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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, 2002

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

Commission file number 33-44158


Capital Preferred Yield Fund-III, L.P.
--------------------------------------
(Exact name of registrant as specified in its charter)

Delaware 84-1248907
(State of organization) (I.R.S. Employer Identification Number)

2750 South Wadsworth, C-200, Denver, CO 80227
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (720) 963-9600

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

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


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 Page 36

Page 1 of 41 Pages

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

Capital Preferred Yield Fund-III, L.P., a Delaware limited partnership (the
"Partnership"), was organized on November 2, 1993 and is engaged in the business
of owning and leasing equipment. CAI Equipment Leasing IV Corp. ("CAIEL-IV"), a
Colorado corporation, is the general partner of the Partnership. CAIEL-IV was a
wholly owned subsidiary of Capital Associates, Inc. ("CAI") until September 12,
2000, the date it was purchased in its entirety by Mishawaka Leasing Company,
Inc. ("MLC"). CAI discontinued its operations on December 15, 2000 and filed
Chapter 11 Bankruptcy on October 15, 2001.

Capital Associates International, Inc. ("CAII"), a wholly owned subsidiary of
CAI, was the Class B limited partner of the Partnership prior to September 12,
2000. In exchange for its Class B limited partner interest, CAII contributed
$500,000 (i.e., $10,000 for each $1,000,000 contribution to the Partnership made
by the Class A limited partners) to the Partnership making it the largest single
investor in the Partnership. The contributions of CAII were made simultaneously
with the purchase of equipment by the Partnership. MLC became the Class B
limited partner as of September 12, 2000.

The Partnership's overall investment objectives are to (i) raise the maximum
allowable capital from investors for investment in accordance with the
Partnership's investment objectives described in the Prospectus; (ii) invest
such capital and related indebtedness in a diversified portfolio of equipment
subject to leases to creditworthy businesses with terms ranging from two to
seven years; (iii) if funds are available for distribution, make monthly cash
distributions to the Class A and Class B limited partners during the
reinvestment period (a period that ended approximately June 30, 2000); (iv)
re-invest all available undistributed cash from operations and cash from sales
in additional equipment during the reinvestment period to increase the
Partnership's portfolio of revenue-generating equipment, provided that suitable
equipment can be identified and acquired; and (v) sell or otherwise dispose of
the Partnership's equipment and other assets in an orderly manner during the
liquidation period (within approximately four years of the end of the
reinvestment period) and promptly distribute cash from sales thereof to the
partners.

Since its formation, the Partnership acquired equipment of various types under
lease to third parties on short-term leases (generally 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
comprises material handling equipment, computer and peripheral equipment,
industrial equipment, and telecommunications equipment, among others. The
Partnership entered its liquidation period, as defined in the Partnership
Agreement, in July 2000. During the liquidation period, purchases of equipment
ceased (other than for prior commitments and equipment upgrades). The
Partnership is required to dissolve and distribute all of its assets no later
than December 31, 2011. However, the general partner anticipates that all
equipment will be sold and the Partnership liquidated prior to that date.

The Partnership may assign the rentals from leases to financial institutions, or
acquire leases subject to such assignments, at fixed interest rates on a
nonrecourse basis. The proceeds of this nonrecourse debt financing will be
utilized to finance the purchase of equipment under lease or to invest in
additional equipment under lease. 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 financings assumed in the acquisition of leases, are recorded on the balance
sheet as discounted lease rentals. As lessees make payments to financial
institutions, leasing revenue and interest expense are recorded.

2

Item 1. Business, continued
--------

The Partnership leases equipment to investment grade lessees in diverse
industries including the financial services, retail, telecommunications, energy
and manufacturing industries. The majority of the Partnership's total equipment
under lease was leased to investment grade lessees. Pursuant to the Partnership
Agreement, an investment grade lessee is a company (i) with a net worth in
excess of $100,000,000 (and no debt issues that are rated); or (ii) with a
credit rating of not less than Baa as determined by Moody's Investor Services,
Inc. or comparable credit rating, as determined by another recognized credit
rating service; or (iii) a lessee, all of whose lease payments have been
unconditionally guaranteed or supported by a letter of credit issued by a
company meeting one of the above requirements. The Partnership limits its credit
risk through selective use of nonrecourse debt financing of future lease
rentals, as described above.

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

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

The ultimate rate of return on leases depends, in part, on the general level of
interest rates at the time the leases are originated as well as future equipment
values and on-going lessee creditworthiness. Because leasing is an alternative
to financing equipment purchases with debt, lease rates tend to rise and fall
with interest rates (although lease rate movements generally lag interest rate
changes in the capital markets). The amount of future distributions to the
partners will depend, in part, on future interest rates.

The Partnership has no employees. Prior to September 12, 2000, the general
partner relied upon the services of CAII for origination of leases,
administrative and accounting services, and remarketing of leases and equipment,
among other services related to the Partnership's assets. From September 12,
2000 on, the general partner has contracted with MLC to provide the above
services. Many of the management and administrative personnel of MLC formerly
worked for CAII and serviced the Partnership's leases. The general partner is
entitled to receive certain fees and expense reimbursements in connection with
the performance of these services and is responsible for paying MLC. See Item 10
of this Report, "Directors and Executive Officers of the Partnership" and Item
13 of this Report, "Certain Relationships and Related Transactions".

The Partnership competes in the leasing marketplace as a lessor with a
significant number of other companies, including equipment manufacturers,
leasing companies and financial institutions. The Partnership competes mainly on
the basis of the expertise of its general partner in remarketing equipment,
terms offered in its transactions, pricing and service. Although the Partnership
does not account for a significant percentage of the leasing market, the general
partner believes that the Partnership's marketing strategies, financing
capabilities, and remarketing expertise enable it to compete effectively in the
equipment leasing and remarketing markets.

The Partnership leases equipment to a significant number of lessees. Two lessees
accounted for approximately 23% and 15%, respectively, of total revenue during
2002. One lessee and its affiliates accounted for approximately 13% of total
revenue during 2001.

3

Item 2. Properties
----------

Per the Partnership Agreement, the Partnership does not own or lease any
physical properties other than the equipment discussed in Item 1 of this Report,
"Business."

Item 3. Legal Proceedings
-----------------

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

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

No matters were submitted to a vote of the limited partners of the Partnership,
through the solicitation of proxies or otherwise, during the fourth quarter
ended December 31, 2002.

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 and none is
expected to develop.

(b) At December 31, 2002, there were 2,831 Class A limited partners.

