases are
equipment manufacturers, equipment dealers and brokers, leasing companies and
financial institutions, as well as other limited partnerships and/or trusts
organized and managed similarly to the Partnership. Many of these competitors
have greater financial resources than the Partnership and more experience in the
industry than the General Partners and their affiliates. Equipment manufacturers
may present particularly strong competition because they may also provide
certain ancillary services which the Partnership cannot offer directly, such as
maintenance services (including possible equipment substitution rights),
warranty services, purchase rights and trade-in privileges.
Employees
The Partnership has no employees. The officers, directors and employees
of the General Partners and their affiliates perform services on behalf of the
Partnership. The General Partners are entitled to certain fees and
reimbursements of certain out-of-pocket expenses incurred in connection with the
performance of these management services. See Item 10 of this Report, "Directors
and Executive Officers of the Registrant", and Item 13 of this Report, "Certain
Relationships and Related Transactions."
Item 2. Properties
The Partnership does not own or lease any properties other than the
equipment which is discussed in Item 1 of this Report, "Business."
Item 3. 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 ("District Court") 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
5
<PAGE> 8
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 District Court certified class action
treatment of the plaintiffs' claims in the class action entitled, In re:
PaineWebber Limited Partnerships Litigation.
In January 1996, PaineWebber signed a memorandum of understanding with
the plaintiffs in the class action outlining the terms under which the parties
agreed to settle the case. A definitive settlement agreement was signed in July
1996 and in March 1997, the District Court approved the settlement as fair and
reasonable. Under the terms of the settlement, PaineWebber agreed to pay $125
million and additional consideration to class members.
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 its affiliates have agreed to not seek any
indemnification from the Partnership for any amounts payable in connection with
the aforementioned litigation.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Limited Partners of the
Partnership, through the solicitation of proxies or otherwise, during the fourth
quarter of the fiscal year ended December 31, 1996.
6
<PAGE> 9
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
There is no organized trading market for the purchase and sale of the
Units and certain measures have been adopted and implemented to assure that no
organized trading market will develop.
As of March 1, 1997, the number of Limited Partners was approximately
1,300.
The Partnership declared the following distributions to its Class A
Limited Partners out of cash flow received from operations during 1996 and 1995:
<TABLE>
<CAPTION>
Period During
Which Amount Of
Distribution Cash Distribution
Was Generated Per Unit Record Date Payment Date
------------- -------- ----------- ------------
<S> <C> <C> <C>
January 1996 4.58 February 1, 1996 February 25, 1996
February 1996 4.58 March 1, 1996 March 25, 1996
March 1996 4.59 April 1, 1996 April 25, 1996
April 1996 4.58 May 1, 1996 May 25, 1996
May 1996 4.58 June 1, 1996 June 25, 1996
June 1996 4.59 July 1, 1996 July 25, 1996
July 1996 4.58 August 1, 1996 August 25, 1996
August 1996 4.58 September 1, 1996 September 26, 1996
September 1996 4.59 October 1, 1996 October 24, 1996
October 1996 4.58 November 1, 1996 November 25, 1996
November 1996 4.58 December 1, 1996 December 27, 1996
December 1996 4.59 January 1, 1997 January 24, 1997
January 1995 4.58 February 1, 1995 February 25, 1995
February 1995 4.58 March 1, 1995 March 25, 1995
March 1995 4.59 April 1, 1995 April 25, 1995
April 1995 4.58 May 1, 1995 May 25, 1995
May 1995 4.58 June 1, 1995 June 25, 1995
June 1995 4.59 July 1, 1995 July 25, 1995
July 1995 4.58 August 1, 1995 August 25, 1995
August 1995 4.58 September 1, 1995 September 25, 1995
September 1995 4.59 October 1, 1995 October 25, 1995
October 1995 4.58 November 1, 1995 November 27, 1995
November 1995 4.58 December 1, 1995 December 26, 1995
December 1995 4.59 January 1, 1996 January 26,1996
</TABLE>
All distributions above were paid to all Class A Limited Partners.
7
<PAGE> 10
Total distributions declared to all partners for 1996 and 1995 were as
follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Class A Limited Partners $2,971,485 $2,971,485
Class B Limited Partner 328,536 328,536
General Partners 173,685 173,685
---------- ----------
$3,473,706 $3,473,706
========== ==========
</TABLE>
Distributions may be characterized for tax, financial reporting and
economic purposes as a return of capital, a return on capital or both. The
portion of each 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 financial reporting purposes,
approximately 81% and 94%, respectively, of the 11% cash distributions to the
Class A Limited Partners for the years ended December 31, 1996 and 1995
constituted a return of capital. Additionally, since inception approximately 80%
of the 11% cash distributions to the Class A Limited Partners constituted a
return of capital. However, the total actual return on capital 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.
It is anticipated that the Partnership will continue to make monthly
distributions to Class A Limited Partners at an annualized rate of 11% of
contributed capital ($4.58 or $4.59 per Unit per month) through 1997. As
referenced above, a substantial portion of each distribution will continue to
constitute a return of capital.
8
<PAGE> 11
Item 6. Selected Financial Data
The following selected financial data of the Partnership has been
derived from the financial statements for the indicated period. The information
set forth below should be read in conjunction with the Partnership's financial
statements and notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included in Items 8 and 7,
respectively, of this Report.
<TABLE>
<CAPTION>
As of
December 31,
1992 or the
Period from
November 16,
1992
As of As of As of As of (Commencement
December 31, December 31, December 31, December 31, of Operations)
1996 or Year 1995 or Year 1994 or Year 1993 or Year through
Ended December 31, Ended December 31, Ended December 31, Ended December 31, December 31,
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Total Revenue (1) $ 7,536,793 $ 8,271,776 $ 8,303,838 $ 6,158,305 $ 508,681
Net Income 979,886 683,531 1,247,403 1,050,148 112,757
Net income per Class A Limited
Partnership Unit (2) 10.52 3.31 13.96 15.32 3.20
Total Assets 18,597,031 21,067,151 23,852,273 23,979,124 16,937,808
Total Partners' Equity 17,727,523 20,221,343 23,011,518 23,297,722 16,691,411
Distributions Declared to Partners 3,473,706 3,473,706 3,436,536 2,799,669 201,868
</TABLE>
- ----------------------
(1) Includes net loss on sales and dispositions of equipment of $105,180,
$101,317 and $50,498 for the years ended December 31, 1996, 1995 and
1994, respectively, and net gain on sale of equipment of $14,428 for
the year ended December 31, 1993.
