<PAGE>   1


                                    FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION

                              Washington, DC 20549

(Mark One)

[X]             QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 1996

                                       OR

[  ]          TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from               to
                              -------------    --------------

Commission file number 0-22300

                        PW Preferred Yield Fund II, L.P.
             (Exact name of registrant as specified in its charter)

           Delaware                                          84-1180783
    ----------------------                               -----------------
   (State of organization)                               (I.R.S. Employer
                                                        Identification No.)

     98 North Washington Street
        Boston, Massachusetts                               02114
        (Address of principal                            (Zip Code)
         executive offices)

        Registrant's telephone number, including area code (617)854-5800

     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 |_|.


                                       
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                        PW Preferred Yield Fund II, L.P.
                      Quarterly Report on Form 10-Q for the
                        Quarter Ended September 30, 1996

                                Table of Contents

                                                                        Page
                                                                        ----

  Part I.      FINANCIAL INFORMATION

               Item 1.    Financial Statements                            2

                          Balance Sheets - September 30, 1996 and
                          December 31, 1995 (unaudited)                   2

                          Statements of Income for the three months
                          ended September 30, 1996 and 1995 (unaudited)   3

                          Statements of Income for the nine months
                          ended September 30, 1996 and 1995 (unaudited)   4

                          Statements of Partners' Equity for the
                          nine months ended September 30, 1996
                          and 1995 (unaudited)                            5

                          Statements of Cash Flows for the nine
                          months ended September 30, 1996 and
                          1995 (unaudited)                                6

                          Notes to Financial Statements (unaudited)       7

               Item 2.    Management's Discussion and Analysis of
                          Financial Condition and Results of Operations  11


Part II.       OTHER INFORMATION

               Item 1.    Legal Proceedings                              15

               Item 6.    Exhibits and Reports on Form 8-K               16


                                       1
<PAGE>   3


                          Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

                        PW PREFERRED YIELD FUND II, L.P.
           BALANCE SHEETS -- SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
                                   (unaudited)

<TABLE>
<CAPTION>
                                                          1996           1995
                                                      -----------   -----------
                                     ASSETS
<S>                                                  <C>             <C>        
Cash and cash equivalents                            $ 2,934,537     $ 1,141,970
Rent and other receivables, net                        1,435,160         678,135
Equipment on operating leases, net of
  accumulated depreciation of $19,603,845
  and $15,875,879, and an allowance                   15,171,600      19,229,813
  of equipment impairment of $671,782 and
  $568,737 at September 30, 1996 and
  December 31, 1995, respectively
Other assets, net                                         21,509          17,233

                                                     -----------    -----------
    Total Assets                                     $19,562,806     $21,067,151
                                                     ===========     ===========

                        LIABILITIES AND PARTNERS' EQUITY

LIABILITIES:

  Accounts payable and accrued liabilities            $    88,851    $    84,590
  Payable to affiliates (Note 2)                          484,993        308,658
  Deferred rental income                                  144,563        133,476
  Distributions payable to partners                       345,136        319,084
                                                      -----------    -----------
    Total Liabilities                                   1,063,543        845,808
                                                      -----------    -----------

     COMMITMENTS AND CONTINGENCIES (NOTE 3)

PARTNERS' EQUITY:

  General Partners                                        638,071        530,336
  Limited Partners:
    Class A (54,027  Units
      outstanding)                                     15,695,154     17,381,975
    Class B                                             2,166,038      2,309,032
                                                      -----------    -----------
      Total Partners' Equity                           18,499,263     20,221,343
                                                      -----------    -----------
        Total Liabilities and Partners' Equity        $19,562,806    $21,067,151
                                                      ===========    ===========
</TABLE>
                   The accompanying notes are an integral part
                         of these financial statements.