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

During 2002, the Partnership made twelve (12) distributions (a portion of
which constituted a return of capital) to Class A limited partners as
follows:

Distributions Per
$100 Investment
For the Payment (computed on Total
Period Ended Made During weighted average) Distributions
------------ ----------- ----------------- -------------

December 31, 2001 January 2002 $ 1.584 $ 777,897
January 31, 2002 February 2002 1.491 731,955
February 28, 2002 March 2002 1.440 707,246
March 31, 2002 April 2002 0.884 434,119
April 30, 2002 May 2002 1.275 626,201
May 31, 2002 June 2002 1.883 924,684
June 30, 2002 July 2002 1.165 571,915
July 31, 2002 August 2002 1.501 736,897
August 31, 2002 September 2002 0.863 423,954
September 30, 2002 October 2002 0.826 405,360
October 31, 2002 November 2002 1.351 663,508
November 30, 2002 December 2002 0.637 312,846
-------- ----------
$ 14.90 $7,316,582
======== ==========

4

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

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

Distributions may be characterized for tax, accounting and economic
purposes as a return of capital, a return on capital or a portion of
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
leasing partnership's return on capital over its life can only be
determined after all residual cash flows (which include proceeds from
the re-leasing and sale of equipment) have been realized at the
termination of the Partnership.

Distributions for the month ended December 31, 2002, totaling $359,731,
were paid to the Class A limited partners in January, 2003.
Distributions to the general partner and Class B limited partner during
2002 are discussed in Item 13 of this Report, "Certain Relationships and
Related Transactions."

The general partner believes that the Partnership will generate
sufficient cash flows from operations during 2003, to (1) meet current
operating requirements, and (2) enable it to fund cash distributions to
the Class A limited partners in accordance with the Partnership
Agreement. Distributions during the liquidation period will be based
upon cash availability and will vary. All distributions are expected to
be a return of capital for economic and accounting purposes.

During 2001, the Partnership made twelve (12) distributions (a portion
of which constituted a return of capital) to Class A limited partners as
follows:

Distributions Per
$100 Investment
For the Payment (computed on Total
Period Ended Made During weighted average) Distributions
------------ ----------- ----------------- -------------

December 31, 2000 January 2001 $ 1.256 $ 616,800
January 31, 2001 February 2001 0.394 193,519
February 28, 2001 March 2001 1.510 741,344
March 31, 2001 April 2001 0.635 311,923
April 30, 2001 May 2001 1.753 860,617
May 31, 2001 June 2001 1.368 671,666
June 30, 2001 July 2001 2.043 1,003,029
July 31, 2001 August 2001 0.599 294,035
August 31, 2001 September 2001 1.231 604,458
September 30, 2001 October 2001 2.524 1,239,078
October 31, 2001 November 2001 2.477 1,216,248
November 30, 2001 December 2001 0.758 372,337
------- ----------
$ 16.55 $8,125,054
======= ==========

5

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

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

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

Distribution Amount Distribution %
per $100 Class A per $100 Class A
Limited Partner Unit Limited Partner Unit
Payment (computed on (computed on
Made During weighted average) weighted average) (1)
- ----------- ----------------- ---------------------

1994 $ 5.25 10.5%
1995 10.50 10.5%
1996 10.50 10.5%
1997 10.50 10.5%
1998 10.50 10.5%
1999 10.50 10.5%
2000 16.06 16.1%
2001 16.55 16.5%
2002 14.90 14.9%
--------
$ 105.26
--------

(1) Cumulative distributions, as described in note 1 to Notes to Consolidated
Financial Statements, began July 1994.

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

The following selected financial data relates to the years ended December 31,
2002 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.



Years Ended December 31,
------------------------
2002 2001 2000 1999 1998
---- ---- ---- ---- ----


Total revenue $8,339,368 $11,421,913 $15,392,908 $17,896,120 $ 18,490,540
Net income (loss) 1,070,697 (366,977) 473,136 2,200,668 1,745,560
Net income (loss) per weighted average Class A
limited partner unit outstanding 2.02 (0.91) 0.79 4.32 3.40
Total assets 11,199,226 20,677,301 32,441,172 42,103,741 47,803,687
Discounted lease rentals 2,526,644 4,985,065 8,686,491 9,257,171 12,603,909
Distributions declared to partners 7,003,451 8,405,024 8,208,014 5,271,238 5,275,471
Distributions declared per weighted average
Class A limited partner unit outstanding 14.05 16.88 16.44 10.50 10.50


6

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

I. Results of Operations
---------------------

Critical Accounting Policies

The Partnership's accounting for leases falls under guidelines that have been
substantially unchanged since at least 1975. For operating leases, revenue is
recorded on a straight-line basis over the lease term, and depreciation is
recorded on a straight-line basis over the lease term to an amount equal to the
estimated residual value at the lease termination date. For direct finance
leases, revenue and amortization to the estimated residual value at the lease
termination date are recorded using the interest method (i.e. similar to
amortization of a home mortgage).

For both types of leases, two critical assumptions include the probability of
future contractual rent collections and an estimate of future residual value.
The general partner must make judgments when evaluating both of these
assumptions before entering into a lease.

Additionally, the general partner performs quarterly assessments of the carrying
value of its assets, including future contractual rent collections and an
estimate of future residual value. Recovery of an asset is measured by a
comparison of the carrying amount of the asset to future net cash flows expected
to be generated by the asset. When estimating future contractual rent
collections, the general partner considers the then current credit quality of
the lessee. When estimating future residuals, the general partner considers all
relevant facts regarding the equipment and the lessee, including, for example,
the likelihood that the lessee will re-lease or purchase the equipment. If an
impairment loss is indicated, the loss recognized in the quarter is measured by
the amount the carrying value of an asset exceeds its estimated future net cash
flows.

On a per lease basis, future reported results could differ considerably from
expected results as conditions arise that significantly affect these two
critical assumptions. However, the general partner believes that on a portfolio
basis, the likelihood of materially different reported results is minimized (but
not removed entirely) because in the normal course of business the Partnership
a) assigns certain future rents on a nonrecourse basis to financial institutions
for an up front cash payment and b) attempts to keep the Partnership's portfolio
diversified as to lessee and equipment type concentrations.

7

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

Operating Results

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



Years Ended December 31, Years Ended December 31,
------------------------ ------------------------
2002 2001 Change 2001 2000 Change
---- ---- ------ ---- ---- ------


Leasing margin $ 2,071,620 $ 1,857,241 $ 214,379 $ 1,857,241 $ 2,532,535 $ (675,294)
Equipment sales margin 394,470 427,592 (33,122) 427,592 933,489 (505,897)
Interest income 20,849 54,127 (33,278) 54,127 136,770 (82,643)
Management fees paid to
general partner (176,799) (245,156) 68,357 (245,156) (317,680) 72,524
Direct services from
general partner (265,908) (216,350) (49,558) (216,350) (83,615) (132,735)
General and administrative (453,035) (628,681) 175,646 (628,681) (496,241) (132,440)
Provision for losses (520,500) (1,615,750) 1,095,250 (1,615,750) (2,232,122) 616,372
----------- ----------- ----------- ----------- ----------- -----------
Net income (loss) $ 1,070,697 $ (366,977) $ 1,437,674 $ (366,977) $ 473,136 $ (840,113)
=========== =========== =========== =========== =========== ===========


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

Leasing Margin

Leasing margin consists of the following:


Years Ended December 31,
---------------------------------------------------
2002 2001 2000
---- ---- ----


Operating lease rentals $ 7,681,545 $ 10,545,224 $ 14,073,931
Direct finance lease income 242,504 394,970 248,718
Depreciation (5,540,977) (8,531,511) (10,923,830)
Interest expense on discounted lease rentals (311,452) (551,442) (866,284)
----------- ------------ ------------
Leasing margin $ 2,071,620 $ 1,857,241 $ 2,532,535
=========== ============ ============

Leasing margin ratio 26% 17% 18%
== == ==


All components of leasing margin decreased due to portfolio runoff.

