<PAGE>

                                     FORM 10-K

                        SECURITIES AND EXCHANGE COMMISSION

                              WASHINGTON, D.C. 20549

(Mark One)

|X|    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
       ACT OF 1934 [FEE REQUIRED]

For the fiscal year ended December 31, 1998

                                        OR

|_|    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
       EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

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.)

   88 BROAD STREET
 BOSTON, MASSACHUSETTS                                              02110
 (ADDRESS OF PRINCIPAL                                            (ZIP CODE)
   EXECUTIVE OFFICES)

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

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

Securities registered pursuant to Section 12(g) of the Act:

                     UNITS OF CLASS A LIMITED PARTNER INTEREST
                                 (TITLE OF CLASS)

    Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X|No |_|

    Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
Registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|

    State the aggregate market value of the voting stock held by non-affiliates
of the Registrant: Not applicable.


<PAGE>

                         PW PREFERRED YIELD FUND II, L.P.
                            ANNUAL REPORT ON FORM 10-K
                        FOR THEYEAR ENDED DECEMBER 31, 1998

                                 TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                              PAGE
<S>                                                                             <C>
PART I

Item 1      Business                                                             1

Item 2      Properties                                                           3

Item 3      Legal Proceedings                                                    3

Item 4      Submission of Matters to a Vote of Security Holders                  3


PART II

Item 5      Market for Registrant's Common Equity and Related Stockholder
            Matters                                                              4

Item 6      Selected Financial Data                                              4

Item 7      Management's Discussion and Analysis of Financial Condition
            and Results of Operations                                            5

Item 8      Financial Statements                                                 8

Item 9      Changes in and Disagreements with Accountants on Accounting and
            Financial Disclosure                                                21

PART III

Item 10     Directors and Executive Officers of the Registrant                  22

Item 11     Executive Compensation                                              23

Item 12     Security Ownership of Certain Beneficial Owners and Management      24

Item 13     Certain Relationships and Related Transactions                      24


PART IV

Item 14     Exhibits, Financial Statement Schedules and Reports on Form 8-K     26

</TABLE>


<PAGE>

                                      PART I

ITEM 1.  BUSINESS

GENERAL

    PW Preferred Yield Fund II, L.P. (the "Partnership" or the "Registrant") is
a limited partnership organized under the laws of the State of Delaware on
October 1, 1991. The general partners of the Partnership are Pembroke Financial
Limited Partnership, the Managing General Partner, a Massachusetts limited
partnership, and General Equipment Management II, Inc., the Administrative
General Partner, a Delaware corporation that is a wholly-owned subsidiary of
Paine Webber Group Inc. The Managing General Partner is owned by Equis Financial
Group Limited Partnership ("EFG") formerly American Finance Group ("AFG"), a
Massachusetts limited partnership, which acts as Equipment Manager for the
Partnership. The Managing General Partner and the Administrative General Partner
are collectively referred to herein as the ("General Partners").

    PYB Limited Partnership, a Massachusetts limited partnership, is the Class B
Limited Partner ("Class B Limited Partner"). EFG acquired all of the equity
ownership interest in PYB Limited Partnership as of November 1, 1993. The Class
B Limited Partner contributed 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 the Units of Class A Limited Partner
Interest and the cash contributed by the Class B Limited Partner.

    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 held its
sixth and final closing on July 26, 1994 and the offering was terminated.
Pursuant to the offering, the Partnership received $27,013,500 of gross offering
proceeds from the sale of 54,027 Units. The Partnership incurred $3,260,594 of
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 contributed $231,098, $1,022,543 and $2,031,736 during 1994, 1993 and
1992, respectively, to fulfill its obligation.

    The Partnership acquired, on an all-cash basis, a portfolio of equipment
subject to triple net leases with unaffiliated third parties. The equipment
purchased by the Partnership consisted of industrial equipment, including, but
not limited to, materials-handling, mining, transportation and manufacturing
testing equipment, and business equipment, including, but not limited to,
computers and computer-related and telecommunications equipment. The Partnership
expects that the equipment purchased in the future will be similar equipment.
Business equipment owned by the Partnership is limited to 60% of the value of
the Partnership's total equipment.

    All equipment was acquired from EFG or from third-party sellers. Equipment
cost represents asset base price plus acquisition fees. Asset base price is
equal to the lower of (i) the actual price paid for the equipment by EFG plus
the cost of an appraisal and all costs accrued by EFG while carrying the
equipment less the amount of interim rents received by EFG prior to selling the
equipment or (ii) fair market value of such equipment as determined by an
independent appraiser. However, if in the future there are delays in identifying
transactions for reinvestment, the Partnership could develop alternative sources
for transactions including outside brokers. This may make it more difficult to
find transactions that fit the Partnership's investment objectives because
generally brokers will either charge a fee or mark up the price of equipment for
sale.

    The Partnership only acquires equipment that is already subject to
short-term leases (generally, 5 years or less). The Partnership's business is
not subject to seasonal variations.

    At least 65% of the Partnership's initial equipment has been leased to
lessees which are investment-grade lessees, or which are operating subsidiaries
of entities which are investment-grade companies. An investment-grade lessee is
a company with a credit rating of not less than Baa, as determined by Moody's
Investor Services, Inc. or comparable credit ratings, as determined by other
recognized credit-rating services. During the acquisition stage, no more than
15% of the equipment was leased to a single lessee or its affiliates.


                                       1
<PAGE>

    The Partnership is required to dissolve and distribute all of its assets no
later than December 31, 2005. However, the General Partners anticipate that all
equipment will be sold and that the Partnership will be liquidated by
approximately 2003.

    During the reinvestment period (which will end in either 1999 or 2000, at
the General Partners' discretion) distributable cash flows in excess of current
distributions to the Class A Limited Partners at an annualized distribution rate
of 11% of their contributed capital, to the Class B Limited Partner at an
annualized distribution rate of 10% of its contributed capital and to the
General Partners, if any, will be reinvested in additional leased equipment. See
Item 7, "Management Discussion and Analysis of Financial Condition and Results
of Operations." Upon the termination of the reinvestment period, all available
cash flows will be distributed to the partners.

    The Partnership's principal investment objectives are:

               (i)    to generate current cash distributions to the Class A
                      Limited Partners from lease revenues (a substantial
                      portion of which will constitute a return of capital);

               (ii)   to preserve and protect Partnership capital; and

               (iii)  to generate additional cash distributions after the end of
                      the reinvestment period (which will end in either 1999 or
                      2000, at the General Partners' discretion) from sales of
                      equipment.

    In order to achieve these objectives, the General Partners have adopted the
following policies: (a) to achieve investment diversification, reduce the
average age of the Partnership's portfolio of equipment and enhance the overall
return to Class A Limited Partners through reinvestment in additional equipment
during the reinvestment period; and (b) to manage the Partnership's assets to
maximize lease rentals and amounts received from the sale of equipment in order
to protect the Partnership's capital.

    In January 1996, certain assets of AFG relating primarily to the business of
originating new leases, and the name "American Finance Group", and its acronym,
were sold to a third-party. AFG changed its name to Equis Financial Group
Limited Partnership after the sale was concluded. Pursuant to terms of the sale
agreements, EFG specifically reserved the rights to continue using the name
American Finance Group and its acronym in connection with the Partnership and
the Other Investment Programs and to continue managing all assets owned by the
Partnership and the Other Investment Programs.