(2) Based upon weighted average number of Class A Units outstanding.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
9
<PAGE> 12
The Partnership commenced operations on November 16, 1992. The
Partnership purchased portions of its equipment portfolio following each of the
six closings for the sale of Units which were held during 1994, 1993 and 1992
and additional equipment pursuant to the reinvestment program. The Partnership
used the contributed capital from Class A and Class B investors to purchase a
total of $1,898,275, $8,415,175 and $16,689,014 of equipment 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 operations on November 16, 1992. The
Partnership purchased portions of its equipment portfolio following each of the
six closings for the sale of Units which were held during 1994, 1993 and 1992
and additional equipment pursuant to the reinvestment program. The Partnership
used the contributed capital from Class A and Class B investors to purchase a
total of $1,898,275, $8,415,175 and $16,689,014 of equipment 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 December 31, 1996, equipment
purchased pursuant to the reinvestment program totaled $14,503,608 of which
$2,042,859 was acquired in the year ended December 31, 1996. At December 31,
1996, the Partnership had approximately $2,135,000 of cash flows from operations
and sales of equipment in excess of distributions and 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 liquid investments. These investments are
primarily short-term commercial paper issued by large domestic corporations. At
March 1, 1997, the Partnership's cash of approximately $1.6 million was
primarily invested in commercial paper.
During 1996, 1995 and 1994, the Partnership declared distributions of
cash flow received from operations and sales of $3,473,706, $3,473,706 and
$3,436,536 respectively. All distributions to the Class A Limited Partners
represent an annualized distribution rate of 11% of their contributed capital
and all distributions to the Class B Limited Partner represent an annualized
distribution rate of 10% of its contributed capital.
10
<PAGE> 13
Distributions may be characterized for tax, financial reporting and
economic purposes as a return of capital, a return on capital or both. The
portion of each 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 financial reporting purposes,
approximately 81%, 94%, and 75%, respectively, of the 11% cash distributions to
the Class A Limited Partners for the years ended December 31, 1996, 1995, and
1994 constituted a return of capital. However, the total actual return on
capital over a leasing partnership's life can only be determined upon
termination of a 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.
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.
Litigation
See Item 3, "Legal proceedings" for a discussion of certain class action
lawsuits.
Results of Operations
1996 Compared to 1995
The Partnership reported net income of $979,886 for the year ended
December 31, 1996 ("1996 Period") as compared to $683,531 for the year ended
December 31, 1995 ("1995 Period"). While rental income and depreciation
decreased proportionately in the 1996 period the principal reason for the change
in net income were the reduced write downs for equipment impairment in the 1996
Period as compared to the 1995 Period.
Rental income decreased by $736,983 or 9%, during the 1996 Period as
compared to the 1995 Period, principally due to the sale of equipment upon lease
expiration subsequent to the 1995 Period (which was earning rental revenue in
the 1995 Period) and the renewal of certain equipment at lower rates, partially
offset by rental from equipment purchased in 1996.
Interest income increased by $5,863, or 6%, in the 1996 Period as
compared to the 1995 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 $570,568 or 9% in
the 1996 Period as compared to the 1995 Period which was consistent with the
decrease in rental income.
11
<PAGE> 14
Management fees and subordinated disposition fees decreased by 16%, or
$57,915, in the 1996 Period as compared to the 1995 Period. Management fees
decreased by $40,760 or 12% in the 1996 Period as compared to the 1995 Period
which was consistent with the decrease in rental income as well as the leases in
place in the respective periods. Subordinated disposition fees decreased by
$17,155 in the 1996 Period as compared to the 1995 Period due to a decrease in
equipment sales proceeds.
General and administrative expenses increased by $13,145, or 13%, in
the 1996 Period as compared to the 1995 Period. The reason for the increase in
the 1996 Period as compared to the 1995 Period was due principally to an
increase in Partnership level income taxes; other general and administrative
expenses incurred in the 1996 Period were consistent with the 1995 Period and
consistent with the Partnership's level of operations.
1995 Compared to 1994
The Partnership reported net income of $683,531 for the 1995 Period as
compared to net income of $1,247,403 for the year ended December 31, 1994 ("1994
Period").
The principal reasons for the decrease in net income in the 1995 Period
as compared to the 1994 Period were the write downs for equipment impairment and
the provision for bad debts provided during the 1995 Period, which exceeded the
amount provided in the 1994 Period.
Rental income decreased by $47,613 or approximately 1% in the 1995
Period as compared to the 1994 Period, principally because the rents generated
in the 1995 Period by equipment purchased subsequent to the 1994 Period was more
than offset by equipment whose leases expired subsequent to the 1994 Period and
which were either sold, renewed at lower rates or returned.
Interest income increased substantially, in the amount of $66,370 in
the 1995 Period as compared to the 1994 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 $183,890 or
approximately 3% in the 1995 Period compared to the 1994 Period. These variances
were consistent with the variances in rental income as well as the related
estimated useful lives of equipment subject to leases in the respective periods.
Management fees and subordinated disposition fees increased by $7,901,
or approximately 2% in the 1995 Period. Disposition fees incurred in the 1995
Period totaled $23,846 as compared to $7,559 in the 1994 Period. Management fees
decreased by $8,386 or 2% in the 1995 Period as compared to the 1994 Period
which is consistent with the equipment leases in place and their related fee
structures and rental income recognized.
General and administrative expenses increased by $16,799 or
approximately 20% in the 1995 Period as compared to the 1994 Period which was
the result of certain first quarter 1995 administrative costs reflected in the
1995 Period.
12
<PAGE> 15
Results of Operations
Inflation and Changing Prices
Inflation has not had any material impact on the operations or
financial condition of the Partnership from inception through December 31, 1996.
However, inflation and changing prices, in addition to other factors, may affect
subsequent leasing rates and the eventual selling price of the Partnership's
equipment.
13
<PAGE> 16
Item 8. Financial Statements and Supplementary Data
PW PREFERRED YIELD FUND II, L.P.
List of Financial Statements
Page
Report of Independent Public Accountants F-2
Balance Sheets - December 31, 1996 and 1995 F-3
Statements of Income for the Years ended
December 31, 1996, 1995 and 1994 F-4
Statements of Partners' Equity for the Years
ended December 31, 1996, 1995 and 1994 F-5
Statements of Cash Flows for the Years ended
December 31, 1996, 1995 and 1994 F-6
Notes to Financial Statements F-7
All Schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission have been omitted since;
(1) the information required is disclosed in the financial statements and notes
therein; (2) schedules are not required under the related instructions; or (3)
the schedules are inapplicable.
F-1
<PAGE> 17
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of PW Preferred Yield Fund II, L.P.:
We have audited the accompanying balance sheets of PW Preferred Yield Fund II,
L.P. (a Delaware limited partnership), as of December 31, 1996, and the related
statements of income, partners' equity and cash flows for the year ended
December 31, 1996. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
a reasonable assurance about whether the financial statements are free from
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of PW Preferred Yield Fund II,
L.P. as of December 31, 1996 and the results of its operations and its cash
flows for the year then ended, in conformity with generally accepted accounting
principles.
The financial statements of the Partnership as of December 31, 1995 and 1994
were audited by other auditors, whose report, dated March 8, 1996, expressed an
unqualified opinion on those statements.
New York, New York
March 25, 1997
F-2
<PAGE> 18
PW PREFERRED YIELD FUND II, L.P.