Leasing margin and leasing margin ratio vary due to changes in the portfolio
including, among other things, the mix of operating leases versus direct finance
leases, the average maturity of operating leases in the portfolio, the
percentage of leases in the portfolio that have entered their remarketing stage,
and the amount of discounted lease rentals financing the portfolio. Leasing
margin and leasing margin ratio increased primarily due to increases in a) the
percentage of leases in the portfolio that have entered their remarketing stage,
and b) the average maturity of operating leases in the portfolio. Leasing margin
and leasing margin ratio are generally higher as leases enter their remarketing

8

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

stage because typically the rate of return on remarketed leases is higher.
Leasing margin ratio for a direct finance lease is fixed as the lease matures.
However, leasing margin and leasing margin ratio for an operating lease financed
with discounted lease rentals increase as the lease matures since rents and
depreciation are typically fixed while interest expense declines as the related
discounted lease rentals principal is repaid.

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

Equipment Sales Margin

Equipment sales margin from remarketing consists of the following:

Years Ended December 31,
------------------------------------------

2002 2001 2000
---- ---- ----

Equipment sales revenue $ 1,544,768 $ 1,889,127 $ 3,822,554
Cost of equipment sales (1,150,298) (1,461,535) (2,889,065)
Equipment sales margin $ 394,470 $ 427,592 $ 933,489

Equipment sales margin fluctuates based on the composition of equipment
available for sale. Currently, the Partnership is in its liquidation period (as
defined in the Partnership Agreement). Initial leases are expiring and the
equipment is either re-leased or sold to the lessee or a third party. Equipment
sales margin varies with the number and dollar amount of equipment leases that
mature in a particular period and the current market for specific equipment and
residual value estimates.

Interest Income

Interest income varies due to (1) the amount of cash available for investment
(pending distribution or equipment purchases) and (2) the interest rate on such
invested cash.

Expenses

Management fees paid to the general partner are earned on gross rents received
and will fluctuate due to variances in cash flow and the size of the
Partnership's portfolio. Management fees paid to the general partner decreased
due to portfolio run-off.

Direct services from the general partner increased in 2002 compared to 2001
primarily due to increased costs related to management's efforts to collect
receivables owed to the Partnership. Direct services from the general partner
increased in 2001 compared to 2000 primarily due to activities related to
converting the Partnership's assets from the CAII computer systems to the MLC
computer systems.

General and administrative expenses were higher in 2001 compared to 2002 and
2000 primarily because 2001 included a) a one-time charge for software and
computer equipment, and b) charges for data processing and the computer

9

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

conversion described above, all of which were related to the change in ownership
of the general partner.

Provision for losses

The realization of greater than the carrying value of equipment (which occurs
when the equipment is remarketed subsequent to initial lease termination) 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 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 or purchase
the equipment. The nature of the Partnership's leasing activities is such that
it has credit exposure and residual value exposure and will incur losses from
those exposures in the ordinary course of business. The Partnership performs
quarterly assessments of the estimated residual value of its assets to identify
any other-than-temporary losses in value that, if any, are also recorded as
provision for losses.

The provision for losses recorded during 2002 related to the following:
o $256,000 related to the estimated decline in residual value of various
equipment returned to the Partnership at lease maturity.
o $264,500 recognized for losses incurred on equipment sold subsequent to
lease maturity.

The provision for losses recorded during 2001 related to the following:
o $109,960 related to the estimated decline in residual value of computer
equipment returned to the Partnership at lease maturity.
o $678,076 was recognized as a fair market value write-down of certain
transportation and industrial equipment, computer, furniture, fixtures
and equipment.
o $527,714 was recorded due to the decline in the realizable values of
leased furniture, fixtures, semiconductor and other equipment.
o $300,000 for estimated uncollectible accounts receivable. The reserve
was recorded due to the uncertainty of collection. However, management
will continue its efforts to collect the receivables.

The provision for losses recorded during 2000 related to the following:
o $293,807 related to the estimated decline in residual value of computer
equipment returned to the Partnership at lease maturity
o $874,150 was recognized as a fair market value write-down of certain
transportation and industrial equipment, computer, furniture, fixtures
and equipment.
o $173,000 related to lessees who have filed for Chapter 11 bankruptcy
protection during 2000.
o $117,000 was accrued to recognize an anticipated loss on the sale of
certain computer equipment.
o $90,000 was recorded as a reserve for uncollectible accounts receivable
o $277,165 was recorded due to the decline in the realizable values of
leased furniture, fixtures and other equipment.
o $300,000 was recorded as a reserve for a lessee that was placed on
credit watch in January 2001.
o $107,000 was recorded as a reserve for estimated uncollectible accounts
receivable.

10

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

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

The Partnership is in its liquidation period, as defined in the Partnership
Agreement. The Partnership is not purchasing additional equipment and initial
leases are expiring. As a result, both the size of the Partnership's lease
portfolio and the amount of leasing revenue are declining.

The Partnership funds its operating activities principally with cash from rents
and sales of off-lease equipment. Available cash and cash reserves of the
Partnership are invested in short-term government securities pending
distribution to the partners.

During July 2000, the Partnership entered its liquidation period, as defined in
the Partnership Agreement. Consequently, material purchases of equipment subject
to leases have ceased. During 2000, the Partnership acquired equipment subject
to leases with a total equipment purchase price of $11,648,530 (subject to
$3,719,626 of existing nonrecourse debt). Also during 2000, the Partnership
discounted future rental payments from certain leases with lenders on a
nonrecourse basis and received proceeds of $896,890.

During 2002, 2001 and 2000, the Partnership declared distributions to the Class
A limited partners of $6,898,416, $8,285,974 and $8,073,420, respectively, of
which $359,731 was paid during January 2003. A substantial portion of such
distributions are expected to constitute a return of capital. Distributions may
be characterized for tax, accounting and economic purposes as a return of
capital, a return on capital or a portion of both. The portion of each cash
distribution by a partnership that exceeds its net income for the fiscal period
may be deemed a return of capital for accounting purposes. However, the total
percentage of a partnership's return on capital over its life can only be
determined after all residual cash flows (which include proceeds from the
re-leasing and sale of equipment) have been realized at the termination of the
Partnership.

The general partner believes that the Partnership will generate sufficient cash
flows from operations during 2003 to (1) meet current operating requirements,
and (2) enable it to fund cash distributions to the Class A limited partners in
accordance with the Partnership Agreement. Distributions during the liquidation
period will be based upon cash availability and will vary. All distributions are
expected to be a return of capital for economic and accounting purposes.

