Item 1. Business
General
PaineWebber Preferred Yield Fund, L.P. (the "Partnership" or the "Registrant") is a limited partnership organized under the laws of the State of Delaware on December 18, 1989 and commenced operations on June 22, 1990. The general partners of the Partnership are CAI Equipment Leasing II Corp., the Managing General Partner, a Colorado corporation wholly-owned by Capital Associates, Inc. ("CAI"), and General Equipment Management, Inc., the Administrative General Partner, a Delaware corporation wholly-owned by PaineWebber Group Inc. (The Managing General Partner and the Administrative General Partner are sometimes hereinafter collectively referred to as the "General Partners".)
Capital Associates International, Inc. ("CAII"), an affiliate of the Managing General Partner, is the Class B Limited Partner. The Class B Limited Partner contributed equipment and cash to the Partnership valued at an amount equal to 12.5% of the aggregate value of the equipment purchased with the net offering proceeds received from the sale of the Units of Class A Limited Partner Interest ("Units") and the equipment and capital contributed by the Class B Limited Partner. The Class B Limited Partner satisfied its contribution obligation during 1992.
The Partnership is required to dissolve and distribute all of its assets not later than December 31, 2005. The general partners approved a plan of liquidation in 1998 and the Partnership commenced liquidation as of December 31, 1998. As a result, the Partnership has changed its basis of accounting for periods subsequent to December 31, 1998 from the going-concern to the liquidation basis of accounting. The Managing General Partner has sold the remaining equipment during 1999.
During 1999, the Partnership liquidated substantially all of its net assets and distributed the related proceeds to the partners in accordance with the Partnership Agreement. As of December 31, 1999, the Partnership retained assets equal to the estimated settlement value of all remaining liabilities. It is the intent of the general partner to liquidate the remaining receivables and settle all liabilities during 2000. Excess cash remaining after the settlement of liabilities, if any, will be distributed to the Partners in accordance with the Partnership Agreement.
The Partnership acquired, on an all-cash basis, a portfolio of equipment, subject to triple net leases with unaffiliated third parties. The Partnership's portfolio of equipment included industrial, materials handling, mining, medical, research and development, transportation equipment, store fixtures and manufacturing testing and office technology equipment, including, computers and computer-related and telecommunications equipment. Office technology equipment owned by the Partnership could not exceed 60% of the value of the Partnership's total equipment portfolio.
A substantial amount of the equipment initially acquired by the Partnership was purchased by CAII directly from the manufacturer or from independent third parties and resold or contributed to the Partnership. The balance of the equipment was purchased directly from independent third parties by the Partnership. The purchase price of the equipment acquired from CAII and the value of the equipment contributed by the Class B Limited Partner were equal to the lesser of the adjusted cost of the equipment or the appraised value of the equipment at the time of its acquisition by the Partnership. The adjusted cost of the equipment was equal to the price paid by CAII, plus the cost of an appraisal, CAII's cost of interim financing for the equipment and any taxes paid by CAII, less certain interim rentals received by CAII with respect to the equipment.
The Partnership acquired equipment that was already subject to short-term leases (generally, 5 years or less). The Partnership's business is not subject to seasonal variations.
Item 1. Business, continued
General, continued
Employees
The Partnership has no employees. The officers, directors and employees of the General Partners and their affiliates perform services on behalf of the Partnership. The General Partners are entitled to certain fees and reimbursements of certain out-of-pocket expenses incurred in connection with the performance of these management services. See Item 10 of this Report, "Directors and Executive Officers of the Registrant", and Item 13 of this Report, "Certain Relationships and Related Transactions", which are incorporated herein by reference.
Item 2.
Item 2. Properties
The Partnership does not own or lease any properties other than the equipment which is discussed in Item 1 of this Report, "Business", which is incorporated herein by reference.
Item 3.
Item 3. Legal Proceedings
The Partnership is not the subject of any material pending legal proceedings.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Limited Partners of the Partnership, through the solicitation of proxies or otherwise, during the fourth quarter of the fiscal year ended December 31, 1999.
PART II
Item 5.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
There is no organized trading market for the purchase and sale of the Units and certain measures have been adopted and implemented to assure that no organized trading market will develop.
As of June 1, 1999, the number of Class A Limited Partners was 3,461, representing 142,128 Units.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters , continued
The Partnership made the following quarterly distributions to its Class A Limited Partners out of cash flows during 1999 and 1998:
Period From Which Amount Of Distributable Cash Distribution Was Generated Per Unit Record Date Payment Date - ------------------ ------------ ------------- --------------- Quarter ended June 30, 1999 (1) $ 17.14 June 1, 1999 August 20, 1999
Quarter ended March 31, 1998 $ 8.00 April 1, 1998 April 25, 1998
(1) Liquidation distribution
Total distributions to all partners for 1999 and 1998 were declared as follows:
1999 1998 ---- ----
Class A Limited Partners $ 2,436,081 $1,137,024 Class B Limited Partners 395,727 197,959 General Partners 122,021 50,156 ----------- ---------- $ 2,953,829 $1,385,139 =========== ========== Item 6.
Item 6. Selected Financial Data
The following selected financial data of the Partnership has been derived from the audited financial statements for the indicated periods. The information set forth below should be read in conjunction with the Partnership's financial statements and notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in Items 8 and 7, respectively, of this Report, which are incorporated herein by reference.
