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, 1998
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number 33-44158
CAPITAL PREFERRED YIELD FUND-III, L.P.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 84-1248907
(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: None
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 Page 39
Page 1 of 40 Pages
<PAGE>
Item 1. Business
--------
Capital Preferred Yield Fund-III, L.P., a Delaware limited partnership (the
"Partnership"), was organized on November 2, 1993 and is engaged in the business
of owning and leasing equipment. CAI Equipment Leasing IV Corp., a Colorado
corporation and a wholly owned subsidiary 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 Class B limited partner of the Partnership. In exchange for its
Class B limited partner interest, CAII contributed cash of $10,000 for each
$1,000,000 of investors' capital contribution (i.e., cash investments in the
Partnership) to the Partnership. The Class B limited partner's interest in
Distributable Cash is subordinated to the Class A limited partners' interest.
The contributions of CAII were made simultaneously with the purchase of
equipment by the Partnership. CAII has contributed $500,000 to the Partnership
making it the largest single investor in 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 to 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 and Class B limited partners during the
reinvestment period (a period that ends approximately June 30, 2000); (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 three years of the end
of the reinvestment period.
During 1998, the Partnership acquired equipment of various types under lease to
third parties. All of the equipment was purchased by CAII directly from
manufacturers or from other independent third parties and sold to the
Partnership. The equipment is generally comprised of material handling
equipment, computer and peripheral equipment, industrial equipment, and
telecommunications equipment, among others (the "equipment"). See Item 13 of
this report, "Certain Relationships and Related Transactions" for the detail
listing of equipment purchased during 1998. The Partnership expects that a
majority of the equipment purchased during 1999 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
non-recourse basis. The proceeds of this non-recourse debt financing will be
utilized to finance the purchase of equipment under lease or to invest 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 1998, the Partnership leased equipment to investment grade lessees in
diverse industries including the financial services, retail, telecommunications,
energy and manufacturing industries. Approximately 73% of the Partnership's
total equipment under lease was leased to investment grade lessees as of
December 31, 1998. Pursuant to the Partnership Agreement, an investment grade
lessee is a company (i) with a net worth in excess of $100,000,000 (and no debt
issues that are rated); or (ii) with a credit rating of not less than Baa as
determined by Moody's Investor Services, Inc. or comparable credit rating, as
determined by another recognized credit rating service; or (iii) 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 limits 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 is
expected to provide additional investment income from its re-lease or 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 as well as future equipment
values and on-going lessee creditworthiness. 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). The amount of future distributions to the
partners will depend, in part, on future interest 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," which are
incorporated herein by reference.
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, financing
capabilities, and remarketing expertise enable it to compete effectively in the
equipment leasing and remarketing markets.
The Partnership leases equipment to a significant number of lessees. No one
lessee and its affiliates accounted for more than 10% of total revenue of
Partnership during 1998.
The Partnership is required to dissolve and distribute all of its assets no
later than December 31, 2011. However, the general partner anticipates that all
equipment will be sold and the Partnership will be liquidated prior to that
date.
-3-
<PAGE>
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 of this Report,
"Business," 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, 1998.
Item 5. Market for the Partnership's Common Equity and Related Stockholder
----------------------------------------------------------------------
Matters
-------
(a) The Partnership's Class A limited partner units, Class B limited
partner interest and general partner interest are not publicly traded.
There is no established public trading market for such units and
interests and none is expected to develop.
(b) At December 31, 1998, there were 2,883 Class A limited partners.
(c) Distributions
-------------
During 1998, the Partnership made twelve (12) distributions (a portion
of which constituted a return of capital) to Class A limited partners
as follows:
Distributions Per
$100 Investment
For the Payment (computed on Total
Period Ended Made During weighted average) Distributions
----------------- -------------- ----------------- -------------
December 31, 1997 January 1998 $ 0.875 $ 432,859
January 31, 1998 February 1998 0.875 431,108
February 28, 1998 March 1998 0.875 431,108
March 31, 1998 April 1998 0.875 432,378
April 30, 1998 May 1998 0.875 430,058
May 31, 1998 June 1998 0.875 429,927
June 30, 1998 July 1998 0.875 432,072
July 31, 1998 August 1998 0.875 429,927
August 31, 1998 September 1998 0.875 429,870
September 30, 1998 October 1998 0.875 432,015
October 31, 1998 November 1998 0.875 429,870
November 30, 1998 December 1998 0.875 429,870
-------- -----------
$ 10.50 $ 5,171,062
======== ===========
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<PAGE>
Item 5. Market for the Partnership's Common Equity and Related Stockholder
----------------------------------------------------------------------
Matters, continued
-------
(c) Distributions, continued
-------------
Distributions may be characterized for tax, accounting and economic
purposes as a return of capital, a return on capital or a portion of
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
leasing 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 equip ment) have been realized at the
termination of the Partnership.
The distribution for the month ended December 31, 1998, totaling
$432,015, was paid to the Class A limited partners on January 8, 1999.
Distributions to the general partner and Class B limited partner
during 1998 are discussed in Item 13 of this Report, "Certain
Relationships and Related Transactions."
The general partner believes that the Partnership will generate
sufficient cash flows from operations during 1999, to (1) meet current
operating requirements, (2) enable it to fund cash distributions to
both the Class A and Class B limited partners at annualized rates of
10.5% on their capital contributions (portions of which are expected
to constitute returns of capital), and (3) reinvest in additional
equipment under leases, provided that suitable equipment can be
identified and acquired.
During 1997, the Partnership made twelve (12) distributions (a portion
of which constituted a return of capital) to Class A limited partners
as follows:
Distributions Per
$100 Investment
For the Payment (computed on Total
Period Ended Made During weighted average) Distributions
------------------ -------------- ----------------- -------------
December 31, 1996 January 1997 $ 0.875 $ 435,790
January 31, 1997 February 1997 0.875 433,808
February 28, 1997 March 1997 0.875 433,807
March 31, 1997 April 1997 0.875 435,690
April 30, 1997 May 1997 0.875 433,388
May 31, 1997 June 1997 0.875 433,344
June 30, 1997 July 1997 0.875 435,313
July 31, 1997 August 1997 0.875 432,883
August 31, 1997 September 1997 0.875 432,839
September 30, 1997 October 1997 0.875 434,415
October 31, 1997 November 1997 0.875 432,576
November 30, 1997 December 1997 0.875 431,108
------- -----------
$ 10.50 $ 5,204,961
======= ===========
-5-
<PAGE>
Item 5. Market for the Partnership's Common Equity and Related Stockholder
----------------------------------------------------------------------
Matters, continued
-------
(c) Distributions, continued
-------------
The following represents annual and cumulative distributions per Class
A limited partner unit, as described in note 1 to Notes to
Consolidated Financial Statements.
