SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

(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                          0-21382
                             ---------------------------------------------------

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

       Delaware                                         84-1184628
-----------------------                     ------------------------------------
(State of organization)                     (I.R.S. Employer Identification No.)

7175 West Jefferson Avenue, Suite 4000
         Lakewood, Colorado                               80235
----------------------------------------                ----------
(Address of principal executive offices)                (Zip Code)


        Registrant's telephone number, including area code (303) 980-1000
                                                           --------------

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    .
                                       ---      ---

                        Exhibit Index appears on Page 17

                               Page 1 of 18 Pages



<PAGE>



                      CAPITAL PREFERRED YIELD FUND-II, L.P.

                          Quarterly Report on Form 10-Q
                              for the Quarter Ended
                               September 30, 1996


                                Table of Contents
                                -----------------

PART I.  FINANCIAL INFORMATION                                             PAGE
                                                                           ----

    Item 1.  Financial Statements (Unaudited)

             Balance Sheets - September 30, 1996 and December 31, 1995      3

             Statements of Income - Three and Nine months ended
             September 30, 1996 and 1995                                    4

             Statements of Cash Flows - Nine months ended
             September 30, 1996 and 1995                                    5

             Notes to Financial Statements                                 6-11

    Item 2.  Management's Discussion and Analysis of Financial Condition
             and Results of Operations                                    12-16


PART II. OTHER INFORMATION

    Item 1.  Legal Proceedings                                             17

    Item 6.  Exhibits and Reports on Form 8-K                              17

             Signature                                                     18


                                        2

<PAGE>



                      CAPITAL PREFERRED YIELD FUND-II, L.P.

                                 BALANCE SHEETS
                                   (Unaudited)

                                                    September 30,   December 31,
                                                        1996            1995
                                                    -------------   ------------

                                     ASSETS

Cash and cash equivalents                            $ 3,413,662     $ 2,092,691
Accounts receivable, net                                 234,049         126,773
Receivable from affiliate                                      -          14,100
Equipment held for sale or re-lease                      889,486          60,000
Net investment in direct finance leases                5,147,635       5,156,688
Leased equipment, net                                 25,606,832      24,356,282
                                                     -----------     -----------
     Total assets                                    $35,291,664     $31,806,534
                                                     ===========     ===========

                        LIABILITIES AND PARTNERS' CAPITAL

LIABILITIES:
     Accounts payable and accrued liabilities         $   302,367    $   401,889
     Payable to affiliates                                 22,269         25,552
     Rents received in advance                            106,392        159,484
     Distributions payable to partners                    341,586        343,712
     Discounted lease rentals                          13,049,334     10,009,561
     Financed operating lease rentals                   3,438,111              -
                                                      -----------    -----------

         Total liabilities                             17,260,059     10,940,198
                                                      -----------    -----------

PARTNERS' CAPITAL:
     General partner                                            -              -
     Limited Partners:
         Class A                                       17,790,889     20,601,723
         Class B                                          240,716        264,613
                                                      -----------    -----------

Total partners' capital                                18,031,605     20,866,336
                                                      -----------    -----------

Total liabilities and partners' capital               $35,291,664    $31,806,534
                                                      ===========    ===========



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

                                        3

<PAGE>

<TABLE>
<CAPTION>

                      CAPITAL PREFERRED YIELD FUND-II, L.P.

                              STATEMENTS OF INCOME
                                   (Unaudited)

                                                         Three Months Ended           Nine months Ended
                                                            September 30,               September 30,
                                                         1996          1995          1996          1995
                                                      ----------    ----------    ----------    -----------
<S>                                                   <C>           <C>           <C>           <C>       
REVENUE:
     Operating lease rentals                          $2,596,100    $2,880,686    $7,245,223    $9,199,831
     Direct finance lease income                         119,973       138,527       338,493       445,409
     Equipment sales margin                              103,519        37,672       189,435       117,536
     Interest income                                      44,542        14,085       172,366        40,175
                                                      ----------    ----------    ----------    -----------

         Total revenue                                 2,864,134     3,070,970     7,945,517     9,802,951
                                                      ----------    ----------    ----------    -----------

EXPENSES:
     Depreciation and amortization                     2,030,847     2,305,507     5,696,866     7,521,269
     Interest on discounted lease rentals                260,289       229,759       637,467       765,148
     Interest on financed operating lease rentals         64,129             -       220,483             -
     Management fees paid to general partner              49,285        64,906       230,734       212,543
     Direct services from general partner                 16,958        17,617        90,397        62,555
     General and administrative                           74,443        49,489       211,491       122,687
     Provision for losses                                 75,000       360,000       500,000       510,000
                                                      ----------    ----------    ----------    -----------

         Total expenses                                2,570,951     3,027,278     7,587,438     9,194,202
                                                      ----------    ----------    ----------    -----------

NET INCOME                                            $  293,183    $   43,692    $  358,079    $  608,749
                                                      ==========    ==========    ==========    ==========