EQUIPMENT PORTFOLIO

    The following table describes the Partnership's equipment portfolio as of
December 31, 1998:

       EQUIPMENT TYPE                                  ORIGINAL COST 
       --------------                                  ------------- 

Materials Handling                                      $13,900,468
Construction and Mining                                   4,081,377
Retail Store Fixtures                                     3,713,639
Computers & Periphals                                     3,310,947
General Purpose Plant/Warehouse                           1,338,825
Furniture & Fixtures                                        892,602
Communications                                              640,532
Research & Test                                             417,740
Trailers and Intermodal Containers                           96,452
Manufacturing                                                71,689
Photocopying                                                 44,980
                                                       ------------
                                                       $ 28,509,251
                                                       ============

                                       2
<PAGE>

    The above summary includes equipment held for sale or re-lease with a cost
of approximately $759,000 at December 31, 1998.

SIGNIFICANT LESSEES

    The Partnership leases its equipment to a significant number of lessees.
Revenue from major individual lessees which accounted for 10% or more of lease
revenue during 1998 is as follows:

    Chrysler Corporation                             17%

    The Partnership is not dependent on any one lessee for future business. The
Managing General Partner believes that alternative lessees are available in the
event current lessees decide no longer to do business with EFG or the
Partnership. As part of its investment objectives, the Partnership intends to
further diversify its equipment portfolio.

COMPETITION

    The equipment leasing industry is highly competitive. Among the numerous
existing and potential competitors of the Partnership for leases are equipment
manufacturers, equipment dealers and brokers, leasing companies and financial
institutions, as well as other limited partnerships and/or trusts organized and
managed similarly to the Partnership. Many of these competitors have greater
financial resources than the Partnership and more experience in the industry
than the General Partners and their affiliates. Equipment manufacturers may
present particularly strong competition because they may also provide certain
ancillary services which the Partnership cannot offer directly, such as
maintenance services (including possible equipment substitution rights),
warranty services, purchase rights and trade-in privileges.

EMPLOYEES

    The Partnership has no employees. The officers, directors and employees of
the General Partners and their affiliates perform services on behalf of the
Partnership. The General Partners are entitled to certain fees and
reimbursements of certain out-of-pocket expenses incurred in connection with the
performance of these management services. See Item 10 of this Report, "Directors
and Executive Officers of the Registrant", and Item 13 of this Report, "Certain
Relationships and Related Transactions", which are incorporated herein by
reference.

ITEM 2.  PROPERTIES

    The Partnership does not own or lease any properties other than the
equipment which is discussed in Item 1 of this Report, "Business", which is
incorporated herein by reference.

ITEM 3.  LEGAL PROCEEDINGS

    None.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

    None.


                                       3
<PAGE>

                                      PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

    There is no organized trading market for the purchase and sale of the Units
and certain measures have been adopted and implemented to assure that no
organized trading market will develop.

    As of March 1, 1999, the number of Limited Partners was approximately 1,294.

    Total distributions declared to partners for 1998 and 1997 were as follows:

                                                 1998              1997
                                           ---------------   ---------------

   Class A Limited Partners                $     2,971,485   $     2,971,485
   Class B Limited Partner                         328,536           328,536
   General Partners                                173,685           173,685
                                           ---------------   ---------------
                                           $     3,473,706   $     3,473,706
                                           ===============   ===============

    Distributions may be characterized for tax, financial reporting 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 financial reporting purposes,
approximately 77% and 48%, respectively, of the cash distributions to the Class
A Limited Partners for the years ended December 31, 1998 and 1997 constituted a
return of capital. Additionally, since inception, approximately 74% of the cash
distributions to the Class A Limited Partners 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.

ITEM 6.  SELECTED FINANCIAL DATA

    The following selected financial data of the Partnership has been derived
from the financial statements for the indicated period. The information set
forth below should be read in conjunction with the Partnership's financial
statements and notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included in Items 8 and 7,
respectively, of this Report, which are incorporated herein by reference.

    For each of the five years in the period ended December 31, 1998:

<TABLE>
<CAPTION>
                                 1998           1997           1996            1995           1994
                            -------------   ------------   ------------   ------------    ------------
<S>                         <C>             <C>            <C>             <C>            <C>         
Total Revenue               $   6,234,782   $  7,907,694   $  7,536,793    $  8,271,776   $  8,303,838
Net Income                        719,430      2,037,965        979,886         683,531      1,247,403
Net income per
  Class A Limited

  Partnership Unit                  12.62          28.65          10.52            3.31          13.96
Total Assets                   14,052,208     17,072,655     18,597,031      21,067,151     23,852,273
Total Partners' Equity         13,537,506     16,291,782     17,727,523      20,221,343     23,011,518
Distributions Declared
  to Partners                   3,473,706      3,473,706      3,473,706       3,473,706      3,436,536

</TABLE>


                                       4
<PAGE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

    The following discussion should be read in conjunction with the "Selected
Financial Data" and the Consolidated Financial Statements of the Partnership and
the Notes thereto. This Report contains, in addition to historical information,
forward-looking statements that include risks and other uncertainties. The
Partnership's actual results may differ materially from those anticipated in
these forward-looking statements. Factors that might cause such a difference
include those discussed below, as well as general economic and business
conditions, competition and other factors discussed elsewhere in this report.
The Partnership undertakes no obligation to release publicly any revisions to
these forward-looking statements to reflect events or circumstances after the
date hereof or to reflect the occurrence of anticipated or unanticipated events.

YEAR 2000 ISSUE

    The Year 2000 Issue generally refers to the capacity of computer programming
logic to correctly identify the calendar year. Many companies utilize computer
programs or hardware with date sensitive software or embedded chips that could
interpret dates ending in "00" as the year 1900 rather than the year 2000. In
certain cases, such errors could result in system failures or miscalculations
that disrupt the operations of the affected businesses. The Partnership uses
information systems provided by EFG and has no information systems of its own.
EFG has adopted a plan to address the Year 2000 Issue that consists of four
phases: assessment, remediation, testing, and implementation and has elected to
utilize principally internal resources to perform all phases. EFG completed
substantially all of its Year 2000 project by December 31, 1998 at an aggregate
cost of less than $50,000, none of which was incurred by the Partnership.
Remaining items are expected to be minor and be completed by March 31, 1999. All
costs incurred in connection with EFG's Year 2000 project have been expensed as
incurred.

    EFG's primary information software was coded by IBM at the point of original
design to use a four digit field to identify calendar year. All of the
Partnership's lease billings, cash receipts and equipment remarketing processes
are performed using this proprietary software. In addition, EFG has gathered
information about the Year 2000 readiness of significant vendors and third party
servicers and continues to monitor developments in this area. All of EFG's
peripheral computer technologies, such as its network operating system and
third-party software applications, including payroll, depreciation processing,
and electronic banking, have been evaluated for potential programming changes
and have required only minor modifications to function properly with respect to
dates in the year 2000 and thereafter. EFG understands that each of its and the
Partnership's significant vendors and third-party servicers are in the process,
or have completed the process, of making their systems Year 2000 compliant.
Substantially all parties queried have indicated that their systems would be
Year 2000 compliant by the end of 1998.

    Presently, EFG is not aware of any outside customer with a Year 2000 Issue
that would have a material effect on the Partnership's results of operations,
liquidity, or financial position. The Partnership's equipment leases were
structured as triple net leases, meaning that the lessees are responsible for,
among other things, (i) maintaining and servicing all equipment during the lease
term, (ii) ensuring that all equipment functions properly and is returned in
good condition, normal wear and tear excepted, and (iii) insuring the assets
against casualty and other events of loss. Non-compliance with lease terms on
the part of a lessee, including failure to address Year 2000 Issues, could
potentially result in lost revenues and impairment of residual values of the
Partnership's equipment assets.

    EFG believes that its Year 2000 compliance plan will be effective in
resolving all material Year 2000 risks in a timely manner and that the Year 2000
Issue will not pose significant operational problems with respect to its
computer systems or result in a system failure or disruption of its or the
Partnership's business operations. However, EFG has no means of ensuring that
all customers, vendors and third-party servicers will conform ultimately to Year
2000 standards and, therefore, the effect of this risk to the Partnership can
not be determined.