Distribution Amount Distribution %
per $100 Class A per $100 Class A
Limited Partner Unit Limited Partner Unit
Payment (computed on (computed on
Made During weighted average) weighted average) (1)
----------- -------------------- ---------------------
1994 $ 5.25 10.5%
1995 10.50 10.5%
1996 10.50 10.5%
1997 10.50 10.5%
1998 10.50 10.5%
-------
$ 47.25
=======
(1) Cumulative distributions, as described in note 1 to Notes to
Consolidated Financial Statements, began July 1994.
Item 6. Selected Financial Data
-----------------------
The following selected financial data relates to the years ended December 31,
1994 through 1998. 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 with Item 8
herein.
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------------------------
1998 1997 1996 1995 1994*
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Total revenue $18,490,540 $20,994,438 $17,245,131 $ 8,195,180 $ 512,864
Net income 1,745,560 4,414,329 2,074,001 553,710 42,939
Net income per weighted average Class A
limited partner unit outstanding 3.40 8.71 4.13 1.91 0.27
Total assets 47,803,687 53,890,874 62,471,309 48,463,584 12,365,947
Discounted lease rentals 12,603,909 15,828,174 23,437,868 16,863,892 1,159,380
Distributions declared to partners 5,275,471 5,307,605 5,154,680 2,712,186 453,996
Distributions declared per weighted average
Class A limited partner unit outstanding 10.50 10.50 10.50 10.50 6.13
</TABLE>
* Period from June 14, 1994 (commencement of operations) to December 31,
1994.
-6-
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
----------------------------------------------------------------------
Results of Operations
---------------------
I. 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>
Years Ended December 31, Years Ended December 31,
------------------------- --------------------------
1998 1997 Change 1997 1996 Change
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Leasing margin $ 3,295,648 $ 3,496,347 $ (200,699) $ 3,496,347 $ 2,442,000 $ 1,054,347
Equipment sales margin 450,186 1,821,419 (1,371,233) 1,821,419 110,831 1,710,588
Interest income 165,182 112,367 52,815 112,367 320,679 (208,312)
Management fees paid to
general partner (419,816) (409,275) (10,541) (409,275) (390,559) (18,716)
Direct services from
general partner (209,528) (120,015) (89,513) (120,015) (93,690) (26,325)
General and administrative (286,112) (236,514) (49,598) (236,514) (265,260) 28,746
Provision for losses (1,250,000) (250,000) (1,000,000) (250,000) (50,000) (200,000)
------------ ----------- ------------ ---------- ----------- -----------
Net income $ 1,745,560 $ 4,414,329 $ (2,668,769) $ 4,414,329 $ 2,074,001 $ 2,340,328
============ =========== ============ =========== =========== ===========
</TABLE>
LEASING MARGIN
Leasing margin consists of the following:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Operating lease rentals $ 17,367,092 $ 18,695,558 $ 16,399,312
Direct finance lease income 508,080 365,094 414,309
Depreciation (13,493,620) (14,058,981) (12,585,981)
Interest expense on discounted lease rentals (1,085,904) (1,505,324) (1,785,640)
------------- ------------ -------------
Leasing margin $ 3,295,648 $ 3,496,347 $ 2,442,000
============= ============= =============
Leasing margin ratio 18% 18% 15%
============= ============= =============
</TABLE>
Leasing margin ratio will vary due to changes in the portfolio, including, among
other things, the mix of operating leases versus direct finance leases, the
average maturity of leases comprising the portfolio, the average residual value
of leases in the portfolio, and the amount of discounted lease rentals financing
the portfolio.
All components of leasing margin except direct finance lease income decreased
for 1998 compared to 1997 due primarily to the maturity and subsequent
remarketing of equipment on operating lease financed with non-recourse debt.
Operating lease rentals decreased by 7% while depreciation decreased by 4% in
1998 compared to 1997. Direct finance lease income increased due to growth in
the net investment in direct finance leases. Interest expense on discounted
lease rentals decreased as the related non-recourse debt was repaid.
-7-
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
----------------------------------------------------------------------
Results of Operations, continued
---------------------
I. Results of Operations, continued
---------------------
LEASING MARGIN, continued
Leasing margin ratio increased for the years ended December 31, 1998 and 1997
compared to 1996, and is expected to increase further primarily because a
portion of the Partnership's portfolio consists of operating leases financed
with non-recourse debt. Leasing margin and the related leasing margin ratio for
an operating lease financed with non-recourse debt increases during the term of
the lease since rents and depreciation are typically fixed while interest
expense declines as the related non-recourse debt is repaid.
The ultimate rate of return on leases depends, in part, on interest rates at the
time the leases are originated, as well as, future equipment values and on-going
lessee creditworthiness. 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).
EQUIPMENT SALES MARGIN
Equipment sales margin from remarketing consists of the following:
Years Ended December 31,
------------------------------------------
1998 1997 1996
---- ---- ----
Equipment sales revenue $ 4,934,639 $ 6,776,782 $ 454,045
Cost of equipment sales (4,484,453) (4,955,363) (343,214)
----------- ----------- -----------
Equipment sales margin $ 450,186 $ 1,821,419 $ 100,831
=========== =========== ===========
Equipment sales margin is affected by the number and dollar amount of equipment
leases that mature in a particular period. Currently, a portion of the
Partnership's initial leases have expired and the equipment is either being
re-leased or sold to the lessee or third parties. Equipment sales margin
decreased for 1998 compared to 1997 primarily due to the composition of
equipment that was sold. The Partnership sold certain earth moving, computer,
manufacturing and printing equipment at a lower fair market value than
originally anticipated.
INTEREST INCOME
Interest income increased in 1998 compared to 1997 due to an increase in
invested cash pending investment in additional equipment or distribution to the
partners.
Interest income decreased in 1997 compared to 1996 due to a decrease in invested
cash. During a significant portion of 1996, the Partnership was in its offering
period and as such, invested cash was generally higher pending purchases of
additional equipment.
-8-
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
----------------------------------------------------------------------
Results of Operations, continued
---------------------
I. Results of Operations, continued
---------------------
EXPENSES
Management fees paid to general partner increased in 1998 compared to 1997
primarily due to an increase in the receipt of rents billed for direct finance
leases. Direct services from general partner increased in 1998 and 1997 compared
to 1996 due to an increase in remarketing activities associated with equipment
returned to the Partnership at lease maturity. General and administrative
expenses increased in 1998 compared to 1997 primarily due to an increase in
costs associated with remarketing equipment returned to the Partnership at lease
maturity. General and administrative expenses decreased in 1997 compared to 1996
primarily due to lower legal fees associated with bankrupt lessees.
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 occurs) 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 and residual value exposure and, accordingly, in the ordinary course of
business, it will incur losses from those exposures. The Partnership performs
on-going quarterly assessments of its assets to identify any
other-than-temporary losses in value.
A provision for loss of $1,250,000 was recorded for 1998. Of this amount
$286,000 is related to the estimated decline in residual value on computers and
furniture, fixtures and equipment returned to the Partnership at lease maturity.