NET INCOME ALLOCATED:
     To the general partner                           $   10,254    $   10,419    $   30,774    $   31,100
     To the Class A limited partners                     280,067        32,928       323,977       571,797
     To the Class B limited partner                        2,862           345         3,328         5,852
                                                      ----------    ----------    ----------    ----------

                                                      $  293,183    $   43,692    $  358,079    $  608,749
                                                      ==========    ==========    ==========    ==========

  Net income per weighted average
      Class A limited partner unit outstanding        $     2.08    $      .24    $     2.41    $     4.23
                                                      ==========    ==========    ==========    ==========

  Weighted average Class A
       limited partner units outstanding                 134,418       135,010       134,504       135,173
                                                      ==========    ==========    ==========    ==========

</TABLE>

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

                                        4

<PAGE>



                      CAPITAL PREFERRED YIELD FUND-II, L.P.

                            STATEMENTS OF CASH FLOWS
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                            Nine months ended
                                                                                   ------------------------------------
                                                                                   September 30,         September 30,
                                                                                       1996                  1995
                                                                                   -------------         -------------

<S>                                                                                <C>                   <C>          
NET CASH PROVIDED BY OPERATING ACTIVITIES                                          $   9,284,363         $  10,254,160
                                                                                   -------------         -------------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Purchases from affiliate of equipment on operating leases                        (5,128,171)           (2,137,312)
     Investment in direct financing leases, acquired from affiliate                     (115,445)             (301,386)
                                                                                   -------------         -------------

Net cash used in investing activities                                                 (5,243,616)           (2,438,698)
                                                                                   -------------         -------------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Principal payments on discounted lease rentals                                   (2,974,374)           (4,573,877)
     Principal payments on financed operating lease rentals                             (834,547)                   -
     Proceeds from discounting of lease rentals                                           11,425               273,727
     Proceeds from financing of operating lease rentals                                4,272,657                    -
     Distributions to partners                                                        (3,079,379)           (3,101,318)
     Redemptions of Class A limited partner units                                       (115,558)             (115,076)
                                                                                   -------------         -------------

Net cash used in financing activities                                                 (2,719,776)           (7,516,544)
                                                                                   -------------         -------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                   1,320,971              (298,918)

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                       2,092,691             1,063,700
                                                                                   -------------         -------------

CASH AND CASH EQUIVALENTS AT END OF PERIOD                                         $   3,413,662         $   1,362,618
                                                                                   =============         =============

Supplemental disclosure of cash flow information:
     Interest paid on discounted lease rentals                                     $     637,467         $     765,148
     Interest paid on financed operating lease rentals                                   220,483                     -
Supplemental disclosure of noncash investing and financing activities:
         Discounted lease rentals assumed in equipment
                  acquisitions                                                         6,002,723               592,862
</TABLE>


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

                                        5

<PAGE>



                      CAPITAL PREFERRED YIELD FUND-II, L.P.

                          NOTES TO FINANCIAL STATEMENTS
                                   (Unaudited)

1.   Basis of Presentation
     ---------------------

     The  accompanying  unaudited  financial  statements  have been  prepared in
     accordance  with  generally  accepted  accounting  principles  for  interim
     financial  information and the  instructions to Form 10-Q and Rule 10-01 of
     Regulation S-X. Accordingly, they do not include all of the information and
     disclosures required by generally accepted accounting principles for annual
     financial   statements.   In  the  opinion  of  the  general  partner,  all
     adjustments  (consisting only of normal recurring  adjustments)  considered
     necessary for a fair presentation have been included.  The balance sheet at
     December 31, 1995 has been derived  from the audited  financial  statements
     included in the  Partnership's  1995 Form 10-K.  For  further  information,
     refer to the financial statements of Capital Preferred Yield Fund-II,  L.P.
     (the "Partnership"),  and the related notes,  included in the Partnership's
     Annual Report on Form 10-K for the year ended December 31, 1995, (the "1995
     Form 10-K") previously filed with the Securities and Exchange Commission.

2.   Equipment Purchases
     -------------------

     During the nine months ended September 30, 1996, the Partnership  purchased
     from Capital Associates  International,  Inc. ("CAII"), an affiliate of the
     general  partner  and the Class B limited  partner,  the  equipment  listed
     below. The Partnership  purchased the equipment at cost to CAII,  including
     reimbursement of other  acquisition costs and acquisition fees, as provided
     for in the Partnership Agreement.