(1) Includes net gains on disposition of equipment of $96,933, $1,236,378, $461,994, $789,154 and $179,352 for the years ended December 31, 1999, 1998, 1997, 1996 and 1995, respectively. (2) Calculated based upon the weighted average number of units outstanding.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The Partnership has changed its basis of accounting from the going-concern to the liquidation basis as of December 31, 1998 in accordance with a plan of liquidation adopted by the General Partners effective December 31, 1998. The liquidation basis of accounting presents assets at the amounts expected to be realized in liquidation and liabilities at amounts expected to be paid to creditors. Amounts expected to be paid to creditors to finalize the liquidation were accrued at December 31, 1999, and are discussed in detail under general and administrative expenses in Item 7.
The following discussion should be read in conjunction with the selected financial data and the consolidated financial statements of the Partnership and notes thereto.
Lquidity and Capital Resources
Equipment acquisitions (including acquisition fees and expenses) since the commencement of operations have been as follows:
(1) Represents upgrade to an existing lease.
From inception through December 31, 1999, the Partnership sold equipment with an original cost as follows: Original Cost Associated Year Ending with Equipment Sold December 31, or Disposed of (1)(2) ------------ ------------------------
1991 $ 1,074,780 1992 3,928,788 1993 14,916,752 1994 13,247,784 1995 20,352,539 1996 12,500,250 1997 48,987,055 1998 22,546,942 1999 2,918,736 ------------ $140,473,626 ============
(1) Includes investment in direct finance leases. (2) See "Selected Financial Data", set forth elsewhere herein, for disclosure of related gains and losses.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, continued
Liquidity and Capital Resources, continued
The Partnership invests working capital and cash flow from operations prior to its distribution to the partners in short-term highly liquid investments. These investments are primarily short-term commercial paper issued by large domestic corporations. In the years ended December 31, 1999 and 1998, approximate distributions of net cash flows provided by operations declared and paid by the Partnership were $3 million and $1.4 million, respectively. Distributions declared was $25.2 million in the year ended December 31, 1997.
Year 2000 Issues
The Partnership uses information systems provided by CAI and has no information system of its own. CAI completed all Year 2000 readiness work prior to December 31, 1999 and did not experience any significant problems. Additionally, the Partnership is not aware of any outside customer or vendor that experienced Year 2000 issues, that would have any effect on the Partnership's operations, liquidity, or financial condition. However, CAI and the Partnership has no means of ensuring that all customers, vendors and third- party services have conformed to Year 2000 standards. The effect of this risk is to the Partnership is determined to be minimal.
Equipment Sale
The remaining equipment was sold in the second quarter of 1999 for a sales price of $1,401,287 and a gain of $96,933. In October 1997, the Partnership entered into an agreement with an unaffiliated third party to sell certain equipment subject to leases for an aggregate sale price of $15,338,420. The equipment, which included printers, transportation, industrial, communication, manufacturing and research equipment was originally acquired for purchase prices aggregating $29,855,031 and had an aggregate net book value of $16,323,645 at September 30, 1997. The equipment had generated aggregate rents of approximately $19,000,000 for the Partnership through the date of sale. The Partnership recorded a writedown of $1,000,000 at September 30, 1997 to reflect the difference between the sale price and the depreciated value of the equipment. The sale was consummated and the sales proceeds were received on October 30, 1997. Of the proceeds received, $156,476 was utilized to repay related non-recourse debt and the balance less any amount required for operations, was distributed to the partners in January 1998. The equipment sold represented approximately 57% of the Partnership's remaining equipment on a net book value basis at September 30, 1997, and approximately 70% of the September 1997 monthly rental billings.
Sale of Prepaid Leases
Effective September 30, 1998, the Partnership sold the title and its interest in certain equipment to an unaffiliated third party (Buyer). The lease rentals had previously been discounted for cash and were recorded as a prepaid rent obligation on the balance sheet. The Buyer assumed the prepaid rent obligation of approximately $4,569,000 at September 30, 1998 and paid an additional amount of cash to the Partnership resulting in a net gain of approximately $528,000 which is included in Gain on sale of equipment.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, continued
Sale of Prepaid Leases, continued
As of December 31, 1999, the Partnership has sold all of its fixed assets. In January 1998, the Partnership distributed a substantial portion of the proceeds generated by the October 1997 equipment sale discussed above. A final distribution was made in August 1999 from proceeds of the sale of the remaining equipment.
The calculation of such distribution was the net of the reserve for current and contingent liabilities, if any, incidental to the liquidation.
Results of Operations
The Partnership adopted a plan of liquidation effective December 31, 1998, and accordingly, is using the liquidation basis of accounting. The remaining equipment under operating lease was sold in the second quarter of 1999 for $1,401,287. A gain of $96,933 was realized on the sale. A portion of the proceeds from the sale was used to satisfy the remaining balance of the discounted lease rental since the lease had been financed with non-recourse debt. The balance of the proceeds were included in the calculation of cash available for the final liquidating distribution.
The Partnership's income from liquidating activities during the twelve months ended December 31, 1999 was realized from a reclassification to income of a liability account for non-lease related cash received in prior periods, and from gains realized from the sale of equipment and interest income from cash equivalents.
Interest expense for the twelve months ended December 31, 1999 is comprised of interest expense incurred in connection with the discounted leases. Interest expense associated with the remaining discounted lease rental decreased as principal was repaid. As discussed above in the second paragraph, the balance of the discounted lease rental was repaid to the lender as part of the sale of the Partnership's remaining equipment.
General and administrative expenses for the twelve months ended December 31, 1999 consisted primarily of state tax fees and storage and transportation fees.
The Partnership received rental payments for equipment subsequent to the sale of its equipment to a third party. The Partnership remits these rental payments to the new owners on a monthly basis. Included in accounts payable and accrued liabilities at December 31, 1999 are approximately $463,907 of rents payable to the new owners.
