(FORTUNE Magazine) – After tax reform effectively wiped out tax shelters, you might have thought limited partnerships would go the way of the dinosaur. They haven't. With tax rates lower, sponsors of partnerships have avoided extinction by emphasizing plans that produce income -- lots of it, they claim -- rather than shelter it. One of the fastest-growing species of these so-called income funds is the capital equipment leasing limited partnership, which offers the prospect of high double-digit yields. Like the yields, the risks are on the high side. Specifics of leasing programs vary widely, but generally the partnerships buy capital equipment, such as heavy machinery, transportation equipment, or computers, and then lease it at monthly rates that bring in up to 42% of the purchase price per year. Limited partners, who put up $2,500 or more, are attracted by touted average annual yields from 10% to 16%. Surprisingly, changes in the tax code have actually improved the environment for leasing partnerships. Income from them is considered ''passive,'' to use jargon from the new tax law, so it can be used to soak up losses from any tax shelters still in your portfolio. Nancy Schabel, an analyst with Robert A. Stanger & Co., a Shrewsbury, New Jersey, research firm specializing in partnerships, says the demise of the investment tax credit has ( probably raised lease rates. Another plus: Even after tax reform, a significant portion of the income from the partnership is shielded from taxes because of depreciation allowances on the leased equipment. Most enticing are the potential yields. But they have made some experts wary. ''I think a lot of these partnerships are overly optimistic about how much they can return,'' says Kenneth Pontikes, CEO of Comdisco, a major lessor of IBM mainframes. ''Equipment can become damaged or obsolete, lease rates can fall, or the equipment may depreciate faster than expected.'' Kim Galatolo, director of marketing at Phoenix Leasing, an experienced player in the business, disagrees. ''Our Phoenix Leasing Income Fund 1975 has had an annual average return of close to 16% over the past 12 years,'' she says. Phoenix Leasing Capital Assurance Fund, the firm's latest offering, currently pays a relatively paltry 7% yield. But Galatolo says that once the fund is finished purchasing equipment, the yield should rise. PLM Equipment Growth Fund II deals exclusively in used transportation equipment, which CEO Mark Hungerford says is less likely than high-tech equipment to become obsolete. Another partnership that rents transportation equipment is CIS Capital Equipment Fund Ltd. 2. ''We lease most of our equipment in such a way that it's paid for in one lease, which lowers risk,'' says Micheal Cole, president of CIS's partner in the deal, RJ Leasing. CIS is planning another joint partnership with E.F. Hutton. Atel Cash Distribution Fund is assembling a portfolio of leases on a broad range of equipment. The diversity should protect against cyclical downturns in any one sector of the economy. IEA Income Fund VII, on the other hand, leases only one type of equipment, shipping containers. ''We really know the business, and we plan to stick with it,'' says Dennis Tietz, president of IEA Securities. Tietz notes that containers last a long time and so retain their value. ''When they rust out,'' he says, ''we can sell them as miniwarehouses in a secondary market.''

CHART: PARTNERSHIP TYPE OF SIZE OF YEARS IN ESTIMATED EQUIPMENT PARTNERSHIP EQUIPMENT FRONT END LEASED FUND LEASING LOAD

Atel Cash Distribution Medical, office, Fund transportation $7.5 million 7 18% ! 800-543-2835 and industrial

CIS Capital Equipment Transportation Fund Ltd. 2 and industrial $20 million 5 20% 800-237-4240

IEA Income Fund VII Container shipping 800-821-7035 $20 million 8 13%

Phoenix Leasing Capital IBM computer and Assurance Fund peripheral $80 million 14 14% 800-227-2626

PLM Equipment Growth Transportation Fund II $120 million 15 17% 800-227-0830

CREDIT: SOURCE: ROBERT A. STANGER & CO. CAPTION: Reaping the Rewards of Renting Equipment-leasing limited partnerships tout rich returns, but they also charge hefty fees up front. Often payouts are low at first, then rise until the partnership liquidates after eight years or so. DESCRIPTION: See above.