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<PAGE>   4


                        PW PREFERRED YIELD FUND II, L.P.
                              STATEMENTS OF INCOME
             FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
                                   (unaudited)

<TABLE>
<CAPTION>
                                                             1996          1995
                                                       ----------   -----------
<S>                                                    <C>          <C>        
REVENUE:
   Rentals from operating leases                       $1,876,452   $ 2,095,478
   Gain (loss) on sale of equipment                         4,895       (11,936)
   Interest                                                29,504        35,707
                                                       ----------   -----------
                                                        1,910,851     2,119,249
                                                       ----------   -----------

EXPENSES:
   Depreciation and amortization                        1,317,211     1,567,661
   Provision for equipment impairment                     175,000       416,000
   Management and subordinated disposition fees(Note 2)    76,602        89,002
   General and administrative (Note 2)                     27,475        15,763
                                                       ----------   -----------
                                                        1,596,288     2,088,426
                                                       ----------   -----------

NET INCOME                                             $  314,563   $    30,823
                                                       ==========   ===========

NET INCOME ALLOCATED:
   To the General Partners                             $   79,973   $    82,331
   To the Class A Limited Partners                        219,895       (61,160)
   To the Class B Limited Partner                          14,695         9,652
                                                       ----------   -----------
                                                       $  314,563   $    30,823
                                                       ==========   ===========

NET INCOME PER WEIGHTED AVERAGE
NUMBER OF UNITS OF CLASS A LIMITED
PARTNER INTEREST OUTSTANDING                           $     4.07   $     (1.13)
                                                       ==========   ===========
WEIGHTED AVERAGE NUMBER OF
UNITS OF CLASS A LIMITED PARTNER
INTEREST OUTSTANDING                                       54,027        54,027
                                                       ==========   ===========
</TABLE>

                   The accompanying notes are an integral part
                         of these financial statements.


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<PAGE>   5


                        PW PREFERRED YIELD FUND II, L.P.
                              STATEMENTS OF INCOME
              FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
                                   (unaudited)
<TABLE>
<CAPTION>
                                                            1996           1995
                                                     -----------    -----------
<S>                                                  <C>            <C>        
REVENUE:

   Rentals from operating leases                     $ 5,810,893    $ 6,262,619
   Loss on sale of equipment                             (30,356)      (116,797)
   Interest                                               78,085         77,692
                                                     -----------    -----------
                                                       5,858,622      6,223,514
                                                     -----------    -----------

EXPENSES:

   Depreciation and amortization                       4,388,770      4,792,593
   Provision for equipment impairment                    250,000        666,000
   Management and subordinated disposition fees
   (Note 2)                                              241,259        284,554
   General and administrative (Note 2)                    95,395         75,246
                                                     -----------    -----------
                                                       4,975,424      5,818,393
                                                     -----------    -----------

NET INCOME                                           $   883,198    $   405,121
                                                     ===========    ===========

NET INCOME ALLOCATED:

   To the General Partners                           $   237,998    $   313,728
   To the Class A Limited Partners                       541,792         38,273
   To the Class B Limited Partner                        103,408         53,120
                                                     -----------    -----------
                                                     $   883,198    $   405,121
                                                     ===========    ===========

NET INCOME PER WEIGHTED AVERAGE
NUMBER OF UNITS OF CLASS A LIMITED
PARTNER INTEREST OUTSTANDING                         $     10.03    $       .71
                                                     ===========    ===========

WEIGHTED AVERAGE NUMBER OF
UNITS OF CLASS A LIMITED PARTNER
INTEREST OUTSTANDING                                      54,027         54,027
                                                     ===========    ===========
</TABLE>


                   The accompanying notes are an integral part
                         of these financial statements.


                                       4
<PAGE>   6


                        PW PREFERRED YIELD FUND II, L.P.
                         STATEMENTS OF PARTNERS' EQUITY
              FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
                                   (unaudited)

<TABLE>
<CAPTION>
                                                        Class A         Class B
                                         General        Limited         Limited
                                         Partners       Partners        Partner         Total
                                        ---------    ------------    -----------    ------------
<S>                                     <C>          <C>             <C>            <C>         
Balance, January 1, 1996                $ 530,336    $ 17,381,975    $ 2,309,032    $ 20,221,343

   Net income                             237,998         541,792        103,408         883,198

   Distributions declared to partners    (130,263)     (2,228,613)      (246,402)     (2,605,278)
                                        ---------    ------------    -----------    ------------
Balance, September 30, 1996             $ 638,071    $ 15,695,154    $ 2,166,038    $ 18,499,263
                                        =========    ============    ===========    ============




Balance, January 1, 1995                $ 281,500    $ 20,174,448    $ 2,555,570    $ 23,011,518

   Net income                             313,728          38,273         53,120         405,121

   Distributions declared to partners    (130,263)     (2,228,613)      (246,402)     (2,605,278)
                                        ---------    ------------    -----------    ------------

Balance, September 30, 1995             $ 464,965    $ 17,984,108    $ 2,362,288    $ 20,811,361
                                        =========    ============    ===========    ============
</TABLE>


                   The accompanying notes are an integral part
                         of these financial statements.