Substantially all of the Partnership's revenue since the inception of the Partnership has been generated from the leasing of the Partnership's equipment to unaffiliated third parties under triple net leases most of which were in effect at the time the equipment was acquired by the Partnership. The balance of the Partnership's revenue consisted of interest income from temporary investments and gains realized on the sale of equipment.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, continued
1998 Compared to 1997
The Partnership's net income decreased to $1,315,762 for the year ended December 31, 1998 ("1998 Period") as compared to net income of $2,072,522 for the year ended December 31, 1997 ("1997 Period") due to portfolio run-off and sales of equipment offset by corresponding decreases in depreciation and interest expenses. However, net income as a percent of total revenue increased by 11% in the current year.
Rentals from operating leases decreased by $6,524,524 or 70%, in the 1998 Period as compared to the 1997 Period. The decrease is attributable to the expiration of leases in accordance with their respective terms and the sale of equipment subject to operating leases.
As discussed above, the Partnership performs ongoing assessments of recorded equipment residual values based on actual sales of similar equipment and other evaluations of estimated future equipment values and provides for writedowns when the value of the equipment has been impaired on an other than temporary basis. Based upon management's assessments as noted above, the Partnership recorded writedowns totaling $566,670 in the 1998 Period. In the 1997 Period, the Partnership provided writedowns aggregating $1,000,000.
Depreciation expense decreased by $4,615,862, or 75% in the 1998 Period as compared to the 1997 Period. The decrease was attributable to the continued sale of equipment.
Management fees to general partners during the 1998 Period decreased by $144,754, or 62%, in comparison to the 1997 Period, based upon the reduction of leases in place and was consistent with the decline in rental revenues.
Interest expense incurred during the 1998 Period decreased by $308,888 or 38%, as compared to the 1997 Period. Interest expense is composed of two components; (i) interest expense incurred in connection with the discounting of certain leases with unaffiliated lenders and (ii) interest incurred in connection with the amortization of the prepaid rent received pursuant to the Master Lease transaction. For accounting purposes, the prepaid rent was treated as a financing. Income was recognized ratably over the terms of the leases and the related interest was charged to operations. The decreases reflect the continued repayment of discounted leases, reducing outstanding balances, and the final amortization of the prepaid rent in September 1998.
General and administrative expenses decreased by $57,235 or 16%, in the 1998 Period as compared to the 1997 Period. The decrease is attributable principally to a decrease in costs associated with the remarketing of equipment at lease maturity.
There are no comparative figures for the liquidation expenses which are recorded in the Statement of Changes in Shareholders' Equity and Net Assets in Liquidation as this amount was recorded at December 31, 1998 to accrue for estimated expenses associated with the liquidation of the Partnership in accordance with the liquidation basis of accounting. Liquidation expenses are estimates comprised primarily of a reserve associated with sales and property tax audits, financial statement audit and tax return preparation for 1999, investor record maintenance, and expenses reimbursable to the General Partner.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, continued
Inflation and Changing Prices
Inflation has not had a material impact on the operations or financial condition of the Partnership from inception through December 31, 1999.
Risks and Uncertainties
The Managing General Partner has sold the remaining equipment during 1999. Estimated liquidation expenses for the remaining life of the Partnership have been recorded in the accompanying financial statements for the period ended December 31, 1998. Management believes such accruals are adequate to cover such anticipated expenditures.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Partnership was legally dissolved as of December 31, 1999 and all assets and liabilities were stated at anticipated liquidation value. Consequently, the Partnership has no market risk exposure.
PAINEWEBBER PREFERRED YIELD FUND, L.P.
Item 8.
Item 8. Financial Statements and Supplementary Data
List of Financial Statements
Page ----
Report of Independent Accountants
Statement of Net Assets in Liquidation - December 31, 1999 and 1998
Statement of Changes in Net Assets in Liquidation for the year ended December 31, 1999
Statements of Operations for the years ended December 31, 1998 and 1997
Statement of Changes in Partners' Capital for the years ended December 31, 1999, 1998, and 1997
Statements of Cash Flows for the years ended December 31, 1998 and 1997
Notes to Financial Statements
All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission have been omitted since (1) the information required is disclosed in the financial statements and notes thereto, (2) schedules are not required under the related instructions; or (3) the schedules are inapplicable.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of PaineWebber Preferred Yield Fund, L.P.
We have audited the accompanying statements of net assets in liquidation as of December 31, 1999 and December 31, 1998 of PaineWebber Preferred Yield Fund, L.P. and the related statements of changes in partners' capital and statement of changes in net assets in liquidation in for the year ended December 31, 1999. In addition, we have audited the accompanying statements of operations, cash flows and changes in partners' capital for each of the two years ended December 31, 1998 and 1997. These financial statements are the responsibility of the Partnership's General Partners. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 PaineWebber Preferred Yield Fund, L.P. in liquidation as of December 31, 1999 and as of December 31, 1998 and the results of its operations and its cash flows for each of the respective periods stated in the first paragraph, in conformity with accounting principles generally accepted in the United States of America.
As described in Note 1 to the financial statements, the General Partners of the Partnership approved a plan of liquidation and the Partnership commenced liquidation, effective December 31, 1998. As a result, the Partnership has changed its basis of accounting as of and for periods subsequent to December 31, 1998 from the going concern to the liquidation basis of accounting.