Until September 2000, the Partnership relied upon the services of CAII, its
affiliate, for origination of leases, administrative and accounting services and
remarketing of leases and equipment, among other services. The General Partner
has terminated its relationship with CAII (see discussion below) and has
contracted with MLC to provide billing, administrative, remarketing and
accounting services. Many of the management and administrative personnel of MLC
formerly worked for CAII and serviced the Partnership's leases.

CAII owed the Partnership $370,324 for rents, remarketing proceeds and other
amounts (the "Prior Rents") collected by CAII on behalf of the Partnership
during the periods prior to February 1, 2000. On September 12, 2000, as part of
the Sale of the General Partnership interest owned by CAII to MLC, MLC repaid in
full the Prior Rents owed by CAII to the Partnership. During 2000, as CAII was
preparing to liquidate, which it did on December 15, 2000, CAII was unable to
provide investment opportunities for reinvestment to the Partnership and
consequently the Partnership's cash balances were higher than normal. Also
during the same period, CAII did not keep up with collections of accounts
receivable, which were higher than normal. Both of these events

11

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

adversely affected the Partnership's performance. CAII subsequently filed
Chapter 11 Bankruptcy on October 15, 2001.


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

In April 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 145 ("SFAS 145"), "Rescission of
FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections". SFAS 145 updates, clarifies and simplifies existing
accounting pronouncements. SFAS 145 rescinds Statement 4, which required all
gains and losses from extinguishments of debt to be aggregated and, if material,
classified as an extraordinary item, net of related income tax effect. As a
result, the criteria in APB Opinion 30 will now be used to classify those gains
and losses. Statement 64 amended Statement 4, and is no longer necessary because
Statement 4 has been rescinded. Statement 44 was issued to establish accounting
requirements for the effects of transition to the provisions of the Motor
Carrier Act of 1980. Because the transition has been completed, Statement 44 is
no longer necessary. SFAS 145 amends Statement 13 to require that certain lease
modifications that have economic effects similar to sale-leaseback transactions
be accounted for in the same manner as sale-leaseback transactions. This
amendment is consistent with the FASB's goal of requiring similar accounting
treatment for transactions that have similar economic effects. SFAS 145 also
makes technical corrections to existing pronouncements. The Partnership does not
believe the adoption of SFAS 145 will have a material impact on the
Partnership's financial position, results of operations or cash flows.

In July 2002, the FASB issued Statement of Financial Accounting Standards No.
146 ("SFAS 146"), "Accounting for Costs Associated With Exit or Disposal
Activities." SFAS 146 addresses financial accounting and reporting for costs
associated with exit or disposal activities, and nullifies Emerging Issues Task
Force Issue No. 94-3 (EITF 94-3"), "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)". SFAS 146 requires recognition of a
liability for a cost associated with an exit or disposal activity when the
liability is incurred, as opposed to being recognized at the date an entity
commits to an exit plan under EITF 94-3. SFAS 146 also establishes that fair
value is the objective for initial measurement of the liability. SFAS 146 is
effective for exit or disposal activities that are initiated after December 31,
2002, with earlier application encouraged. The Partnership does not believe the
adoption of SFAS 146 will have a material impact on the Partnership's financial
position, results of operations or cash flows.

12

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

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 originations; 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's leases with equipment users are non-cancelable and have lease
rates which are fixed at lease inception. The Partnership finances its leases,
in part, with discounted lease rentals at a fixed debt rate. The Partnership's
other assets and liabilities are also at fixed rates. Consequently, the
Partnership has no interest rate risk or other market risk exposure.

13

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

Index to Financial Statements and
Financial Statement Schedule

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

Independent Auditors' Report 15

Balance Sheets at December 31, 2002 and 2001 16

Statements of Operations for the years ended
December 31, 2002, 2001 and 2000 17

Statements of Partners' Capital for the years ended
December 31, 2002, 2001 and 2000 18

Statements of Cash Flows for the years ended
December 31, 2002, 2001 and 2000 19-20

Notes to Financial Statements 21-30



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

Independent Auditors' Report on Schedule 31

Schedule II - Valuation and Qualifying Accounts 32


14


Independent Auditor's Report
----------------------------




The Partners
Capital Preferred Yield Fund-III, L.P.:

We have audited the accompanying balance sheets of Capital Preferred Yield
Fund-III, L.P. as of December 31, 2002 and 2001, and the related statements of
operations, partners' capital, and cash flows for each of the years in the
three-year period ended December 31, 2002. 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 auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Capital Preferred Yield
Fund-III, L.P. as of December 31, 2002 and 2001, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 2002, in conformity with accounting principles generally
accepted in the United States of America.

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

Denver, Colorado
March 13, 2003

15

CAPITAL PREFERRED YIELD FUND-III, L.P.

BALANCE SHEETS
December 31, 2002 and 2001

ASSETS

2002 2001
---- ----

Cash and cash equivalents $ 1,229,412 $ 1,603,588
Accounts receivable, net of allowance for losses
of $139,250 in 2002 and $369,211 in 2001 158,424 1,257,040
Equipment held for sale 51,730 349,333
Net investment in direct finance leases 1,368,607 2,348,080
Leased equipment, net 8,391,053 15,119,260
------------ ------------

Total assets $ 11,199,226 $ 20,677,301
============ ============


LIABILITIES AND PARTNERS' CAPITAL

Liabilities:
Accounts payable and accrued liabilities $ 1,076,491 $ 1,805,041
Payables to affiliates 48,510 48,806
Rents received in advance 108,771 40,205
Distributions payable to partners 363,351 789,971
Discounted lease rentals 2,526,644 4,985,065
------------ ------------

Total liabilities 4,123,767 7,669,088
------------ ------------

Partners' capital:
General partner - -
Limited partners:
Class A 500,000 units authorized; 491,016 units
issued and outstanding in 2002 and 2001 6,811,509 12,719,270
Class B 263,950 288,943
------------ ------------

Total partners' capital 7,075,459 13,008,213
------------ ------------

Total liabilities and partners' capital $ 11,199,226 $ 20,677,301
============ ============

See accompanying notes to financial statements.

16

CAPITAL PREFERRED YIELD FUND-III, L.P.

STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2002, 2001 and 2000



2002 2001 2000
---- ---- ----

Revenue:
Operating lease rentals $ 7,681,545 $ 10,545,224 $ 14,073,931
Direct finance lease income 242,504 394,970 248,718
Equipment sales margin 394,470 427,592 933,489
Interest income 20,849 54,127 136,770
------------ ------------ ------------

Total revenue 8,339,368 11,421,913 15,392,908
------------ ------------ ------------

Expenses:
Depreciation 5,540,977 8,531,511 10,923,830
Management fees paid to general partner 176,799 245,156 317,680
Direct services from general partner 265,908 216,350 83,615
General and administrative 453,035 628,681 496,241
Interest on discounted lease rentals 311,452 551,442 866,284
Provision for losses 520,500 1,615,750 2,232,122
------------ ------------ ------------

Total expenses 7,268,671 11,788,890 14,919,772
------------ ------------ ------------

Net income (loss) $ 1,070,697 $ (366,977) $ 473,136
============ ============ ============

Net income (loss) allocated:
To the general partner $ 70,035 $ 84,050 $ 82,094
To the Class A limited partners 990,655 (446,516) 387,131
To the Class B limited partner 10,007 (4,511) 3,911
------------ ------------ ------------

$ 1,070,697 $ (366,977) $ 473,136
============ ============ ============

Net income (loss) per weighted average Class A limited
partner unit outstanding $ 2.02 $ (0.91) $ 0.79
============ ============ ============

Weighted average Class A limited partner
units outstanding 491,016 491,016 491,184
============ ============ ============


See accompanying notes to financial statements.

17

CAPITAL PREFERRED YIELD FUND-III, L.P.
STATEMENTS OF PARTNERS' CAPITAL
For the Years Ended December 31, 2002, 2001 and 2000




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


Partners' capital, January 1, 2000 $ -- 491,470 $ 29,158,012 $ 377,043 $ 29,535,055

Redemptions -- (454) (19,963) -- (19,963)
Net income 82,094 -- 387,131 3,911 473,136
Distributions declared to partners (82,094) -- (8,073,420) (52,500) (8,208,014)
--------- ------- ------------ --------- ------------

Partners' capital, December 31, 2000 -- 491,016 21,451,760 328,454 21,780,214

Net income (loss) 84,050 -- (446,516) (4,511) (366,977)
Distributions declared to partners (84,050) -- (8,285,974) (35,000) (8,405,024)
--------- ------- ------------ --------- ------------

Partners' capital, December 31, 2001 -- 491,016 12,719,270 288,943 13,008,213

Net income 70,035 -- 990,655 10,007 1,070,697
Distributions declared to partners (70,035) -- (6,898,416) (35,000) (7,003,451)
--------- ------- ------------ --------- ------------
Partners' capital, December 31, 2002 $ -- 491,016 $ 6,811,509 $ 263,950 $ 7,075,459
======== ======= ============ ========= ============


See accompanying notes to financial statements.

18

CAPITAL PREFERRED YIELD FUND-III, L.P.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2002, 2001 and 2000



2002 2001 2000
---- ---- ----

Cash flows from operating activities:
Net income (loss) $ 1,070,697 $ (366,977) $ 473,136
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 5,540,977 8,531,511 10,923,830
Provision for losses 520,500 1,615,750 2,232,122
Proceeds, net of gains on equipment sales 1,150,298 1,461,535 2,889,065

Recovery of investment in direct finance leases 793,508 915,388 1,151,837

Purchases of equipment on operating leases from affiliate -- -- (6,832,595)
Investment in direct financing leases, acquired from affiliate -- -- (1,089,823)
Changes in assets and liabilities:
(Increase) decrease in accounts receivable, net 1,098,616 (686,625) 539,758
Decrease in receivable from affiliates -- -- 715,524
Increase (decrease) in accounts payable and accrued
liabilities (728,550) 786,863 (1,319,233)
Increase (decrease) in payables to affiliates (296) (145,950) 134,351
Increase (decrease) in rents received in advance 68,566 (68,546) (362,602)
------------ ------------ ------------
Net cash provided by operating activities 9,514,316 12,042,949 9,455,370
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from discounted lease rentals -- -- 896,890
Principal payments on discounted lease rentals (2,458,421) (3,701,426) (5,187,197)
Redemptions of Class A limited partnership units -- -- (19,963)
Distributions to partners (7,430,071) (8,267,835) (7,997,578)
------------ ------------ ------------
Net cash used in financing activities (9,888,492) (11,969,261) (12,307,848)
------------ ------------ ------------

Net increase (decrease) in cash and cash equivalents (374,176) 73,688 (2,852,478)
Cash and cash equivalents at beginning of year 1,603,588 1,529,900 4,382,378
------------ ------------ ------------

Cash and cash equivalents at end of year $ 1,229,412 $ 1,603,588 $ 1,529,900
============ ============ ============


See accompanying notes to financial statements.

19

CAPITAL PREFERRED YIELD FUND-III, L.P.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2002, 2001 and 2000



2002 2001 2000
---- ---- ----

Supplemental disclosure of cash flow information:
Interest paid on discounted lease rentals $ 311,452 $ 551,421 $ 860,742

Supplemental disclosure of noncash investing and financing activities:
Discounted lease rentals assumed in equipment acquisitions - - 3,719,626

Rents deducted from cash paid for equipment acquisitions - - 1,502
Miscellaneous deduction from equipment acquisitions - - 7,988


See accompanying notes to financial statements.

20

CAPITAL PREFERRED YIELD FUND-III, L.P.

NOTES TO FINANCIAL STATEMENTS

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

Organization

Capital Preferred Yield Fund-III, L.P. (the "Partnership") was organized
on November 2, 1993 as a limited partnership under the laws of the State
of Delaware pursuant to an Agreement of Limited Partnership (the
"Partnership Agreement"). The Partnership was formed for the purpose of
acquiring and leasing a diversified portfolio of equipment to
unaffiliated third parties. The Partnership will continue until December
31, 2011 unless terminated earlier in accordance with the terms of the
Partnership Agreement. All equipment owned by the Partnership is expected
to be sold and the Partnership liquidated during 2003 or 2004. The
general partner of the Partnership is CAI Equipment Leasing IV Corp., a
wholly owned subsidiary of Mishawaka Leasing Company, Inc. ("MLC").

The general partner manages the Partnership, including investment of
funds, purchase and sale of equipment, lease negotiation and other
administrative duties. The Partnership initially sold 500,000 Class A
limited partner units to 4,968 investors at a price of $100 per Class A
limited partner unit.

MLC is the Class B limited partner. The Class B limited partner
contributed cash, upon acquisition of equipment, in an amount equal to 1%
of gross offering proceeds received from the sale of Class A limited
partner units.

Use of Estimates

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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 and impairment,
as discussed below. Actual results could differ from those estimates.

Partnership Allocations

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

During the Reinvestment Period (as defined in the Partnership Agreement),
available cash is distributed to the partners as follows:

21

CAPITAL PREFERRED YIELD FUND-III, L.P.

NOTES TO FINANCIAL STATEMENTS, continued


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

Partnership Allocations, continued

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

First, 1.0% to the general partner and 99.0% to the Class A
limited partners until the Class A limited partners receive
annual, non-compounded cumulative distributions equal to 10.5% of
their contributed capital.

Second, 1.0% to the general partner and 99.0% to the Class B
limited partner until the Class B limited partner receives annual
non-compounded cumulative distributions equal to 10.5% of its
contributed capital.

Third, any remaining available cash will be reinvested or
distributed to the partners as specified in the Partnership
Agreement.

