SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

(Mark One)

[X]  Annual report  pursuant to Section 13 or 15(d) of the  Securities  Exchange
     Act of 1934 for the fiscal year ended December 31, 1998

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

                         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 Number)

7175 W. JEFFERSON AVENUE, LAKEWOOD, COLORADO              80235
  (Address of principal executive offices)              (Zip Code)

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

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

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


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

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

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


                        Exhibit Index Appears on Page 35

                               Page 1 of 36 Pages




<PAGE>



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

Capital  Preferred  Yield Fund-II,  L.P., a Delaware  limited  partnership  (the
"Partnership"),  was  organized  on  November  19,  1991 and is  engaged  in the
business of owning and leasing  equipment.  CAI Equipment  Leasing III Corp.,  a
Colorado  corporation and a wholly owned subsidiary of Capital Associates,  Inc.
("CAI"), is the general partner of the Partnership.

The  Partnership  entered its  liquidation  stage, as defined in the Partnership
Agreement,  in July 1997. During the liquidation  stage,  purchases of equipment
have ceased  (other than for prior  commitments  and  equipment  upgrades).  The
Partnership  is required to dissolve and  distribute  all of its assets no later
than  December 31,  2009.  However,  the general  partner  anticipates  that all
equipment  will be sold  prior to that  date and  that the  Partnership  will be
liquidated between 1999 and 2001.

Capital Associates  International,  Inc.  ("CAII"),  an affiliate of the general
partner, is the Class B limited partner of the Partnership.  In exchange for its
Class B limited partner interest,  CAII contributed  $330,000 (i.e., $10,000 for
each  $1,000,000  contribution  to the  Partnership  made by the Class A limited
partners)  to the  Partnership  making it the  largest  single  investor  in the
Partnership.  The  contributions  of CAII  were  made  simultaneously  with  the
purchase of equipment by the Partnership. CAII's interest in Distributable Cash,
as defined in the Partnership Agreement,  is subordinated to the Class A limited
partners' interest.

The  Partnership's  overall  investment  objectives are to (i) raise the maximum
allowable   capital  from  investors  for  investment  in  accordance  with  the
Partnership's  investment  objectives  described in the Prospectus;  (ii) invest
such capital and related  indebtedness  in a diversified  portfolio of equipment
subject to leases with  creditworthy  businesses  with terms ranging from two to
seven years;  (iii) if funds are available for  distribution,  make monthly cash
distributions   to  the  Class  A  and  Class  B  Limited  Partners  during  the
reinvestment  period (a period that ended June 30,  1997);  (iv)  re-invest  all
available  undistributed  cash from operations and cash from sales in additional
equipment during the reinvestment period to increase the Partnership's portfolio
of  revenue-generating  equipment,  provided  that  suitable  equipment  can  be
identified and acquired;  and (v) sell or otherwise dispose of the Partnership's
equipment  and other assets in an orderly  manner and promptly  distribute  cash
from  sales  thereof  to the  Partners  within  four  years  of  the  end of the
reinvestment period.

The  Partnership   has  assigned   certain  rentals  from  leases  to  financial
institutions,  or acquired leases subject to such assignments, at fixed interest
rates on a  non-recourse  basis.  In the  event of a default  by a  lessee,  the
financial institution has a first lien on the underlying leased equipment,  with
no further recourse against the Partnership. Cash proceeds from such financings,
or financings  assumed in the acquisition of leases, are recorded on the balance
sheet as  discounted  lease  rentals.  As lessees  make  payments  to  financial
institutions, leasing revenue and interest expense are recorded.

During 1998, the Partnership had equipment on lease to investment  grade lessees
in the financial services, transportation services and manufacturing industries,
among  others.  Since  the  Partnership's  formation,  approximately  71% of the
Partnership's  equipment  under lease was leased to  investment  grade  lessees.
Pursuant to the Partnership  Agreement,  an investment grade lessee is a company
(i) with a net worth in  excess of $100  million  (and no debt  issues  that are
rated);  or (ii)  with a credit  rating of not less  than Baa as  determined  by
Moody's Investor  Service,  Inc., or comparable  credit rating, as determined by
another recognized credit rating service;  or (iii) a lessee, all of whose lease
payments have been unconditionally guaranteed or supported by a letter of credit
issued  by a company  meeting  one of the above  requirements.  The  Partnership
limits its credit risk through  selective use of non-recourse  debt financing of
future lease rentals, as described above.

                                       -2-

<PAGE>



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

During the  reinvestment  stage,  as defined in the Partnership  Agreement,  the
Partnership  acquired  equipment  that was on lease at the time of  acquisition.
After the initial  term of each  lease,  each item of  equipment  is expected to
produce additional  investment income from its re-lease or sale. Upon expiration
of the initial lease, the Partnership attempts to re-lease or sell the equipment
to the  existing  lessee.  If a  re-lease  or  sale  to  the  lessee  cannot  be
negotiated,  the  Partnership  will attempt to lease or sell the  equipment to a
third party.

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

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

The Partnership has no employees.  The officers,  directors and employees of the
general  partner  and  its  affiliates   perform   services  on  behalf  of  the
Partnership. The general partner is entitled to receive certain fees and expense
reimbursements in connection with the performance of these services. See Item 10
of this Report,  "Directors and Executive  Officers of the Partnership" and Item
13 of this Report, "Certain Relationships and Related Transactions".

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

The Partnership leased equipment to a significant number of lessees. Two lessees
and their  affiliates  accounted for 14%  ($1,535,508)  and 10%  ($1,084,527) of
total leasing and remarketing revenue of the Partnership during 1998.


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

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


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

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



                                       -3-

<PAGE>



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

No matters were submitted to a vote of the limited  partners of the Partnership,
through the  solicitation  of proxies or  otherwise,  during the fourth  quarter
ended December 31, 1998.


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

(a)  The  Partnership's  Class A limited partner units,  Class B limited partner
     interest and general partner interest are not publicly traded.  There is no
     established  public trading market for such units and interests and none is
     expected to develop.

(b)  As of December 31, 1998, the number of Class A limited partners was 1,765.

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

     During 1998, the Partnership  made twelve (12)  distributions (a portion of
     which  constituted  a return of  capital) to Class A limited  partners,  as
     follows:

                                            Distributions Per
                                              $250 Class A
                                           Limited Partner Unit
         For the            Payment         (computed on              Total
       Month Ended         Made During      weighted average)      Distributions
       -----------         -----------     --------------------    -------------

     December 31, 1997     January 1998       $  3.74              $   500,000
     January 31, 1998      February 1998         3.74                  500,000
     February 28, 1998     March 1998            5.24                  700,000
     March 31, 1998        April 1998            5.61                  750,000
     April 30, 1998        May 1998              5.24                  700,000
     May 31, 1998          June 1998             5.61                  750,000
     June 30, 1998         July 1998             2.25                  300,000
     July 31, 1998         August 1998           2.99                  400,000
     August 31, 1998       September 1998        3.74                  500,000
     September 30, 1998    October 1998          4.49                  600,000
     October 31, 1998      November 1998         2.51                  335,700
     November 30, 1998     December 1998         2.99                  400,000
                                              -------              -----------
                                              $ 48.15              $ 6,435,700
                                              =======              ===========

     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  percentage  of a  partnership's  return on
     capital over its life can only be determined  after all residual cash flows
     (which include  proceeds from the  re-leasing  and sale of equipment)  have
     been realized at the termination of the Partnership.

                                       -4-

<PAGE>



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

(c)  Distributions, continued
     -------------
       
     The distribution for the month ended December 31, 1998,  totaling $500,000,
     was paid to the Class A limited partners during January 1999. Distributions
     to the  general  partner  and  Class B  limited  partner  during  1998  are
     discussed in Item 13 of this  Report,  "Certain  Relationships  and Related
     Transactions."

     The general partner believes that the Partnership will generate  sufficient
     cash  flow  from  operations  during  1999 to (1)  meet  current  operating
     requirements  and (2)  fund  cash  distributions  to the  Class  A  limited
     partners in accordance with the Partnership Agreement. Distributions during
     the liquidation  period will be based upon cash  availability and may vary.
     All  distributions  are  expected  to be a return of capital  for  economic
     purposes.