/s/PricewaterhouseCoopers LLP ----------------------------- PricewaterhouseCoopers LLP
New York, New York April __, 2000
PAINEWEBBER PREFERRED YIELD FUND, L.P. STATEMENT OF NET ASSETS IN LIQUIDATION AS OF DECEMBER 31, 1999 and 1998
ASSETS
1999 1998 ----------- ----------- Cash and cash equivalents $1,277,247 $3,198,407 Rents and other receivables, net 114,403 163,529 Equipment on operating leases, at liquidation value - 1,567,365 ---------- ----------
Total Assets $1,391,650 $4,929,301 ========== ========== LIABILITIES AND NET ASSETS
LIABILITIES: Accounts payable and accrued liabilities $ 963,029 $ 731,971 Accrued liquidation expenses 177,110 341,750 Payables to affiliates 156,908 246,884 Accrued interest payable - 6,275 Discounted lease rentals - 969,404 ---------- ----------
Total Liabilities 1,297,047 2,296,284 ---------- ----------
NET ASSETS IN LIQUIDATION: 94,603 2,633,017 ---------- ----------
Total Liabilities and Net Assets in Liquidation $1,391,650 $4,929,301 ========== ==========
The accompanying notes are an integral part of these financial statements.
PAINEWEBBER PREFERRED YIELD FUND, L.P.
STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION FOR THE YEAR ENDED DECEMBER 31, 1999
Twelve months ended December 31, -------------------
Net assets in liquidation, beginning of year $ 2,633,017
Income from liquidating activities: Interest income 87,919 Gain on sale of equipment 96,933 Other income 276,934 ----------- 461,786 -----------
Expenses from liquidating activities: Interest 39,514 General and administrative 6,857 ----------- 46,371 ----------- Changes in net assets from liquidation activities 415,415
Distributions to General and Limited Partners 2,953,829 ----------- Decrease in net assets in liquidation (2,538,409) -----------
Net assets in liquidation, end of year $ 94,603 ===========
Net assets in liquidation, per weighted average Class A unit (142,128) $0.67 ===========
Net assets in liquidation allocated: To the General Partners 7,522 To the Class A Limited Partners 80,715 To the Class B Limited Partners 6,366 ----------- $ 94,603 ===========
PAINEWEBBER PREFERRED YIELD FUND, L.P. STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997 ---------- ----------- REVENUE: Rentals from operating leases $2,854,305 $ 9,378,829 Direct finance lease income 13,422 351,997 Gain on sale of equipment 1,236,378 461,994 Interest income 185,924 302,541 Other income 25,439 136,936 ---------- ----------- 4,315,468 10,632,297 ---------- ----------- EXPENSES: Depreciation 1,536,058 6,151,920 Provision for losses on equipment 566,670 1,000,000 Interest 500,730 809,618 Management fees to general partners 90,097 234,851 Disposition fees - - General and administrative 306,151 363,386 ---------- ----------- 2,999,706 8,559,775 ---------- ----------- NET INCOME $1,315,762 $ 2,072,522 ========== ===========
NET INCOME ALLOCATED: To the General Partners $ 65,788 $ 74,072 To the Class A Limited Partners 1,093,727 1,776,214 To the Class B Limited Partner 156,247 222,236 ---------- ----------- $1,315,762 $ 2,072,522 ========== ===========
NET INCOME PER WEIGHTED AVERAGE NUMBER OF UNITS OF CLASS A LIMITED PARTNER INTERESTS OUTSTANDING $ 7.70 $ 12.50 ========== ===========
WEIGHTED AVERAGE NUMBER OF UNITS OF CLASS A LIMITED PARTNER INTERESTS OUTSTANDING 142,128 142,128 ========== ===========
The accompanying notes are an integral part of these financial statements.
PAINEWEBBER PREFERRED YIELD FUND, L.P. STATEMENT OF CHANGES IN PARTNERS' CAPITAL AND NET ASSETS IN LIQUIDATION FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
The accompanying notes are an integral part of these financial statements.
PAINEWEBBER PREFERRED YIELD FUND, L.P. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
The accompanying notes are an integral part of these financial statements.
PAINEWEBBER PREFERRED YIELD FUND, L.P. NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation ---------------------
PaineWebber Preferred Yield Fund, L.P. (the "Partnership"), a Delaware limited Partnership, maintained its accounting records and prepared financial statements on the accrual basis of accounting. The General Partners approved a plan of liquidation in 1998 and commenced liquidation as of December 31, 1998. Accordingly, the Partnership has changed its basis of accounting from the going-concern to the liquidation basis effective December 31, 1998. The liquidation basis of accounting presents assets at the amounts expected to be realized in liquidation and liabilities at amounts expected to be paid to creditors. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. The most significant estimates by management for the years prior to 1998 relate to the allowance for losses and estimated residual or salvage values. The liquidating value of assets and liabilities in liquidation are based upon management's best estimates of their liquidation value at December 31, 1999 and 1998. The Managing General Partner has sold the remaining equipment during 1999, therefore concluding the operations for the Partnership.
Risks and Uncertainties -----------------------
As discussed in Note 7, the Partnership has sold all of its fixed assets prior to December 31, 1999. No material net realizable value adjustments to accounts in the financial statements were deemed necessary after adoption of the liquidation basis of accounting by the General Partner.
