SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

(Mark One)

[X]  Annual report  pursuant to Section 13 or 15(d) of the  Securities  Exchange
     Act of 1934 for the fiscal year ended December 31, 1998

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

                         Commission file number 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 34

                               Page 1 of 35 Pages


<PAGE>



Item 1.   Business
          --------

Capital   Preferred   Yield  Fund,  a  California   limited   partnership   (the
"Partnership"),  was  organized  on July 13,  1989 for the purpose 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 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.

During 1998, the Partnership liquidated  substantially all of its net assets and
distributed  the  related  proceeds  to the  partners  in  accordance  with  the
Partnership Agreement.  As of December 31, 1998, the Partnership retained assets
equal to the estimated settlement value of all remaining liabilities.  It is the
intent of the general partner to liquidate the remaining  receivables and settle
all  liabilities  during 1999.  Excess cash  remaining  after the  settlement of
liabilities,  if any, will be distributed to the Partners in accordance with the
Partnership Agreement.

Since its formation,  the Partnership  acquired equipment of various types under
lease to third  parties on  short-term  leases (five years or less).  All of the
equipment  was  purchased  by CAII  directly  from  manufacturers  or from other
independent third parties and sold to the Partnership.  The equipment  generally
consisted of transportation and industrial equipment, computer equipment, office
furniture and medical equipment, among others (the "equipment"). The Partnership
entered its liquidation stage, as defined in the Partnership Agreement, in April
1996.

The Partnership had no employees.  The officers,  directors and employees of the
general  partner  and  its  affiliates  performed  services  on  behalf  of  the
Partnership.  The general  partner  was  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 leased equipment to a significant number of lessees. Two lessees
and  their  affiliates  accounted  for  approximately  20%  ($578,932)  and  10%
($297,550) of total leasing and remarketing  revenue of the  Partnership  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.

                                       -2-

<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
1998.


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

(a)  The  Partnership's  Class A limited partner units,  Class B limited partner
     interest and general partner interest are not publicly traded.  There is no
     established public trading market for such units and interests.

(b)  As of December 31, 1998, the date of dissolution,  there were 3,494 Class A
     limited partners.

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

     During 1998,  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
         For the              Payment     Partner Unit (computed       Total
       Month Ended          Made During    on weighted average)    Distributions
       -----------          -----------   ----------------------   -------------

     December 31, 1997    January 1998         $   3.58            $   900,191
     January 31, 1998     February 1998            3.18                799,809
     February 28, 1998    March 1998               3.18                799,809
     March 31, 1998       April 1998                .28                 71,382
     April 30, 1998       May 1998                  .22                 55,481
     May 31, 1998         June 1998                 .18                 44,985
     June 30, 1998        July 1998                6.76              1,700,035
     July 31, 1998        August 1998              4.77              1,199,589
     August 31, 1998      September 1998            .82                205,130
     September 30, 1998   October 1998             9.86              2,479,217
     October 31, 1998     November 1998               -                      -
     November 30, 1998    December 1998             .81                202,344
                                                -------            -----------
                                                $ 33.64            $ 8,457,972
                                                =======            ===========

     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  releasing and sales of equipment  after
     initial  lease  terms  expire)  are  realized  at  the  termination  of the
     Partnership.  Total  distributions  declared  and paid to  Class A  limited
     partners were  $67,529,938  from the inception of the  Partnership  through
     December 31, 1998.

                                       -3-

<PAGE>




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

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

     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  Partnership  declared  a  final  distribution  in  December  1998.  In
     calculating  the amount of such final  distribution,  the  General  Partner
     considered the current as well as contingent  liabilities incidental to the
     liquidation of the  Partnership,  all of which are set forth in the audited
     financial statements contained herein.

     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
         For the             Payment      Partner Unit (computed      Total
        Month Ended        Made During     on 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
                                                =======            ===========

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






                                       -4-

<PAGE>

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

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

                              Distribution Amount             Distribution %
                               per $250 Class A              per $250 Class A
                              Limited Partner Unit         Limited Partner Unit
         Payment                (computed on                  (computed on
        Made During            weighted average)           weighted average) (1)
        -----------           --------------------         ---------------------

          1990                   $  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%
          1998                      33.64                         13%
                                 --------
                                 $ 289.85
                                 ========

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

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

The following  selected  financial  data relates to the years ended December 31,
1994  through  1998.  The  data  should  be read  in  conjunction  with  Item 7,
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations" and the financial statements and notes thereto appearing with Item 8
herein.

<TABLE>
<CAPTION>
                                                    1998            1997            1996           1995           1994
                                                    ----            ----            ----           ----           ----

<S>                                            <C>             <C>             <C>            <C>            <C>        
Total revenue                                   $ 1,512,345     $ 7,673,132*    $11,319,825    $15,975,029    $20,833,137
Net income (loss)                                  (211,615)      2,056,120*      2,239,112      2,943,220      2,793,164
Net income (loss) per weighted average
  Class A limited partner unit outstanding            (2.18)           6.34*           6.23           9.24           8.67
Total assets                                        798,707      12,091,018      22,981,183     37,516,977     53,791,269
Discounted lease rentals                                  -           7,835       4,363,104      9,146,266     20,324,037
Financed operating lease rentals                          -       1,123,270       1,329,087      1,594,646              -
Distributions declared to partners                8,392,439       8,281,136      12,106,228      9,276,551      9,286,099
Distributions declared to Class A limited
  partners per weighted average
  Class A limited partner unit outstanding            30.07           29.14           42.17          32.46          32.46