     During 1997, the Partnership  made twelve (12)  distributions (a portion of
     which  constituted  a return of  capital) to Class A limited  partners,  as
     follows:

                                             Distributions Per
                                               $250 Class A
                                           Limited Partner Unit
          For the           Payment           (computed on             Total
        Month Ended        Made During       weighted average)     Distributions
        -----------        -----------     --------------------    -------------

     December 31, 1996     January 1997        $   2.50            $   334,945
     January 31, 1997      February 1997           2.50                334,945
     February 28, 1997     March 1997              2.50                334,945
     March 31, 1997        April 1997              2.50                334,945
     April 30, 1997        May 1997                2.50                334,945
     May 31, 1997          June 1997               2.50                334,945
     June 30, 1997         July 1997               2.50                334,945
     July 31, 1997         August 1997             2.99                400,000
     August 31, 1997       September 1997          3.74                500,000
     September 30, 1997    October 1997            3.74                500,000
     October 31, 1997      November 1997           3.74                500,000
     November 30, 1997     December 1997           3.74                500,000
                                              ---------            -----------

                                                $ 35.45            $ 4,744,615
                                                =======            ===========

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


                                       -5-

<PAGE>

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

(c)  Distributions, continued
     -------------
                                  Distribution Amount        Distribution % per
                                   per $250 Class A           $250 Class A
                                  Limited Partner Unit      Limited Partner Unit
       Payment                      (computed on               (computed on
     Made During                   weighted average)       weighted average) (1)
     -----------                  --------------------     ---------------------

        1992                           $  15.00                     12%
        1993                              30.00                     12%
        1994                              30.00                     12%
        1995                              30.00                     12%
        1996                              30.00                     12%
        1997                              35.45                     14%
        1998                              48.15                     19%
                                       --------
                                       $ 218.60
                                       ========

     (1)  Cumulative  distributions,   as  described  in  note  1  to  Notes  to
          Consolidated Financial Statements began July 1992.


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

The following  selected  financial  data relates to the years ended December 31,
1994 through 1998 and should be read in conjunction  with Item 7,  "Management's
Discussion and Analysis of Financial  Condition and Results of  Operations"  and
the financial statements and notes thereto appearing with Item 8 herein.

<TABLE>
<CAPTION>
                                                                          Years Ended December 31,
                                                    -------------------------------------------------------------------
                                                       1998          1997          1996          1995          1994
                                                       ----          ----          ----          ----          ----

<S>                                                <C>           <C>           <C>           <C>           <C>        
Total revenue                                       $ 7,578,793   $10,309,337   $10,870,083   $12,719,445   $11,967,912
Net income                                            1,035,755     1,456,778       231,258     1,009,230       502,147
Net income per weighted average Class A
  limited partner unit outstanding                         7.19         10.40          1.40          7.09          3.52
Total assets                                         14,344,900    25,032,730    33,516,785    31,806,534    39,962,561
Discounted and financed operating
  lease rentals                                       4,612,151    10,218,917    15,559,029    10,009,561    15,037,678
Distributions declared to partners                    6,537,374     4,995,930     4,101,808     4,131,126     3,847,041
Distributions declared per monthly weighted
   average Class A limited partner unit                   48.18         36.69         30.00         30.00         30.00

</TABLE>


                                       -6-

<PAGE>



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

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

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

<TABLE>
<CAPTION>
                                 Years Ended December 31,                 Years Ended December 31,
                                -------------------------               --------------------------
                                   1998          1997        Change        1997            1996        Change   
                                -----------   -----------  -----------  -----------    -----------   -----------

<S>                           <C>           <C>           <C>          <C>            <C>           <C>        
Leasing margin                 $ 1,311,823   $ 1,662,250   $ (350,427)  $ 1,662,250    $ 1,470,270   $   191,980
Equipment sales margin             686,049       572,363      113,686       572,363        189,435       382,928
Interest income                     73,671        80,642       (6,971)       80,642        201,719      (121,077)
Management fees paid to
  general partner                 (156,307)     (200,538)      44,231      (200,538)      (286,973)       86,435
Direct services from
  general partner                 (137,348)     (107,779)     (29,569)     (107,779)      (158,770)       50,991
General and administrative        (232,133)     (225,160)      (6,973)     (225,160)      (284,423)       59,263
Provision for losses              (510,000)     (325,000)    (185,000)     (325,000)      (900,000)      575,000
                              ------------  ------------   ----------   -----------    -----------   -----------

     Net income                $ 1,035,755   $ 1,456,778   $ (421,023)  $ 1,456,778    $   231,258    $ 1,225,520
                               ===========   ===========   ==========   ===========    ===========    ===========

</TABLE>

The  Partnership  is in its  liquidation  stage,  as defined in the  Partnership
Agreement,  and is not  purchasing  additional  equipment.  Initial  leases  are
expiring,  and the  amount  of  equipment  being  remarketed  (i.e.,  re-leased,
renewed, or sold) is increasing. As a result, both the size of the Partnership's
leasing portfolio and the amount of leasing revenue are declining.

LEASING MARGIN

Leasing margin consists of the following:

<TABLE>
<CAPTION>

                                                                   Years Ended December 31, 
                                                       ------------------------------------------------                   
                                                           1998             1997            1996
                                                           ----             ----            ----

<S>                                                   <C>              <C>               <C>         
Operating lease rentals                                $  6,457,667     $  9,251,501      $ 10,028,052
Direct finance lease income                                 361,406          404,831           450,877
Depreciation                                             (4,942,188)      (7,066,062)       (7,856,952)
Interest expense on discounted lease rentals               (466,086)        (745,295)         (873,433)
Interest expense on financed operating lease rentals        (98,976)        (182,725)         (278,274)
                                                       ------------     ------------      ------------

     Leasing margin                                    $  1,311,823     $  1,662,250      $  1,470,270
                                                       ============     ============      ============

     Leasing margin ratio                                        19%              17%               14%
                                                       ============     ============      ============

</TABLE>



                                       -7-

<PAGE>


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

I.    Results of Operations, continued
      ---------------------

LEASING MARGIN, continued

All components of leasing margin  decreased for the year ended December 31, 1998
compared  to the years ended  December  31,  1997 and  December  31, 1996 due to
portfolio  runoff.  Leasing  margin ratio  increased and is expected to increase
further as non-recourse  debt is repaid.  Leasing margin ratio generally  varies
due to changes in the  portfolio,  including,  among  other  things,  the mix of
operating  leases versus direct finance leases,  the average  maturity of leases
comprising the portfolio, the average residual value of leases in the portfolio,
and the amount of discounted  lease rentals  financing  the  portfolio.  Leasing
margin and the related leasing margin ratio for an operating lease financed with
non-recourse  debt  increases  during  the term of the  lease  since  rents  and
depreciation  are typically fixed while interest expense declines as the related
non-recourse debt is repaid.

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

EQUIPMENT SALES MARGIN

Equipment sales margin consists of the following:

                                               Years Ended December 31,
                                      ------------------------------------------
                                          1998           1997           1996
                                          ----           ----           ----

Equipment sales revenue               $ 3,936,815    $ 2,217,177    $ 2,865,442
Cost of equipment sales                (3,250,766)    (1,644,814)    (2,676,007)
                                      -----------    -----------    -----------
Equipment sales margin                $   686,049    $   572,363    $   189,435
                                      ===========    ===========    ===========

The  Partnership  is in its  liquidation  stage (as  defined in the  Partnership
Agreement).  Currently,  a  portion  of the  Partnership's  initial  leases  are
expiring and equipment is being  remarketed  (i.e.,  re-leased or sold to either
the original lessee or a third party) and, accordingly, the timing and amount of
equipment sales cannot be projected  accurately.  However equipment sales margin
is expected to increase during the liquidation stage.

INTEREST INCOME

Interest  income  varies based on the amount of cash  available  for  investment
(pending distribution) and the interest rate on such invested cash.

EXPENSES

Management fees paid to General Partner  decreased for 1998 and 1997 compared to
1996, due to portfolio run- off.

Direct  services from the General  Partner were higher in 1996 and 1998 compared
to 1997  primarily due to  additional  costs  associated  with  warehousing  and
selling equipment returned to the Partnership.

                                       -8-

<PAGE>

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

I.    Results of Operations, continued
      ---------------------

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 occurs) 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 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 1998 related to the following:

*    $285,000  related  primarily  to lessees  returning  certain  computer  and
     manufacturing equipment to the Partnership.  The Partnership had previously
     expected to realize the  carrying  value of that  equipment  through  lease
     renewals  and  proceeds  from the  sale of the  equipment  to the  original
     lessees.  The fair market value of the equipment re-leased or sold to third
     parties was less than was anticipated.

*    $125,000  related  to  anticipated  declines  in the  realizable  value  of
     on-lease mining equipment.

*    $100,000  related  to  a  lessee  that  filed  for  Chapter  11  bankruptcy
     protection in April 1998. The general partner has received information that
     the lessee  liquidated  the equipment and has filed a claim as an unsecured
     creditor.

The provision for losses recorded during 1997 related to the following:

*    $245,000 related to lessees  returning  equipment to the  Partnership.  The
     Partnership  had previously  expected to realize the carrying value of that
     equipment  through  lease  renewals  and  proceeds  from  the  sale  of the
     equipment to the original  lessees.  The fair market value of the equipment
     re-leased or sold to third parties was less than anticipated.