Cash and Cash Equivalents -------------------------
The Partnership invests working capital and cash flow from operations prior to its distribution to the partners in short-term highly liquid investments. These investments are recorded at cost which approximates fair market value. For purposes of the statement of net assets in liquidation and the statements of cash flows, the Partnership considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
1. SIGNIFICANT ACCOUNTING POLICIES, continued
Equipment on Operating Leases -----------------------------
Prior to the adoption of the liquidation basis of accounting, rentals from operating leases were recognized on a straight-line basis over the term of the lease. Equipment on operating leases was stated at cost, including the acquisition fees paid to the Managing General Partner, less accumulated depreciation. Depreciation was calculated on a straight-line basis over the lease terms, ranging from two to seven years, to an amount equal to the equipment's estimated fair market value at the lease termination date. In estimating such values, independent appraisals and other circumstances regarding the equipment and the lessee were considered. Thereafter, residual estimates were re-evaluated each quarter. Impairment losses were recognized when expected future cash flows were less than the assets' carrying value. Accordingly, when indicators of impairment were present, the Partnership evaluated the carrying value of property, plant and equipment and intangibles in relation to the operating performance and future undiscounted cash flows of the underlying business. In that event, the Partnership adjusted the net book value of the underlying assets by the difference between the sum of expected future discounted cash flows and book value.
Non-recourse Discounting of Rentals -----------------------------------
The Partnership assigned the rentals from leases to financial institutions at fixed interest rates on a non-recourse basis. In return for such future lease payments, the Partnership received the discounted value of the rental payments in cash. The notes were collateralized by the lease, the related lease payments and the underlying equipment. Cash proceeds from such financings were recorded on the balance sheet as discounted lease rentals. As lessees made payments to the financial institutions, interest expense was recorded and the outstanding balance of discounted lease rentals was reduced.
Disposition of Equipment ------------------------
When equipment is sold or disposed of, the asset and related accumulated depreciation and write down for loss, if any, are removed from the accounts and a gain or loss is recognized.
Deferred Rental Income ----------------------
Lease revenues received but not yet earned were deferred and recognized as income when earned.
Income Taxes ------------
No provision for income taxes was made in the financial statements since taxes on Partnership income are the responsibility of the individual partners rather than the Partnership.
1. SIGNIFICANT ACCOUNTING POLICIES, continued
Net Income Per Unit of Class A Limited Partner Interest -------------------------------------------------------
The net assets in liquidation per weighted average Class A Unit and the net income per Unit of Class A Limited Partner Interest was computed by dividing the net income or net assets in liquidation allocated to the Class A Limited Partners by the weighted average number of Units of Class A Limited Partner Interest outstanding during the period.
Accrued Liquidation Expenses ----------------------------
Liquidation expenses are estimates comprised primarily of liabilities associated with sales and property tax audits, financial statement audit and tax return preparation for 1999, investor record maintenance, and expenses reimbursable to the General Partner.
2. ORGANIZATION OF THE PARTNERSHIP
The Partnership was formed on December 18, 1989 for the purpose of acquiring and leasing equipment. The Partnership acquired a portfolio of equipment subject to triple net leases (e.g. repairs, insurance and taxes are paid by the lessees) with unaffiliated third parties.
The Managing General Partner of the Partnership is CAI Equipment Leasing II Corp., a wholly-owned subsidiary of Capital Associates, Inc., and the Administrative General Partner is General Equipment
Management, Inc., a wholly-owned subsidiary of Paine Webber Group Inc. (The Managing General Partner and the Administrative General Partner are hereinafter collectively referred to as the "General Partners"). Capital Associates International, Inc. ("CAII"), an affiliate of the Managing General Partner, is the Class B Limited Partner. The Class B Limited Partner contributed equipment to the Partnership having a fair market value equal to 12.5% of the aggregate acquisition value of the equipment purchased with the offering proceeds received from the sale of the Units of Class A Limited Partner Interest ("Units") and the equipment contributed by the Class B Limited Partner. The Class B Limited Partner satisfied its contribution obligation during 1992.
On March 12, 1990, the General Partners each contributed $100 to the capital of the Partnership. Between May 21, 1990 and April 19, 1991, 142,128 Units were sold at a price of $500 per Unit. Nine closings were held pursuant to which the Partnership received $71,064,000 of gross offering proceeds. The Partnership incurred $8,952,640 of commissions and other offering expenses in connection with the sale of these Units, thus receiving $62,111,360 of net offering proceeds.
The Partnership commenced operations on June 22, 1990 and acquired a total of $140,473,626 of leased equipment over the life of the Partnership.
During 1997 and 1998, the Partnership sold a substantial portion of its assets, and all remaining equipment was sold during 1999. A final distribution was declared to the partners in accordance with the liquidation provisions in the Partnership Agreement in June 1999. It is the intent of the General Partner to collect the remaining receivables and settle all liabilities during 2000. Excess cash remaining after settlement of liabilities, if any, will be distributed to the Partners in accordance with the Partnership Agreement. The Partnership was legally dissolved on December 31, 1999.
3. PARTNERSHIP ALLOCATIONS
Cash Distributions
Cash distributions, which are based upon the results of operations and cash generated from operations other than liquidating distributions, are distributed 5% to the General Partners and 95% to the Class A Limited Partners and the Class B Limited Partner (collectively, the "Limited Partners").
In 1997, the Partnership sold a substantial portion of its portfolio, thereby triggering an event of dissolution as defined in the Partnership Agreement. As a result, the fourth quarter 1997, the first quarter 1998 and the third quarter 1999 distribution, and all future distributions, were based on the respective partners' capital accounts after all allocations of profits and losses, as provided for in the Partnership Agreement.
Profits and Losses
Profits (not including the special allocations discussed below) were first allocated to offset prior year losses, if any. Remaining profits were then allocated among the partners in the same manner that cash distributions were allocated, or would be allocated (as set forth above) if cash distributions were equal to the allocable profits.
Losses (not including the special allocations discussed below) were first allocated to offset prior year profits and then 1% to the General Partners and 99% to the Limited Partners. The 99% allocated to the Limited Partners was shared 87.5% for the Class A Limited Partners and 12.5% for the Class B Limited Partner.
