SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K/A

(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, 1997

[ ] 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 35

                               Page 1 of 36 Pages



<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  a  wholly  owned
subsidiary of Capital  Associates,  Inc. ("CAI"),  is the general partner of the
Partnership.

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

Since its formation, the Partnership has acquired capital of various types under
lease to third  parties on  short-term  leases (five years or less).  All of the
capital  was  purchased  by CAII  directly  from  manufacturers  or  from  other
independent  third parties and sold to the  Partnership.  The capital  generally
consists of transportation and industrial equipment,  computer equipment, office
furniture and medical equipment, among others (the "equipment"). The Partnership
entered its  liquidation  period,  as defined in the Partnership  Agreement,  in
April 1996. Accordingly, it is not anticipated that the Partnership will acquire
any material amount of equipment in future periods.

The Partnership may assign the rentals from leases to financial institutions, or
acquire  leases  subject  to such  assignments,  at  fixed  interest  rates on a
non-recourse  basis. The financial  institution has a first lien on the assigned
rents  and the  underlying  leased  equipment,  with  no  recourse  against  the
Partnership or any other Partnership assets in the event of default by a lessee.
Cash  proceeds  from such  financings,  or the  assumption  of such  assignments
incurred in  connection  with the  acquisition  of leases,  are  recorded on the
balance sheet as discounted lease rentals. As lessees make payments to financial
institutions, leasing revenue and interest expense are recorded.

Approximately  63% of the  Partnership's  equipment  under  lease was  leased to
investment  grade lessees as of December 31, 1997.  Pursuant to the  Partnership
Agreement,  an investment  grade lessee is a company (1) with a credit rating of
not less than Baa as determined by Moody's Investor Services,  Inc.; or (2) that
has a comparable  credit rating as determined by other recognized  credit rating
services;  or, (3) if the lessee is not rated,  then a lessee  whom the  general
partner  believes would have received a rating of Baa, or better,  if the lessee
would have been rated. The Partnership  limits its credit risk through selective
use of non-recourse debt financing of future lease rentals, as described above.

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

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


                                       -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 as well as future equipment
values and on-going lessee  creditworthiness.  Because leasing is an alternative
to financing  equipment  purchases with debt,  lease rates tend to rise and fall
with interest rates (although  lease rate movements  generally lag interest rate
changes in the capital markets).

The Partnership has no employees.  The officers,  directors and employees of the
general  partner  and  its  affiliates   perform   services  on  behalf  of  the
Partnership. The general partner is entitled to receive certain fees and expense
reimbursements in connection with the performance of these services. See Item 10
of this Report,  "Directors and Executive  Officers of the Partnership" and Item
13 of this Report, "Certain Relationships and Related Transactions".

The  Partnership  competes  in  the  leasing  marketplace  as a  lessor  with  a
significant number of other companies including equipment manufacturers, leasing
companies and financial  institutions.  The  Partnership  is in its  liquidation
period,  as defined in the  Partnership  Agreement;  therefore,  the Partnership
currently  competes  mainly on the basis of the expertise of its general partner
in  remarketing  equipment.  Although  the  Partnership  does not  account for a
significant  percentage of the leasing market,  the general partner believes the
Partnership's  remarketing  strategies  enable it to compete  effectively in the
remarketing markets.

The  Partnership  leases  equipment to a significant  number of lessees.  No one
lessee and its  affiliates  accounted  for more than 10% of total revenue of the
Partnership during 1997.

The  Partnership  is required to dissolve  and  distribute  all of its assets no
later than December 31, 2010. However,  the general partner anticipates that all
equipment will be sold and the Partnership will be liquidated during 1998.


Item 2.   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.






                                       -3-

<PAGE>



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

No matters were submitted to a vote of the limited  partners of the Partnership,
through the  solicitation of proxies or otherwise,  during the fourth quarter of
1997.


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

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

(b)       As of December 31, 1997 there were 3,515 Class A limited partners.

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

          During 1997, the Partnership made twelve (12) monthly distributions (a
          portion of which  constituted  a return of capital) to Class A limited
          partners as follows:


                                                Distributions Per
                                                 $250 Class A 
                                                Limited Partner
                For the           Payment       Unit (computed on     Total
              Month Ended       Made During     weighted average)  Distributions
          ------------------   -------------    -----------------  -------------

          December 31, 1996    January 1997         $  3.98         $ 1,000,571
          January 31, 1997     February 1997           2.78             699,833
          February 28, 1997    March 1997              2.38             599,857
          March 31, 1997       April 1997              3.18             800,310
          April 30, 1997       May 1997                3.18             799,707
          May 31, 1997         June 1997               2.82             709,740
          June 30, 1997        July 1997               2.82             710,552
          July 31, 1997        August 1997             2.82             709,740
          August 31, 1997      September 1997          1.19             300,018
          September 30, 1997   October 1997            1.19             300,241
          October 31, 1997     November 1997           1.19             299,928
          November 30, 1997    December 1997           1.99             499,881
                                                    -------         -----------
                                                    $ 29.52         $ 7,430,378
                                                    =======         ===========




                                       -4-

<PAGE>



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

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

          Distributions  may be characterized  for tax,  accounting and economic
          purposes  as a return of  capital,  a return on capital  or both.  The
          portion of each cash  distribution by a partnership  which exceeds its
          net income for the fiscal period may be deemed a return of capital for
          accounting purposes.  However, the total percentage of a partnership's
          return  on  capital  over its life can only be  determined  after  all
          residual cash flows (which  include  proceeds from the  re-leasing and
          sales of  equipment  after  initial  lease  terms  expire)  have  been
          realized at the termination of the  Partnership.  Total  distributions
          declared  to  Class A  limited  partners  were  $59,972,409  from  the
          inception of the Partnership through December 31, 1997.

          The  distribution  for the month ended  December  31,  1997,  totaling
          $900,191,  was paid to the Class A  limited  partners  during  January
          1998. Distributions to the general partner and Class B limited partner
          during  1998  are  discussed  in  Item  13 of  this  Report,  "Certain
          Relationships and Related Transactions".

          The general  partners  currently  anticipate that the Partnership will
          generate cash flow from  operations  and  equipment  sales during 1998
          which, when added to cash and cash equivalents on hand, should provide
          sufficient  cash  to  enable  the  Partnership  to  meet  its  current
          operating requirements.

          The  Partnership  is in its  liquidation  period  (as  defined  in the
          Partnership Agreement) and distributions during the liquidation period
          will  be  based  upon  cash   availability   and  will  vary  and  all
          distributions  are  expected  to be a return of capital  for  economic
          purposes.

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


                                                Distributions Per
                                                 $250 Class A 
                                                Limited Partner
                For the           Payment       Unit (computed on     Total
              Month Ended       Made During     weighted average)  Distributions
          ------------------   -------------    -----------------  -------------

          December 31, 1995    January 1996          $  2.76       $    700,127
          January 31, 1996     February 1996            2.75            696,672
          February 28, 1996    March 1996               2.58            651,654
          March 31, 1996       April 1996               2.75            696,166
          April 30, 1996       May 1996                 2.66            673,549
          May 31, 1996         June 1996                2.75            695,500
          June 30, 1996        July 1996                2.66            673,485
          July 31, 1996        August 1996              4.25          1,073,756
          August 31, 1996      September 1996           4.75          1,199,715
          September 30, 1996   October 1996             4.76          1,200,710
          October 31, 1996     November 1996            4.75          1,199,715
          November 30, 1996    December 1996            4.75          1,199,715
                                                     -------       ------------
                                                     $ 42.17       $ 10,660,764
                                                     =======       ============

                                       -5-

<PAGE>



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

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

          The following represents  annual cumulative distributions  per Class A
          limited  partner  unit,  as  described  in  Footnote  1  to  Notes  to
          Financial Statements.

