SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31, 1996
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number 0-21382
CAPITAL PREFERRED YIELD FUND-II
-------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 84-1184628
(State of organization) (I.R.S. Employer Identification Number)
7175 W. JEFFERSON AVENUE, LAKEWOOD, COLORADO 80235
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 980-1000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Units of Class A
Limited Partner
Interest
(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of 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.
Exhibit Index Appears on Pages 42
Page 1 of 43 Pages
<PAGE>
Item 1. Business
--------
Capital Preferred Yield Fund-II, L.P., a Delaware limited partnership (the
"Partnership"), was organized on November 19, 1991 and is engaged in the
business of owning and leasing equipment. CAI Equipment Leasing III Corp., a
Colorado corporation and an affiliate of Capital Associates, Inc. ("CAI"), is
the general partner of the Partnership.
Capital Associates International, Inc. ("CAII"), an affiliate of the general
partner, is the sole Class B limited partner of the Partnership. In exchange for
its Class B limited partner interest, the Class B limited partner contributed
$330,000 (i.e., $10,000 for each $1,000,000 contribution to the Partnership made
by the Class A limited partners) to the Partnership making CAII the largest
single investor in the Partnership. In addition, the Class B limited partner's
interest in Distributable Cash is subordinated to the Class A limited partners'
interest. The contributions of the Class B limited partner were made
simultaneously with the purchase of equipment by the Partnership.
The Partnership's overall investment objectives are to (i) raise the maximum
allowable capital from investors for investment in accordance with the
Partnership's investment objectives described in the Prospectus; (ii) invest
such capital and related indebtedness in a diversified portfolio of equipment
subject to leases with creditworthy businesses with terms ranging from two to
seven years; (iii) if funds are available for distribution, make monthly cash
distributions to the Class A Limited Partners during the reinvestment period (a
period that ends approximately June 30, 1997); (iv) re-invest all available
undistributed cash from operations and cash from sales in additional equipment
during the reinvestment period to increase the Partnership's portfolio of
revenue- generating equipment, provided that suitable equipment can be
identified and acquired; and (v) sell or otherwise dispose of the Partnership's
equipment and other assets in an orderly manner and promptly distribute cash
from sales thereof to the Partners within one to four years of the end of the
reinvestment period.
During 1996, the Partnership acquired equipment of various types under lease to
third parties on short-term leases (generally less than five years). All of the
equipment was purchased by CAII directly from manufacturers or from other
independent third parties and sold to the Partnership. The equipment generally
consisted of, but was not limited to, point of sale equipment, transportation
equipment, computer equipment, above ground mining equipment and printed circuit
board manufacturing equipment. See Item 13 of this report, "Certain
Relationships and Related Transactions" for the listing of equipment purchased
during 1996. The Partnership expects that a majority of the equipment purchased
during 1997 will be similar in nature to that mentioned above.
The Partnership may assign the rentals from leases to financial institutions, or
acquire leases subject to such assignments, at fixed interest rates on a
nonrecourse basis. This non-recourse debt financing will be utilized to finance
the purchase of equipment under lease, or to invest the proceeds therefrom in
additional equipment under lease. In the event of default by a lessee, the
financial institution has a first lien on the underlying leased equipment, with
no further recourse against the Partnership. Cash proceeds from such financings,
or financings assumed in the acquisition of leases, are recorded on the balance
sheet as discounted lease rentals. As lessees make payments to financial
institutions, leasing revenue and interest expense are recorded.
-2-
<PAGE>
Item 1. Business, continued
--------
During 1996, the Partnership leased equipment to investment grade lessees in the
automobile manufacturing and servicing, manufacturing, and other industries.
Since the Partnership's formation, approximately 72% of the Partnership's
equipment under lease was leased to investment grade lessees. Pursuant to the
Partnership Agreement, an investment grade lessee is a company (i) with a net
worth in excess of $100 million (and no debt issues that are rated), or (ii)
with a credit rating of not less than Baa as determined by Moody's Investor
Service, Inc., or comparable credit rating, as determined by another recognized
credit rating service; or a lessee, all of whose lease payments have been
unconditionally guaranteed or supported by a letter of credit issued by a
company meeting one of the above requirements. The Partnership may limit its
credit risk through selective use of non-recourse debt financing of future lease
rentals, as described above.
The Partnership only acquires equipment that is on lease at the time of
acquisition. After the initial term of its lease, each item of equipment will be
expected to produce additional investment income from its re-lease or ultimate
sale. Upon expiration of the initial lease, the Partnership attempts to re-lease
or sell the equipment to the existing lessee. If a re-lease or sale to the
lessee cannot be negotiated, the Partnership will attempt to lease or sell the
equipment to a third party.
The Partnership's business is not subject to seasonal variations.
The ultimate rate of return on leases depends, in part, on the general level of
interest rates at the time the leases are originated. Because leasing is an
alternative to financing equipment purchases with debt, lease rates tend to rise
and fall with interest rates (although lease rate movements generally lag
interest rate changes in the capital markets). Interest rates have fluctuated
over the past several years as follows: (i) rates decreased from 1993 until the
early part of 1994, (ii) rates then increased through the early part of 1995 and
(iii) rates have decreased to the present time. It is unclear whether interest
rates will continue to decrease, and what effect, if any, such interest rate
decreases will have on lease rates.
The Partnership has no employees. The officers, directors and employees of the
general partner and its affiliates perform services on behalf of the
Partnership. The general partner is entitled to receive certain fees and expense
reimbursements in connection with the performance of these services. See Item 10
of this Report, "Directors and Executive Officers of the Partnership" and Item
13 of this Report, "Certain Relationships and Related Transactions".
The Partnership competes in the leasing marketplace as a lessor with a
significant number of other companies, including equipment manufacturers,
leasing companies and financial institutions. The Partnership competes mainly on
the basis of the expertise of its general partner in remarketing equipment,
terms offered in its transactions, pricing and service. Although the Partnership
does not account for a significant percentage of the leasing market, the general
partner believes that the Partnership's marketing strategies and financing
capabilities will enable it to continue to compete effectively in the equipment
leasing and remarketing markets.
The Partnership leases equipment to a significant number of lessees. No single
lessee and its affiliates accounted for more than 10% of total revenue of the
Partnership during 1996.
-3-
<PAGE>
Item 1. Business, continued
--------
Currently the Partnership is in its reinvestment period (as set forth in the
Prospectus). The Partnership will enter its liquidation period (as set forth in
the Prospectus) beginning in April 1997.
The Partnership is required to dissolve and distribute all of its assets no
later than December 31, 2009. However, the general partner anticipates that all
equipment will be sold prior to that date and that the Partnership will be
liquidated between 1997 and 2001.
Item 2. Properties
----------
Per the Partnership Agreement, the Partnership does not own or lease any
physical properties other than the equipment discussed in Item 1 "Business", of
this report, which is incorporated herein by reference.
Item 3. Legal Proceedings
-----------------
Neither the Partnership nor any of the Partnership's equipment is the subject of
any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
No matters were submitted to a vote of the limited partners of the Partnership,
through the solicitation of proxies or otherwise, during the fourth quarter
ended December 31, 1996.
Item 5. Market for the Partnership's Common Equity and Related Stockholder
----------------------------------------------------------------------
Matters
-------
(a) The Partnership's limited partner units and general partner units are
not publicly traded. There is no established public trading market
for such units and none is expected to develop.
(b) As of December 31, 1996, the number of Class A limited partners was
2,375.
-4-
<PAGE>
Item 5. Market for the Partnership's Common Equity and Related Stockholder
----------------------------------------------------------------------
Matters, continued
-------
(c) Distributions
-------------
During 1996, the Partnership made twelve (12) distributions (a
substantial portion of which constituted a return of capital) to Class
A limited partners, as follows:
<TABLE>
<CAPTION>
Distributions Per
$250 Class A limited
For the Payment partner unit (computed Total
Month Ended Made During on weighted average) Distributions
----------- ----------- ---------------------- -------------
<S> <C> <C> <C>
December 31, 1995 January 1996 $ 2.50 $ 337,250
January 31, 1996 February 1996 2.50 335,750
February 28, 1996 March 1996 2.50 335,560
March 31, 1996 April 1996 2.50 335,560
April 30, 1996 May 1996 2.50 335,560
May 31, 1996 June 1996 2.50 335,445
June 30, 1996 July 1996 2.50 335,445
July 31, 1996 August 1996 2.50 335,445
August 31, 1996 September 1996 2.50 335,345
September 30, 1996 October 1996 2.50 335,145
October 31, 1996 November 1996 2.50 335,145
November 30, 1996 December 1996 2.50 335,145
------- -----------
$ 30.00 $ 4,026,795
======= ===========
</TABLE>
A substantial portion of such distributions is expected to constitute
a return of capital. Distributions may be characterized for tax,
accounting and economic purposes as a return of capital, a return on
capital or both. The portion of each cash distribution by a
partnership which exceeds its net income for the fiscal period may be
deemed a return of capital for accounting purposes. However, the total
percentage of a partnership's return on capital over its life can only
be determined after all residual cash flows (which include proceeds
from the re-leasing and sale of equipment) have been realized at the
termination of the Partnership.
The distribution for the month ended December 31, 1996, totaling
$334,945, was paid to the Class A limited partners during January
1997. Distributions to the general partner and Class B limited partner
during 1996 are discussed in Item 13 of this Report, "Certain
Relationships and Related Transactions."
The general partner believes that the Partnership will generate
sufficient cash flow from operations during 1997 to (1) meet current
operating requirements, (2) enable it to fund cash distributions to
the Class A and Class B limited partners at annualized rates of 12%
and 11% (substantial portions of which are expected to constitute
returns of capital), respectively, on their capital contributions and
(3) reinvest in additional equipment under leases, provided that
suitable equipment can be identified and acquired.
-5-
<PAGE>
Item 5. Market for the Partnership's Common Equity and Related Stockholder
----------------------------------------------------------------------
Matters, continued
-------
(c) Distributions, continued
-------------
The Partnership is currently in its reinvestment period and will enter
its liquidation period (as defined in the Partnership Agreement) in
April 1997. During the reinvestment period, available cash will be
distributed or reinvested per items (2) and (3) described in the
preceding paragraph. However, during the liquidation period,
reinvestment will cease and the excess cash, if any, will be
distributed to the partners in accordance with the Partnership
Agreement. Therefore, it is anticipated that during the liquidation
period in 1997, cash distributions to the Class A limited partners
will be in excess of 12% of their contributed capital. Distributions
during the liquidation period will be based upon cash availability and
will vary and all distributions are expected to be a return of capital
for economic purposes.