*    $80,000  for a  deficiency  related to a lease with a lessee that filed for
     Chapter 11  bankruptcy  protection  on July 12, 1996.  The lease was funded
     with  non-recourse  debt  and  the  lending  institution   repossessed  and
     liquidated the equipment during March 1997 resulting in a deficiency to the
     Partnership.

The provision for losses recorded during 1996 related to the following items:

*    $245,000 to record the Partnership's loss exposure related to 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.

                                       -9-

<PAGE>


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

I.    Results of Operations, continued
      ---------------------

PROVISION FOR LOSSES, continued

*    $180,000  related  to  a  lessee  that  filed  for  Chapter  11  bankruptcy
     protection  on  February  9, 1996.  The lease was  rejected  during  second
     quarter 1996 and the  equipment was returned to the  Partnership.  The fair
     market value of the  equipment  re-leased or sold to third parties was less
     than anticipated.

*    $475,000 related to lessees  returning  equipment 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 lessees.  The fair market value of the equipment  re-leased or
     sold to third parties was less than anticipated.


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

The  Partnership  is in its  liquidation  stage,  as defined in the  Partnership
Agreement  and,  as  expected,  the  Partnership  is not  purchasing  additional
equipment,  initial  leases  are  expiring  and the  amount of  equipment  being
remarketed (i.e., re-leased,  renewed, or sold) is increasing. As a result, both
the size of the  Partnership's  leasing  portfolio  and the  amount  of  leasing
revenue are declining.

The Partnership funds its operating activities principally with cash from rents,
discounted lease rentals  (non-recourse  debt),  interest  income,  and sales of
off-lease  equipment.  Available cash and cash reserves of the  Partnership  are
invested  in  short-term  government  securities  pending  distributions  to the
partners.

During 1997 and 1996, the Partnership  acquired equipment subject to leases with
a total equipment  purchase price of  approximately  $1,085,000 and $14,395,000,
respectively. No equipment was purchased during 1998.

During  1998,  1997 and 1996,  the  Partnership  declared  distributions  to the
partners of $6,537,374, $4,995,930, and $4,101,808,  respectively. 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 percentage of a
partnership's  return on capital over its life will 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 1999 to (1) meet current operating  requirements and
(2) fund cash  distributions  to the Class A limited partners in accordance with
the Partnership Agreement.  Distributions during the liquidation stage are based
upon cash  availability  and may vary.  All  distributions  are expected to be a
return of capital for economic purposes.



                                      -10-

<PAGE>


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

II.   Liquidity and Capital Resources, continued
      -------------------------------

YEAR 2000 ISSUES

An affiliate provides accounting and other  administrative  services,  including
data  processing  services to the  Partnership.  The  affiliate  has conducted a
comprehensive  review of its computer  systems to identify systems that could be
affected  by the Year 2000  issue.  The Year 2000 issue  results  from  computer
programs  being  written  using  two  digits  rather  than  four to  define  the
applicable year.  Certain computer programs which have  time-sensitive  software
could  recognize  a date using "00" as the year 1900  rather than the year 2000.
This could result in major system  failures or  miscalculations.  Certain of the
affiliate's  software has already been updated to correctly account for the Year
2000  issue.  In  addition,  the  affiliate  is engaged in a system  conversion,
whereby the affiliate's  primary lease tracking and accounting software is being
replaced  with new systems which will account for the Year 2000  correctly.  The
affiliate  expects that the new system will be fully operational by December 31,
1999,  and therefore will be fully Year 2000  compliant.  The affiliate does not
expect any other changes required for the Year 2000 to have a material effect on
its financial position or results of operations.  As such, the affiliate has not
developed any specific  contingency  plans in the event it fails to complete the
conversion to a new system by December 31, 1999. In addition, the affiliate does
not expect any Year 2000 issues  relating to its customers and vendors to have a
material effect on its financial position or results of operations.

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

In June 1997,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial   Accounting   Standards  No.  130,  Reporting   Comprehensive  Income
("Statement  130"),  which  requires   comprehensive   income  to  be  displayed
prominently within the financial statements.  Comprehensive income is defined as
all  recognized  changes in equity during a period from  transactions  and other
events and  circumstances  except those resulting from investments by owners and
distributions to owners. Net income and items that previously have been recorded
directly in equity are included in comprehensive  income.  Statement 130 affects
only the reporting and  disclosure of  comprehensive  income but does not affect
recognition  or  measurement  of income.  Statement  130 is effective for fiscal
years beginning after December 15, 1997, with earlier application permitted. The
Partnership adopted Statement 130 in the first quarter of 1998. The adoption did
not have an impact on its financial reporting.

In June 1997,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial  Accounting  Standards  No.  131,  Disclosures  about  Segments  of an
Enterprise and Related  Information  ("Statement  131").  Statement 131 provides
guidance for reporting  information about operating segments in annual financial
statements  and  requires  reporting  of selected  information  about  operating
segments in interim financial reports of public companies.  An operating segment
is defined as a component of a business that engages in business activities from
which it may earn  revenue  and incur  expenses,  a  component  whose  operating
results are regularly  reviewed by the company's chief operating decision maker,
and a component for which discrete financial information is available. Statement
131 establishes  quantitative thresholds for determining operating segments of a
company.  Statement 131 is effective for fiscal years  beginning  after December
15, 1997, with earlier application permitted.  The Partnership adopted Statement
131 in the first  quarter of 1998.  Since the  Partnership  operates in a single
business  segment,  the  adoption  did  not  have  an  impact  on its  financial
reporting.

                                      -11-

<PAGE>


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

III.  New Accounting Pronouncements, continued
      -----------------------------

In June 1998,  the  Financial  Accounting  Standards  Board issued SFAS No. 133,
Accounting for Derivative  Instruments and Hedging Activities ("Statement 133").
Statement 133  establishes  accounting  and reporting  standards for  derivative
instruments and for hedging activities. It requires that an entity recognize all
derivatives  as either  assets or  liabilities  in the  statement  of  financial
position and measure those instruments at fair value. Statement 133 is effective
for  fiscal  years  beginning  after June 15,  1999,  with  earlier  application
permitted.  The  Partnership  will adopt  Statement  133 in the first quarter of
1999. The General  Partner does not expect the adoption to have an impact on its
financial reporting.

IV.   "Safe Harbor" Statement Under the Private Securities Litigation Reform Act
      --------------------------------------------------------------------------
      of 1995
      -------

The statements  contained in this report which are not  historical  facts may be
deemed to  contain  forward-looking  statements  with  respect  to  events,  the
occurrence of which involve risks and uncertainties,  and are subject to factors
that could cause actual future  results to differ both  adversely and materially
from currently anticipated results, including,  without limitation; the level of
lease  originations;  realization  of residual  values;  customer  credit  risk;
competition  from other lessors,  specialty  finance  lenders or banks;  and the
availability  and cost of financing  sources.  Certain specific risks associated
with particular  aspects of the  Partnership's  business are discussed in detail
throughout Parts I and II when and where applicable.

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk
          ----------------------------------------------------------

The  partnership  is in the  liquidation  stage (as  defined in the  Partnership
Agreement).  Consequently,  the partnership is no longer originating new leases.
The partnership's  existing leases are non-cancelable,  have fixed rates and are
financed with fixed rate debt.  Therefore,  the  partnership  has no exposure to
fluctuations in interest rates or other market risk exposure.




                                      -12-

<PAGE>




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

          Index to Financial Statements and
          Financial Statement Schedule

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

            Independent Auditors' Report                                    14

            Balance Sheets as of December 31, 1998 and 1997                 15

            Statements of Income for the years ended
              December 31, 1998, 1997 and 1996                              16

            Statements of Partners' Capital for the years ended
              December 31, 1998, 1997 and 1996                              17

            Statements of Cash Flows for the years ended
              December 31, 1998, 1997 and 1996                              18

            Notes to Financial Statements                                  19-29



          Financial Statement Schedule
          ----------------------------
 
            Independent Auditors' Report                                    30

            Schedule II - Valuation and Qualifying Accounts                 31


                                      -13-

<PAGE>




                          INDEPENDENT AUDITORS' REPORT
                          ----------------------------




THE PARTNERS
CAPITAL PREFERRED YIELD FUND-II, L.P.:

We have  audited the  accompanying  balance  sheets of Capital  Preferred  Yield
Fund-II,  L.P. as of December 31, 1998 and 1997,  and the related  statements of
income,  partners'  capital,  and  cash  flows  for  each  of the  years  in the
three-year  period ended December 31, 1998.  These financial  statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  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 audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all  material  respects,  the  financial  position  of Capital  Preferred  Yield
Fund-II,  L.P.  as of  December  31,  1998  and  1997,  and the  results  of its
operations  and its cash  flows for each of the years in the  three-year  period
ended  December 31, 1998,  in  conformity  with  generally  accepted  accounting
principles.

