SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

(Mark One)

[X]  Annual report  pursuant to Section 13 or 15(d) of the  Securities  Exchange
     Act of 1934 for the fiscal year ended December 31, 1996

[ ]  Transition  report  pursuant  to  Section  13  or  15(d) of the  Securities
     Exchange Act of 1934

                         Commission file number 0-19164


                   CAPITAL PREFERRED YIELD FUND, A California
                   ------------------------------------------
                       Limited Partnership (Exact name of
                     registrant as specified in its charter)

       California                                      68-0190817
(State of organization)                  (I.R.S. Employer Identification Number)

7175 W. Jefferson Avenue, Lakewood, Colorado             80235
  (Address of principal executive offices)             (Zip Code)

       Registrant's telephone number, including area code: (303) 980-1000


Securities registered pursuant to Section 12(b) of the Act:  None

Securities registered pursuant to Section 12(g) of the Act:  Units  of  Class  A
                                                        Limited Partner Interest
                                                             (Title of Class)

Indicate  by check  mark  whether  the  registrant:  (1) has filed  all  reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes   X    No
                                              -----     -----

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of Registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in part III of this Form 10-K or any amendment to this
Form 10-K [ ].

State the aggregate market value of the voting stock held by  non-affiliates  of
the registrant. Not applicable.


                    Exhibit Index Appears on Pages 36 and 37

                               Page 1 of 38 Pages

                                       -2-

<PAGE>



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 affiliate of Capital
Associates, Inc. ("CAI"), is the general partner of the Partnership.

Capital Associates  International,  Inc.  ("CAII"),  an affiliate of the general
partner, is the sole Class B limited partner of the Partnership. In exchange for
the Class B limited partner  interest,  the Class B limited partner  contributed
equipment  totaling  $5,538,805 (i.e., 10% of the net offering  proceeds) to the
Partnership making CAII the largest single investor in the Partnership.

Since its formation,  the  Partnership  has acquired  equipment of various types
under lease to third parties on short-term  leases (five years or less).  All of
the equipment was  purchased by CAII directly from  manufacturers  or from other
independent third parties and sold to the Partnership.  The equipment  generally
consisted of (among others),  transportation and industrial equipment,  computer
equipment,  office furniture and medical equipment.  See Item 13 of this report,
"Certain  Relationships  and Related  Transactions" for the listing of equipment
purchased  during 1996.  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.

During 1996, the Partnership  provided lease  financing to investment  grade and
non-investment grade lessees in the manufacturing,  textile equipment, materials
handling and other industries. Since the Partnership's formation,  approximately
53% of the  Partnership's  equipment under lease was leased to investment  grade
lessees as of December  31,  1996.  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  may choose to manage its credit risk through  selective
use of non-recourse debt financing of future lease rentals, as described above.

The  Partnership  only  acquires  equipment  that  is on  lease  at the  time of
acquisition. After the initial term of its lease, each item of equipment will be
expected to produce  additional  investment income from its re-lease or ultimate
sale. Upon expiration of the initial lease, the Partnership attempts to re-lease
or sell the  equipment  to the  existing  lessee.  If a re-lease  or sale to the
lessee cannot be negotiated,  the Partnership  will attempt to lease or sell the
equipment to a third party.

The Partnership's business is not subject to seasonal variations.


                                       -2-

<PAGE>



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.  Because  leasing is an
alternative to financing equipment purchases with debt, lease rates tend to rise
and fall with  interest  rates  (although  lease rate  movements  generally  lag
interest rate changes in the capital markets). Interest rates declined from 1990
until the early part of 1994 (see table  below).  The lease  rates on  equipment
purchased by the  Partnership  during this period reflect this low interest rate
environment.  This  will  result in  corresponding  reductions  in the  ultimate
overall yields to the partners. Annual average 5-year U.S.
Treasury yields for the past seven years were as follows:

Annual average 5-year U.S. Treasury Yield

         Year                       Yield
         ----                       -----

         1990                       8.37
         1991                       7.37
         1992                       6.19
         1993                       5.14
         1994                       6.69
         1995                       6.38
         1996                       6.18

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/seller  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  will  enable it to  continue  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 rental revenue of
the Partnership during 1996.

The Partnership  entered its liquidation period (as set forth in the Prospectus)
in April 1996.

The  Partnership  is required to dissolve  and  distribute  all of its assets no
later than  December  31, 2010.  However,  as set forth in the  Prospectus,  the
general partner  anticipates  that all equipment will be sold prior to that date
and that the Partnership will be liquidated earlier.




                                       -3-

<PAGE>



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.  Legal Proceedings
         -----------------

Neither the Partnership nor any of the Partnership's equipment is the subject of
any material pending legal proceedings.

Item 4.  Submission of Matters to a Vote of Security Holders
         ---------------------------------------------------

No matters were submitted to a vote of the limited  partners of the Partnership,
through the  solicitation of proxies or otherwise,  during the fourth quarter of
1996.

Item 5.  Market for  the  Partnership's Common  Equity and  Related  Stockholder
         -----------------------------------------------------------------------
         Matters
         -------

(a)     The Partnership's Class A limited partner units and Class B interest are
        not publicly traded.  There is no established  public trading market for
        such units and interest, and none is expected to develop.

(b)     As of  December  31,  1996 the  number of Class A limited  partners  was
        4,141.

(c)      Distributions
         -------------

         During 1996, the Partnership made twelve (12) monthly  distributions (a
         substantial  portion of which constituted a return of capital) to Class
         A limited partners as follows:

                                               Distributions Per
                                             $250 Class A limited
              For the          Payment      partner unit (computed     Total
            Month Ended      Made During     on 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
                                                  =======           ============


                                       -4-

<PAGE>



Item 5.  Market for the  Partnership's Common  Equity  and  Related  Stockholder
         -----------------------------------------------------------------------
         Matters, continued
         -------

(c)      Distributions, continued
         -------------

         A substantial portion of such distributions is expected to constitute a
         return  of  capital.   Distributions  may  be  characterized  for  tax,
         accounting  and economic  purposes as a return of capital,  a return on
         capital or both. The portion of each cash distribution by a partnership
         which  exceeds  its net income  for the  fiscal  period may be deemed a
         return  of  capital  for  accounting   purposes.   However,  the  total
         percentage of a partnership's  return on capital over its life can only
         be  determined  after all residual cash flows (which  include  proceeds
         from the  re-leasing  and sale of equipment  after  initial lease terms
         expire) have been realized at the termination of the Partnership. Total
         distributions  declared to Class A limited  partners  were  $52,642,411
         from the inception of the Partnership through December 31, 1996.

         The  distribution  for the month  ended  December  31,  1996,  totaling
         $1,000,571,  was paid to the Class A limited  partners  during  January
         1997.  Distributions to the general partner and Class B limited partner
         during  1997  are  discussed  in  Item  13  of  this  Report,  "Certain
         Relationships and Related Transactions".

         The  general  partner  believes  that  the  Partnership  will  generate
         sufficient  cash flow from  operations  during 1997 to enable it to (1)
         meet current operating  requirements and (2) fund cash distributions to
         the  Class A  limited  partners  in  accordance  with  the  Partnership
         Agreement.  The Partnership  entered its liquidation period (as defined
         in the  Partnership  Agreement) in April 1996.  During the  liquidation
         period, reinvestment ceases and the excess cash, if any, is distributed
         to the partners in accordance  with the  Partnership  Agreement.  It is
         anticipated that during the liquidation period, distributions will vary
         and all  distributions  are  expected  to be a return  of  capital  for
         economic purposes.