After the Reinvestment Period (as defined in the Partnership
Agreement), available cash will be distributed to the partners as
follows:

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

Second, 99.0% to the Class A limited partners and 1.0% to the
general partner, until the Class A limited partners achieve Payout
(as defined in the Partnership Agreement).

Third, 99.0% to the Class B limited partner, 1.0% to the general
partner, until the Class B limited partner achieves Payout (as
defined in the Partnership Agreement).

Fourth, 99.0% to the Class A and Class B limited partners (as a
class) and 1.0% to the general partner, until the Class A and
Class B limited partners receive cash distributions equal to 170%
of their capital contributions.

Thereafter, 90% to the Class A and Class B limited partners (as a
class) and 10% to the general partner.

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

There are several special allocations that precede the general
allocations of profits and losses to the partners. The most
significant special allocations are as follows:

22

CAPITAL PREFERRED YIELD FUND-III, L.P.

NOTES TO FINANCIAL STATEMENTS, continued

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

Partnership Allocations, continued

Federal Income Tax Basis Profits and Losses (continued)
-------------------------------------------

First, commissions and expenses paid in connection with the sale of
Class A limited partner units are allocated 1.0% to the general
partner and 99.0% to the Class A limited partners.

Second, depreciation relating to Partnership equipment and any losses
resulting from the sale of equipment are generally allocated 1.0% to
the general partner and 99.0% to the limited partners (shared
99.0%/1.0% by the Class A and Class B limited partners, respectively)
until the cumulative amount of such depreciation and such losses
allocated to each limited partner equals such limited partner's
contributed capital reduced by commissions and other expenses paid in
connection with the sale of Class A limited partner units allocated to
such partner. Thereafter, gain on sale of equipment, if any, will be
allocated to the general partner in an amount equal to the sum of
depreciation and loss on sale of equipment previously allocated to the
general partner.

Third, notwithstanding anything in the Partnership Agreement to the
contrary, and before any other allocation is made, items of income and
gain for the current year (or period) shall be allocated, as quickly
as possible, to the general partner to the extent of any deficit
balance existing in the general partner's capital account as of the
close of the immediately preceding year, in order to restore the
balance in the general partner's capital account to zero.

After giving effect to special allocations, profits (as defined in the
Partnership Agreement) are first allocated in proportion to, and to the
extent of, any previous losses, in reverse chronological order and
priority. Any remaining profits are allocated in the same order and
priority as cash distributions.

After giving effect to special allocations, losses (as defined in the
Partnership Agreement) are allocated in proportion to, and to the extent
of, any previous profits, in reverse chronological order and priority.
Any remaining losses are allocated 1.0% to the general partner and 99.0%
to the limited partners (shared 99.0%/1.0% by the Class A and Class B
limited partners, respectively).

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

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

23

CAPITAL PREFERRED YIELD FUND-III, L.P.

NOTES TO FINANCIAL STATEMENTS, continued

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

Recently Issued Financial Accounting Standards

In April 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 145 ("SFAS 145"),
"Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections". SFAS 145 updates, clarifies
and simplifies existing accounting pronouncements. SFAS 145 rescinds
Statement 4, which required all gains and losses from extinguishments of
debt to be aggregated and, if material, classified as an extraordinary
item, net of related income tax effect. As a result, the criteria in APB
Opinion 30 will now be used to classify those gains and losses. Statement
64 amended Statement 4, and is no longer necessary because Statement 4
has been rescinded. Statement 44 was issued to establish accounting
requirements for the effects of transition to the provisions of the Motor
Carrier Act of 1980. Because the transition has been completed, Statement
44 is no longer necessary. SFAS 145 amends Statement 13 to require that
certain lease modifications that have economic effects similar to
sale-leaseback transactions be accounted for in the same manner as
sale-leaseback transactions. This amendment is consistent with the FASB's
goal of requiring similar accounting treatment for transactions that have
similar economic effects. SFAS 145 also makes technical corrections to
existing pronouncements. The Partnership does not believe the adoption of
SFAS 145 will have a material impact on the Partnership's financial
position, results of operations or cash flows.

In July 2002, the FASB issued Statement of Financial Accounting Standards
No. 146 ("SFAS 146"), "Accounting for Costs Associated With Exit or
Disposal Activities." SFAS 146 addresses financial accounting and
reporting for costs associated with exit or disposal activities, and
nullifies Emerging Issues Task Force Issue No. 94-3 (EITF 94-3"),
"Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)". SFAS 146 requires recognition of a liability for a cost
associated with an exit or disposal activity when the liability is
incurred, as opposed to being recognized at the date an entity commits to
an exit plan under EITF 94-3. SFAS 146 also establishes that fair value
is the objective for initial measurement of the liability. SFAS 146 is
effective for exit or disposal activities that are initiated after
December 31, 2002, with earlier application encouraged. The Partnership
does not believe the adoption of SFAS 146 will have a material impact on
the Partnership's financial position, results of operations or cash
flows.

Long-Lived Assets

The Partnership accounts for long-lived assets under the provisions of
Statement of Financial Accounting Standards No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"). SFAS No.
144 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 lease 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

24

CAPITAL PREFERRED YIELD FUND-III, L.P.

NOTES TO FINANCIAL STATEMENTS, continued

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

cash flows at an appropriate discount 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 that 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., "nonrecourse 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 sheets. 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 statements of operations. Residual
values are established at lease inception equal to the estimated value to
be received from the equipment following termination of the initial lease
as determined by the general partner. In estimating such values, the
general partner considers all relevant information regarding the
equipment and the lessee.

Equipment on Operating Leases ("OLs")

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 statements of
operations. Residual values are established at lease inception equal to
the estimated value to be received from the equipment following
termination of the initial lease 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.

25

CAPITAL PREFERRED YIELD FUND-III, L.P.

NOTES TO FINANCIAL STATEMENTS, continued

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

Nonrecourse Discounting of Future Lease Rentals

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

Transactions Subsequent to Initial Lease Termination

After the initial term of equipment under 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"
discussed above.

Income Taxes

No provision for income taxes has been made in the financial statements
because taxable income or loss is recorded in the tax return 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 approximately $1,200,000 and $1,600,000 at December 31,
2002 and 2001, respectively, are comprised of investments in a mutual
fund which invests solely in U.S. Government treasury bills having
maturities of 90 days or less.

Equipment Held for Sale

Equipment held for sale, 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 (Loss) Per Class A Limited Partner Unit

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

CAPITAL PREFERRED YIELD FUND-III, L.P.

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, were:

2002 2001
---- ----

Minimum lease payments receivable $ 1,317,270 $ 2,361,398
Estimated residual values 224,026 347,924
Unearned income (172,689) (361,242)
----------- -----------
Total $ 1,368,607 $ 2,348,080
=========== ===========

3. Leased Equipment, net
---------------------

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

2002 2001
---- ----

Transportation and industrial equipment 13,601,424 $ 18,969,709
Computers and peripherals 3,333,477 6,637,647
Furniture, fixtures and equipment 6,585,861 7,680,409
Other 1,002,194 1,667,539
------------ -------------
24,522,956 34,955,304
Accumulated depreciation (16,131,903) (19,836,044)
------------ -------------
$ 8,391,053 $ 15,119,260
============ =============

Depreciation expense for 2002, 2001 and 2000 was $5,540,977, $8,531,511
and $10,923,830, respectively.

