Item 1. Business --------
Capital Preferred Yield Fund, a California limited partnership (the "Partnership"), is engaged in the business of owning and leasing equipment. CAI Partners Management Company, 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 sole Class B limited partner of the Partnership. In exchange for its Class B limited partner interest, CAII contributed equipment totaling $5,538,805 (i.e., 10% of the net offering proceeds) to the Partnership making it the largest single investor in the Partnership.
Since its formation, the Partnership has acquired capital of various types under lease to third parties on short-term leases (five years or less). All of the capital was purchased by CAII directly from manufacturers or from other independent third parties and sold to the Partnership. The capital generally consists of transportation and industrial equipment, computer equipment, office furniture and medical equipment, among others (the "equipment"). The Partnership entered its liquidation period, as defined in the Partnership Agreement, in April 1996. Accordingly, it is not anticipated that the Partnership will acquire any material amount of equipment in future periods.
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 financial institution has a first lien on the assigned rents and the underlying leased equipment, with no recourse against the Partnership or any other Partnership assets in the event of default by a lessee. Cash proceeds from such financings, or the assumption of such assignments incurred in connection with 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.
Approximately 63% of the Partnership's equipment under lease was leased to investment grade lessees as of December 31, 1997. Pursuant to the Partnership Agreement, an investment grade lessee is a company (1) with a credit rating of not less than Baa as determined by Moody's Investor Services, Inc.; or (2) that has a comparable credit rating as determined by other recognized credit rating services; or, (3) if the lessee is not rated, then a lessee whom the general partner believes would have received a rating of Baa, or better, if the lessee would have been rated. 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 will be expected to produce 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.
Item 1. Business, continued --------
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 Partnership has no employees. The officers, directors and employees of the general partner and its affiliates perform services on behalf of the Partnership. The general partner is entitled to receive certain fees and expense reimbursements in connection with the performance of these services. See Item 10 of this Report, "Directors and Executive Officers of the Partnership" and Item 13 of this Report, "Certain Relationships and Related Transactions".
The Partnership competes in the leasing marketplace as a lessor with a significant number of other companies including equipment manufacturers, leasing companies and financial institutions. The Partnership is in its liquidation period, as defined in the Partnership Agreement; therefore, the Partnership currently competes mainly on the basis of the expertise of its general partner in remarketing equipment. Although the Partnership does not account for a significant percentage of the leasing market, the general partner believes the Partnership's remarketing strategies enable it to compete effectively in the 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 the Partnership during 1997.
The Partnership is required to dissolve and distribute all of its assets no later than December 31, 2010. However, the general partner anticipates that all equipment will be sold and the Partnership will be liquidated during 1998.
Item 2.
Item 2. Properties ----------
The Partnership does not own or lease any physical properties other than the equipment discussed in Item 1 of this Report, "Business".
Item 3.
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.
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 1997.
Item 5.
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 partners interest are not publicly traded. There is no established public trading market for such units and interests, and none is expected to develop.
(b) As of December 31, 1997 there were 3,515 Class A limited partners.
(c) Distributions -------------
During 1997, the Partnership made twelve (12) monthly distributions (a portion of which constituted a return of capital) to Class A limited partners as follows:
Distributions Per $250 Class A Limited Partner For the Payment Unit (computed on Total Month Ended Made During weighted average) Distributions ------------------ ------------- ----------------- -------------
December 31, 1996 January 1997 $ 3.98 $ 1,000,571 January 31, 1997 February 1997 2.78 699,833 February 28, 1997 March 1997 2.38 599,857 March 31, 1997 April 1997 3.18 800,310 April 30, 1997 May 1997 3.18 799,707 May 31, 1997 June 1997 2.82 709,740 June 30, 1997 July 1997 2.82 710,552 July 31, 1997 August 1997 2.82 709,740 August 31, 1997 September 1997 1.19 300,018 September 30, 1997 October 1997 1.19 300,241 October 31, 1997 November 1997 1.19 299,928 November 30, 1997 December 1997 1.99 499,881 ------- ----------- $ 29.52 $ 7,430,378 ======= ===========
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 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 sales of equipment after initial lease terms expire) have been realized at the termination of the Partnership. Total distributions declared to Class A limited partners were $59,972,409 from the inception of the Partnership through December 31, 1997.
The distribution for the month ended December 31, 1997, totaling $900,191, was paid to the Class A limited partners during January 1998. 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 partners currently anticipate that the Partnership will generate cash flow from operations and equipment sales during 1998 which, when added to cash and cash equivalents on hand, should provide sufficient cash to enable the Partnership to meet its current operating requirements.
The Partnership is in its liquidation period (as defined in the Partnership Agreement) and distributions during the liquidation period will be based upon cash availability and will vary and all distributions are expected to be a return of capital for economic purposes.
During 1996, the Partnership made twelve (12) monthly distributions (a portion of which constituted a return of capital) to Class A limited partners as follows:
Distributions Per $250 Class A Limited Partner For the Payment Unit (computed on Total Month Ended Made During weighted average) Distributions ------------------ ------------- ----------------- -------------
December 31, 1995 January 1996 $ 2.76 $ 700,127 January 31, 1996 February 1996 2.75 696,672 February 28, 1996 March 1996 2.58 651,654 March 31, 1996 April 1996 2.75 696,166 April 30, 1996 May 1996 2.66 673,549 May 31, 1996 June 1996 2.75 695,500 June 30, 1996 July 1996 2.66 673,485 July 31, 1996 August 1996 4.25 1,073,756 August 31, 1996 September 1996 4.75 1,199,715 September 30, 1996 October 1996 4.76 1,200,710 October 31, 1996 November 1996 4.75 1,199,715 November 30, 1996 December 1996 4.75 1,199,715 ------- ------------ $ 42.17 $ 10,660,764 ======= ============
Item 5. Market for the Partnership's Common Equity and Related Stockholder ---------------------------------------------------------------------- Matters, continued -------
(c) Distributions, continued -------------
The following represents annual cumulative distributions per Class A limited partner unit, as described in Footnote 1 to Notes to Consolidated Financial Statements.