                                       5
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

    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 December 31, 1998, equipment
purchased pursuant to the reinvestment program, including acquisition fees and
expenses, totaled $22,874,202, of which $4,160,388 was acquired during the year
ended December 31, 1998. Additional equipment will be purchased pursuant to the
reinvestment program 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 liquid investments. These investments are primarily
short-term commercial paper issued by large domestic corporations. At December
31, 1998, the Partnership had approximately $3 million invested in commercial
paper and a fund that invests in such instruments.

    Cash and cash equivalents decreased $585,594 from $4,215,247 at December 31,
1997 to $3,629,653 at December 31, 1998. This decrease primarily represented the
amount by which distributions to partners and leased equipment purchased
pursuant to the reinvestment program exceeded cash generated by operating
activities and equipment sales.

    During the year ended December 31, 1998, the Partnership declared
distributions of cash flow received from operations in the amount of $3,473,706.
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.

    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 77% of the
11% cash distributions to the Class A Limited Partners for the year ended
December 31, 1998 constituted a return of capital. Additionally, since
inception, approximately 74% 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.

    The 1999 future rents from non-cancelable leases in place at December 31,
1998 are $3,060,828, which is approximately 88% of the cash distribution
objectives (prior to expected related operating expenses). Thus, without cash
from sales and month-to-month leases (leases which stay in place beyond the
contracted lease term) or the cash flow generated from additional reinvestments,
the Partnership may not be able to meet distribution objectives from operations,
potentially resulting in the utilization of existing cash or the early
termination of the reinvestment period and commencement of the liquidation of
the Partnership.

RESULTS OF OPERATIONS

    For the year ended December 31, 1998, the Partnership recognized lease
revenue of $5,991,987, compared to $7,696,293 and $7,536,497 for the years ended
December 31, 1997 and 1996, respectively. The overall decrease in lease revenue
from 1996 to 1998 was expected and resulted principally from primary lease term
expirations and the sale of equipment, partially offset by rentals from
equipment purchased. The Partnership also earns interest income from temporary
investments of rental receipts and equipment sales proceeds in short-term
instruments.

    In 1998, the Partnership sold equipment having a net book value of
$1,057,649 to existing lessees and third parties. These sales resulted in a net
loss, for financial statement purposes, of $70,529 compared to a net gain in


                                      6
<PAGE>

1997 of $72,408 on equipment having a net book value of $1,907,412, and a net
loss in 1996 of $105,180 on equipment having a net book value of $329,902.

    It cannot be determined whether future sales of equipment will result in a
net gain or a net loss to the Partnership, as such transactions will be
dependent upon the condition and type of equipment being sold and its
marketability at the time of sale. In addition, the amount of gain or loss
reported for financial statement purposes is partly a function of the amount of
accumulated depreciation associated with the equipment being sold.

    The ultimate realization of residual value for any type of equipment is
dependent upon many factors, including EFG's ability to sell and re-lease
equipment. Changing market conditions, industry trends, technological advances,
and many other events can converge to enhance or detract from asset values at
any given time. EFG attempts to monitor these changes in order to identify
opportunities which may be advantageous to the Partnership and which will
maximize total cash returns for each asset.

    The total economic value realized upon final disposition of each asset is
comprised of all primary lease term revenues generated from that asset, together
with its residual value. The latter consists of cash proceeds realized upon the
asset's sale in addition to all other cash receipts obtained from renting the
asset on a re-lease, renewal or month-to-month basis. The Partnership classifies
such residual rental payments as lease revenue. Consequently, the amount of gain
or loss reported in the financial statements is not necessarily indicative of
the total residual value the Partnership achieved from leasing the equipment.

    Depreciation and amortization expense was $5,120,090, $4,425,716 and
$5,755,754 for the years ended December 31, 1998, 1997 and 1996, respectively.
For financial reporting purposes, to the extent that an asset is held on primary
lease term, the Partnership depreciates the difference between (i) the cost of
the asset and (ii) the estimated residual value of the asset on a straight-line
basis over such term. For purposes of this policy, estimated residual values
represent estimates of equipment values at the date of primary lease expiration.
To the extent that an asset is held beyond its primary lease term, the
Partnership continues to depreciate the remaining net book value of the asset on
a straight-line basis over the asset's remaining economic life.

    In 1998, the Partnership changed its estimates of end-of-lease residual
values to reflect anticipated deterioration in market value for the
Partnership's equipment over the remainder of their primary lease terms. This
change in estimate increased depreciation expense and reduced net income by
$1,300,000 ($20.00 per Class A Limited Partner) in 1998.

    The Partnership recorded a write-down of the carrying value of certain
equipment, representing an impairment, during the years ended December 31, 1997
and 1996. The resulting charges, $875,000 in 1997 and $325,000 in 1996, were
based on a comparison of the estimated net realizable value and corresponding
carrying value for the Partnership's equipment.

    Management fees were approximately 4.2%, 4.1% and 4% of lease revenue during
the years ended December 31, 1998, 1997 and 1996, respectively. Management fees
are based on 5% of gross lease revenue generated by operating leases and 2% of
gross lease revenue generated by full payout leases.

    The General Partners, or their affiliates, were 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. At December
31, 1998, the Partnership reversed previously accrued subordinated disposition
fees of $106,962 because the General Partners concluded that it was no longer
probable that these subordinated disposition fees would be paid.

    General and administrative expenses consisted primarily of investor
reporting expenses and transfer agent and audit fees.


                                       7
<PAGE>

ITEM 8.  FINANCIAL STATEMENTS

                        PW PREFERRED YIELD FUND II, L.P.

LIST OF FINANCIAL STATEMENTS

                                                                       PAGE

Reports of Independent Auditors                                           9

Balance Sheets - December 31, 1998 and 1997                              11

Statements of Income
for the Years ended December 31, 1998 and 1997 and 1996                  12

Statements of Partners' Equity
for the Years ended December 31, 1998 and 1997 and 1996                  13

Statements of Cash Flows
for the Years ended December 31, 1998 and 1997 and 1996                  14

Notes to Financial Statements                                            15

All Schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission have been omitted since;
(1) the information required is disclosed in the financial statements and notes
therein; (2) schedules are not required under the related instructions; or (3)
the schedules are inapplicable.



                                       8
<PAGE>

                          REPORT OF INDEPENDENT AUDITORS
                          ------------------------------

To the Partners of PW Preferred Yield Fund II, L.P.:

    We have audited the accompanying balance sheet of PW Preferred Yield Fund
II, L.P. as of December 31, 1998, and the related statements of income,
partners' equity, and cash flows for the year then ended. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

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

    In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of PW Preferred Yield Fund II,
L.P. at December 31, 1998, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.

                                                               ERNST & YOUNG LLP

Boston, Massachusetts
March 8, 1999


                                       9
<PAGE>

                         REPORT OF INDEPENDENT AUDITORS
                         ------------------------------

To the Partners of PW Preferred Yield Fund II, L.P.:

    We have audited the balance sheet of PW Preferred Yield Fund II, L.P. as of
December 31, 1997, and the related statements of income, partners' equity, and
cash flows for the years ended December 31, 1997 and 1996. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

    We have not audited the financial statements of PW Preferred Yield Fund II,
L.P. for any period subsequent to December 31, 1997.

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

    In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of PW Preferred Yield Fund II,
L.P. as of December 31, 1997, and the results of its operations and its cash
flows for the years ended December 31, 1997 and 1996, in conformity with
generally accepted accounting principles.

                                                      PricewaterhouseCoopers LLP

New York, New York
March 25, 1998


                                       10
<PAGE>

                        PW PREFERRED YIELD FUND II, L.P.