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 2,524,801 $ 1,141,970
Rent and other receivables, net of allowance for doubtful
accounts of $125,000 and $75,000 at December 31, 1996
and 1995, respectively 1,175,409 678,135
Equipment subject to operating leases, net of accumulated
depreciation of $19,793,564 and $15,875,879 at December
31, 1996 and 1995, respectively, and write downs for
equipment impairment of $775,154 and $568,737
at December 31, 1996 and 1995, respectively. (Note 4) 14,736,716 19,229,813
Equipment available for sale or lease, net of accumulated
depreciation of $512,405 at December 31, 1996 134,700 --
Organization costs, net and other assets 25,405 17,233
----------- -----------
Total Assets $18,597,031 $21,067,151
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES:
Accounts payable and accrued liabilities $ 129,281 $ 84,590
Payables to affiliates (Note 5) 260,996 308,658
Deferred rental income 125,500 133,476
Distributions payable to partners 353,731 319,084
----------- -----------
Total Liabilities 869,508 845,808
----------- -----------
Commitments and Contingencies (Note 8)
PARTNERS' EQUITY:
General Partners 653,082 530,336
Limited Partners
Class A (54,027 Units outstanding at
December 31, 1996 and 1995, respectively) 14,978,906 17,381,975
Class B 2,095,535 2,309,032
----------- -----------
Total Partners' Equity 17,727,523 20,221,343
----------- -----------
Total Liabilities and Partners' Equity $18,597,031 $21,067,151
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 19
PW PREFERRED YIELD FUND II. L.P.
STATEMENTS OF INCOME
FOR THE YEARS ENDED
DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
REVENUE:
Rentals from operating leases $ 7,536,497 $ 8,273,480 $ 8,321,093
Net loss on sale of equipment (105,180) (101,317) (50,498)
Interest income 105,476 99,613 33,243
----------- ----------- -----------
7,536,793 8,271,776 8,303,838
=========== =========== ===========
EXPENSES:
Depreciation and amortization 5,755,754 6,326,322 6,510,212
Management and disposition fees (Note 5) 311,245 369,160 361,259
Provisions for bad debts and write downs
for equipment impairment 375,000 791,000 100,000
General and administrative (Note 5) 114,908 101,763 84,964
----------- ----------- -----------
6,556,907 7,588,245 7,056,435
=========== =========== ===========
NET INCOME $ 979,886 $ 683,531 $ 1,247,403
=========== =========== ===========
NET INCOME ALLOCATED:
To the General Partners $ 296,431 $ 422,521 $ 350,087
To the Class A Limited Partners 568,416 179,012 745,880
To the Class B Limited Partner 115,039 81,998 151,436
----------- ----------- -----------
$ 979,886 $ 683,531 $ 1,247,403
=========== =========== ===========
NET INCOME PER WEIGHTED AVERAGE
NUMBER OF UNITS OF CLASS A LIMITED
PARTNER INTEREST OUTSTANDING $ 10.52 $ 3.31 $ 13.96
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF UNITS
OF CLASS A LIMITED PARTNER
INTERESTS OUTSTANDING 54,027 54,027 53,447
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 20
PW PREFERRED YIELD FUND II. L.P.
STATEMENTS OF PARTNERS' EQUITY
FOR THE YEARS ENDED
DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Class A Class B
General Limited Limited
Partners Partners Partner Total
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance, December 31, 1993 $ 105,452 $ 20,666,538 $ 2,525,732 $ 23,297,722
Capital contributions 1,895,500 231,098 2,126,598
Commissions and expenses paid in
connection with the sale of Class A
Limited Partnership Units (2,237) (193,753) (27,679) (223,669)
Net income 350,087 745,880 151,436 1,247,403
Distributions declared to partners (171,802) (2,939,717) (325,017) (3,436,536)
------------ ------------ ------------ ------------
Balance, December 31, 1994 281,500 20,174,448 2,555,570 23,011,518
Net income 422,521 179,012 81,998 683,531
Distributions declared to partners (173,685) (2,971,485) (328,536) (3,473,706)
------------ ------------ ------------ ------------
Balance, December 31, 1995 530,336 17,381,975 2,309,032 20,221,343
Net income 296,431 568,416 115,039 979,886
Distributions declared to partners (173,685) (2,971,485) (328,536) (3,473,706)
------------ ------------ ------------ ------------
Balance, December 31, 1996 $ 653,082 $ 14,978,906 $ 2,095,535 $ 17,727,523
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 21
PW PREFERRED YIELD FUND II, L.P.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED
DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 979,886 $ 683,531 $ 1,247,403
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 5,755,754 6,326,322 6,510,212
Write downs for equipment impairment 325,000 716,000 100,000
Provision for bad debts 50,000 75,000 --
Loss on sale of equipment 105,180 101,317 50,498
Change in assets and liabilities:
Rent and other receivables (578,900) (286,327) 275,781
Accounts payable and accrued liabilities 44,691 27,162 15,035
Payables to affiliates (47,662) 127,592 136,616
Deferred rental income (7,976) (149,701) (14,986)
Other assets (17,572) -- --
----------- ----------- -----------
Net cash provided by operating activities 6,608,401 7,620,896 8,320,559
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale and disposition of equipment 256,348 746,371 235,079
Purchases of equipment on operating leases (2,042,859) (4,658,439) (6,926,079)
----------- ----------- -----------
Net cash used in investing activities (1,786,511) (3,912,068) (6,691,000)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Partners' capital contributions -- -- 2,126,598
Commissions and expenses paid in connection
with the sale of Class A Limited Partner Units -- -- (223,669)
Cash distributions paid to partners (3,439,059) (3,473,706) (3,413,848)
----------- ----------- -----------
Net cash used in financing activities (3,439,059) (3,473,706) (1,510,919)
----------- ----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,382,831 235,122 118,640
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 1,141,970 906,848 788,208
----------- ----------- -----------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 2,524,801 $ 1,141,970 $ 906,848
=========== =========== ===========
Cumulative distributions declared but unpaid $ 353,731 $ 319,084 $ 319,084
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 22
PW PREFERRED YIELD FUND II, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ORGANIZATION OF THE PARTNERSHIP
PW Preferred Yield Fund II, L.P., a Delaware limited partnership (the
"Partnership"), was formed on October 1, 1991 for the purpose of acquiring and
leasing equipment. The Partnership is acquiring, on an all-cash basis, a
portfolio of equipment subject to triple net leases (i.e. repairs, insurance and
taxes are paid by the lessees) with unaffiliated third parties.
Pembroke Financial Limited Partnership, a Massachusetts limited
partnership (the "Managing General Partner") and General Equipment Management
II, Inc., a Delaware corporation (the "Administrative General Partner") are the
General Partners of the Partnership. The Managing General Partner is affiliated
with American Finance Group ("AFG"), a Massachusetts general partnership, which
acts as Equipment Manager for the Partnership. The Administrative General
Partner is a wholly-owned subsidiary of PaineWebber Group Inc. PYB Limited
Partnership, a Massachusetts limited partnership, is the Class B Limited Partner
("Class B Limited Partner"). AFG acquired all of the equity ownership interest
in PYB Limited Partnership as of November 1, 1993.