                                                 Distributions per
                                $ Per             Class A Limited
                               Class A             Partner Unit
           Payment          Limited Partner        (computed on
          Made During        Unit Invested       weighted average)         % (1)
          -----------       ---------------      -----------------       -------

            1990               $ 250             $  27.50                  12%
            1991                                    30.00                  12%
            1992                                    30.00                  12%
            1993                                    32.10                  13%
            1994                                    32.46                  13%
            1995                                    32.46                  13%
            1996                                    42.17                  17%
            1997                                    29.52                  12%
                                                 --------
                                                 $ 256.21
                                                 ========

          (1)  Cumulative distributions, as  described in Footnote 1 to Notes to
               Consolidated Financial Statements, began February 1990.

Item 6.   Selected Financial Data
          -----------------------

The  following  selected  financial  data  (*as  restated  - see  Note  1 to the
Partnership's financial statements) relates to the years ended December 31, 1993
through 1997. The data should be read in conjunction with Item 7,  "Management's
Discussion and Analysis of Financial  Condition and Results of  Operations"  and
the financial statements and notes thereto appearing elsewhere herein.

<TABLE>
<CAPTION>


                                                       1997           1996             1995             1994             1993
                                                       ----           ----             ----             ----             ----

<S>                                               <C>            <C>              <C>              <C>              <C>         
Total revenue                                      $ 7,673,132*   $ 11,319,825     $ 15,975,029     $ 20,833,137     $ 21,098,376

Net income                                           2,056,120*      2,239,112        2,943,220       2,793,164           556,417

Net income per weighted average
  Class A limited partner unit outstanding                6.34*           6.23             9.24            8.67              0.51

Total assets                                        12,091,018      22,981,183       37,516,977      53,791,269        73,668,153

Discounted lease rentals                                 7,835       4,363,104        9,146,266      20,324,037        33,425,426

Financed operating lease rentals                     1,123,270       1,329,087        1,594,646               -                 -

Distributions declared to partners                   8,281,136      12,106,228        9,276,551       9,286,099         9,256,647

Distributions declared to Class A limited
  partners per monthly weighted average
  Class A limited partner unit outstanding               29.14           42.17            32.46           32.46             32.10

</TABLE>

                                       -6-

<PAGE>



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

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

Presented below are schedules  (prepared  solely to facilitate the discussion of
results of  operations  that  follows)  showing  condensed  statements of income
categories and analyses of changes in those  condensed  categories  derived from
the  Statements  of  Income  (*as  restated  - see  Note 1 to the  Partnership's
financial statements).

<TABLE>
<CAPTION>

                                                    Condensed                                     Condense
                                               Statements of Income       The effect on         Statements of         The effect of
                                                  for the years             net income      Income for the years        net income
                                                ended December 31,          of changes        ended December 31,        of changes
                                             --------------------------      between      -------------------------      between
                                                1997           1996           years           1996         1995           years
                                             -----------    -----------   -------------   ------------ ------------   -------------

<S>                                         <C>            <C>            <C>            <C>           <C>            <C>         
Leasing margin                               $ 2,716,704    $ 3,064,878    $ (348,174)    $ 3,064,878  $  3,776,911    $ (712,033)
Equipment sales margin                           871,137*     1,350,258      (479,121)     1,350,258       976,149       374,109
Interest income                                   75,168        188,628      (113,460)        188,628       144,913        43,715
Provision for losses                            (740,000)    (1,130,000)      390,000      (1,130,000)     (605,000)     (525,000)
Management fees paid to general partner         (425,860)      (702,219)      276,359        (702,219)   (1,035,316)      333,097
Direct services from general partner            (136,955)      (101,145)      (35,810)       (101,145)      (90,270)      (10,875)
General and administrative                      (304,074)      (431,288)      127,214        (431,288)     (224,167)     (207,121)
                                             -----------    -----------    ----------     -----------  ------------    ----------
Net income                                   $ 2,056,120*   $ 2,239,112    $ (182,992)    $ 2,239,112  $  2,943,220    $ (704,108)
                                             ===========    ===========    ==========     ===========  ============    ==========

</TABLE>

The  Partnership  is in its  liquidation  period as defined  in the  Partnership
Agreement  and,  as  expected,  the  Partnership  is not  purchasing  additional
equipment,  initial  leases  are  expiring  and the  amount of  equipment  being
remarketed (i.e., re-leased,  renewed, or sold) will increase. As a result, both
the size of the  Partnership's  leasing  portfolio  and the  amount  of  leasing
revenue are declining.

LEASING MARGIN

Leasing margin consists of the following:

                                               Years ended December 31,
                                       ----------------------------------------
                                            1997          1996          1995
                                            ----          ----          ----

Operating lease rentals                $  5,678,596  $  8,584,425  $ 13,253,954
Direct finance lease income               1,048,231     1,196,514     1,600,013
Depreciation and amortization            (3,760,718)   (6,124,604)   (9,944,160)
Interest on discounted lease rentals       (193,516)     (501,872)   (1,132,896)
Interest on financed operating
  lease receivables                         (55,889)      (89,585)            -
                                       ------------  ------------  ------------
  Leasing margin                       $  2,716,704  $  3,064,878  $  3,776,911
                                       ============  ============  ============

  Leasing margin ratio                           40%           31%           25%
                                                 ==            ==            ==

The  components  of leasing  margin have  declined  and are  expected to decline
further due to portfolio run-off.  Leasing margin ratio increased  primarily due
to (i) remarketing  activities,  and (ii) because a portion of the Partnership's
portfolio   consists  of  operating  leases  financed  with   non-recourse  debt
(including both discounted lease rentals and financed  operating lease rentals).
Leasing  margin and the related  leasing  margin  ratio for an  operating  lease
financed  with  non-recourse  debt  increase  during the term of the lease since
rents and  depreciation  are typically fixed while interest  expense declines as
the related non-recourse debt is repaid.

                                       -7-

<PAGE>



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

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

LEASING MARGIN, continued

The  ultimate   profitability  of  the  Partnership's  leasing  transactions  is
dependent, in part, on interest rates at the time the leases are originated,  as
well as future  equipment values and on-going lessee  creditworthiness.  Because
leasing is an alternative  to financing  equipment  purchases  with debt,  lease
rates tend to rise and fall with interest rates  (although  lease rate movements
generally lag interest rate changes in the capital markets).

EQUIPMENT SALES MARGIN

Equipment sales margin (*as restated - see Note 1 to the Partnership's financial
statements) consists of the following:

                                         Years ended December 31,
                              -------------------------------------------------
                                    1997            1996               1995
                                    ----            ----               ----

Equipment sales revenue       $  11,670,273*    $ 4,868,827       $  3,868,324
Cost of equipment sales         (10,799,136)     (3,518,569)        (2,892,175)
                              -------------     -----------       ------------
Equipment sales margin        $     871,137*    $ 1,350,258       $    976,149
                              =============     ===========       ============

The Partnership is in its liquidation period.  During the liquidation period, as
initial leases terminate,  the equipment is being remarketed (i.e., re-leased or
sold to either the  original  lessee or a third  party)  and,  accordingly,  the
timing and amount of equipment sales cannot be projected accurately.

INTEREST INCOME

Interest  income  decreased  in 1997  compared to 1996 due to a decrease in cash
available for  investment as the  Partnership is in its  liquidation  period and
therefore, distributing excess cash to the partners.