During 1995, the Partnership made twelve (12) distributions (a
substantial portion of which constituted a return of capital) to Class
A limited partners, as follows:
<TABLE>
<CAPTION>
Distributions Per
$250 Class A limited
For the Payment partner unit (computed Total
Month Ended Made During on weighted average) Distributions
----------- ----------- ---------------------- -------------
<S> <C> <C> <C>
December 31, 1994 January 1995 $ 2.50 $ 338,725
January 31, 1995 February 1995 2.50 338,725
February 28, 1995 March 1995 2.50 338,725
March 31, 1995 April 1995 2.50 338,075
April 30, 1995 May 1995 2.50 338,075
May 31, 1995 June 1995 2.50 338,075
June 30, 1995 July 1995 2.50 337,575
July 31, 1995 August 1995 2.50 337,575
August 31, 1995 September 1995 2.50 337,530
September 30, 1995 October 1995 2.50 337,330
October 31, 1995 November 1995 2.50 337,330
November 30, 1995 December 1995 2.50 337,250
-------- -----------
$ 30.00 $ 4,054,990
======= ============
</TABLE>
-6-
<PAGE>
Item 6. Selected Financial Data
-----------------------
The following selected financial data relates to 1996 through 1992. The data
should be read in conjunction with Item 7, "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the financial statements
and notes thereto appearing elsewhere herein.
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total revenue $10,870,083 $12,719,445 $11,967,912 $ 6,434,945 $ 583,538
Net income 231,258 1,009,230 502,147 133,229 7,617
Net income per weighted average Class A
limited partner unit outstanding 1.40 7.09 3.52 1.43 0.43
Total assets 33,516,785 31,806,534 39,962,561 34,740,737 10,793,916
Discounted lease rentals 15,559,029 10,009,561 15,037,678 17,287,511 4,828,090
Distributions declared to partners 4,101,808 4,131,126 3,847,041 1,735,555 293,419
Distributions declared per weighted average
Class A limited partner unit 29.95 30.00 30.08 30.08 16.72
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and
----------------------------------------------------------------------
Results of Operations
---------------------
Results of Operations
- ---------------------
Presented below are schedules (prepared solely to facilitate the discussion of
results of operations that follows) showing condensed income statement
categories and analyses of changes in those condensed categories derived from
the Statements of Income.
<TABLE>
<CAPTION>
Condensed Condensed
Statements of Income Statements of Income
for the years The effect on for the years The effect on
ended December 31, net income of ended December 31, net income of
-------------------------- changes -------------------------- changes
1996 1995 between years 1995 1994 between years
----------- ----------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Leasing margin $ 1,470,270 $ 1,815,691 $ (345,421) $ 1,815,691 $ 1,289,127 $ 526,564
Equipment sales margin 189,435 248,350 (58,915) 248,350 20,437 227,913
Interest income 201,719 65,426 136,293 65,426 161,329 (95,903)
Management fees paid to general
partner (286,973) (275,888) (11,085) (275,888) (260,429) (15,459)
Direct services from general partner (158,770) (81,229) (77,541) (81,229) (81,024) (205)
General and administrative expenses (284,423) (153,120) (131,303) (153,120) (272,293) 119,173
Provision for losses (900,000) (610,000) (290,000) (610,000) (355,000) (255,000)
----------- ----------- ----------- ----------- ----------- -----------
Net income $ 231,258 $ 1,009,230 $ (777,972) $ 1,009,230 $ 502,147 $ 507,083
=========== =========== =========== =========== =========== ===========
</TABLE>
The Partnership is in the latter stages of its reinvestment period (scheduled to
end in March 1997, as defined in the Partnership Agreement). As the reinvestment
period progresses, purchases of equipment under lease are decreasing, initial
leases are expiring and the amount of equipment being remarketed (i.e.,
re-leased, renewed, or sold) is increasing. Because a leasing portfolio declines
in size as it matures, these circumstances have resulted in a decline in the
Partnership's leasing portfolio (referred to in further discussions as
"portfolio run-off").
-7-
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
----------------------------------------------------------------------
Results of Operations, continued
---------------------
LEASING MARGIN
Leasing margin consists of the following:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Operating lease rentals $ 10,028,052 $ 11,843,447 $ 11,150,234
Direct finance lease income 450,877 562,222 635,912
Depreciation and amortization (7,856,952) (9,618,860) (9,301,693)
Interest expense on discounted lease rentals (873,433) (971,118) (1,195,326)
Interest expense on financed operating lease rentals (278,274) - -
------------ ------------ ------------
Leasing margin $ 1,470,270 $ 1,815,691 $ 1,289,127
============ ============ ============
Leasing margin ratio 14% 15% 11%
============ ============ ============
</TABLE>
All components of leasing margin, except interest expense, decreased due to
portfolio runoff. Total interest expense increased due to the increase in
non-recourse financing.
The ultimate rate of return on leases depends, in part, on the general level of
interest rates at the time the leases are originated. Because leasing is an
alternative to financing equipment purchases with debt, lease rates tend to rise
and fall with interest rates (although lease rate movements generally lag
interest rate changes in the capital markets). Interest rates have fluctuated
over the past several years as follows: (i) rates decreased from 1993 until the
early part of 1994, (ii) rates then increased through the early part of 1995 and
(iii) rates have decreased to the present time. It is unclear whether interest
rates will continue to decrease, and what effect, if any, such interest rate
decreases will have on lease rates.
EQUIPMENT SALES MARGIN
Equipment sales margin consists of the following:
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Equipment sale revenue $ 2,865,442 $ 993,317 $ 274,126
Cost of equipment sales (2,676,007) (744,967) (253,689)
----------- ----------- -----------
Equipment sales margin $ 189,435 $ 248,350 $ 20,437
=========== =========== ===========
</TABLE>
The Partnership is in the final year of its five-year reinvestment period.
Currently, a portion of the Partnership's initial leases are expiring and
equipment is being remarketed (i.e., re-leased or sold to either the original
lessee or a third party) and, accordingly, the timing and amount of equipment
sales cannot be projected accurately.
-8-
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
----------------------------------------------------------------------
Results of Operations, continued
---------------------
INTEREST INCOME
Interest income varies due to (i) the amount of cash available for investment
(pending distribution or equipment purchases) and (ii) the interest rate on such
invested cash.
PROVISION FOR LOSSES
The remarketing of equipment for an amount greater than its book value is
reported as equipment sales margin (if the equipment is sold) or leasing margin
(if the equipment is re-leased). The realization of less than the carrying value
of equipment (which is typically not known until remarketing subsequent to the
initial lease termination has occurred) is recorded as provision for losses.
Residual values are established equal to the estimated value to be received from
the equipment following termination of the lease. In estimating such values, the
Partnership considers all relevant facts regarding the equipment and the lessee,
including, for example, the likelihood that the lessee will re-lease the
equipment. The nature of the Partnership's leasing activities is that it has
credit exposure and residual value exposure and, accordingly, in the ordinary
course of business, it will incur losses from those exposures. The Partnership
performs ongoing quarterly assessments of its assets to identify
other-than-temporary losses in value.
The provision for losses recorded during 1996 related to the following items:
* $245,000 to record the Partnership's loss exposure related to Barney's,
Inc., a lessee that filed for Chapter 11 bankruptcy protection on January
10, 1996. In July 1996, negotiations were finalized and a settlement was
received for the Partnership's claim.
* $180,000 related to Norcross Footwear, a lessee that filed for Chapter 11
bankruptcy protection on February 9, 1996. The lease was rejected during
second quarter 1996 and the equipment has been sold or returned to the
Partnership. The fair market value of the equipment re-leased or sold to a
third party was considerably less than anticipated.
* $400,000 and $75,000 related to lessees returning computer equipment and an
MRI system, respectively, to the Partnership. The Partnership had
previously expected to realize the carrying value of that equipment through
lease renewals and proceeds from sale of the equipment to the original
lessee. The fair market value of the equipment re-leased or sold to a third
party is considerably less than was anticipated.
The provision for losses recorded during 1995 related to the following items:
* $360,000 due to a lease of mass storage computer equipment that
terminated during 1995.
* $150,000 due to lessees returning modular buildings and computer
equipment to the Partnership.
* $100,000 due to a settlement agreement reached with a lessee that
filed for protection under Chapter 11 of the bankruptcy code.
-9-
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
----------------------------------------------------------------------
Results of Operations, continued
---------------------
PROVISION FOR LOSSES, continued
The provisions for losses recorded in 1994 related to estimates of
"other-than-temporary" losses in value of off- lease equipment, principally to
RISC workstations and computer disk drives returned to the Partnership. The
Partnership had previously expected to realize the carrying value of this
equipment through month-to-month rentals, renewals or proceeds from the sale of
this equipment to the lessee. The value recovered from sale was less than
initially expected.
EXPENSES
Direct services from the general partners increased in 1996 compared to 1995
primarily due to warehouse labor costs associated with off-lease equipment.
General and administrative expenses increased in 1996 compared to 1995 primarily
due to (i) legal costs associated with bankrupt lessee litigation (ii)
reimbursement to the CAI general partner for insurance costs related to prior
years and (iii) storage costs for warehoused off-lease equipment.
General and administrative expenses decreased in 1995 compared to 1994, due to
higher third-party professional fees incurred for remarketing the Partnership's
equipment in 1994.
Liquidity and Capital Resources
- -------------------------------
The Partnership funds its operating activities principally with cash from rents,
discounted lease rentals (non-recourse debt), interest income, and sales of
off-lease equipment. Available cash and cash reserves of the Partnership are
invested in short-term government securities pending the acquisition of
equipment or distributions to the partners.
During 1996, 1995 and 1994, the Partnership acquired equipment subject to leases
with a total equipment purchase price of $14,304,831, $3,031,560 and
$16,595,752, respectively.
During December 1995, the Partnership assigned certain of its rights to a group
of its operating leases to an unaffiliated third-party (the "Purchaser"). Rights
assigned included rental payments due under the initial leases as well as
anticipated rental payments from renewals or re-leases of the equipment. Rights
retained primarily included a formula-based portion of any proceeds from sales
of equipment. During January 1996, the Purchaser assigned the rentals to a
financial institution and the financial institution paid the discounted value of
the rentals to the Partnership. The underlying leases were originally purchased
by the Partnership for $5,293,523 (including acquisition fees) and had a net
book value of $3,768,228 at December 31, 1995. Financing received by the
Partnership during January 1996 totaled $4,272,657. As with non-recourse debt
financing of lease rentals, this transaction was also collateralized by the
leased equipment and related rentals, and in the event of a lessee default the
Partnership has no recourse liability for repayment of the related obligation.
-10-
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
----------------------------------------------------------------------
Results of Operations, continued
---------------------
During 1996, 1995 and 1994, the Partnership declared distributions to the
partners of $4,101,808, $4,131,126 and $3,847,041, respectively. A substantial
portion of such distributions is expected to constitute a return of capital.
Distributions may be characterized for tax, accounting and economic purposes as
a return of capital, a return on capital or both. The portion of each cash
distribution by a partnership which exceeds its net income for the fiscal period
may be deemed a return of capital for accounting purposes. However, the total
percentage of a partnership's return on capital over its life will only be
determined after all residual cash flows (which include proceeds from the
re-leasing and sale of equipment after initial lease terms expire) have been
realized at the termination of the Partnership.