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



Denver, Colorado
February 22, 1999

                                      -14-

<PAGE>



                      CAPITAL PREFERRED YIELD FUND-II, L.P.

                                 BALANCE SHEETS
                           December 31, 1998 and 1997


                                     ASSETS

                                                           1998          1997
                                                           ----          ----

Cash and cash equivalents                              $   784,867   $ 1,897,763
Accounts receivable, net                                   771,076       620,453
Equipment held for sale or re-lease                        285,299       646,787
Net investment in direct finance leases                  2,865,887     3,839,687
Leased equipment, net                                    9,637,771    18,028,040
                                                       -----------   -----------

     Total assets                                      $14,344,900   $25,032,730
                                                       ===========   ===========

                        LIABILITIES AND PARTNERS' CAPITAL

Liabilities:
  Accounts payable and accrued liabilities             $ 1,334,422   $   882,678
  Payables to affiliates                                     2,142        20,257
  Rents received in advance                                105,332       102,410
  Distributions payable to partners                        508,106       508,106
  Discounted lease rentals                               4,612,151     7,961,882
  Financed operating lease rentals                               -     2,257,035
                                                       -----------   -----------

     Total liabilities                                   6,562,153    11,732,368
                                                       -----------   -----------

Partners' capital:
  General partner                                                -             -
  Limited partners:
    Class A 260,000 units authorized; 133,518
      and 133,718 units issued and outstanding
      in 1998 and 1997, respectively                     7,601,001    13,092,164
    Class B                                                181,746       208,198
                                                       -----------   -----------

     Total partners' capital                             7,782,747    13,300,362
                                                       -----------   -----------

     Total liabilities and partners' capital           $14,344,900   $25,032,730
                                                       ===========   ===========



                 See accompanying notes to financial statements.

                                      -15-

<PAGE>



                      CAPITAL PREFERRED YIELD FUND-II, L.P.

                              STATEMENTS OF INCOME
                  Years ended December 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>
                                                        1998           1997            1996
                                                        ----           ----            ----
<S>                                               <C>             <C>             <C>        
REVENUE:
  Operating lease rentals                          $ 6,457,667     $ 9,251,501     $10,028,052
  Direct finance lease income                          361,406         404,831         450,877
  Equipment sales margin                               686,049         572,363         189,435
  Interest income                                       73,671          80,642         201,719
                                                   -----------     -----------     -----------

     Total revenue                                   7,578,793      10,309,337      10,870,083
                                                   -----------     -----------     -----------

EXPENSES:
  Depreciation                                       4,942,188       7,066,062       7,856,952
  Interest on discounted lease rentals                 466,086         745,295         873,433
  Interest on financed operating lease rentals          98,976         182,725         278,274
  Management fees paid to general partner              156,307         200,538         286,973
  Direct services from general partner                 137,348         107,779         158,770
  General and administrative                           232,133         225,160         284,423
  Provision for losses                                 510,000         325,000         900,000
                                                   -----------     -----------     -----------

     Total expenses                                  6,543,038       8,852,559      10,638,825
                                                   -----------     -----------     -----------

NET INCOME                                         $ 1,035,755     $ 1,456,778     $   231,258
                                                   ===========     ===========     ===========

NET INCOME ALLOCATED:
  To the general partner                           $    65,374     $    49,960     $    41,018
  To the Class A limited partners                      960,533       1,392,588         188,286
  To the Class B limited partner                         9,848          14,230           1,954
                                                   -----------     -----------     -----------

                                                   $ 1,035,755     $ 1,456,778     $   231,258
                                                   ===========     ===========     ===========

Net income per weighted average Class
  A limited partner unit outstanding               $      7.19     $     10.40     $      1.40
                                                   ===========     ===========     ===========

Weighted average Class A limited partner
  units outstanding                                    133,582         133,886         134,388
                                                   ===========     ===========     ===========
</TABLE>





                 See accompanying notes to financial statements.

                                      -16-

<PAGE>



                      CAPITAL PREFERRED YIELD FUND-II, L.P.

                         STATEMENTS OF PARTNERS' CAPITAL
                  Years ended December 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>
                                                     Class A
                                                     Limited       Class A        Class B
                                        General      Partner       Limited        Limited
                                        Partner       Units        Partners       Partner        Total
                                        -------      -------       --------       -------        -----

<S>                                   <C>           <C>        <C>             <C>          <C>
Partners' capital, January 1, 1996     $       -     134,900    $ 20,601,722    $ 264,614    $ 20,866,336

Redemptions                                    -        (922)       (127,540)           -        (127,540)
Net income                                41,018           -         188,286        1,954         231,258
Distributions declared to partners       (41,018)          -      (4,024,490)     (36,300)     (4,101,808)
                                       ---------    --------    ------------    ---------    ------------

Partners' capital, December 31, 1996           -     133,978      16,637,978      230,268      16,868,246

Redemptions                                    -        (260)        (28,732)           -         (28,732)
Net income                                49,960           -       1,392,588       14,230       1,456,778
Distributions declared to partners       (49,960)          -      (4,909,670)     (36,300)     (4,995,930)
                                       ---------    --------    ------------    ---------    ------------

Partners' capital, December 31, 1997           -     133,718      13,092,164      208,198      13,300,362

Redemptions                                    -        (200)        (15,996)           -         (15,996)
Net income                                65,374           -         960,533        9,848       1,035,755
Distributions declared to partners       (65,374)          -      (6,435,700)     (36,300)     (6,537,374)
                                       ---------    --------    ------------    ---------    ------------

Partners' capital, December 31, 1998   $       -     133,518    $  7,601,001    $ 181,746    $  7,782,747
                                       =========    ========    ============    =========    ============

</TABLE>













                 See accompanying notes to financial statements.

                                      -17-

<PAGE>



                      CAPITAL PREFERRED YIELD FUND-II, L.P.

                            STATEMENTS OF CASH FLOWS
                  Years ended December 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>
                                                                       1998              1997              1996
                                                                       ----              ----              ----
<S>                                                               <C>              <C>              <C>         
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                                                       $  1,035,755     $  1,456,778     $    231,258
  Adjustments to reconcile net income to net
    cash provided by operating activities:
    Depreciation                                                      4,942,188        7,066,062        7,856,952
    Provision for losses                                                510,000          325,000          900,000
    Cost of equipment sales                                           3,250,766        1,644,814        2,676,007
    Recovery of investment in direct finance leases                     964,247          943,666          948,323
    Changes in assets and liabilities:
      Increase in accounts receivable, net                              (92,267)        (281,795)         (20,567)
      Increase (decrease) in payables to affiliates                     (18,115)          (5,776)             481
      Increase in accounts payable and accrued
        liabilities                                                     451,744          271,531          209,258
      Increase (decrease) in rents received in advance                    2,922           (8,536)         (48,538)
                                                                   ------------     ------------     ------------
  Net cash provided by operating activities                          11,047,240       11,411,744       12,753,174
                                                                   ------------     ------------     ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of equipment on operating leases from affiliate                   -       (1,062,284)      (7,887,705)
  Investment in direct finance leases, acquired from affiliate                -          (22,469)        (115,445)
                                                                   ------------     ------------     ------------
  Net cash used in investing activities                                       -       (1,084,753)      (8,003,150)
                                                                   ------------     ------------     ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Principal payments on discounted lease rentals                     (3,349,731)      (4,436,008)      (4,014,778)
  Principal payments on financed operating lease rentals             (2,257,035)        (904,104)      (1,111,518)
  Proceeds from discounting of lease rentals                                  -                -           11,425
  Proceeds from financing of operating lease receivables                      -                -        4,272,657
  Distributions to partners                                          (6,537,374)      (4,829,208)      (4,104,137)
  Redemptions of Class A limited partner units                          (15,996)         (28,732)        (127,540)
                                                                   ------------     ------------     ------------
  Net cash used in financing activities                             (12,160,136)     (10,198,052)      (5,073,891)
                                                                   ------------     ------------     ------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                 (1,112,896)         128,939         (323,867)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                        1,897,763        1,768,824        2,092,691
                                                                   ------------     ------------     ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR                           $    784,867     $  1,897,763     $  1,768,824
                                                                   ============     ============     ============

Supplemental disclosure of cash flow information:
  Interest paid on discounted lease rentals                        $    466,086     $    745,295     $    873,433
  Interest paid on financed lease rentals                                98,976          182,725          278,274
Supplemental disclosure of noncash investing and
  financing activities - Discounted lease rentals assumed
  in equipment acquisitions                                                   -                -        6,403,107

</TABLE>


                 See accompanying notes to financial statements.