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 held its sixth and final closing on July 26, 1994 and the offering
was terminated. Pursuant to the offering, the Partnership received $27,013,500
of gross offering proceeds from the sale of 54,027 Units of which $1,895,500,
$8,314,500 and $16,803,500 were received during 1994, 1993 and 1992,
respectively. The Partnership incurred $3,260,594 of 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 net 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, to fulfill its obligation.
The Partnership commenced operations on November 16, 1992. The
Partnership used the contributed capital and reinvested cash flow to purchase a
total of $2,042,859, $4,658,439 and $6,926,079 of equipment during 1996, 1995
and 1994, respectively (inclusive of related acquisition fees, structuring fees
and expense allowances). Additional equipment will be acquired by the
Partnership during 1997 and in future years during the reinvestment period
(which will end in either 1999 or 2000, at the General Partners' discretion).
F-7
<PAGE> 23
PW PREFERRED YIELD FUND II, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation The Partnership maintains its accounting records,
prepares financial statements and files its tax returns on the accrual basis of
accounting. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenue and expenses during the reporting
periods. The most significant estimates by management relate to estimated
residual or salvage values. Actual results could differ from those estimates.
Cash and Cash Equivalents 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 recorded at amortized cost which approximates fair market
value.
For purposes of the balance sheets and the statements of cash flows,
the Partnership considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Operating Leases Rentals from operating leases are recognized on a
straight-line basis over the term of the lease. Equipment on operating leases is
stated at cost, including the acquisition and structuring fees paid to the
General Partners (see Note 5 "Transaction with Affiliates"), less accumulated
depreciation. Depreciation is calculated on a straight-line basis over the lease
terms, ranging from two to seven years, to an amount equal to the equipment's
estimated residual value at the lease termination date. Residual values are
determined at lease inception based on the estimated value of the Partnership's
leased equipment at lease termination, as determined by the Managing General
Partner. In estimating residual values, the Managing General Partner considers
independent appraisals and other circumstances regarding the equipment and the
lessee. Thereafter, the Managing General Partner re-evaluates residual estimates
each accounting period. Any declines in the residual estimates are generally
recorded through prospective additional depreciation charges during the
remaining lease term. Additionally, if the Managing General Partner believes the
value of a item of equipment has been other than temporarily impaired, a
write down for equipment impairment will be provided to the extent of such loss
in value.
Organization Costs Organization costs are being amortized using the
straight-line method over a period of five years.
F-8
<PAGE> 24
PW PREFERRED YIELD FUND II, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
Deferred Rental Income Lease revenues received but not yet earned are
deferred and recognized as income when earned.
Income Taxes No provision for income taxes has been made in the
financial statements because taxes on Partnership income are the responsibility
of the individual partners rather than the Partnership.
Net Income Per Unit of Class A Limited Partner Interest The net income
per Unit of Class A Limited Partner Interest is computed by dividing the net
income allocated to the Class A Limited Partners by the weighted average number
of Units of Class A Limited Partner Interest outstanding during the period.
3. PARTNERSHIP ALLOCATIONS
Cash Distributions
Cash distributions, other than liquidating distributions, will be
distributed 5% to the General Partners and 95% to the Class A Limited Partners
and the Class B Limited Partner (collectively, the "Limited Partners"). The 95%
distributed to the Limited Partners will generally be allocated between the
Class A Limited Partners and the Class B Limited Partner in the manner set forth
in the table below.
<TABLE>
<S> <C>
1. During the reinvestment period (which will end in 1999 or
2000):
<CAPTION>
Class A Class B
Limited Limited
Partners Partner Reinvested
-------- ------- ----------
<S> <C> <C> <C>
(A) Until The Class A Limited Partners have received an
11% annualized, cumulative distribution on their
capital contributions 100.0% - -
(B) Cash remaining after (A) above and until the Class B
Limited Partner has received a 10% annualized
distribution on its capital contributions - 100.0% -
(C) Cash remaining after (B) above is to be reinvested in
additional equipment - - 100.0%
2. After the reinvestment period:
(A) Until the Class A Limited Partners have received an
11% annualized, cumulative distribution on their
capital contributions 100.0% - -
</TABLE>
F-9
<PAGE> 25
PW PREFERRED YIELD FUND II, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Class A Class B
Limited Limited
Partners Partner Reinvested
-------- ------- ----------
<S> <C> <C> <C>
(B) Cash remaining after (A) above and until the Class B
Limited Partner has received a 10% annualized
distribution on its capital contributions - 100.0% -
(C) Cash remaining after (B) above and until the Class A
Limited Partners receive a return of their capital
contributions, plus a 9% annual, cumulative
distribution compounded quarterly on their adjusted
capital contributions ("Payout") 87.5% 12.5% -
(D) Cash remaining after (C) above and until the Class B
Limited Partner has received any previously
undistributed portion of its 10% annualized
distribution on its capital contributions - 100.0% -
(E) Cash remaining after (D) above and until the Class B
Limited Partner achieves Payout 12.5% 87.5% -
(F) Cash remaining after (E) above 75.0% 25.0% -
</TABLE>
Upon liquidation of the Partnership, cash available for distribution
will be distributed in accordance with the partners' capital accounts after all
allocations of profits and losses.
Profits and Losses
Profits (not including the special allocations discussed below) are
first allocated to offset current and prior year losses, if any. Remaining
profits are then allocated among the partners in the same manner that cash
distributions are allocated, or would be allocated (as set forth above) if cash
distributions were equal to the allocable profits.
Losses (not including the special allocations discussed below) are
first allocated to offset current and prior year profits and then 1% to the
General Partners and 99% to the Limited Partners. The 99% allocated to the
Limited Partners will be shared 87.5% to the Class A Limited Partners and 12.5%
to the Class B Limited Partner.
There are several special allocation provisions included in the
Partnership agreement of which the two most significant are as follows: First,
commissions and expenses paid in connection with the sale of Units ("Offering
Costs") are allocated 1% to the General Partners and 99% to the Limited
Partners. The 99% allocated to the Limited Partners will be shared 87.5% to the
Class A Limited Partners and 12.5% to the Class B Limited Partner. Second,
depreciation with respect to the equipment and any losses resulting from the
sale of equipment are allocated 1% to the General Partners and 99% to the
Limited Partners, until the cumulative amount of depreciation and losses so
F-10
<PAGE> 26
PW PREFERRED YIELD FUND II, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
allocated to the Limited Partners equal their aggregate capital contributions,
net of allocated Offering Costs. The 99% allocated to the Limited Partners will
be shared by the Class A Limited Partners and the Class B Limited Partner in
proportion to their respective capital contributions net of allocated Offering
Costs. The General Partners will also be specially allocated items of income to
offset their 1% allocation of these two items.
4. EQUIPMENT ON OPERATING LEASES
The following schedule provides an analysis of the Partnership's
investment in equipment on operating leases as of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Industrial equipment $ 23,410,421 $ 23,732,375
Business equipment 12,542,118 11,942,054
------------ ------------
35,952,539 35,674,429
Less: Accumulated depreciation (20,305,969) (15,875,879)
Write down for equipment impairment (775,154) (568,737)
------------ ------------
$ 14,871,416 $ 19,229,813
============ ============
</TABLE>
Included in industrial and business equipment are the depreciated cost
of $82,822 and $51,878, respectively, of equipment available for sale or lease
at December 31, 1996.