Interest  income  increased in 1996  compared to 1995 due to an increase in cash
available for investment as well as an increase in interest rates.

PROVISION FOR LOSSES

The  remarketing  of  equipment  for an amount  greater  than its book  value is
reported as equipment  sales margin (if the equipment is sold) or leasing margin
(if the equipment is re-leased). The realization of less than the carrying value
of equipment (which is typically not known until  remarketing  subsequent to the
initial lease termination has occurred) is recorded as provision for losses.

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

                                       -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

The provision for losses recorded during December 31, 1997 was primarily related
to  lessees  returning  equipment  to  the  Partnership.   The  Partnership  had
previously  expected to realize the  carrying  value of this  equipment  through
lease  renewals  and  proceeds  from the sale of the  equipment  to the original
lessees.  The fair  market  value of the  equipment  re-leased  or sold to third
parties was less than anticipated.

The  provision  for  losses  recorded  during  1996  primarily  related  to  the
following:

*    Certain  equipment was returned to the  Partnership.  The  Partnership  had
     previously expected to realize the carrying value of this equipment through
     lease renewals and proceeds from the sale of this equipment to the original
     lessees.  The fair market value of the equipment re-leased or sold to third
     parties was less than anticipated as described below:

     -    $150,000  related to a lessee  returning an  aircraft, with a carrying
          value of $1,250,000, to the Partnership.
     -    $130,000  related   to   a   lessee    experiencing  severe  financial
          difficulties.  The lessee  notified the  Partnership that  it would be
          returning the equipment currently under lease.
     -    $420,000 related  to  lessees  returning  modular buildings,  computer
          equipment,  a   telephone  system  and   hospital   equipment  to  the
          Partnership.
     -    $110,000  related to the sale of  equipment having a lower fair market
          value than originally anticipated.

*    $320,000 related to bankrupt lessees.

The  provision  for losses  recorded  during 1995 was  primarily  related to the
following:

     -   $370,000 deficiency resulting from a lessee's default on a note.
     -   $125,000 related  to  a  lessee  returning  medical  equipment  to  the
         Partnership.
     -   $110,000 due to a settlement with a bankrupt lessee.


MANAGEMENT FEES PAID TO GENERAL PARTNER

The general partner earns management fees as compensation for services performed
in connection with managing the  Partnership's  equipment equal to the lesser of
(a) 5% of gross rentals received (limited to 2% of gross rentals received in the
case of full payout leases) or (b) the fee which the general partner  reasonably
believes to be competitive  with that which would be charged by a  non-affiliate
for rendering comparable services as permitted under the Partnership  Agreement.
Management fees decreased in 1996 and 1997 due to portfolio  runoff resulting in
lower gross rentals received by the Partnership.



                                       -9-

<PAGE>



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

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

DIRECT SERVICES FROM GENERAL PARTNER

The general partner and its affiliates provide  accounting,  investor relations,
billing,  collecting, asset management, and other administrative services to the
Partnership.  The Partnership  reimburses the general partner for these services
performed  on its  behalf  as  permitted  under  the  terms  of the  Partnership
Agreement.  Direct services from general partner increased in 1997 primarily due
to activities associated with liquidating the Partnership's assets.

General and administrative  expenses decreased in 1997 compared to 1996. General
and administrative  expenses increased in 1996 compared to 1995 primarily due to
(i) $104,027 reimbursed to the general partner during the second quarter of 1997
for insurance costs related to prior years and (ii) storage costs for warehoused
inventory.

Liquidity and Capital Resources
-------------------------------

The Partnership funds its operating activities principally with cash from rents,
non-recourse debt, interest income and sales of off-lease  equipment.  Available
cash and cash reserves of the Partnership are invested in interest  bearing cash
accounts and short-term U.S. Government  securities pending distributions to the
partners.

During  1997,  1996 and 1995,  the  Partnership  declared  distributions  to the
partners of $8,281,136,  $12,106,228 and $9,276,551,  respectively. A portion of
such  distributions  constituted  a return of capital for  accounting  purposes.
Distributions may be characterized for tax,  accounting and economic purposes as
a return of  capital,  a return on  capital  or both.  The  portion of each cash
distribution by a Partnership which exceeds its net income for the fiscal period
may  be  deemed  a  return  of  capital.  However,  the  total  percentage  of a
partnership's  return on capital over its life can only be determined  after all
residual  cash flows (which  include  proceeds  from the  releasing and sales of
equipment   after  initial  lease  terms  expire)  have  been  realized  at  the
termination of the Partnership .

The general  partners  anticipate that the  Partnership  will generate cash flow
from  operations and equipment  sales during 1998 which,  when added to cash and
cash  equivalents  on  hand,  should  provide  sufficient  cash  to  enable  the
Partnership to meet its current operating requirements.

The  Partnership  is in its  liquidation  period (as defined in the  Partnership
Agreement) and  distributions  during the liquidation  period will be based upon
cash  availability  and will vary and all  distributions  are  expected  bo be a
return of capital for economic purposes.

The  Class  B  limited  partner   distributions  of  cash  from  operations  are
subordinated to the Class A limited  partners  receiving  distributions  of cash
from  operations,  as  scheduled  in  the  Partnership  Agreement  (i.e.,  13%).
Therefore,  because of the anticipated  decrease in distributions to the Class A
limited  partners,  CAII,  the sole Class B limited  partner,  ceased  receiving
distributions of cash from operations.

                                      -10-

<PAGE>



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

             Index to Financial Statements and
             Financial Statement Schedule

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

             Independent Auditors' Report                                 12

             Balance Sheets as of December 31, 1997 and 1996              13

             Statements of Income for the years ended
               December 31, 1997, 1996 and 1995                           14

             Statements of Partners' Capital for the years
               ended December 31, 1997, 1996 and 1995                     15

             Statements of Cash Flows for the years
               ended December 31, 1997, 1996 and 1995                     16

             Notes to Financial Statements                               17-28


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

             Independent Auditors' Report                                 29

             Schedule II - Valuation and Qualifying Accounts              30


                                      -11-

<PAGE>



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




THE PARTNERS
CAPITAL PREFERRED YIELD FUND,
    A CALIFORNIA LIMITED PARTNERSHIP

We have audited the accompanying balance sheets of Capital Preferred Yield Fund,
a California  limited  partnership,  as of December  31, 1997 and 1996,  and the
related statements of income,  partners' capital, and cash flows for each of the
years  in the  three-year  period  ended  December  31,  1997.  These  financial
statements  are  the  responsibility  of  the  Partnership's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

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

As discussed in Note 1, the Partnership is in the liquidation stage, whereby all
assets are expected to be liquidated during 1998 and all cash distributed to the
partners, after satisfaction of liabilities.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the financial position of Capital Preferred Yield Fund as
of December 31, 1997 and 1996,  and the results of its  operations  and its cash
flows for each of the years in the three-year period ended December 31, 1997, in
conformity with generally accepted accounting principles.