Distributions per $ Per Class A Limited Class A Partner Unit Payment Limited Partner (computed on Made During Unit Invested weighted average) % (1) ----------- --------------- ----------------- -------
1990 $ 250 $ 27.50 12% 1991 30.00 12% 1992 30.00 12% 1993 32.10 13% 1994 32.46 13% 1995 32.46 13% 1996 42.17 17% 1997 29.52 12% -------- $ 256.21 ========
(1) Cumulative distributions, as described in Footnote 1 to Notes to Consolidated Financial Statements, began February 1990.
Item 6.
Item 6. Selected Financial Data -----------------------
The following selected financial data relates to the years ended December 31, 1993 through 1997. The data should be read in conjunction with Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements and notes thereto appearing elsewhere herein.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and ---------------------------------------------------------------------- Results of Operations ---------------------
Results of Operations - ---------------------
Presented below are schedules (prepared solely to facilitate the discussion of results of operations that follows) showing condensed statements of income categories and analyses of changes in those condensed categories derived from the Statements of Income.
The Partnership is in its liquidation period as defined in the Partnership Agreement and, as expected, the Partnership is not purchasing additional equipment, initial leases are expiring and the amount of equipment being remarketed (i.e., re-leased, renewed, or sold) will increase. As a result, both the size of the Partnership's leasing portfolio and the amount of leasing revenue are declining.
LEASING MARGIN
Leasing margin consists of the following:
Years ended December 31, ---------------------------------------- 1997 1996 1995 ---- ---- ----
Operating lease rentals $ 5,678,596 $ 8,584,425 $ 13,253,954 Direct finance lease income 1,048,231 1,196,514 1,600,013 Depreciation and amortization (3,760,718) (6,124,604) (9,944,160) Interest on discounted lease rentals (193,516) (501,872) (1,132,896) Interest on financed operating lease receivables (55,889) (89,585) - ------------ ------------ ------------ Leasing margin $ 2,716,704 $ 3,064,878 $ 3,776,911 ============ ============ ============
Leasing margin ratio 40% 31% 25% == == ==
The components of leasing margin have declined and are expected to decline further due to portfolio run-off. Leasing margin ratio increased primarily due to (i) remarketing activities, and (ii) because a portion of the Partnership's portfolio consists of operating leases financed with non-recourse debt (including both discounted lease rentals and financed operating lease rentals). Leasing margin and the related leasing margin ratio for an operating lease financed with non-recourse debt increase 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.
Item 7. Management's Discussion and Analysis of Financial Condition and ---------------------------------------------------------------------- Results of Operations, continued ---------------------
Results of Operations, continued - ---------------------
LEASING MARGIN, continued
The ultimate profitability of the Partnership's leasing transactions is dependent, 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 consists of the following:
Years ended December 31, ------------------------------------------------- 1997 1996 1995 ---- ---- ----
Equipment sales revenue $ 12,190,663 $ 4,868,827 $ 3,868,324 Cost of equipment sales (10,799,136) (3,518,569) (2,892,175) ------------- ----------- ------------ Equipment sales margin $ 1,391,527 $ 1,350,258 $ 976,149 ============= =========== ============
The Partnership is in its liquidation period. During the liquidation period, as initial leases terminate, the equipment is being remarketed (i.e., re-leased or sold to either the original lessee or a third party) and, accordingly, the timing and amount of equipment sales cannot be projected accurately.
INTEREST INCOME
Interest income decreased in 1997 compared to 1996 due to a decrease in cash available for investment as the Partnership is in its liquidation period and therefore, distributing excess cash to the partners.
Interest income increased in 1996 compared to 1995 due to an increase in cash available for investment as well as an increase in interest rates.
PROVISION FOR LOSSES
The remarketing of equipment for an amount greater than its book value is reported as equipment sales margin (if the equipment is sold) or leasing margin (if the equipment is re-leased). The realization of less than the carrying value of equipment (which is typically not known until remarketing subsequent to the initial lease termination has occurred) is recorded as provision for losses.
Residual values are established equal to the estimated value to be received from the equipment following termination of the lease. In estimating such values, the Partnership considers all relevant facts regarding the equipment and the lessee, including, for example, the likelihood that the lessee will re-lease the equipment. The nature of the Partnership's leasing activities is that it has credit and residual value exposure and, accordingly, in the ordinary course of business, it will incur losses from those exposures. The Partnership performs ongoing quarterly assessments of its assets to identify other-than-temporary losses.
Item 7. Management's Discussion and Analysis of Financial Condition and ---------------------------------------------------------------------- Results of Operations, continued ---------------------
Results of Operations, continued - ---------------------
PROVISION FOR LOSSES, continued
The provision for losses recorded during December 31, 1997 was primarily related to lessees returning equipment to the Partnership. The Partnership had previously expected to realize the carrying value of this equipment through lease renewals and proceeds from the sale of the equipment to the original lessees. The fair market value of the equipment re-leased or sold to third parties was less than anticipated.