         During 1995, the Partnership made twelve (12) monthly  distributions (a
         substantial  portion of which constituted a return of capital) to Class
         A limited partners as follows:

                                               Distributions Per
                                             $250 Class A limited
              For the          Payment      partner unit (computed     Total
            Month Ended      Made During     on weighted average)  Distributions
            -----------      -----------     --------------------  -------------

         December 31, 1994   January 1995          $  2.76           $   702,885
         January 31, 1995    February 1995            2.76               702,885
         February 29, 1995   March 1995               2.46               634,863
         March 31, 1995      April 1995               2.76               701,916
         April 30, 1995      May 1995                 2.67               679,209
         May 31, 1995        June 1995                2.76               701,653
         June 30, 1995       July 1995                2.67               679,019
         July 31, 1995       August 1995              2.76               700,936
         August 31, 1995     September 1995           2.76               700,847
         September 30, 1995  October 1995             2.67               678,239
         October 31, 1995    November 1995            2.76               700,734
         November 30, 1995   December 1995            2.67               677,756
                                                   -------           -----------
                                                   $ 32.46           $ 8,260,942
                                                   =======           ===========

                                       -5-

<PAGE>



Item 6.  Selected Financial Data
         -----------------------
The following  selected  financial  data relates to 1996 through 1992.  The data
should be read in conjunction with Item 7, "Management's Discussion and Analysis
of Financial  Condition and Results of Operations" and the financial  statements
and notes thereto appearing elsewhere herein.

<TABLE>
<CAPTION>


                                                                                   Years  ended December 31,
                                                         ---------------------------------------------------------------------------
                                                            1996             1995           1994            1993            1992
                                                            ----             ----           ----            ----            ----

<S>                                                     <C>             <C>             <C>             <C>             <C>        
Total revenue                                            $11,319,825     $15,975,029     $20,833,137     $21,098,376     $19,695,554

Net income                                                 2,239,112       2,943,220       2,793,164         556,417       1,776,709

Net income per weighted average
 Class A limited partner unit outstanding                       6.23            9.24            8.67            0.51            5.40

Total assets                                              22,981,183      37,516,977      53,791,269      73,668,153      66,234,996

Discounted lease rentals                                   4,363,104       9,146,266      20,324,037      33,425,426      17,872,004

Distributions declared to partners                        12,106,228       9,276,551       9,286,099       9,256,647       8,631,653

Distributions declared to Class A limited
  partners per weighted average Class A
  limited partner unit outstanding                             43.38           32.50           32.46           32.32           30.00

</TABLE>


Item 7.  Management's Discussion and Analysis of Financial Condition and Results
         -----------------------------------------------------------------------
         of Operations
         -------------

Results of Operations
---------------------

Presented below are schedules  (prepared  solely to facilitate the discussion of
results  of  operations  that  follows)   showing   condensed  income  statement
categories and analyses of changes in those  condensed  categories  derived from
the Statements of Income.

<TABLE>
<CAPTION>

                                                    Condensed                                    Condensed
                                                Statements of Income                        Statements of Income
                                                   for the years           The effect on        for the years          The effect on
                                                ended December 31,         net income of      ended December 31,       net income of
                                             --------------------------      changes      -------------------------        changes
                                                 1996           1995      between years       1995         1994        between years
                                             ------------   -----------   -------------   ----------  -------------    -------------

<S>                                         <C>            <C>            <C>            <C>            <C>            <C>         
Leasing margin                               $ 3,064,878    $ 3,776,911    $  (712,033)   $ 3,776,911    $ 4,658,200    $  (881,289)
Equipment sales margin                         1,350,258        976,149        374,109        976,149        364,170        611,979
Interest income                                  188,628        144,913         43,715        144,913         65,247         79,666
Provision for losses                          (1,130,000)      (605,000)      (525,000)      (605,000)      (492,628)      (112,372)
Management fees paid to general partner         (702,219)    (1,035,316)       333,097     (1,035,316)    (1,375,497)       340,181
Direct services from general partner            (101,145)       (90,270)       (10,875)       (90,270)       (99,279)         9,009
General and administrative                      (431,288)      (224,167)      (207,121)      (224,167)      (327,049)       102,882
                                             -----------    -----------    -----------    -----------    -----------    -----------
Net income                                   $ 2,239,112    $ 2,943,220    $  (704,108)   $ 2,943,220    $ 2,793,164    $   150,056
                                             ===========    ===========    ===========    ===========    ===========    ===========

</TABLE>

                                       -6-

<PAGE>




Item 7.  Management's Discussion and Analysis of Financial Condition and Results
         -----------------------------------------------------------------------
         of Operations, continued
         -------------

Results of Operations, continued
---------------------

The Partnership  entered its liquidation period (as set forth in the Partnership
Agreement)  in April 1996. As the  liquidation  period  continues,  purchases of
equipment under lease will cease (other than for prior commitments and equipment
upgrades),  initial  leases  will  expire  and the  amount  of  equipment  being
remarketed (i.e., re-leased,  renewed, or sold) will increase. Because a leasing
portfolio declines in size as it matures, these circumstances have resulted in a
decline  in  the  Partnership's   leasing  portfolio  (referred  to  in  further
discussions as "portfolio run- off").

LEASING MARGIN

Leasing margin consists of the following:

                                               Years ended December 31,
                                ------------------------------------------------
                                     1996             1995             1994
                                -------------    -------------   ---------------

Operating lease rentals         $  8,584,425     $ 13,253,954    $  18,555,024
Direct finance lease income        1,196,514        1,600,013        1,848,696
Depreciation and amortization     (6,124,604)      (9,944,160)     (13,670,774)
Interest expense on related
  discounted lease rentals          (591,457)      (1,132,896)      (2,074,746)
                                ------------     ------------     ------------
  Leasing margin                $  3,064,878     $  3,776,911     $  4,658,200
                                ============     ============     ============
  Leasing margin ratio                    31%              25%              23%
                                ============     ============     ============

The  components  of leasing  margin have  declined  and are  expected to decline
further due to  portfolio  run-off.  Leasing  margin ratio  increased  primarily
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 increases  during
the term of the lease since rents and  depreciation  are  typically  fixed while
interest expense declines as the related non-recourse debt is repaid.

The ultimate rate of return on leases depends,  in part, on the general level of
interest  rates at the time the leases  are  originated.  Because  leasing is an
alternative to financing equipment purchases with debt, lease rates tend to rise
and fall with  interest  rates  (although  lease rate  movements  generally  lag
interest rate changes in the capital markets). Interest rates declined from 1990
until the early part of 1994 (see table  below).  The lease  rates on  equipment
purchased by the  Partnership  during this period reflect this low interest rate
environment.  This  will  result in  corresponding  reductions  in the  ultimate
overall yields to the partners.  Annual  average 5-year U.S. Treasury yields for
the past seven years were as follows:



                                       -7-

<PAGE>

Item 7.  Management's Discussion and Analysis of Financial Condition and Results
         -----------------------------------------------------------------------
         of Operations, continued
         -------------

Results of Operations, continued
---------------------

Annual average 5-year U.S. Treasury Yield

         Year              Yield
         ----              -----

         1990              8.37
         1991              7.37
         1992              6.19
         1993              5.14
         1994              6.69
         1995              6.38
         1996              6.18

EQUIPMENT SALES MARGIN

Equipment sales margin consists of the following:

                                             Years ended December 31,
                                   -----------------------------------------
                                       1996          1995           1994
                                   -----------    -----------    -----------

Equipment sales revenue            $ 4,868,827    $ 3,868,324    $ 2,645,500
Cost of equipment sales             (3,518,569)    (2,892,175)    (2,281,330)
                                   -----------    -----------    -----------
Equipment sales margin             $ 1,350,258    $   976,149    $   364,170
                                   ===========    ===========    ===========

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 increased 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.