                                       /s/KPMG Peat Marwick LLP
                                       ------------------------
                                       KPMG PEAT MARWICK LLP


Denver, Colorado
February 6, 1998

                                      -12-

<PAGE>



                          CAPITAL PREFERRED YIELD FUND
                        A California Limited Partnership

                                 BALANCE SHEETS
                           December 31, 1997 and 1996

                                     ASSETS

                                                      RESTATED
                                                        1997             1996
                                                        ----             ----

Cash and cash equivalents                          $  2,839,510     $  2,672,112
Accounts receivable                                   7,059,347          390,607
Equipment held for sale or re-lease                     887,865        1,081,841
Net investment in direct finance leases                 229,696        5,316,787
Leased equipment, net                                 1,074,600       13,519,836
                                                   ------------     ------------

     Total assets                                  $ 12,091,018     $ 22,981,183
                                                   ============     ============

                        LIABILITIES AND PARTNERS' CAPITAL

Liabilities:
  Payables to affiliate                            $     44,916     $     65,370
  Accounts payable and accrued liabilities              905,979          821,791
  Rents received in advance                             162,931          230,501
  Distributions payable to partners                   1,241,334        1,317,409
  Discounted lease rentals                                7,835        4,363,104
  Financed operating lease rentals                    1,123,270        1,329,087
                                                   ------------     ------------

     Total liabilities                                3,486,265        8,127,262
                                                   ------------     ------------

Partners' capital:
  General partner                                             -                -
  Limited partners:
    Class A 360,000 units authorized;
    251,388 and 252,047 units issued
    and outstanding in 1997 and 1996,
    respectively                                      6,439,272       12,199,688
      Class B                                         2,165,481        2,654,233
                                                   ------------      -----------

     Total partners' capital                          8,604,753       14,853,921
                                                   ------------      -----------

       Total liabilities and partners' capital     $ 12,091,018       22,981,183
                                                   ============      ===========

                 See accompanying notes to financial statements.

                                      -13-

<PAGE>



                          CAPITAL PREFERRED YIELD FUND
                        A California Limited Partnership

                              STATEMENTS OF INCOME
                  Years ended December 31, 1997, 1996 and 1995

<TABLE>
<CAPTION>

                                                        RESTATED
                                                          1997          1996             1995
                                                          ----          ----             ----

<S>                                                  <C>           <C>             <C>         
REVENUE:
  Operating lease rentals                             $ 5,678,596   $ 8,584,425     $ 13,253,954
  Direct finance lease income                           1,048,231     1,196,514        1,600,013
  Equipment sales margin                                  871,137     1,350,258          976,149
  Interest income                                          75,168       188,628          144,913
                                                      -----------   -----------     ------------

     Total revenue                                      7,673,132    11,319,825       15,975,029
                                                      -----------   -----------     ------------

EXPENSES:
  Depreciation and amortization                         3,760,718     6,124,604        9,944,160
  Interest on discounted lease rentals                    193,516       501,872        1,132,896
  Interest on financed operating lease receivables         55,889        89,585               -
  Management fees paid to general partner                 425,860       702,219        1,035,316
  Provision for losses                                    740,000     1,130,000          605,000
  Direct services from general partner                    136,955       101,145           90,270
  General and administrative                              304,074       431,288          224,167
                                                      -----------   -----------     ------------

     Total expenses                                     5,617,012     9,080,713       13,031,809
                                                      -----------   -----------     ------------

NET INCOME                                            $ 2,056,120   $ 2,239,112     $  2,943,220
                                                      ===========   ===========     ============

NET INCOME ALLOCATED:
  To the general partner                              $   341,070   $   544,780     $    417,444
  To the Class A limited partners                       1,594,532     1,575,257        2,348,293
  To the Class B limited partner                          120,518       119,075          177,483
                                                      -----------   -----------     ------------

                                                      $ 2,056,120   $ 2,239,112     $  2,943,220
                                                      ===========   ===========     ============
Net income per weighted average Class A
  limited partner unit outstanding                    $      6.34   $      6.23     $       9.24
                                                      ===========   ===========     ============

Weighted average Class A limited
  partner units outstanding                               251,556       252,689          254,130
                                                      ===========   ===========     ============

</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, 1997, 1996 and 1995

<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, 1995                 $        -       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)            -      (10,960,525)       (600,923)     (12,106,228)
                                                   ----------       -------    -------------     -----------     ------------

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

Redemptions                                                 -          (659)         (24,152)              -          (24,152)
Net income (RESTATED)                                 341,070             -        1,594,532         120,518        2,056,120
Distributions declared to partners                   (341,070)            -       (7,330,796)       (609,270)      (8,281,136)
                                                   ----------       -------    -------------     -----------     ------------

Partners' capital,
   December 31, 1997 (RESTATED                     $        -       251,388    $   6,439,272     $ 2,165,481     $  8,604,753
                                                   ==========       =======    =============     ===========     ============

</TABLE>









                 See accompanying notes to financial statements.

                                      -15-

<PAGE>



                          CAPITAL PREFERRED YIELD FUND
                        A California Limited Partnership
                            STATEMENTS OF CASH FLOWS
                  Years ended December 31, 1997, 1996 and 1995

<TABLE>
<CAPTION>


                                                                     RESTATED
                                                                       1997             1996             1995
                                                                       ----             ----             ----
<S>                                                             <C>              <C>              <C>          
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                                                     $   2,056,120    $   2,239,112    $   2,943,220
  Adjustments to reconcile net income to net
    cash provided by operating activities:
    Depreciation and amortization                                    3,760,718        6,124,604        9,944,160
    Provision for losses                                               740,000        1,130,000          605,000
    Cost of equipment sales                                         10,799,136        3,474,892        4,370,077
    Recovery of investment in direct finance leases                  2,095,063        2,955,733        5,306,706
    Changes in assets and liabilities:
      Decrease (increase) in accounts receivable                    (6,087,949)         296,759          200,772
      Increase (decrease) in payables to affiliate                     (20,454)         (55,695)          14,289
      Increase (decrease) in accounts payable
        and accrued liabilities                                         84,188          234,392         (221,315)
      Decrease in rents received in advance                            (67,570)         (29,893)         (37,747)
                                                                 -------------    -------------    -------------
Net cash provided by operating activities                           13,359,252       16,369,904       23,125,162
                                                                 -------------    -------------    -------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of equipment on operating leases from affiliate                  -       (1,142,624)      (1,038,727)
  Investment in direct finance leases, acquired from affiliate               -         (123,945)      (1,056,764)
                                                                 -------------    -------------    -------------
Net cash used in investing activities                                        -       (1,266,569)      (2,095,491)
                                                                 -------------    -------------    -------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from financing of operating lease receivables                     -               -         1,594,646
  Principal payments on discounted lease rentals                    (4,432,906)      (4,876,162)     (11,177,771)
  Principal payments on financed operating lease rentals              (377,585)        (172,559)              -
  Distributions to partners                                         (8,357,211)     (11,744,201)      (9,279,655)
  Redemptions of Class  A limited partner units                        (24,152)        (130,788)        (109,959)
                                                                 -------------    -------------    -------------
Net cash used in financing activities                              (13,191,854)     (16,923,710)     (18,972,739)
                                                                 -------------    -------------    -------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                   167,398       (1,820,375)       2,056,932
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                       2,672,112        4,492,487        2,435,555
                                                                 -------------    -------------    -------------
CASH AND CASH EQUIVALENTS AT END OF YEAR                         $   2,839,510    $   2,672,112    $   4,492,487
                                                                 =============    =============    =============

Supplemental disclosure of cash flow information:
     Interest paid on discounted lease rentals                   $     193,516    $     501,872    $   1,132,896
     Interest paid on financed operating lease receivables              55,889           89,585                -

</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  under the laws of the
       State of California  pursuant to an Agreement of Limited Partnership (the
       "Partnership  Agreement").  The Partnership was formed for the purpose of
       acquiring   and  leasing  a   diversified   portfolio   of  equipment  to
       unaffiliated third parties. The general partner of the Partnership is CAI
       Partners  Management  Company,  a  wholly  owned  subsidiary  of  Capital
       Associates International,  Inc. ("CAII"). The general partner manages the
       Partnership,   including  investment  of  funds,  purchase  and  sale  of
       equipment, lease negotiation and other administrative duties.