In addition, $495,000 was recognized as losses on the sales of certain earth
moving, computer, manufacturing and printing equipment. The balance is comprised
of anticipated declines in the realizable value of mining equipment for $350,000
and other miscellaneous equipment for $119,000.
The provision for losses recorded during 1997 was primarily due to the
Partnership's loss exposure related to troubled lessees. In addition, there were
also losses related to the sales of equipment having a lower fair market value
than originally anticipated.
The provision for losses recorded during 1996 was primarily for a deficiency
resulting from a lessee default under a note secured by a high pressure cleaning
unit under lease to the lessee. Although the lessee has not filed for
bankruptcy, they have discontinued their operations and have ceased making
rental payments. The equipment was repossessed and sold by the lender pursuant
to the terms of the non-recourse debt agreement. The sale of the equipment went
toward retiring the debt and the general partner believes it is unlikely that
the deficiency will be recovered.
-9-
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
----------------------------------------------------------------------
Results of Operations, continued
---------------------
II. 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 distribution to the partners.
During 1998, 1997 and 1996, the Partnership acquired equipment subject to leases
with a total equipment purchase price of approximately $15,381,000, $10,426,000
and $35,688,000, respectively, net of non-recourse debt to lenders of
$4,759,000, $3,240,000, and $11,368,000, respectively. Also, during 1998 and
1996 the Partnership discounted future rental payments from certain leases to
non-recourse lenders and received proceeds of $1,728,000 and $4,767,000,
respectively. Non-recourse borrowing against unleveraged leases in the
Partnership's lease portfolio may occur in the future as well, when the general
partner, in its discretion, determines that such non-recourse financing is in
the best interest of the Partnership.
During 1998, 1997 and 1996 the Partnership declared distributions to the
partners of approximately $5,275,000, $5,308,000 and $5,155,000, respectively. A
substantial portion of such distributions are 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 a portion of 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 general partner believes that the Partnership will generate sufficient cash
flows from operations during 1998, to (1) meet current operating requirements,
(2) enable it to fund cash distributions to both the Class A and Class B limited
partners at annualized rates of 10.5% on their capital contributions (portions
of which are expected to constitute returns of capital), and (3) reinvest in
additional equipment under leases, provided that suitable equipment can be
identified and acquired.
The Partnership will enter its liquidation period (as defined in the Partnership
Agreement) on approximately July 1, 2000. At that time, except for commitments
to purchase made during the reinvestment period, the Partnership will no longer
reinvest in additional equipment under leases.
YEAR 2000 ISSUES
An affiliate provides accounting and other administrative services, including
data processing services to the Partnership. The affiliate has conducted a
comprehensive review of its computer systems to identify systems that could be
affected by the Year 2000 issue. The Year 2000 issue results from computer
programs being written using two digits rather than four to define the
applicable year. Certain computer programs which have time-sensitive software
could recognize a date using "00" as the year 1900 rather than the year 2000.
This could result in major system failures or miscalculations. Certain of the
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<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
----------------------------------------------------------------------
Results of Operations, continued
---------------------
II. Liquidity and Capital Resources, continued
-------------------------------
YEAR 2000 ISSUES, continued
affiliate's software has already been updated to correctly account for the Year
2000 issue. In addition, the affiliate is engaged in a system conversion,
whereby the affiliate's primary lease tracking and accounting software are being
replaced with new systems which will account for the Year 2000 correctly. The
affiliate expects that the new system will be fully operational by December 31,
1999, and therefore will be fully Year 2000 compliant. The affiliate does not
expect any other changes required for the Year 2000 to have a material effect on
its financial position or results of operations. As such, the affiliate has not
developed any specific contingency plans in the event it fails to complete the
conversion to a new system by December 31, 1999. In addition, the affiliate does
not expect any Year 2000 issues relating to its customers and vendors to have a
material effect on its financial position or results of operations.
III. New Accounting Pronouncements
-----------------------------
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income
("Statement 130"), which requires comprehensive income to be displayed
prominently within the financial statements. Comprehensive income is defined as
all recognized changes in equity during a period from transactions and other
events and circumstances except those resulting from investments by owners and
distributions to owners. Net income and items that previously have been recorded
directly in equity are included in comprehensive income. Statement 130 affects
only the reporting and disclosure of comprehensive income but does not affect
recognition or measurement of income. Statement 130 is effective for fiscal
years beginning after December 15, 1997, with earlier application permitted. The
Partnership adopted Statement 130 in the first quarter of 1998. The adoption did
not have an impact on its financial reporting.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information ("Statement 131"). Statement 131 provides
guidance for reporting information about operating segments in annual financial
statements and requires reporting of selected information about operating
segments in interim financial reports of public companies. An operating segment
is defined as a component of a business that engages in business activities from
which it may earn revenue and incur expenses, a component whose operating
results are regularly reviewed by the company's chief operating decision maker,
and a component for which discrete financial information is available. Statement
131 establishes quantitative thresholds for determining operating segments of a
company. Statement 131 is effective for fiscal years beginning after December
15, 1997, with earlier application permitted. The Partnership adopted Statement
131 in the first quarter of 1998. Since the Partnership operates in a single
business segment, the adoption did not have an impact on its financial
reporting.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities ("Statement 133").
Statement 133 establishes accounting and reporting standards for derivative
instruments and for hedging activities. It requires that an entity recognize all
-11-
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
----------------------------------------------------------------------
Results of Operations, continued
---------------------
III. New Accounting Pronouncements, continued
-----------------------------
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. Statement 133 is effective
for fiscal years beginning after June 15, 1999, with earlier application
permitted. The Partnership will adopt Statement 133 in the first quarter of
1999. The General Partner does not expect the adoption to have an impact on its
financial reporting.
IV. "Safe Harbor" Statement Under the Private Securities Litigation Reform Act
--------------------------------------------------------------------------
of 1995
-------
The statements contained in this report which are not historical facts may be
deemed to contain forward-looking statements with respect to events, the
occurrence of which involve risks and uncertainties, and are subject to factors
that could cause actual future results to differ both adversely and materially
from currently anticipated results, including, without limitation; the level of
lease originations; realization of residual values; customer credit risk;
competition from other lessors, specialty finance lenders or banks; and the
availability and cost of financing sources. Certain specific risks associated
with particular aspects of the Partnership's business are discussed in detail
throughout Parts I and II when and where applicable.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
The partnership's leases with equipment users are non-cancelable and have lease
rates which are fixed at lease inception. The partnership finances its leases,
in part, with discounted lease rentals. Discounted lease rentals are a fixed
rate debt. The partnerships other assets and liabilities are also at fixed
rates. Consequently the partnership has no interest rate risk or other market
risk exposure.