                                       -8-

<PAGE>



Item 7.  Management's Discussion and Analysis of Financial Condition and Results
         -----------------------------------------------------------------------
         of Operations, continued
         -------------

Results of Operations, continued
---------------------

PROVISION FOR LOSSES, continued


Residual values are established equal to the estimated value to be received from
the equipment following termination of the lease. In estimating such values, the
Partnership considers all relevant facts regarding the equipment and the lessee,
including,  for  example,  the  likelihood  that the lessee  will  re-lease  the
equipment.  The nature of the  Partnership's  leasing  activities is that it has
credit  exposure and residual value exposure and,  accordingly,  in the ordinary
course of business,  it will incur losses from those exposures.  The Partnership
performs   ongoing   quarterly   assessments   of   its   assets   to   identify
other-than-temporary losses.

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 a
     third party is 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 has notified the  Partnership  that it
                will 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 were  primarily  related to the
following:

     -    $370,000 deficiency resulting from a lessee 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.

The  provision  for  losses  recorded  during  1994 were  primarily  related  to
identified other-than-temporary losses in the value of off-lease equipment.



                                       -9-

<PAGE>



Item 7.  Management's Discussion and Analysis of Financial Condition and Results
         -----------------------------------------------------------------------
         of Operations, continued
         -------------

Results of Operations, continued
---------------------

EXPENSES

Management fees paid to the general partner  decreased  primarily as a result of
portfolio run-off.

General and  administrative  expenses  increased  primarily  due to (i) $104,027
reimbursed  to the  general  partner  during  the  second  quarter  of 1996  for
insurance  costs  related to prior years and (ii)  increased  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  1996,  1995 and 1994,  the  Partnership  acquired  equipment  and direct
finance leases for a total equipment  purchase price of $1,266,569,  $2,095,491,
and  $3,086,763,  respectively.  All such  equipment was purchased  from Capital
Associates  International,  Inc.  ("CAII"),  the Class B limited  partner and an
affiliate of the general partner. The Partnership entered its liquidation period
(as defined in the Partnership  Agreement) in April 1996. During the liquidation
period,  purchases  of  equipment  under lease will cease  (other than for prior
commitments or for equipment upgrades).

During  1996,  1995 and 1994,  the  Partnership  declared  distributions  to the
partners of $12,106,228, $9,276,551, and $9,286,099, respectively. A substantial
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 re-leasing and sale of
equipment   after  initial  lease  terms  expire)  have  been  realized  at  the
termination of the Partnership .

The general partner believes that the Partnership will generate  sufficient cash
flow from  operations  during  1997 to enable it to (1) meet  current  operating
requirements and (2) fund cash  distributions to the Class A limited partners in
accordance  with  the  Partnership   Agreement.   The  Partnership  entered  its
liquidation  period (as  defined in the  Partnership  Agreement)  in April 1996.
During the liquidation  period,  excess cash, if any, will be distributed to the
partners in accordance with the Partnership  Agreement.  It is anticipated  that
during the liquidation period, distributions will vary and all distributions are
expected to be a return of capital for economic purposes.


                                      -10-

<PAGE>



Item 8.  Financial Statements and Supplementary Data
         -------------------------------------------

           Index to Financial Statements and
           Financial Statement Schedule

                                                                          Page
                                                                         Number
                                                                         ------
         Financial Statements
         --------------------

           Independent Auditors' Report                                    12

           Balance Sheets at December 31, 1996 and 1995                    13

           Statements of Income for the years ended
             December 31, 1996, 1995 and 1994                              14

           Statements of Partners' Capital for the years
             ended December 31, 1996, 1995 and 1994                        15

           Statements of Cash Flows for the years
             ended December 31, 1996, 1995 and 1994                        16

           Notes to Financial Statements                                  17-29


         Financial Statement Schedule
         ----------------------------

           Independent Auditors' Report                                    30

           Schedule II - Valuation and Qualifying Accounts                 31


                                      -11-

<PAGE>



                          INDEPENDENT AUDITORS' REPORT
                          ----------------------------
  



THE PARTNERS
CAPITAL PREFERRED YIELD FUND, A
    A CALIFORNIA LIMITED PARTNERSHIP

We have audited the accompanying balance sheets of Capital Preferred Yield Fund,
a California  Limited  Partnership,  as of December  31, 1996 and 1995,  and the
related statements of income,  partners' capital, and cash flows for each of the
years  in the  three-year  period  ended  December  31,  1996.  These  financial
statements  are  the  responsibility  of  the  Partnership's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the financial position of Capital Preferred Yield Fund, a
California  Limited  Partnership,  as of  December  31,  1996 and 1995,  and the
results  of its  operations  and its cash  flows  for  each of the  years in the
three-year period ended December 31, 1996, in conformity with generally accepted
accounting principles.




                                             /s/KPMG Peat Marwick LLP
                                             ------------------------
                                             KPMG Peat Marwick LLP


Denver, Colorado
January 31, 1997

                                      -12-

<PAGE>



                          CAPITAL PREFERRED YIELD FUND
                        A California Limited Partnership

                                 BALANCE SHEETS

                                     ASSETS

                                                               December 31,
                                                       -------------------------
                                                           1996         1995
                                                       -----------  ------------

Cash and cash equivalents                              $ 2,672,112   $ 4,492,487
Accounts receivable                                        390,607       435,466
Equipment held for sale or re-lease                      1,081,841             -
Net investment in direct finance leases                  5,316,787     8,730,002
Leased equipment, net                                   13,519,836    23,859,022
                                                       -----------   -----------

    Total assets                                       $22,981,183   $37,516,977
                                                       ===========   ===========

                        LIABILITIES AND PARTNERS' CAPITAL

Liabilities:
  Payable to affiliates                                $    65,370   $   121,065
  Accounts payable and accrued liabilities                 821,791       587,399
  Rents received in advance                                230,501       260,394
  Distributions payable to partners                      1,317,409       955,382
  Discounted lease rentals                               4,363,104     9,146,266
  Financed operating lease rentals                       1,329,087     1,594,646
                                                       -----------   -----------

    Total liabilities                                    8,127,262    12,665,152
                                                       -----------   -----------

Partners' capital:
  General partner                                                -             -
  Limited partners:
    Class A
      360,000 units authorized; 252,047 and
      253,664 units issued and outstanding
      in 1996 and 1995, respectively                    12,199,688    21,715,744
    Class B                                              2,654,233     3,136,081
                                                       -----------   -----------

    Total partners' capital                             14,853,921    24,851,825
                                                       -----------   -----------

    Total liabilities and partners' capital            $22,981,183   $37,516,977
                                                       ===========   ===========

                 See accompanying notes to financial statements.