Industrial equipment includes materials handling (approximately 34%),
construction and mining (approximately 14%), transportation (approximately 10%),
medical and research (approximately 6%) and manufacturing testing equipment
(approximately 2%). Business equipment includes computers and computer-related
equipment (approximately 17%) retail sales equipment (approximately 8%),
telecommunications equipment (approximately 5%) and furniture and fixtures
(approximately 4%) at December 31, 1996 (all percentages based upon total
original equipment purchase price). Business equipment owned by the Partnership
is limited to approximately 60% of the value of the Partnership's total
equipment.
F-11
<PAGE> 27
PW PREFERRED YIELD FUND II, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
Activity relating to the write down for equipment impairment was as
follows:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Beginning of period $ 568,737 $ 100,000
Write down 325,000 716,000
Dispositions (118,583) (247,263)
--------- ---------
Total, end of period $ 775,154 $ 568,737
========= =========
</TABLE>
Significant Lessees
At least 65% of the Partnership's equipment is leased to lessees which
are investment grade lessees or which are operating subsidiaries of entities
which are investment grade companies. Revenue from major individual lessees
which accounted for greater than 10% of the Partnership's total rental revenue
during 1996, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
Lessee Percentage of Total Rental Revenue
- ------ ----------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
AT&T Corp. 12.0% -- --
General Motors 10.0% 12.0% 11.5%
</TABLE>
Minimum Future Rentals
The following is a schedule by years of minimum future rentals on
operating leases as of December 31, 1996:
<TABLE>
<CAPTION>
Year Ending
December 31,
- ------------
<S> <C>
1997 $5,137,005
1998 2,642,950
1999 1,388,780
2000 393,973
2001 6,707
Thereafter 11,086
----------
$9,580,501
==========
</TABLE>
F-12
<PAGE> 28
PW PREFERRED YIELD FUND II, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
5. TRANSACTIONS WITH AFFILIATES
Organizational and Offering Stage
Sales Commissions The Sales Agent, an affiliate of the Administrative
General Partner, received sales commissions of 7.0% of gross offering proceeds
from the sale of Units, which aggregated $132,685 during 1994. No sales
commissions were paid or accrued during 1996 and 1995.
Financial Advisory Fee The Sales Agent, an affiliate of the
Administrative General Partner, received a fee of 1.5% of gross offering
proceeds from the sale of Units as compensation for financial advisory services
rendered in connection with the offering of the Units. Fees of $28,433 were paid
during 1994. No financial advisory fees were paid or accrued in 1996 and 1995.
Non-Accountable Organizational and Offering Expenses Reimbursement
During 1994, the Managing General Partner received $62,551 as a reimbursement
for expenses incurred in connection with the organization of the Partnership and
the offering of the Units. No such amounts were paid or accrued during 1996 and
1995.
Acquisition and Operating Stages
Acquisition of Equipment The Partnership acquired, on an all-cash
basis, equipment from EFG, an affiliate of the Managing General Partner, at
aggregate purchase prices of $1,983,358, $4,522,756, and $6,728,462 (not
including the acquisition and structuring fees and the acquisition expense
allowance discussed below) during 1996, 1995 and 1994, respectively.
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. 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.
Acquisition Fee The Managing General Partner, or its affiliates,
receives 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 is no acquisition fee payable with respect to the equipment
purchased with the
F-13
<PAGE> 29
PW PREFERRED YIELD FUND II, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
Class B Limited Partner's cash contributions. The Managing General Partner, or
its affiliates, earned $59,501, $135,683, and $184,562 of acquisition fees
attributable to the acquisition of equipment during 1996, 1995 and 1994,
respectively.
Non-Accountable Acquisition Expense Allowance During 1994, EFG,
formerly AFG, an affiliate of the Managing General Partner, received $1,720 as
a reimbursement of expenses incurred in connection with the acquisition of
equipment purchased with the Class B Limited Partner's cash contributions. No
such allowance was paid or accrued in 1996 and 1995.
Structuring Fee The Administrative General Partner received a fee of
0.7% of the purchase price of equipment purchased with net offering proceeds as
compensation for evaluation and advisory services relating to acquisition of
equipment and the approval of all equipment acquisitions. Structuring fees of
$11,335 were paid during 1994. No such fee was paid or accrued in 1996 and 1995.
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 $304,554, $345,314 and $353,700 were earned by the General Partners with
regard to the rentals earned by the Partnership during 1996, 1995 and 1994,
respectively.
Disposition Fees The General Partners are entitled to receive a
subordinated disposition fee in an amount equal to the lesser of (i) 50.0% of
the fee that would be charged by an unaffiliated party, or (ii) 3.0% of the
gross contract price relating to each sale of equipment (payable 50.0% to the
Managing General Partner and 50.0% to the Administrative General Partner) as
compensation for negotiating and consummating sales of equipment. Subordinated
disposition fees aggregating $47,568 are payable to the General Partners at
December 31, 1996 of which $6,691, $23,846 and $7,559 were incurred in 1996,
1995 and 1994, respectively. 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 8.0% annual cumulative return (as defined in the
Partnership Agreement).
As part of the class action settlement (see Footnote 8, "Litigation"),
beginning January 1996, all fees and distributions payable to the Administrative
General Partner and all future fees and
F-14
<PAGE> 30
PW PREFERRED YIELD FUND II, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
distributions earned by the Administrative General Partner have been assigned by
an affiliate to an escrow account for the benefit of class members.
6. RECONCILIATION TO INCOME TAX METHOD OF ACCOUNTING
The following is a reconciliation of the net income as shown in the
accompanying financial statements to the taxable income reported for federal
income tax purposes:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Net income per financial statements $ 979,886 $ 683,531 $ 1,247,403
Increase (decrease) resulting from:
Provisions for equipment impairment 325,000 716,000 100,000
Provisions for bad debt 50,000 75,000
Depreciation (881,374) (484,722) (100,048)
Gain on sale or equipment & other (160,108) (214,107) 29,080
Deferred rental income (67,274) (149,701) (14,986)
Subordinated disposition fee payable (47,568) (40,877) 18,066
----------- ----------- -----------
Taxable income per federal income tax return $ 198,562 $ 585,124 $ 1,279,515
=========== =========== ===========
</TABLE>
The following is a reconciliation of the Partnership's net assets as
shown in the accompanying financial statements to the tax bases of the
Partnership's net assets:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Net assets per financial statements $ 17,727,523 $ 20,221,343
Increase (decrease) resulting from:
Commissions and expenses paid
in connection with the sale
of Class A Limited Partner Units 3,260,594 3,260,594
Distributions payable to partners 353,731 319,084
Deferred rental income 125,500 133,476
Accumulated depreciation (2,683,908) (1,756,676)
Allowance for equipment impairment and
allowance for doubtful accounts 900,154 643,737
Other 91,350 202,477
------------ ------------
Tax bases of net assets $ 19,774,944 $ 23,024,035
============ ============
</TABLE>
F-15
<PAGE> 31
PW PREFERRED YIELD FUND II, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
7. 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.