The general partner believes that the Partnership will generate sufficient cash
flow from operations during 1996 to (1) meet current operating requirements, (2)
enable it to fund cash distributions to the Class A and Class B limited partners
at annualized rates of 12% and 11% (substantial portions of which are expected
to constitute returns of capital), respectively, on their capital contributions
and (3) reinvest in additional equipment under leases, provided that suitable
equipment can be identified and acquired.
The Partnership is currently in its reinvestment period and will enter its
liquidation period (as defined in the Partnership Agreement) in April 1997.
During the reinvestment period, available cash will be distributed or reinvested
per items (2) and (3) described in the preceding paragraph. However, during the
liquidation period, reinvestment will cease and the excess cash, if any, will be
distributed to the partners in accordance with the Partnership Agreement.
Therefore, it is anticipated that during the liquidation period in 1997, cash
distributions to the Class A limited partners will be in excess of 12% of their
contributed capital. Distributions during the liquidation period will be based
upon cash availability and will vary and all distributions are expected to be a
return of capital for economic purposes.
-11-
<PAGE>
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
Index to Financial Statements and
Financial Statement Schedule
Page
Number
------
Financial Statements
--------------------
Independent Auditors' Report 13
Balance Sheets at December 31, 1996 and 1995 14
Statements of Income for the years ended
December 31, 1996, 1995 and 1994 15
Statements of Partners' Capital for the years ended
December 31, 1996, 1995 and 1994 16
Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 17-18
Notes to Financial Statements 19-31
Financial Statement Schedule
----------------------------
Independent Auditors' Report 32
Schedule II - Valuation and Qualifying Accounts 33
-12-
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
THE PARTNERS
CAPITAL PREFERRED YIELD FUND-II, L.P.:
We have audited the accompanying balance sheets of Capital Preferred Yield
Fund-II, L.P. as of December 31, 1996 and 1995, and the related statements of
income, partners' capital, and cash flows for each of the years in the
three-year period 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
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Capital Preferred Yield
Fund-II, L.P. as of December 31, 1996 and 1995, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
/s/KPMG Peat Marwick LLP
--------------------------
KPMG PEAT MARWICK LLP
Denver, Colorado
January 31, 1997
-13-
<PAGE>
CAPITAL PREFERRED YIELD FUND-II, L.P.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31,
-------------------------
1996 1995
---- ----
<S> <C> <C>
Cash and cash equivalents $ 1,768,824 $ 2,092,691
Accounts receivable, net of allowance for doubtful accounts
of $25,000 in 1996 and 1995 149,316 140,873
Equipment held for sale or re-lease 448,552 60,000
Net investment in direct finance leases 4,978,823 5,156,688
Leased equipment, net 26,171,270 24,356,282
----------- -----------
Total assets $33,516,785 $31,806,534
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued liabilities $ 611,147 $ 401,889
Payable to affiliates 26,033 25,552
Rents received in advance 110,946 159,484
Distributions payable to partners 341,384 343,712
Discounted lease rentals 12,397,890 10,009,561
Financed operating lease rentals 3,161,139 -
----------- -----------
Total liabilities 16,648,539 10,940,198
----------- -----------
Partners' capital:
General partner - -
Limited partners:
Class A
260,000 units authorized; 134,978 and 134,900 units issued
and outstanding in 1996 and 1995, respectively 16,637,978 20,601,723
Class B 230,268 264,613
----------- -----------
Total partners' capital 16,868,246 20,866,336
----------- -----------
Total liabilities and partners' capital $33,516,785 $31,806,534
=========== ===========
</TABLE>
See accompanying notes to financial statements.
-14-
<PAGE>
CAPITAL PREFERRED YIELD FUND-II, L.P.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenue:
Operating lease rentals $10,028,052 $11,843,447 $11,150,234
Direct finance lease income 450,877 562,222 635,912
Equipment sales margin 189,435 248,350 20,437
Interest income 201,719 65,426 161,329
----------- ----------- -----------
Total revenue 10,870,083 12,719,445 11,967,912
----------- ----------- -----------
Expenses:
Depreciation and amortization 7,856,952 9,618,860 9,301,693
Interest on discounted lease rentals 873,433 971,118 1,195,326
Interest on financed operating lease rentals 278,274 - -
Management fees paid to general partner 286,973 275,888 260,429
Direct services from general partner 158,770 81,229 81,024
General and administrative 284,423 153,120 272,293
Provision for losses 900,000 610,000 355,000
----------- ----------- -----------
Total expenses 10,638,825 11,710,215 11,465,765
----------- ----------- -----------
Net income $ 231,258 $ 1,009,230 $ 502,147
=========== =========== ===========
Net income allocated:
To the general partner $ 41,018 $ 41,312 $ 55,751
To the Class A limited partners 188,286 958,122 441,846
To the Class B limited partner 1,954 9,796 4,550
----------- ----------- -----------
$ 231,258 $ 1,009,230 $ 502,147
=========== =========== ===========
Net income per weighted average Class
A limited partner unit outstanding $ 1.40 $ 7.09 $ 3.52
=========== =========== ===========
Weighted average Class A limited partner
units outstanding 134,388 135,108 125,582
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
-15-
<PAGE>
CAPITAL PREFERRED YIELD FUND-II, L.P.
STATEMENTS OF PARTNERS' CAPITAL
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Class A
Limited Class A Class B
General Partner Limited Limited
Partner Units Partners Partner Total
-------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Partners' capital at January 1, 1994 $ - 86,871 $ 16,701,552 $ 197,957 $ 16,899,509
Capital contributions - 48,863 12,215,750 120,000 12,335,750
Commissions and offering costs on
sale of Class A limited partner units (17,278) - (1,710,541) - (1,727,819)
Redemptions - (244) (54,808) - (54,808)
Net income 55,751 - 441,846 4,550 502,147
Distributions declared to partners (38,473) - (3,777,178) (31,390) (3,847,041)
------------ ------------ ------------ ------------ ------------
Partners' capital at December 31, 1994 - 135,490 23,816,621 291,117 24,107,738
Redemptions - (590) (119,506) - (119,506)
Net income 41,312 - 958,122 9,796 1,009,230
Distributions declared to partners (41,312) - (4,053,515) (36,299) (4,131,126)
------------ ------------ ------------ ------------ ------------
Partners' capital at December 31, 1995 - 134,900 20,601,722 264,614 20,866,336
Redemptions - (922) (127,540) - (127,540)
Net income 41,018 - 188,286 1,954 231,258
Distributions declared to partners (41,018) - (4,024,490) (36,300) (4,101,808)
------------ ------------ ------------ ------------ ------------
Partners' capital, December 31, 1996 $ - 133,978 $ 16,637,978 $ 230,268 $ 16,868,246
============ ============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
-16-
<PAGE>
CAPITAL PREFERRED YIELD FUND-II, L.P.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 231,258 $ 1,009,230 $ 502,147
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 7,856,952 9,618,860 9,303,589
Provision for losses 900,000 610,000 355,000
Cost of equipment sales 2,676,007 740,547 253,689
Recovery of investment in direct finance leases 948,323 1,254,448 1,122,261
Other - 13,200 -
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (20,568) (20,105) 126,528
Increase (decrease) in payable to affiliates 481 (2,907) (49,933)
Increase in accounts payable and accrued
liabilities 209,258 94,479 172,276
Increase (decrease) in rents received in advance (48,538) 23,410 31,407
------------ ------------ ------------
Net cash provided by operating activities 12,753,174 13,341,162 11,816,964
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases from affiliate of equipment on operating leases (7,887,705) (2,137,312) (13,118,356)
Investment in direct finance leases, acquired from affiliate (115,445) (301,386) (924,950)
------------ ------------ ------------
Net cash used in investing activities (8,003,150) (2,438,698) (14,043,306)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from capital contributions - - 12,335,750
Principal payments on discounted lease rentals (4,014,778) (5,895,078) (5,974,035)
Principal payments on financed operating lease rentals (1,111,518) - -
Proceeds from discounting of lease rentals 11,425 273,727 1,171,756
Proceeds from financing of operating lease receivables 4,272,657 - -
Commissions paid to affiliate in connection with
the sale of Class A limited partner units - - (1,221,575)
Organization and offering expenses paid to the
general partner in connection with the sale of
Class A limited partner units - - (525,935)
Distributions to partners (4,104,137) (4,132,616) (3,717,674)
Redemptions of Class A limited partner units (127,540) (119,506) (54,808)
------------ ------------ ------------
Net cash provided by (used in) financing activities (5,073,891) (9,873,473) 2,013,479
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (323,867) 1,028,991 (212,863)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,092,691 1,063,700 1,276,563
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,768,824 $ 2,092,691 $ 1,063,700
============ ============ ============
</TABLE>
-17-
<PAGE>
CAPITAL PREFERRED YIELD FUND-II, L.P.
STATEMENTS OF CASH FLOWS
(continued)
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Supplemental disclosure of cash flow information:
Interest paid on discounted lease rentals $ 873,433 $ 971,118 $ 1,195,326
Interest paid on financed lease rentals 278,274 - -
Supplemental disclosure of noncash investing and financing activities:
Discounted lease rentals assumed in equipment
acquisitions 6,403,107 592,862 2,552,446
</TABLE>
See accompanying notes to financial statements.
-18-
<PAGE>
CAPITAL PREFERRED YIELD FUND-II, L.P.
NOTES TO FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies
-----------------------------------------------------------
Organization
Capital Preferred Yield Fund-II, L.P. (the "Partnership"), was
organized on November 19, 1991 as a limited partnership under the laws
of the State of Delaware pursuant to an Agreement of Limited
Partnership (the "Partnership Agreement"). The Partnership was formed
for the purpose of acquiring and leasing a diversified portfolio of
equipment to unaffiliated third parties. The Partnership will continue
until December 31, 2009 unless terminated earlier in accordance with
the terms of the Partnership Agreement. All Partnership equipment is
expected to be sold and the Partnership liquidated prior to 2009. The
general partner of the Partnership is CAI Equipment Leasing III Corp.,
a wholly owned subsidiary of Capital Associates, Inc. ("CAI").
The general partner manages the Partnership, including investment of
funds, purchase and sale of equipment, lease negotiation and other
administrative duties. The Partnership commenced business operations on
June 12, 1992, and from the date of commencement of operations through
April 15, 1994, sold 135,774 Class A limited partner units to 1,796
investors at a price of $250 per Class A limited partner unit.
Capital Associates International, Inc. ("CAII"), a wholly owned
subsidiary of CAI, is the Class B limited partner. The Class B limited
partner was required to contribute cash, upon acquisition of equipment,
in an amount equal to 1% of gross offering proceeds received from the
sale of Class A limited partner units. The Class B limited partner has
contributed $330,000 to the Partnership. The Class B limited partner
has no remaining obligation to contribute cash to the Partnership.
Use of Estimates
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
date of the financial statements and the reported amounts of revenue
and expenses during the reporting period. For leasing entities, this
includes the estimate of residual values, as discussed below. Actual
results could differ from those estimates.
Partnership Cash Distributions and Allocations of Profit and Loss
Cash Distributions
------------------
During the Reinvestment Period (as defined in the Partnership
Agreement), available cash is distributed to the partners as follows:
-19-
<PAGE>
CAPITAL PREFERRED YIELD FUND-II, L.P.