The provision for losses recorded during 1996 primarily related to the following:
* Certain equipment was returned to the Partnership. The Partnership had previously expected to realize the carrying value of this equipment through lease renewals and proceeds from the sale of this equipment to the original lessees. The fair market value of the equipment re-leased or sold to third parties was less than anticipated as described below:
- $150,000 related to a lessee returning an aircraft, with a carrying value of $1,250,000, to the Partnership. - $130,000 related to a lessee experiencing severe financial difficulties. The lessee notified the Partnership that it would be returning the equipment currently under lease. - $420,000 related to lessees returning modular buildings, computer equipment, a telephone system and hospital equipment to the Partnership. - $110,000 related to the sale of equipment having a lower fair market value than originally anticipated.
* $320,000 related to bankrupt lessees.
The provision for losses recorded during 1995 was primarily related to the following:
- $370,000 deficiency resulting from a lessee's default on a note. - $125,000 related to a lessee returning medical equipment to the Partnership. - $110,000 due to a settlement with a bankrupt lessee.
MANAGEMENT FEES PAID TO GENERAL PARTNER
The general partner earns management fees as compensation for services performed in connection with managing the Partnership's equipment equal to the lesser of (a) 5% of gross rentals received (limited to 2% of gross rentals received in the case of full payout leases) or (b) the fee which the general partner reasonably believes to be competitive with that which would be charged by a non-affiliate for rendering comparable services as permitted under the Partnership Agreement. Management fees decreased in 1996 and 1997 due to portfolio runoff resulting in lower gross rentals received by the Partnership.
Item 7. Management's Discussion and Analysis of Financial Condition and ---------------------------------------------------------------------- Results of Operations, continued ---------------------
Results of Operations, continued - ---------------------
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. Direct services from general partner increased in 1997 primarily due to activities associated with liquidating the Partnership's assets.
General and administrative expenses decreased in 1997 compared to 1996. General and administrative expenses increased in 1996 compared to 1995 primarily due to (i) $104,027 reimbursed to the general partner during the second quarter of 1997 for insurance costs related to prior years and (ii) storage costs for warehoused inventory.
Liquidity and Capital Resources - -------------------------------
The Partnership funds its operating activities principally with cash from rents, non-recourse debt, interest income and sales of off-lease equipment. Available cash and cash reserves of the Partnership are invested in interest bearing cash accounts and short-term U.S. Government securities pending distributions to the partners.
During 1997, 1996 and 1995, the Partnership declared distributions to the partners of $8,281,136, $12,106,228 and $9,276,551, respectively. A portion of such distributions constituted a return of capital for accounting purposes. Distributions may be characterized for tax, accounting and economic purposes as a return of capital, a return on capital or both. The portion of each cash distribution by a Partnership which exceeds its net income for the fiscal period may be deemed a return of capital. 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 releasing and sales of equipment after initial lease terms expire) have been realized at the termination of the Partnership .
The general partners anticipate that the Partnership will generate cash flow from operations and equipment sales during 1998 which, when added to cash and cash equivalents on hand, should provide sufficient cash to enable the Partnership to meet its current operating requirements.
The Partnership is in its liquidation period (as defined in the Partnership Agreement) and distributions during the liquidation period will be based upon cash availability and will vary and all distributions are expected bo be a return of capital for economic purposes.
The Class B limited partner distributions of cash from operations are subordinated to the Class A limited partners receiving distributions of cash from operations, as scheduled in the Partnership Agreement (i.e., 13%). Therefore, because of the anticipated decrease in distributions to the Class A limited partners, CAII, the sole Class B limited partner, ceased receiving distributions of cash from operations.
Item 8.
Item 8. Financial Statements and Supplementary Data -------------------------------------------
Index to Financial Statements and Financial Statement Schedule
Page Financial Statements Number -------------------- ------
Independent Auditors' Report 12
Balance Sheets as of December 31, 1997 and 1996 13
Statements of Income for the years ended December 31, 1997, 1996 and 1995 14
Statements of Partners' Capital for the years ended December 31, 1997, 1996 and 1995 15
Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995 16
Notes to Financial Statements 17-28
Financial Statement Schedule ----------------------------
Independent Auditors' Report 29
Schedule II - Valuation and Qualifying Accounts 30
INDEPENDENT AUDITORS' REPORT ----------------------------
THE PARTNERS CAPITAL PREFERRED YIELD FUND, A CALIFORNIA LIMITED PARTNERSHIP
We have audited the accompanying balance sheets of Capital Preferred Yield Fund, a California limited partnership, as of December 31, 1997 and 1996, and the related statements of income, partners' capital, and cash flows for each of the years in the three-year period ended December 31, 1997. 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.
As discussed in Note 1, the Partnership is in the liquidation stage, whereby all assets are expected to be liquidated during 1998 and all cash distributed to the partners, after satisfaction of liabilities.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Capital Preferred Yield Fund as of December 31, 1997 and 1996, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1997, in conformity with generally accepted accounting principles.