                                 BALANCE SHEETS
                           DECEMBER 31, 1998 and 1997

<TABLE>
<CAPTION>

                                                                                    1998          1997
                                                                                 -----------   -----------
<S>                                                                              <C>           <C>        
ASSETS

Cash and cash equivalents                                                        $ 3,629,653   $ 4,215,247

Rents and other receivables, net of allowance for
   doubtful accounts of $47,000 and $200,000 at                                      558,579       958,509
   December 31, 1998 and 1997, respectively

Equipment at cost, net of accumulated depreciation 
   of $18,645,275 and $18,358,454 at December 31, 1998 
   and 1997, respectively, and write-downs of
   $770,711 at December 31, 1997                                                   9,863,976    11,881,327

Other assets                                                                            --          17,572
                                                                                 -----------   -----------
     Total Assets                                                                $14,052,208   $17,072,655
                                                                                 ===========   ===========


LIABILITIES AND PARTNERS' EQUITY

Accounts payable and accrued liabilities                                         $    32,500   $   120,377
Payable to affiliates                                                                109,562       269,482
Deferred rental income                                                                53,855        63,491
Distributions payable to partners                                                    318,785       327,523
                                                                                 -----------   -----------
     Total Liabilities                                                               514,702       780,873
                                                                                 -----------   -----------


Partners' Equity:

   General Partners                                                                  661,502       799,215
   Limited Partners:
    Class A (54,027 Units outstanding)                                            11,265,748    13,555,240
    Class B                                                                        1,610,256     1,937,327
                                                                                 -----------   -----------
     Total Partners' Equity                                                       13,537,506    16,291,782
                                                                                 -----------   -----------
     Total and Liabilities and Partners' Equity                                  $14,052,208   $17,072,655
                                                                                 ===========   ===========
</TABLE>

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

                                       11
<PAGE>

                        PW PREFERRED YIELD FUND II, L.P.

                              STATEMENTS OF INCOME

              FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

<TABLE>
<CAPTION>

                                            1998           1997          1996
                                        -----------    -----------   -----------
<S>                                     <C>            <C>           <C>        
Revenue:

   Lease revenue                        $ 5,991,987    $ 7,696,293   $ 7,536,497
   (Loss) gain on sale of equipment         (70,529)        72,408      (105,180)
   Interest income                          158,354        138,993       105,476
   Other Income                             154,970           --            --
                                        -----------    -----------   -----------
     Total Revenue                        6,234,782      7,907,694     7,536,793
                                        -----------    -----------   -----------

Expenses:

   Depreciation and amortization          5,120,090      4,425,716     5,755,754
   Write-down of equipment                     --          875,000       325,000
   Provision for bad debts                     --           75,000        50,000
   Management fees                          251,216        318,172       304,554
   Subordinated disposition fees               --           59,395         6,691
   General and administrative               144,046        116,446       114,908
                                        -----------    -----------   -----------

     Total Expenses                       5,515,352      5,869,729     6,556,907
                                        -----------    -----------   -----------


Net Income                              $   719,430    $ 2,037,965   $   979,886
                                        ===========    ===========   ===========

Net Income Allocated:

   To the General Partners              $    35,972    $   319,818   $   296,431
   To the Class A Limited Partners          681,993      1,547,819       568,416
   To the Class B Limited Partner             1,465        170,328       115,039
                                        -----------    -----------   -----------

                                        $   719,430    $ 2,037,965   $   979,886
                                        ===========    ===========   ===========

Net Income per Weighted Average
   Number of Units of Class A Limited
   Partner Interests Outstanding        $     12.62    $     28.65   $     10.52
                                        ===========    ===========   ===========

Weighted Average Number of
   Units of Class A Limited Partner
   Interests Outstanding                     54,027         54,027        54,027
                                        ===========    ===========   ===========
</TABLE>


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

                                       12
<PAGE>






                         PW PREFERRED YIELD FUND II, L.P.

                          STATEMENTS OF PARTNERS' EQUITY

               FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

<TABLE>
<CAPTION>

                                                        Class A        Class B
                                        General         Limited        Limited
                                       Partners        Partners        Partner          Total
                                     ------------    ------------    ------------    ------------
<S>                                  <C>             <C>             <C>             <C>         
Balance, December 31, 1995           $    530,336    $ 17,381,975    $  2,309,032    $ 20,221,343

Net income                                296,431         568,416         115,039         979,886

Distributions declared to partners       (173,685)     (2,971,485)       (328,536)     (3,473,706)
                                     ------------    ------------    ------------    ------------

Balance, December 31, 1996                653,082      14,978,906       2,095,535      17,727,523

Net income                                319,818       1,547,819         170,328       2,037,965

Distributions declared to partners       (173,685)     (2,971,485)       (328,536)     (3,473,706)
                                     ------------    ------------    ------------    ------------

Balance, December 31, 1997                799,215      13,555,240       1,937,327      16,291,782

Net income                                 35,972         681,993           1,465         719,430

Distributions declared to partners       (173,685)     (2,971,485)       (328,536)     (3,473,706)
                                     ------------    ------------    ------------    ------------

Balance, December 31, 1998           $    661,502    $ 11,265,748    $  1,610,256    $ 13,537,506
                                     ============    ============    ============    ============
</TABLE>


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

                                       13
<PAGE>

                         PW PREFERRED YIELD FUND II, L.P.

                             STATEMENTS OF CASH FLOWS

               FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

<TABLE>
<CAPTION>

                                                                           1998           1997           1996
                                                                        -----------    -----------    -----------
<S>                                                                     <C>            <C>            <C>        
Cash Flows From Operating Activities:

Net income                                                              $   719,430    $ 2,037,965    $   979,886

Adjustments to reconcile net income to net cash provided by operating
   activities:
    Depreciation and amortization                                         5,120,090      4,425,716      5,755,754
    Write-down of equipment                                                    --          875,000        325,000
    (Recovery of) Provision for bad debts                                   (53,000)        75,000         50,000
    Loss (gain) on sale of equipment                                         70,529        (72,408)       105,180

Change in assets and liabilities:
    Rents and other receivables                                             452,930        154,153       (578,900)
    Accounts payable and accrued liabilities                                (87,877)        (8,904)        44,691
    Payable to affiliates                                                  (159,920)         8,486        (47,662)
    Deferred rental income                                                   (9,636)       (62,009)        (7,976)
    Other assets                                                             17,572           --          (17,572)
                                                                        -----------    -----------    -----------
         Net cash provided by operating activities                        6,070,118      7,432,999      6,608,401
                                                                        -----------    -----------    -----------

Cash Flows From Investing Activities:
    Purchase of equipment                                                (4,160,388)    (4,210,206)    (2,042,859)
    Proceeds from equipment sales                                           987,120      1,967,567        256,348
                                                                        -----------    -----------    -----------
         Net cash used in investing activities                           (3,173,268)    (2,242,639)    (1,786,511)
                                                                        -----------    -----------    -----------

Cash Flows From Financing Activities:
    Distributions paid to partners                                       (3,482,444)    (3,499,914)    (3,439,059)
                                                                        -----------    -----------    -----------
         Net cash used in financing activities                           (3,482,444)    (3,499,914)    (3,439,059)
                                                                        -----------    -----------    -----------

Net (Decrease) Increase in Cash And Cash Equivalents                       (585,594)     1,690,446      1,382,831

Cash and Cash Equivalents at Beginning of Year                            4,215,247      2,524,801      1,141,970
                                                                        -----------    -----------    -----------

Cash and Cash Equivalents at End of Year                                $ 3,629,653    $ 4,215,247    $ 2,524,801
                                                                        ===========    ===========    ===========


Distributions Declared but Unpaid                                       $   318,785    $   327,523    $   353,731
                                                                        ===========    ===========    ===========
</TABLE>


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

                                       14
<PAGE>

                         PW PREFERRED YIELD FUND II, L.P.