       The Partnership  entered its liquidation  period in April of 1996. During
       1997, the Partnership  sold a substantial  portion of its assets of which
       approximately  $6,750,000  was  included in accounts  receivable  and was
       delivered to an escrow agent on December 31, 1997 to be released, per the
       terms of the agreement, during 1998. The general partner anticipates that
       the  remaining  assets will be  liquidated  and all  liabilities  settled
       during 1998.  Any remaining  cash will be  distributed to the partners in
       accordance with the liquidation provisions in the Partnership Agreement.

       CAII is the Class B  limited  partner.  CAII  contributed  $5,538,805  of
       equipment  to the  Partnership  in  exchange  for  its  Class  B  limited
       partnership interest,  which represents 10% of the net offering proceeds.
       CAII has no remaining  obligation to contribute cash and/or  equipment to
       the Partnership.

       Restatement

       During December 1997, the Partnership  sold a substantial  portion of its
       assets. Due to a mathematical error in the calculation of sales proceeds,
       the  total  sales  proceeds   placed  in  escrow  exceeded  the  ultimate
       obligation  of the  buyer  by  approximately  $520,000,  resulting  in an
       overstatement  of equipment  sales margin for the year ended December 31,
       1997 by such amount. The accompanying 1997 financial statements have been
       restated for the correction of this error. The following table summarized
       the  restatement  impact on total partners'  capital,  net income and net
       income per weighted  average  Class A Limited  Partner Unit as of and for
       the year ended December 31, 1997:

       Total Partners' capital as previously reported       $ 9,125,143
       Effects of sales proceeds adjustment                    (520,390)
                                                            -----------
          As restated                                       $ 8,604,753
                                                            ===========

       Net income as previously reported                    $ 2,576,510
       Effect of sales proceeds adjustment                     (520,390)
                                                            -----------
       As restated                                          $ 2,056,120
                                                            ===========

       Net income per weighted average Class A
         Limited Partner Unit outstanding as
         previously reported                                   $   8.26
       Effect of sales proceeds adjustment                        (1.92)
                                                               --------
       As restated                                             $   6.34
                                                               ========

                                      -17-



<PAGE>

                          CAPITAL PREFERRED YIELD FUND
                        A California Limited Partnership

                    NOTES TO FINANCIAL STATEMENTS, continued

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

     Use of Estimates

       The  preparation  of financial  statements in conformity  with  generally
       accepted accounting  principles requires management to make estimates and
       assumptions  that affect the reported  amounts of assets and  liabilities
       and  disclosure of contingent  assets and  liabilities at the date of the
       financial  statements  and the  reported  amounts of revenue and expenses
       during the  reporting  period.  For leasing  entities,  this includes the
       estimate of residual  values,  as discussed  below.  Actual results could
       differ from those estimates.

     Partnership Cash Distributions and Allocations of Profit and Loss

       Cash Distributions
       ------------------

       During the Reinvestment Period, as defined in the Partnership  Agreement,
       cash distributions were made as follows:

         First,  the general partner and the Class A limited  partners  received
         4.5% and  95.5%,  respectively,  of  available  cash  until the Class A
         limited   partners   received   annual,    non-compounded    cumulative
         distributions  equal to 12% of their  contributed  capital  during  the
         first three years after the initial  closing date  (January,  23, 1990)
         and 13% of their contributed capital thereafter.

         Second,  the general  partner and the Class B limited  partner  receive
         4.5% and  95.5%,  respectively,  of  available  cash  until the Class B
         limited partner received annual non-compounded cumulative distributions
         equal to 11% of its contributed  capital.  Any remaining available cash
         was  reinvested  or  distributed  to the  partners as  specified in the
         Partnership Agreement.

       During the Liquidation  Period, as defined in the Partnership  Agreement,
       cash distributions are to be made as follows:

         First, in accordance with the first and second  allocations  during the
         Reinvestment Period as described above.

         Second,  95.5% to the Class A limited  partners and 4.5% to the general
         partner,  until the Class A limited  partners have  received  aggregate
         distributions  from all sources  equal to their  capital  contributions
         plus their Priority Return, as defined in the Partnership Agreement.

         Third, 85.5% to the Class B limited partner, 10% to the Class A limited
         partners  and 4.5% to the  general  partner  until  the Class B limited
         partner has received aggregate  distributions from all sources equal to
         its capital  contributions  plus its Subordinated  Priority Return,  as
         defined in the Partnership Agreement.

                                      -18-

<PAGE>

                          CAPITAL PREFERRED YIELD FUND
                        A California Limited Partnership

                    NOTES TO FINANCIAL STATEMENTS, continued

1.   Organization and Summary of Significant Accounting Policies, continued
     -----------------------------------------------------------
    
     Thereafter, 90% to the Class A limited partners and the Class B limited
         partner  (and  among them in  proportion  to their  respective  capital
         contributions  as of the first day of the calendar  month for which the
         amount  of  such  distribution  is  being  determined),  and 10% to the
         general partner.

       Federal Income Tax Basis Profits and Losses
       -------------------------------------------

       Profits for any fiscal  period are  allocated  according to the following
       provisions:

         First, profit is allocated to the partners in proportion to, and to the
         extent of, any excess losses  allocated to the partners as described in
         the Partnership Agreement.

         Second, any remaining profit is allocated to the partners in proportion
         to, and to the extent of, all losses  allocated to the partners for all
         prior fiscal periods in reverse chronological order.

         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.

                                      -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
       -------------------------------------------
         Second,  91.08% to the Class A limited  partners,  7.92% to the Class B
         limited partner, and 1% to the general partner.

       Losses  allocated to a partner in the first and second  paragraphs  above
       cannot cause or increase an adjusted capital account deficit with respect
       to such partner as of the end of any fiscal period.  To the extent losses
       allocated to a partner would exceed this limitation,  such losses will be
       allocated first to other partners in proportion to, and to the extent of,
       their positive capital account balances, and then to the general partner.

       Pursuant to Sections 10.8 and 15.2.11(vi) of the  Partnership  Agreement,
       the general  partner amended the  Partnership  Agreement  during the last
       quarter of the year ended  December  31, 1991 to correct a  "misallocated
       item"  (as  defined  in  Section  10.8  of  the  Partnership  Agreement),
       effective as of January 1, 1991. The amendment provides as follows:

       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 - Profits and Losses
     ----------------------------------------

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


     Reclassifications

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


     Recently Issued Financial Accounting Standards

       During  1997,  the  Partnership  adopted  SFAS No.  125,  Accounting  for
       Transfer  and  Servicing  of  Financial  Assets  and  Extinguishments  of
       Liabilities ("SFAS No. 125"). SFAS No. 125 provides consistent  standards
       for  distinguishing  transfers  of  financial  assets that are sales from
       transfers that are secured  borrowings.  The adoption of SFAS No. 125 did
       not have a material  impact on the  Partnership's  financial  position or
       results of operations.