NOTES TO FINANCIAL STATEMENTS, Continued
1. Organization and Summary of Significant Accounting Policies, continued
-----------------------------------------------------------
Partnership Cash Distributions and Allocations of Profit and Loss,
continued
Cash Distributions, continued
------------------
First, 1.0% to the general partner and 99.0% to the Class A
limited partners until the Class A limited partners receive
annual, non-compounded cumulative distributions equal to 12% of
their contributed capital.
Second, 1.0% to the general partner and 99.0% to the Class B
limited partner until the Class B limited partner receives annual
non-compounded cumulative distributions equal to 11% of its
contributed capital.
Third, any remaining available cash will be reinvested or
distributed to the partners as specified in the Partnership
Agreement.
After the Reinvestment Period (as defined in the Partnership
Agreement), available cash will be distributed to the partners as
follows:
First, in accordance with the first and second allocations during
the Reinvestment Period as described above.
Second, 99.0% to the Class A limited partners and 1.0% to the
general partner, until the Class A limited partners achieve Payout
(as defined in the Partnership Agreement).
Third, 99.0% to the Class B limited partner and 1.0% to the
general partner, until the Class B limited partner achieves Payout
(as defined in the Partnership Agreement).
Fourth, 99.0% to the Class A and Class B limited partners (as a
class) and 1.0% to the general partner, until the Class A and
Class B limited partners receive cash distributions equal to 170%
of their capital contributions.
Thereafter, 90% to the Class A and Class B limited partners (as a
class) and 10% to the general partner.
Profits and Losses
------------------
There are several special allocations that precede the general
allocations of profits and losses to the partners. The most significant
special allocations are as follows:
First, commissions and expenses paid in connection with the sale
of Class A limited partner units are allocated 1.0% to the general
partner and 99.0% to the Class A limited partners.
-20-
<PAGE>
CAPITAL PREFERRED YIELD FUND-II, L.P.
NOTES TO FINANCIAL STATEMENTS, Continued
1. Organization and Summary of Significant Accounting Policies, continued
-----------------------------------------------------------
Profits and Losses, continued
------------------
Second, depreciation relating to Partnership equipment and any
losses resulting from the sale of equipment are generally
allocated 1.0% to the general partner and 99.0% to the limited
partners (shared 99.0%/1.0% by the Class A and Class B limited
partners, respectively) until the cumulative amount of such
depreciation and such losses allocated to each limited partner
equals such limited partner's contributed capital reduced by
commissions and other expenses paid in connection with the sale of
Class A limited partner units allocated to such partner.
Thereafter, gain on sale of equipment, if any, will be allocated
to the general partner in an amount equal to the sum of
depreciation and loss on sale of equipment previously allocated to
the general partner.
Third, notwithstanding anything in the Partnership Agreement to
the contrary, and before any other allocation is made, items of
income and gain for the current year (or period) shall be
allocated, as quickly as possible, to the general partner to the
extent of any deficit balance existing in the general partner's
capital account as of the close of the immediately preceding year,
in order to restore the balance in the general partner's capital
account to zero.
After giving effect to special allocations, profits (as defined in the
Partnership Agreement) are first allocated in proportion to, and to the
extent of, any previous losses, in reverse chronological order and
priority. Any remaining profits are allocated in the same order and
priority as cash distributions.
After giving effect to special allocations, losses (as defined in the
Partnership Agreement) are allocated in proportion to, and to the
extent of, any previous profits, in reverse chronological order and
priority. Any remaining losses are allocated 1.0% to the general
partner and 99.0% to the limited partners (shared 99.0%/1.0% by the
Class A and Class B limited partners, respectively).
Financial Reporting
-------------------
For financial reporting purposes, net income is allocated to the
partners in a manner consistent with the allocation of cash
distributions.
Reclassifications
Certain reclassifications have been made to prior years' financial
statements to conform to the current year's presentation.
-21-
<PAGE>
CAPITAL PREFERRED YIELD FUND-II, L.P.
NOTES TO FINANCIAL STATEMENTS, Continued
1. Organization and Summary of Significant Accounting Policies, continued
-----------------------------------------------------------
Recently Issued Financial Accounting Standards
The Partnership adopted Statement of Financial Accounting Standards No.
121, Accounting for the Impairment of Long-lived Assets and for
Long-lived Assets to be Disposed Of ("SFAS No. 121"), effective January
1, 1996. SFAS No. 121 requires that long-lived assets, including
operating leases, and certain identifiable intangibles to be held and
used by an entity be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not
be recoverable. In performing the review for recoverability, the entity
should estimate the future cash flows expected to result from the use
of the asset and its eventual disposition. If the sum of the expected
future cash flows (undiscounted and without interest charges) is less
than the carrying amount of the asset, an impairment loss is
recognized. Otherwise, an impairment loss is not recognized.
Measurement of an impairment loss for long-lived assets, including
operating leases, and identifiable intangibles held by the Partnership
is based on the fair value of the asset calculated by discounting the
expected future cash flows at an appropriate interest rate. The
adoption of this statement did not have a material effect on the
Partnership's financial condition or results of operations.
Lease Accounting
Statement of Financial Accounting Standards No. 13, Accounting for
Leases, requires that a lessor account for each lease by the direct
finance, sales-type or operating lease method. The Partnership
currently utilizes the direct financing and operating methods for all
of the Partnership's equipment under lease. Direct finance leases are
defined as those leases which transfer substantially all of the
benefits and risks of ownership of the equipment to the lessee. For all
types of leases, the determination of profit considers the estimated
value of the equipment at lease termination, referred to as the
residual value. After the inception of a lease, the Partnership may
engage in financing of lease receivables on a nonrecourse basis (i.e.,
"non-recourse debt" or "discounted lease rentals") and/or equipment
sale transactions to reduce or recover its investment in the equipment.
The Partnership's accounting methods and their financial reporting effects
are described below.
Net Investment in Direct Financing Leases ("DFLs")
The cost of the equipment, including acquisition fees paid to the
general partner, is recorded as net investment in DFLs on the
accompanying balance sheet. Leasing revenue, which is recognized over
the term of the lease, consists of the excess of lease payments plus
the estimated residual value over the equipment's cost. Earned income
is recognized monthly to provide a constant yield and is recorded as
direct finance lease income on the accompanying income statements.
Residual values are established at lease inception equal to the
estimated value to be received from the equipment following termination
of
-22-
<PAGE>
CAPITAL PREFERRED YIELD FUND-II, L.P.
NOTES TO FINANCIAL STATEMENTS, Continued
1. Organization and Summary of Significant Accounting Policies, continued
-----------------------------------------------------------
Net Investment in Direct Financing Leases ("DFLs"), continued
the initial lease (which in certain circumstances includes anticipated
re-lease proceeds), as determined by the general partner. In estimating
such values, the general partner considers all relevant information
regarding the equipment and the lessee.
Equipment on Operating Leases ("OLs")
The cost of equipment, including acquisition fees paid to the general
partner, is recorded as leased equipment in the accompanying balance
sheets and is depreciated on a straight-line basis over the lease term
to an amount equal to the estimated residual value at the lease
termination date. Leasing revenue consists principally of monthly rents
and is recognized as operating lease rentals in the accompanying income
statements. Residual values are established at lease inception equal to
the estimated value to be received from the equipment following
termination of the initial lease (which in certain circumstances
includes anticipated re-lease proceeds), as determined by the general
partner. In estimating such values, the general partner considers all
relevant information and circumstances regarding the equipment and the
lessee. Because revenue, depreciation expense and the resultant profit
margin before interest expense are recorded on a straight-line basis,
and interest expense on discounted lease rentals (discussed below) is
recorded on the interest method, lower returns are realized in the
early years of the term of an OL and higher returns in later years.
Nonrecourse Discounting of Rentals
The Partnership may assign the future rentals from leases to financial
institutions, or acquire leases subject to such assignments, at fixed
interest rates on a nonrecourse basis. In return for such assigned
future rentals, the Partnership receives the discounted value of the
rentals in cash. In the event of default by a lessee, the financial
institution has a first lien on the underlying leased equipment, with
no further recourse against the Partnership. Cash proceeds from such
financings, or the assumption of such financings, are recorded on the
balance sheet as discounted lease rentals. As lessees make payments to
financial institu tions, leasing revenue and interest expense are
recorded.
Non-recourse Financing of Operating Lease Rentals
The Partnership may assign substantially all of its rights under
certain operating leases to a purchaser and subsequently the purchaser
may assign the rentals from such leases to a financial institution at
fixed interest rates on a non-recourse basis. The Partnership receives
the discounted value of the rentals in cash from the financial
institution. As with discounted lease rentals discussed above, in the
event of default by a lessee, the financial institution has a first
lien on the underlying leased equipment, with no further
-23-
<PAGE>
CAPITAL PREFERRED YIELD FUND-II, L.P.
NOTES TO FINANCIAL STATEMENTS, Continued
1. Organization and Summary of Significant Accounting Policies, continued
Non-recourse Financing of Operating Lease Rentals, continued
recourse against the Partnership or the Partnership's assets. The
purchaser cannot be the owner of the equipment for financial reporting
purposes because the purchaser has not made a sufficient investment in
the equipment and does not have significant risks of ownership.
Therefore, the transaction cannot be recorded as a sale. Accordingly,
cash proceeds from financings related to such transactions are recorded
on the balance sheet as financed operating lease rentals. As lessees
make payments to financial institutions, leasing revenue and interest
expense are recorded.
Allowance for Losses
An allowance for losses is maintained at levels determined by the
general partner to adequately provide for any other-than-temporary
declines in asset values. In determining losses, economic conditions,
the activity in the used equipment markets, the effect of actions by
equipment manufacturers, the financial condition of lessees, the
expected courses of action by lessees with regard to leased equipment
at termination of the initial lease term, and other factors which the
general partner believes are relevant, are considered. Asset chargeoffs
are recorded upon the termination or remarketing of the underlying
assets. The lease portfolio is reviewed quarterly to determine the
adequacy of the allowance for losses.
Transactions Subsequent to Initial Lease Termination
After the initial term of equipment under lease expires, the equipment
is either sold or re-leased to the existing lessee or another third
party. The remaining net book value of equipment sold is removed and
gain or loss recorded when equipment is sold. The accounting for
re-leased equipment is consistent with the accounting described under
"Net Investment in Direct Financing Leases" and "Equipment on Operating
Leases" above.
Income Taxes
No provision for income taxes has been made in the financial statements
since taxable income or loss is recorded in the tax returns of the
individual partners.
Cash Equivalents
The Partnership considers short-term, highly liquid investments that
are readily convertible to known amounts of cash to be cash
equivalents.
-24-
<PAGE>
CAPITAL PREFERRED YIELD FUND-II, L.P.
NOTES TO FINANCIAL STATEMENTS, Continued
1. Organization and Summary of Significant Accounting Policies, continued
-----------------------------------------------------------
Cash Equivalents, continued
Cash equivalents of $1,718,000 and $2,054,000 at December 31, 1996 and
1995, respectively, are comprised of an investment in a money market
fund which invests solely in U.S. Government securities having
maturities of 90 days or less.