</TABLE>

          *as restated -see Note 1 to the Partnership's financial statements

                                       -5-

<PAGE>



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

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

<TABLE>
<CAPTION>
                                         Years Ended December 31,                  Years Ended December 31,
                                        -------------------------                 ---------------------------
                                           1998         1997          Change         1998            1997          Change   
                                        ----------   -----------   ------------   -----------     -----------    -----------

<S>                                    <C>          <C>           <C>            <C>             <C>            <C>        
Leasing margin                          $  314,283   $ 2,716,704   $ (2,402,421)  $ 2,716,704     $ 3,064,878    $ (348,174)
Equipment sales margin                     818,235       871,137*       (52,902)      871,137*      1,350,258      (479,121)
Interest income                            104,291        75,168         29,123        75,168         188,628      (113,460)
Management fees paid to general partner    (34,133)     (425,860)       391,727      (425,860)       (702,219)      276,359
Direct services from general partner       (95,968)     (136,955)        40,987      (136,955)       (101,145)      (35,810)
General and administrative                (285,316)     (304,074)        18,758      (304,074)       (431,288)      127,214
Provision for losses                      (836,085)     (740,000)       (96,085)     (740,000)     (1,130,000)      390,000
Liquidation                               (196,922)            -       (196,922)            -               -             -
                                        ----------   -----------   ------------   -----------     -----------    ----------

Net income (loss)                       $ (211,615)  $ 2,056,120*  $ (2,267,735)  $ 2,056,120*    $ 2,239,112    $ (182,992)
                                        ==========   ===========   ===========    ===========     ===========    ==========

</TABLE>


     (* as restated - see Note 1 to the Partnership's financial statements)


LEASING MARGIN

Leasing margin consists of the following:

<TABLE>
<CAPTION>
                                                                          Years ended December 31,
                                                            -------------------------------------------------
                                                                 1998               1997              1996
                                                                 ----               ----              ----

<S>                                                         <C>                <C>               <C>        
Operating lease rentals                                      $   482,031        $ 5,678,596       $ 8,584,425
Direct finance lease income                                      107,788          1,048,231         1,196,514
Depreciation                                                    (234,754)        (3,760,718)       (6,124,604)
Interest expense on discounted lease rentals                         (28)          (193,516)         (501,872)
Interest expense on financed operating lease receivables         (40,754)           (55,889)          (89,585)
                                                             -----------        -----------       -----------

  Leasing margin                                             $   314,283        $ 2,716,704       $ 3,064,878
                                                             ===========        ===========       ===========

  Leasing margin ratio                                                53%                40%               31%
                                                             ===========        ===========       ===========

</TABLE>


The  Partnership  is in its  liquidation  stage as  defined  in the  Partnership
Agreement.  During  1997,  the  Partnership  sold a  substantial  portion of its
assets.  During 1998, the Partnership  liquidated its remaining equipment.  As a
result,  both the size of the Partnership's  leasing portfolio and the amount of
leasing revenue declined.




                                       -6-

<PAGE>


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

I.    Results of Operations, continued
      ---------------------

EQUIPMENT SALES MARGIN

Equipment sales margin consists of the following:

                                             Years ended December 31,
                                  ----------------------------------------------
                                       1998            1997             1996
                                       ----            ----             ----

Equipment sales revenue           $  2,248,520    $ 11,670,273*    $  4,868,827
Cost of equipment sales             (1,430,285)    (10,799,136)      (3,518,569)
                                  ------------    ------------     ------------
Equipment sales margin            $    818,235    $    871,137*    $  1,350,258
                                  ============    ============     ============

* as restated - see Note 1 to the Partnership's financial statements

The  Partnership  liquidated  effective  December  31, 1998.  During  1998,  all
remaining equipment was sold to either the original lessee or third parties.

INTEREST INCOME

Interest income increased in 1998 compared to 1997 due to the investment of cash
held for the final distribution to the limited partners.

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

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 1998 and 1997  compared to 1996 due to portfolio
runoff resulting in lower gross rentals received by the Partnership.

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  decreased in 1998 compared to
1997 primarily due to the decrease in the size of the portfolio. Direct services
from  general  partner  increased  in 1997  compared  to 1996  primarily  due to
activities associated with liquidating the Partnership's assets.

                                       -7-

<PAGE>


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

I.    Results of Operations, continued
      ---------------------

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative  expenses decreased in 1998 compared to 1997 due to a
decrease in costs  associated with the remarketing of equipment  returned to the
Partnership  at lease  maturity.  The  decrease  from 1996 to 1997 is  primarily
attributable  to a  reimbursement  to the general  partner  recorded in 1996 for
prior years insurance costs in the amount of $104,027.

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.

The provision for losses recorded during 1998 and 1997 were primarily related to
lessees returning equipment to the Partnership.  For the year ended December 31,
1998, the Partnership  recorded a loss of $500,000 on mining and  transportation
equipment  and  office  furniture,  fixtures  and  equipment  held  for  sale or
re-lease.  The Partnership had previously expected to realize the carrying value
of the equipment  through lease renewal and proceeds from the sales of equipment
to the original  lessees.  The fair market value of the equipment  sold to third
parties was less than  anticipated.  In  addition,  the  Partnership  recorded a
provision for bad debt in the amount of $269,000  related to the equipment sales
receivable  balance at December  31, 1998.  Current  liabilities  and  estimated
contingent  liabilities  for wrap-up of the  dissolution of the  partnership are
covered by the remaining cash and accounts receivable balances.

For 1997,  the  Partnership  recorded  losses of  $625,000  on  certain  mining,
manufacturing and computer equipment held for sale or re-lease.