     Long-lived Assets

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

                                      -21-

<PAGE>

                          CAPITAL PREFERRED YIELD FUND
                        A California Limited Partnership

                    NOTES TO FINANCIAL STATEMENTS, continued

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

     Lease Accounting

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

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

     Net Investment in Direct Financing Leases ("DFLs")

       The cost of the equipment, including acquisition fees paid to the general
       partner,  is  recorded  as net  investment  in DFLs  on the  accompanying
       balance sheet. Leasing revenue,  which is recognized over the term of the
       lease,  consists  of the  excess  of lease  payments  plus the  estimated
       residual  value over the  equipment's  cost.  Earned income is recognized
       monthly to provide a constant  yield and is  recorded  as direct  finance
       lease income on the accompanying  income statements.  Residual values are
       established  at  lease  inception  equal  to the  estimated  value  to be
       received from the equipment  following  termination  of 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.

                                      -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 Discounting of Rentals

       The  Partnership  may assign the future  rentals from leases to financial
       institutions,  or acquire  leases subject to such  assignments,  at fixed
       interest  rates on a  non-recourse  basis.  In return  for such  assigned
       future  rentals,  the  Partnership  receives the discounted  value of the
       rentals  in cash.  In the event of  default  by a lessee,  the  financial
       institution has a first lien on the underlying leased equipment,  with no
       further  recourse  against  the  Partnership.  Cash  proceeds  from  such
       financings,  or the  assumption of such  financings,  are recorded on the
       balance sheet as discounted  lease  rentals.  As lessees make payments to
       financial   institutions,   leasing  revenue  and  interest  expense  are
       recorded.

     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.



                                      -23-

<PAGE>


                          CAPITAL PREFERRED YIELD FUND
                        A California Limited Partnership

                    NOTES TO FINANCIAL STATEMENTS, continued

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

     Income Taxes

       No provision for income taxes has been made in the  financial  statements
       since  taxable  income  or loss is  recorded  in the tax  returns  of the
       individual partners.

     Cash Equivalents

       The Partnership considers short-term,  highly liquid investments that are
       readily convertible to known amounts of cash to be cash equivalents.

       Cash  equivalents  of $2,776,000  and $2,595,000 at December 31, 1997 and
       1996,  respectively,  are comprised of investments in a money market fund
       which invests solely in U.S.  Government  securities having maturities of
       90 days or less.

     Equipment Held for Sale or Re-lease

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

     Net Income Per Class A Limited Partner Unit

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

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

     The  components  of the net  investment  in  direct  finance  leases  as of
     December 31, 1997 and 1996 were:

                                                         1997           1996
                                                         ----           ----

     Minimum lease payments receivable                $  58,429    $  4,961,017
     Estimated residual values                          195,418       1,904,751
     Deferred initial leasing costs, net                  1,873           9,112
     Less unearned income                               (26,024)     (1,558,093)
                                                      ----------   ------------

                                                      $ 229,696    $  5,316,787
                                                      =========    ============

                                      -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, 1997 and 1996 were:


                                                       1997             1996
                                                       ----             ----

     Transportation and industrial equipment      $  2,796,018    $  25,383,364
     Computers and peripherals                         822,667        2,547,947
     Office furniture and equipment                  1,689,361        2,316,692
     Medical and research equipment                    377,503        1,200,140
     Other                                              60,350          508,293
                                                  ------------    -------------
         Total                                       5,745,899       31,956,436
     Less:
       Accumulated depreciation                     (4,593,820)     (18,193,840)
       Allowance for losses                            (77,479)        (242,760)
                                                  ------------    -------------
                                                  $  1,074,600    $  13,519,836
                                                  ============    =============

     Depreciation expense for 1997, 1996 and 1995 was $3,752,561, $6,093,950 and
     $9,883,414, respectively.

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

     Future minimum lease payments  receivable  from leases at December 31, 1997
     are as follows:

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

                  1998                             $ 58,429        $ 132,519
                  1999                                    -           49,992
                  2000                                    -            3,915
                                                   --------        ---------
                          Total                    $ 58,429        $ 186,426
                                                   ========        =========

5.   Financed Operating Lease Rentals
     --------------------------------

     Financed  operating  lease  rentals  outstanding  at December 31, 1997 bear
     interest at 8.25%. Aggregate maturities of such non-recourse financings are
     as follows:

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

                 1998                                               $   802,433
                 1999                                                   291,563
                 2000                                                    29,274
                                                                    -----------
                 Total                                              $ 1,123,270
                                                                    ===========

                                      -25-

<PAGE>


                          CAPITAL PREFERRED YIELD FUND
                        A California Limited Partnership

                    NOTES TO FINANCIAL STATEMENTS, continued

6.   Transactions With the General Partner and Affiliates
     ----------------------------------------------------

     Maximum Front-end Fee
     ---------------------

       Pursuant to the  Partnership  Agreement,  the total of all front-end fees
       (sales commissions, organization and offering costs, acquisition fees and
       reimbursements  and initial leasing costs) may not exceed an amount which
       would cause the  Partnership's  investment  in  equipment  (total cost of
       equipment  excluding front-end fees) to be less than the greater of (1) a
       percentage   amount   of  total   Class  A  limited   partners'   capital
       contributions  equal to 80%  minus  .0625%  for each 1% of the  aggregate
       purchase  price  of  equipment  that  is  borrowed  by  the   Partnership
       (determined  by dividing the  principal  amount of all such  indebtedness
       incurred  by the  Partnership  by the  aggregate  purchase  price  of the
       equipment)  or (2) 75% of the  total  Class A  limited  partners  capital
       contributions.  The  maximum  fee was  reached  in July  1993.  Equipment
       purchases  after July 1993 did not (and will not in the  future)  include
       any acquisition  fees,  reimbursements  or initial lease cost payments to
       the general partner.

     Management Fees
     ---------------

       As permitted  under the terms of the Partnership  Agreement,  the general
       partner receives  management fees as compensation for services  performed
       in connection  with  managing the  Partnership's  equipment  equal to the
       lesser  of (a) 5% of  gross  rentals  received  (limited  to 2% of  gross
       rentals  received in the case of full payout leases) or (b) the fee which
       the general partner reasonably believes to be competitive with that which
       would be charged by a non-affiliate  for rendering  comparable  services.
       Such fees totaled  $425,860,  $702,219 and  $1,035,316 in 1997,  1996 and
       1995, respectively.

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

       The  general  partner and its  affiliates  provide  accounting,  investor
       relations,    billing,    collecting,   asset   management,   and   other
       administrative  services to the Partnership.  The Partnership  reimburses
       the  general  partner  for  these  services  performed  on its  behalf as
       permitted   under  the   terms  of  the   Partnership   Agreement.   Such
       reimbursements  totaled $136,955,  $101,145 and $90,270 in 1997, 1996 and
       1995, respectively.

     Payables to Affiliate
     ---------------------

       Payables to affiliate  consists  primarily of management  fees and direct
       services payable to the general partner.




                                      -26-

<PAGE>


                          CAPITAL PREFERRED YIELD FUND
                        A California Limited Partnership

                    NOTES TO FINANCIAL STATEMENTS, continued

7.   Tax Information (Unaudited)
     ---------------------------

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

<TABLE>
<CAPTION>


                                                1997                  1996              1995
                                                ----                  ----              ----

    <S>                                    <C>                  <C>               <C>         
     Net income per financial statements    $ 2,056,120          $  2,239,112      $  2,943,220
     Differences due to:
       Direct finance leases                  2,090,563             2,949,142         6,912,037
       Depreciation                            (455,865)           (2,802,075)       (3,451,073)
       Provision for losses                     740,000             1,130,000           605,000
       Gain (loss) on sale of equipment       3,022,140            (2,624,981)        1,482,212
       Other                                   (131,242)              302,689           232,461
                                            -----------          ------------      ------------
     Partnership income for
       federal income tax purposes          $ 7,321,716          $  1,193,887      $  8,723,857
                                            ===========          ============      ============

</TABLE>


     As  of  December  31,  1997,  the  partners'   capital   accounts  per  the
     accompanying  financial statements totaled $8,604,753 compared to partners'
     capital  accounts  for  federal  income tax  purposes of  $18,455,851.  The
     difference  arises  primarily from  commissions  reported as a reduction in
     partners'  capital for  financial  reporting  purposes  but not for federal
     income tax purposes,  and temporary  differences  related to direct finance
     leases, depreciation and provisions for losses.