                                       5
<PAGE>   7


                        PW PREFERRED YIELD FUND II, L.P.
                            STATEMENTS OF CASH FLOWS
              FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
                                   (unaudited)

<TABLE>
<CAPTION>
                                                         1996           1995
                                                     ------------   ------------
CASH FLOWS FROM OPERATING ACTIVITIES:

<S>                                                  <C>            <C>        
   Net income                                        $   883,198    $   405,121
   Adjustments to reconcile net income to net
     cash provided by operating activities:
   Depreciation and amortization                       4,388,770      4,792,593
   Provisions for equipment impairment                   250,000        666,000
       Loss on sale of equipment                          30,356        116,797
       Rent and other receivables                       (630,350)      (242,989)
       Increase in other assets                          (11,326)          --
       Accounts payable and accrued liabilities            4,261         14,934
       Payable to affiliates                             176,335        162,637
       Deferred rental income                             11,087        (61,290)
                                                     ------------   ------------
         Net cash provided by operating activities     5,102,331      5,853,803
                                                     ===========    ===========

CASH FLOWS FROM INVESTING ACTIVITIES:

Proceeds from sale of equipment                           75,400        665,944
   Purchases of equipment on operating leases           (805,938)    (2,423,591)
                                                     ------------   ------------
     Net cash used in investing activities              (730,538)    (1,757,647)
                                                     ===========    ===========

CASH FLOWS FROM FINANCING ACTIVITIES:

   Cash distributions paid to partners                (2,579,226)    (2,605,278)
                                                     ------------   ------------
     Net cash used in financing activities            (2,579,226)    (2,605,278)
                                                     ===========    ===========

NET INCREASE IN CASH AND
CASH EQUIVALENTS                                       1,792,567      1,490,878

CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD                                    1,141,970        906,848
                                                     ------------   ------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD                                        $ 2,934,537    $ 2,397,726
                                                     ===========    ===========
</TABLE>

                   The accompanying notes are an integral part
                         of these financial statements.


                                       6
<PAGE>   8

                        PW PREFERRED YIELD FUND II, L.P.
                          NOTES TO FINANCIAL STATEMENTS
                               SEPTEMBER 30, 1996
                                   (unaudited)

1.   GENERAL

     The accompanying unaudited interim financial statements include all
adjustments (consisting solely of normal recurring adjustments) which are, in
the opinion of the General Partners, necessary to fairly present the financial
position of the Partnership as of September 30, 1996 and the results of its
operations, changes in partners' equity and cash flows for the quarter and nine
months then ended.

     These financial statements should be read in conjunction with the
Significant Accounting Policies and other Notes to Financial Statements included
in the Partnership's audited financial statements for the year ended December
31, 1995.

2.   TRANSACTIONS WITH AFFILIATES

                        Acquisition and Operating Stages

     Acquisition of Equipment  Pursuant to its investment objectives, the
Partnership has acquired, on an all-cash basis, certain leased equipment from
AFG, an affiliate of the Managing General Partner. See Footnote 3 for a
discussion of the AFG Agreement.

     The purchase price of the equipment acquired from AFG is equal to the
lesser of the adjusted cost of the equipment or the appraised value of the
equipment at the time of its acquisition by the Partnership ("AFG carrying
value"). The adjusted cost of the equipment is equal to the price paid by AFG,
plus the cost of an appraisal, AFG's cost of interim financing for the equipment
and any taxes paid by AFG, less certain interim rentals received by AFG with
respect to the equipment. The Partnership purchased equipment for purchase
prices aggregating $782,464 during the nine months then ended September 30,
1996.