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:


                                       -8-

<PAGE>


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

I.    Results of Operations, continued
      ---------------------

PROVISION FOR LOSSES, continued

     -    $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.

LIQUIDATION EXPENSES

All  anticipated  liquidation  expenses  were accrued at December  31, 1998.  In
estimating  the  amount  of  such  liquidation  expenses,  the  General  Partner
considered  the  current as well as  contingent  liabilities  incidental  to the
liquidation of the Partnership.


II.   Liquidity and Capital Resources
      -------------------------------

During  1998,  1997 and 1996,  the  Partnership  declared  distributions  to the
partners of $8,392,439,  $8,281,136 and $12,106,228,  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  re-leasing  and sales of
equipment   after  initial  lease  terms  expire)  have  been  realized  at  the
termination of the Partnership .

The Partnership liquidated (as defined in the Partnership Agreement) and a final
distribution  was issued in December 1998. The general partner  anticipates that
the cash and accounts  receivable at December 31, 1998 are sufficient to satisfy
the Partnership's remaining liabilities.  Excess cash remaining after settlement
of  liabilities,  if any, will be distributed to the partners in accordance with
the Partnership Agreement.

The  Class  B  limited  partner   distributions  of  cash  from  operations  are
subordinated to the Class A limited partners receiving cumulative  distributions
of cash from operations,  as scheduled in the Partnership Agreement (i.e., 13%).
Cumulative  Class B  distributions  accrued  since August 1997, in the amount of
$710,813,  were paid in October 1998 as the cash available for  distribution was
sufficient  to  cover  the  cumulative  Class A  limited  partner  distributions
payable. No further Class B distributions will be paid by the Partnership.



                                       -9-

<PAGE>


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

II.  Liquidity and Capital Resources, continued

YEAR 2000 ISSUES

An affiliate provides accounting and other  administrative  services,  including
data  processing  services to the  Partnership.  The  affiliate  has conducted a
comprehensive  review of its computer  systems to identify systems that could be
affected  by the Year 2000  issue.  The Year 2000 issue  results  from  computer
programs  being  written  using  two  digits  rather  than  four to  define  the
applicable year.  Certain computer programs which have  time-sensitive  software
could  recognize  a date using "00" as the year 1900  rather than the year 2000.
This could result in major system  failures or  miscalculations.  Certain of the
affiliate's  software has already been updated to correctly account for the Year
2000  issue.  In  addition,  the  affiliate  is engaged in a system  conversion,
whereby the affiliate's  primary lease tracking and accounting software is being
replaced  with new systems which will account for the Year 2000  correctly.  The
affiliate  expects that the new system will be fully operational by December 31,
1999,  and therefore will be fully Year 2000  compliant.  The affiliate does not
expect any other changes required for the Year 2000 to have a material effect on
its financial position or results of operations.  As such, the affiliate has not
developed any specific  contingency  plans in the event it fails to complete the
conversion to a new system by December 31, 1999. In addition, the affiliate does
not expect any Year 2000 issues  relating to its customers and vendors to have a
material effect on its financial position or results of operations.

III.  New Accounting Pronouncements
      -----------------------------

In June 1997,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial   Accounting   Standards  No.  130,  Reporting   Comprehensive  Income
("Statement  130"),  which  requires   comprehensive   income  to  be  displayed
prominently within the financial statements.  Comprehensive income is defined as
all  recognized  changes in equity during a period from  transactions  and other
events and  circumstances  except those resulting from investments by owners and
distributions to owners. Net income and items that previously have been recorded
directly in equity are included in comprehensive  income.  Statement 130 affects
only the reporting and  disclosure of  comprehensive  income but does not affect
recognition  or  measurement  of income.  Statement  130 is effective for fiscal
years beginning after December 15, 1997, with earlier application permitted. The
Partnership adopted Statement 130 in the first quarter of 1998. The adoption did
not have an impact on its financial reporting.

In June 1997,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial  Accounting  Standards  No.  131,  Disclosures  about  Segments  of an
Enterprise and Related  Information  ("Statement  131").  Statement 131 provides
guidance for reporting  information about operating segments in annual financial
statements  and  requires  reporting  of selected  information  about  operating
segments in interim financial reports of public companies.  An operating segment
is defined as a component of a business that engages in business activities from
which it may earn  revenue  and incur  expenses,  a  component  whose  operating
results are regularly  reviewed by the company's chief operating decision maker,
and a component for which discrete financial information is available. Statement
131 establishes  quantitative thresholds for determining operating segments of a
company.  Statement 131 is effective for fiscal years  beginning  after December
15, 1997, with earlier application permitted.  The Partnership adopted Statement
131 in the first  quarter of 1998.  Since the  Partnership  operates in a single
business  segment,  the  adoption  did  not  have  an  impact  on its  financial
reporting.

                                      -10-

<PAGE>


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

III.  New Accounting Pronouncements, continued
      -----------------------------

In June 1998,  the  Financial  Accounting  Standards  Board issued SFAS No. 133,
Accounting for Derivative  Instruments and Hedging Activities ("Statement 133").
Statement 133  establishes  accounting  and reporting  standards for  derivative
instruments and for hedging activities. It requires that an entity recognize all
derivatives  as either  assets or  liabilities  in the  statement  of  financial
position and measure those instruments at fair value. Statement 133 is effective
for  fiscal  years  beginning  after June 15,  1999,  with  earlier  application
permitted.  Statement  133 will have no effect  on the  Partnership's  financial
reporting.