/s/KPMG Peat Marwick LLP ------------------------ KPMG PEAT MARWICK LLP
Denver, Colorado February 6, 1998
CAPITAL PREFERRED YIELD FUND A California Limited Partnership
BALANCE SHEETS December 31, 1997 and 1996
ASSETS
1997 1996 ---- ----
Cash and cash equivalents $ 2,839,510 $ 2,672,112 Accounts receivable 7,579,737 390,607 Equipment held for sale or re-lease 887,865 1,081,841 Net investment in direct finance leases 229,696 5,316,787 Leased equipment, net 1,074,600 13,519,836 ------------ ------------
Total assets $ 12,611,408 $ 22,981,183 ============ ============
LIABILITIES AND PARTNERS' CAPITAL
Liabilities: Payables to affiliate $ 44,916 $ 65,370 Accounts payable and accrued liabilities 905,979 821,791 Rents received in advance 162,931 230,501 Distributions payable to partners 1,241,334 1,317,409 Discounted lease rentals 7,835 4,363,104 Financed operating lease rentals 1,123,270 1,329,087 ------------ ------------
Total liabilities 3,486,265 8,127,262 ------------ ------------
Partners' capital: General partner - - Limited partners: Class A 360,000 units authorized; 251,388 and 252,047 units issued and outstanding in 1997 and 1996, respectively 6,923,098 12,199,688 Class B 2,202,045 2,654,233 ------------ -----------
Total partners' capital 9,125,143 14,853,921 ------------ -----------
Total liabilities and partners' capital $ 12,611,408 22,981,183 ============ ===========
See accompanying notes to financial statements.
CAPITAL PREFERRED YIELD FUND A California Limited Partnership
STATEMENTS OF INCOME Years ended December 31, 1997, 1996 and 1995
See accompanying notes to financial statements.
CAPITAL PREFERRED YIELD FUND A California Limited Partnership
STATEMENTS OF PARTNERS' CAPITAL Years ended December 31, 1997, 1996 and 1995
See accompanying notes to financial statements.
CAPITAL PREFERRED YIELD FUND A California Limited Partnership STATEMENTS OF CASH FLOWS Years ended December 31, 1997, 1996 and 1995
See accompanying notes to financial statements.
CAPITAL PREFERRED YIELD FUND A California Limited Partnership
NOTES TO FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies -----------------------------------------------------------
Organization
Capital Preferred Yield Fund, a California limited partnership (the "Partnership"), was organized on July 13, 1989 under the laws of the State of California 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 general partner of the Partnership is CAI Partners Management Company, a wholly owned subsidiary of Capital Associates International, Inc. ("CAII"). The general partner manages the Partnership, including investment of funds, purchase and sale of equipment, lease negotiation and other administrative duties.
The Partnership entered its liquidation period in April of 1996. During 1997, the Partnership sold a substantial portion of its assets of which $7,270,000 was included in accounts receivable and was delivered to an escrow agent on December 31, 1997 to be released, per the terms of the agreement, during 1998. The general partner anticipates that the remaining assets will be liquidated and all liabilities settled during 1998. Any remaining cash will be distributed to the partners in accordance with the liquidation provisions in the Partnership Agreement.
CAII is the Class B limited partner. CAII contributed $5,538,805 of equipment to the Partnership in exchange for its Class B limited partnership interest, which represents 10% of the net offering proceeds. CAII has no remaining obligation to contribute cash and/or equipment to the Partnership.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. For leasing entities, this includes the estimate of residual values, as discussed below. Actual results could differ from those estimates.
Partnership Cash Distributions and Allocations of Profit and Loss
Cash Distributions ------------------
During the Reinvestment Period, as defined in the Partnership Agreement, cash distributions were made as follows:
First, the general partner and the Class A limited partners received 4.5% and 95.5%, respectively, of available cash until the Class A limited partners received annual, non-compounded cumulative distributions equal to 12% of their contributed capital during the first three years after the initial closing date (January, 23, 1990) and 13% of their contributed capital thereafter.
CAPITAL PREFERRED YIELD FUND A California Limited Partnership
NOTES TO FINANCIAL STATEMENTS, continued
1. Organization and Summary of Significant Accounting Policies, continued -----------------------------------------------------------
Cash Distributions, continued ------------------
Second, the general partner and the Class B limited partner receive 4.5% and 95.5%, respectively, of available cash until the Class B limited partner received annual non-compounded cumulative distributions equal to 11% of its contributed capital. Any remaining available cash was reinvested or distributed to the partners as specified in the Partnership Agreement.
During the Liquidation Period, as defined in the Partnership Agreement, cash distributions are to be made as follows:
First, in accordance with the first and second allocations during the Reinvestment Period as described above.
Second, 95.5% to the Class A limited partners and 4.5% to the general partner, until the Class A limited partners have received aggregate distributions from all sources equal to their capital contributions plus their Priority Return, as defined in the Partnership Agreement.
Third, 85.5% to the Class B limited partner, 10% to the Class A limited partners and 4.5% to the general partner until the Class B limited partner has received aggregate distributions from all sources equal to its capital contributions plus its Subordinated Priority Return, as defined in the Partnership Agreement.
Thereafter, 90% to the Class A limited partners and the Class B limited partner (and among them in proportion to their respective capital contributions as of the first day of the calendar month for which the amount of such distribution is being determined), and 10% to the general partner.
Federal Income Tax Basis Profits and Losses -------------------------------------------
Profits for any fiscal period are allocated according to the following provisions:
First, profit is allocated to the partners in proportion to, and to the extent of, any excess losses allocated to the partners as described in the Partnership Agreement.
Second, any remaining profit is allocated to the partners in proportion to, and to the extent of, all losses allocated to the partners for all prior fiscal periods in reverse chronological order.
CAPITAL PREFERRED YIELD FUND A California Limited Partnership
NOTES TO FINANCIAL STATEMENTS, continued
1. Organization and Summary of Significant Accounting Policies, continued -----------------------------------------------------------
Federal Income Tax Basis Profits and Losses, continues -------------------------------------------
Third, any remaining profit is allocated 85.5% to the Class A limited partners, 10% to the Class B limited partner, and 4.5% to the general partner, until the Class A limited partners have been allocated an amount equal in the aggregate to the greater of (i) a 10% annual cumulative return, non-compounded, or (ii) a 9% annual cumulative return compounded daily on the Class A limited partners' adjusted purchase price of units, calculated from the first day of the month following the month each Class A limited partner (or a predecessor) was admitted to the Partnership.