There are several special allocation provisions included in the Partnership Agreement of which the two most significant are as follows: First, commissions and expenses paid in connection with the sale of Units were allocated 1% to the General Partners and 99% to the Limited Partners. The 99% allocated to the Limited Partners was shared 87.5% for the Class A Limited Partners and 12.5% for the Class B Limited Partner. Second, depreciation with respect to the equipment and any losses resulting from the sale of equipment was allocated 1% to the General Partners and 99% to the Limited Partners, until the cumulative amount of depreciation and losses so allocated to the Limited Partners equaled their aggregate capital contributions, net of the commissions and other expenses paid in connection with the sale of the Units. The 99% allocated to the Limited Partners was shared by the Class A Limited Partners and the Class B Partner in proportion to their respective net capital contributions. The General Partners were also specially allocated items of income to offset their 1% allocation of these two items.
5. RENTS AND OTHER RECEIVABLES, NET
Rents and other receivables, net consists primarily of rents and property taxes that had been billed and were due, but have not been collected, and accrued interest receivable.
6. EQUIPMENT ON OPERATING LEASES, NET
The following schedule provides an analysis of the Partnership's investment in equipment on operating leases as of December 31, 1998: ----
General equipment, at estimated liquidation value in 1998 $ 1,567,365 ============
As discussed above, the Partnership has performed ongoing assessments of recorded equipment residual values based on actual sales of similar equipment and other evaluations of estimated future equipment values and provides for writedowns when the value of the equipment has been impaired on an other than temporary basis. Based upon managements assessments as noted above, the Partnership recorded writedowns totaling $566,670 in the 1998 Period. In the 1997 Period, the Partnership provided writedowns aggregating $1,000,000.
Sale of Prepaid Leases
Effective September 30, 1998, the Partnership sold the title and its interest in certain equipment to an unaffiliated third party (Buyer). The lease rentals had previously been discounted for cash and were recorded as prepaid rent on the balance sheet. The Buyer assumed the prepaid rent obligation of approximately $4,569,000 at September 30, 1998 and paid a nominal amount of cash to the Partnership resulting in a net gain of approximately $528,000 which is included in Gain on sale of equipment.
7. DISCOUNTED LEASE RENTALS
Discounted lease rentals outstanding at December 31, 1998 was $969,404. The remaining non-recourse obligation, which carried interest at 10.83%, was relieved with the sale of the final lease in the second quarter of 1999.
8. TRANSACTIONS WITH AFFILIATES
Acquisition Fee ---------------
The Managing General Partner received a fee equal to (i) 2.25% of the purchase price of equipment purchased with gross offering proceeds from the sale of Units, and (ii) 3.0% of the purchase price of equipment purchased with reinvested Partnership income as compensation for evaluating, selecting, negotiating and consummating the acquisition of the equipment. There was no acquisition fee payable with respect to the equipment contributed by the Class B Limited Partner. No acquisition fees were earned during the years ended December 31, 1999, 1998 and 1997. Acquisition fees were capitalized in the cost of equipment and depreciated or amortized according to lease type.
8. TRANSACTIONS WITH AFFILIATES, continued
Management Fees to General Partners -----------------------------------
The General Partners receive a quarterly fee in an amount equal to 2.0% of gross rentals for Full Payout Leases, as defined in the Partnership Agreement, and 5.0% of gross rentals for other leases (payable 55% to the Managing General Partner and 45% to the Administrative General Partner) as compensation for services rendered in connection with the management of the equipment. Management fees of $90,097 and $234,851 were earned by the General Partners with regard to the rentals earned by the Partnership during 1998 and 1997, respectively.
As part of a class action settlement, beginning January 1996, all fees and distributions paid to the Administrative General Partner and all future fees and distributions paid to the Administrative General Partner were assigned by an affiliate to an escrow account for the benefit of class members.
Disposition Fees ----------------
The Managing General Partner was entitled to receive a subordinated disposition fee in an amount equal to the lesser of (i) 50% of the fee that would be charged by an unaffiliated party, or (ii) 3% of the gross contract price relating to each sale of equipment as compensation for negotiating and consummating sales of equipment. At December 31, 1996, the Partnership reversed previously accrued subordinated disposition fees of $422,828 recorded in prior years because the Managing General Partner concluded that it is no longer probable that these subordinated disposition fees would be paid.
Accountable General and Administrative Expenses -----------------------------------------------
The General Partners are entitled to reimbursement of certain expenses, up to $25,000 per year, paid on behalf of the Partnership which are incurred in connection with the administration and management of the Partnership. The Managing General Partner, billed, for administrative services, $25,000 for the year ended December 31, 1998. However, upon the adoption of the plan of liquidation, administrative expenses were accrued at December 31, 1998 for the year ended December 31, 1999 in expectation of the expenses incurred in connection with the liquidation of the Partnership. No further reimbursements to the General Partner are expected.
9. RECONCILIATION TO INCOME TAX METHOD OF ACCOUNTING
The following is a reconciliation of the net income as shown in the accompanying financial statements to the taxable income reported for federal income tax purposes:
The following is a reconciliation of the amount of the Partnership's net equity as shown in the accompanying financial statements to the tax bases of the Partnership's net assets:
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires disclosure of fair value of certain financial instruments, whether or not reported in the balance sheet. Where quoted market prices are unavailable, the values are based on estimates using present value or other valuation techniques. The results are significantly affected by the assumptions used including the discount rate and estimates of future cash flows. In addition, because SFAS No. 107 excludes certain assets such as leased equipment owned by the Partnership, the aggregate fair value amounts discussed below do not purport to represent and should not be considered representative of the underlying market value of the Partnership.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
The methods and assumptions used to estimate the fair value of each class of the financial instruments are described below.