8.   Concentration of Credit Risk
     ----------------------------

     As of December 31, 1997,  approximately 63% of the Partnership's  equipment
     under  lease was  leased  to  investment  grade  lessees.  Pursuant  to the
     Partnership  Agreement,  an investment grade lessee is a company (1) with a
     credit  rating  of not less  than Baa as  determined  by  Moody's  Investor
     Services,  Inc.,  (2) that has a comparable  credit rating as determined by
     other recognized credit rating services or, (3) if the lessee is not rated,
     then a lessee  whom the  general  partner  believes  would have  received a
     rating of Baa, or better, if the lessee would have been rated.

     The  Partnership's  cash balance is maintained  with a high credit  quality
     financial institution. At times such balances may exceed the FDIC insurance
     limit due to the  receipt  of lockbox  amounts  that have not  cleared  the
     presentment  bank  (generally  for less  than two  days).  As funds  become
     available, they are invested in a money market mutual fund.



                                      -27-

<PAGE>


                          CAPITAL PREFERRED YIELD FUND
                        A California Limited Partnership

                    NOTES TO FINANCIAL STATEMENTS, continued

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

     Statement of Financial  Standards No. 107,  Disclosures about Fair Value of
     Financial   Instruments   specifically  excludes  certain  items  from  its
     disclosure  requirements  such as the  Partnership's  investment  in leased
     assets.  The  carrying  amounts  at  December  31,  1997  for cash and cash
     equivalents, accounts receivable, accounts payable and accrued liabilities,
     payable to  affiliates,  rents and sale  proceeds  received  in advance and
     distributions  payable to partners approximate their fair values due to the
     short maturity of these instruments.



                                      -28-

<PAGE>








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



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

Under date of  February 6, 1998,  we  reported on the balance  sheets of Capital
Preferred Yield Fund, a California limited partnership,  as of December 31, 1997
and 1996,  and the related  statements of income,  partners'  capital,  and cash
flows for each of the years in the three-year period ended December 31, 1997, as
contained in the Partnership's  annual report on Form 10-K for the year 1997. In
connection with our audits of the aforemen tioned financial statements,  we also
audited  the  related  financial   statement  Schedule  II,  as  listed  in  the
accompanying  index. This financial  statement schedule is the responsibility of
the  Partnership's  management.  Our  responsibility is to express an opinion on
this financial statement schedule based on our audits.

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

                                          /s/KPMG Peat Marwick LLP
                                          ------------------------
                                          KPMG PEAT MARWICK LLP

Denver, Colorado
February 6, 1998

                                      -29-

<PAGE>



                          CAPITAL PREFERRED YIELD FUND
                        A California Limited Partnership

                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
              for the years ended December 31, 1997, 1996 and 1995

<TABLE>
<CAPTION>



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

       1997
---------------------

<S>                            <C>                      <C>                     <C>                      <C>      
Allowance for losses:
  Accounts receivable           $     5,000              $     7,000             $          -             $  12,000
  Equipment on leases               242,760                  740,000                 (905,281)               77,479
                                -----------              -----------             ------------             ---------
     Totals                     $   247,760              $   747,000             $   (905,281)            $  89,479
                                ===========              ===========             ============             =========


        1996
---------------------

Allowance for losses:
  Accounts receivable           $     5,000              $         -             $          -             $   5,000
  Equipment on leases               673,003                1,130,000               (1,560,243)              242,760
                                -----------              -----------             ------------             ---------
     Totals                     $   678,003              $ 1,130,000             $ (1,560,243)            $ 247,760
                                ===========              ===========             ============             =========


        1995
---------------------

Allowance for losses:
  Accounts receivable           $     5,000              $         -             $          -             $   5,000
  Equipment on leases             1,200,614                  605,000               (1,132,611)              673,003
                                -----------              -----------             ------------             ---------
     Totals                     $ 1,205,614              $   605,000             $ (1,132,611)            $ 678,003
                                ===========              ===========             ============             =========
</TABLE>


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


                 See accompanying independent auditors' report.

                                      -30-

<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

   Anthony M. DiPaolo       Senior Vice President, Principle Financial and Chief
                            Administrative Officer and Director

   Richard H. Abernethy     Vice President and Director

   John A. Reed             Vice President, Assistant Secretary and Director

   Joseph F. Bukofski       Vice President, Assistant Secretary and Director

   Robert A. Golden         Director

   Mick Myers               Director

   Ann Danielson            Assistant Vice President

   David J. Anderson        Chief Accounting Officer and Secretary

JOHN F. OLMSTEAD, age 53, joined CAII as Vice President in December,  1988, is a
Senior  Vice  President  of CAI and CAII  and is head of  CAII's  Public  Equity
division.  He has served as Chairman of the Board for Neo-kam Industries,  Inc.,
Matchless Metal Polish Company, Inc. and ACL, Inc. for more than 5 years. He has
over 20 years of experience  holding various  positions of responsibility in the
leasing  industry.  Mr. Olmstead holds a Bachelor of Science degree from Indiana
University and a Juris Doctorate degree from Indiana Law School.

DENNIS J. LACEY,  age 44, joined CAI as Vice President,  Operations,  in October
1989.  Mr. Lacey was  appointed  Treasurer on January 1, 1991,  Chief  Financial
Officer on April 11, 1991, a director on July 19, 1991,  and President and Chief
Executive  Officer on September 6, 1991.  Prior to joining CAI, Mr. Lacey was an
audit partner for the public accounting firm of Coopers & Lybrand.  Mr. Lacey is
also a director and senior officer of CAII, CAI Equipment  Leasing I Corp.,  CAI
Equipment  Leasing II Corp.,  CAI  Equipment  Leasing III Corp.,  CAI  Equipment
Leasing IV Corp., CAI Equipment  Leasing V Corp., CAI Leasing Canada,  Ltd., CAI
Partners   Management   Company,   CAI   Securities   Corporation,   CAI   Lease
Securitization I Corp. and Capital Equipment Corporation  (collectively referred
to  herein as the "CAI  Affiliates"),  all of which  are  first- or  second-tier
wholly-owned subsidiaries of CAI.


                                      -31-

<PAGE>



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

ANTHONY M. DIPAOLO,  age 39, joined CAII in July 1990 as Assistant Treasurer and
is currently Senior Vice  President-Chief  Financial  Officer.  He also held the
positions   of   Senior   Vice    President-Controller    and   Assistant   Vice
President-Credit  Administration  for the Company.  Mr. DiPaolo has held similar
senior financial management positions with two public companies between 1986 and
June 1990, and prior to then was an audit manager for the public accounting firm
of  Coopers &  Lybrand.  Mr.  DiPaolo  holds a  Bachelor  of  Science  degree in
Accounting from the University of Denver.

RICHARD H. ABERNETHY,  age 43, joined CAII in April 1992 as Equipment  Valuation
Manager  and  currently  serves  as Vice  President  of  Asset  Management.  Mr.
Abernethy has thirteen years experience in the leasing industry, including prior
positions with Barclays  Leasing Inc.,  from November 1986 to February 1992, and
Budd Leasing  Corporation,  from January 1981 to November  1986.  Mr.  Abernethy
holds a Bachelor of Arts in Business Administration from the University of North
Carolina at Charlotte.