IV.   "Safe Harbor" Statement Under the Private Securities Litigation Reform Act
      --------------------------------------------------------------------------
      of 1995
      -------

The statements  contained in this report which are not  historical  facts may be
deemed to  contain  forward-looking  statements  with  respect  to  events,  the
occurrence of which involve risks and uncertainties,  and are subject to factors
that could cause actual future  results to differ both  adversely and materially
from currently anticipated results, including,  without limitation; the level of
lease  acquisitions;  realization  of residual  values;  customer  credit  risk;
competition  from other lessors,  specialty  finance  lenders or banks;  and the
availability  and cost of financing  sources.  Certain specific risks associated
with particular  aspects of the  Partnership's  business are discussed in detail
throughout Parts I and II when and where applicable.

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk
          ----------------------------------------------------------

The partnership was legally dissolved as of December 31, 1998 and all assets and
liabilities  were stated at anticipated  liquidation  value.  Consequently,  the
partnership has no market risk exposure.

                                      -11-

<PAGE>




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

          Index to Financial Statements and
          Financial Statement Schedule

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

             Independent Auditors' Report                                   13

             Balance Sheets as of December 31, 1998 and 1997                14

             Statements of Operations for the years ended
             December 31, 1998, 1997 and 1996                               15

             Statements of Partners' Capital for the years
             ended December 31, 1998, 1997 and 1996                         16

             Statements of Cash Flows for the years
             ended December 31, 1998, 1997 and 1996                         17

             Notes to Financial Statements                                 18-28


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

             Independent Auditors' Report                                   29

             Schedule II - Valuation and Qualifying Accounts                30


                                      -12-

<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, 1998 and 1997,  and the
related statements of operations,  partners' capital, and cash flows for each of
the years in the  three-year  period ended  December 31, 1998.  These  financial
statements  are  the  responsibility  of  the  Partnership's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

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

As discussed in Note 1, the Partnership is in the liquidation stage, whereby all
assets are expected to be liquidated during 1999 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, 1998 and 1997,  and the results of its  operations  and its cash
flows for each of the years in the three-year period ended December 31, 1998, in
conformity with generally accepted accounting principles.


                                  /s/KPMG LLP 
                                  -------------------- 
                                  KPMG LLP


Denver, Colorado
February 22, 1999

                                      -13-

<PAGE>



                          CAPITAL PREFERRED YIELD FUND
                        A California Limited Partnership

                                 BALANCE SHEETS
                           December 31, 1998 and 1997

                                     ASSETS

                                                           1998          1997*
                                                           ----          ----

Cash and cash equivalents                              $   565,713   $ 2,839,510
Accounts receivable, net                                   232,994     7,059,347
Equipment held for sale or re-lease                              -       887,865
Net investment in direct finance leases                          -       229,696
Leased equipment, net                                            -     1,074,600
                                                       -----------   -----------

     Total assets                                      $   798,707   $12,091,018
                                                       ===========   ===========

                        LIABILITIES AND PARTNERS' CAPITAL

Liabilities:
  Payables to affiliates                               $       177   $    44,916
  Accounts payable and accrued liabilities                 788,945       905,979
  Rents received in advance                                      -       162,931
  Distributions payable to partners                          9,585     1,241,334
  Discounted lease rentals                                       -         7,835
  Financed operating lease rentals                               -     1,123,270
                                                       -----------   -----------

     Total liabilities                                     798,707     3,486,265
                                                       -----------   -----------

Partners' capital:
  General partner                                                -             -
  Limited partners:
    Class A 360,000 units authorized; 251,328 and
      251,388 units issued and outstanding in 1998
      and 1997, respectively                                     -     6,439,272
    Class B                                                      -     2,165,481
                                                       -----------   -----------

     Total partners' capital                                     -     8,604,753
                                                       -----------   -----------

     Total liabilities and partners' capital           $   798,707   $12,091,018
                                                       ===========   ===========


*    As restated - See Note 1 to the Partnership's Financial Statements

                 See accompanying notes to financial statements.

                                      -14-

<PAGE>



                          CAPITAL PREFERRED YIELD FUND
                        A California Limited Partnership

                            STATEMENTS OF OPERATIONS
                  Years ended December 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>

                                                        1998            1997*           1996
                                                        ----            ----            ----
<S>                                                <C>             <C>              <C>        
REVENUE:
  Operating lease rentals                           $   482,031     $ 5,678,596      $ 8,584,425
  Direct finance lease income                           107,788       1,048,231        1,196,514
  Equipment sales margin                                818,235         871,137        1,350,258
  Interest income                                       104,291          75,168          188,628
                                                    -----------     -----------      -----------

     Total revenue                                    1,512,345       7,673,132       11,319,825
                                                    -----------     -----------      -----------

EXPENSES:
  Depreciation                                          234,754       3,760,718        6,124,604
  Interest on discounted lease rentals                       28         193,516          501,872
  Interest on financed operating lease receivables       40,754          55,889           89,585
  Management fees paid to general partner                34,133         425,860          702,219
  Provision for losses                                  836,085         740,000        1,130,000
  Direct services from general partner                   95,968         136,955          101,145
  General and administrative                            285,316         304,074          431,288
  Liquidation                                           196,922               -                -
                                                    -----------     -----------      -----------

     Total expenses                                   1,723,960       5,617,012        9,080,713
                                                    -----------     -----------      -----------

NET INCOME (LOSS)                                   $  (211,615)    $ 2,056,120      $ 2,239,112
                                                    ===========     ===========      ===========

NET INCOME (LOSS) ALLOCATED:
  To the general partner                            $   377,708     $   341,070      $   544,780
  To the Class A limited partners                      (547,940)      1,594,532        1,575,257
  To the Class B limited partner                        (41,383)        120,518          119,075
                                                    -----------     -----------      -----------
                                                    $  (211,615)    $ 2,056,120      $ 2,239,112
                                                    ===========     ===========      ===========
Net income (loss) per weighted average Class A
  limited partner unit outstanding                  $     (2.18)    $      6.34      $      6.23
                                                    ===========     ===========      ===========

Weighted average Class A limited
  partner units outstanding                             251,355         251,556          252,689
                                                    ===========     ===========      ===========

</TABLE>



*    As restated - See Note 1 to the Partnership's Financial Statements

                 See accompanying notes to financial statements.