                           NOTES TO FINANCIAL STATEMENTS

                                 DECEMBER 31, 1998

1.  ORGANIZATION OF THE PARTNERSHIP

    PW Preferred Yield Fund II, L.P., a Delaware limited partnership (the
"Partnership"), was formed on October 1, 1991 for the purpose of acquiring and
leasing equipment. The Partnership is acquiring, on an all-cash basis, a
portfolio of equipment subject to triple net leases (I.E. repairs, insurance and
taxes are paid by the lessees) with unaffiliated third parties.

    Pembroke Financial Limited Partnership, a Massachusetts limited partnership
(the "Managing General Partner") and General Equipment Management II, Inc., a
Delaware corporation (the "Administrative General Partner") are the General
Partners of the Partnership. The Managing General Partner is affiliated with
Equis Financial Group Limited ("EFG"), a Massachusetts limited partnership,
formerly American Finance Group ("AFG"), which acts as Equipment Manager for the
Partnership. The Administrative General Partner is a wholly-owned subsidiary of
Paine Webber Group Inc. PYB Limited Partnership, a Massachusetts limited
partnership, is the Class B Limited Partner ("Class B Limited Partner"). EFG
acquired all of the equity ownership interest in PYB Limited Partnership as of
November 1, 1993.

    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 held its
sixth and final closing on July 26, 1994 and the offering was terminated.
Pursuant to the offering, the Partnership received $27,013,500 of gross offering
proceeds from the sale of 54,027 Units. The Partnership incurred $3,260,594 of
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 contributed cash to the Partnership in an amount
equal to 12.5% of the aggregate purchase price of the equipment purchased with
the net 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, to fulfill its obligation.

    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.

    In January 1996, certain assets of AFG relating primarily to the business of
originating new leases, and the name "American Finance Group", and its acronym,
were sold to a third-party. AFG changed its name to Equis Financial Group
Limited Partnership after the sale was concluded. Pursuant to terms of the sale
agreements, EFG specifically reserved the rights to continue using the name
American Finance Group and its acronym in connection with the Partnership and
Other Investment Programs and to continue managing all assets owned by the
Partnership and Other Investment Programs.

2.  SIGNIFICANT ACCOUNTING POLICIES

STATEMENT OF CASH FLOWS

    The Partnership considers liquid investment instruments purchased with a
maturity of three months or less to be cash equivalents. The Partnership invests
working capital and cash flows from operations, prior to distribution to
partners or their reinvestment in additional equipment, in short-term highly
liquid investments. At December 31,


                                       15
<PAGE>

1998, the Partnership had approximately $3 million invested in commercial paper
and a fund that invests in such instruments.

REVENUE RECOGNITION

    Rents are payable to the Partnership monthly or quarterly and no significant
amounts are calculated on factors other than the passage of time. The leases are
accounted for as operating leases and are noncancellable. Rents received prior
to their due dates are deferred. Future minimum rents of $7,767,881 are due as
follows:

      For the year ending December 31,1999         $  3,060,828
                                      2000            2,192,420
                                      2001            1,817,263
                                      2002              658,550
                                      2003               38,820
                                                   ------------
                                     Total         $  7,767,881
                                                   ============

      Revenue from major individual lessees which accounted for 10% or more of
lease revenue during the years ended December 31, 1998, 1997 and 1996 is as
follows:

                                      PERCENTAGE OF LEASE REVENUE
                             -------------------------------------------
                                1998            1997             1996
                             ----------      ----------       ----------

Chrysler Corporation             17%             13%              --
Collection Services, Inc.        --              13%              --
AT&T Corp.                       --              10%              12%
General Motors                   --              10%              10%

USE OF ESTIMATES

    The preparation of the financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.

EQUIPMENT ON LEASE

    All equipment was acquired from EFG or from third-party sellers. Equipment
cost represents asset base price plus acquisition fees. Asset base price is
equal to the lower of (i) the actual price paid for the equipment by EFG plus
the cost of an appraisal and all costs accrued by EFG while carrying the
equipment less the amount of interim rents received by EFG prior to selling the
equipment or (ii) fair market value of such equipment as determined by an
independent appraiser.

DEPRECIATION AND AMORTIZATION

    The Partnership's depreciation policy is intended to allocate the cost of
equipment over the period during which it produces economic benefit. The
principal period of economic benefit is considered to correspond to each asset's
primary lease term, which term generally represents the period of greatest
revenue potential for each asset. Accordingly, to the extent that an asset is
held on primary lease term, the Partnership depreciates the difference between
(i) the cost of the asset and (ii) the estimated residual value of the asset on
a straight-line basis over such term. For purposes of this policy, estimated
residual values represent estimates of equipment values at the date of primary
lease expiration. To the extent that an asset is held beyond its primary lease
term, the Partnership continues to depreciate the remaining net book value of
the asset on a straight-line basis over the


                                       16
<PAGE>

asset's remaining economic life. Periodically, the General Partners evaluate the
net carrying value of equipment to determine whether it exceeds estimated net
realizable value. Adjustments to reduce the net carrying value of equipment are
recorded in those instances where estimated net realizable value is considered
to be less than net carrying value.

    The ultimate realization of residual value for any type of equipment is
dependent upon many factors, including the ability to sell and re-lease
equipment. Changing market conditions, industry trends, technological advances,
and many other events can converge to enhance or detract from asset values at
any given time.

    Organization costs were amortized using the straight-line method over a
period of five years.

PROVISION FOR INCOME TAXES

    No provision for income taxes is included in the accompanying financial
statements. The Partners are responsible for reporting their proportionate share
of the Partnership's taxable income and other tax attributes on their tax
returns.

NET INCOME PER UNIT OF CLASS A LIMITED PARTNER INTEREST

    The net income per Unit of Class A Limited Partner Interest is computed by
dividing the net income allocated to the Class A Limited Partners by the
weighted average number of Units of Class A Limited Partner Interest outstanding
during the period.

RECLASSIFICATION

    Certain 1997 balances have been reclassified to conform to the 1998
presentation.

3.     PARTNERSHIP ALLOCATIONS

                               CASH DISTRIBUTIONS

    Cash distributions, other than liquidating distributions, will be
distributed 5% to the General Partners and 95% to the Class A Limited Partners
and the Class B Limited Partner (collectively, the "Limited Partners"). The 95%
distributed to the Limited Partners is generally allocated between the Class A
Limited Partners and the Class B Limited Partner in the manner set forth in the
table below.