JOHN A. REED,  age 42,  joined  CAII in  January  1990 as the Tax  Director  and
Assistant Secretary.  Mr. Reed is currently the Vice President-Manager,  Capital
Markets Group and is  responsible  for  obtaining  off balance sheet  financing,
syndications and private  programs.  Prior to joining the Capital Markets Group,
Mr. Reed was Vice President of both Marketing Administration and Credit and Debt
Administration.  He spent seven and one half years with Coopers & Lybrand in the
Tax Department and served on CAII's tax consulting  engagement during that time.
Mr.  Reed holds a Bachelor  of Arts  degree in Social  Sciences  and  Masters of
Science in Accounting, from Colorado State University.

JOSEPH F. BUKOFSKI, age 43, joined CAII in June 1990 as a Financial Analyst. Mr.
Bukofski is currently the Vice President of Marketing and is responsible for all
lease  documentation  and management of transaction  structuring and processing.
Prior to joining the  Marketing  Department,  Mr.  Bukofski was  Assistant  Vice
President and Controller.  Prior to joining the Company, he was a geologist with
Barringer  Geoservices,  Inc. for eleven years. Mr. Bukofski holds a Bachelor of
Science degree in Secondary Education - Earth Science from Bloomsburg University
and a Masters of Science in Accounting from the University of Colorado.

ROBERT A. GOLDEN,  age 52, is Vice  President and the National  Sales Manager of
the Company.  Mr. Golden joined the Company in 1993 as a Branch Manager.  He was
promoted  to his  current  position  in  September  1994.  Prior to joining  the
Company, he was an Executive Vice President with the U.S. Funds Group, President
of BoCon Capital  Group and Vice  President  with  Ellco/GE  Capital for fifteen
years. Mr. Golden is an officer, but not a director, of CAII.

MICK MYERS, age 40, joined CAI in February 1992 as a Senior  Portfolio  Manager.
Currently he is Assistant Vice President of Asset Management. Mr. Myers has nine
years experience in the leasing industry.  Previously,  he has held the position
of Senior End of Lease  Negotiator  with  ELLCO/GE  Capital.  Mr.  Myers holds a
Bachelor of Science degree from the University of Wyoming.




                                      -32-

<PAGE>



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

ANN E.  DANIELSON,  age  35,  joined  CAII in  February  1990  and is  currently
Assistant  Vice  President,  Assistant  Treasurer  and is  responsible  for  the
Company's  cash  management  and  collections  functions.  Prior to joining  the
Company,  she was with U.S. West financial  Services and Coopers & Lybrand.  Ms.
Danielson holds a Bachelor of Arts Degree from the University of Northern Iowa.

DAVID J.  ANDERSON,  age 45,  joined CAII in August 1990 as Manager of Billing &
Collections and currently  serves as Assistant  Vice-President/Chief  Accounting
Officer. Prior to joining CAII, Mr. Anderson was Vice-  President/Controller for
Systems  Marketing,  Inc.,  from 1985 to 1990,  and  previous  to that worked in
several senior staff  positions at the Los Alamos  National  Laboratory and with
Ernst & Whinney. Mr. Anderson holds a Bachelor of Business Administration degree
in Accounting from the University of Wisconsin.


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

No compensation was paid by the Partnership to the officers and directors of the
general partner. See Item 13 of this Report,  "Certain Relationships and Related
Transactions",  for a  description  of the  compensation  and  fees  paid to the
general partner and its affiliates by the Partnership during 1997.


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

(a)       As of the date hereof, no person is known by the Partnership to be the
          beneficial  owner of more than 5% of the Class A limited partner units
          of the Partnership.  The Partnership has no directors or officers, and
          neither  the general  partner  nor the Class B limited  partner of the
          Partnership own any Class A limited partner units.

          CAII,   the  parent  of  the  general   partner,   owns  100%  of  the
          Partnership's Class B limited partner interest.

          CAI Partners Management Company owns 100% of the Partnership's general
          partner interest.

          The names and addresses of the general partner and the Class B limited
          partner are as follows:


          General Partner
          ---------------

          CAI Partners Management Company
          7175 West Jefferson Avenue
          Suite 4000
          Lakewood, Colorado 80235


                                      -33-

<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,
          1997.

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


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

The general partner and its affiliates  receive  certain types of  compensation,
fees  or  other   distributions   in  connection  with  the  operations  of  the
Partnership.

Following is a summary of the amounts paid or payable to the general partner and
its affiliates during 1997:


Management Fees
---------------

The general partner receives a monthly fee as compensation for services rendered
in connection  with managing the  Partnership's  equipment in an amount equal to
the lesser of (i) 5% of gross rentals  received by the Partnership  (but limited
to 2% of gross rentals received in the case of full payout leases),  or (ii) the
fee which the general partner  reasonably  believes to be competitive  with that
which would be charged by a  non-affiliate  for rendering  comparable  services.
Management fees of $425,860 were earned by the general partner during 1997.


Accountable General and Administrative Expenses
-----------------------------------------------

The general  partner is entitled to  reimbursement  of certain  expenses paid on
behalf  of  the   Partnership   which  are  incurred  in  connection   with  the
Partnership's operations. Such reimbursable expenses amounted to $136,955 during
1997.

Additionally,   the  general   partner   receives  4.5%  of   Partnership   cash
distributions, and is allocated certain Partnership income and gain, relating to
its general  partner  interest in the  Partnership.  Distributions  paid and net
income allocated to the general partner totaled $341,070 for 1997. Distributions
paid and net income  allocated to the Class B limited partner  totaled  $505,635
and $157,082, respectively, for 1997.

                                      -34-

<PAGE>



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

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

          1. Financial Statements

          2. Financial Statement Schedule

     (b)  The Partnership did not file any reports on Form 8-K during  the three
          months ended December 31, 1997.

     (c)  Exhibits required to be filed.

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

           4.1*    Capital Preferred Yield  Fund Limited  Partnership  Agreement
                   dated July 13, 1989 filed as Exhibit 4.1 to the Partnership's
                   Annual  Report on  Form 10-K for the year  ended December 31,
                   1990.
           4.2*    First  Amendment  to  Limited   Partnership  Agreement  dated
                   December 31, 1991. (Filed April 1, 1992.)
           4.3*    Second  Amendment  to  Limited  Partnership  Agreement  dated
                   March 31, 1992.  (Filed May 15, 1992.)


            *      Not filed herewith.  In  accordance  with Rule 12b-32 of  the
                   General Rules and  Regulations under the  Securities Exchange
                   Act  of  1934,  reference is made to the  document previously
                   filed with the Commission.


                                      -35-

<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:   November 13, 1998            Capital Preferred Yield Fund,
                                      A California Limited Partnership

                                      By:  CAI Partners Management Company

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

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the general partner
of the Partnership and in the capacities indicated on March 31, 1998.


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

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

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

/s/Anthony M. DiPaolo
-----------------------     Senior Vice President, Principle Financial and Chief
Anthony M. DiPaolo          Administrative Officer and Director

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

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

/s/Joseph F. Bukofski
-----------------------
Joseph F. Bukofski          Vice President, Assistant Secretary and Director

/s/Robert A. Golden
-----------------------
Robert A. Golden            Director

/s/Mick Myers
-----------------------
Mick Myers                  Director

/s/Ann Danielson
-----------------------
Ann Danielson               Assistant Vice President

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

                                      -36-