                                      -15-

<PAGE>



                          CAPITAL PREFERRED YIELD FUND
                        A California Limited Partnership

                         STATEMENTS OF PARTNERS' CAPITAL
                  Years ended December 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>
                                                      Class A
                                                      Limited       Class A         Class B
                                         General      Partner       Limited         Limited
                                         Partner       Units        Partners        Partner           Total
                                         -------      -------       --------        -------           -----

<S>                                   <C>            <C>        <C>             <C>             <C>
Partners' capital, January 1, 1996     $        -     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*                               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*                         -     251,388       6,439,272       2,165,481       8,604,753

Redemptions                                     -         (60)           (699)              -            (699)
Adjustments                                     -           -       1,667,147      (1,667,147)              -
Net income (loss)                         377,708           -        (547,940)        (41,383)       (211,615)
Distributions declared to partners       (377,708)          -      (7,557,780)       (456,951)     (8,392,439)
                                       ----------    --------    ------------    ------------    ------------

Partners' capital,
     December 31, 1998                 $        -     251,328    $          -    $          -    $          -
                                       ==========    ========    ============    ============    ============

</TABLE>







*    As restated - See Note 1 to the Partnership's Financial Statements

                 See accompanying notes to financial statements.

                                      -16-

<PAGE>



                          CAPITAL PREFERRED YIELD FUND
                        A California Limited Partnership
                            STATEMENTS OF CASH FLOWS
                  Years ended December 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>

                                                                       1998             1997*           1996
                                                                       ----             ----            ----
<S>                                                              <C>              <C>              <C>         
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)                                               $   (211,615)    $  2,056,120     $  2,239,112
  Adjustments to reconcile net income (loss) to net
    cash provided by operating activities:
    Depreciation                                                       234,754        3,760,718        6,124,604
    Provision for losses                                               836,085          740,000        1,130,000
    Cost of equipment sales                                          1,430,285       10,799,136        3,474,892
    Recovery of investment in direct finance leases                    164,295        2,095,063        2,955,733
    Changes in assets and liabilities:
      Decrease (increase) in accounts receivable, net                6,353,095       (6,087,949)         296,759
      Decrease in payables to affiliates                               (44,739)         (20,454)         (55,695)
      Increase (decrease) in accounts payable
        and accrued liabilities                                       (117,034)          84,188          234,392
      Decrease in rents received in advance                           (162,931)         (67,570)         (29,893)
                                                                  ------------     ------------     ------------

Net cash provided by operating activities                            8,482,195       13,359,252       16,369,904
                                                                  ------------     ------------     ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of equipment on operating leases from affiliate                  -                -       (1,142,624)
  Investment in direct finance leases, acquired from affiliate               -                -         (123,945)
                                                                  ------------     ------------     ------------

Net cash used in investing activities                                        -                -       (1,266,569)
                                                                  ------------     ------------     ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Principal payments on discounted lease rentals                        (7,835)      (4,432,906)      (4,876,162)
  Principal payments on financed operating lease rentals            (1,123,270)        (377,585)        (172,559)
  Distributions to partners                                         (9,624,188)      (8,357,211)     (11,744,201)
  Redemptions of Class  A limited partner units                           (699)         (24,152)        (130,788)
                                                                  ------------     ------------     ------------

Net cash used in financing activities                              (10,755,992)     (13,191,854)     (16,923,710)
                                                                  ------------     ------------     ------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                (2,273,797)         167,398       (1,820,375)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                       2,839,510        2,672,112        4,492,487
                                                                  ------------     ------------     ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR                          $    565,713     $  2,839,510     $  2,672,112
                                                                  ============     ============     ============

Supplemental disclosure of cash flow information:
  Interest paid on discounted lease rentals                       $         28     $    193,516     $    501,872
  Interest paid on financed operating lease receivables                 40,754           55,889           89,585

</TABLE>



*    As restated - See Note 1 to the Partnership's Financial Statements

                 See accompanying notes to financial statements.

                                      -17-

<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 is in its liquidation  stage, as defined in the Partnership
     Agreement.  During 1997, the Partnership sold a substantial  portion of its
     assets,  and  all  remaining  equipment  was  sold  during  1998.  A  final
     distribution   was  declared  to  the  partners  in  accordance   with  the
     liquidation provisions in the Partnership Agreement in December 1998. It is
     the intent of the general partner to collect the remaining  receivables and
     settle all liabilities  during 1999. Excess cash remaining after settlement
     of  liabilities,  if any, will be distributed to the Partners in accordance
     with the Partnership  Agreement.  The Partnership was legally  dissolved on
     December 31, 1998.

     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 represented 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  summarizes 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
                                                               ===========


                                      -18-

<PAGE>


                          CAPITAL PREFERRED YIELD FUND
                        A California Limited Partnership

                    NOTES TO FINANCIAL STATEMENTS, continued

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

     RESTATEMENT, continued

     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
                                                                  ========

     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.