1. DURING THE REINVESTMENT PERIOD (WHICH WILL END IN 1999 OR 2000):

<TABLE>
<CAPTION>

                                                              CLASS A       CLASS B
                                                              LIMITED       LIMITED
                                                             PARTNERS       PARTNER     REINVESTED
                                                             --------       -------     ----------
<S>                                                            <C>           <C>             <C>
(A)     Until The Class A Limited Partners have
          received an 11% annualized, cumulative
          distribution on their capital contributions            100.0%           --           --

(B)     Cash remaining after (A) above and until
          the Class B Limited Partner has received a
          10% annualized distribution on its capital
          contributions                                             --        100.0%           --
</TABLE>


<PAGE>

<TABLE>
<CAPTION>

                                                              CLASS A        CLASS B
                                                              LIMITED        LIMITED
                                                             PARTNERS        PARTNER     REINVESTED
                                                             --------        -------     ----------
<S>                                                          <C>             <C>         <C>

 (C)    Cash remaining after (B) above is to be
          reinvested in additional equipment                       --            --         100.0%

2. AFTER THE REINVESTMENT PERIOD:

(A)     Until the Class A Limited Partners have received
          an 11% annualized, cumulative distribution on their
          capital contributions                                 100.0%           --            --

(B)     Cash remaining after (A) above and until the
          Class B Limited Partner has received a 10%
          annualized distribution on its capital contributions     --         100.0%           --

(C)     Cash remaining after (B) above and until the Class A
          Limited Partners receive a return of their capital
          contributions, plus a 9% annual, cumulative
          distribution compounded quarterly on their adjusted
          capital contributions ("Payout")                       87.5%         12.5%           --

(D)     Cash remaining after (C) above and until the
          Class B Limited Partner has received any
          previously undistributed portion of its 10%
          annualized distribution on its capital
          contributions                                            --         100.0%           --

(E)     Cash remaining after (D) above and until
          the Class B Limited Partner achieves Payout            12.5%         87.5%           --

(F)     Cash remaining after (E) above                           75.0%         25.0%           --

</TABLE>

    Upon liquidation of the Partnership, cash available for distribution will be
distributed in accordance with the partners' capital accounts after all
allocations of profits and losses.

                                PROFITS AND LOSSES

    Profits (not including the special allocations discussed below) are first
allocated to offset current and prior year losses, if any. Remaining profits are
then allocated among the partners in the same manner that cash distributions are
allocated, or would be allocated (as set forth above) if cash distributions were
equal to the allocable profits.

    Losses (not including the special allocations discussed below) are first
allocated to offset current and prior year profits and then 1% to the General
Partners and 99% to the Limited Partners. The 99% allocated to the Limited
Partners will be shared 87.5% to the Class A Limited Partners and 12.5% to the
Class B Limited Partner.

    There are several special allocation provisions included in the Partnership
agreement, of which the two most significant are as follows: First, commissions
and expenses paid in connection with the sale of Units ("Offering Costs") are
allocated 1% to the General Partners and 99% to the Limited Partners. The 99%
allocated to the Limited Partners


                                       18
<PAGE>

will be shared 87.5% to the Class A Limited Partners and 12.5% to the Class B
Limited Partner. Second, depreciation with respect to the equipment and any
losses resulting from the sale of equipment are allocated 1% to the General
Partners and 99% to the Limited Partners, until the cumulative amount of
depreciation and losses so allocated to the Limited Partners equals their
aggregate capital contributions, net of allocated Offering Costs. The 99%
allocated to the Limited Partners will be shared by the Class A Limited Partners
and the Class B Limited Partner in proportion to their respective capital
contributions net of allocated Offering Costs. The General Partners will also be
specially allocated items of income to offset their 1% allocation of these two
items.

4.  EQUIPMENT ON OPERATING LEASES

    The following is a summary of equipment owned by the Partnership at December
31, 1998 and 1997:

<TABLE>
<CAPTION>

                                                   1998                 1997
                                               ------------        ------------
<S>                                            <C>                 <C>         
Industrial equipment                           $ 24,512,792        $ 22,379,002
Business equipment                                3,996,459           8,631,490
                                               ------------        ------------

Total equipment cost                             28,509,251          31,010,492

Less: Accumulated depreciation                  (18,645,275)        (18,358,454)
Less: Write-downs                                      --              (770,711)
                                               ------------        ------------

Equipment, net                                 $  9,863,976        $ 11,881,327
                                               ============        ============
</TABLE>

    The above summary includes equipment held for sale or re-lease with a cost
and net book value of approximately $759,000 and $45,000, respectively, at
December 31, 1998 and approximately $963,000 and $146,000 respectively, at
December 31, 1997. The General Partners are actively seeking the sale or
re-lease of all such equipment not on lease.

    Industrial equipment includes materials handling (approximately 49%),
construction and mining (approximately 14%), retail store fixtures
(approximately 13%), furniture & fixtures (approximately 3%), general purpose
plant/warehouse (approximately 5%), research & test (approximately 1%), trailers
& intermodal containers (less than 1%) and manufacturing (less than 1%), and
business equipment includes computers and periphals (approximately 12%),
communications (approximately 2%), and photocopying (less than 1%) at December
31, 1998 (all percentages are based upon total original equipment purchase
price). Business equipment owned by the Partnership is limited to approximately
60% of the value of the Partnership's total equipment.

    In 1998, the Partnership changed its estimates of end-of-lease residual
values to reflect anticipated deterioration in market value for the
Partnership's equipment over the remainder of their primary lease terms. This
change in estimate increased depreciation expense and reduced net income by
$1,300,000 ($20.00 per Class A Limited Partner) in 1998.

5.  TRANSACTIONS WITH AFFILIATES

ACQUISITION OF EQUIPMENT

    Pursuant to its investment objectives, the Partnership has acquired, on an
all-cash basis, certain leased equipment from EFG, an affiliate of the Managing
General Partner. The Partnership purchased equipment aggregating $4,160,388,
$4,210,206 and $2,042,859 (including acquisition fees) during the 1998, 1997 and
1996, respectively.

                                       19
<PAGE>



ACQUISITION FEES

    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% of the purchase
price of equipment purchased with reinvested Partnership cash flow as
compensation for evaluating, selecting, negotiating and consummating the
acquisition of the equipment. The Managing General Partner, or its affiliates,
earned acquisition fees of $121,176, $122,627 and $59,501 in 1998, 1997 and
1996, respectively.

MANAGEMENT FEES

    The General Partners are entitled to receive a monthly fee in an amount
equal to 2% of gross rentals for Full Payout Leases, as defined in the
Partnership Agreement and 5% 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 $251,216, $318,172 and $304,554 were earned
by the General Partners during 1998, 1997 and 1996, respectively.

DISPOSITION FEES

     The General Partners, or their affiliates, were 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. At December
31, 1998, the Partnership reversed previously accrued subordinated disposition
fees of $106,962 because the General Partners concluded that it was no longer
probable that these subordinated disposition fees would be paid.

ACCOUNTABLE GENERAL AND ADMINISTRATIVE EXPENSES

     The General Partners are entitled to reimbursement of certain expenses paid
on behalf of the Partnership which are incurred in connection with the
Partnership's operations. There were no such reimbursable expenses during 1998.

CLASS ACTION SETTLEMENT

     As part of a class action settlement, beginning January 1996, all fees and
distributions paid to the Administrative General Partner and all future fees and
distributions paid to the Administrative General Partner will continue to be
assigned by an affiliate to an escrow account for the benefit of class members.


                                       20
<PAGE>

6.      RECONCILIATION TO INCOME TAX METHOD OF ACCOUNTING

    The following is a reconciliation of the net income as shown in the
accompanying financial statements to the taxable income reported for federal
income tax purposes:

<TABLE>
<CAPTION>

                                         1998            1997           1996
                                      -----------    -----------    -----------
<S>                                   <C>            <C>            <C>        
Net income per financial statements   $   719,430    $ 2,037,965    $   979,886
Increase (decrease) resulting from:
Writedowns                                   --          875,000        325,000
Provisions for bad debts                 (153,000)        75,000         50,000
Depreciation                            1,085,016       (872,878)      (881,374)
Gain on sale of equipment and other        12,363        320,715       (160,108)
Deferred rental income                     (9,636)       (62,009)       (67,274)
Subordinated disposition fee payable         --           59,394          6,691
Other                                     (20,887)        74,819        (54,259)
                                      -----------    -----------    -----------
Taxable income per federal income
   tax return                         $ 1,633,286    $ 2,508,006    $   198,562
                                      ===========    ===========    ===========
</TABLE>

   The following is a reconciliation of the Partnership's capital accounts as
shown in the accompanying financial statements to the tax bases capital
accounts:

<TABLE>
<CAPTION>

                                                                  1998            1997
                                                              ------------    ------------
<S>                                                           <C>             <C>         
Net assets per financial statements                           $ 13,537,506    $ 16,291,782
Increase (decrease) resulting from:
   Commisions and expenses paid in connection with the sale
      of Class A Limited Partner Units                           3,260,594       3,260,594
   Distributions payable to partners                               318,785         327,523
   Deferred rental income                                           53,855          63,491
   Accumulated depreciation                                     (1,108,040)     (2,386,876)
   Writedowns and allowance for doubtful accounts                  892,711         970,711
   Subordinated disposition fees payable                              --           106,962
   Other                                                             4,675         175,057
                                                              ------------    ------------

Tax bases of net assets                                       $ 16,960,086    $ 18,809,244
                                                              ============    ============
</TABLE>


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

    On February 3, 1999 the Registrant notified PricewaterhouseCoopers LLP
("PwC") that they were dismissed as the Registrant's independent auditor and
appointed Ernst & Young LLP as its independent auditor. The Registrant filed
Form 8-K on February 4, 1999.