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 Group Limited Partnership.
8. 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
F-16
<PAGE> 32
PW PREFERRED YIELD FUND II. L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
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, Paine
Webber 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 plaintiffs' claims in the class action entitled, In re:
PaineWebber Limited Partnerships Litigation.
In January 1996, PaineWebber signed a memorandum of understanding with
the plaintiffs in the class action outlining the terms under which the parties
agreed to settle the case. A definitive settlement agreement was signed in July
1996 and in March 1997. The District Court approved the settlement as fair and
reasonable. Under the terms of the settlement, PaineWebber agreed to pay $125
million and additional consideration to class members.
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.
F-17
<PAGE> 33
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
On December 1, 1996, the Board of Directors of the General Equipment
Management II Inc. (the "Administrative General Partner") of Registrant elected
to retain Coopers and Lybrand LLP ("C&L") as its independent auditor and to
dismiss Arthur Andersen, LLP ("AA"). Heretofore AA had acted as the Registrant's
independent auditor. The decision to change auditors was recommended by the
Registrant's Administrative General Partner.
The reports of AA on the financial statement of the Registrant for each
of the two fiscal years in the period ended December 31, 1995, did not contain
any adverse opinion or disclaimer of opinion and were not qualified or modified
as to uncertainty, audit scope or accounting principles.
During the Registrant's two recent fiscal years and all subsequent
interim periods preceding such change in auditors, there was no disagreement
with AA on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which, if not resolved to the
satisfaction of the former accountant, would have caused it to make a reference
to the subject matter of the disagreements in connection with its report; nor
has AA ever presented a written report, or otherwise communicated in writing of
the Registrant or its General Partners the existence of any "disagreement" or
"reportable event" within the meaning of Item 304 of Regulation 8-K.
The Registrant has authorized AA to respond fully to the inquiries of
the Registrant's successor accountant and has requested that AA provide the
Registrant with a letter addressed to the SEC, as required by Item 304 (a)(3) of
Regulations S-K, so that the Registrant can file such letter with the SEC.
There were no changes in accountants or disagreements with C&L with
respect to accounting or financial disclosure issues during 1996.
14
<PAGE> 34
PART III
Item 10. Directors and Executive Officers of the Registrant
The Partnership has no officers and directors. The General Partners
jointly manage and control the affairs of the Partnership and have general
responsibility and authority in all matters affecting its business. Information
concerning the directors and executive officers of the General Partners is as
follows:
Pembroke Financial Limited Partnership
(a Massachusetts limited partnership, of which
AFG Leasing VII Incorporated is the sole general partner)
Name Positions Held
---- --------------
Geoffrey A. MacDonald Chairman and a member of the
Executive Committee of EFG and
President and Director of AFG
Leasing VII Incorporated
Gary D. Engle President and Chief Executive Officer
and member of the Executive
Committee of EFG and Vice President
and Director of AFG Leasing VII
Incorporated
Gary M. Romano Executive Vice President and Chief
Operating Officer of EFG and AFG
Leasing VII Incorporated
Geoffrey A. McDonald, age 48, is a co-founder, member of the Executive
Committee and Chairman. Mr. MacDonald served as co-founder, Director and Senior
Vice President of EFG's predecessor corporation from 1980 to 1988. Mr. MacDonald
is President and a Director of AFG Leasing VII Incorporated and Vice-President
of American Finance Group Securities Corp. Prior to co-founding EFG's
predecessor, Mr. MacDonald held various executive and management positions in
the leasing and pharmaceutical industries. Mr. MacDonald holds an Masters in
Business Administration from Boston College and a Bachelor of Arts degree from
the University of Massachusetts (Amherst).
Gary D. Engle, age 48, is President, Chief Executive Officer and a
member of the Executive Committee of EFG and Vice President and Director of AFG
Leasing VII Incorporated. Mr. Engle is Vice President and Director of certain of
EFG's affiliates. On December 16, 1996, Mr. Engle acquired control of EFG, the
General Partner and Subsidiaries of EFG From 1987 to 1990, Mr. Engle was a
principal and co-founder of Cobb Partners Development, Inc., a real estate and
mortgage banking company. From 1980 to 1987, Mr. Engle was Senior Vice President
and Chief Financial Officer of Arvida Disney Company. Prior to 1980, Mr. Engle
served in various management consulting and institutional brokerage capacities.
Mr. Engle has a Masters of Business
15
<PAGE> 35
Administration from Harvard University and a Bachelor of Science degree from the
University of Massachusetts (Amherst).
Gary M. Romano, age 37, is Executive Vice President and Chief Operating
Officer of EFG and certain of its affiliates. Mr. Romano joined AFG in November
1989 and was appointed Vice President and Controller in April 1993 and Executive
Vice President and Chief Operating Officer in April 1996. Prior to joining AFG,
Mr. Romano was Assistant Controller for a privately held real estate development
and management company which he joined in 1987. Mr. Romano held audit staff and
manager positions at Ernst & Whinney from 1982 to 1986. Mr. Romano is a
Certified Public Accountant and holds a Bachelor of Science degree from Boston
College.
General Equipment Management II, Inc.
Name Positions Held
---- --------------
Gerald F. Goertz, Jr. Chairman of the Board
Stephen R. Dyer President and Director
Clifford B. Wattley Vice President, Assistant Secretary
and Director
Joseph P. Ciavarella Vice President, Secretary, Treasurer,
Chief Financial and Accounting
Officer and Director
Gerald F. Goertz, Jr., age 39, is Chairman of the Board of Directors of
the Administrative General Partner. Mr. Goertz joined PaineWebber Incorporated
in December 1990 and holds the position of Senior Vice President and Director of
Specialized Investment Services. Prior to joining PaineWebber Incorporated, Mr.
Goertz was associated with CG Realty Advisors and The Freeman Company. He
received his Bachelor of Arts degree in Business Administration in 1979 from
Vanderbilt University and his Juris Doctorate and Masters of Business
Administration from Memphis State University in 1982.
Stephen R. Dyer, age 37, is President and a Director of the
Administrative General Partner. He joined PaineWebber Incorporated in June 1988
as a Divisional Vice President and is currently a Corporate Vice President and
Director of Private Investments. Prior to joining PaineWebber Incorporated, Mr.
Dyer had been employed, since June 1987, as an Assistant Vice President in the
Retail National Products Group of L.F. Rothschild & Co. Incorporated. Prior to
joining L.F. Rothschild, he was employed, beginning in January 1985, as an
Associate in the Real Estate Department of Thomson McKinnon Securities Inc. From
July 1981 to August 1983, Mr. Dyer was on the audit staff of the accounting firm
of Arthur Young & Company. He received his Bachelor of Science degree in
Accounting in 1981 from Boston College and a Masters of Business Administration
from Indiana University in December 1984. Mr. Dyer is a Certified Public
Accountant.