Equipment Held for Sale or Re-lease
Equipment held for sale or re-lease, recorded at the lower of cost or
market value expected to be realized, consists of equipment previously
leased to end users which has been returned to the Partnership
following lease expiration.
Net Income Per Class A Limited Partner Unit
Net income per Class A limited partner unit is computed by dividing the
net income allocated to the Class A limited partners by the weighted
average number of Class A limited partner units outstanding during the
period.
2. Net Investment in Direct Finance Leases
---------------------------------------
The components of the net investment in direct finance leases as of
December 31, 1996 and 1995 were:
1996 1995
---- ----
Minimum lease payments receivable $ 4,989,455 $ 5,508,541
Estimated residual values 1,091,813 1,014,466
Less unearned income (1,102,445) (1,366,319)
----------- -----------
$ 4,978,823 $ 5,156,688
=========== ===========
-25-
<PAGE>
CAPITAL PREFERRED YIELD FUND-II, L.P.
NOTES TO FINANCIAL STATEMENTS, Continued
3. Leased Equipment
----------------
The Partnership's investments in equipment on operating leases by major
classes as of December 31, 1996 and 1995 were:
1996 1995
---- ----
Transportation and industrial equipment $ 26,364,473 $ 19,927,731
Computers and peripherals 11,145,021 14,999,856
Office furniture and equipment 3,784,347 4,628,787
Other 2,269,502 2,007,266
------------ ------------
43,563,343 41,563,640
Less:
Accumulated depreciation (17,136,117) (16,915,870)
Allowance for losses (255,956) (291,488)
------------ ------------
$ 26,171,270 $ 24,356,282
============ ============
Depreciation expense for 1996, 1995 and 1994 was $7,856,952, $9,618,860
and $9,301,693, respectively.
4. Future Minimum Lease Payments
-----------------------------
Future minimum lease payments receivable from noncancelable leases at
December 31, 1996 are as follows:
Year Ending December 31 DFLs OLs
----------------------- ---- ---
1997 $ 1,493,052 $ 8,787,931
1998 1,283,458 5,832,826
1999 1,042,885 3,656,682
2000 753,213 1,475,368
2001 416,847 407,542
Thereafter - 20,064
----------- -------------
Total $ 4,989,455 $ 20,180,413
=========== ============
-26-
<PAGE>
CAPITAL PREFERRED YIELD FUND-II, L.P.
NOTES TO FINANCIAL STATEMENTS, Continued
5. Discounted Lease Rentals
------------------------
Discounted lease rentals outstanding at December 31, 1996 bear interest at
rates primarily ranging between 6% and 11%. Aggregate maturities of such
nonrecourse obligations are as follows:
Year Ending December 31
-----------------------
1997 $ 4,820,742
1998 3,359,012
1999 2,206,268
2000 1,438,741
2001 573,127
-------------
Total $ 12,397,890
=============
6. Financed Operating Lease Rentals
--------------------------------
Financed operating lease rentals outstanding at December 31, 1996 bear
interest at 8.25%. Aggregate maturities of such non-recourse financings
are as follows:
Year Ending December 31,
1997 $ 1,742,544
1998 493,423
1999 792,475
2000 114,893
2001 5,211
Thereafter 12,593
-----------
Total $ 3,161,139
===========
7. Transactions With the General Partner and Affiliates
----------------------------------------------------
Sales Commissions and Offering Costs
------------------------------------
Under the terms of the Partnership Agreement, CAI Securities Corporation,
an affiliate of the general partner, is entitled to receive sales
commissions and wholesaling fees equal to 10% of the Class A limited
partners' capital contributions, of which up to 9% is paid to
participating broker-dealers. Under the terms of the Partnership
Agreement, the Partnership ceased offering Class A limited partner units
for sale in 1994. During 1994, CAI Securities Corporation earned
commissions and fees in the amount of $1,221,575 including $1,057,443 of
which was paid to participating broker-dealers.
-27-
<PAGE>
CAPITAL PREFERRED YIELD FUND-II, L.P.
NOTES TO FINANCIAL STATEMENTS, Continued
7. Transactions With the General Partner and Affiliates, continued
----------------------------------------------------
Sales Commissions and Offering Costs, continued
------------------------------------
As provided in the Partnership Agreement, the general partner received
$488,630 as reimbursement for expenses incurred during 1994, in connection
with the organization of the Partnership and the offering of Class A
limited partner units. The general partner also received $17,615 as
reimbursement for due diligence expenses incurred during 1994.
Capital Contributions
---------------------
Under terms of the Partnership Agreement, the Class B limited partner made
capital contributions to the Partnership of $120,000 during 1994.
Origination Fee and Evaluation Fee
----------------------------------
The general partner receives a fee equal to 4% of the sales price of
equipment sold to the Partnership (up to a maximum cumulative amount as
specified in the Partnership Agreement), 2% of which represents
compensation for selecting, negotiating and consummating the acquisition
of the equipment and another 2% of which represents reimbursement for
services rendered in connection with evaluating the suitability of the
equipment and the creditworthiness of the lessees. Origination and
evaluation fees totaled $550,185, $116,599 and $615,770 in 1996, 1995 and
1994, respectively, all of which were capitalized by the Partnership as
part of the cost of equipment on operating leases and net investment in
direct finance leases.
Management Fees
---------------
The general partner receives management fees as compensation for services
performed in connection with managing the Partnership's equipment equal to
2% of gross rentals received as permitted under terms of the Partnership
Agreement. Management fees totaled $286,973, $275,888 and $260,429 for
1996, 1995 and 1994, respectively.
Direct Services
---------------
The general partner and its affiliates provide accounting, investor
relations, billing, collecting, asset management, and other administrative
services to the Partnership. The Partnership reimburses the general
partner for these services performed on its behalf as permitted under the
terms of the Partnership Agreement. Such reimbursements totaled $158,770,
$81,229 and $81,024 for 1996, 1995 and 1994, respectively.
-28-
<PAGE>
CAPITAL PREFERRED YIELD FUND-II, L.P.
NOTES TO FINANCIAL STATEMENTS, Continued
7. Transactions With the General Partner and Affiliates, continued
----------------------------------------------------
Equipment Purchases
-------------------
The Partnership purchased equipment from CAII with a total purchase price
of $14,304,831, $3,031,560 and $16,595,752 (including $6,403,107, $592,862
and $2,552,446 of discounted lease rentals) during 1996, 1995 and 1994,
respectively. The Partnership purchased the equipment at CAII's historical
cost plus reimbursement of other net acquisition costs, as provided for in
the Partnership Agreement.
Payable to Affiliates
---------------------
Payable to affiliates consists of management fees, direct services and
expenses payable to the general partner and its affiliates.
8. Tax Information, (unaudited)
---------------
The following reconciles net income for financial reporting purposes to
the income (loss) for federal income tax purposes for the years ended
December 31,:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net income per financial statements $ 231,258 $ 1,009,230 $ 502,147
Differences due to:
Direct finance leases 877,055 1,260,841 1,122,263
Depreciation (2,053,702) (1,533,457) (3,667,369)
Provision for losses 900,000 610,000 355,000
Gain/loss on sale of assets (385,166) (1,123,258) 45,471
Other 1,073,866 63,067 (70,935)
----------- ----------- -----------
Partnership income (loss) for federal income tax purposes $ 643,311 $ 286,423 $(1,713,423)
=========== =========== ===========
</TABLE>
-29-
<PAGE>
CAPITAL PREFERRED YIELD FUND-II, L.P.
NOTES TO FINANCIAL STATEMENTS, Continued
8. Tax Information, (unaudited), continued
---------------
The following reconciles partners' capital for financial reporting
purposes to partners' capital for federal income tax purposes for the
years ended December 31,:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Partners' capital per financial statements $ 16,868,246 $ 20,866,336 $ 24,107,738
Differences due to:
Commissions and offering costs 4,868,944 4,868,944 4,868,944
Direct finance leases 3,833,666 2,956,611 1,695,770
Depreciation (10,477,433) (8,423,731) (6,890,274)
Provision for losses 900,000 610,000 355,000
Gain/loss on sale of assets (385,166) (1,123,258) 45,471
Other 1,190,636 606,406 142,867
------------ ------------ ------------
Partners' capital for federal income tax purposes $ 16,798,893 $ 20,361,308 $ 24,325,516
============ ============ ============
</TABLE>
9. Concentration of Credit Risk
----------------------------
Approximately 72% of the Partnership's equipment under lease was leased to
investment grade lessees. Pursuant to the Partnership Agreement, an
investment grade lessee is a company (i) with net worth in excess of $100
million (and no debt issues that are rated), or (ii) with a credit rating
of not less than Baa as determined by Moody's Investor Service, Inc., or
comparable credit rating as determined by another recognized credit rating
service, or a lessee, all of whose lease payments have been
unconditionally guaranteed or supported by a letter of credit issued by a
company meeting one of the above requirements.
The Partnership's cash balance is maintained with a high credit quality
financial institution. At times such balances may exceed the FDIC
insurance limit due to receipt of lockbox amounts that have not cleared
the presentment bank (generally for less than two days). As the funds
become available, they are invested in a money market mutual fund.
10. Bankrupt Lessees
----------------
Barney's Inc., one of the Partnership's lessees, filed for protection
under Chapter 11 of the bankruptcy code on January 10, 1996. The
Partnership is a member of an unofficial committee of equipment lessors
which negotiated an interim agreement with the debtor pursuant to which
the debtor made four partial payments of postpetition rent of
approximately 38% of the amount due under the lease and agreed to enter
into further
-30-
<PAGE>
CAPITAL PREFERRED YIELD FUND-II, L.P.
NOTES TO FINANCIAL STATEMENTS, Continued
10. Bankrupt Lessees, continued
----------------
negotiations to extend the interim agreements. The committee then entered
into negotiations with an investor interested in purchasing all of the
lessors' claims which would include taking title to the equipment and
accepting an assignment of all rights as lessor under each lease. In July
1996, negotiations were finalized and the Partnership received a payment
of $872,700, representing $0.735 on the dollar for the Partnership's claim
against Barney's. Based on this recovery a provision for losses of
$245,000 was recorded for the period ended June 30, 1996.
Norcross Footwear, one of the Partnership's lessees, filed for protection
under Chapter 11 of the bankruptcy code on February 9, 1996. During second
quarter 1996, the lessee rejected the lease and the equipment was sold or
returned to the Partnership. The fair market value of the equipment
re-leased or sold to a third party was considerably less than anticipated.
Based on this information, a provision for losses of $180,000 was recorded
for the period ended June 30, 1996.