                                      -13-

<PAGE>



                          CAPITAL PREFERRED YIELD FUND
                        A California Limited Partnership

                              STATEMENTS OF INCOME

<TABLE>
<CAPTION>

                                                                           Years ended December 31,
                                                               ----------------------------------------------
                                                                   1996             1995             1994
                                                               ------------      ----------       -----------
<S>                                                            <C>              <C>              <C>        
Revenue:
  Operating lease rentals                                       $ 8,584,425      $13,253,954      $18,555,024
  Direct finance lease income                                     1,196,514        1,600,013        1,848,696
  Equipment sales margin                                          1,350,258          976,149          364,170
  Interest income                                                   188,628          144,913           65,247
                                                                -----------      -----------      -----------

    Total revenue                                                11,319,825       15,975,029       20,833,137
                                                                -----------      -----------      -----------

Expenses:
  Depreciation and amortization                                   6,124,604        9,944,160       13,670,774
  Interest on discounted lease rentals                              501,872        1,132,896        2,074,746
  Interest on financed operating lease receivables                   89,585                -                -
  Management fees paid to general partner                           702,219        1,035,316        1,375,497
  Provision for losses                                            1,130,000          605,000          492,628
  Direct services from general partner                              101,145           90,270           99,279
  General and administrative                                        431,288          224,167          327,049
                                                                -----------      -----------      -----------

    Total expenses                                                9,080,713       13,031,809       18,039,973
                                                                -----------      -----------      -----------

Net income                                                      $ 2,239,112      $ 2,943,220      $ 2,793,164
                                                                ===========      ===========      ===========

Net income allocated:
  To the general partner                                        $   544,780      $   417,444      $   418,279
  To the Class A limited partners                                 1,575,257        2,348,293        2,208,003
  To the Class B limited partner                                    119,075          177,483          166,882
                                                                -----------      -----------      -----------

                                                                $ 2,239,112      $ 2,943,220      $ 2,793,164
                                                                ===========      ===========      ===========
Net income per weighted average Class A
     limited partner unit outstanding                           $      6.23      $      9.24      $      8.67
                                                                ===========      ===========      ===========

Weighted average Class A limited
    partner units outstanding                                       252,689          254,130          254,643
                                                                ===========      ===========      ===========
</TABLE>


                 See accompanying notes to financial statements.

                                      -14-

<PAGE>



                          CAPITAL PREFERRED YIELD FUND
                        A California Limited Partnership

                         STATEMENTS OF PARTNERS' CAPITAL
                  Years ended December 31, 1996, 1995, and 1994

<TABLE>
<CAPTION>


                                                               Class A
                                                               Limited       Class A         Class B
                                                  General      Partner       Limited         Limited
                                                  Partner       Units        Partners        Partner           Total
                                                  -------      -------       --------        -------           -----

<S>                                            <C>            <C>        <C>              <C>            <C>
Partners' capital January 1, 1994               $        -     254,643    $ 33,794,488     $ 3,993,562    $ 37,788,050

Net income                                         418,279           -       2,208,003         166,882       2,793,164
Distributions declared to partners                (418,279)          -      (8,266,897)       (600,923)     (9,286,099)
                                                ----------    --------    ------------     -----------    ------------

Partners' capital, December 31, 1994                     -     254,643      27,735,594       3,559,521      31,295,115

Redemptions                                              -        (979)       (109,959)              -        (109,959)
Net income                                         417,444           -       2,348,293         177,483       2,943,220
Distributions declared to partners                (417,444)          -      (8,258,184)       (600,923)     (9,276,551)
                                                ----------    --------    ------------     -----------    ------------

Partners' capital, December 31, 1995                     -     253,664      21,715,744       3,136,081      24,851,825

Redemptions                                              -      (1,617)       (130,788)              -        (130,788)
Net income                                         544,780           -       1,575,257         119,075       2,239,112
Distributions declared to partners                (544,780)          -     (10,961,208)       (600,923)    (12,106,228)
                                                ----------    --------    ------------     -----------    ------------

Partners' capital, December 31, 1996            $        -     252,047    $ 12,199,688     $ 2,654,233    $ 14,853,921
                                                ==========    ========    ============     ===========    ============

</TABLE>












                 See accompanying notes to financial statements.

                                      -15-

<PAGE>



                          CAPITAL PREFERRED YIELD FUND
                        A California Limited Partnership
                            STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>

                                                                                                 Years ended December 31,
                                                                                    ------------------------------------------------
                                                                                        1996                1995           1994
                                                                                    -------------       ------------    ------------
<S>                                                                                 <C>              <C>              <C>         
Cash flows from operating activities:
     Net income                                                                      $  2,239,112     $  2,943,220     $  2,793,164
     Adjustments to reconcile net income to net
         cash provided by operating activities:
         Depreciation and amortization                                                  6,124,604        9,944,160       13,670,774
         Provision for losses                                                           1,130,000          605,000          492,628
         Cost of equipment sales                                                        3,474,892        4,370,077        2,137,618
         Recovery of investment in direct finance leases                                2,955,733        5,306,706        5,699,624
         Changes in assets and liabilities:
           Decrease in accounts receivable                                                296,759          200,772          957,139
           Increase (decrease) in payable to affiliates                                   (55,695)          14,289           (1,182)
           Increase (decrease) in accounts payable
             and accrued liabilities                                                      234,392         (221,315)         (79,176)
           Decrease in rents received in advance                                          (29,893)         (37,747)        (163,023)
                                                                                     ------------     ------------     ------------
Net cash provided by operating activities                                              16,369,904       23,125,162       25,507,566
                                                                                     ------------     ------------     ------------

Cash flows from investing activities:
     Purchases of equipment on operating leases from affiliate                         (1,142,624)      (1,038,727)        (817,486)
     Investment in direct finance leases, acquired from affiliate                        (123,945)      (1,056,764)      (1,838,000)
                                                                                     ------------     ------------     ------------
Net cash used in investing activities                                                  (1,266,569)      (2,095,491)      (2,655,486)
                                                                                     ------------     ------------     ------------

Cash flows from financing activities:
     Proceeds from financing of operating lease receivables                                     -        1,594,646                -
     Principal payments on discounted lease rentals                                    (4,876,162)     (11,177,771)     (13,395,844)
     Principal payments on financed operating lease rentals                              (172,559)               -                -
     Distributions to partners                                                        (11,744,201)      (9,279,655)      (9,289,595)
     Redemptions of Class  A limited partner units                                       (130,788)        (109,959)               -
                                                                                     ------------     ------------     ------------
Net cash used in financing activities                                                 (16,923,710)     (18,972,739)     (22,685,439)
                                                                                     ------------     ------------     ------------

Net increase (decrease) in cash and cash equivalents                                   (1,820,375)       2,056,932          166,641
Cash and cash equivalents at beginning of year                                          4,492,487        2,435,555        2,268,914
                                                                                     ------------     ------------     ------------
Cash and cash equivalents at end of year                                             $  2,672,112     $  4,492,487     $  2,435,555
                                                                                     ============     ============     ============

Supplemental disclosure of cash flow information:
     Interest paid on discounted lease rentals                                       $    501,872     $  1,132,896     $  2,074,746
     Interest paid on financed operating lease receivables                                 89,585                -                -
Supplemental disclosure of noncash investing
     and financing activities:
     Discounted lease rentals assumed in
       equipment acquisitions                                                                   -                -          431,277

</TABLE>

                 See accompanying notes to financial statements.

                                      -16-

<PAGE>


                          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 as a limited  partnership
       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 Partnership will continue
       until December 31, 2010 unless terminated  earlier in accordance with the
       terms  of  the  Partnership   Agreement.   The  Partnership  entered  its
       liquidation  period  in  April  of 1996  and  the  current  intent  is to
       liquidate the  Partnership  between 1998 and 1999. 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  commenced business operations on
       January 23, 1990 and from the commencement of operations  through January
       5, 1992 sold 254,643 Class A limited partner units to approximately 4,100
       investors at a price of $250 per Class A limited partner unit.