     Acquisition Fee  The Managing General Partner, or its affiliates, receives
or is entitled to receive a fee equal to (i) 2.25% of the purchase price of
equipment purchased with net offering proceeds from the sale of Units, and (ii)
3.0% of the purchase price of equipment purchased with reinvested Partnership
income as compensation for evaluating, selecting, negotiating and consummating
the acquisition of the equipment. There was no acquisition fee payable with
respect to the equipment purchased with the Class B Limited Partner's cash
contributions. The Partnership paid acquisition fees of $23,474 during the nine
months ended September 30, 1996 (none during the quarter then ended).


                                       7
<PAGE>   9


     Management Fees  The General Partners are entitled to receive a monthly fee
in an amount equal to 2.0% of gross rentals for Full Payout Leases, as defined
in the Partnership Agreement (in general, leases for which rent due over the
non-cancelable lease term exceeds the Partnership's cost of the equipment), and
5.0% of gross rentals for other leases (payable 66.67% to the Managing General
Partner and 33.33% to the Administrative General Partner) as compensation for
services rendered in connection with the management of the equipment. Management
fees of $75,709 and $235,197 were earned by the General Partners with respect to
the rentals earned by the Partnership during the quarter and nine months ended
September 30, 1996.

     Disposition Fees  The General Partners, or their affiliates, are entitled
to receive a subordinated disposition fee in an amount equal to the lesser of
(i) 50% of the fee that would be charged by an unaffiliated party, or (ii) 3% of
the gross contract price relating to each sale of equipment (payable 50% to the
Managing General Partner or its affiliates and 50% to the Administrative General
Partner) as compensation for negotiating and consummating sales of equipment.
Subordinated disposition fees payable with respect to sales and dispositions
during the quarter and nine months ended September 30, 1996 aggregated $893 and
$6,062 respectively. Cumulative subordinated disposition fees totaled $46,939 at
such date. These fees, which were charged to operations, are not currently
payable since their payment is subordinated to the Class A Limited Partners
having received cash distributions equal to their capital contributions, plus an
8% annual cumulative return (as defined in the Partnership Agreement).

3.   OTHER EVENTS

     a.   AFG Agreement

     On January 1, 1995, AFG entered into a series of agreements with PLM
International, Inc., a Delaware corporation headquartered in San Francisco,
California ("PLM"), whereby PLM would: (i) purchase in multi-step transactions,
certain of AFG's assets and (ii) provide accounting, asset management and
investor services to AFG and certain of AFG's affiliates, including the
Partnership and all other equipment leasing programs managed by AFG (the
"Investment Programs").

     On January 3, 1996, AFG and PLM executed an amendment to the 1995
agreements whereby PLM purchased: (i) AFG's lease origination business and
associated contracts, (ii) the rights to the name "American Finance Group" and
associated logo , and (iii) certain furniture, fixtures and computer software.
Effective January 1, 1996, PLM hired AFG's marketing force and certain other
support personnel in connection with the transaction and relinquished its
responsibilities under the 1995 agreements to provide accounting, asset
management and investor services to AFG, its affiliates and the Investment
Programs after December 31, 1995. Accordingly, AFG and its affiliates retain
ownership and control and all authority and rights with respect to each of the
general partners or managing trustees of the Investment Programs; and AFG, as
Manager, will continue to provide asset management services to the Partnership.


                                       8
<PAGE>   10


     Pursuant to the 1996 amendment to the 1995 agreements, AFG and certain of
its affiliates agreed not to compete with the lease origination business sold to
PLM for a period of five years. AFG reserved the right to satisfy all equipment
needs of the Partnership and all other Investment Programs and reserved certain
other rights not material to the Partnership. AFG also agreed to change its
name, except where it is used in connection with the Investment Programs. AFG's
management considers the amendment to the 1995 agreements to be in the best
interests of AFG and the Partnership. In early 1996, AFG changed its name to
Equis Financial Ltd.

     b.   Legal Matters

     In November 1994, a series of purported class actions (the "New York
Limited Partnership Actions") were filed in the United States District Court for
the Southern District of New York concerning PaineWebber Incorporated sale and
sponsorship of various limited partnership investments, including those offered
by the Partnership. The lawsuits were brought against PaineWebber Incorporated
and Paine Webber Group, Inc. (together, "PaineWebber"), among others, by
allegedly dissatisfied partnership investors. In March 1995, after the actions
were consolidated under the title In re: PaineWebber Limited Partnerships
Litigation, the plaintiffs amended their complaint to assert claims against a
variety of other defendants, including the Administrative General Partner of the
Partnership.