<TABLE>
<CAPTION>

                                          Equipment                    Cost of          Acquisition Fees     Total Equipment
           Lessee                        Description                  Equipment        and Reimbursements    Purchase Price
      --------------------       ------------------------------     -------------      ------------------   ----------------

      <S>                                                                 <C>                    <C>                <C>         
      Stone Container            Machine tools                      $    334,837           $ 13,393           $    348,230
      General Motors             Forklifts                                84,207              3,368                 87,575
      General Motors             Forklifts                                 3,470                139                  3,609
      Consolidated Diesel        Communication equipment                   3,240                130                  3,370
      Atlantic Steel             Manufacturing equipment                 971,059             38,843              1,009,902
      Alliant Techsystems        Research equipment                        7,878                315                  8,193
      Consolidated Diesel        Peripheral printers                      20,260                810                 21,070
      Cerplex                    Printed circuit board                    51,582              2,063                 53,645
      Cerplex                    Printed circuit board                   477,330             19,093                496,423
      Consolidated Diesel        Forklift                                 22,763                911                 23,674
      Consolidated Diesel        Office automation equipment              11,100                444                 11,544
      Forum Corporation          Desktop personal computers                2,794                112                  2,906
      Forum Corporation          Desktop personal computers               70,487              2,819                 73,306
      Forum Corporation          Desktop personal computers                1,511                 60                  1,571
      Forum Corporation          Desktop personal computers                3,705                148                  3,853
      Forum Corporation          Desktop personal computers               29,861              1,194                 31,055
      Forum Corporation          Desktop personal computers                3,028                121                  3,149

                                        6

<PAGE>


                      CAPITAL PREFERRED YIELD FUND-II, L.P.

                          NOTES TO FINANCIAL STATEMENTS
                             (Unaudited), continued


2.    Equipment Purchases, continued
      -------------------

                                          Equipment                    Cost of          Acquisition Fees     Total Equipment
           Lessee                        Description                  Equipment        and Reimbursements    Purchase Price
      --------------------       ------------------------------     -------------      ------------------   ----------------

      Forum Corporation          Desktop personal computers         $    101,156           $   4,046          $    105,202
      Forum Corporation          Desktop personal computers                3,761                 150                 3,911
      Forum Corporation          Desktop personal computers               12,378                 495                12,873
      Forum Corporation          Desktop personal computers              158,879               6,355               165,234
      Forum Corporation          Desktop personal computers               35,984               1,439                37,423
      Forum Corporation          Desktop personal computers               14,892                 596                15,488
      Forum Corporation          Desktop personal computers               26,473               1,059                27,532
      Forum Corporation          Desktop personal computers                1,640                  66                 1,706
      Forum Corporation          Desktop personal computers                1,428                  57                 1,485
      Forum Corporation          Desktop personal computers                4,366                 175                 4,541
      Forum Corporation          Desktop personal computers                1,428                  57                 1,485
      Forum Corporation          Desktop personal computers                4,448                 178                 4,626
      Forum Corporation          Desktop personal computers                8,015                 321                 8,336
      Forum Corporation          Desktop personal computers               65,174               2,607                67,781
      Forum Corporation          Desktop personal computers               11,607                 464                12,071
      Forum Corporation          Peripheral-printers                       1,536                  61                 1,597
      Forum Corporation          Peripheral-printers                       1,536                  61                 1,597
      Forum Corporation          Portable personal computers              20,592                 824                21,416
      Forum Corporation          Portable personal computers               6,826                 273                 7,099
      Ina Bearing                Machine tools                           443,265              17,731               460,996
      Ina Bearing                Machine tools                           229,351               9,174               238,525
      Kaman Corporation          Machine tools                           749,265              29,971               779,236
      Kaman Corporation          Machine tools                            66,358               2,654                69,012
      Kaman Corporation          Machine tools                            41,289               1,652                42,941
      Kaman Corporation          Manufacturing equipment                  16,616                 665                17,281
      Kaman Corporation          PBX systems                              58,729               2,349                61,078
      Robertshaw Controls        CPU's - IBM                             215,123               8,605               223,728
      Robertshaw Controls        Desktop personal computers               20,811                 832                21,643
      Robertshaw Controls        Manufacturing equipment                  40,801               1,632                42,433
      Robertshaw Controls        Manufacturing equipment                 187,377               7,495               194,872
      Robertshaw Controls        Manufacturing equipment                  24,031                 961                24,992
      Robertshaw Controls        Network equipment                        15,087                 603                15,690
      Robertshaw Controls        Network equipment                        51,778               2,071                53,849
      Robertshaw Controls        Printed circuit board                    89,030               3,561                92,591
      Robertshaw Controls        Printed circuit board                   828,001              33,120               861,121
      Robertshaw Controls        Printing equipment                      155,844               6,234               162,078
      Robertshaw Controls        Printing equipment                       15,142                 606                15,748
      Robertshaw Controls        Printing equipment                       46,693               1,868                48,561
      Robertshaw Controls        Printing equipment                      138,631               5,545               144,176
      Robertshaw Controls        Printing equipment                       24,605                 984                25,589

                                        7

<PAGE>


                      CAPITAL PREFERRED YIELD FUND-II, L.P.