Anchor Glass filed for protection under Chapter 11 of the bankruptcy code
on September 13, 1996. The aggregate net book value with this lessee was
$221,845 at December 31, 1996. Potential outcomes are (i) the lessee
affirms its leases and the Partnership collects all rents due under the
leases or (ii) the lessee rejects the leases and returns the underlying
equipment to the Partnership. If the leases are rejected and the equipment
is returned to the Partnership or sold to a third party, it is possible
that remarketing proceeds will be less than the net book value of the
equipment. However, if the lessee affirms the leases, the Partnership
would not be subject to a loss. The lessee has not made its intentions
known at this time and, accordingly, the amount of loss, if any, cannot be
determined as of December 31, 1996. Regardless of the lessee's decision to
accept or reject the leases, the general partner believes that the
ultimate outcome will not have a material adverse impact on the
Partnership's financial position or results of operations.
11. Disclosures about Fair Value of Financial Instruments
-----------------------------------------------------
Statement of Financial Standards No. 107 ("SFAS No. 107"), Disclosures
about Fair Value of Financial Instruments specifically excludes certain
items from its disclosure requirements such as the Partnership's
investment in leased assets. The carrying amounts at December 31, 1996 for
cash and cash equivalents, accounts receivable, accounts payable and
accrued liabilities, payable to affiliates, rents and sale proceeds
received in advance and distributions payable to partners approximate
their fair values due to the short maturity of these instruments.
As of December 31, 1996, discounted lease rentals and financed operating
lease rentals of $12,397,890 and $3,161,139, respectively, had fair values
of $11,797,818 and $2,913,249. The fair values were estimated utilizing
market rates of comparable debt having similar maturities and credit
quality as of December 31, 1996.
-31-
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
THE PARTNERS
CAPITAL PREFERRED YIELD FUND-II, L.P.:
Under date of January 31, 1997, we reported on the balance sheets of Capital
Preferred Yield Fund-II, L.P. as of December 31, 1996 and 1995, and the related
statements of income, partners' capital, and cash flows for each of the years in
the three-year period ended December 31, 1996, as contained in the Partnership's
annual report on Form 10-K for the year 1996. In connection with our audits of
the aforementioned financial statements, we have also audited the related
financial statement Schedule II, as listed in the accompanying index. This
financial statement schedule is the responsibility of the Partnership's
management. Our responsibility is to express an opinion on this financial
statement schedule based on our audits.
In our opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.
/s/KPMG Peat Marwick LLP
--------------------------
KPMG PEAT MARWICK LLP
Denver, Colorado
January 31, 1997
-32-
<PAGE>
CAPITAL PREFERRED YIELD FUND-II, L.P.
SCHEDULE II - VALUATION AND QUALIFYING
ACCOUNTS for the years ended December 31,
1996, 1995 and 1994
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -------- ---------- --------------------------- -------------- -----------
Additions
Balance at Additions (Deductions) Balance
beginning charged to charged to at end
Classification of period expenses other accounts Deductions (1) of period
- -------------- ---------- ---------- -------------- -------------- -----------
<S> <C> <C> <C> <C>
1996
- ---------------------
Allowance for losses:
Accounts receivable $ 25,000 $ - $ $ - $ 25,000
Equipment on operating leases 291,488 900,000 - (935,532) 255,956
---------- --------- --------- --------- ---------
$ 316,488 $ 900,000 $ - $(935,532) $ 280,956
========= ========= ========= ========= =========
1995
- ---------------------
Allowance for losses:
Accounts receivable $ 25,000 $ - $ - $ - $ 25,000
Equipment on operating leases 380,537 610,000 - (699,049) 291,488
--------- --------- --------- --------- ---------
$ 405,537 $ 610,000 $ - $(699,049) $ 316,488
========= ========= ========= ========= =========
1994
- ---------------------
Allowance for losses:
Accounts receivable $ 50,537 $ - $ (25,537) $ - $ 25,000
Equipment on operating leases - 355,000 25,537 - 380,537
--------- --------- --------- --------- ---------
$ 50,537 $ 355,000 $ - $ - $ 405,537
========= ========= ========= ========= =========
</TABLE>
1) Principally charge-offs of assets against the established allowances.
See accompanying independent auditors' report
-33-
<PAGE>
Item 9. Disagreements on Accounting and Financial Disclosures
-----------------------------------------------------
None
Item 10. Directors and Executive Officers of the Partnership
---------------------------------------------------
The Partnership has no officers and directors. The general partner manages and
controls the affairs of the Partnership and has general responsibility and
authority in all matters affecting its business. Information concerning the
directors and executive officers of the general partner is as follows:
CAI Equipment Leasing III Corporation
Name Positions Held
---- --------------
John F. Olmstead President and Director
Dennis J. Lacey Senior Vice President and Director
John E. Christensen Senior Vice President, Principal Financial and
Chief Administrative Officer and Director
Anthony M. DiPaolo Senior Vice President, Assistant Secretary and
Director
Daniel J. Waller Vice President and Director
Richard H. Abernethy Vice President and Director
John A. Reed Vice President, Assistant Secretary and Director
Robert A. Golden Vice President and Director
David J. Anderson Chief Accounting Officer and Secretary
JOHN F. OLMSTEAD, age 52, joined CAII as Vice President in December, 1988, is a
Senior Vice President of CAI and CAII and is head of CAII's Public Equity
division. He has served as Chairman of the Board for Neo-kam Industries, Inc.,
Matchless Metal Polish Company, Inc. and ACL, Inc. for more than 5 years. He has
over 20 years of experience holding various positions of responsibility in the
leasing industry. Mr. Olmstead holds a Bachelor of Science degree from Indiana
University and a Juris Doctorate degree from Indiana Law School.
-34-
<PAGE>
Item 10. Directors and Executive Officers of the Partnership, continued
---------------------------------------------------
DENNIS J. LACEY, age 43, joined CAI as Vice President, Operations, in October
1989. Mr. Lacey was appointed Treasurer on January 1, 1991, Chief Financial
Officer on April 11, 1991, a director on July 19, 1991, and President and Chief
Executive Officer on September 6, 1991. Prior to joining CAI, Mr. Lacey was an
audit partner for the public accounting firm of Coopers & Lybrand. Mr. Lacey is
also a director and senior officer of CAII, CAI Equipment Leasing I Corp., CAI
Equipment Leasing II Corp., CAI Equipment Leasing III Corp., CAI Equipment
Leasing IV Corp., CAI Equipment Leasing V Corp., CAI Leasing Canada, Ltd., CAI
Partners Management Company, CAI Securities Corporation, CAI Lease
Securitization I Corp. and Capital Equipment Corporation (collectively referred
to herein as the "CAI Affiliates"), all of which are first- or second-tier
wholly-owned subsidiaries of CAI.
JOHN E. CHRISTENSEN, age 49, joined CAII as Vice President and Treasurer in
November 1988. He now serves as Senior Vice President, Finance and Chief
Financial Officer of CAI and CAII. Mr. Christensen previously held senior
management positions at Maxicare Health Plans, Inc., Global Marine, Inc. and
Santa Fe International, Inc. Mr. Christensen obtained his MBA in Finance from
the University of Michigan and his Bachelor of Arts degree from Michigan State
University.
ANTHONY M. DIPAOLO, age 37, joined CAII in July 1990 as an Assistant Treasurer
and is currently Senior Vice President-Business Development. He has also held
the positions of Senior Vice President-Controller and Assistant Vice
President-Credit Administration for the Company. Mr. DiPaolo has held financial
management positions as Chief Financial Officer for Mile High Kennel Club, Inc.
from 1988 to 1990 and was Vice President/Controller for VICORP Restaurants, Inc.
from 1986 through 1988. Mr. DiPaolo holds a Bachelor of Science degree in
Accounting from the University of Denver.
DANIEL J. WALLER, age 38, joined CAII in July 1990, as a manager of Investor
Relations. Mr. Waller assumed the responsibility for the asset management
department a short time later, and is currently Vice President, Capital Markets
Group. Prior to joining CAII, Mr. Waller was an audit manager with Coopers &
Lybrand for over three years and gained considerable experience in the leasing
industry. While at Coopers & Lybrand, Mr. Waller held positions with the
International Accounting and Auditing Committee as well as the national Auditing
Directorate. Mr. Waller holds a Bachelor of Arts degree in accounting from the
University of Northern Iowa.
RICHARD H. ABERNETHY, age 42, joined CAII in April 1992 as Equipment Valuation
Manager and currently serves as Vice President of Asset Management. Mr.
Abernethy has thirteen years experience in the leasing industry, including prior
positions with Barclays Leasing Inc., from November 1986 to February 1992, and
Budd Leasing Corporation, from January 1981 to November 1986. Mr. Abernethy
holds a Bachelor of Arts in Business Administration from the University of North
Carolina at Charlotte.
JOHN A. REED, age 41, joined CAII in January 1990 as the Tax Director and
Assistant Secretary. Mr. Reed is currently the Vice President of Marketing and
is responsible for all lease documentation and management of transaction
structuring and processing. Prior to joining the Marketing Department, Mr. Reed
was Vice President of Credit and Debt Administration. He spent seven and one
half years with Coopers & Lybrand in the Tax Department and served on CAII's tax
consulting engagement during that time. Mr. Reed holds a Bachelor of Arts degree
in Social Sciences and Masters of Science in Accounting, from Colorado State
University.
-35-
<PAGE>
Item 10. Directors and Executive Officers of the Partnership, continued
---------------------------------------------------
ROBERT A. GOLDEN, age 51, is Vice President and the National Sales Manager of
the Company. Mr. Golden joined the Company in 1993 as a Branch Manager. He was
promoted to his current position in September 1994. Prior to joining the
Company, he was an Executive Vice President with the U.S. Funds Group, President
of BoCon Capital Group and Vice President with Ellco/GE Capital for fifteen
years. Mr. Golden is an officer, but not a director, of CAII.
DAVID J. ANDERSON, age 43, joined CAII in August 1990 as Manager of Billing &
Collections and currently serves as Assistant Vice-President/Chief Accounting
Officer. Prior to joining CAII, Mr. Anderson was Vice- President/Controller for
Systems Marketing, Inc., from 1985 to 1990, and previous to that working in
several senior staff positions at the Los Alamos National Laboratory and with
Ernst & Whinney. Mr. Anderson holds a Bachelor of Business Administration degree
in Accounting from the University of Wisconsin.
Item 11. Executive Compensation
----------------------
No compensation was paid by the Partnership to the officers and directors of the
general partner. See Item 13 of this Report, "Certain Relationships and Related
Transactions", for a description of the compensation and fees paid to the
general partner and its 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 Class A limited partner units
of the Partnership. The Partnership has no directors or officers,
and neither the general partner nor the Class B limited partner of the
Partnership own any Class A limited partner units.
CAII, an affiliate of the general partner, owns 100% of the
Partnership's Class B limited partner interest.
CAI Equipment Leasing III Corp. owns 100% of the Partnership's general
partner interest.
The names and addresses of the general partner and the Class B
limited partner are as follows:
General Partner
---------------
CAI Equipment Leasing III Corp.
7175 West Jefferson Avenue
Suite 4000
Lakewood, Colorado 80235
-36-
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management,
---------------------------------------------------------------------
continued
Class B Limited Partner
-----------------------
Capital Associates International, Inc.