     The amended complaint in the New York Limited Partnership Actions alleged
that, in connection with the sale of interests in the Partnership, PaineWebber
and the Administrative General Partner (1) failed to provide adequate disclosure
of the risks involved with each partnership; (2) made false and misleading
representations about the safety of the investments and the partnership's
anticipated performance; and (3) marketed the partnerships to investors for whom
such investments were not suitable. The plaintiffs also alleged that following
the sale of the partnership investments PaineWebber and the Administrative
General Partner misrepresented financial information about the partnership's
value and performance. The amended complaint alleged that PaineWebber and the
Administrative General Partner violated the Racketeer Influenced and Corrupt
Organizations Act ("RICO") and the federal securities laws. The plaintiffs
sought unspecified damages, including reimbursement for all sums invested by
them in the partnerships, as well as disgorgement of all fees and other income
derived by PaineWebber from the limited partnerships. In addition, the
plaintiffs also sought treble damages under RICO.

     On May 30, 1995, the US District Court certified class action treatment of
the plaintiffs' claims in the class action entitled, In re: PaineWebber Limited
Partnerships Litigation.

     In January 1996, PaineWebber signed a memorandum of understanding with the
plaintiffs in the class action outlining the terms under which the parties have
agreed to settle the case. Pursuant to that memorandum of understanding,
PaineWebber irrevocably deposited $125 million into an escrow fund under the


                                       9
<PAGE>   11


supervision of the United States District Court for the Southern District of New
York ("District Court") to be used to resolve the litigation. On July 17, 1996,
the District Court granted preliminary approval of the proposed settlement of
the class action litigation. As part of the class action settlement, PaineWebber
agreed to pay $125 million and additional consideration to class members. A
final hearing on the proposed settlement is scheduled to continue in November
1996.

     In February 1996, approximately 230 plaintiffs filed an action entitled
Abbate v. PaineWebber Inc. in Sacramento, California Superior Court against
PaineWebber Incorporated and various affiliated entities concerning the
plaintiff's purchases of various limited partnership interests. The complaint
alleges, among other things, that PaineWebber and its related entities committed
fraud and misrepresentation and breached fiduciary duties allegedly owed to the
plaintiffs by selling or promoting limited partnership investments that were
unsuitable for the plaintiffs and by overstating the benefits, understating the
risks and failing to state material facts concerning the investments. The
complaint seeks compensatory damages of $15 million plus punitive damages. In
September 1996, the California Superior Court dismissed many of the plaintiffs'
claims as barred by the applicable statutes of limitation.  

     Under certain limited circumstances, pursuant to the Partnership Agreement
and other contractual obligations, PaineWebber and certain affiliates including
the Administrative General Partner could be entitled to indemnification from the
Partnership for expenses and liabilities in connection with this litigation. The
General Partners are unable to determine the impact, if any, that these actions
will have on the Partnership's financial statements, taken as a whole.


                                       10
<PAGE>   12


Item 2. Management's Discussion and Analysis of Financial Condition and Results
        of Operations

LIQUIDITY AND CAPITAL RESOURCES

     Upon formation of the Partnership, the General Partners each contributed
$500 to the capital of the Partnership. On September 10, 1992, the Partnership
commenced a "best efforts" offering of 200,000 Units of Class A Limited Partner
Interest ("Units") at $500 per Unit ($100,000,000).

     The Partnership had its final admission of Class A Limited Partners on July
26, 1994 receiving gross proceeds of $428,500 from the sale of 857 units. In
total, the Partnership received gross offering proceeds of $27,013,500 from the
sale of 54,027 Units, of which $1,895,500 was received during 1994, $8,314,500
was received during 1993 and $16,803,500 was received during 1992. The
Partnership incurred $3,260,594 of aggregate sales commissions and other
offering expenses in connection with the sale of these Units, thus receiving
$23,752,906 of net offering proceeds.