    The Registrant and PwC have not, in connection with the audit of the
Registrant's financial statements for each of the prior two years ended December
31, 1997 and 1996 or for any subsequent interim period prior to and including
September 30, 1998, had any disagreement on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedure,
which disagreement, if not resolved to PwC's satisfaction, would have caused PwC
to make reference to the subject matter of the disagreement in connection with
its reports.

                                       21
<PAGE>

                                     PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

    The Partnership has no officers and directors. The General Partners jointly
manage and control the affairs of the Partnership and have general
responsibility and authority in all matters affecting its business. Information
concerning the directors and executive officers of the General Partners is as
follows:

                      PEMBROKE FINANCIAL LIMITED PARTNERSHIP
                  (A MASSACHUSETTS LIMITED PARTNERSHIP, OF WHICH
             AFG LEASING VII INCORPORATED IS THE SOLE GENERAL PARTNER)

        NAME                                      POSITIONS HELD
        ----                                      --------------

Geoffrey A. MacDonald               Chairman  and a member  of the  Executive
                                    Committee of EFG and President and Director
                                    of AFG Leasing VII Incorporated

Gary D. Engle                       President and Chief Executive  Officer and
                                    member of the Executive Committee of EFG and
                                    Vice President and Director of AFG Leasing
                                    VII Incorporated

Gary M. Romano                      Executive Vice President and Chief Operating
                                    Officer of EFG and AFG Leasing VII
                                    Incorporated

       Geoffrey A. McDonald, age 50, is a co-founder, member of the Executive
Committee and Chairman. Mr. MacDonald served as co-founder, Director and Senior
Vice President of EFG's predecessor corporation from 1980 to 1988. Mr. MacDonald
is President and a Director of AFG Leasing VII Incorporated and Vice-President
of American Finance Group Securities Corp. Prior to co-founding EFG's
predecessor, Mr. MacDonald held various executive and management positions in
the leasing and pharmaceutical industries. Mr. MacDonald holds an Masters in
Business Administration from Boston College and a Bachelor of Arts degree from
the University of Massachusetts (Amherst).

       Gary D. Engle, age 50, is President, Chief Executive Officer and a member
of the Executive Committee of EFG and Vice President and Director of AFG Leasing
VII Incorporated. Mr. Engle joined EFG in 1990 as Executive Vice President and
acquired control of EFG and its subsidiaries in December 1994. Mr. Engle is Vice
President and a Director of certain of EFG's subsidiaries and affiliates. Mr.
Engle is also Chairman, Chief Executive Officer, and a member of the Board of
Directors of Semele Group, Inc. ("Semele"). From 1987 to 1990, Mr. Engle was a
principal and co-founder of Cobb Partners Development, Inc., a real estate and
mortgage banking company. From 1980 to 1987, Mr. Engle was Senior Vice President
and Chief Financial Officer of Arvida Disney Company, a large-scale community
development company owned by Walt Disney Company. Prior to 1980, Mr. Engle
served in various management consulting and institutional brokerage capacities.
Mr. Engle has a MBA from Harvard University and a BS degree from the University
of Massachusetts (Amherst).

       Gary M. Romano, age 39, became Executive Vice President and Chief
Operating Officer of EFG, and Secretary of Equis Corporation in 1996 and is
Secretary or Clerk of several of EFG's subsidiaries and affiliates. Mr. Romano
joined EFG in November 1989, became Vice President and Controller in April 1993
and Chief Financial Officer in April 1995. Mr. Romano assumed his current
position in April 1996. Mr. Romano is also Vice President and Chief Financial
Officer of Semele. Prior to joining EFG, Mr. Romano was Assistant Controller for
a privately held real estate development and mortgage origination company that
he joined in 1987. Previously, Mr. Romano was an Audit Manager at Ernst &
Whinney (now Ernst & Young LLP), where he was employed from 1982 to 1986. Mr.
Romano is a Certified Public Accountant and holds a B.S. degree from Boston
College.

                                       22
<PAGE>




                       GENERAL EQUIPMENT MANAGEMENT II, INC.

         NAME                                 POSITIONS HELD
         ----                                 --------------

Gerald F. Goertz, Jr.               Chairman of the Board
Stephen R. Dyer                     President and Director
Clifford B. Wattley                 Vice President, Assistant Secretary
                                    and Director
Carmine Fusco                       Vice President, Secretary, Treasurer,
                                    Chief Financial and Accounting Officer

       Gerald F. Goertz, Jr., age 41, is Chairman of the Board of Directors of
the Administrative General Partner. Mr. Goertz joined Paine Webber Incorporated
in December 1990 and holds the position of Senior Vice President and Director of
Specialized Investment Services. Prior to joining Paine Webber Incorporated, Mr.
Goertz was associated with CG Realty Advisors and The Freeman Company. He
received his Bachelor of Arts degree in Business Administration in 1979 from
Vanderbilt University and his Juris Doctorate and Masters of Business
Administration from Memphis State University in 1982.

       Stephen R. Dyer, age 39, is President and a Director of the
Administrative General Partner. He joined Paine Webber Incorporated in June 1988
as a Divisional Vice President and is currently a Senior Vice President and
Director of Private Investments. Prior to joining Paine Webber Incorporated, Mr.
Dyer had been employed, since June 1987, as an Assistant Vice President in the
Retail National Products Group of L.F. Rothschild & Co. Incorporated. Prior to
joining L.F. Rothschild, he was employed, beginning in January 1985, as an
Associate in the Real Estate Department of Thomson McKinnon Securities Inc. From
July 1981 to August 1983, Mr. Dyer was on the audit staff of the accounting firm
of Arthur Young & Company. He received his Bachelor of Science degree in
Accounting in 1981 from Boston College and a Masters of Business Administration
from Indiana University in December 1984. Mr. Dyer is a Certified Public
Accountant.

       Clifford B. Wattley, age 49, is a Vice President, Assistant Secretary and
Director of the Administrative General Partner. Mr. Wattley is a Corporate Vice
President with Paine Webber Incorporated, having joined the firm in 1986. He
also was employed previously by Paine, Webber, Jackson & Curtis from 1979 to
1980. From 1986 to 1992, Mr. Wattley participated in Paine Webber's Principal
Transactions Group. Mr. Wattley has been a member of the Private Investment
Department since 1992. He holds a Bachelor of Science degree in engineering from
Columbia University and a Masters in Business Administration from Harvard
University.