Clifford B. Wattley, age 47, is a Vice President, Assistant Secretary
and Director of the Administrative General Partner. Mr. Wattley is a Corporate
Vice President with PaineWebber
16
<PAGE> 36
Incorporated, having joined the firm in 1986. He also was employed previously by
Paine, Webber, Jackson & Curtis from 1979 to 1980. From 1986 to 1992, Mr.
Wattley participated in PaineWebber's Principal Transactions Group. Mr. Wattley
has been a member of the Private Investment Department since 1992. He holds a
Bachelor of Science degree in engineering from Columbia University and a Masters
in Business Administration from Harvard University.
Joseph P. Ciavarella, age 41, is Vice President, Secretary, Treasurer
and Chief Financial and Accounting Officer of the Administrative General
Partner. He joined PaineWebber Incorporated in May 1994 as a Corporate Vice
President. Immediately prior to joining PaineWebber Incorporated, he was
associated from August 1993 to May 1994 with the Aviation Capital Group. From
1983 to 1993, he was a financial officer of Integrated Resources Inc. and a
senior officer in the Equipment Leasing division, aircraft finance and capital
markets areas. He is a graduate of Hofstra University and is a Certified Public
Accountant.
Compliance with Section 16(a) of the Exchange Act
Item 11. Executive Compensation
No compensation was paid by the Partnership to the officers and
directors of the General Partners. See Item 13 of this Report, "Certain
Relationships and Related Transactions", which is incorporated herein by
reference, for a description of the compensation and fees paid to the General
Partners and their affiliates by the Partnership during 1996.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) As of the date hereof, no person is known by the Partnership to
be the beneficial owner of more than 5% of the Units of the
Partnership. The Partnership has no directors or officers, and
neither the General Partners nor the Class B Limited Partner of
the Partnership owns any Units. At December 31, 1996, ATL, Inc.,
an affiliate of the Administrative General Partner, owned 260
Units pursuant to legal settlements with certain limited
partners.
PYB Limited Partnership owns 100% of the Partnership's Class B
Units. AFG acquired all of the equity ownership interest in PYB
Limited Partnership as of November 1, 1993.
17
<PAGE> 37
The names and addresses of the General Partners and the Class B
Limited Partner are as follows:
Managing General Partner:
Pembroke Financial Limited Partnership
98 North Washington Street
Boston, MA 02114
Administrative General Partner:
General Equipment Management II, Inc.
1200 Harbor Boulevard, 5th Floor
Weehawken, NJ 07087
Class B Limited Partner:
PYB Limited Partnership
98 North Washington Street
Boston, MA 02114
(b) No directors or officers of the Managing General Partner, the
Administrative General Partner or the Class B Limited Partner
owned any Units as of March 1, 1997.
(c) The Partnership knows of no arrangements, the operation of the
terms of which may at a subsequent date result in a change in
control of the Partnership.
Item 13. Certain Relationships and Related Transactions
The General Partners and their affiliates have received or will receive
certain types of compensation, fees, or other distributions in connection with
the operations of the Partnership. The fees and compensation were determined in
accordance with the applicable provisions of the Partnership Agreement.
Following is a summary of the amounts paid or payable to the General
Partners and their affiliates during 1996.
18
<PAGE> 38
Acquisition and Operating Stages
Acquisition of Equipment During 1996, the Partnership acquired, on an
all-cash basis, equipment from EFG, an affiliate of the Managing General
Partner, at a purchase price of $1,983,358 (not including the related
acquisition fees discussed below).
The purchase price of the equipment acquired from EFG was equal to the
lesser of the adjusted cost of the equipment or the appraised value of the
equipment at the time of its acquisition by the Partnership. The adjusted cost
of the equipment 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.
Acquisition Fee The Managing General Partner, or its affiliates,
receives 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 is no acquisition fee payable with respect to the equipment
purchased with the Class B Limited Partner's cash contributions. The Managing
General Partner, or its affiliates, earned $59,501 of acquisition fees
attributable to the acquisition of equipment during 1996.
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, 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 $304,554 were earned by the General
Partners with respect to the rentals earned by the Partnership during 1996.
Disposition Fees The General Partners are entitled to receive a
subordinated disposition fee in an amount equal to the lesser of (i) 50.0% of
the fee that would be charged by an unaffiliated party, or (ii) 3.0% of the
gross contract price relating to each sale of equipment (payable 50.0% to the
Managing General Partner and 50.0% to the Administrative General Partner) as
compensation for negotiating and consummating sales of equipment. Subordinated
disposition fees of $6,691 are payable to the General Partners with respect to
1996. 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 8.0%
annual cumulative return (as defined in the Partnership Agreement).
Accountable General and Administrative Expenses The General Partners
are entitled to reimbursement of certain expenses paid on behalf of the
Partnership which are incurred in connection with the Partnership's operations.
There were no such reimbursable expenses during 1996.
Distributive Interests The General Partners received or accrued an
aggregate of $173,685 of cash distributions in 1996.
19
<PAGE> 39
As part of the class action settlement (see footnote 8, "Litigation")
beginning January 1996, all fees and distributions payable to the Administrative
General Partner and all future fees and distributions earned by the
Administrative General Partner have been assigned by an affiliate to an escrow
account for the benefit of class members.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) and (d) The following documents are filed as part of this Report:
1. Financial Statements: (Incorporated by reference to Item 8
of this Report, "Financial Statements and Supplementary
Data").
(b) During the quarter ended December 31, 1996, the Partnership filed
a Form 8-K dated December 31, 1996 reporting a change in
accountants.
(c) Exhibits required to be filed.
Exhibit No. Description
----------- -----------
4.1 Amended and Restated Agreement of Limited Partnership
of PW Preferred Yield Fund II, L.P., dated as of
September 10, 1992. Filed as Exhibit 4.1 to the
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1992.*
10.1 Sales Agency Agreement, dated September 15, 1992,
among PW Preferred Yield Fund II, L.P., Pembroke
Financial Limited Partnership, General Equipment
Management II, Inc., AFG Leasing VII Incorporated,
American Finance Group and PaineWebber Incorporated.
Filed as Exhibit 10.1 to the Registrant's Annual
Report on Form 10-K for the year ended December 31,
1992.*
20
<PAGE> 40
10.2 Escrow Agreement, dated as of September 17, 1992,
among PW Preferred Yield Fund II, L.P., PaineWebber
Incorporated and First National Bank of Omaha. Filed
as Exhibit 10.2 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1992.*
10.3 Reporting Agent Agreement, dated as of September 17,
1992, by and among PW Preferred Yield Fund II, L.P.,
PaineWebber Incorporated and Service Data
Corporation. Filed as Exhibit 10.3 to the
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1992.*
11 Partnership's policy regarding requests for partner
lists.
- ----------
* Not filed herewith. In accordance with Rule 12b-32 of the General
Rules and Regulations under the Securities Exchange Act of 1934,
reference is made to the document previously filed with the Commission
which is incorporated herein by reference.
21
<PAGE> 41
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: March 31, 1997
PW Preferred Yield Fund II, L.P.
By: General Equipment Management II, Inc.