                          NOTES TO FINANCIAL STATEMENTS
                             (Unaudited), continued


2.    Equipment Purchases, continued
      -------------------

                                          Equipment                    Cost of          Acquisition Fees     Total Equipment
           Lessee                        Description                  Equipment        and Reimbursements    Purchase Price
      --------------------       ------------------------------     -------------      ------------------   ----------------

      Robertshaw Controls        Printing equipment                 $     33,554           $   1,342          $     34,896
      Stop & Shop                Banking equipment                        58,531               2,341                60,872
      Stop & Shop                Desktop personal computers               10,386                 415                10,801
      Stop & Shop                Desktop personal computers                3,428                 137                 3,565
      Stop & Shop                Desktop personal computers                3,428                 137                 3,565
      Stop & Shop                Desktop personal computers                6,544                 262                 6,806
      Stop & Shop                Desktop personal computers                3,428                 137                 3,565
      Stop & Shop                Desktop personal computers               10,692                 428                11,120
      Stop & Shop                Desktop personal computers                5,874                 235                 6,109
      Stop & Shop                Desktop personal computers                8,320                 333                 8,653
      Stop & Shop                Desktop personal computers                8,320                 333                 8,653
      Stop & Shop                Desktop personal computers                6,371                 255                 6,626
      Stop & Shop                Desktop personal computers                3,428                 137                 3,565
      Stop & Shop                Desktop personal computers                3,428                 137                 3,565
      Stop & Shop                Desktop personal computers                3,428                 137                 3,565
      Stop & Shop                Desktop personal computers                6,371                 255                 6,626
      Stop & Shop                Desktop personal computers                8,320                 333                 8,653
      Stop & Shop                Desktop personal computers                6,381                 255                 6,636
      Stop & Shop                Desktop personal computers               16,997                 680                17,677
      Stop & Shop                Desktop personal computers                3,428                 137                 3,565
      Stop & Shop                Desktop personal computers                3,428                 137                 3,565
      Stop & Shop                Desktop personal computers                3,428                 137                 3,565
      Stop & Shop                Desktop personal computers                3,428                 137                 3,565
      Stop & Shop                Desktop personal computers                3,428                 137                 3,565
      Stop & Shop                Desktop personal computers                6,544                 262                 6,806
      Stop & Shop                Desktop personal computers                6,544                 262                 6,806
      Stop & Shop                Desktop personal computers                6,544                 262                 6,806
      Stop & Shop                Desktop personal computers                6,544                 262                 6,806
      Stop & Shop                Desktop personal computers                6,544                 262                 6,806
      Stop & Shop                Desktop personal computers                6,544                 262                 6,806
      Stop & Shop                Desktop personal computers                6,544                 262                 6,806
      Stop & Shop                Desktop personal computers                3,428                 137                 3,565
      Stop & Shop                Desktop personal computers                6,544                 262                 6,806
      Stop & Shop                Desktop personal computers                6,544                 262                 6,806
      Stop & Shop                Desktop personal computers                6,544                 262                 6,806
      Stop & Shop                Desktop personal computers                3,428                 137                 3,565
      Stop & Shop                Desktop personal computers                3,428                 137                 3,565
      Stop & Shop                Desktop personal computers                3,428                 137                 3,565
      Stop & Shop                Desktop personal computers                3,428                 137                 3,565
      Stop & Shop                Desktop personal computers                6,544                 262                 6,806
      Stop & Shop                Desktop personal computers                6,544                 262                 6,806
      Stop & Shop                Desktop personal computers                6,544                 262                 6,806

                                        8

<PAGE>


                      CAPITAL PREFERRED YIELD FUND-II, L.P.

                          NOTES TO FINANCIAL STATEMENTS
                             (Unaudited), continued


2.    Equipment Purchases, continued
      -------------------

                                          Equipment                    Cost of          Acquisition Fees     Total Equipment
           Lessee                        Description                  Equipment        and Reimbursements    Purchase Price
      --------------------       ------------------------------     -------------      ------------------   ----------------