Fourth, any remaining profit is allocated 10% to the Class A limited partners, 4.5% to the general partner, and 85.5% to the Class B limited partner until the Class B limited partner has been allocated an amount equal to a 9% annual cumulative return compounded daily on the Class B limited partner's unreturned subordinated capital contribution calculated from the first day of the month following the month in which any subordinated capital contribution is first made.
Fifth, any remaining profit is allocated 90% to the Class A limited partners and Class B limited partner (and among them in proportion to their respective capital contributions) and 10% to the general partner.
Losses for any fiscal period are allocated according to the following priorities:
First, to the partners in proportion to, and to the extent of, any profits allocated for such fiscal period and all prior fiscal periods in reverse chronological order and priority.
Second, 91.08% to the Class A limited partners, 7.92% to the Class B limited partner, and 1% to the general partner.
Losses allocated to a partner in the first and second paragraphs above cannot cause or increase an adjusted capital account deficit with respect to such partner as of the end of any fiscal period. To the extent losses allocated to a partner would exceed this limitation, such losses will be allocated first to other partners in proportion to, and to the extent of, their positive capital account balances, and then to the general partner.
Pursuant to Sections 10.8 and 15.2.11(vi) of the Partnership Agreement, the general partner amended the Partnership Agreement during the last quarter of the year ended December 31, 1991 to correct a "misallocated item" (as defined in Section 10.8 of the Partnership Agreement), effective as of January 1, 1991. The amendment provides as follows:
CAPITAL PREFERRED YIELD FUND A California Limited Partnership
NOTES TO FINANCIAL STATEMENTS, continued
1. Organization and Summary of Significant Accounting Policies, continued -----------------------------------------------------------
Federal Income Tax Basis Profits and Losses, continued -------------------------------------------
SECTION 10.9 GENERAL PARTNER DEFICIT CAPITAL ACCOUNT RESTORATION. Notwithstanding anything in this [Partnership] Agreement to the contrary, and before any other allocation is made under this Section 10, items of income and gain for each fiscal period shall be allocated, as quickly as possible during such fiscal period, to the general partner to the extent of any deficit balance existing in the general partner's capital account as of the close of such fiscal period in order to restore the balance in the general partner's capital account to zero. Any allocations of income and/or gain to the general partner under this paragraph shall offset, dollar for dollar, against any allocations of profit to the general partner under any other provision of this [Partnership] Agreement.
The purpose of this amendment is (1) to allocate gross revenue (which is fully taxable) to the general partner in an amount equal to the available cash distributions to the general partner, and (2) to eliminate the allocation of income or gain to the limited partners (which would be taxable to them) that is attributable to such available cash distributions to the general partner.
Pursuant to Section 15.2.11(iv) of the Partnership Agreement, the general partner also amended the Partnership Agreement during the first quarter of the year ended December 31, 1992 to correct an ambiguity in the allocation and distribution provisions with respect to the Class A limited partners. The amendment provides that profit and losses allocated, and available cash distributed, to the Class A limited partners (as a class) will be shared by the individual Class A limited partners in proportion to their capital contributions and the number of days that each such Class A limited partner is a partner during each fiscal period. This amendment reflects the actual method of allocations and distributions to the Class A limited partners that the Partnership has used since its inception.
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.
Reclassifications
Certain reclassifications have been made to prior years' financial statements to conform to the current year's presentation.
CAPITAL PREFERRED YIELD FUND A California Limited Partnership
NOTES TO FINANCIAL STATEMENTS, continued
1. Organization and Summary of Significant Accounting Policies, continued -----------------------------------------------------------
Recently Issued Financial Accounting Standards
During 1997, the Partnership adopted SFAS No. 125, Accounting for Transfer and Servicing of Financial Assets and Extinguishments of Liabilities ("SFAS No. 125"). SFAS No. 125 provides consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. The adoption of SFAS No. 125 did not have a material impact on the Partnership's financial position or results of operations.
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 operating leases, and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In performing the review for recoverability, the entity should estimate the future cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, an impairment loss is recognized. Measurement of an impairment loss for long-lived assets, including operating leases, and identifiable intangibles held by the Partnership is based on the fair value of the asset calculated by discounting the expected future cash flows at an appropriate interest rate.
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:
CAPITAL PREFERRED YIELD FUND A California Limited Partnership
NOTES TO FINANCIAL STATEMENTS, continued
1. Organization and Summary of Significant Accounting Policies, continued -----------------------------------------------------------
Net Investment in Direct Financing Leases ("DFLs")
The cost of the equipment, including acquisition fees paid to the general partner, is recorded as net investment in DFLs on the accompanying balance sheet. Leasing revenue, which is recognized over the term of the lease, consists of the excess of lease payments plus the estimated residual value over the equipment's cost. Earned income is recognized monthly to provide a constant yield and is recorded as direct finance lease income on the accompanying income statements. Residual values are established at lease inception equal to the estimated value to be received from the equipment following termination of the initial lease (which in certain circumstances includes anticipated re-lease proceeds), as determined by the general partner. In estimating such values, the general partner considers all relevant information regarding the equipment and the lessee.
Equipment on Operating Leases ("OLs")
Leasing revenue consists principally of monthly rentals. 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 institutions, leasing revenue and interest expense are recorded.