4. Future Minimum Lease Payments

Future minimum lease payments receivable from noncancelable leases as of
December 31, 2002 are as follows:

Years Ending December 31, Direct Finance Leases Operating Leases
------------------------- --------------------- ----------------

2003 $ 781,184 $ 2,703,559
2004 505,876 1,297,073
2005 30,210 127,781
2006 - 5,711
Thereafter - 1,428
----------- -----------
Total $ 1,317,270 $ 4,135,552
=========== ===========

27

CAPITAL PREFERRED YIELD FUND-III, L.P.

NOTES TO FINANCIAL STATEMENTS, continued

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

Discounted lease rentals outstanding at December 31, 2002 bear interest
at rates primarily ranging between 6% and 11%. Aggregate maturities of
such nonrecourse obligations are:

Years Ending December 31,
-------------------------

2003 $ 1,613,790
2004 889,136
2005 23,718
Total $ 2,526,644

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

Origination Fee and Evaluation Fee
----------------------------------

The general partner receives a fee equal to 3.5% of the sales price of
equipment acquired by the Partnership (up to a maximum cumulative amount
as specified in the Partnership Agreement), 1.5% of which represents
compensation for selecting, negotiating and consummating the acquisition
of the equipment and 2% of which represents reimbursement for services
rendered in connection with evaluating the suitability of the equipment
and the creditworthiness of the lessees. No origination and evaluation
fees were paid during 2002 or 2001. Origination and evaluation fees
totaled approximately $385,000 in 2000, all of which were capitalized by
the Partnership as part of the cost of equipment on operating leases and
net investment in direct financing leases.

Management Fees Paid to General Partner
---------------------------------------

The general partner earns management fees for services performed in
connection with managing the Partnership's equipment equal to 2% of gross
rentals received as permitted under terms of the Partnership Agreement.
The general partner earned approximately $177,000, $245,000, and $318,000
during 2002, 2001 and 2000, respectively.

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. The Partnership
recorded approximately $266,000, $216,000, and $84,000 of direct services
from the general partner during 2002, 2001 and 2000, respectively.

28

CAPITAL PREFERRED YIELD FUND-III, L.P.

NOTES TO FINANCIAL STATEMENTS, continued

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

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

The Partnership did not purchase any equipment during 2002 or 2001. The
Partnership purchased equipment from CAII, with a total purchase price of
approximately $11,649,000 (including approximately $3,720,000 of
discounted lease rentals) during 2000. The Partnership purchased the
equipment at CAII's historical cost plus reimbursement of other net
acquisition costs, as provided for in the Partnership Agreement.

Payables to Affiliates
----------------------

Payables to affiliates of approximately $49,000 at December 31, 2002 and
2001 consists of $12,000 for management fees paid to the general partner,
$22,000 for reimbursable general and administrative expenses and $15,000
for direct services from general partner for 2002; and $19,000 for
management fees paid to general partner, $9,000 for reimbursable general
and administrative expenses and $21,000 for direct services from general
partner for 2001.

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

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


2002 2001 2000
---- ---- ----

Net income (loss) per financial statements $ 1,070,697 $ (366,977) $ 473,136
Direct finance leases 811,596 1,417,606 1,169,570
Depreciation 108,069 (1,273,495) (1,712,124)
Provision for losses 520,500 1,615,750 2,232,122
Gain (loss) on sale of equipment (448,144) (221,757) 222,475
Other (118,167) 71,179 (577,061)
----------- ----------- -----------
Partnership income for federal income tax purposes $ 1,944,551 $ 1,242,306 $ 1,808,118
=========== =========== ===========


29

CAPITAL PREFERRED YIELD FUND-III, L.P.

NOTES TO FINANCIAL STATEMENTS, continued

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

The following reconciles partners' capital for financial reporting
purposes to partners' capital for federal income tax purposes for the
year and period ended December 31,:



2002 2001 2000
---- ---- ----


Partners' capital per financial statements $ 7,075,459 $ 13,008,213 $ 21,780,214
Commissions and offering costs 7,184,603 7,184,603 7,184,603
Direct finance leases 12,434,495 11,622,899 10,205,293
Depreciation (22,018,941) (22,127,010) (20,853,515)
Provision for losses 8,183,686 7,663,186 6,047,436
Gain (loss) on sale of equipment (447,529) 615 222,372
Other 240,982 307,319 235,138
------------ ------------ ------------
Partners' capital for federal income tax purposes $ 12,652,755 $ 17,659,825 $ 24,822,541
============ ============ ============


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

The majority of the Partnership's total equipment under lease was leased
to investment grade companies. Pursuant to the Partnership Agreement, an
investment grade lessee is a company (i) with a net worth in excess of
$100,000,000 (and no debt issues that are rated), or (ii) with a credit
rating of not less than Baa as determined by Moody's Investor Services,
Inc. or comparable credit rating as determined by another recognized
credit rating service; or (iii) a lessee, all of whose lease payments
have been unconditionally guaranteed or supported by a letter of credit
issued by a company meeting one of the above requirements. The
Partnership limits its credit risk through selective use of nonrecourse
debt financing of future lease rentals, as described above.

The Partnership leases equipment to a significant number of lessees. Two
lessees accounted for approximately 23% and 15%, respectively, of total
revenue during 2002. One lessee and its affiliates accounted for
approximately 13% of total revenue during 2001. No lessees accounted for
greater than 10% of total revenue during 2000.

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

30


Independent Auditor's Report on Schedule
----------------------------------------



The Partners
Capital Preferred Yield Fund-III, L.P.:

Under date of March 13, 2003, we reported on the balance sheets of Capital
Preferred Yield Fund-III, L.P. as of December 31, 2002 and 2001, and the related
statements of operations, partners' capital, and cash flows for each of the
years in the three-year period ended December 31, 2002 which are included in the
Partnership's annual report on Form 10-K for the year ended December 31, 2002.
In connection with our audits of the aforementioned financial statements, we
also audited the related financial statement Schedule II. 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
March 13, 2003


31

CAPITAL PREFERRED YIELD FUND-III, L.P.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 2002, 2001 and 2000


COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -------- -------- -------- -------- --------
Balance at Additions Balance
Beginning Charged to at End
Classification of Period Expenses Deductions(1) of Period
- -------------- --------- -------- ------------- ---------

2002
----

Allowance for losses:
Accounts receivable $ 369,211 $ -- $(229,961) $ 139,250

2001
----

Allowance for losses:
Accounts receivable $ 117,000 $ 300,000 $ (47,789) $ 369,211


2000
----

Allowance for losses:
Accounts receivable $ 10,000 $ 107,000 $ -- $ 117,000
Receivable from affiliates 300,000 -- (300,000) --
$ 310,000 $ 300,000 $(300,000) $ 117,000


(1) Principally charge-offs against the established allowances.