     The Class B Limited Partner was required to contribute cash to the
Partnership in an amount equal to 12.5% of the aggregate purchase price of the
equipment purchased with the offering proceeds received from the sale of Units
and the cash contributed by the Class B Limited Partner. The Class B Limited
Partner contributed $231,098, $1,022,543 and $2,031,736 during 1994, 1993 and
1992, respectively.

     The Partnership conducted no activities and recognized no profits or losses
prior to the initial closing for the sale of Units on November 16, 1992, at
which time the Partnership commenced operations. The Partnership acquired a
portion of its equipment portfolio following each of the five closings which
have been held for the sale of Units. The Partnership used the net contributed
capital to purchase $27,002,464 of equipment, of which $1,898,275, $8,415,175
and $16,689,014 was purchased during 1994, 1993 and 1992, respectively (not
including equipment purchased pursuant to the Partnership's reinvestment
program) and the balance of $35,819 was retained as working capital.

     The Partnership commenced its equipment reinvestment phase during 1993 by
investing excess cash flows available after the payment of the distributions to
the partners in additional equipment. As of September 30, 1996, equipment
purchased pursuant to the reinvestment program including acquisition fees and
expenses totaled $13,266,686 of which $805,938 was acquired during the 9 months
ended September 30, 1996. As of September 30, 1996, the Partnership had
approximately $2,551,000 of cash generated from operating activities and sales
of equipment in excess of accrued distributions which is available for
reinvestment in additional equipment. Of such amount, $1,126,000 (including
acquisition fees) was reinvested in additional leased equipment in October 1996.
Additional equipment will be purchased pursuant to the reinvestment program
during 1996 and in future years during the reinvestment period (which will end
in either 1999 or 2000, at the General Partners' discretion).

     The Partnership invests working capital and cash flow from operations prior
to its distribution to the partners or its reinvestment in additional equipment
in short-term highly


                                       11
<PAGE>   13

liquid investments. These investments are primarily short-term commercial paper
issued by large domestic corporations. At September 30, 1996, the Partnership's
cash of approximately $2,900,000 was primarily invested in commercial paper.

     Cash and cash equivalents increased $1,792,567 from $1,141,970 at December
31, 1995 to $2,934,537 at September 30, 1996. This increase primarily
represented the amount by which cash generated by operating activities and cash
from sales exceeded distribution requirements and leased equipment purchased
pursuant to the reinvestment program during the nine months ended September 30,
1996.

     Rent and other receivables increased $678,135 from $757,025 at December 31,
1995 to $1,435,160 at September 30, 1996. Accounts receivable established with
respect to equipment sales and dispositions increased $126,667 from $65,400 at
December 31, 1995 to $192,067 at September 30, 1996; in addition, there was an
overall increase in other receivables.

     During the quarter and nine months ended September 30, 1996, the
Partnership declared distributions of cash flow received from operations in the
amount of $868,426 and $2,605,278 respectively. All distributions to the Class A
Limited Partners represented an annualized distribution rate of 11% of their
contributed capital and all distributions to the Class B Limited Partner
represented an annualized distribution rate of 10% of its contributed capital.

     The General Partners believe that the Partnership will generate sufficient
cash flow from operations during 1996 to enable the Partnership to meet current
operating requirements, to continue to fund cash distributions to the Class A
Limited Partners at an annualized rate of 11% on their capital contributions and
to the Class B Limited Partner at an annualized rate of 10% on its capital
contributions (substantial portions of which will constitute returns of capital)
and to provide excess cash for reinvestment in additional leased equipment.

     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. Based upon the amount of net
income reported by the Partnership for accounting purposes, approximately 70%,
respectively, of the 11% cash distributions to the Class A Limited Partners for
the quarter ended September 30, 1996 (76% for the nine months then ended)
constituted a return of capital. Additionally, since inception, approximately
79% of the Class A Limited Partner's 11% cash distributions constituted a return
of capital. However, the total actual return on capital over a leasing
partnership's life can only be determined at the termination of the Partnership
after all residual cash flows (which include proceeds from the re-leasing and
sale of equipment after initial lease terms expire) have been realized.