                                      -18-

<PAGE>



                      CAPITAL PREFERRED YIELD FUND-II, L.P.
                          NOTES TO FINANCIAL STATEMENTS

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

     ORGANIZATION

     Capital Preferred Yield Fund-II, L.P. (the "Partnership"), was organized on
     November 19, 1991 as a limited  partnership  under the laws of the State of
     Delaware pursuant to an Agreement of Limited  Partnership (the "Partnership
     Agreement").  The  Partnership  was formed for the purpose of acquiring and
     leasing a diversified portfolio of equipment to unaffiliated third parties.
     The  Partnership  will continue until  December 31, 2009 unless  terminated
     earlier in  accordance  with the terms of the  Partnership  Agreement.  The
     Partnership  entered its  liquidation  stage, as defined in the Partnership
     Agreement, in July 1997. All equipment owned by the Partnership is expected
     to be sold  and the  Partnership  liquidated  prior to  2009.  The  general
     partner of the  Partnership  is CAI Equipment  Leasing III Corp.,  a wholly
     owned subsidiary of Capital Associates, Inc. ("CAI").

     The general partner manages the Partnership, including investment of funds,
     purchase and sale of equipment,  lease negotiation and other administrative
     duties.  The  Partnership  initially  sold 135,774 Class A limited  partner
     units to 1,796  investors  at a price of $250 per Class A  limited  partner
     unit.

     Capital Associates International,  Inc. ("CAII"), a wholly owned subsidiary
     of CAI,  is the Class B limited  partner.  The Class B limited  partner was
     required to contribute  cash, upon  acquisition of equipment,  in an amount
     equal to 1% of gross  offering  proceeds  received from the sale of Class A
     limited partner units. The Class B limited partner contributed  $330,000 to
     the Partnership. The Class B limited partner has no remaining obligation to
     contribute cash to the Partnership.

     USE OF ESTIMATES

     The  preparation  of financial  statements  in  conformity  with  generally
     accepted  accounting  principles  requires management to make estimates and
     assumptions  that affect the reported amounts of assets and liabilities and
     disclosure  of  contingent  assets  and  liabilities  at  the  date  of the
     financial  statements  and the  reported  amounts of revenue  and  expenses
     during the  reporting  period.  For leasing  entities,  this  includes  the
     estimate of residual  values,  as discussed  below.  Actual  results  could
     differ from those estimates.

     PARTNERSHIP CASH DISTRIBUTIONS AND ALLOCATIONS OF PROFIT AND LOSS

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

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

         First,  1.0% to the  general  partner  and 99.0% to the Class A limited
         partners  until  the  Class  A  limited   partners   received   annual,
         non-compounded   cumulative   distributions   equal  to  12%  of  their
         contributed capital.

                                      -19-

<PAGE>


                      CAPITAL PREFERRED YIELD FUND-II, L.P.
                    NOTES TO FINANCIAL STATEMENTS, Continued


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

     PARTNERSHIP  CASH   DISTRIBUTIONS  AND  ALLOCATIONS  OF  PROFIT  AND  LOSS,
     continued

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

         Second,  1.0% to the  general  partner and 99.0% to the Class B limited
         partner   until   the   Class  B  limited   partner   received   annual
         non-compounded cumulative distributions equal to 11% of its contributed
         capital.

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

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

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

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

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

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

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

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

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

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

         Second,  depreciation  relating to Partnership equipment and any losses
         resulting  from the sale of equipment are generally  allocated  1.0% to
         the  general  partner  and  99.0%  to  the  limited   partners  (shared
         99.0%/1.0% by the Class A and Class B limited  partners,  respectively)

                                      -20-

<PAGE>


                      CAPITAL PREFERRED YIELD FUND-II, L.P.
                    NOTES TO FINANCIAL STATEMENTS, Continued

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

     PARTNERSHIP  CASH   DISTRIBUTIONS  AND  ALLOCATIONS  OF  PROFIT  AND  LOSS,
     continued

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

         until  the  cumulative  amount  of such  depreciation  and such  losses
         allocated  to  each  limited  partner  equals  such  limited  partner's
         contributed  capital  reduced by commissions and other expenses paid in
         connection  with the sale of Class A limited partner units allocated to
         such partner.  Thereafter,  gain on sale of equipment,  if any, will be
         allocated  to the  general  partner  in an  amount  equal to the sum of
         depreciation and loss on sale of equipment  previously allocated to the
         general partner.

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

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

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

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

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

     RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS

     In June 1997, the Financial  Accounting Standards Board issued Statement of
     Financial  Accounting  Standards No. 130,  Reporting  Comprehensive  Income
     ("Statement  130"),  which  requires  comprehensive  income to be displayed
     prominently  within  the  financial  statements.  Comprehensive  income  is
     defined  as  all  recognized   changes  in  equity  during  a  period  from
     transactions and other events and circumstances except those resulting from
     investments  by owners and  distributions  to owners.  Net income and items
     that  previously  have been  recorded  directly  in equity are  included in
     comprehensive  income.   Statement  130  affects  only  the  reporting  and
     disclosure  of  comprehensive  income  but does not affect  recognition  or
     measurement  of  income.  Statement  130  is  effective  for  fiscal  years
     beginning after December 15, 1997, with earlier application permitted.  The
     Partnership  adopted  Statement  130 in the  first  quarter  of  1998.  The
     adoption did not have an impact on its financial reporting.

                                      -21-

<PAGE>


                      CAPITAL PREFERRED YIELD FUND-II, L.P.
                    NOTES TO FINANCIAL STATEMENTS, Continued


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

     RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS, continued

     In June 1997, the Financial  Accounting Standards Board issued Statement of
     Financial  Accounting  Standards No. 131,  Disclosures about Segments of an
     Enterprise  and  Related  Information   ("Statement  131").  Statement  131
     provides  guidance for reporting  information  about operating  segments in
     annual financial  statements and requires reporting of selected information
     about operating  segments in interim financial reports of public companies.
     An operating  segment is defined as a component of a business  that engages
     in business activities from which it may earn revenue and incur expenses, a
     component whose operating  results are regularly  reviewed by the company's
     chief  operating  decision  maker,  and  a  component  for  which  discrete
     financial information is available.  Statement 131 establishes quantitative
     thresholds for determining  operating segments of a company.  Statement 131
     is  effective  for fiscal years  beginning  after  December 15, 1997,  with
     earlier application permitted. The Partnership adopted Statement 131 in the
     first quarter of 1998. Since the Partnership  operates in a single business
     segment, the adoption did not have an impact on its financial reporting.

     In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
     Accounting for Derivative  Instruments and Hedging  Activities  ("Statement
     133").  Statement 133  establishes  accounting and reporting  standards for
     derivative  instruments  and for hedging  activities.  It requires  that an
     entity  recognize all  derivatives  as either assets or  liabilities in the
     statement  of  financial  position and measure  those  instruments  at fair
     value. Statement 133 is effective for fiscal years beginning after June 15,
     1999,  with  earlier  application  permitted.  The  Partnership  will adopt
     Statement  133 in the first quarter of 1999.  The General  Partner does not
     expect the adoption to have an impact on its financial reporting.

     LONG-LIVED ASSETS

     The  Partnership  accounts for  long-lived  assets under the  provisions of
     Statement of Financial  Accounting  Standards No. 121,  Accounting  for the
     Impairment of Long-lived Assets and for Long-lived Assets to be Disposed Of
     ("SFAS No. 121"). SFAS No. 121 requires that long-lived  assets,  including
     equipment subject to operating leases and certain identifiable  intangibles
     to be held and used by an  entity,  be  reviewed  for  impairment  whenever
     events or changes in circumstances  indicate that the carrying amount of an
     asset may not be recoverable.  In performing the review for recoverability,
     the entity  should  estimate  the future net cash flows  expected to result
     from the use of the asset and its eventual  disposition.  If the sum of the
     expected future net cash flows  (undiscounted and without interest charges)
     is less  than the  carrying  amount of the  asset,  an  impairment  loss is
     recognized.  Measurement  of an  impairment  loss  for  long-lived  assets,
     including   equipment   subject  to  operating   leases  and   identifiable
     intangibles  held by the  Partnership,  is based  on the fair  value of the
     asset.  The fair value of the asset may be  calculated by  discounting  the
     expected future net cash flows at an appropriate interest rate.