       Carmine Fusco, age 30, is Vice President, Secretary, Treasurer and Chief
Financial and Accounting Officer of the Administrative General Partner, he also
serves as an Assistant Vice President within the Private Investments Department
of PaineWebber Incorporated. Mr. Fusco was previously employed as a Financial
Valuation Consultant in the Business Valuation Group of Deloitte & Touche, LLP
from January 1997 to August 1998. He was employed as a Commodity Fund Analyst in
the Managed Futures Department of Dean Witter Reynolds Incorporated, from
October 1994 to November 1995. Prior to joining Dean Witter, Mr. Fusco was a
Mutual Fund Accountant with the Bank of New York Company, Incorporated. He
received his Bachelor of Science degree in Accounting and Finance in May 1991
from Rider University and a Master of Business Administration from Seton Hall
University in June 1996.

ITEM 11. EXECUTIVE COMPENSATION

       No compensation was paid by the Partnership to the officers and directors
of the General Partners. See Item 13 of this Report, "Certain Relationships and
Related Transactions", which is incorporated herein by reference, for a
description of the compensation and fees paid to the General Partners and their
affiliates by the Partnership during 1998.

                                       23
<PAGE>


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

       (a)    As of the date hereof, no person is known by the Partnership to be
              the beneficial owner of more than 5% of the Units of the
              Partnership. The Partnership has no directors or officers, and
              neither the General Partners nor the Class B Limited Partner of
              the Partnership owns any Units.

              PYB Limited Partnership owns 100% of the Partnership's Class B
              Units. EFG acquired all of the equity ownership interest in PYB
              Limited Partnership as of November 1, 1993.

              The names and addresses of the General Partners and the Class B
              Limited Partner are as follows:

                     Managing General Partner:

                           Pembroke Financial Limited Partnership
                           88 Broad Street
                           Boston, MA 02110

                     Administrative General Partner:

                           General Equipment Management II, Inc.
                           1200 Harbor Boulevard, 5th Floor
                           Weehawken, NJ 07087

                     Class B Limited Partner:

                           PYB Limited Partnership
                           88 Broad Street
                           Boston, MA 02110

       (b)    No directors or officers of the Managing General Partner, the
              Administrative General Partner or the Class B Limited Partner
              owned any Units as of March 1, 1999.

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

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    The General Partners and their affiliates have received or will receive
certain types of compensation, fees, or other distributions in connection with
the operations of the Partnership. The fees and compensation were determined in
accordance with the applicable provisions of the Partnership Agreement.

ACQUISITION OF EQUIPMENT

    Pursuant to its investment objectives, the Partnership has acquired, on an
all-cash basis, certain leased equipment from EFG, an affiliate of the Managing
General Partner. The Partnership purchased equipment aggregating $4,160,388,
$4,210,206 and $2,042,859 (including acquisition fees) during the 1998, 1997 and
1996, respectively.

                                       24
ACQUISITION FEES

    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% of the purchase
price of equipment purchased with reinvested Partnership cash flow as
compensation for evaluating, selecting, negotiating and consummating the
acquisition of the equipment. The Managing General Partner, or its affiliates,
earned acquisition fees of $121,176, $122,627 and $59,501 in 1998, 1997 and
1996, respectively.

MANAGEMENT FEES

    The General Partners are entitled to receive a monthly fee in an amount
equal to 2% of gross rentals for Full Payout Leases, as defined in the
Partnership Agreement and 5% 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 $251,216, $318,172 and $304,554 were earned
by the General Partners during 1998, 1997 and 1996, respectively.

DISPOSITION FEES

     The General Partners, or their affiliates, were 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. At December
31, 1998, the Partnership reversed previously accrued subordinated disposition
fees of $106,962 because the General Partners concluded that it was no longer
probable that these subordinated disposition fees would be paid.

ACCOUNTABLE GENERAL AND ADMINISTRATIVE EXPENSES

     The General Partners are entitled to reimbursement of certain expenses paid
on behalf of the Partnership which are incurred in connection with the
Partnership's operations. There were no such reimbursable expenses during 1998.

CLASS ACTION SETTLEMENT

     As part of a class action settlement, beginning January 1996, all fees and
distributions paid to the Administrative General Partner and all future fees and
distributions paid to the Administrative General Partner will continue to be
assigned by an affiliate to an escrow account for the benefit of class members.


                                       25
<PAGE>

                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

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

        and

        (d)

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

        (b)    None.

        (c) Exhibits required to be filed.

    EXHIBIT
       NO.    DESCRIPTION
    -------   -----------

       4.1    Amended and Restated Agreement of Limited Partnership of PW
              Preferred Yield Fund II, L.P., dated as of September 10, 1992.
              Filed as Exhibit 4.1 to the Registrant's Annual Report on Form
              10-K for the year ended December 31, 1992.*

       10.1   Sales Agency Agreement, dated September 15, 1992, among PW
              Preferred Yield Fund II, L.P., Pembroke Financial Limited
              Partnership, General Equipment Management II, Inc., AFG Leasing
              VII Incorporated, American Finance Group and Paine Webber
              Incorporated. Filed as Exhibit 10.1 to the Registrant's Annual
              Report on Form 10-K for the year ended December 31, 1992.*

       10.2   Escrow Agreement, dated as of September 17, 1992, among PW
              Preferred Yield Fund II, L.P., Paine Webber Incorporated and First
              National Bank of Omaha. Filed as Exhibit 10.2 to the Registrant's
              Annual Report on Form 10-K for the year ended December 31, 1992.*

       10.3   Reporting Agent Agreement, dated as of September 17, 1992, by and
              among PW Preferred Yield Fund II, L.P., Paine Webber Incorporated
              and Service Data Corporation. Filed as Exhibit 10.3 to the
              Registrant's Annual Report on Form 10-K for the year ended
              December 31, 1992.*

       11     Partnership's policy regarding requests for partner lists.

* Not filed herewith. In accordance with Rule 12b-32 of the General Rules and
Regulations under the Securities Exchange Act of 1934, reference is made to the
document previously filed with the Commission which is incorporated herein by
reference.

                                       26
<PAGE>

                                    SIGNATURES

       Pursuant to the requirements of Section 13 or 15(d) 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.

Dated: March 31, 1999

                             PW Preferred Yield Fund II, L.P.

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

                                  By: /s/ STEPHEN R. DYER
                                      -----------------------------------
                                      Stephen R. Dyer
                                      PRESIDENT AND DIRECTOR

                                  By: /s/ CARMINE FUSCO
                                      -----------------------------------
                                      Carmine Fusco
                                      VICE PRESIDENT, SECRETARY,
                                      TREASURER, CHIEF FINANCIAL AND
                                      ACCOUNTING OFFICER

                             By: Pembroke Financial Limited Partnership
                                 Managing General Partner

                                 By: /s/ GEOFFREY A. MACDONALD
                                     -----------------------------------
                                     Geoffrey A. MacDonald
                                     PRESIDENT

       Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on March 31, 1999.

SIGNATURE                    TITLE 
---------                    ----- 

/s/ GEOFFREY A. MACDONALD    President and Director of AFG Leasing VII
Geoffrey A. MacDonald        Incorporated, the sole General Partner of
                             Pembroke Financial Limited Partnership

/s/ GARY D. ENGLE            VICE President and Director of AFG Leasing VII
Gary D. Engle                Incorporated, the sole General Partner of
                             Pembroke Financial Limited Partnership

/s/ GERALD F. GOERTZ, JR.    Chairman of the Board of General
Gerald F. Goertz, Jr.        Equipment Management II, Inc.

/s/ STEPHEN R. DYER          President and Director of General
Stephen R. Dyer              Equipment Management II, Inc.

/s/ CLIFFORD B. WATTLEY      Vice President, Assistant Secretary
Clifford B. Wattley          and Director of General Equipment
                             Management II, Inc.


                                       27
<PAGE>


/s/ CARMINE FUSCO            Vice President, Secretary, Treasurer,
Carmine Fusco                Chief Financial and Accounting Officer
                             of General Equipment Management II, Inc.




















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