                                       12
<PAGE>   14


Litigation

     See Footnote 3, "Legal Matters", for a discussion of certain litigation to
which the Partnership is a party.

RESULTS OF OPERATIONS

     Substantially all of the Partnership's revenue during the three months
ended September 30, 1996 was generated from the leasing of the equipment to
unaffiliated third parties under triple net leases which were in effect at the
time the equipment was acquired by the Partnership. The balance of the
Partnership's revenue consisted of interest income from temporary investments
and net gain on sales and dispositions of equipment.

     Under the terms of the triple net leases, all expenses related to the
ownership and operation of the equipment during the quarter and nine months
ended September 30, 1996 were paid for by the lessees. The Partnership recorded
depreciation expense pertaining to the equipment and incurred management fees
and certain general and administrative expenses in connection with the
operations of the Partnership. General and administrative expenses consisted
primarily of investor reporting expenses and transfer agent and audit fees.


                                       13
<PAGE>   15


1996 Compared to 1995

     The Partnership reported net income of $314,563 and $883,198 for the
quarter and nine months ended September 30, 1996 (1996 Quarter and 1996 Period)
as compared to $30,823 and $405,121 for the quarter and nine months ended
September 30, 1995 (1995 Quarter and 1995 Period). The principal reason for the
increase in net income in the 1996 Quarter and 1996 Period as compared to the
1995 Quarter and 1995 Period was that a provision for equipment impairment of
$666,000 was provided in the 1995 Period ($416,000 in the 1995 Quarter) as
compared to $250,000 in the 1996 Period ($175,000 in the 1996 Quarter).

     Rental income decreased by $219,026 and $451,726, or 10% and 7%,
respectively during the 1996 Quarter and 1996 Period as compared to the 1995
Quarter and 1995 Period, principally due to the sale of equipment upon lease
expiration subsequent to the 1995 Quarter (which was earning rental revenue in
the 1995 Quarter) and the renewal of certain equipment at lower rates, partially
offset by rentals from equipment purchased on or after September 30, 1995.

     Interest income decreased by $6,203 but increased by $393 or (17%) and 1%
in the 1996 Quarter and 1996 Period, respectively, as compared to the 1995
Quarter and 1995 Period due principally to the balances of funds available for
reinvestment. These funds are invested in short-term highly liquid investments
until utilized to purchase additional equipment.

     Depreciation and amortization expense decreased by $250,450 and $403,823 or
16% and 8% in the 1996 Quarter and 1996 Period, respectively, as compared to the
1995 Quarter and 1995 Period due to a decrease in equipment subject to operating
leases (attributable to equipment sold subsequent to the 1995 Quarter offset by
equipment purchased subsequent to the 1995 Quarter), and was consistent with the
decrease in rental income.

     Management fees and subordinated dispositions fees decreased by 14% or
$12,400 in the 1996 Quarter as compared to the 1995 Quarter. Subordinated
disposition fees incurred with respect to equipment sold or disposed during the
1996 Quarter ($893) increased by $389 as compared to the 1995 Quarter ($504).
However, management fees decreased by approximately 14% or $12,789 in the 1996
Quarter as compared to the 1995 Quarter as a result of the decrease in rental
revenues upon which such fees are based. Management fees and subordinated
disposition fees decreased by $43,295 or 15% in the 1996 Period as compared to
the 1995 Period. Subordinated disposition fees decreased by $15,532 in the 1996
Period ($6,062) as compared to the 1995 Period ($21,594). Management fees
decreased by 11% or $27,763 in the 1996 Period as compared to the 1995 Period as
a result of the decrease in rental revenue upon which such fees are based.

     General and administrative expenses increased by $11,712 and $20,149 or 74%
and 26% in the 1996 Quarter and 1996 Period as compared to the 1995 Quarter and
1995 Period. The reason for the increase in the 1996 Period as compared to the
1995 Period was due principally to an increase in partnership level income
taxes; the general and


                                       14
<PAGE>   16


administrative expenses for the 1996 Quarter were consistent with prior 1996
Quarters and consistent with the Partnership's level of operations.