       CAII is the Class B limited  partner.  The  Class B limited  partner  was
       required to  contribute  $5,538,805  of equipment to the  Partnership  in
       exchange  for  its  Class B  interest,  which  represents  10% of the net
       offering  proceeds.   The  Class  B  limited  partner  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.




                                      -17-

<PAGE>


                          CAPITAL PREFERRED YIELD FUND
                        A California Limited Partnership

                    NOTES TO FINANCIAL STATEMENTS, continued

1.   Organization and Summary of Significant Accounting Policies, continued
     -----------------------------------------------------------

       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 receive
            4.5% and 95.5%,  respectively,  of available  cash until the Class A
            limited   partners   receive   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.

            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   receives   annual   non-compounded    cumulative
            distributions equal to 11% of its contributed capital. Any remaining
            available cash is to be 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.



                                      -18-

<PAGE>


                          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
        -------------------------------------------

        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.

          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.



                                      -19-

<PAGE>


                          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
        -------------------------------------------

        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:

        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.



                                      -20-

<PAGE>


                          CAPITAL PREFERRED YIELD FUND
                        A California Limited Partnership

                    NOTES TO FINANCIAL STATEMENTS, continued

1.   Organization and Summary of Significant Accounting Policies, continued
     -----------------------------------------------------------

     Financial Reporting
     -------------------

        For  financial  reporting  purposes,  net  income  is  allocated  to the
        partners  in  a  manner   consistent   with  the   allocation   of  cash
        distributions.

     Reclassifications
     
        Certain  reclassifications  have  been  made to prior  years'  financial
        statements to conform to the current year's presentation.

     Recently Issued Financial Accounting Standards

        The Partnership adopted Statement of Financial  Accounting Standards No.
        121,  Accounting  for  the  Impairment  of  Long-lived  Assets  and  for
        Long-lived Assets to be Disposed Of ("SFAS No. 121"),  effective January
        1,  1996.  SFAS No.  121  requires  that  long-lived  assets,  including
        operating leases,  and certain  identifiable  intangibles to be held and
        used by an entity be reviewed for impairment  whenever events or changes
        in  circumstances  indicate that the carrying amount of an asset may not
        be recoverable. In performing the review for recoverability,  the entity
        should estimate the future cash flows expected to result from the use of
        the  asset  and its  eventual  disposition.  If the sum of the  expected
        future cash flows  (undiscounted  and without interest  charges) is less
        than the carrying amount of the asset, an impairment loss is recognized.
        Otherwise,  an  impairment  loss is not  recognized.  Measurement  of an
        impairment loss for long-lived assets,  including  operating leases, and
        identifiable  intangibles  held by the  Partnership is based on the fair
        value of the asset  calculated by discounting  the expected  future cash
        flows at an  appropriate  interest  rate. The adoption of this statement
        did not have a material effect on the Partnership's  financial condition
        or results of operations.

     Lease Accounting

        Statement of  Financial  Accounting  Standards  No. 13,  Accounting  for
        Leases,  requires  that a lessor  account  for each  lease by the direct
        finance, sales-type or operating lease method. The Partnership currently
        utilizes  the direct  financing  and  operating  methods  for all of the
        Partnership's  equipment under lease.  Direct finance leases are defined
        as those leases  which  transfer  substantially  all of the benefits and
        risks of  ownership  of the  equipment  to the lessee.  For all types of
        leases, the determination of profit considers the estimated value of the
        equipment at lease termination, referred to as the residual value. After
        the  inception of a lease,  the  Partnership  may engage in financing of
        lease receivables on a nonrecourse basis (i.e.,  "non-recourse  debt" or
        "discounted lease rentals") and/or equipment sale transactions to reduce
        or recover its investment in the equipment.

                                      -21-

<PAGE>


                          CAPITAL PREFERRED YIELD FUND
                        A California Limited Partnership

                    NOTES TO FINANCIAL STATEMENTS, continued

1.   Organization and Summary of Significant Accounting Policies, continued
     -----------------------------------------------------------

     The Partnership's  accounting methods and their financial reporting effects
     are described below.

     Net Investment in Direct Financing Leases ("DFLs")

        The  cost  of the  equipment,  including  acquisition  fees  paid to the
        general  partner,   is  recorded  as  net  investment  in  DFLs  on  the
        accompanying  balance sheet.  Leasing revenue,  which is recognized over
        the term of the lease, consists of the excess of lease payments plus the
        estimated  residual value over the  equipment's  cost.  Earned income is
        recognized monthly to provide a constant yield and is recorded as direct
        finance lease income on the  accompanying  income  statements.  Residual
        values are  established at lease  inception equal to the estimated value
        to be received from the equipment  following  termination of 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  nonrecourse  basis.  In return  for such  assigned
        future  rentals,  the Partnership  receives the discounted  value of the
        rentals  in cash.  In the event of default  by a lessee,  the  financial
        institution has a first lien on the underlying leased equipment, with no
        further  recourse  against  the  Partnership.  Cash  proceeds  from such
        financings,  or the assumption of such  financings,  are recorded on the
        balance sheet as discounted  lease rentals.  As lessees make payments to
        financial  institutions,   leasing  revenue  and  interest  expense  are
        recorded.

                                      -22-

<PAGE>


                          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.




                                      -23-

<PAGE>


                          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 $2,595,000 and $4,418,000 at December 31, 1996 and
        1995,  respectively,  are  comprised of an  investment in a money market
        fund  which  invests  solely  in  U.S.   Government   securities  having
        maturities of 90 days or less.

     Equipment Held for Sale or Re-lease

        Equipment  held for sale or  re-lease,  recorded at the lower of cost or
        market value expected to be realized,  consists of equipment  previously
        leased to end users which has been returned to the Partnership following
        lease expiration.

     Net Income Per Class A Limited Partner Unit

        Net income per Class A limited  partner unit is computed by dividing the
        net income  allocated  to the Class A limited  partners by the  weighted
        average number of Class A limited partner units  outstanding  during the
        period.


2.   Net Investment in Direct Finance Leases
     ---------------------------------------

     The  components  of the net  investment  in  direct  finance  leases  as of
     December 31, 1996 and 1995 were:

                                                    1996           1995
                                                    ----           ----

     Minimum lease payments receivable          $ 4,961,017    $ 8,375,043
     Estimated residual values                    1,904,751      2,307,402
     Deferred initial leasing costs, net              9,112         27,899
     Less unearned income                        (1,558,093)    (1,980,342)
                                                -----------    -----------

                                                $ 5,316,787    $ 8,730,002
                                                ===========    ===========




                                      -24-

<PAGE>


                          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, 1996 and 1995 were:

                                                      1996             1995
                                                      ----             ----

     Transportation and industrial equipment      $ 25,383,364    $  38,962,304
     Computers and peripherals                       2,547,947        7,408,261
     Office furniture and equipment                  2,316,692        3,552,482
     Medical and research equipment                  1,200,140        1,572,460
     Other                                             508,293        1,585,429
                                                  ------------    -------------
       Total                                        31,956,436       53,080,936
     Less:
       Accumulated depreciation                    (18,193,840)     (28,548,911)
       Allowance for losses                           (242,760)        (673,003)
                                                  ------------    -------------
                                                  $ 13,519,836    $  23,859,022
                                                  ============    =============

     Depreciation expense for 1996, 1995 and 1994 was $6,093,950, $9,883,414 and
     $13,525,868, respectively.