                                      -22-

<PAGE>


                      CAPITAL PREFERRED YIELD FUND-II, L.P.
                    NOTES TO FINANCIAL STATEMENTS, Continued


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

     LEASE ACCOUNTING

     Statement of Financial  Accounting Standards No. 13, Accounting for Leases,
     requires  that a lessor  account  for each  lease  by the  direct  finance,
     sales-type or operating lease method.  The Partnership  currently  utilizes
     the direct  financing  and operating  methods for all of the  Partnership's
     equipment  under lease.  Direct  finance leases are defined as those leases
     which transfer  substantially all of the benefits and risks of ownership of
     the equipment to the lessee.  For all types of leases, the determination of
     profit considers the estimated value of the equipment at lease termination,
     referred to as the residual  value.  After the  inception  of a lease,  the
     Partnership  may engage in financing of lease  receivables on a nonrecourse
     basis (i.e.,  "non-recourse  debt" or "discounted  lease  rentals")  and/or
     equipment  sale  transactions  to reduce or recover its  investment  in the
     equipment.

     The Partnership's  accounting methods and their financial reporting effects
     are described below.

     NET INVESTMENT IN DIRECT FINANCE LEASES ("DFLS")

     The cost of the equipment,  including  acquisition fees paid to the general
     partner, is recorded as net investment in DFLs on the accompanying  balance
     sheet.  Leasing  revenue,  which is recognized  over the term of the lease,
     consists of the excess of lease payments plus the estimated  residual value
     over the equipment's cost. Earned income is recognized monthly to provide a
     constant  yield and is  recorded  as  direct  finance  lease  income on the
     accompanying  income  statements.  Residual values are established at lease
     inception  equal to the  estimated  value to be received from the equipment
     following  termination of the initial lease (which in certain circumstances
     includes  anticipated  re-lease  proceeds),  as  determined  by the general
     partner.  In  estimating  such values,  the general  partner  considers all
     relevant information regarding the equipment and the lessee.

     EQUIPMENT ON OPERATING LEASES ("OLS")

     The cost of  equipment,  including  acquisition  fees  paid to the  general
     partner, is recorded as leased equipment in the accompanying balance sheets
     and is  depreciated  on a  straight-line  basis  over the lease  term to an
     amount equal to the estimated residual value at the lease termination date.
     Leasing revenue consists  principally of monthly rents and is recognized as
     operating lease rentals in the  accompanying  income  statements.  Residual
     values are  established at lease  inception equal to the estimated value to
     be received from the equipment  following  termination of the initial lease
     (which in certain circumstances includes anticipated re-lease proceeds), as
     determined by the general partner.  In estimating such values,  the general
     partner considers all relevant information and circumstances  regarding the
     equipment and the lessee.  Because  revenue,  depreciation  expense and the
     resultant  profit  margin,  before  interest  expense,  are  recorded  on a
     straight-line  basis,  and interest  expense on  discounted  lease  rentals
     (discussed  below) is recorded on the interest  method,  lower  returns are
     realized  in the early  years of the term of an OL and  higher  returns  in
     later years.


                                      -23-

<PAGE>


                      CAPITAL PREFERRED YIELD FUND-II, L.P.
                    NOTES TO FINANCIAL STATEMENTS, Continued


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

     NON-RECOURSE DISCOUNTING OF RENTALS

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

     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  discussed  above,  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.

     ALLOWANCE FOR LOSSES

     An allowance for losses is  maintained at levels  determined by the general
     partner to  adequately  provide  for any  other-than-temporary  declines in
     asset values. In determining losses,  economic conditions,  the activity in
     the  used   equipment   markets,   the  effect  of  actions  by   equipment
     manufacturers,  the financial condition of lessees, the expected courses of
     action by lessees  with regard to leased  equipment at  termination  of the
     initial lease term,  and other factors which the general  partner  believes
     are  relevant,  are  considered.  Asset  chargeoffs  are recorded  upon the
     termination or remarketing of the underlying assets. The lease portfolio is
     reviewed quarterly to determine the adequacy of the allowance for losses.

     TRANSACTIONS SUBSEQUENT TO INITIAL LEASE TERMINATION

     After the initial term of equipment  under lease expires,  the equipment is
     either sold or re-leased to the existing lessee or another third party. The
     remaining  net book value of  equipment  sold is  removed  and gain or loss
     recorded when equipment is sold. The accounting for re-leased  equipment is
     consistent  with the accounting  described  under "Net Investment in Direct
     Financing Leases" and "Equipment on Operating Leases" above.

                                      -24-

<PAGE>


                      CAPITAL PREFERRED YIELD FUND-II, L.P.
                    NOTES TO FINANCIAL STATEMENTS, Continued


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

     INCOME TAXES

     No  provision  for income taxes has been made in the  financial  statements
     since  taxable  income  or  loss is  recorded  in the  tax  returns  of the
     individual partners.

     CASH EQUIVALENTS

     The Partnership  considers  short-term,  highly liquid investments that are
     readily  convertible to known amounts of cash to be cash equivalents.  Cash
     equivalents of  approximately  $730,000 and $1,853,000 at December 31, 1998
     and 1997, respectively, are comprised of investments in a money market fund
     which invests solely in U.S. Government  securities having maturities of 90
     days or less.

     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.

     NET INCOME PER CLASS A LIMITED PARTNER UNIT

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


2.   Net Investment in Direct Finance Leases
     ---------------------------------------

     The  components of net  investment in direct  finance leases as of December
     31, 1998 and 1997 were:

                                                        1998            1997
                                                        ----            ----

     Minimum lease payments receivable              $ 2,284,333     $ 3,587,896 
     Estimated residual values                          997,342       1,012,105
     Less unearned income                              (415,788)       (760,314)
                                                    -----------     -----------

                                                    $ 2,865,887     $ 3,839,687
                                                    ===========     ===========




                                      -25-

<PAGE>


                      CAPITAL PREFERRED YIELD FUND-II, L.P.
                    NOTES TO FINANCIAL STATEMENTS, Continued


3.   Leased Equipment
     ----------------
     
     The  Partnership's  investments  in equipment on operating  leases by major
     classes as of December 31, 1998 and 1997 were:

                                                        1998            1997
                                                        ----            ----

     Transportation and industrial equipment       $ 16,628,291    $ 24,733,957
     Computers and peripherals                        3,271,704       5,594,147
     Office furniture and equipment                   2,918,088       3,475,088
     Other                                              264,567       1,025,171
                                                   ------------    ------------
                                                     23,082,650      34,828,363
     Less:
        Accumulated depreciation                    (13,134,092)    (16,649,369)
        Allowance for losses                           (310,787)       (150,954)
                                                   ------------    ------------
                                                   $  9,637,771    $ 18,028,040
                                                   ============    ============

     Depreciation expense for 1998, 1997 and 1996 was $4,942,188, $7,066,062 and
     $7,856,952, respectively.

4.   Future Minimum Lease Payments
     -----------------------------

     Future  minimum lease payments  receivable  from  non-cancelable  leases at
     December 31, 1998 are as follows:

         Year Ending December 31,                DFLs                   OLs
         ------------------------                ----                   ---
                 1999                        $ 1,071,557           $  3,591,940
                 2000                            795,929              1,478,647
                 2001                            416,847                393,590
                 2002                                  -                 16,596
                 2003                                  -                  9,027
                                             -----------           ------------
                      Total                  $ 2,284,333           $  5,489,800
                                             ===========           ============

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

     Discounted lease rentals  outstanding at December 31, 1998 bear interest at
     rates primarily ranging between 6% and 9.5%.  Aggregate  maturities of such
     non-recourse obligations are as follows:

         Year Ending December 31,
         ------------------------

                 1999                        $ 2,419,416
                 2000                          1,564,813
                 2001                            627,922 
                                             -----------
                      Total                  $ 4,612,151 
                                             ===========

                                      -26-

<PAGE>


                      CAPITAL PREFERRED YIELD FUND-II, L.P.
                    NOTES TO FINANCIAL STATEMENTS, Continued


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

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

     The  general  partner  received  a fee  equal to 4% of the  sales  price of
     equipment sold to the  Partnership  (up to a maximum  cumulative  amount as
     specified  in  the  Partnership  Agreement),   2%,  of  which,  represented
     compensation for selecting, negotiating and consummating the acquisition of
     the  equipment  and another  2%, of which,  represented  reimbursement  for
     services  rendered in connection  with  evaluating  the  suitability of the
     equipment  and  the  creditworthiness  of  the  lessees.   Origination  and
     evaluation  fees  totaled  approximately  $39,000 and  $550,000 in 1997 and
     1996,  respectively,  all of which were  capitalized by the  Partnership as
     part of the cost of  equipment on operating  leases and net  investment  in
     direct finance leases.  The Partnership did not pay any fees during 1998 as
     no new equipment was acquired.