7175 West Jefferson Avenue
Suite 4000
Lakewood, Colorado 80235
(b) No directors or officers of the general partner or the Class B
limited partner owned any Class limited partner units as of
December 31, 1996.
(c) The Partnership knows of no arrangements, the operation 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 partner and its affiliates receive certain types of compensation,
fees or other distributions in connection with the operations of the
Partnership.
Following is a summary of the amounts paid or payable to the general partner and
its affiliates during 1996:
Origination Fee and Evaluation Fee
- ----------------------------------
The general partner receives a fee equal to 4% of the sales price of equipment
sold to the Partnership, 2% of which represents compensation for selecting,
negotiating and consummating the acquisition of the equipment and 2% of which
represents reimbursement for services rendered in connection with evaluating the
suitability of the equipment and the credit worthiness of the lessee.
Origination and evaluation fees totaled $550,185 in 1996, all of which were
capitalized by the Partnership as part of the cost of equipment on operating
leases and net investment in direct finance leases.
Management Fees
- ---------------
The general partner receives management fees as compensation for services
rendered in connection with managing the Partnership's equipment equal to 2% of
gross rentals received. Such fees totaled $286,973 for 1996, $19,958 of which
was paid during January 1997.
Accountable General and Administrative Expenses
- -----------------------------------------------
The general partner is entitled to reimbursement of certain expenses paid on
behalf of the Partnership which are incurred in connection with the
Partnership's operations. Such reimbursable expenses amounted to $284,423 during
1996.
-37-
<PAGE>
Item 13. Certain Relationships and Related Transactions, continued
----------------------------------------------
Accountable General and Administrative Expenses, continued
- -----------------------------------------------
Additionally, the general partner is allocated 1% of Partnership cash
distributions and net income relating to its general partner interest in the
Partnership. Distributions and net income allocated to the general partner
totaled $41,018 and $41,018, respectively, for 1996. Distributions and net
income allocated to the Class B limited partner totaled $36,300 and $1,954,
respectively, for 1996.
During 1996, the Partnership acquired the equipment as described below from
CAII:
<TABLE>
<CAPTION>
Cost to
Partnership
Including
Date Cost to Acquisition Debt Annual
Purchased Lessee Term Equipment Description CAII Fees* Assumed Rents
- --------- ------ ---- --------------------- ----------- ----------- ----------- -----------
<C> <C> <C> <C> <C> <C> <C> <C>
02/96 Stone Container 46 Machine tools $ 334,836 $ 348,230 $ 0 $ 7,262
03/96 General Motors 36 Forklifts 84,207 87,575 0 2,332
03/96 General Motors 36 Forklifts 3,470 3,609 0 96
03/96 Consolidated Diesel 36 Communication equipment 3,240 3,370 0 89
03/96 Atlantic Steel 59 Manufacturing - other 971,059 1,009,902 0 17,293
04/96 Cerplex 47 Printed circuit board 51,582 53,645 0 1,208
04/96 Cerplex 44 Printed circuit board 477,330 496,423 0 11,679
04/96 Consolidated Diesel 60 Forklifts 22,763 23,674 0 404
04/96 Consolidated Diesel 36 Office automation 11,100 11,544 0 327
05/96 System One 36 Banking 354,510 368,690 0 10,484
05/96 Forum Corporation 36 Desktop PC 65,174 67,781 61,379 3,126
05/96 Forum Corporation 36 Desktop PC 8,015 8,336 7,548 384
05/96 Forum Corporation 36 Desktop PC 1,428 1,485 1,344 68
05/96 Forum Corporation 36 Desktop PC 4,366 4,541 4,112 209
05/96 Forum Corporation 36 Desktop PC 1,428 1,485 1,344 68
05/96 Forum Corporation 36 Desktop PC 1,640 1,706 1,544 79
05/96 Forum Corporation 36 Desktop PC 26,473 27,532 25,261 1,170
05/96 Forum Corporation 36 Desktop PC 11,607 12,071 11,076 513
05/96 Forum Corporation 36 Peripheral-printers 1,536 1,597 1,466 68
05/96 Forum Corporation 36 Desktop PC 4,448 4,626 4,244 197
05/96 Forum Corporation 36 Peripheral-printers 1,536 1,597 1,466 68
05/96 Forum Corporation 36 Desktop PC 3,761 3,911 3,589 166
05/96 Forum Corporation 36 Desktop PC 35,984 37,423 34,362 1,613
05/96 Forum Corporation 36 Desktop PC 70,487 73,306 66,754 2,717
05/96 Forum Corporation 36 Desktop PC 1,511 1,571 1,438 62
05/96 Forum Corporation 36 Desktop PC 14,892 15,488 14,172 613
05/96 Forum Corporation 36 Desktop PC 3,705 3,853 3,524 152
05/96 Forum Corporation 36 Desktop PC 2,794 2,906 2,658 115
05/96 Forum Corporation 36 Desktop PC 3,028 3,149 2,882 125
05/96 Forum Corporation 36 Desktop PC 101,156 105,202 94,879 3,432
05/96 Forum Corporation 36 Desktop PC 29,861 31,055 28,057 1,007
05/96 Forum Corporation 36 Portable PC 6,826 7,099 6,415 235
05/96 Forum Corporation 36 Desktop PC 12,378 12,873 11,596 413
05/96 Forum Corporation 36 Portable PC 20,592 21,416 19,337 709
05/96 Forum Corporation 36 Desktop PC 158,879 165,234 149,929 4,979
05/96 Ina Bearing 60 Machine tools 443,265 460,996 415,808 11,376
05/96 Ina Bearing 60 Machine tools 229,351 238,525 215,056 5,568
-38-
<PAGE>
Item 13. Certain Relationships and Related Transactions, continued
----------------------------------------------
Cost to
Partnership
Including
Date Cost to Acquisition Debt Annual
Purchased Lessee Term Equipment Description CAII Fees* Assumed Rents
- --------- ------ ---- --------------------- ----------- ----------- ----------- -----------
05/96 Kaman Corporation 60 Manufacturing - other $ 16,616 $ 17,281 $ 15,698 $ 479
05/96 Kaman Corporation 60 Machine tools 41,289 42,941 38,811 807
05/96 Kaman Corporation 60 Machine tools 66,358 69,012 62,591 1,334
05/96 Kaman Corporation 60 Machine tools 749,265 779,236 738,279 13,047
05/96 Kaman Corporation 60 PBX systems 58,729 61,078 57,278 1,144
05/96 Robertshaw Controls 84 Printing equipment 155,844 162,078 146,219 2,871
05/96 Robertshaw Controls 84 Manufacturing - other 187,377 194,872 176,534 3,413
05/96 Robertshaw Controls 84 Printing equipment 24,605 25,589 23,210 482
05/96 Robertshaw Controls 84 Printed circuit board 89,030 92,591 82,794 1,666
05/96 Robertshaw Controls 60 Manufacturing - other 24,031 24,992 22,640 576
05/96 Robertshaw Controls 84 Printing equipment 138,631 144,176 128,405 2,322
05/96 Robertshaw Controls 60 Manufacturing - other 40,801 42,433 37,913 947
05/96 Robertshaw Controls 60 Printed circuit board 828,001 861,121 772,756 18,533
05/96 Robertshaw Controls 36 Printing equipment 33,554 34,896 30,458 1,219
05/96 Robertshaw Controls 36 Network equipment 51,778 53,849 48,049 1,669
05/96 Robertshaw Controls 36 Network equipment 15,087 15,690 13,967 448
05/96 Stop & Shop 60 Banking equipment 58,531 60,872 55,193 2,006
05/96 Stop & Shop 60 Grocery FF&E 14,275 14,846 13,435 428
05/96 Stop & Shop 60 Grocery FF&E 25,321 26,334 23,828 759
05/96 Stop & Shop 60 Grocery FF&E 25,321 26,334 23,828 759
05/96 Stop & Shop 60 Grocery FF&E 14,710 15,298 13,840 430
05/96 Stop & Shop 60 Grocery FF&E 14,625 15,210 13,761 427
05/96 Stop & Shop 60 Grocery FF&E 24,031 24,992 22,609 703
05/96 Stop & Shop 60 Grocery FF&E 26,773 27,844 25,177 768
05/96 Stop & Shop 60 Grocery FF&E 27,347 28,441 25,713 765
05/96 Stop & Shop 60 Grocery FF&E 25,338 26,352 23,825 708
05/96 Stop & Shop 60 Grocery FF&E 29,451 30,629 27,691 823
05/96 Stop & Shop 60 Grocery FF&E 15,430 16,047 14,508 431
05/96 Stop & Shop 60 Grocery FF&E 15,430 16,047 14,508 431
05/96 Stop & Shop 60 Grocery FF&E 32,869 34,184 30,914 919
05/96 Stop & Shop 60 Grocery FF&E 32,876 34,191 30,921 919
05/96 Stop & Shop 60 Network equipment 171,454 178,312 162,207 5,670
05/96 Stop & Shop 60 Grocery FF&E 33,661 35,007 31,695 918
05/96 Stop & Shop 60 Grocery FF&E 29,607 30,791 27,760 782
05/96 Stop & Shop 60 Grocery FF&E 18,706 19,454 17,539 494
05/96 Stop & Shop 60 Grocery FF&E 31,909 33,185 29,920 844
05/96 Stop & Shop 60 Grocery FF&E 66,812 69,484 62,585 1,741
05/96 Stop & Shop 60 Grocery FF&E 32,691 33,999 30,623 852
05/96 Stop & Shop 60 Grocery FF&E 19,191 19,959 17,977 500
05/96 Stop & Shop 60 Grocery FF&E 36,466 37,925 34,160 951
05/96 Stop & Shop 60 Grocery FF&E 17,985 18,704 16,760 450
05/96 Sybron Chemical 84 Furniture 48,532 50,473 45,329 1,071
05/96 Sybron Chemical 84 Manufacturing - other 371,437 386,294 346,920 8,197
05/96 Sybron Chemical 84 Furniture 14,162 14,728 13,227 313
05/96 Sybron Chemical 84 Manufacturing - other 151,453 157,511 141,456 3,342
05/96 Sybron Chemical 84 Furniture 14,930 15,527 13,944 329
-39-
<PAGE>
Item 13. Certain Relationships and Related Transactions, continued
----------------------------------------------
05/96 Sybron Chemical 84 Manufacturing - other $ 152,837 $ 158,950 $ 142,748 $ 3,373
07/96 Staples 23 Office automation 222,077 230,960 0 8,903
07/96 Staples 22 Office automation 18,588 19,332 0 768
07/96 Staples 21 Office automation 35,951 37,389 0 1,536
07/96 Staples 20 Office automation 88,759 92,309 0 3,948
07/96 Staples 19 Office automation 51,525 53,586 0 2,368
07/96 Staples 18 Office automation 82,059 85,341 0 3,933
07/96 Staples 17 Office automation 171,105 177,950 0 8,507
07/96 Staples 16 Office automation 105,674 109,900 0 5,500