      Stop & Shop                Desktop personal computers         $      6,544           $     262          $      6,806
      Stop & Shop                Desktop personal computers                6,544                 262                 6,806
      Stop & Shop                Desktop personal computers                3,428                 137                 3,565
      Stop & Shop                Grocery furniture and fixtures           18,706                 748                19,454
      Stop & Shop                Grocery furniture and fixtures           33,661               1,346                35,007
      Stop & Shop                Grocery furniture and fixtures           66,812               2,672                69,484
      Stop & Shop                Grocery furniture and fixtures           19,191                 768                19,959
      Stop & Shop                Grocery furniture and fixtures           32,691               1,308                33,999
      Stop & Shop                Grocery furniture and fixtures           29,607               1,184                30,791
      Stop & Shop                Grocery furniture and fixtures           31,909               1,276                33,185
      Stop & Shop                Grocery furniture and fixtures           17,985                 719                18,704
      Stop & Shop                Grocery furniture and fixtures           15,430                 617                16,047
      Stop & Shop                Grocery furniture and fixtures           15,430                 617                16,047
      Stop & Shop                Grocery furniture and fixtures           36,466               1,459                37,925
      Stop & Shop                Grocery furniture and fixtures           25,338               1,014                26,352
      Stop & Shop                Grocery furniture and fixtures           29,451               1,178                30,629
      Stop & Shop                Grocery furniture and fixtures           32,869               1,315                34,184
      Stop & Shop                Grocery furniture and fixtures           25,321               1,013                26,334
      Stop & Shop                Grocery furniture and fixtures           14,275                 571                14,846
      Stop & Shop                Grocery furniture and fixtures           25,321               1,013                26,334
      Stop & Shop                Grocery furniture and fixtures           14,625                 585                15,210
      Stop & Shop                Grocery furniture and fixtures           14,710                 588                15,298
      Stop & Shop                Grocery furniture and fixtures           27,347               1,094                28,441
      Stop & Shop                Grocery furniture and fixtures           24,031                 961                24,992
      Stop & Shop                Grocery furniture and fixtures           26,773               1,071                27,844
      Stop & Shop                Grocery furniture and fixtures           32,876               1,315                34,191
      Stop & Shop                Network equipment                        10,173                 407                10,580
      Stop & Shop                Network equipment                       171,454               6,858               178,312
      Stop & Shop                Network equipment                        10,173                 407                10,580
      Stop & Shop                Network equipment                       338,738              13,550               352,288
      Stop & Shop                Network equipment                        10,173                 407                10,580
      Stop & Shop                Network equipment                        10,173                 407                10,580
      Stop & Shop                Network equipment                        10,173                 407                10,580
      Stop & Shop                Network equipment                        10,173                 407                10,580
      Stop & Shop                Network equipment                        12,238                 490                12,728
      Stop & Shop                Network equipment                         7,918                 317                 8,235
      Sybron Chemical            Furniture and fixtures                   48,532               1,941                50,473
      Sybron Chemical            Furniture and fixtures                   14,162                 566                14,728
      Sybron Chemical            Furniture and fixtures                   14,930                 597                15,527
      Sybron Chemical            Manufacturing equipment                 152,837               6,113               158,950
      Sybron Chemical            Manufacturing equipment                 151,453               6,058               157,511
      Sybron Chemical            Manufacturing equipment                 371,437              14,857               386,294

                                        9

<PAGE>


                      CAPITAL PREFERRED YIELD FUND-II, L.P.

                          NOTES TO FINANCIAL STATEMENTS
                             (Unaudited), continued


2.    Equipment Purchases, continued
      -------------------

                                          Equipment                    Cost of          Acquisition Fees     Total Equipment
           Lessee                        Description                  Equipment        and Reimbursements    Purchase Price
      --------------------       ------------------------------     -------------      ------------------   ----------------

      System One                 Banking equipment                  $    354,510           $  14,180          $    368,690
      Staples                    Office automation                       222,077               8,883               230,960
      Staples                    Office automation                        18,588                 744                19,332
      Staples                    Office automation                        35,951               1,438                37,389
      Staples                    Office automation                        88,759               3,550                92,309
      Staples                    Office automation                        51,525               2,061                53,586
      Staples                    Office automation                        82,059               3,282                85,341
      Staples                    Office automation                       171,105               6,845               177,950
      Staples                    Office automation                       105,674               4,227               109,901
      Staples                    Office automation                        43,566               1,743                45,309
      Staples                    Office automation                       123,235               4,929               128,164
      Staples                    Office automation                       103,625               4,145               107,770
      Staples                    Office automation                        98,298               3,932               102,230
      Lever Brothers             Printing equipment                        9,577                 383                 9,960
      Consolidated Diesel        Forklifts                               296,707              11,868               308,575
      Westchester County         Medical equipment                        80,050               3,202                83,252
      Mascotech                  Forklifts                                39,105               1,564                40,669
      General Motors             Forklifts                               119,382               4,775               124,157
      System One                 Network equipment                       432,280              17,291               449,571
                                                                    ------------           ---------          ------------
                                                                    $ 10,813,788           $ 432,551          $ 11,246,339
                                                                    ============           =========          ============

</TABLE>

      At September 30, 1996, the general  partner had  identified  approximately
      $1,750,000  of  additional  equipment  that  satisfied  the  Partnership's
      acquisition  criteria.  The Partnership  expects to acquire this equipment
      during the remainder of 1996.

3.    Non-recourse Financing of Operating Lease Rentals
      -------------------------------------------------

      The Partnership may assign  substantially  all of its rights under certain
      operating  leases to a purchaser and subsequently the purchaser may assign
      the rentals from such leases to a financial  institution at fixed interest
      rates on a non-recourse  basis.  The  Partnership  receives the discounted
      value of the  rentals  in cash  from the  financial  institution.  As with
      discounted  lease  rentals,  in the  event of  default  by a  lessee,  the
      financial institution has a first lien on the underlying leased equipment,
      with no further  recourse  against the  Partnership  or the  Partnership's
      assets.  The purchaser  cannot be the owner of the equipment for financial
      reporting  purposes  because  the  purchaser  has  not  made a  sufficient
      investment  in the  equipment  and  does  not  have  significant  risks of
      ownership.  Therefore,  the  transaction  cannot  be  recorded  as a sale.
      Accordingly,  cash proceeds from financings  related to such  transactions
      are recorded on the balance sheet as financed operating lease rentals.  As
      lessees  make  payments to  financial  institutions,  leasing  revenue and
      interest expense are recorded.