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

     The general  partner earns  management  fees as  compensation  for services
     performed in connection with managing the Partnership's  equipment equal to
     2% of gross rentals  received as permitted  under terms of the  Partnership
     Agreement. The general partner earned approximately $156,000,  $201,000 and
     $287,000 of management fees during 1998, 1997 and 1996, respectively.

     Direct Services from General Partner
     ------------------------------------

     The  general  partner  and  its  affiliates  provide  accounting,  investor
     relations,  billing, collecting, asset management, and other administrative
     services to the Partnership. The Partnership reimburses the general partner
     for these services  performed on its behalf as permitted under the terms of
     the Partnership Agreement. The Partnership recorded approximately $137,000,
     $108,000 and $159,000 of direct  services from the general  partner  during
     1998, 1997 and 1996, respectively.

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

     The Partnership  purchased  equipment from CAII with a total purchase price
     of  approximately  $1,085,000  and  $14,395,000  (including  $6,403,000  of
     discounted lease rentals in 1996) during 1997 and 1996,  respectively.  The
     Partnership   purchased  the  equipment  at  CAII's  historical  cost  plus
     reimbursement  of other  net  acquisition  costs,  as  provided  for in the
     Partnership Agreement. The Partnership did not acquire any new equipment in
     1998.

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

     Payables to affiliates  consists of management  fees,  direct  services and
     expenses payable to the general partner and its affiliates.


                                      -27-

<PAGE>


                      CAPITAL PREFERRED YIELD FUND-II, L.P.
                    NOTES TO FINANCIAL STATEMENTS, Continued


7.   Tax Information, (unaudited)
     ---------------

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

<TABLE>
<CAPTION>
                                                                        1998            1997            1996
                                                                        ----            ----            ----

     <S>                                                           <C>            <C>             <C>         
      Net income per financial statements                           $ 1,035,755    $  1,456,778    $    231,258
      Differences due to:
        Direct finance leases                                           969,049         947,137         877,055
        Depreciation                                                   (325,966)     (1,511,510)     (2,053,702)
        Provision for losses                                            510,000         325,000         900,000
        Gain/loss on sale of assets                                   1,242,693        (468,349)       (385,166)
        Other                                                            (9,033)     (1,028,690)      1,073,866
                                                                    -----------    ------------    ------------
      Partnership income (loss) for federal income tax purposes     $ 3,422,498    $   (279,634)   $    643,311
                                                                    ===========    ============    ============

</TABLE>


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

<TABLE>
<CAPTION>
                                                                        1998            1997            1996
                                                                        ----            ----            ----

     <S>                                                         <C>              <C>             <C>          
      Partners' capital per financial statements                  $   7,782,747    $  13,300,362   $  16,868,246
      Differences due to:
        Commissions and offering costs                                4,868,944        4,868,944       4,868,944
        Direct finance leases                                         5,749,852        4,780,803       3,833,666
        Depreciation                                                (12,314,909)     (11,988,943)    (10,477,433)
        Provision for losses                                            510,000          325,000         900,000
        Gain/loss on sale of assets                                   1,242,693         (468,349)       (385,166)
        Other                                                           516,313          670,811       1,190,636
                                                                  -------------    -------------   -------------
      Partners' capital for federal income tax purposes           $   8,355,640    $  11,488,628   $  16,798,893
                                                                  =============    =============   =============

</TABLE>


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

     Approximately 71% of the Partnership's  equipment under lease was leased to
     investment  grade  lessees.  Pursuant  to  the  Partnership  Agreement,  an
     investment  grade  lessee is a company (i) with net worth in excess of $100
     million (and no debt issues that are rated),  or (ii) with a credit  rating
     of not less than Baa as determined by Moody's  Investor  Service,  Inc., or
     comparable credit rating as determined by another  recognized credit rating
     service;  or  (iii)  a  lessee,  all of  whose  lease  payments  have  been
     unconditionally  guaranteed  or supported by a letter of credit issued by a
     company meeting one of the above requirements.

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

                                      -28-

<PAGE>


                      CAPITAL PREFERRED YIELD FUND-II, L.P.
                    NOTES TO FINANCIAL STATEMENTS, Continued


8.   Concentration of Credit Risk, continued
     ----------------------------

     The Partnership  leased equipment to a significant  number of lessees.  Two
     lessees  and  their  affiliates  accounted  for  14%  ($1,535,508)  and 10%
     ($1,084,527)  of total leasing and  remarketing  revenue of the Partnership
     during 1998.

9.   Disclosures about Fair Value of Financial Instruments
     -----------------------------------------------------

     Statement of Financial  Standards No. 107,  Disclosures about Fair Value of
     Financial   Instruments   specifically  excludes  certain  items  from  its
     disclosure  requirements  such as the  Partnership's  investment  in leased
     assets.  The  carrying  amounts  at  December  31,  1998  for cash and cash
     equivalents, accounts receivable, accounts payable and accrued liabilities,
     payable to  affiliates,  rents and sale  proceeds  received  in advance and
     distributions  payable to partners approximate their fair values due to the
     short maturity of these instruments.

     As  of  December  31,  1998,  discounted  lease  rentals  of  approximately
     $4,612,000  had fair values of  $4,176,000.  The fair values were estimated
     utilizing  market rates of comparable  debt having  similar  maturities and
     credit quality as of December 31, 1998.



                                      -29-

<PAGE>













                          INDEPENDENT AUDITORS' REPORT
                          ----------------------------



THE PARTNERS
CAPITAL PREFERRED YIELD FUND-II, L.P.:

Under date of February  22, 1999,  we reported on the balance  sheets of Capital
Preferred Yield Fund-II,  L.P. as of December 31, 1998 and 1997, and the related
statements of income, partners' capital, and cash flows for each of the years in
the three-year period ended December 31, 1998, as contained in the Partnership's
annual report on Form 10-K for the year 1998.  In connection  with our audits of
the aforementioned  financial statements,  we also audited the related financial
statement  Schedule  II, as listed in the  accompanying  index.  This  financial
statement  schedule is the responsibility of the Partnership's  management.  Our
responsibility  is to express an opinion on this  financial  statement  schedule
based on our audits.

In our opinion,  such financial statement schedule,  when considered in relation
to the basic financial  statements  taken as a whole,  presents  fairly,  in all
material respects, the information set forth therein.


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


Denver, Colorado
February 22, 1998








                                      -30-

<PAGE>



                      CAPITAL PREFERRED YIELD FUND-II, L.P.

                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
              for the years ended December 31, 1998, 1997 and 1996


COLUMN A                           COLUMN B    COLUMN C     COLUMN D   COLUMN E
--------                          ----------  ----------   ----------  --------
                                  Balance at   Additions               Balance
                                  Beginning   Charged to               at End
Classification                     of Year     Expenses    Deductions  of Year
--------------                    ----------  ----------   ----------  --------

             1998
-------------------------------

Allowance for losses:
  Accounts receivable             $  25,000   $       -   $        -   $  25,000
  Equipment on operating leases     150,954     510,000     (475,167)    185,787
                                  ---------   ---------   ----------   ---------

                                  $ 175,954   $ 510,000   $ (475,167)  $ 210,787
                                  =========   =========   ==========   =========

             1997              
-------------------------------

Allowance for losses:
  Accounts receivable             $  25,000   $       -   $        -   $  25,000
  Equipment on operating leases     255,956     325,000     (430,002)    150,954
                                  ---------   ---------   ----------   ---------

                                  $ 280,956   $ 325,000   $ (430,002)  $ 175,954
                                  =========   =========   ==========   =========


             1996              
-------------------------------

Allowance for losses:
  Accounts receivable             $  25,000   $       -   $        -   $  25,000
  Equipment on operating leases     291,488     900,000     (935,532)    255,956
                                  ---------   ---------   ----------   ---------

                                  $ 316,488   $ 900,000   $ (935,532)  $ 280,956
                                  =========   =========   ==========   =========


1) Principally charge-offs of assets against the established allowances.






                  See accompanying independent auditors' report

                                      -31-

<PAGE>



Item 9.   Disagreements on Accounting and Financial Disclosures
          -----------------------------------------------------

None

Item 10.  Directors and Executive Officers of the Partnership
          ---------------------------------------------------

The Partnership  has no officers and directors.  The general partner manages and
controls  the  affairs of the  Partnership  and has general  responsibility  and
authority in all matters  affecting its  business.  Information  concerning  the
directors and executive officers of the general partner is as follows:

                      CAI Equipment Leasing III Corporation

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

         John F. Olmstead          President and Director

         Anthony M. DiPaolo        Senior  Vice  President, Principal  Financial
                                   and Chief Administrative Officer and Director

         Richard H. Abernethy      Vice President and Director

         Joseph F. Bukofski        Vice President and Director

         Robert A. Golden          Director

         Mick Myers                Director

         Ann Danielson             Assistant Vice President

         David J. Anderson         Chief Accounting Officer and Secretary

JOHN F. OLMSTEAD, age 54, joined CAII as Vice President in December,  1988, is a
Senior  Vice  President  of CAI and CAII  and is head of  CAII's  Public  Equity
division.  He has served as Chairman of the Board for Neo-kam Industries,  Inc.,
Matchless Metal Polish Company, Inc. and ACL, Inc. for more than 5 years. He has
over 20 years of experience  holding various  positions of responsibility in the
leasing  industry.  Mr. Olmstead holds a Bachelor of Science degree from Indiana
University and a Juris Doctorate degree from Indiana Law School.