Cash equivalents and rents and other receivables. Accounts payable and accrued expenses, payable to affiliates, and accrued interest payable. For these balances, carrying value approximates fair value due to their short- term nature.
Discounted lease rentals. For discounted lease rentals, carrying value approximates fair value based upon the current rate offered for a note of similar maturity.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
There were no changes in accountants or disagreements with accountants with respect to accounting or financial disclosure issues during 1999 or 1998.
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant
The Partnership has no officers and directors. The General Partners jointly manage and control the affairs of the Partnership and have general responsibility and authority in all matters affecting its business. Information concerning the directors and executive officers of the General Partners is as follows:
CAI Equipment Leasing II Corp. ------------------------------
Name Positions Held -------------------- ---------------
John F. Olmstead President and Director
Richard H. Abernethy Vice President and Director
Joe Bukofski Vice President and Director
Mick Myers Director
John F. Olmstead, age 56, 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.
Richard H. Abernethy, age 46, joined CAII in April 1992 as Equipment Valuation Manager and currently serves as Vice President of Portfolio Management. Mr. Abernethy has fourteen 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.
Item 10. Directors and Executive Officers of the Registrant, continued
Joseph F. Bukofski, age 44, joined CAII in June 1990 as a Financial Analyst. Mr. Bukofski is currently the Vice President and Treasurer. Prior to becoming Treasurer, 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.
Mick Myers, age 42, 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.
General Equipment Management, Inc. ----------------------------------
Name Positions Held -------------------- -------------------------------------------
Stephen R. Dyer President and Director
Carmine Fusco Vice President, Secretary, Treasurer, Chief Financial and Accounting Officer
Clifford B. Wattley Vice President, Assistant Secretary and Director
Stephen R. Dyer, age 40, is President and a Director of the Administrative General Partner. He joined PaineWebber Incorporated in June 1988 as a Divisional Vice President and is currently a Senior Vice President and Director of Private Investments. Prior to joining PaineWebber Incorporated, Mr. Dyer had been employed, since June 1987, as an Assistant Vice President in the Retail National Products Group of L.F. Rothschild & Co. Incorporated. Prior to joining L.F. Rothschild, he was employed, beginning in January 1985, as an Associate in the Real Estate Department of Thomson McKinnon Securities Inc. From July 1981 to August 1983, Mr. Dyer was on the audit staff of the accounting firm of Arthur Young & Company. He received his Bachelor of Science degree in Accounting in 1981 from Boston College and a Masters of Business Administration from Indiana University in December 1984. Mr. Dyer is a Certified Public Accountant.
Carmine Fusco, age 31, is Vice President, Secretary, Treasurer and Chief Financial and Accounting Officer of the Administrative General Partner, he also serves as an Assistant Vice President within the Private Investments Department of PaineWebber Incorporated. Mr. Fusco had previously been employed as a Financial Valuation Consultant in the Business Valuation Group of Deloitte & Touche, LLP from January 1997 to August 1998. He was employed as a Commodity Fund Analyst in the Managed Futures Department of Dean Witter Reynolds Incorporated, from October 1994 to November 1995. Prior to joining Dean Witter, Mr. Fusco was a Mutual Fund Accountant with the Bank of New York Company Incorporated. He received his Bachelor of Science degree in Accounting and Finance in May 1991 from Rider University and a Master of Business Administration from Seton Hall University in June 1996.
Item 10. Directors and Executive Officers of the Registrant, continued
Clifford B. Wattley, age 50, is a Vice President, Assistant Secretary and a Director of the Administrative General Partner. Mr. Wattley is a Corporate Vice President with PaineWebber Incorporated, having joined the firm in 1986. He also was employed previously by Paine, Webber, Jackson & Curtis from 1979 to 1980. From 1986 to 1992, Mr. Wattley participated in PaineWebber's Principal Transactions Group. From 1992, Mr. Wattley has been a member of the Private Investment Department. He holds a Bachelor of Science degree in engineering from Columbia University and a Masters in Business Administration from Harvard University.
Item 11.
Item 11. Executive Compensation
No compensation was paid by the Partnership to the officers and directors of the General Partners. See Item 13 of this Report, "Certain Relationships and Related Transactions", which is incorporated herein by reference, for a description of the compensation and fees paid to the General Partners and their affiliates by the Partnership during 1999.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) As of the date hereof, no person is known by the Partnership to be the beneficial owner of more than 5% of the Units of the Partnership. The Partnership has no directors or officers, and neither the General Partners nor the Class B Limited Partner of the Partnership own any Units. ATL, Inc. an affiliate of the Administrative General Partner, owns 1,551 Units purchased pursuant to legal settlements with certain partnerships.
CAII, an affiliate of the Managing General Partner, owns 100% of the Partnership's Class B Units.
The names and addresses of the General Partners and the Class B Limited Partner are as follows:
Managing General Partner:
CAI Equipment Leasing II Corp. 7175 W. Jefferson Avenue, Suite 4000 Lakewood, CO 80235
Administrative General Partner:
General Equipment Management, Inc. 1200 Harbor Boulevard, 5th Floor Weehawken, NJ 07087
Class B Limited Partner:
Capital Associates International, Inc. 7175 W. Jefferson Avenue, Suite 4000 Lakewood, CO 80235
(b) No directors or officers of the Managing General Partner, the Administrative General Partner or the Class B Limited Partner owned any Units as of March 1, 2000.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(c) The Partnership knows of no arrangements, the operation of the terms of which may at a subsequent date result in a change in control of the Partnership.