CAPITAL PREFERRED YIELD FUND A California Limited Partnership
NOTES TO FINANCIAL STATEMENTS, continued
1. Organization and Summary of Significant Accounting Policies, continued -----------------------------------------------------------
Non-recourse Financing of Operating Lease Rentals
The Partnership may assign substantially all of its rights under certain operating leases to a purchaser and subsequently the purchaser may assign the rentals from such leases to a financial institution at fixed interest rates on a non-recourse basis. The Partnership receives the discounted value of the rentals in cash from the financial institution. As with discounted lease rentals discussed above, in the event of default by a lessee, the financial institution has a first lien on the underlying leased equipment, with no further recourse against the Partnership or the Partnership's assets. The purchaser cannot be the owner of the equipment for financial reporting purposes because the purchaser has not made a sufficient investment in the equipment and does not have significant risks of ownership. Therefore, the transaction cannot be recorded as a sale. Accordingly, cash proceeds from financings related to such transactions are recorded on the balance sheet as financed operating lease rentals. As lessees make payments to financial institutions, leasing revenue and interest expense are recorded.
Allowance for Losses
An allowance for losses is maintained at levels determined by the general partner to adequately provide for any other-than-temporary declines in asset values. In determining losses, economic conditions, the activity in the used equipment markets, the effect of actions by equipment manufacturers, the financial condition of lessees, the expected courses of action by lessees with regard to leased equipment at termination of the initial lease term, and other factors which the general partner believes are relevant, are considered. Asset chargeoffs are recorded upon the termination or remarketing of the underlying assets. The lease portfolio is reviewed quarterly to determine the adequacy of the allowance for losses.
Transactions Subsequent to Initial Lease Termination
After the initial lease term of equipment on 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.
Income Taxes
No provision for income taxes has been made in the financial statements since taxable income or loss is recorded in the tax returns of the individual partners.
CAPITAL PREFERRED YIELD FUND A California Limited Partnership
NOTES TO FINANCIAL STATEMENTS, continued
1. Organization and Summary of Significant Accounting Policies, continued -----------------------------------------------------------
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 $2,776,000 and $2,595,000 at December 31, 1997 and 1996, respectively, are comprised of investments in a money market fund which invests solely in U.S. Government securities having maturities of 90 days or less.
Equipment Held for Sale or Re-lease
Equipment held for sale or re-lease, recorded at the lower of cost or market value expected to be realized, consists of equipment previously leased to end users which has been returned to the Partnership following lease expiration.
Net Income Per Class A Limited Partner Unit
Net income per Class A limited partner unit is computed by dividing the net income allocated to the Class A limited partners by the weighted average number of Class A limited partner units outstanding during the period.
2. Net Investment in Direct Finance Leases ---------------------------------------
The components of the net investment in direct finance leases as of December 31, 1997 and 1996 were:
1997 1996 ---- ----
Minimum lease payments receivable $ 58,429 $ 4,961,017 Estimated residual values 195,418 1,904,751 Deferred initial leasing costs, net 1,873 9,112 Less unearned income (26,024) (1,558,093) ---------- ------------
$ 229,696 $ 5,316,787 ========= ============
CAPITAL PREFERRED YIELD FUND A California Limited Partnership
NOTES TO FINANCIAL STATEMENTS, continued
3. Leased Equipment ----------------
The Partnership's investments in equipment on operating leases by major classes as of December 31, 1997 and 1996 were:
1997 1996 ---- ----
Transportation and industrial equipment $ 2,796,018 $ 25,383,364 Computers and peripherals 822,667 2,547,947 Office furniture and equipment 1,689,361 2,316,692 Medical and research equipment 377,503 1,200,140 Other 60,350 508,293 ------------ ------------- Total 5,745,899 31,956,436 Less: Accumulated depreciation (4,593,820) (18,193,840) Allowance for losses (77,479) (242,760) ------------ ------------- $ 1,074,600 $ 13,519,836 ============ =============
Depreciation expense for 1997, 1996 and 1995 was $3,752,561, $6,093,950 and $9,883,414, respectively.
4. Future Minimum Lease Payments -----------------------------
Future minimum lease payments receivable from leases at December 31, 1997 are as follows:
Year Ending December 31, DFLs OLs ------------------------ -------- ---------
1998 $ 58,429 $ 132,519 1999 - 49,992 2000 - 3,915 -------- --------- Total $ 58,429 $ 186,426 ======== =========
5. Financed Operating Lease Rentals --------------------------------
Financed operating lease rentals outstanding at December 31, 1997 bear interest at 8.25%. Aggregate maturities of such non-recourse financings are as follows:
Year Ending December 31, ------------------------
1998 $ 802,433 1999 291,563 2000 29,274 ----------- Total $ 1,123,270 ===========
CAPITAL PREFERRED YIELD FUND A California Limited Partnership
NOTES TO FINANCIAL STATEMENTS, continued
6. Transactions With the General Partner and Affiliates ----------------------------------------------------
Maximum Front-end Fee ---------------------
Pursuant to the Partnership Agreement, the total of all front-end fees (sales commissions, organization and offering costs, acquisition fees and reimbursements and initial leasing costs) may not exceed an amount which would cause the Partnership's investment in equipment (total cost of equipment excluding front-end fees) to be less than the greater of (1) a percentage amount of total Class A limited partners' capital contributions equal to 80% minus .0625% for each 1% of the aggregate purchase price of equipment that is borrowed by the Partnership (determined by dividing the principal amount of all such indebtedness incurred by the Partnership by the aggregate purchase price of the equipment) or (2) 75% of the total Class A limited partners capital contributions. The maximum fee was reached in July 1993. Equipment purchases after July 1993 did not (and will not in the future) include any acquisition fees, reimbursements or initial lease cost payments to the general partner.