4.   Future Minimum Lease Payments
     -----------------------------

     Future minimum lease payments  receivable  from leases at December 31, 1996
     are as follows:

          Year Ending December 31,               DFLs                 OLs
          ------------------------               ----                 ---

                  1997                      $ 2,789,234           $ 5,145,955
                  1998                        1,376,883             2,888,812
                  1999                          619,197               486,938
                  2000                          152,268                42,192
                  2001                           23,435                     -
                                            -----------           -----------
                       Total                $ 4,961,017           $ 8,563,897
                                            ===========           ===========




                                      -25-

<PAGE>


                          CAPITAL PREFERRED YIELD FUND
                        A California Limited Partnership

                    NOTES TO FINANCIAL STATEMENTS, continued

5.   Discounted Lease Rentals
     ------------------------

     Discounted lease rentals  outstanding at December 31, 1996 bear interest at
     rates  primarily  ranging between 5.40% to 9.25%.  Aggregate  maturities of
     such non-recourse obligations are as follows:

          Year Ending December 31,
          ------------------------

                  1997                                            $ 3,287,432
                  1998                                              1,008,328
                  1999                                                 67,344
                                                                  -----------
                       Total                                      $ 4,363,104
                                                                  ===========

6.     Financed Operating Lease Rentals
       --------------------------------

       Financed  operating  lease rentals  outstanding at December 31, 1996 bear
       interest at 8.25%.  Aggregate maturities of such non-recourse  financings
       are as follows:

          Year Ending December 31,
          ------------------------

                  1997                                            $   746,257
                  1998                                                311,274
                  1999                                                271,556
                                                                  -----------
                       Total                                      $ 1,329,087
                                                                  ===========

7.   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.


                                      -26-

<PAGE>


                          CAPITAL PREFERRED YIELD FUND
                        A California Limited Partnership

                    NOTES TO FINANCIAL STATEMENTS, continued

7.   Transactions With the General Partner and Affiliates, continued
     ----------------------------------------------------

     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  $702,219,  $1,035,316 and $1,375,497 in 1996, 1995 and
       1994, respectively.


     Direct Services
     ---------------

       The  general  partner and its  affiliates  provide  accounting,  investor
       relations,    billing,    collecting,   asset   management,   and   other
       administrative  services to the Partnership.  The Partnership  reimburses
       the  general  partner  for  these  services  performed  on its  behalf as
       permitted   under  the   terms  of  the   Partnership   Agreement.   Such
       reimbursements  totaled  $101,145,  $90,270 and $99,279 in 1996, 1995 and
       1994, respectively.


     Equipment Purchases
     -------------------

       The Partnership purchased equipment from CAII with a total purchase price
       of  $1,266,569,   $2,095,491  and  $3,086,763,  (including  $0,  $0,  and
       $431,277,  of  discounted  lease  rentals)  during  1996,  1995 and 1994,
       respectively.  The  Partnership  purchased  the equipment at CAII's cost,
       plus  reimbursement of other acquisition costs subject to the limitations
       discussed above, as provided for in the Partnership Agreement.


     Payable to Affiliates
     ---------------------

       Payable to affiliates  consists  primarily of management  fees and direct
       services payable to the general partner.





                                      -27-

<PAGE>


                          CAPITAL PREFERRED YIELD FUND
                        A California Limited Partnership

                    NOTES TO FINANCIAL STATEMENTS, continued

8.   Tax Information (Unaudited)
     ---------------------------

     The following  reconciles  net income for financial  reporting  purposes to
     income (loss) for federal  income tax purposes for the years ended December
     31,:

<TABLE>
<CAPTION>

                                                  1996               1995             1994
                                                  ----               ----             ----

<S>                                          <C>                <C>              <C>         
     Net income per financial statements      $  2,239,112       $  2,943,220     $  2,793,164
     Differences due to:
       Direct finance leases                     2,949,142          6,912,037        3,850,926
       Depreciation                             (2,802,075)        (3,451,073)      (5,962,181)
       Provision for losses                      1,130,000            605,000          483,383
       Gain (loss) on sale of equipment         (2,624,981)         1,482,212         (241,732)
       Other                                       302,689            232,461           49,587
                                              ------------       ------------     ------------
     Partnership income (loss) for
       federal income tax purposes            $  1,193,887       $  8,723,857     $    973,147
                                              ============       ============     ============

</TABLE>

     As  of  December  31,  1996,  the  partners'   capital   accounts  per  the
     accompanying financial statements totaled $14,853,921 compared to partners'
     capital  accounts  for  federal  income tax  purposes of  $19,440,267.  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.


9.   Concentration of Credit Risk
     ----------------------------

     As of December 31, 1996,  approximately 53% 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.



                                      -28-

<PAGE>


                          CAPITAL PREFERRED YIELD FUND
                        A California Limited Partnership

                    NOTES TO FINANCIAL STATEMENTS, continued

10.  Bankrupt Lessees
     ----------------

     Anchor Glass filed for protection  under Chapter 11 of the bankruptcy  code
     on September  13, 1996.  The  aggregate net book value with this lessee was
     $269,085  at  December  31,  1996.  Potential  outcomes  are (i) the lessee
     affirms  its leases and the  Partnership  collects  all rents due under the
     leases or (ii) the lessee  rejects the leases and  returns  the  underlying
     equipment to the Partnership.  If the leases are rejected and the equipment
     is returned to the  Partnership  or sold to a third  party,  it is possible
     that  remarketing  proceeds  will be less  than the net  book  value of the
     equipment. However, if the lessee affirms the leases, the Partnership would
     not be subject to a loss. The lessee has not made its  intentions  known at
     this  time  and,  accordingly,  the  amount  of  loss,  if any,  cannot  be
     determined as of December 31, 1996.  Regardless of the lessee's decision to
     accept or reject the leases, the general partner believes that the ultimate
     outcome  will not  have a  material  adverse  impact  on the  Partnership's
     financial position or results of operations.

11.  Disclosures about Fair Value of Financial Instruments
     -----------------------------------------------------

     Statement  of Financial  Standards  No. 107 ("SFAS No.  107"),  Disclosures
     about Fair Value of Financial  Instruments  specifically  excludes  certain
     items from its disclosure requirements such as the Partnership's investment
     in leased  assets.  The carrying  amounts at December 31, 1996 for cash and
     cash  equivalents,   accounts  receivable,  accounts  payable  and  accrued
     liabilities,  payable to  affiliates,  rents and sale proceeds  received in
     advance and distributions payable to partners approximate their fair values
     due to the short maturity of these instruments.



                                      -29-

<PAGE>




                          INDEPENDENT AUDITORS' REPORT
                          ----------------------------



THE PARTNERS
CAPITAL PREFERRED YIELD FUND, A
    A CALIFORNIA LIMITED PARTNERSHIP:

Under date of January 31,  1997,  we  reported on the balance  sheets of Capital
Preferred Yield Fund, a California Limited Partnership,  as of December 31, 1996
and 1995,  and the related  statements of income,  partners'  capital,  and cash
flows for each of the years in the three-year period ended December 31, 1996, as
contained in the Partnership's  annual report on Form 10-K for the year 1996. In
connection with our audits of the aforemen tioned financial statements,  we have
also  audited  the related  financial  statement  Schedule  II, as listed in the
accompanying  index. This financial  statement schedule is the responsibility of
the  Partnership's  management.  Our  responsibility is to express an opinion on
this financial statement schedule based on our audits.

In our opinion,  the related financial  statement  schedule,  when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.