                                      -19-

<PAGE>


                          CAPITAL PREFERRED YIELD FUND
                        A California Limited Partnership

                    NOTES TO FINANCIAL STATEMENTS, continued

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

     PARTNERSHIP  CASH   DISTRIBUTIONS  AND  ALLOCATIONS  OF  PROFIT  AND  LOSS,
     continued

     Cash Distributions, continued
     ------------------

     During the Liquidation Stage, as defined in the Partnership Agreement, cash
     distributions were 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  received  aggregate
          distributions  from all sources equal to their  capital  contributions
          plus their Priority Return, as defined in the Partnership Agreement.

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

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

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

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

          First,  profit was 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  was  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 was 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 were 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.

                                      -20-

<PAGE>


                          CAPITAL PREFERRED YIELD FUND
                        A California Limited Partnership

                    NOTES TO FINANCIAL STATEMENTS, continued

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

     PARTNERSHIP  CASH   DISTRIBUTIONS  AND  ALLOCATIONS  OF  PROFIT  AND  LOSS,
     continued

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

          Fourth,  any remaining profit was 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 was  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 was 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 were  allocated  according  to the  following
     priorities:

          First,  to the  partners in  proportion  to, and to the extent of, any
          profits  allocated for such fiscal period and all prior fiscal periods
          in reverse chronological order and priority.

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

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

     Financial Reporting - Profits and Losses
     ----------------------------------------

     For financial reporting purposes,  net income was 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.


                                      -21-

<PAGE>


                          CAPITAL PREFERRED YIELD FUND
                        A California Limited Partnership

                    NOTES TO FINANCIAL STATEMENTS, continued

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

     RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS

     In June 1997, the Financial  Accounting Standards Board issued Statement of
     Financial  Accounting  Standards No. 130,  Reporting  Comprehensive  Income
     ("Statement  130"),  which  requires  comprehensive  income to be displayed
     prominently  within  the  financial  statements.  Comprehensive  income  is
     defined  as  all  recognized   changes  in  equity  during  a  period  from
     transactions and other events and circumstances except those resulting from
     investments  by owners and  distributions  to owners.  Net income and items
     that  previously  have been  recorded  directly  in equity are  included in
     comprehensive  income.   Statement  130  affects  only  the  reporting  and
     disclosure  of  comprehensive  income  but does not affect  recognition  or
     measurement  of  income.  Statement  130  is  effective  for  fiscal  years
     beginning after December 15, 1997, with earlier application permitted.  The
     Partnership  adopted  Statement  130 in the  first  quarter  of  1998.  The
     adoption did not have an impact on its financial reporting.

     In June 1997, the Financial  Accounting Standards Board issued Statement of
     Financial  Accounting  Standards No. 131,  Disclosures about Segments of an
     Enterprise  and  Related  Information   ("Statement  131").  Statement  131
     provides  guidance for reporting  information  about operating  segments in
     annual financial  statements and requires reporting of selected information
     about operating  segments in interim financial reports of public companies.
     An operating  segment is defined as a component of a business  that engages
     in business activities from which it may earn revenue and incur expenses, a
     component whose operating  results are regularly  reviewed by the company's
     chief  operating  decision  maker,  and  a  component  for  which  discrete
     financial information is available.  Statement 131 establishes quantitative
     thresholds for determining  operating segments of a company.  Statement 131
     is  effective  for fiscal years  beginning  after  December 15, 1997,  with
     earlier application permitted. The Partnership adopted Statement 131 in the
     first quarter of 1998. Since the Partnership  operates in a single business
     segment, the adoption did not have an impact on its financial reporting.

     In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
     Accounting for Derivative  Instruments and Hedging  Activities  ("Statement
     133").  Statement 133  establishes  accounting and reporting  standards for
     derivative  instruments  and for hedging  activities.  It requires  that an
     entity  recognize all  derivatives  as either assets or  liabilities in the
     statement  of  financial  position and measure  those  instruments  at fair
     value. Statement 133 is effective for fiscal years beginning after June 15,
     1999, with earlier application permitted. Statement 133 will have no effect
     on the Partnership's financial reporting.






                                      -22-

<PAGE>


                          CAPITAL PREFERRED YIELD FUND
                        A California Limited Partnership

                    NOTES TO FINANCIAL STATEMENTS, continued

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

     LONG-LIVED ASSETS

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

     LEASE ACCOUNTING

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

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

     NET INVESTMENT IN DIRECT FINANCE LEASES ("DFLS")

     The cost of the equipment,  including  acquisition fees paid to the general
     partner, is recorded as net investment in DFLs on the accompanying  balance
     sheet.  Leasing  revenue,  which is recognized  over the term of the lease,
     consists of the excess of lease payments plus the estimated  residual value
     over the equipment's cost. Earned income is recognized monthly to provide a
     constant  yield and is  recorded  as  direct  finance  lease  income on the
     accompanying  income  statements.  Residual values are established at lease
     inception  equal to the  estimated  value to be received from the equipment
     following  termination of the initial lease (which in certain circumstances
     includes  anticipated  re-lease  proceeds),  as  determined  by the general
     partner.  In  estimating  such values,  the general  partner  considers all
     relevant information regarding the equipment and the lessee.