Management Fees ---------------
As permitted under the terms of the Partnership Agreement, the general partner receives management fees as compensation for services performed in connection with managing the Partnership's equipment equal to the lesser of (a) 5% of gross rentals received (limited to 2% of gross rentals received in the case of full payout leases) or (b) the fee which the general partner reasonably believes to be competitive with that which would be charged by a non-affiliate for rendering comparable services. Such fees totaled $425,860, $702,219 and $1,035,316 in 1997, 1996 and 1995, respectively.
Direct Services ---------------
The general partner and its affiliates provide accounting, investor relations, billing, collecting, asset management, and other administrative services to the Partnership. The Partnership reimburses the general partner for these services performed on its behalf as permitted under the terms of the Partnership Agreement. Such reimbursements totaled $136,955, $101,145 and $90,270 in 1997, 1996 and 1995, respectively.
Payables to Affiliate ---------------------
Payables to affiliate consists primarily of management fees and direct services payable to the general partner.
CAPITAL PREFERRED YIELD FUND A California Limited Partnership
NOTES TO FINANCIAL STATEMENTS, continued
7. Tax Information (Unaudited) ---------------------------
The following reconciles net income for financial reporting purposes to income for federal income tax purposes for the years ended December 31,:
As of December 31, 1997, the partners' capital accounts per the accompanying financial statements totaled $9,125,143 compared to partners' capital accounts for federal income tax purposes of $18,455,851. The difference arises primarily from commissions reported as a reduction in partners' capital for financial reporting purposes but not for federal income tax purposes, and temporary differences related to direct finance leases, depreciation and provisions for losses.
8. Concentration of Credit Risk ----------------------------
As of December 31, 1997, approximately 63% of the Partnership's equipment under lease was leased to investment grade lessees. Pursuant to the Partnership Agreement, an investment grade lessee is a company (1) with a credit rating of not less than Baa as determined by Moody's Investor Services, Inc., (2) that has a comparable credit rating as determined by other recognized credit rating services or, (3) if the lessee is not rated, then a lessee whom the general partner believes would have received a rating of Baa, or better, if the lessee would have been rated.
The Partnership's cash balance is maintained with a high credit quality financial institution. At times such balances may exceed the FDIC insurance limit due to the receipt of lockbox amounts that have not cleared the presentment bank (generally for less than two days). As funds become available, they are invested in a money market mutual fund.
CAPITAL PREFERRED YIELD FUND A California Limited Partnership
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 Partnership's investment in leased assets. The carrying amounts at December 31, 1997 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.
INDEPENDENT AUDITORS' REPORT ----------------------------
THE PARTNERS CAPITAL PREFERRED YIELD FUND, A CALIFORNIA LIMITED PARTNERSHIP:
Under date of February 6, 1998, we reported on the balance sheets of Capital Preferred Yield Fund, a California limited partnership, as of December 31, 1997 and 1996, and the related statements of income, partners' capital, and cash flows for each of the years in the three-year period ended December 31, 1997, as contained in the Partnership's annual report on Form 10-K for the year 1997. In connection with our audits of the aforemen tioned financial statements, we also audited the related financial statement Schedule II, as listed in the accompanying index. This financial statement schedule is the responsibility of the Partnership's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits.
In our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
/s/KPMG Peat Marwick LLP ------------------------ KPMG PEAT MARWICK LLP
Denver, Colorado February 6, 1998
CAPITAL PREFERRED YIELD FUND A California Limited Partnership
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS for the years ended December 31, 1997, 1996 and 1995
(1) Represents charge-offs against allowance and recoveries.
See accompanying independent auditors' report.
Item 9.
Item 9. Disagreements on Accounting and Financial Disclosure ----------------------------------------------------
None
Item 10.
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 Partners Management Company
Name Positions Held ---- --------------
John F. Olmstead President and Director
Dennis J. Lacey Senior Vice President and Director
Anthony M. DiPaolo Senior Vice President, Principle Financial and Chief Administrative Officer and Director
Richard H. Abernethy Vice President and Director
John A. Reed Vice President, Assistant Secretary 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 53, 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.
DENNIS J. LACEY, age 44, joined CAI as Vice President, Operations, in October 1989. Mr. Lacey was appointed Treasurer on January 1, 1991, Chief Financial Officer on April 11, 1991, a director on July 19, 1991, and President and Chief Executive Officer on September 6, 1991. Prior to joining CAI, Mr. Lacey was an audit partner for the public accounting firm of Coopers & Lybrand. Mr. Lacey is also a director and senior officer of CAII, CAI Equipment Leasing I Corp., CAI Equipment Leasing II Corp., CAI Equipment Leasing III Corp., CAI Equipment Leasing IV Corp., CAI Equipment Leasing V Corp., CAI Leasing Canada, Ltd., CAI Partners Management Company, CAI Securities Corporation, CAI Lease Securitization I Corp. and Capital Equipment Corporation (collectively referred to herein as the "CAI Affiliates"), all of which are first- or second-tier wholly-owned subsidiaries of CAI.