                                           /s/KPMG Peat Marwick LLP
                                           ------------------------
                                           KPMG Peat Marwick LLP



Denver, Colorado
January 31, 1997

                                      -30-

<PAGE>



                          CAPITAL PREFERRED YIELD FUND
                        A California Limited Partnership

                     SCHEDULE II - VALUATION AND QUALIFYING
                    ACCOUNTS for the years ended December 31,
                               1996, 1995 and 1994

<TABLE>
<CAPTION>


        COLUMN A                               COLUMN B                   COLUMN C                  COLUMN D     COLUMN E
-------------------------------              -----------       ------------------------------    -------------   ---------
                                                                                 Additions
                                                                               (Deductions)
                                              Balance at       Additions        charged to                        Balance
                                              beginning        charged to    other accounts -     Deductions -    at end
Classification                                of period         expenses    describe (1)-(2)     describe (3)    of period
--------------                               -----------       ----------   -----------------    -------------   ---------

            1996
-------------------------------
<S>                                         <C>               <C>            <C>                <C>             <C>        
Allowance for losses:
  Accounts receivable                        $    5,000        $         -    $        -         $        -      $     5,000
  Equipment on operating leases                 673,003          1,130,000      (749,298)          (810,945)         242,760
                                             ----------         ----------    ----------         ----------      -----------

     Totals                                  $  678,003        $ 1,130,000    $ (749,298)        $ (810,945)     $   247,760
                                             ==========         ==========    ==========         ==========      ===========


            1995
-------------------------------
Allowance for losses:
  Accounts receivable                        $    5,000         $        -    $        -         $        -      $     5,000
  Equipment on operating leases               1,200,614            605,000      (279,290)          (853,321)         673,003
                                             ----------         ----------    ----------         ----------      -----------

     Totals                                  $1,205,614         $  605,000    $ (279,290)        $ (853,321)     $   678,003
                                             ==========         ==========    ==========         ==========      ===========


            1994
-------------------------------
Allowance for losses:
  Accounts receivable                        $  195,362         $   25,000    $ (206,117)        $   (9,245)     $     5,000
  Equipment on operating leases                 265,544            467,628       467,442                  -        1,200,614
                                             ----------         ----------    ----------         ----------      -----------

     Totals                                  $  460,906         $  492,628    $  261,325         $   (9,245)     $ 1,205,614
                                             ==========         ==========    ==========         ==========      ===========
</TABLE>


(1)  Primarily represents reclassifications between allowance categories.

(2)  Represents offsetting entries to the individual accounts comprising the net
     investment  in direct  finance  leases for  adjustments  made to  estimated
     residual values.

(3)  Represents charge-offs against allowance and recoveries.



                 See accompanying independent auditors' report.

                                      -31-

<PAGE>



Item 9.  Disagreements on Accounting and Financial Disclosure
         ----------------------------------------------------

None


Item 10. Directors and Executive Officers of the Partnership
         ---------------------------------------------------

The Partnership  has no officers and directors.  The general partner manages and
controls  the  affairs of the  Partnership  and has general  responsibility  and
authority in all matters  affecting its  business.  Information  concerning  the
directors and executive officers of the general partner is as follows:

                         CAI Partners Management Company


            Name                         Positions Held
            ----                         --------------

     John F. Olmstead           President and Director

     Dennis J. Lacey            Senior Vice President and Director

     John E. Christensen        Senior  Vice President,  Principal Financial and
                                Chief Administrative Officer and Director

     Anthony M. DiPaolo         Senior Vice  President, Assistant  Secretary and
                                Director

     Daniel J. Waller           Vice President and Director

     Richard H. Abernethy       Vice President and Director

     John A. Reed               Vice President, Assistant Secretary and Director

     Robert A. Golden           Vice President and Director

     David J. Anderson          Chief Accounting Officer and Secretary


JOHN F. OLMSTEAD, age 52, joined CAII as Vice President in December,  1988, is a
Senior  Vice  President  of CAI and CAII  and is head of  CAII's  Public  Equity
division.  He has served as Chairman of the Board for Neo-kam Industries,  Inc.,
Matchless Metal Polish Company, Inc. and ACL, Inc. for more than 5 years. He has
over 20 years of experience  holding various  positions of responsibility in the
leasing  industry.  Mr. Olmstead holds a Bachelor of Science degree from Indiana
University and a Juris Doctorate degree from Indiana Law School.


                                      -32-

<PAGE>



Item 10. Directors and Executive Officers of the Partnership, continued
         ---------------------------------------------------

DENNIS J. LACEY,  age 43, joined CAI as Vice President,  Operations,  in October
1989.  Mr. Lacey was  appointed  Treasurer on January 1, 1991,  Chief  Financial
Officer on April 11, 1991, a director on July 19, 1991,  and President and Chief
Executive  Officer on September 6, 1991.  Prior to joining CAI, Mr. Lacey was an
audit partner for the public accounting firm of Coopers & Lybrand.  Mr. Lacey is
also a director and senior officer of CAII, CAI Equipment  Leasing I Corp.,  CAI
Equipment  Leasing II Corp.,  CAI  Equipment  Leasing III Corp.,  CAI  Equipment
Leasing IV Corp., CAI Equipment  Leasing V Corp., CAI Leasing Canada,  Ltd., CAI
Partners   Management   Company,   CAI   Securities   Corporation,   CAI   Lease
Securitization I Corp. and Capital Equipment Corporation  (collectively referred
to  herein as the "CAI  Affiliates"),  all of which  are  first- or  second-tier
wholly-owned subsidiaries of CAI.

JOHN E.  CHRISTENSEN,  age 49,  joined CAII as Vice  President  and Treasurer in
November  1988.  He now  serves  as Senior  Vice  President,  Finance  and Chief
Financial  Officer  of CAI and CAII.  Mr.  Christensen  previously  held  senior
management  positions at Maxicare Health Plans,  Inc.,  Global Marine,  Inc. and
Santa Fe International,  Inc. Mr.  Christensen  obtained his MBA in Finance from
the  University of Michigan and his Bachelor of Arts degree from Michigan  State
University.

ANTHONY M. DIPAOLO,  age 37, joined CAII in July 1990 as an Assistant  Treasurer
and is currently Senior Vice  President-Business  Development.  He has also held
the  positions  of  Senior  Vice   President-Controller   and   Assistant   Vice
President-Credit  Administration for the Company. Mr. DiPaolo has held financial
management  positions as Chief Financial Officer for Mile High Kennel Club, Inc.
from 1988 to 1990 and was Vice President/Controller for VICORP Restaurants, Inc.
from 1986  through  1988.  Mr.  DiPaolo  holds a Bachelor  of Science  degree in
Accounting from the University of Denver.

DANIEL J.  WALLER,  age 38,  joined CAII in July 1990,  as a manager of Investor
Relations.  Mr.  Waller  assumed  the  responsibility  for the asset  management
department a short time later, and is currently Vice President,  Capital Markets
Group.  Prior to joining  CAII,  Mr.  Waller was an audit manager with Coopers &
Lybrand for over three years and gained  considerable  experience in the leasing
industry.  While at  Coopers &  Lybrand,  Mr.  Waller  held  positions  with the
International Accounting and Auditing Committee as well as the national Auditing
Directorate.  Mr. Waller holds a Bachelor of Arts degree in accounting  from the
University of Northern Iowa.

RICHARD H. ABERNETHY,  age 42, joined CAII in April 1992 as Equipment  Valuation
Manager  and  currently  serves  as Vice  President  of  Asset  Management.  Mr.
Abernethy has thirteen years experience in the leasing industry, including prior
positions with Barclays  Leasing Inc.,  from November 1986 to February 1992, and
Budd Leasing  Corporation,  from January 1981 to November  1986.  Mr.  Abernethy
holds a Bachelor of Arts in Business Administration from the University of North
Carolina at Charlotte.