                                       10

<PAGE>


                      CAPITAL PREFERRED YIELD FUND-II, L.P.

                          NOTES TO FINANCIAL STATEMENTS
                             (Unaudited), continued


4.    Equipment Held for Sale or Re-lease
      -----------------------------------

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

5.    Bankrupt Lessees
      ----------------

      Barney's  Inc.,  one of the  Partnership's  lessees,  filed for protection
      under  Chapter  11 of  the  bankruptcy  code  on  January  10,  1996.  The
      Partnership  is a member of an unofficial  committee of equipment  lessors
      which  negotiated an interim  agreement with the debtor  pursuant to which
      the  debtor  made  four   partial   payments  of   postpetition   rent  of
      approximately  38% of the  amount  due under the lease and agreed to enter
      into further negotiations to extend the interim agreements.  The committee
      then entered into negotiations  with an investor  interested in purchasing
      all of the  lessors'  claims  which  would  include  taking  title  to the
      equipment  and  accepting an assignment of all rights as lessor under each
      lease.  In July 1996,  negotiations  were  finalized  and the  Partnership
      received a payment of $872,700,  representing $0.735 on the dollar for the
      Partnership's  claim against Barney's.  Based on this recovery a provision
      for losses of $245,000 was recorded for the period ended June 30, 1996.

      Norcross Footwear,  one of the Partnership's lessees, filed for protection
      under Chapter 11 of the bankruptcy code on February 9, 1996. During second
      quarter 1996, the lessee  rejected the lease and the equipment was sold or
      returned  to the  Partnership.  The fair  market  value  of the  equipment
      re-leased or sold to a third party was considerably less than anticipated.
      Based on this information, a provision for losses of $180,000 was recorded
      for the period ended June 30, 1996.

      Anchor Glass filed for protection  under Chapter 11 of the bankruptcy code
      on September  13, 1996.  The  aggregate  net book value under three leases
      with this lessee was $218,999 at September  30, 1996.  Potential  outcomes
      are (i) the lessee  affirms its leases and the  Partnership  collects  all
      rents due under the  leases or (ii) the  lessee  rejects  the  leases  and
      returns the  underlying  equipment to the  Partnership.  If the leases are
      rejected  and the  equipment is returned to the  Partnership  or sold to a
      third party,  it is possible that  remarketing  proceeds will be less than
      the net book value of the  equipment.  However,  if the lessee affirms the
      leases, the Partnership would not be subject to a loss. The lessee has not
      made its  intentions  known at this time and,  accordingly,  the amount of
      loss, if any, cannot be determined as of September 30, 1996. Regardless of
      the lessee's decision to accept or reject the leases,  the general partner
      believes that the ultimate outcome will not have a material adverse impact
      on the Partnership's financial position or results of operations.

                                       11

<PAGE>


                      CAPITAL PREFERRED YIELD FUND-II, L.P.

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


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

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

<TABLE>
<CAPTION>

                                  Condensed Statements of                         Condensed Statements of         
                                Income for the three months    The effect on     Income for the nine months       The effect on
                                    ended September 30,        net income of        ended September 30,           net income of
                               ----------------------------   changes between   ----------------------------     changes between
                                   1996           1995            periods           1996           1995              periods
                               ------------   -------------  ----------------   --------------  ------------     ---------------
<S>                            <C>             <C>             <C>               <C>            <C>               <C>         
Leasing margin                 $  360,808      $  483,947      $  (123,139)      $ 1,028,900    $ 1,358,823       $ (329,923)
Equipment sales margin            103,519          37,672           65,847           189,435        117,536           71,899
Interest income                    44,542          14,085           30,457           172,366         40,175          132,191
Management fees paid to
   general partner                (49,285)        (64,906)          15,621          (230,734)      (212,543)         (18,191)
Direct services from general
    partner                       (16,958)        (17,617)             659           (90,397)       (62,555)         (27,842)
General and administrative        (74,443)        (49,489)         (24,954)         (211,491)      (122,687)         (88,804)
Provision for losses              (75,000)       (360,000)         285,000          (500,000)      (510,000)          10,000
                               ----------      ----------      -----------       -----------    -----------       ----------

Net  income                    $  293,183      $   43,692      $   249,491       $   358,079    $   608,749       $ (250,670)
                               ==========      ==========      ===========       ===========    ===========       ==========
</TABLE>

The Partnership is in the latter stages of its reinvestment period (scheduled to
end in June 1997, as defined in the Partnership Agreement).  As the reinvestment
period  progresses,  purchases of equipment under lease are decreasing,  initial
leases  are  expiring  and the  amount  of  equipment  being  remarketed  (i.e.,
re-leased, renewed, or sold) is increasing. Because a leasing portfolio declines
in size as it matures,  these  circumstances  have  resulted in a decline in the
Partnership's   leasing  portfolio   (referred  to  in  further  discussions  as
"portfolio run-off").