Item 10. Directors and Executive Officers of the Partnership, continued ---------------------------------------------------
ANTHONY M. DIPAOLO, age 39, joined CAII in July 1990 as Assistant Treasurer and is currently Senior Vice President-Chief Financial Officer. He also held the positions of Senior Vice President-Controller and Assistant Vice President-Credit Administration for the Company. Mr. DiPaolo has held similar senior financial management positions with two public companies between 1986 and June 1990, and prior to then was an audit manager for the public accounting firm of Coopers & Lybrand. Mr. DiPaolo holds a Bachelor of Science degree in Accounting from the University of Denver.
RICHARD H. ABERNETHY, age 43, joined CAII in April 1992 as Equipment Valuation Manager and currently serves as Vice President of Asset Management. Mr. Abernethy has thirteen years experience in the leasing industry, including prior positions with Barclays Leasing Inc., from November 1986 to February 1992, and Budd Leasing Corporation, from January 1981 to November 1986. Mr. Abernethy holds a Bachelor of Arts in Business Administration from the University of North Carolina at Charlotte.
JOHN A. REED, age 42, joined CAII in January 1990 as the Tax Director and Assistant Secretary. Mr. Reed is currently the Vice President-Manager, Capital Markets Group and is responsible for obtaining off balance sheet financing, syndications and private programs. Prior to joining the Capital Markets Group, Mr. Reed was Vice President of both Marketing Administration and Credit and Debt Administration. He spent seven and one half years with Coopers & Lybrand in the Tax Department and served on CAII's tax consulting engagement during that time. Mr. Reed holds a Bachelor of Arts degree in Social Sciences and Masters of Science in Accounting, from Colorado State University.
JOSEPH F. BUKOFSKI, age 43, joined CAII in June 1990 as a Financial Analyst. Mr. Bukofski is currently the Vice President of Marketing and is responsible for all lease documentation and management of transaction structuring and processing. Prior to joining the Marketing Department, Mr. 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 52, 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 40, 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.
Item 10. Directors and Executive Officers of the Partnership, continued ---------------------------------------------------
ANN E. 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 45, joined CAII in August 1990 as Manager of Billing & Collections and currently serves as Assistant Vice-President/Chief Accounting Officer. Prior to joining CAII, Mr. Anderson was Vice- President/Controller for Systems Marketing, Inc., from 1985 to 1990, and previous to that worked 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.
Item 11. Executive Compensation ----------------------
No compensation was paid by the Partnership to the officers and directors of the general partner. See Item 13 of this Report, "Certain Relationships and Related Transactions", for a description of the compensation and fees paid to the general partner and its affiliates by the Partnership during 1997.
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 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, the parent of the general partner, owns 100% of the Partnership's Class B limited partner interest.
CAI Partners Management Company owns 100% of the Partnership's general partner interest.
The names and addresses of the general partner and the Class B limited partner are as follows:
General Partner ---------------
CAI Partners Management Company 7175 West Jefferson Avenue Suite 4000 Lakewood, Colorado 80235
Item 12. Security Ownership of Certain Beneficial Owners and Management, ---------------------------------------------------------------------- continued
Class B Limited Partner -----------------------
Capital Associates International, Inc. 7175 West Jefferson Avenue Suite 4000 Lakewood, Colorado 80235
(b) No directors or officers of the general partner or the Class B limited partner owned any Class A limited partner units as of December 31, 1997.
(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.
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 1997:
Management Fees - ---------------
The general partner receives a monthly fee as compensation for services rendered in connection with managing the Partnership's equipment in an amount equal to the lesser of (i) 5% of gross rentals received by the Partnership (but limited to 2% of gross rentals received in the case of full payout leases), or (ii) the fee which the general partner reasonably believes to be competitive with that which would be charged by a non-affiliate for rendering comparable services. Management fees of $425,860 were earned by the general partner during 1997.
Accountable General and Administrative Expenses - -----------------------------------------------
The general partner is entitled to reimbursement of certain expenses paid on behalf of the Partnership which are incurred in connection with the Partnership's operations. Such reimbursable expenses amounted to $136,955 during 1997.
Additionally, the general partner receives 4.5% of Partnership cash distributions, and is allocated certain Partnership income and gain, relating to its general partner interest in the Partnership. Distributions paid and net income allocated to the general partner totaled $341,070 for 1997. Distributions paid and net income allocated to the Class B limited partner totaled $505,635 and $157,082, respectively, for 1997.
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
2. Financial Statement Schedule
(b) The Partnership did not file any reports on Form 8-K during the three months ended December 31, 1997.
(c) Exhibits required to be filed.
Exhibit Exhibit Number Name ------- -------
4.1* Capital Preferred Yield Fund Limited Partnership Agreement dated July 13, 1989 filed as Exhibit 4.1 to the Partnership's Annual Report on Form 10-K for the year ended December 31, 1990. 4.2* First Amendment to Limited Partnership Agreement dated December 31, 1991. (Filed April 1, 1992.) 4.3* Second Amendment to Limited Partnership Agreement dated March 31, 1992. (Filed May 15, 1992.)
* 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.
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 31, 1998 Capital Preferred Yield Fund, A California Limited Partnership
By: CAI Partners Management Company
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 31, 1998.
Signature Title - --------- -----
/s/John F. Olmstead - ----------------------- John F. Olmstead President and Director
/s/Dennis J. Lacey - ----------------------- Dennis J. Lacey Senior Vice President and Director
/s/Anthony M. DiPaolo - ----------------------- Senior Vice President, Principle Financial and Chief Anthony M. DiPaolo Administrative Officer and Director
/s/Richard H. Abernethy - ----------------------- Richard H. Abernethy Vice President and Director
/s/John A. Reed - ----------------------- John A. Reed Vice President, Assistant Secretary and Director
/s/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