07/96 Staples 15 Office automation 43,566 45,309 0 2,376
07/96 Staples 14 Office automation 123,235 128,164 0 7,019
07/96 Staples 13 Office automation 103,625 107,770 0 6,191
07/96 Staples 12 Office automation 98,298 102,230 0 6,191
07/96 Lever Brothers 36 Printing equipment 9,577 9,960 0 254
07/96 Consolidated Diesel 60 Forklifts 296,707 308,575 0 5,444
07/96 Westchester County 36 Medical 80,050 83,252 0 2,268
09/96 Mascotech 60 Forklifts 39,105 40,669 0 655
09/96 General Motors 36 Forklifts 119,382 124,157 0 2,888
09/96 System One 36 Network equipment 432,280 449,571 0 12,849
10/96 Smithfield Foods 36 Forklifts 981,679 1,020,946 0 25,938
10/96 USS/Kobe 84 Forklifts 76,271 79,321 0 1,056
10/96 US Sugar 36 Construction 378,441 393,579 0 16,670
10/96 Parke Davis 36 Research 174,341 181,315 0 4,165
10/96 Alliant Tech 48 Machine tools 186,749 194,219 0 3,291
11/96 Basic Vegetable 60 Forklifts 225,366 234,381 0 3,572
11/96 Pacific Coast 60 Forklifts 48,485 50,424 0 879
11/96 General Motors 36 Forklifts 85,022 88,422 0 2,372
11/96 General Motors 36 Forklifts 33,230 34,559 0 804
11/96 Pacific Coast 60 Forklifts 47,133 49,018 0 768
12/96 Community General 37 Medical equipment 90,000 90,000 0 169,164
12/96 Basic Vegetable 60 Forklifts 24,900 25,896 0 412
12/96 System One 36 Network equipment 228,765 237,916 0 6,736
12/96 Owens Corning 33 Desktop PC 450,478 468,497 388,958 14,145
----------- ----------- ----------- -----------
Total equipment on operating leases sold to Partnership 12,847,795 13,358,107 5,470,402 514,035
----------- ----------- ----------- -----------
01/96 Alliant Techsystems 36 Research 7,878 8,193 0 216
03/96 Consolidated Diesel 36 Peripheral-printers 20,260 21,070 0 644
05/96 Robertshaw Controls 84 Printing equipment 46,693 48,561 43,599 876
05/96 Robertshaw Controls 84 Printing equipment 15,142 15,748 13,715 263
05/96 Robertshaw Controls 48 Desktop PC 20,811 21,643 19,732 712
05/96 Robertshaw Controls 48 Cpu's IBM 215,123 223,728 210,276 7,000
05/96 Stop & Shop 60 Network equipment 7,918 8,235 7,543 251
05/96 Stop & Shop 60 Desktop PC 10,692 11,120 10,162 330
05/96 Stop & Shop 60 Desktop PC 10,386 10,801 9,871 321
05/96 Stop & Shop 60 Desktop PC 8,320 8,653 7,907 257
05/96 Stop & Shop 60 Desktop PC 8,320 8,653 7,907 257
05/96 Stop & Shop 60 Desktop PC 8,320 8,653 7,907 257
05/96 Stop & Shop 60 Desktop PC 5,874 6,109 5,582 178
05/96 Stop & Shop 60 Desktop PC 16,997 17,677 16,153 515
05/96 Stop & Shop 60 Desktop PC 6,381 6,636 6,064 193
05/96 Stop & Shop 60 Desktop PC 6,371 6,626 6,053 189
-40-
<PAGE>
Item 13. Certain Relationships and Related Transactions, continued
----------------------------------------------
Cost to
Partnership
Including
Date Cost to Acquisition Debt Annual
Purchased Lessee Term Equipment Description CAII Fees* Assumed Rents
- --------- ------ ---- --------------------- ----------- ----------- ----------- -----------
05/96 Stop & Shop 60 Desktop PC $ 6,371 $ 6,626 $ 6,053 $ 189
05/96 Stop & Shop 60 Network equipment 12,238 12,728 11,627 363
05/96 Stop & Shop 60 Network equipment 10,173 10,580 9,664 301
05/96 Stop & Shop 60 Network equipment 10,173 10,580 9,664 301
05/96 Stop & Shop 60 Network equipment 10,173 10,580 9,664 301
05/96 Stop & Shop 60 Network equipment 10,173 10,580 9,664 301
05/96 Stop & Shop 60 Network equipment 10,173 10,580 9,664 301
05/96 Stop & Shop 60 Network equipment 10,173 10,580 9,664 301
05/96 Stop & Shop 60 Network equipment 338,738 352,288 319,447 9,076
05/96 Stop & Shop 60 Desktop PC 3,428 3,565 3,233 92
05/96 Stop & Shop 60 Desktop PC 3,428 3,565 3,233 92
05/96 Stop & Shop 60 Desktop PC 3,428 3,565 3,233 92
05/96 Stop & Shop 60 Desktop PC 3,428 3,565 3,233 92
05/96 Stop & Shop 60 Desktop PC 3,428 3,565 3,233 92
05/96 Stop & Shop 60 Desktop PC 3,428 3,565 3,233 92
05/96 Stop & Shop 60 Desktop PC 3,428 3,565 3,233 92
05/96 Stop & Shop 60 Desktop PC 3,428 3,565 3,233 92
05/96 Stop & Shop 60 Desktop PC 3,428 3,565 3,233 92
05/96 Stop & Shop 60 Desktop PC 3,428 3,565 3,233 92
05/96 Stop & Shop 60 Desktop PC 3,428 3,565 3,233 92
05/96 Stop & Shop 60 Desktop PC 3,428 3,565 3,233 92
05/96 Stop & Shop 60 Desktop PC 3,428 3,565 3,233 92
05/96 Stop & Shop 60 Desktop PC 3,428 3,565 3,233 92
05/96 Stop & Shop 60 Desktop PC 3,428 3,565 3,233 92
05/96 Stop & Shop 60 Desktop PC 3,428 3,565 3,233 92
05/96 Stop & Shop 60 Desktop PC 3,428 3,565 3,233 92
05/96 Stop & Shop 60 Desktop PC 6,544 6,806 6,171 175
05/96 Stop & Shop 60 Desktop PC 6,544 6,806 6,171 175
05/96 Stop & Shop 60 Desktop PC 6,544 6,806 6,171 175
05/96 Stop & Shop 60 Desktop PC 6,544 6,806 6,171 175
05/96 Stop & Shop 60 Desktop PC 6,544 6,806 6,171 175
05/96 Stop & Shop 60 Desktop PC 6,544 6,806 6,171 175
05/96 Stop & Shop 60 Desktop PC 6,544 6,806 6,171 175
05/96 Stop & Shop 60 Desktop PC 6,544 6,806 6,171 175
05/96 Stop & Shop 60 Desktop PC 6,544 6,806 6,171 175
05/96 Stop & Shop 60 Desktop PC 6,544 6,806 6,171 175
05/96 Stop & Shop 60 Desktop PC 6,544 6,806 6,171 175
05/96 Stop & Shop 60 Desktop PC 6,544 6,806 6,171 175
05/96 Stop & Shop 60 Desktop PC 6,544 6,806 6,171 175
05/96 Stop & Shop 60 Desktop PC 6,544 6,806 6,171 175
05/96 Stop & Shop 60 Desktop PC 6,544 6,806 6,171 175
05/96 Stop & Shop 60 Desktop PC 6,544 6,806 6,171 175
----------- ----------- ----------- -----------
Total equipment on direct finance leases sold to Partnership 996,851 1,036,724 921,279 28,261
----------- ----------- ----------- -----------
Total sold to Partnership $13,844,646 $14,394,831 $ 6,391,681 $ 542,296
=========== =========== =========== ===========
</TABLE>
* The lower of (a) the price for the equipment plus all costs
incurred in maintaining the equipment (including, without
limitation, the reasonable, necessary and actual expenses, as
determined in accordance with generally accepted accounting
principles, of storage, carrying, warehousing, repair, marketing,
financing and taxes) from the date of acquisition thereof, provided
that any proceeds accrued from the first basic rent date thereof
and retained by the general partner or an affiliate thereof from
leasing the equipment or any other arrangement with respect to the
equipment shall be deemed a credit towards the purchase price paid
by the Partnership, or (b) the fair market value of such equipment,
as determined by an independent nationally recognized appraiser
selected by the general partner.
-41-
<PAGE>
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").
2. Financial Statement Schedule: (Incorporated by reference to
Item 8 of this Report, "Financial Statements and Supplementary
Data").
(b) The Partnership did not file any reports on Form 8-K
during the quarter ended December 31, 1996.
(c) Exhibits required to be filed.
Exhibit Exhibit
Number Name
------- -------
4.1* Capital Preferred Yield Fund-II Limited Partnership
Agreement
4.2* First Amendment to Limited Partnership Agreement dated
June 12, 1992
4.3* Amended and Restated Agreement of Limited Partnership of
Capital Preferred Yield Fund-II, L.P.
* 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.
-42-
<PAGE>
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Partnership has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated: March 11, 1997 Capital Preferred Yield Fund-II, L.P.
By: CAI Equipment Leasing III Corporation
By: /s/John F. Olmstead
---------------------
John F. Olmstead
President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the general partner
of the Partnership and in the capacities indicated on March 11, 1997.
Signature Title
- --------- -----
/s/John F. Olmstead
- ------------------------
John F. Olmstead President and Director
/s/Dennis J. Lacey
- ------------------------
Dennis J. Lacey Senior Vice President and Director
/s/John E. Christensen
- ------------------------
John E. Christensen Senior Vice President, Principal Financial and
Chief Administrative Officer and Director
/s/Anthony M. DiPaolo
- ------------------------
Anthony M. DiPaolo Senior Vice President, Assistant Secretary and
Director
/s/Daniel J. Waller
- ------------------------
Daniel J. Waller Vice President and Director
/s/Richard H. Abernethy
- ------------------------
Richard H. Abernethy Vice President and Director
/s/John A. Reed
- ------------------------
John A. Reed Vice President, Assistant Secretary and Director
/s/Robert A. Golden
- ------------------------
Robert A. Golden Vice President and Director
/s/David J. Anderson
- ------------------------
David J. Anderson Chief Accounting Officer and Secretary
-43-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
consolidated balance sheets and consolidated statements of income and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,768,824
<SECURITIES> 0
<RECEIVABLES> 149,316
<ALLOWANCES> 0
<INVENTORY> 448,552
<CURRENT-ASSETS> 0
<PP&E> 26,171,270
<DEPRECIATION> 0
<TOTAL-ASSETS> 33,516,785
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 16,868,246
<TOTAL-LIABILITY-AND-EQUITY> 33,516,785
<SALES> 189,435
<TOTAL-REVENUES> 10,870,083
<CGS> 0
<TOTAL-COSTS> 10,638,825
<OTHER-EXPENSES> 445,743
<LOSS-PROVISION> 900,000
<INTEREST-EXPENSE> 1,151,707
<INCOME-PRETAX> 231,258
<INCOME-TAX> 0
<INCOME-CONTINUING> 231,258
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 231,258
<EPS-PRIMARY> 1.40
<EPS-DILUTED> 1.40
</TABLE>