                                       15
<PAGE>   17


                           Part II. OTHER INFORMATION

Item 1. Legal Proceedings

     In November 1994, a series of purported class actions (the "New York
Limited Partnership Actions") were filed in the United States District Court for
the Southern District of New York concerning PaineWebber Incorporated sale and
sponsorship of various limited partnership investments, including those offered
by the Partnership. The lawsuits were brought against PaineWebber Incorporated
and Paine Webber Group, Inc. (together, "PaineWebber"), among others, by
allegedly dissatisfied partnership investors. In March 1995, after the actions
were consolidated under the title In re: PaineWebber Limited Partnerships
Litigation, the plaintiffs amended their complaint to assert claims against a
variety of other defendants, including the Administrative General Partner of the
Partnership.

     The amended complaint in the New York Limited Partnership Actions alleged
that, in connection with the sale of interests in the Partnership, PaineWebber
and the Administrative General Partner (1) failed to provide adequate disclosure
of the risks involved with each partnership; (2) made false and misleading
representations about the safety of the investments and the partnership's
anticipated performance; and (3) marketed the partnerships to investors for whom
such investments were not suitable. The plaintiffs also alleged that following
the sale of the partnership investments PaineWebber and the Administrative
General Partner misrepresented financial information about the partnership's
value and performance. The amended complaint alleged that PaineWebber and the
Administrative General Partner violated the Racketeer Influenced and Corrupt
Organizations Act ("RICO") and the federal securities laws. The plaintiffs
sought unspecified damages, including reimbursement for all sums invested by
them in the partnerships, as well as disgorgement of all fees and other income
derived by PaineWebber from the limited partnerships. In addition, the
plaintiffs also sought treble damages under RICO.

     On May 30, 1995, the US District Court certified class action treatment of
the plaintiffs' claims in the class action entitled, In re: PaineWebber Limited
Partnerships Litigation.

     In January 1996, PaineWebber signed a memorandum of understanding with the
plaintiffs in the class action outlining the terms under which the parties have
agreed to settle the case. Pursuant to that memorandum of understanding,
PaineWebber irrevocably deposited $125 million into an escrow fund under the
supervision of the United States District Court for the Southern District of New
York ("District Court") to be used to resolve the litigation. On July 17, 1996,
the District Court granted preliminary approval of the proposed settlement of
the class action litigation. As part of the class action settlement, PaineWebber
agreed to pay $125 million and additional consideration to class members. A
final hearing on the proposed settlement is scheduled to continue in November
1996.


                                       16
<PAGE>   18


     In February 1996, approximately 230 plaintiffs filed an action entitled
Abbate v. PaineWebber Inc. in Sacramento, California Superior Court against
PaineWebber Incorporated and various affiliated entities concerning the
plaintiff's purchases of various limited partnership interests. The complaint
alleges, among other things, that PaineWebber and its related entities committed
fraud and misrepresentation and breached fiduciary duties allegedly owed to the
plaintiffs by selling or promoting limited partnership investments that were
unsuitable for the plaintiffs and by overstating the benefits, understating the
risks and failing to state material facts concerning the investments. The
complaint seeks compensatory damages of $15 million plus punitive damages. In
September 1996, the California Superior Court dismissed many of the plaintiffs'
claims as barred by the applicable statutes of limitation.  

     Under certain limited circumstances, pursuant to the Partnership Agreement
and other contractual obligations, PaineWebber and certain affiliates including
the Administrative General Partner could be entitled to indemnification from the
Partnership for expenses and liabilities in connection with this litigation. The
General Partners are unable to determine the impact, if any, that these actions
will have on the Partnership's financial statements, taken as a whole.

Item 6. Exhibits and Reports on Form 8-K

     (a)  None

     (b)  The Partnership did not file a report on Form 8-K during the third
          quarter of the fiscal year ending December 31, 1996


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<PAGE>   19


                                    SIGNATURE

     Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                        PW Preferred Yield Fund II, L.P.
                        (Registrant)

                        By:      General Equipment Management II, Inc.
                                 A General Partner

Date:  November 7, 1996          By:     /s/ Joseph P. Ciavarella
                                         ------------------------
                                         Joseph P. Ciavarella
                                         Vice President, Secretary,
                                         Treasurer and Chief Financial
                                         and Accounting Officer


                                       18