                                      -23-

<PAGE>


                          CAPITAL PREFERRED YIELD FUND
                        A California Limited Partnership

                    NOTES TO FINANCIAL STATEMENTS, continued

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

     EQUIPMENT ON OPERATING LEASES ("OLS")

     The cost of  equipment,  including  acquisition  fees  paid to the  general
     partner, is recorded as leased equipment in the accompanying balance sheets
     and is  depreciated  on a  straight-line  basis  over the lease  term to an
     amount equal to the estimated residual value at the lease termination date.
     Leasing revenue consists  principally of monthly rents and is recognized as
     operating lease rentals in the  accompanying  income  statements.  Residual
     values are  established at lease  inception equal to the estimated value to
     be received from the equipment  following  termination of the initial lease
     (which in certain circumstances includes anticipated re-lease proceeds), as
     determined by the general partner.  In estimating such values,  the general
     partner considers all relevant information and circumstances  regarding the
     equipment and the lessee.  Because  revenue,  depreciation  expense and the
     resultant   profit  margin  before  interest  expense  are  recorded  on  a
     straight-line  basis,  and interest  expense on  discounted  lease  rentals
     (discussed  below) is recorded on the interest  method,  lower  returns are
     realized  in the early  years of the term of an OL and  higher  returns  in
     later years.

     NON-RECOURSE DISCOUNTING OF RENTALS

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

     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.

                                      -24-

<PAGE>


                          CAPITAL PREFERRED YIELD FUND
                        A California Limited Partnership

                    NOTES TO FINANCIAL STATEMENTS, continued

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

     ALLOWANCE FOR LOSSES

     An allowance for losses is  maintained at levels  determined by the general
     partner to  adequately  provide  for any  other-than-temporary  declines in
     asset values. In determining losses,  economic conditions,  the activity in
     the  used   equipment   markets,   the  effect  of  actions  by   equipment
     manufacturers,  the financial condition of lessees, the expected courses of
     action by lessees  with regard to leased  equipment at  termination  of the
     initial lease term,  and other factors which the general  partner  believes
     are  relevant,  are  considered.  Asset  chargeoffs  are recorded  upon the
     termination or remarketing of the underlying assets. The lease portfolio is
     reviewed quarterly to determine the adequacy of the allowance for losses.

     TRANSACTIONS SUBSEQUENT TO INITIAL LEASE TERMINATION

     After the initial lease term of equipment on lease  expires,  the equipment
     is either sold or re-leased to the existing  lessee or another third party.
     The remaining net book value of equipment  sold is removed and gain or loss
     recorded when equipment is sold. The accounting for re-leased  equipment is
     consistent  with the accounting  described  under "Net Investment in Direct
     Finance Leases" and "Equipment on Operating Leases" above.

     INCOME TAXES

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

     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  at  December  31,  1997,   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.

                                      -25-

<PAGE>


                          CAPITAL PREFERRED YIELD FUND
                        A California Limited Partnership

                    NOTES TO FINANCIAL STATEMENTS, continued

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

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

                                                                         1997
                                                                         ----

     Minimum lease payments receivable                                $  58,429
     Estimated residual values                                          195,418
     Deferred initial leasing costs, net                                  1,873
     Less unearned income                                               (26,024)
                                                                      ---------
                                                                      $ 229,696
                                                                      =========

3.   Leased Equipment
     ----------------

     The  Partnership's  investments  in equipment on operating  leases by major
     classes as of December 31, 1997 were:

                                                                        1997
                                                                        ----

     Transportation and industrial equipment                       $  2,796,018
     Computers and peripherals                                          822,667
     Office furniture and equipment                                   1,689,361
     Medical and research equipment                                     377,503
     Other                                                               60,350
                                                                   ------------
         Total                                                        5,745,899
     Less:
       Accumulated depreciation                                      (4,593,820)
       Allowance for losses                                             (77,479)
                                                                   ------------
                                                                   $  1,074,600
                                                                   ============

     Depreciation expense for 1998, 1997 and 1996 was $234,754,  $3,760,718 and,
     $6,124,604, respectively.

4.   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
     
                                      -26-

<PAGE>


                          CAPITAL PREFERRED YIELD FUND
                        A California Limited Partnership

                    NOTES TO FINANCIAL STATEMENTS, continued


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

     Maximum Front-end Fee, continued
     --------------------------------

     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  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 $34,133,
     $425,860 and $702,219 in 1998, 1997 and 1996, 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 $95,968,  $136,955
     and 101,145 in 1998, 1997 and 1996, respectively.

5.   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>


                                                                      1998             1997             1996
                                                                      ----             ----             ----

    <S>                                                          <C>              <C>              <C>        
     Net income per financial statements                          $  (211,615)     $ 2,056,120      $ 2,239,112
     Differences due to:
       Direct finance leases                                          163,833        2,090,563        2,949,142
       Depreciation                                                  (707,805)        (455,865)      (2,802,075)
       Provision for losses                                           836,085          740,000        1,130,000
       Gain (loss) on sale of equipment                            (4,445,445)       3,022,140       (2,624,981)
       Other                                                           36,245         (131,242)         302,689
                                                                  -----------      -----------      -----------
     Partnership income (loss) for federal income tax purposes    $(4,328,702)     $ 7,321,716      $ 1,193,887
                                                                  ===========      ===========      ===========

</TABLE>


                                      -27-

<PAGE>


                          CAPITAL PREFERRED YIELD FUND
                        A California Limited Partnership

                    NOTES TO FINANCIAL STATEMENTS, continued

5.   Tax Information (Unaudited), continued
     ---------------

     As  of  December  31,  1998,  the  partners'   capital   accounts  per  the
     accompanying  financial statements and for federal income tax purposes were
     $0.

6.   Concentration of Credit Risk
     ----------------------------

     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).

     The Partnership  leased equipment to a significant  number of lessees.  Two
     lessees and their affiliates accounted for approximately 20% ($578,932) and
     10% ($297,550) of total leasing and remarketing  revenue of the Partnership
     during 1998.