Administrative General Partner
By: /s/ Stephen R. Dyer
-------------------
Stephen R. Dyer
President and Director
By: /s/ Joseph P. Ciavarella
------------------------
Joseph P. Ciavarella
Vice President, Secretary,
Treasurer, Chief Financial and
Accounting Officer and Director
By: Pembroke Financial Limited Partnership
Managing General Partner
By: /s/ Geoffrey A. MacDonald
-------------------------
Geoffrey A. MacDonald
President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on March 31, 1997.
Signature Title
- --------- -----
/s/ Geoffrey A. MacDonald President and Director of AFG Leasing VII
- ------------------------- Incorporated, the sole General Partner of
Geoffrey A. MacDonald Pembroke Financial Limited Partnership
/s/ Gary D. Engle Vice President and Director of AFG Leasing
- ------------------------- VII Incorporated, the sole General Partner of
Gary D. Engle Pembroke Financial Limited Partnership
22
<PAGE> 42
/s/ Gerald F. Goertz, Jr. Chairman of the Board of General
- ------------------------- Equipment Management II, Inc.
Gerald F. Goertz, Jr.
/s/ Stephen R. Dyer President and Director of General
- ------------------------- Equipment Management II, Inc.
Stephen R. Dyer
/s/ Clifford B. Wattley Vice President, Assistant Secretary
- ------------------------- and Director of General Equipment
Clifford B. Wattley Management II, Inc.
/s/ Joseph P. Ciavarella Vice President, Secretary, Treasurer,
- ------------------------- Chief Financial and Accounting Officer
Joseph P. Ciavarella and Director of General Equipment
Management II, Inc.
23
<PAGE> 43
Exhibit Index
- -------------
Exhibit No. Description Page
----------- ----------- ----
4.1 Amended and Restated Agreement of Limited
Partnership of PW Preferred Yield Fund II, L.P.,
dated as of September 10, 1992. (Incorporated by
Reference.) *
10.1 Sales Agency Agreement, dated September 15, 1992,
among PW Preferred Yield Fund II, L.P., Pembroke
Financial Limited Partnership, General Equipment
Management II, Inc., AFG Leasing VII Incorporated,
American Finance Group and PaineWebber Incorporated.
(Incorporated by Reference.) *
10.2 Escrow Agreement, dated as of September 17, 1992,
among PW Preferred Yield Fund II, L.P., PaineWebber
Incorporated and First National Bank of Omaha.
(Incorporated by Reference.) *
10.3 Reporting Agent Agreement, dated as of September 17,
1992, by and among PW Preferred Yield Fund II, L.P.,
PaineWebber Incorporated and Service Data
Corporation. (Incorporated by Reference.) *
11 Partnership's policy regarding requests for partner
lists.
- --------------
* See Item 14(c) for statement of location of exhibits incorporated by
reference.
<PAGE> 1
Exhibit 11
Policy Regarding Requests for Partners Lists
--------------------------------------------
In accordance with the Delaware Revised Uniform Limited Partnership Act
(the "Act"), and without limiting its rights under the Partnership Agreement or
the Act, as each may be amended from time to time, the General Partner of the
Partnership has established standards applicable to requests for lists of
Limited Partners. These standards have been established in order to assure (1)
that the lists are not used for and improper or inappropriate purpose or in any
way that might be detrimental to the Partnership or the Limited Partners; (2)
that the Limited Partners have sufficient information and opportunity to decide
how they should react in response to any solicitation or other communication
addressed to them; and (3) that the Partnership and the Limited Partners do not
face an increased risk of adverse tax consequences as a direct or indirect
result of any such solicitation or communication.
The General Partner requires any request to be made in writing by a
record holder of limited partner interests with standing to request the list,
to comply strictly with all applicable requirements of law and the Partnership
Agreement, to state the purpose for which the request is made with sufficient
specificity to enable the General Partner to make the determinations specified
above, and to include an undertaking under oath by the person requesting the
list and the persons or entities on whose behalf it is requested (1) to hold
the list in strict confidence, and not to give any information derived from
the list to any third party for any purpose whatsoever, (2) to reimburse the
Partnership for costs incurred in connection with the request and for a list,
including confirming compliance with the undertakings required hereby and (3)
to submit to the jurisdiction of the courts of the State of Delaware in any
dispute arising in connection with such request and to appoint and maintain
RL&F Service Corp., One Rodney Square, Tenth Floor, Wilmington, New Castle
County, Delaware 19801 (whose reasonable fees and expenses will be paid by the
Partnership) as such person's or entity's agent in the State of Delaware for
acceptance of legal process in connection therewith. In addition, in the case
of requests made for the purpose of soliciting tenders of the Limited Partners'
interests or units in the Partnership or soliciting proxies or consents from
Limited partners or facilitating, assisting or supporting any such
solicitation, the General Partner will, if and to the extent required by
applicable law and the Partnership Agreement, make lists available or agree to
disseminate such solicitations on behalf of requesting Limited Partners only
upon receipt of an undertaking under oath by the person requesting the list and
the persons or entities on whose behalf it is requested (1) to conduct the
solicitation in accordance with the requirements of the Securities and Exchange
Act of 1934 and the rules of the Securities and Exchange Commission thereunder,
including full disclosure of all material facts and, in the case of any tender
offer, rights of proration and withdrawal rights, irrespective of the number of
interests or units sought, and (2) to refrain from acquiring interests or
units of any number if the General Partners, based upon advice from counsel,
conclude that such acquisition would increase the risk of adverse tax
consequences to the Partnership or the Partners.
The General Partner shall endeavor to inform the requesting party
within 30 days of receipt of the requisite undertakings whether they consider
that the proposed use of the list is improper or inappropriate or would
increase the risk of such adverse tax consequences, and may request such
further assurances as may be necessary in order to enable them to make any of
the determinations specified above.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PW PREFERRED
YIELD FUND II, LTD. FORM 10-K.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996<F1>
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,524,801
<SECURITIES> 0
<RECEIVABLES> 1,300,409
<ALLOWANCES> 125,000
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 35,952,539
<DEPRECIATION> 21,081,123
<TOTAL-ASSETS> 18,597,031
<CURRENT-LIABILITIES> 869,508
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 17,727,523
<TOTAL-LIABILITY-AND-EQUITY> 18,597,031
<SALES> 0
<TOTAL-REVENUES> 7,536,793
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 114,908
<LOSS-PROVISION> 50,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 979,886
<INCOME-TAX> 0
<INCOME-CONTINUING> 979,886
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 979,886
<EPS-PRIMARY> 10.52
<EPS-DILUTED> 0
<FN>
<F1>5.02(13) AND 5.02(14) REFLECT PROVISIONS FOR EQUIPMENT IMPAIRMENT AND INCLUDE
BOTH LEASED EQUIPMENT AND EQUIPMENT HELD FOR SALE OR LEASE.
5.03(31) REFLECT THE CAPITAL ACCOUNTS OF BOTH LIMITED PARTNERS AND GENERAL
PARTNERS, ADJUSTED FOR ACCUMULATED EARNINGS, DISTRIBUTORS AND SYNDICATION COST.
</FN>
</TABLE>