-12-
<PAGE>
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
Index to Financial Statements and
Financial Statement Schedule
Page
Number
Financial Statements ------
--------------------
Independent Auditors' Report 14
Balance Sheets as of December 31, 1998 and 1997 15
Statements of Income for the years ended
December 31, 1998, 1997 and 1996 16
Statements of Partners' Capital for the years ended
December 31, 1998, 1997 and 1996 17
Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996 18-19
Notes to Financial Statements 20-31
Financial Statement Schedule
----------------------------
Independent Auditors' Report 32
Schedule II - Valuation and Qualifying Accounts 33
-13-
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
THE PARTNERS
CAPITAL PREFERRED YIELD FUND-III, L.P.:
We have audited the accompanying balance sheets of Capital Preferred Yield
Fund-III, L.P. as of December 31, 1998 and 1997 and the related statements of
income, partners' capital, and cash flows for each of the years in the
three-year period ended December 31, 1998. 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-III, L.P. as of December 31, 1998 and 1997, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1998 in conformity with generally accepted accounting
principles.
/s/KPMG LLP
------------------------
KPMG LLP
Denver, Colorado
February 22, 1999
-14-
<PAGE>
CAPITAL PREFERRED YIELD FUND-III, L.P.
BALANCE SHEETS
Years Ended December 31, 1998 and 1997
ASSETS
1998 1997
----------- -----------
Cash and cash equivalents $ 2,723,454 $ 2,813,686
Accounts receivable 1,340,631 1,044,068
Receivable from related party 50,521 6,523
Equipment held for sale or re-lease 534,643 506,197
Net investment in direct finance leases 3,560,216 3,326,833
Leased equipment, net 39,594,222 46,193,567
----------- -----------
Total assets $47,803,687 $53,890,874
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued liabilities $ 1,508,619 $ 687,727
Payables to affiliates 48,360 39,276
Rents received in advance 554,824 632,478
Distributions payable to partners 440,798 441,650
Discounted lease rentals 12,603,909 15,828,174
----------- -----------
Total liabilities 15,156,510 17,629,305
----------- -----------
Partners' capital:
General partner - -
Limited partners:
Class A 500,000 units authorized; 492,145
and 493,410 units issued and outstanding
in 1998 and 1997, respectively 32,239,114 35,818,106
Class B 408,063 443,463
----------- -----------
Total partners' capital 32,647,177 36,261,569
----------- -----------
Total liabilities and partners' capital $47,803,687 $53,890,874
=========== ===========
See accompanying notes to financial statements.
-15-
<PAGE>
CAPITAL PREFERRED YIELD FUND-III, L.P.
STATEMENTS OF INCOME
Years Ended December 31, 1998, 1997 and 1996
1998 1997 1996
----------- ----------- -----------
REVENUE:
Operating lease rentals $17,367,092 $18,695,558 $16,399,312
Direct finance lease income 508,080 365,094 414,309
Equipment sales margin 450,186 1,821,419 110,831
Interest income 165,182 112,367 320,679
----------- ----------- -----------
Total revenue 18,490,540 20,994,438 17,245,131
----------- ----------- -----------
EXPENSES:
Depreciation 13,493,620 14,058,981 12,585,981
Management fees paid to general partner 419,816 409,275 390,559
Direct services from general partner 209,528 120,015 93,690
General and administrative 286,112 236,514 265,260
Interest on discounted lease rentals 1,085,904 1,505,324 1,785,640
Provision for losses 1,250,000 250,000 50,000
----------- ----------- -----------
Total expenses 16,744,980 16,580,109 15,171,130
----------- ----------- -----------
NET INCOME $ 1,745,560 $ 4,414,329 $ 2,074,001
=========== =========== ===========
NET INCOME ALLOCATED:
To the general partner $ 52,755 $ 53,076 $ 68,376
To the Class A limited partners 1,675,705 4,317,228 1,985,340
To the Class B limited partner 17,100 44,025 20,285
----------- ----------- -----------
$ 1,745,560 $ 4,414,329 $ 2,074,001
=========== =========== ===========
Net income per weighted average Class A
limited partner unit outstanding $ 3.40 $ 8.71 $ 4.13
=========== =========== ===========
Weighted average Class A limited
partner units outstanding 492,500 495,621 480,456
=========== =========== ===========
See accompanying notes to financial statements.
-16-
<PAGE>
CAPITAL PREFERRED YIELD FUND-III, L.P.
STATEMENTS OF PARTNERS' CAPITAL
Years Ended December 31, 1998, 1997 and 1996
<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, January 1, 1996 $ - 382,115 $ 30,183,575 $ 352,042 $ 30,535,617
Capital contributions - 116,230 11,623,048 130,000 11,753,048
Commissions and offering costs on
sales of Class A limited partner units (16,889) - (1,672,031) - (1,688,920)
Redemptions - (1,685) (130,721) - (130,721)
Net income 68,376 - 1,985,340 20,285 2,074,001
Distributions declared to partners (51,487) - (5,052,804) (50,389) (5,154,680)
---------- -------- ------------ ---------- ------------
Partners' capital, December 31, 1996 - 496,660 36,936,407 451,938 37,388,345
Redemptions - (3,250) (233,500) - (233,500)
Net income 53,076 - 4,317,228 44,025 4,414,329
Distributions declared to partners (53,076) - (5,202,029) (52,500) (5,307,605)
---------- -------- ------------ ---------- ------------
Partners' capital, December 31, 1997 - 493,410 35,818,106 443,463 36,261,569
Redemptions - (1,265) (84,481) - (84,481)
Net income 52,755 - 1,675,705 17,100 1,745,560
Distributions declared to partners (52,755) - (5,170,216) (52,500) (5,275,471)
---------- -------- ------------ ---------- ------------
Partners' capital, December 31, 1998 $ - 492,145 $ 32,239,114 $ 408,063 $ 32,647,177
========== ======== ============ ========== ============
</TABLE>
See accompanying notes to financial statements.
-17-
<PAGE>
CAPITAL PREFERRED YIELD FUND-III, L.P.
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,745,560 $ 4,414,329 $ 2,074,001
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 13,493,620 14,058,981 12,585,981
Provision for losses 1,250,000 250,000 50,000
Cost of equipment sales 4,484,453 4,955,363 343,214
Recovery of investment in direct finance leases 2,297,749 1,903,849 2,204,916
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (103,731) (187,747) 484,435
(Increase) decrease in receivable from related party (43,998) 36,168 (42,691)
Increase in accounts payable and accrued liabilities 820,892 9,620 362,035
Increase (decrease) in payables to affiliates 9,084 (15,075) (51,845)
Increase (decrease) in rents received in advance (77,654) 171,028 225,264
------------ ------------ ------------
Net cash provided by operating activities 23,875,975 25,596,516 18,235,310
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment on operating leases from affiliate (8,336,063) (7,135,854) (23,483,867)
Investment in direct financing leases, acquired from affiliate (2,286,569) (50,602) (836,057)
------------ ------------ ------------
Net cash used in investing activities (10,622,632) (7,186,456) (24,319,924)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Class A capital contributions - - 11,623,048
Proceeds from Class B capital contributions - - 130,000
Proceeds from discounted lease rentals 1,728,059 - 4,767,017
Principal payments on discounted lease rentals (9,710,829) (10,849,449) (9,561,511)
Redemptions of Class A limited partnership units (84,481) (233,500) (130,721)
Commissions paid to affiliate in connection with the sale of
Class A limited partner units - - (1,162,305)
Non-accountable organization and offering expense
reimbursement paid to the general partner in
connection with the sale of Class A limited partner units - - (526,615)
Distributions to partners (5,276,324) (5,310,566) (5,030,230)
------------ ------------ ------------
Net cash (used in) provided by financing activities (13,343,575) (16,393,515) 108,683
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (90,232) 2,015,546 (5,975,931)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 2,813,686 798,140 6,774,071
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,723,454 $ 2,813,686 $ 798,140
============ ============ ============
-18-
<PAGE>
CAPITAL PREFERRED YIELD FUND-III, L.P.