LEASING MARGIN

Leasing margin consists of the following:

<TABLE>
<CAPTION>

                                                              Three months ended                 Nine months ended
                                                                 September 30,                      September 30,
                                                       ------------------------------      ------------------------------
                                                          1996              1995               1996              1995
                                                       ------------      ------------      ------------      ------------
<S>                                                    <C>               <C>               <C>               <C>         
Operating lease rentals                                $ 2,596,100       $ 2,880,686       $ 7,245,223       $ 9,199,831
Direct finance lease income                                119,973           138,527           338,493           445,409
Leasing costs and expenses                              (2,030,847)       (2,305,507)       (5,696,866)       (7,521,269)
Interest expense on discounted lease rentals              (260,289)         (229,759)         (637,467)         (765,148)
Interest expense on financed operating lease rentals       (64,129)                -          (220,483)                -
                                                       -----------       -----------       -----------       -----------
   Leasing margin                                      $   360,808       $   483,947       $ 1,028,900       $ 1,358,823
                                                       ===========       ===========       ===========       ===========

   Leasing margin ratio                                         13%               16%               14%               14%
                                                       ===========       ===========       ===========       ===========

</TABLE>

                                       12

<PAGE>


                      CAPITAL PREFERRED YIELD FUND-II, L.P.

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


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

All components of leasing  margin,  except interest  expense,  decreased for the
three and nine months ended  September  30, 1996  compared to the  corresponding
periods in 1995 due to portfolio  runoff.  Interest expense increased due to the
increase in non-recourse financing.

The ultimate rate of return on leases depends,  in part, on the general level of
interest  rates at the time the leases  are  originated.  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).  Interest rates have  fluctuated
over the past several years as follows:  (i) rates decreased from 1990 until the
early part of 1994, (ii) rates then increased through the early part of 1995 and
(iii) rates have decreased to the present time. It is unclear  whether  interest
rates will  continue to decrease,  and what effect,  if any,  such interest rate
decreases will have on lease rates.

EQUIPMENT SALES MARGIN

Equipment sales margin consists of the following:

<TABLE>
<CAPTION>

                                    Three months ended             Nine months ended
                                       September 30,                 September 30,
                               ----------------------------   ---------------------------
                                   1996           1995            1996           1995
                               -----------     -----------    -----------     -----------

<S>                            <C>             <C>            <C>             <C>        
Equipment sales revenue        $ 1,474,128     $   376,434    $ 2,462,307     $   777,518
Cost of equipment sales         (1,370,609)       (338,762)    (2,272,872)       (659,982)
                               -----------     -----------    -----------     -----------

   Equipment sales margin      $   103,519     $    37,672    $   189,435     $   117,536
                               ===========     ===========    ===========     ===========
</TABLE>


INTEREST INCOME

Interest  income  increased  due to an  increase in  invested  cash  pending the
purchase of additional equipment by the Partnership.


EXPENSES

Management  fees  decreased  during the three months ended  September  30, 1996,
compared to the corresponding period in 1995 primarily due to portfolio runoff.


                                       13

<PAGE>


                      CAPITAL PREFERRED YIELD FUND-II, L.P.

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


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

EXPENSES, continued

Management  fees  increased  during the nine months  ended  September  30, 1996,
compared to the corresponding  period in 1995, due to the financing of operating
lease  rentals that  occurred  during  first  quarter of 1996.  Under  generally
accepted accounting principles the transaction was accounted for as a financing.
However, per the Partnership  Agreement,  proceeds received from the transaction
were defined as prepaid rents and, accordingly,  management fees of $85,453 were
paid on the prepaid rents.

General and  administrative  expenses  increased  primarily  due to higher legal
costs associated with bankrupt lessee litigation and increased storage costs for
warehoused inventory.

PROVISION FOR LOSSES

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

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

The provision  for losses  recorded  during the nine months ended  September 30,
1996 related to the following three items:

*   $245,000 to record the  Partnership's  loss  exposure  related to  Barney's,
    Inc., a lessee that filed for Chapter 11  bankruptcy  protection  on January
    10, 1996. In July 1996,  negotiations  were  finalized and a settlement  was
    received  for the  Partnership's  claim.  See Note 5 to  Notes to  Financial
    Statements for further discussion of this matter.

*   $180,000  related to Norcross  Footwear,  a lessee that filed for Chapter 11
    bankruptcy  protection  on February 9, 1996.  The lease was rejected  during
    second  quarter  1996 and the  equipment  has been sold or  returned  to the
    Partnership.  The fair market value of the equipment  re-leased or sold to a
    third party was considerably less than  anticipated.  See Note 5 to Notes to
    Financial Statements for further discussion of this matter.