ANTHONY M. DIPAOLO,  age 40, joined CAII in July 1990 as Assistant Treasurer and
is currently Senior Vice  President-Chief  Financial  Officer.  He also held the
positions   of   Senior   Vice    President-Controller    and   Assistant   Vice
President-Credit  Administration  for the Company.  Mr. DiPaolo has held similar
senior financial management positions with two public companies between 1986 and
June 1990, and prior to then was an audit manager for the public accounting firm
of  Coopers &  Lybrand.  Mr.  DiPaolo  holds a  Bachelor  of  Science  degree in
Accounting from the University of Denver.

RICHARD H. ABERNETHY,  age 45, joined CAII in April 1992 as Equipment  Valuation
Manager and  currently  serves as Vice  President of Portfolio  Management.  Mr.
Abernethy has thirteen years experience in the leasing industry, including prior
positions with Barclays  Leasing Inc.,  from November 1986 to February 1992, and
Budd Leasing  Corporation,  from January 1981 to November  1986.  Mr.  Abernethy
holds a Bachelor of Arts in Business Administration from the University of North
Carolina at Charlotte.

                                      -32-

<PAGE>



Item 10.  Directors and Executive Officers of the Partnership, continued
          ---------------------------------------------------

JOSEPH F. BUKOFSKI, age 43, joined CAII in June 1990 as a Financial Analyst. Mr.
Bukofski is currently the Vice President-Pricing. Prior to joining the Marketing
Department,  Mr. Bukofski was Assistant Vice President and Controller.  Prior to
joining the Company,  he was a geologist  with Barringer  Geoservices,  Inc. for
eleven  years.  Mr.  Bukofski  holds a Bachelor of Science  degree in  Secondary
Education - Earth Science from Bloomsburg University and a Masters of Science in
Accounting from the University of Colorado.

ROBERT A. GOLDEN,  age 53, is Vice  President and the National  Sales Manager of
the Company.  Mr. Golden joined the Company in 1993 as a Branch Manager.  He was
promoted  to his  current  position  in  September  1994.  Prior to joining  the
Company, he was an Executive Vice President with the U.S. Funds Group, President
of BoCon Capital  Group and Vice  President  with  Ellco/GE  Capital for fifteen
years. Mr. Golden is an officer, but not a director, of CAII.

MICK MYERS, age 41, joined CAI in February 1992 as a Senior  Portfolio  Manager.
Currently he is Assistant Vice President of Asset Management. Mr. Myers has nine
years experience in the leasing industry.  Previously,  he has held the position
of Senior End of Lease  Negotiator  with  ELLCO/GE  Capital.  Mr.  Myers holds a
Bachelor of Science degree from the University of Wyoming.

ANN DANIELSON,  age 35, joined CAII in February 1990 and is currently  Assistant
Vice  President,  Assistant  Treasurer and is responsible for the Company's cash
management and collections functions. Prior to joining the Company, she was with
U.S.  West  financial  Services  and Coopers & Lybrand.  Ms.  Danielson  holds a
Bachelor of Arts Degree from the University of Northern Iowa.

DAVID J.  ANDERSON,  age 46,  joined CAII in August 1990 as Manager of Billing &
Collections   and   currently   serves  as  Assistant   Vice-President/Assistant
Controller.  Prior to joining CAII, Mr. Anderson was Vice-  President/Controller
for Systems  Marketing,  Inc., from 1985 to 1990, and previous to that worked in
several senior staff  positions at the Los Alamos  National  Laboratory and with
Ernst & Whinney. Mr. Anderson holds a Bachelor of Business Administration degree
in Accounting from the University of Wisconsin.

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

No compensation was paid by the Partnership to the officers and directors of the
general partner. See Item 13 of this Report,  "Certain Relationships and Related
Transactions",  for a  description  of the  compensation  and  fees  paid to the
general partner and its affiliates by the Partnership during 1998.

Item 12.  Security Ownership of Certain Beneficial Owners and Management
          --------------------------------------------------------------

     (a)  As of the date hereof, no person is known by the Partnership to be the
          beneficial  owner of more than 5% of the Class A limited partner units
          of the Partnership.  The Partnership has no directors or officers, and
          neither  the general  partner  nor the Class B limited  partner of the
          Partnership own any Class A limited partner units.

          CAII,  an  affiliate  of the  general  partner  is the Class B limited
          partner.


                                      -33-

<PAGE>



Item 12.  Security  Ownership  of  Certain  Beneficial  Owners  and  Management,
          ---------------------------------------------------------------------
          continued

          CAI Equipment Leasing III Corp. is the general partner.

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

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

          CAI Equipment Leasing III Corp.
          7175 West Jefferson Avenue
          Suite 4000
          Lakewood, Colorado 80235

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

          Capital Associates International, Inc.
          7175 West Jefferson Avenue
          Suite 4000
          Lakewood, Colorado 80235

     (b)  No directors or officers of the general partner or the Class B limited
          partner  owned any Class A limited  partner  units as of December  31,
          1998.

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

Item 13.  Certain Relationships and Related Transactions
          ----------------------------------------------

The general partner and its affiliates  receive  certain types of  compensation,
fees  or  other   distributions   in  connection  with  the  operations  of  the
Partnership.

Following is a summary of the amounts paid or payable to the general partner and
its affiliates during 1998:

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

The general partner earns a fee equal to 4% of the sales price of equipment sold
to  the  Partnership,  2%  of  which  represented  compensation  for  selecting,
negotiating  and  consummating  the acquisition of the equipment and 2% of which
represented  reimbursement  for services  rendered in connection with evaluating
the  suitability of the equipment and the credit  worthiness of the lessee.  The
Partnership did not incur any origination or evaluation fees in 1998.

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

The general partner earns management fees as compensation for services  rendered
in connection  with managing the  Partnership's  equipment  equal to 2% of gross
rentals received. Such fees totaled approximately $156,000 for 1998.

                                      -34-

<PAGE>



Item 13.  Certain Relationships and Related Transactions, continued
          ----------------------------------------------

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

The general  partner is entitled to  reimbursement  of certain  expenses paid on
behalf  of  the   Partnership   which  are  incurred  in  connection   with  the
Partnership's  operations.  Such reimbursable expenses amounted to approximately
$137,000 during 1998.

General Partner Distributions
-----------------------------

The general partner is allocated 1% of Partnership  cash  distributions  and net
income   relating  to  its  general   partner   interest  in  the   Partnership.
Distributions   and  net  income   allocated  to  the  general  partner  totaled
approximately $65,000 and $65,000, respectively, for 1998. Distributions and net
income  allocated to the Class B limited partner totaled  approximately  $36,000
and $11,000, respectively, for 1998.

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

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

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

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

          (b)  The  Partnership  did not file any  reports  on Form  8-K  during
               the quarter ended December 31, 1998.

          (c)  Exhibits required to be filed.

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

                4.1*       Capital Preferred Yield Fund-II  Limited  Partnership
                           Agreement

                4.2*       First  Amendment  to  Limited  Partnership  Agreement
                           dated June 12, 1992

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

                  *        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.



                                      -35-

<PAGE>


                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  Partnership  has duly  caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.

Dated:  March 30, 1999              Capital Preferred Yield Fund-II, L.P.

                                    By:  CAI Equipment Leasing III Corporation

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

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the general partner
of the Partnership and in the capacities indicated on March 30, 1999.

Signature                                         Title


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


/s/Anthony M. DiPaolo       
------------------------    Senior Vice President, Principal Financial and Chief
Anthony M. DiPaolo          Administrative Officer and Director


/s/Richard H. Abernethy
------------------------         
Richard H. Abernethy        Vice President and Director


/s/Joseph F. Bukofski         
------------------------         
Joseph F. Bukofski          Vice President and Director


/s/Robert A. Golden           
------------------------
Robert A. Golden            Director


/s/Mick Myers                    
------------------------
Mick Myers                  Director


/s/Ann Danielson                
------------------------
Ann Danielson               Assistant Vice President


/s/David J. Anderson          
------------------------
David J. Anderson           Chief Accounting Officer and Secretary

                                      -36-