STATEMENTS OF CASH FLOWS
Years ended December 31, 1998, 1997 and 1996
(continued)
1998 1997 1996
------------ ------------ ------------
Supplemental disclosure of cash flow information:
Interest paid on discounted lease rentals $ 1,084,481 $ 1,505,324 $ 1,785,640
Supplemental disclosure of noncash investing and
financing activities:
Discounted lease rentals assumed in equipment acquisitions 4,758,504 3,239,755 11,368,469
</TABLE>
See accompanying notes to financial statements.
-19-
<PAGE>
CAPITAL PREFERRED YIELD FUND-III, L.P.
NOTES TO FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies
-----------------------------------------------------------
ORGANIZATION
Capital Preferred Yield Fund-III, L.P. (the "Partnership") was organized on
November 2, 1993 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, 2011 unless terminated
earlier in accordance with the terms of the Partnership Agreement. All
equipment owned by the Partnership is expected to be sold and the
Partnership liquidated between 2000 and 2003. The general partner of the
Partnership is CAI Equipment Leasing IV 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 initially sold 500,000 Class A limited partner
units to 4,968 investors at a price of $100 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
contributed 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.
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 ALLOCATIONS
Cash Distributions
------------------
During the Reinvestment Period (as defined in the Partnership Agreement),
available cash is distributed to the partners as follows:
-20-
<PAGE>
CAPITAL PREFERRED YIELD FUND-III, L.P.
NOTES TO FINANCIAL STATEMENTS, continued
1. Organization and Summary of Significant Accounting Policies, continued
-----------------------------------------------------------
PARTNERSHIP ALLOCATIONS, 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 10.5% 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 10.5% 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, 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.
Federal Income Tax Basis 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:
-21-
<PAGE>
CAPITAL PREFERRED YIELD FUND-III, L.P.
NOTES TO FINANCIAL STATEMENTS, continued
1. Organization and Summary of Significant Accounting Policies, continued
-----------------------------------------------------------
PARTNERSHIP ALLOCATIONS, continued
Federal Income Tax Basis Profits and Losses (continued)
-------------------------------------------
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.
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 - Profits and Losses
----------------------------------------
For financial reporting purposes, net income is allocated to the partners
in a manner consistent with the allocation of cash distributions.
RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income
("Statement 130"), which requires comprehensive income to be displayed
-22-
<PAGE>
CAPITAL PREFERRED YIELD FUND-III, L.P.
NOTES TO FINANCIAL STATEMENTS, continued
1. Organization and Summary of Significant Accounting Policies, continued
-----------------------------------------------------------
RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS, continued
prominently within the financial statements. Comprehensive income is
defined as all recognized changes in equity during a period from
transactions and other events and circumstances except those resulting from
investments by owners and distributions to owners. Net income and items
that previously have been recorded directly in equity are included in
comprehensive income. Statement 130 affects only the reporting and
disclosure of comprehensive income but does not affect recognition or
measurement of income. Statement 130 is effective for fiscal years
beginning after December 15, 1997, with earlier application permitted. The
Partnership adopted Statement 130 in the first quarter of 1998. The
adoption did not have an impact on its financial reporting.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information ("Statement 131"). Statement 131
provides guidance for reporting information about operating segments in
annual financial statements and requires reporting of selected information
about operating segments in interim financial reports of public companies.
An operating segment is defined as a component of a business that engages
in business activities from which it may earn revenue and incur expenses, a
component whose operating results are regularly reviewed by the company's
chief operating decision maker, and a component for which discrete
financial information is available. Statement 131 establishes quantitative
thresholds for determining operating segments of a company. Statement 131
is effective for fiscal years beginning after December 15, 1997, with
earlier application permitted. The Partnership adopted Statement 131 in the
first quarter of 1998. Since the Partnership operates in a single business
segment, the adoption did not have an impact on its financial reporting.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities ("Statement
133"). Statement 133 establishes accounting and reporting standards for
derivative instruments and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair
value. Statement 133 is effective for fiscal years beginning after June 15,
1999, with earlier application permitted. Statement 133 is effective for
fiscal years beginning after June 15, 1999, with earlier application
permitted. The Partnership will adopt Statement 133 in the first quarter of
1999. The General Partner does not expect the adoption to have an impact on
its financial reporting.
LONG-LIVED ASSETS
The Partnership accounts for long-lived assets under the provisions of
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"). SFAS No. 121 requires that long-lived assets, including
equipment subject to operating leases and certain identifiable intangibles
-23-
<PAGE>
CAPITAL PREFERRED YIELD FUND-III, L.P.
NOTES TO FINANCIAL STATEMENTS, continued
1. Organization and Summary of Significant Accounting Policies, continued
-----------------------------------------------------------
LONG-LIVED ASSETS, continued
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 net cash flows expected to result
from the use of the asset and its eventual disposition. If the sum of the
expected future net cash flows (undiscounted and without interest charges)
is less than the carrying amount of the asset, an impairment loss is
recognized. Measurement of an impairment loss for long-lived assets,
including equipment subject to operating leases and identifiable
intangibles held by the Partnership, is based on the fair value of the
asset. The fair value of the asset may be calculated by discounting the
expected future net cash flows at an appropriate interest rate.
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 FINANCE 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 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.
-24-
<PAGE>
CAPITAL PREFERRED YIELD FUND-III, L.P.
NOTES TO FINANCIAL STATEMENTS, continued
1. Organization and Summary of Significant Accounting Policies, continued
-----------------------------------------------------------
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.
NON-RECOURSE 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 non-recourse 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.
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
Finance Leases" and "Equipment on Operating Leases" above.
-25-
<PAGE>
CAPITAL PREFERRED YIELD FUND-III, L.P.