Item 13.
Item 13. Certain Relationships and Related Transactions
The General Partners and their affiliates have received or will receive certain types of compensation, fees, or other distributions in connection with the operations of the Partnership. The fees and compensation were determined in accordance with the applicable provisions of the Partnership Agreement.
Following is a summary of the amounts paid or payable to the General Partners and their affiliates during 1999.
Management Fees - ---------------
The General Partners receive a quarterly fee in an amount equal to 2.0% of gross rentals for Full Payout Leases as defined and 5.0% of gross rentals for other leases (payable 55% to the Managing General Partner and 45% to the Administrative General Partner) as compensation for services rendered in connection with the management of the equipment. Management fees of $90,097 and $0 were earned by the General Partners with regard to the rentals earned by the Partnership during 1998 and 1999.
As part of the class action settlement, beginning January 1996, all fees and distributions paid to the Administrative General Partner and all future fees and distributions paid to the Administrative General Partner have been assigned by an affiliate to an escrow account for the benefit of class members.
Accountable General and Administrative Expenses - -----------------------------------------------
The Managing General Partner is entitled to reimbursement of certain expenses, up to $25,000 per year, paid on behalf of the Partnership which are incurred in connection with the administration and management of the Partnership. The Managing General Partner billed $25,000 and $0for administrative services during 1998 and 1999. Upon the adoption of the plan of liquidation, administrative expenses were accrued at December 31, 1998 for 1999 in expectation of the expenses incurred in connection with the liquidation of the Partnership. No further reimbursements to the General Partner are expected.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) and (d) The following documents are filed as part of this Report:
1. Financial Statements: (Incorporated by reference to Item 8 of this Report, "Financial Statements and Supplementary Data").
(b) The Partnership did not file any reports on Form 8-K during the quarter ended December 31, 1999.
(c) Exhibits required to be filed.
Exhibit No. Description
4.1 Amended and Restated Agreement of Limited Partnership of PaineWebber Preferred Yield Fund, L.P. dated June 22, 1990. Filed as Exhibit 4.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1990.(1,2)
4.2 Amendment No. 7 to the Amended and Restated Agreement of Limited Partnership of PaineWebber Preferred Yield Fund, L.P., dated February 7, 1991. Filed as Exhibit 4.2 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1990.*
4.3 Amendment No. 8 to the Amended and Restated Agreement of Limited Partnership of PaineWebber Preferred Yield Fund L.P., dated August 31, 1992. Filed as Exhibit 4(d) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1992.*
4.4 Amendment No. 11 to the Amended and Restated Agreement of Limited Partnership of PaineWebber Preferred Yield Fund, L.P., dated April 30, 1993. Filed as Exhibit 4.4 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1993.*
10. Net Worth Maintenance Agreement, dated March 1, 1990, by and among Capital Associates, Inc., CAI Equipment Leasing II Corp. and the Registrant. Filed as Exhibit 10(c) to Amendment No. 2 to the Registrant's Registration Statement on Form S-1 (Commission File No. 33-33025) on March 16, 1990.*
11 Partnership's policy regarding requests for partner lists.
27 Financial Data Schedule
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf, thereunto duly authorized.
Date: March 31, 2000 PaineWebber Preferred Yield Fund, L.P. By: General Equipment Management, Inc. Administrative General Partner
By: /s/Stephen R. Dyer --------------------------------- Stephen R. Dyer President and Director
By: General Equipment Management, Inc. Administrative General Partner
By: /s/Carmine Fusco --------------------------------- Carmine Fusco Vice President, Secretary, Treasurer, Chief Financial and Accounting Officer
By: CAI Equipment Leasing II Corp. Managing General Partner
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 Registrant and in the capacities indicated on April 15, 1999.
Signature Title - --------- -----
/s/John F. Olmstead President and Director of CAI - -------------------------- Equipment Leasing II Corp. John F. Olmstead
/s/Richard H. Abernethy Vice President and Director of CAI - -------------------------- Equipment Leasing II Corp. Richard H. Abernethy
/s/Stephen R. Dyer President and Director of General - -------------------------- Equipment Management, Inc. Stephen R. Dyer
/s/Carmine Fusco Vice President, Secretary, - -------------------------- Treasurer, Chief Financial and Carmine Fusco Accounting Officer
/s/Clifford B. Wattley Vice President, Assistant - -------------------------- Secretary, and Director of General Clifford B. Wattley Equipment Management, Inc.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf, thereunto duly authorized.
Date: March 31, 2000 PaineWebber Preferred Yield Fund, L.P. By: General Equipment Management, Inc. Administrative General Partner
By: _______________________________ Stephen R. Dyer President and Director
By: _______________________________ Carmine Fusco Vice President, Secretary, Treasurer, Chief Financial and Accounting Officer
By: CAI Equipment Leasing II Corp. Managing General Partner
By: _______________________________ 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 Registrant and in the capacities indicated on April 15, 1999.
Signature Title - --------- -----
______________________ President and Director of CAI Equipment John F. Olmstead Leasing II Corp.
______________________ Vice President and Director of CAI Richard H. Abernethy Equipment Leasing II Corp.
______________________ President and Director of General Equipment Stephen R. Dyer Management, Inc.
______________________ Vice President, Secretary, Treasurer, Chief Carmine Fusco Financial and Accounting Officer
______________________ Vice President, Assistant Secretary, and Clifford B. Wattley Director of General Equipment Management, Inc.