See accompanying independent auditor's report

32



Item 9. Changes in and Disagreements with Accountants 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 Equipment Leasing IV Corporation

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

John F. Olmstead President and Director
Joseph F. Bukofski Chief Accounting Officer

John F. Olmstead, age 59, is President of Mishawaka Leasing Co., Inc. since its
formation in September 2000. He was Senior Vice President of CAI from December
1988 until June 2000. He has served as Chairman of the Board for Neo-kam
Industries, Inc., Matchless Metal Polish Company, Inc. and ACL, Inc. since 1983.
He has over 30 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.

Joseph F. Bukofski, age 47, has been Chief Accounting Officer of CAI Equipment
Leasing IV Corporation since January 2002. He was employed by CAII from June
1990 until May 2000, most recently holding the position of Vice President and
Treasurer. He has served as Chief Financial Officer for a private leasing
company since June 2000. Mr. Bukofski holds a Master of Science degree in
accounting from the University of Colorado and an active CPA license from the
State of Colorado.

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

Mr. Bukofski provides services related to the Partnership's accounting as a
consultant to the general partner. The Partnership paid $12,267 to Mr. Bukofski
during 2002 for such services. No compensation was paid by the Partnership to
any other officers or directors of the general partner. See Item 13 of this
Report, "Certain Relationships and Related Transactions," which is incorporated
herein by reference, for a description of the compensation and fees paid to the
general partner and its affiliates by the Partnership during 2002.

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.

33

MLC is the Class B limited partner.

CAI Equipment Leasing IV Corp. is the general partner.

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

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

CAI Equipment Leasing IV Corp.
2750 South Wadsworth
C-200
Denver, Colorado 80227

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

Mishawaka Leasing Company, Inc.
2750 South Wadsworth
C-200
Denver, Colorado 80227

(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, 2002.

(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.

34

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 2002:

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

The general partner earns management fees as compensation for services rendered
in connection with managing the Partnership's equipment equal to 2% of gross
rentals received. Such fees totaled $176,799 for 2002.

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

The general partner is entitled to reimbursement of certain expenses paid on
behalf of the Partnership that are incurred in connection with the Partnership's
operations. Such reimbursable expenses totaled $265,908 during 2002.

Additionally, the general partner is allocated 1% of Partnership cash
distributions and net income relating to its general partner interest in the
Partnership. Distributions and net income allocated to the general partner
totaled $70,035, respectively, for 2002. Distributions and net income allocated
to the Class B limited partner totaled $35,000 and $10,007, respectively, for
2002.

Item 14. Controls and Procedures
-----------------------

Within 90 days prior to the date of this annual report, an evaluation was
performed under the supervision and with the participation of the general
partner's management, including the President and Director, and the Chief
Accounting Officer, of the effectiveness of the design and operation of the
Partnership's disclosure controls and procedures. Based on that evaluation, the
general partner's management, including the President and Director, and the
Chief Accounting Officer, concluded that the Partnership's disclosure controls
and procedures are effective in timely alerting them to material information
relating to the Partnership required to be included in the Partnership's
periodic SEC reports. There have been no significant changes in the
Partnership's internal controls or in other factors that could significantly
affect internal controls subsequent to the date of their evaluation.

35

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
---------------------------------------------------------------

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

1. Financial Statements: (Incorporated by reference to Item 8
of this Report, "Financial Statements and Supplementary
Data").

2. Financial Statement Schedule: (Incorporated by reference to
Item 8 of this Report, "Financial Statements and
Supplementary Data").

(b) The Partnership did not file any reports on Form 8-K during the
quarter ended December 31, 2002.

(c) Exhibits required to be filed.

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

4.1* Capital Preferred Yield Fund-III Limited Partnership
Agreement

4.2* First Amendment to Limited Partnership Agreement dated June
14, 1994

4.3* Amended and Restated Agreement of Limited Partnership of
Capital Preferred Yield
Fund-III, L.P.

99.1 Certification by John F. Olmstead pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.

99.2 Certification by Joseph F. Bukofski pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.


* 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.

36

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 28, 2003 Capital Preferred Yield Fund-III, L.P.

By: CAI Equipment Leasing IV Corporation

By: /s/Joseph F. Bukofski
------------------------
Joseph F. Bukofski
Chief Accounting Officer

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 28, 2003.

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

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

37

CERTIFICATION

I, John F. Olmstead, President and Director of CAI Equipment Leasing IV
Corp., the General Partner of Capital Preferred Yield Fund-III, L.P. (the
"Partnership"), certify that:

1. I have reviewed this report on Form 10-K of the Partnership;

2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading as with respect to the
period covered by this annual report;

3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in
all material respects the financial condition, results of operations and
cash flows of the Partnership as of, and for, the periods presented in
this annual report;

4. The Partnership's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Partnership and
have:

a. designed such disclosure controls and procedures to ensure
that material information relating to the Partnership, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report
in being prepared;

b. evaluated the effectiveness of the Partnership's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this report (the "Evaluation Date"); and

c. presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The Partnership's other certifying officer and I have disclosed,
based on our most recent evaluation, to the Partnership's auditors:

a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the Partnership's
ability to record, process, summarize and report financial data and
have identified for the Partnership's auditors any material
weaknesses in internal controls; and

b. any fraud, whether of not material, that involves
management or other employees who have a significant role in the
Partnership's internal controls; and

6. The Partnership's other certifying officer and I have indicated
in this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.

/s/John F. Olmstead
-------------------
John F. Olmstead
President and Director
(Principal Executive Officer)
March 28, 2003

38

CERTIFICATION

I, Joseph F. Bukofski, Chief Accounting Officer of CAI Equipment Leasing
IV Corp., the General Partner of Capital Preferred Yield Fund-III, L.P.
(the "Partnership"), certify that:

1. I have reviewed this report on Form 10-Kof the Partnership;

2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading as with respect to the
period covered by this annual report;

3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in
all material respects the financial condition, results of operations and
cash flows of the Partnership as of, and for, the periods presented in
this annual report;

4. The Partnership's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Partnership and
have:

a. designed such disclosure controls and procedures to ensure
that material information relating to the Partnership, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report
in being prepared;

b. evaluated the effectiveness of the Partnership's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this report (the "Evaluation Date"); and

c. presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The Partnership's other certifying officer and I have disclosed,
based on our most recent evaluation, to the Partnership's auditors:

a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the Partnership's
ability to record, process, summarize and report financial data and
have identified for the Partnership's auditors any material
weaknesses in internal controls; and

b. any fraud, whether of not material, that involves
management or other employees who have a significant role in the
Partnership's internal controls; and

6. The Partnership's other certifying officer and I have indicated
in this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.


/s/Joseph F. Bukofski
---------------------
Joseph F. Bukofski
Chief Accounting Officer
(Principal Accounting and Financial Officer)
March 28, 2003

39