NOTES TO FINANCIAL STATEMENTS, continued
1. Organization and Summary of Significant Accounting Policies, continued
-----------------------------------------------------------
INCOME TAXES
No provision for income taxes has been made in the financial statements
since taxable income or loss is recorded in the tax return 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. Cash
equivalents of approximately $2,546,000 and $2,681,000 at December 31, 1998
and 1997, respectively, are comprised of investments in a mutual fund which
invests solely in U.S. Government treasury bills having maturities of 90
days or less.
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, 1998 and 1997 were:
1998 1997
----------- -----------
Minimum lease payments receivable $ 2,099,035 $ 3,072,652
Estimated residual values 1,633,266 606,407
Less unearned income (172,085) (352,226)
----------- -----------
Total $ 3,560,216 $ 3,326,833
=========== ===========
-26-
<PAGE>
CAPITAL PREFERRED YIELD FUND-III, L.P.
NOTES TO FINANCIAL STATEMENTS, continued
3. Leased Equipment, net
---------------------
The Partnership's investment in equipment on operating leases by major
classes as of December 31, 1998 and 1997 were:
1998 1997
------------ ------------
Transportation and industrial equipment $ 39,323,302 $ 41,131,072
Computers and peripherals 15,279,370 13,810,207
Furniture, fixtures and equipment 12,542,349 14,197,395
Other 1,126,682 1,963,783
------------ ------------
68,271,703 71,102,457
Less accumulated depreciation (28,499,909) (24,677,113)
Allowance for losses (177,572) (231,777)
------------ ------------
$ 39,594,222 $ 46,193,567
============ ============
Depreciation expense for 1998, 1997 and 1996 was $13,493,620, $14,058,981
and $12,585,981, respectively.
4. Future Minimum Lease Payments
-----------------------------
Future minimum lease payments receivable from noncancelable leases as of
December 31, 1998 are:
Years Ending December 31, DFLs OLs
------------------------- ----------- ------------
1999 $ 1,723,202 $ 14,517,674
2000 344,235 6,713,932
2001 14,048 2,235,743
2002 10,638 837,045
Thereafter 6,912 315,933
----------- ------------
Total $ 2,099,035 $ 24,620,327
=========== ============
-27-
<PAGE>
CAPITAL PREFERRED YIELD FUND-III, L.P.
NOTES TO FINANCIAL STATEMENTS, continued
5. Discounted Lease Rentals
------------------------
Discounted lease rentals outstanding at December 31, 1998 bear interest at
rates primarily ranging between 6% and 11%. Aggregate maturities of such
non-recourse obligations are:
Years Ending December 31,
-------------------------
1999 $ 9,324,407
2000 2,831,373
2001 440,051
2002 8,078
------------
Total $ 12,603,909
============
6. Transactions With the General Partner and Affiliates
----------------------------------------------------
Sales Commissions and Offering Costs
------------------------------------
Under the terms of the Partnership Agreement, 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, up to 9% of
which are paid to participating broker-dealers. During 1996, CAI Securities
Corporation earned commissions and fees of approximately $1,162,000, of
which $992,000 were paid to participating broker-dealers.
As provided in the Partnership Agreement, the general partner earned
approximately $465,000 as reimbursement for expenses incurred during 1996
in connection with the organization of the Partnership and the offering of
Class A limited partner units. The general partner also received
approximately $62,000 as reimbursement for due diligence expenses incurred
during 1996.
Capital Contributions
---------------------
Under terms of the Partnership Agreement, the Class B limited partner made
capital contributions to the Partnership of $130,000 during 1996.
Origination Fee and Evaluation Fee
----------------------------------
The general partner receives a fee equal to 3.5% of the sales price of
equipment sold to the Partnership (up to a maximum cumulative amount as
specified in the Partnership Agreement), 1.5% 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 lessees. Origination and evaluation fees
totaled approximately $516,000, $347,000 and $1,185,000 in 1998, 1997 and
1996, respectively, all of which were capitalized by the Partnership as
part of the cost of equipment on operating leases and net investment in
direct financing leases.
-28-
<PAGE>
CAPITAL PREFERRED YIELD FUND-III, L.P.
NOTES TO FINANCIAL STATEMENTS, continued
6. Transactions With the General Partner and Affiliates, continued
----------------------------------------------------
Management Fees Paid to General Partner
---------------------------------------
The general partner earns management fees 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. The
general partner earned approximately $420,000, $409,000, and $391,000
during 1998, 1997 and 1996, respectively.
Direct Services from General Partner
------------------------------------
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. The Partnership recorded approximately $210,000,
$120,000, and $94,000 during 1998, 1997 and 1996, respectively.
Equipment Purchases
-------------------
The Partnership purchased equipment from CAII, with a total purchase price
of approximately $15,381,000, $10,426,000 and $35,688,000 (including
approximately $4,759,000, $3,240,000 and $11,369,000 of discounted lease
rentals) during 1998, 1997 and 1996, 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.
Payables to Affiliates
----------------------
Payables to affiliates of approximately $48,000 and $39,000 during 1998 and
1997, respectively, consists of $9,000 for direct services from general
partner, $33,000 for management fees paid to general partner and $6,000 for
reimbursable general and administrative expenses for 1998 and $8,000 for
direct services from general partner, $31,000 for management fees paid to
general partner for 1997.
Receivable From Related Party
-----------------------------
The General Partner collects and applies rental payments to the lessee's
account with the Partnership, for those lessees who remit directly to the
General Partner. The rental payments are then transferred to the
Partnership, eliminating the receivable from related party balance. At the
end of December 1998, $50,521 rents were applied by the General Partner
that were transferred to the Partnership in January 1999.
-29-
<PAGE>
CAPITAL PREFERRED YIELD FUND-III, L.P.
NOTES TO FINANCIAL STATEMENTS, continued
7. Tax Information (Unaudited)
---------------------------
The following reconciles net income for financial reporting purposes to the
income for federal income tax purposes for the year and period ended
December 31,:
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------ ------------
<S> <C> <C> <C>
Net income per financial statements $ 1,745,560 $ 4,414,329 $ 2,074,001
Direct finance leases 2,297,748 1,900,541 2,192,802
Depreciation (2,401,465) (4,277,382) (6,587,214)
Provision for losses 1,250,000 250,000 50,000
Gain (loss) on sale of equipment 362,981 (937,344) 24,631
Other 397,457 4,835 570,570
------------- ------------ -------------
Partnership income for federal income tax purposes $ 3,652,281 $ 1,354,979 $ (1,675,210)
============= ============ ============
</TABLE>
The following reconciles partners' capital for financial reporting purposes
to partners' capital for federal income tax purposes for the year and
period ended December 31,:
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- ------------
<S> <C> <C> <C>
Partners' capital per financial statements $ 32,647,177 $ 36,261,569 $ 37,388,345
Commissions and offering costs 7,184,603 7,184,603 7,184,603
Direct finance leases 7,160,485 4,862,737 2,962,196
Depreciation (17,585,699) (15,184,234) (10,906,852)
Provision for losses 1,825,000 575,000 325,000
Gain (loss) on sale of equipment (549,732) (912,713) 24,631
Other 947,953 557,231 557,627
------------- ------------- -------------
Partners' capital for federal income tax purposes $ 31,629,787 $ 33,344,193 $ 37,535,550
============= ============= =============
</TABLE>
8. Concentration of Credit Risk
----------------------------
Approximately 73% of the Partnership's equipment under lease was leased to
investment grade companies. Pursuant to the Partnership Agreement, an
investment grade lessee is a company (i) with a net worth in excess of
$100,000,000 (and no debt issues that are rated), or (ii) with a credit
rating of not less than Baa as determined by Moody's Investor Services,
Inc. or comparable credit rating as determined by another recognized credit
rating service; or (iii) 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 be in excess of the FDIC
insurance limit due to the 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.