JOHN A. REED,  age 41,  joined  CAII in  January  1990 as the Tax  Director  and
Assistant  Secretary.  Mr. Reed is currently the Vice President of Marketing and
is  responsible  for all  lease  documentation  and  management  of  transaction
structuring and processing.  Prior to joining the Marketing Department, Mr. Reed
was Vice  President  of Credit and Debt  Administration.  He spent seven and one
half years with Coopers & Lybrand in the Tax Department and served on CAII's tax
consulting engagement during that time. Mr. Reed holds a Bachelor of Arts degree
in Social  Sciences and Masters of Science in  Accounting,  from Colorado  State
University.


                                      -33-

<PAGE>



Item 10. Directors and Executive Officers of the Partnership, continued
         ---------------------------------------------------

ROBERT A. GOLDEN,  age 51, is Vice  President and the National  Sales Manager of
the Company.  Mr. Golden joined the Company in 1993 as a Branch Manager.  He was
promoted  to his  current  position  in  September  1994.  Prior to joining  the
Company, he was an Executive Vice President with the U.S. Funds Group, President
of BoCon Capital  Group and Vice  President  with  Ellco/GE  Capital for fifteen
years. Mr. Golden is an officer, but not a director, of CAII.

DAVID J.  ANDERSON,  age 43,  joined CAII in August 1990 as Manager of Billing &
Collections and currently  serves as Assistant  Vice-President/Chief  Accounting
Officer. Prior to joining CAII, Mr. Anderson was Vice-  President/Controller for
Systems  Marketing,  Inc.,  from 1985 to 1990,  and  previous to that working in
several senior staff  positions at the Los Alamos  National  Laboratory and with
Ernst & Whinney. Mr. Anderson holds a Bachelor of Business Administration degree
in Accounting from the University of Wisconsin.


Item 11. Executive Compensation
         ----------------------

No compensation was paid by the Partnership to the officers and directors of the
general partner. See Item 13 of this Report,  "Certain Relationships and Related
Transactions",  for a  description  of the  compensation  and  fees  paid to the
general partner and its affiliates by the Partnership during 1996.


Item 12. Security Ownership of Certain Beneficial Owners and Management
         --------------------------------------------------------------

         (a)   As of   he 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


                                      -34-

<PAGE>



Item 12. Security  Ownership  of  Certain  Beneficial  Owners  and   Management,
         -----------------------------------------------------------------------
         continued
    
            Class B Limited Partner
            -----------------------

            Capital Associates International, Inc.
            7175 West Jefferson Avenue
            Suite 4000
            Lakewood, Colorado 80235

         (b)   No  directors  or officers of the general  partner or the Class B
               limited  partner  owned any Class A limited  partner  units as of
               December 31, 1996.

         (c)   The  Partnership knows of no arrangements, the operation of which
               may at a  subsequent  date  result in a change in  control of the
               Partnership.

Item 13. Certain Relationships and Related Transactions
         ----------------------------------------------
The general partner and its affiliates  receive  certain types of  compensation,
fees  or  other   distributions   in  connection  with  the  operations  of  the
Partnership.

Following is a summary of the amounts paid or payable to the general partner and
its affiliates during 1996:

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 $702,219 were earned by the general partner during 1996.

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 $101,145 during
1996.

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 $544,780 for 1996. Distributions
paid and net income  allocated to the Class B limited partner  totaled  $600,923
and $119,075, respectively, for 1996.


                                      -35-

<PAGE>




Item 13. Certain Relationships and Related Transactions, continued
         ----------------------------------------------

During 1996, the Partnership acquired the equipment described below from CAII:

<TABLE>
<CAPTION>


                                                                                              Cost to
                                                                                            Partnership
                                                                                             Including
   Date                                                                        Cost to      Acquisition         Debt        Annual
Purchased           Lessee            Term      Equipment Description            CAII           Fees*          Assumed      Rents
---------           ------            ----      ---------------------          -------      -----------        -------      ------

<C>       <C>                         <C>      <C>                        <C>              <C>                 <C>      <C>
02/06/96   Consolidated Diesel Co      36       Copier                     $    11,945      $    11,945         $ 0      $   4,213
03/01/96   Consolidated Diesel Co      36       Boring machine                  28,500           28,500           0          8,587
04/26/96   Alliant Techsystems, Inc.   36       Computer equipment             210,160          210,160           0         62,217
05/01/96   Wagner College              24       Computer equipment              68,722           68,722           0         29,300
06/01/96   Henry General Hospital      60       Medical equipment              112,000          112,000           0         56,244
07/01/96   Wagner College              24       Computer equipment              76,854           76,854           0         32,767
07/16/96   Wagner College              24       Computer equipment              33,604           33,604           0         24,509
08/22/96   Wagner College              24       Computer equipment              67,527           67,527           0         29,204
09/18/96   Sarif                       36       Manufacturing                  610,000          610,000           0        211,987
10/23/96   Wagner College              24       Computer equipment              47,257           47,257           0         40,703
                                                                           -----------      -----------         ---      ---------

                                                                           $ 1,266,569      $ 1,266,569         $ 0      $ 499,731
                                                                           ===========      ===========         ===      =========

</TABLE>


*    The lower of (a) the price for the  equipment  plus all costs  incurred  in
     maintaining the equipment (including,  without limitation,  the reasonable,
     necessary and actual  expenses,  as determined in accordance with generally
     accepted accounting principles, of storage, carrying, warehousing,  repair,
     marketing,  financing  and  taxes)  from the date of  acquisition  thereof,
     provided  that any proceeds  accrued from the first basic rent date thereof
     and retained by the general  partner or an  affiliate  thereof from leasing
     the equipment or any other  arrangement with respect to the equipment shall
     be deemed a credit towards the purchase price paid by the  Partnership,  or
     (b)  the  fair  market  value  of  such  equipment,  as  determined  by  an
     independent   nationally  recognized  appraiser  selected  by  the  general
     partner.


Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
         ---------------------------------------------------------------

        (a)
        and
        (d)    The following documents are filed as part of this Report:

               1.  Financial Statements

               2.  Financial Statement Schedule

        (b)    The Partnership  did not file any  reports on Form 8-K during the
               three months ended December 31, 1996.




                                      -36-

<PAGE>



Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
         ---------------------------------------------------------------

         (c)   Exhibits required to be filed.

               Exhibit                      Exhibit
               Number                        Name
               -------                      -------

                4.1*      Capital  Preferred  Yield  Fun d  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.


                                      -37-


<PAGE>


Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  Partnership  has duly  caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.

Dated:   March 10, 1997              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 10, 1997.

Signature                                Title
---------                                -----

/s/John F. Olmstead
------------------------
John F. Olmstead                President and Director


/s/Dennis J. Lacey
------------------------
Dennis J. Lacey                 Senior Vice President and Director


/s/John E. Christensen
------------------------
John E. Christensen             Senior Vice  President, Principal  Financial and
                                Chief Administrative Officer and Director

/s/Anthony M. DiPaolo
------------------------
Anthony M. DiPaolo              Senior  Vice President, Assistant  Secretary and
                                Director

/s/Daniel J. Waller
------------------------
Daniel J. Waller                Vice President and Director


/s/Richard H. Abernethy
------------------------
Richard H. Abernethy            Vice President and Director


/s/John A. Reed
------------------------
John A. Reed                    Vice President, Assistant Secretary and Director


/s/Robert A. Golden
------------------------
Robert A. Golden                Vice President and Director


/s/David J. Anderson
------------------------
David J. Anderson               Chief Accounting Officer and Secretary

                                      -38-