7.   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,  1998  for cash and cash
     equivalents, accounts receivable, accounts payable and accrued liabilities,
     payables to affiliates 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  22, 1999,  we reported on the balance  sheets of Capital
Preferred Yield Fund, a California limited partnership,  as of December 31, 1998
and 1997, and the related  statements of operations  income,  partners' capital,
and cash flows for each of the years in the three-year period ended December 31,
1998, as contained in the Partnership's  annual report on Form 10-K for the year
1998. In connection with our audits of the aforementioned  financial statements,
we also audited the related  financial  statement  Schedule II, as listed in the
accompanying  index. This financial  statement schedule is the responsibility of
the  Partnership's  management.  Our  responsibility is to express an opinion on
this financial statement schedule based on our audits.

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


                                  /s/KPMG LLP 
                                  -------------------- 
                                  KPMG LLP


Denver, Colorado
February 22, 1999

                                      -29-

<PAGE>



                          CAPITAL PREFERRED YIELD FUND
                        A California Limited Partnership

                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
              for the years ended December 31, 1998, 1997 and 1996

COLUMN A                     COLUMN B    COLUMN C     COLUMN D        COLUMN E
--------                    ----------  ----------   ----------       --------
                            Balance at   Additions                    Balance
                            Beginning   Charged to                    at End
Classification               of Year     Expenses    Deductions       of Year
--------------              ----------  ----------   ----------       --------

        1998
-----------------------

Allowance for losses:
  Accounts receivable      $  12,000    $   269,441   $        60    $ 281,501
  Equipment on leases         77,479        566,644      (644,123)           -
                           ---------    -----------    -----------   ---------

     Totals                $  89,479    $   836,085   $  (644,063)   $ 281,501
                           =========    ===========    ===========   =========

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

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
                           =========    ===========    ===========   =========





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


                 See ac companying 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

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


     Richard H. Abernethy       Vice President and Director

     Joseph F. Bukofski         Vice President, Assistant Secretary and Director

     Robert A. Golden           Director

     Mick Myers                 Director

     Ann Danielson              Assistant Vice President

     David J. Anderson          Chief Accounting Officer and Secretary

JOHN F. OLMSTEAD, age 54, joined CAII as Vice President in December,  1988, is a
Senior  Vice  President  of CAI and CAII  and is head of  CAII's  Public  Equity
division.  He has served as Chairman of the Board for Neo-kam Industries,  Inc.,
Matchless Metal Polish Company, Inc. and ACL, Inc. for more than 5 years. He has
over 20 years of experience  holding various  positions of responsibility in the
leasing  industry.  Mr. Olmstead holds a Bachelor of Science degree from Indiana
University and a Juris Doctorate degree from Indiana Law School.

ANTHONY M. DIPAOLO,  age 40, joined CAII in July 1990 as 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 45, joined CAII in April 1992 as Equipment  Valuation
Manager and  currently  serves as Vice  President of Portfolio  Management.  Mr.
Abernethy has thirteen years experience in the leasing industry, including prior
positions with Barclays  Leasing Inc.,  from November 1986 to February 1992, and
Budd Leasing  Corporation,  from January 1981 to November  1986.  Mr.  Abernethy
holds a Bachelor of Arts in Business Administration from the University of North
Carolina at Charlotte.


                                      -31-

<PAGE>



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

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

ROBERT A. GOLDEN,  age 53, is Vice  President and the National  Sales Manager of
the Company.  Mr. Golden joined the Company in 1993 as a Branch Manager.  He was
promoted  to his  current  position  in  September  1994.  Prior to joining  the
Company, he was an Executive Vice President with the U.S. Funds Group, President
of BoCon Capital  Group and Vice  President  with  Ellco/GE  Capital for fifteen
years. Mr. Golden is an officer, but not a director, of CAII.

MICK MYERS, age 41, joined CAI in February 1992 as a Senior  Portfolio  Manager.
Currently he is Assistant Vice President of Asset Management. Mr. Myers has nine
years experience in the leasing industry.  Previously,  he has held the position
of Senior End of Lease  Negotiator  with  ELLCO/GE  Capital.  Mr.  Myers holds a
Bachelor of Science degree from the University of Wyoming.

ANN 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 46,  joined CAII in August 1990 as Manager of Billing &
Collections   and   currently   serves  as  Assistant   Vice-President/Assistant
Controller.  Prior to joining CAII, Mr. Anderson was Vice-  President/Controller
for Systems  Marketing,  Inc., from 1985 to 1990, and previous to that 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 1998.

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

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

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

                                      -32-

<PAGE>

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

          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

          Class B Limited Partner
          -----------------------

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

     (b)  No directors or officers of the general partner or the Class B limited
          partner  owned any Class A limited  partner  units as of December  31,
          1998.

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


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

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

Following is a summary of the amounts paid or payable to the general partner and
its affiliates during 1998:

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 $34,133 were earned by the general partner during 1998.


                                      -33-

<PAGE>

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

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 $95,968 during
1998.

General Partner and Class B Limited Partner Distributions
---------------------------------------------------------

Additionally,   the  general   partner   receives  4.5%  of   Partnership   cash
distributions, and is allocated certain Partnership income and gain, relating to
its  general  partnership  interest.   Distributions  declared  and  net  income
allocated  to the  general  partner  totaled  $377,708  for 1998.  Distributions
declared and net loss allocated to the Class B limited partner totaled  $456,951
and $41,383, respectively, for 1998.


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, 1998.

     (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.





                                      -34-

<PAGE>



                                   SIGNATURES

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

Dated:  March 30, 1999             Capital Preferred Yield Fund,
                                   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 30, 1999.

Signature                                   Title

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


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


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


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


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


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


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


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

                                      -35-