The Partnership leases equipment to a significant number of lessees. No one
lessee and its affiliates accounted for more than 10% of total revenue of
Partnership during 1998.
-30-
<PAGE>
CAPITAL PREFERRED YIELD FUND-III, L.P.
NOTES TO FINANCIAL STATEMENTS, continued
9. Disclosures about Fair Value of Financial Instruments
-----------------------------------------------------
Statement of Financial Standards No. 107, Disclosures about Fair Value of
Financial Instruments specifically excludes certain items from its
disclosure requirements such as the Company's investment in leased assets.
The carrying amounts at December 31, 1998 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, 1998, discounted lease rentals of approximately
$12,604,000 had a fair value of approximately $11,706,000. The fair value
was estimated utilizing market rates of comparable debt having similar
maturities and credit quality as of December 31, 1998.
-31-
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
THE PARTNERS
CAPITAL PREFERRED YIELD FUND-III, L.P.:
Under date of February 22, 1999, we reported on the balance sheets of Capital
Preferred Yield Fund-III, L.P. as of December 31, 1998 and 1997, and the related
statements of income, partners' capital, and cash flows for each of the years in
the three-year period ended December 31, 1998 as contained in the Partnership's
annual report on Form 10-K for the year 1998. 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, such 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 LLP
------------------------
KPMG LLP
Denver, Colorado
February 22, 1999
-32-
<PAGE>
CAPITAL PREFERRED YIELD FUND-III, L.P.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
for the years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -------- ---------- --------------------------- -------------- --------
Balance at Additions Additions Balance
Beginning Charged to Charged to at End
Classification of Year Expenses Other Accounts Deductions (1) of Year
- -------------- ---------- ---------- -------------- -------------- --------
1998
- -------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for losses:
Accounts receivable $ - $ 10,000 $ - $ - $ 10,000
Equipment on operating leases 231,777 1,240,000 - (1,294,205) 177,572
--------- ----------- ------- ------------ ---------
$ 231,177 $ 1,250,000 $ - $ 1,294,205 $ 187,572
========= =========== ======= ============ =========
1997
- -------------------------------
Allowance for losses:
Equipment on operating leases $ 177,799 $ 250,000 $ - $ (196,022) $ 231,777
========= =========== ======= ============ =========
1996
- -------------------------------
Allowance for losses:
Equipment on operating leases $ 275,000 $ 50,000 $ 1,331 $ (148,532) $ 177,799
========= =========== ======= ============ =========
</TABLE>
(1) Principally charge-offs of assets against the established allowances.
See accompanying independent auditor's report
-33-
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
----------------------------------------------------------------------
Financial Disclosure
--------------------
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 IV Corporation
Name Positions Held
---- --------------
John F. Olmstead President and Director
Anthony M. DiPaolo Senior Vice President, Principal Financial and
Chief Administrative Officer and Director
Richard H. Abernethy Vice President and Director
Joseph F. Bukofski Vice President, Assistant Secretary and Director
Robert A. Golden Director
Mick Myers Director
Ann Danielson Assistant Vice President
David J. Anderson Chief Accounting Officer and Secretary
JOHN F. OLMSTEAD, age 54, 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.
ANTHONY M. DIPAOLO, age 40, joined CAII in July 1990 as an Assistant Treasurer
and is currently Senior Vice President-CFO. 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.
RICHARD H. ABERNETHY, age 45, joined CAII in April 1992 as Equipment Valuation
Manager and currently serves as Vice President of Portfolio 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.
-34-
<PAGE>
Item 10. Directors and Executive Officers of the Partnership, continued
---------------------------------------------------
JOSEPH F. BUKOFSKI, age 43, joined CAII in June 1990 as a Financial Analyst. Mr.
Bukofski is currently the Vice President-Pricing. Prior to joining the Marketing
Department, Mr. Bukofski was Assistant Vice President and Controller. Prior to
joining the Company, he was a geologist with Barringer Geoservices, Inc. for
eleven years. Mr. Bukofski holds a Bachelor of Science degree in Secondary
Education - Earth Science from Bloomsburg University and a Masters of Science in
Accounting from the University of Colorado.
ROBERT A. GOLDEN, age 53, 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.
MICK MYERS, age 41, joined CAI in February 1992 as a Senior Portfolio Manager.
Currently he is Assistant Vice President of Asset Management. Mr. Myers has nine
years experience in the leasing industry. Previously, he has held the position
of Senior End of Lease Negotiator with ELLCO/GE Capital. Mr. Myers holds a
Bachelor of Science degree from the University of Wyoming.
ANN DANIELSON, age 35, joined CAII in February 1990 and is currently Assistant
Vice President, Assistant Treasurer and is responsible for the Company's cash
management and collections functions. Prior to joining the Company, she was with
U.S. West financial Services and Coopers & Lybrand. Ms. Danielson holds a
Bachelor of Arts Degree from the University of Northern Iowa.
DAVID J. ANDERSON, age 46, joined CAII in August 1990 as Manager of Billing &
Collections and currently serves as Assistant Vice-President/Assistant
Controller. 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," which is incorporated herein by reference, for a description of
the compensation and fees paid to the general partner and its affiliates by the
Partnership during 1998.
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, is the Class B limited
partner.
-35-
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management,
----------------------------------------------------------------------
continued
CAI Equipment Leasing IV Corp. is the general partner.
The names and addresses of the general partner and the Class B limited
partner are as follows:
General Partner
---------------
CAI Equipment Leasing IV Corp.
7175 West Jefferson Avenue
Suite 4000
Lakewood, Colorado 80235
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 A limited partner units as of December 31,
1998.
(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 1998:
ACQUISITION AND OPERATING STAGES
Acquisition Fee and Acquisition Cost Reimbursement
- --------------------------------------------------
The general partner receives a fee equal to 3.5% of the sales price of equipment
sold to the Partnership, 1.5% 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 approximately $516,000 in 1998, all of
which were capitalized by the Partnership as part of the cost of equipment on
operating leases and net investment in direct financing leases.
-36-
<PAGE>
Item 13. Certain Relationships and Related Transactions, continued
----------------------------------------------
Management Fees
- ---------------
The general partner earns 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 approximately $420,000 for 1998.