                                       14

<PAGE>


                      CAPITAL PREFERRED YIELD FUND-II, L.P.

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


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

PROVISION FOR LOSSES, continued

*   $75,000 related to a lessee returning an MRI system to the Partnership.  The
    Partnership  had  previously  expected to realize the carrying value of that
    equipment  through lease renewals and proceeds from sale of the equipment to
    the original lessee. The fair market value of the equipment returned or sold
    to a third party is considerably less than was anticipated.

The provision  for losses  recorded  during the nine months ended  September 30,
1995 was related to certain lessees returning modular buildings and computers to
the  Partnership.  The  Partnership  had  previously  expected to  realized  the
carrying value of that  equipment  through lease renewals and proceeds from sale
of the equipment to the original lessees. The fair market value of the equipment
re-leased or sold to a third party was considerably less than was anticipated.

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

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

During the nine months ended  September  30,  1996,  the  Partnership  purchased
equipment  under lease having a total purchase  price of $11,246,339  (including
$6,002,723 of discounted  lease rentals).  All such equipment was purchased from
Capital Associates International, Inc. ("CAII"), the Class B limited partner and
an affiliate of the general partner.  At September 30, 1996, the general partner
had identified  approximately  $1,750,000 of additional equipment that satisfied
the Partnership's  acquisition criteria. The Partnership expects to acquire this
equipment during the remainder of 1996.

During December 1995, the Partnership  assigned certain of its rights to a group
of its operating leases to an unaffiliated third-party (the "Purchaser"). Rights
assigned  included  rental  payments  due  under the  initial  leases as well as
anticipated rental payments from renewals or re-leases of the equipment.  Rights
retained primarily  included a formula-based  portion of any proceeds from sales
of equipment.  Also, during December 1995, the Purchaser assigned the rentals to
a financial  institution in January 1996 and the financial  institution paid the
discounted value of the rentals to the Partnership.  The underlying  leases were
originally  purchased by the Partnership for $5,293,522  (including  acquisition
fees) and had a net book value of  $3,768,228  at December 31,  1995.  Financing
received by the  Partnership  during  January 1996 totaled  $4,272,658.  As with
non-recourse  debt  financing  of  lease  rentals,  this  transaction  was  also
collateralized by the leased equipment and related rentals,  and in the event of
a lessee default the Partnership has no recourse  liability for repayment of the
related obligation.

                                       15

<PAGE>


                      CAPITAL PREFERRED YIELD FUND-II, L.P.

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


Liquidity and Capital Resources, continued
-------------------------------

During the nine months  ended  September  30,  1996,  the  Partnership  declared
distributions to the partners of $3,077,253, ($341,586 of which was paid in July
1996).  A  substantial  portion of such  distributions  constituted  a return of
capital.  Distributions  may be characterized  for tax,  accounting and economic
purposes  as a return of  capital,  a return on capital or both.  The portion of
each cash  distribution  by a  Partnership  which exceeds its net income for the
fiscal  period  may be  deemed a return  of  capital  for  accounting  purposes.
However, the total return on capital over a leasing  partnership's life can only
be  determined  after all residual cash flows (which  include  proceeds from the
re-leasing  and sale of equipment  after  initial  lease terms expire) have been
realized at the termination of the Partnership.

The general partner believes that the Partnership will generate  sufficient cash
flow from operations  during the remainder of 1996 to (1) meet current operating
requirements,  (2) enable it to fund cash distributions to the Class A and Class
B limited partners at annualized  rates of 12% and 11% (substantial  portions of
which are expected to  constitute  returns of capital),  respectively,  on their
capital  contributions  and (3) reinvest in additional  equipment  under leases,
provided that suitable equipment can be identified and acquired.

                                       16

<PAGE>



                      CAPITAL PREFERRED YIELD FUND-II, L.P.

                                    PART II.

                                OTHER INFORMATION



Item 1.       Legal Proceedings

              The   Partnership   is  involved  in  routine  legal   proceedings
              incidental  to the conduct of its  business.  The general  partner
              believes  none of these  legal  proceedings  will have a  material
              adverse  effect on the  financial  condition or  operations of the
              Partnership.

Item 6.       Exhibits and Reports on Form 8-K

              (a) None.

              (b) The  Partnership  did not file any  reports on Form 8-K during
                  the quarter ended September 30, 1996.


                                       17

<PAGE>



                      CAPITAL PREFERRED YIELD FUND-II, L.P.

                                    Signature



Pursuant  to the  requirements  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.


                                 CAPITAL PREFERRED YIELD FUND-II, L.P.

                                 By:  CAI Equipment Leasing III Corp.


Dated:   October 30, 1996        By:  /s/John E. Christensen
                                      ----------------------
                                      John E. Christensen
                                      Senior Vice President,
                                      Chief Administrative Officer and Director



















                                       18