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 approximately
$210,000 during 1998.
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 $52,755 and $52,755, respectively, for 1998. Distributions and net
income allocated to the Class B limited partner totaled $52,500 and $20,647,
respectively, for 1998.
During 1998, the Partnership acquired the equipment described below from CAII:
<TABLE>
<CAPTION>
Cost to
Partnership
Including
Acquisition Debt Annual
Lessee Equipment Description Cost to CAII Fees* Assumed Rents
- ------ --------------------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Thomson Industries, Inc. Personal computers $ 31,952 $ 33,059 $ - $ 11,474
Lexmark International, Inc. Conveyor system 113,132 117,052 - 53,299
General Motors Corporation Forklifts 2,920,474 3,021,669 - 697,880
New York State Electric Personal computers 1,159,117 1,199,686 - 620,884
New York State Electric Desktop computers 523,809 542,143 - 282,370
Oakland University PBX systems 497,555 514,969 - 193,260
Polo Ralph Lauren Corporation Desktop computers 152,165 157,490 - 82,015
Polo Ralph Lauren Corporation Peripheral printers 33,805 34,988 - 19,400
Polo Ralph Lauren Corporation Personal computers 195,021 201,846 - 105,485
Polo Ralph Lauren Corporation PBX systems 76,114 78,778 - 39,312
Lucent Technology Forklifts 127,401 131,815 - 33,720
Darigold Incorporated Forklifts 11,495 11,893 - 3,734
Collins Industry Office automation equipment 118,920 123,041 99,710 38,410
Sony Electronics Forklifts 53,808 55,673 - 12,379
Parke-Davis Pharmaceuticals Research equipment 93,921 97,176 - 30,050
Digital Audio Disk Printing equipment 91,334 94,499 - 28,277
Xerox Office automation equipment 34,290 35,478 - 11,112
Breckenridge Forklifts 99,157 102,593 - 20,192
Parke-Davis Pharmaceuticals Medical equipment 101,730 105,255 - 32,439
Williams Sonoma Point-of-sale equipment 191,210 197,835 - 69,396
Lexmark International, Inc Printed circuit board 567,600 587,267 - 192,384
HK System Inc. Communication equipment 73,986 76,550 - 33,509
-37-
<PAGE>
Item 13. Certain Relationships and Related Transactions, continued
----------------------------------------------
Accountable General and Administrative Expenses, continued
- -----------------------------------------------
Cost to
Partnership
Including
Acquisition Debt Annual
Lessee Equipment Description Cost to CAII Fees* Assumed Rents
- ------ --------------------- ------------ ------------ ----------- -----------
Metris Direct Inc. Networking equipment $ 59,324 $ 61,379 $ - $ 25,317
GM Powertrain Division Forklifts 573,275 593,139 - 144,506
Moog Incorporated Personal computers 1,693,170 1,751,838 1,491,725 787,380
Mitchell International Personal computers 1,382,045 1,429,933 1,118,471 754,440
Lucent Technology CPU's Dec 39,848 41,229 - 10,550
E-Trade Group Incorporated Furniture 899,629 930,801 767,555 306,946
Consolidated Diesel Company Forklifts 11,811 12,220 - 3,699
Thomson Industries Inc Machine tools 67,983 70,339 - 24,413
Lucent Technology Desktop computers. 1,519,350 1,571,996 1,281,044 555,000
General Motors Corporation Dry Vans 39,440 40,807 - 10,373
Treasure Chest Advertising Co. Forklifts 80,741 83,538 - 27,991
ICI Americas Inc. Networking equipment 25,176 26,048 - 8,175
Philips Digital Video Systems Desktop computers 45,960 47,553 - 20,976
Schratter Foods, Inc Forklifts 77,815 80,511 - 28,401
Ball-Foster Glass Container Forklifts 22,127 22,853 - 13,996
Ball Aerospace Furniture 368,520 381,290 - 44,272
ABT Associates Incorporated Portable computers 140,209 145,067 - 46,753
ABT Associates Incorporated Desktop computers 157,340 162,792 - 55,167
The C P Hall Company Portable computers 28,601 29,592 - 9,837
United Airlines Transport trucks 342,262 354,121 - 119,275
Ball-Foster Glass Container Transport trucks 22,553 23,333 - 9,015
------------ ------------ ----------- -----------
Total $ 14,865,176 $ 15,381,136 $ 4,758,505 $ 5,617,464
============ ============ =========== ===========
</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.
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").
-38-
<PAGE>
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K,
----------------------------------------------------------------------
continued
(b) The Partnership did not file any reports on Form 8-K during the
quarter ended December 31, 1998.
(c) Exhibits required to be filed.
Exhibit Exhibit
Number Name
------ -------
4.1* Capital Preferred Yield Fund-III Limited Partnership
Agreement
4.2* First Amendment to Limited Partnership Agreement dated
June 14, 1994
4.3* Amended and Restated Agreement of Limited Partnership of
Capital Preferred Yield Fund-III, 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.
-39-
<PAGE>
SIGNATURES
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 30, 1999 Capital Preferred Yield Fund-III, L.P.
By: CAI Equipment Leasing IV 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 30, 1999.
Signature Title
- --------- -----
/s/John F. Olmstead
- --------------------------
John F. Olmstead President and Director
/s/Anthony M. DiPaolo
- -------------------------- Senior Vice President, Principal Financial and
Anthony M. DiPaolo Chief Administrative Officer and Director
/s/Richard H. Abernethy
- --------------------------
Richard H. Abernethy Vice President and Director
/s/Joseph F. Bukofski
- --------------------------
Joseph F. Bukofski Vice President, Assistant Secretary and Director
/s/Robert A. Golden
- --------------------------
Robert A. Golden Director
/s/Mick Myers
- --------------------------
Mick Myers Director
/s/Ann Danielson
- --------------------------
Ann Danielson Assistant Vice President
/s/David J. Anderson
- --------------------------
David J. Anderson Chief Accounting Officer and Secretary
-40-
<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-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 2,723,454
<SECURITIES> 0
<RECEIVABLES> 1,340,631
<ALLOWANCES> 0
<INVENTORY> 534,643
<CURRENT-ASSETS> 0
<PP&E> 43,154,438
<DEPRECIATION> 0
<TOTAL-ASSETS> 47,803,687
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 32,647,177
<TOTAL-LIABILITY-AND-EQUITY> 47,803,687
<SALES> 450,186
<TOTAL-REVENUES> 18,490,540
<CGS> 0
<TOTAL-COSTS> 16,744,980
<OTHER-EXPENSES> 629,344
<LOSS-PROVISION> 1,250,000
<INTEREST-EXPENSE> 1,085,904
<INCOME-PRETAX> 1,745,560
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,745,560
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,745,560
<EPS-PRIMARY> 3.40
<EPS-DILUTED> 3.40
</TABLE>
