SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

(Mark One)

ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2001

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission file number 0-22300

PW Preferred Yield Fund II, L.P.

(Exact name of registrant as specified in its charter)

Delaware		84–1180783
(State of organization)		(IRS Employer Identification No.)

88 Broad Street
Boston, Massachusetts		02110
(Address of principal		(Zip Code)
executive offices)

Registrant’s telephone number, including area code (617)854–5800

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 ý No o.

PW Preferred Yield Fund II, L.P.
Quarterly Report on Form 10–Q for the
Quarter Ended June 30, 2001

Table of Contents

Part I.	Financial Information

	Item 1.	Financial Statements

		Balance Sheets – June 30, 2001 and December 31, 2000 (unaudited)

		Statements of Income for the three months ended June 30, 2001 and 2000 (unaudited)

		Statements of Income for the six months ended June 30, 2001 and 2000 (unaudited)

		Statements of Partners’ Equity for the six months ended June 30, 2001 and 2000 (unaudited)

		Statements of Cash Flows for the six months ended June 30, 2001 and 2000 (unaudited)

		Notes to Financial Statements (unaudited)

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

Part II.	Other Information

	Item 1.	Legal Proceedings

	Item 5.	Other Information

	Item 6.	Exhibits and Reports on Form 8–K

		Signatures

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

PW PREFERRED YIELD FUND II, L.P.

BALANCE SHEETS
JUNE 30, 2001 AND DECEMBER 31, 2000
(unaudited)

						June 30, 2001			December 31, 2000

ASSETS
Cash and cash equivalents						$	2,560,184		$	1,403,646
Rents and other receivables, net of allowance for doubtful accounts of $18,000 and $33,000 at June 30, 2001 and December 31, 2000, respectively						217,264			200,515
Receivable from general partner						204,788			149,843
Equipment at cost, net of accumulated depreciation of $12,189,832 and $12,589,684 at June 30, 2001 and December 31, 2000, respectively						6,145,063			8,450,576


				Total Assets		$		9,127,299	$	10,204,580


LIABILITIES AND PARTNERS' EQUITY
Liabilities:
	Accounts payable and accrued liabilities				$			29,500	$		54,000
	Payable to affiliates				99,258				96,505
	Deferred rental income				143,360				51,598
	Distributions payable to partners				318,785				318,785


			Total Liabilities		590,903				520,888


Partners’ Equity:
	General Partners				411,447				468,812
	Limited Partners:
		Class A (54,027 Units outstanding)			7,108,575				8,062,265
		Class B			1,016,374				1,152,615


			Total Partners' Equity		8,536,396				9,683,692


				Total Liabilities and Partners’ Equity	$			9,127,299	$		10,204,580

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

PW PREFERRED YIELD FUND II, L.P.

STATEMENTS OF INCOME

FOR THE THREE MONTHS ENDED JUNE 30, 2001 AND 2000
(unaudited)

			2001		2000

Revenue:
	Lease revenue		$	890,997	$	1,037,157
	Gain on sale of equipment		15,994		6,427
	Interest income		13,950		24,041


		Total Revenue	920,941		1,067,625


Expenses:
	Depreciation		571,410		635,900
	Management fees (Note 2)		34,565		42,364
	General and administrative		25,964		27,180


		Total Expenses	631,939		705,444


Net Income			$	289,002	$	362,181


Net Income Allocated:
	To the General Partners		$	14,451	$	18,109
	To the Class A Limited Partners		261,224		322,054
	To the Class B Limited Partner		13,327		22,018


			$	289,002	$	362,181


Net Income per Weighted Average Number of Units of Class A Limited Partner Interest Outstanding			$	4.84	$	5.96

Weighted Average Number of Units of Class A Limited Partner Interest Outstanding			54,027		54,027

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

PW PREFERRED YIELD FUND II, L.P.

STATEMENTS OF INCOME

FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(unaudited)

			2001		2000

Revenue:
	Lease revenue		$	2,390,103	$	2,102,862
	Gain (loss) on sale of equipment		(499,666)		30,000
	Interest income		26,964		38,249

		Total Revenue	1,917,401		2,171,111

Expenses:
	Depreciation		1,167,429		1,350,550
	Management fees (Note 2)		100,189		86,232
	General and administrative		60,226		71,498


		Total Expenses	1,327,844		1,508,280


Net Income			$	589,557	$	662,831

Net Income Allocated:
	To the General Partners		$	29,478	$	33,142
	To the Class A Limited Partners		532,052		592,961
	To the Class B Limited Partner		28,027		36,728


			$	589,557	$	662,831


Net Income per Weighted Average Number of Units of Class A Limited Partner Interest Outstanding			$	9.85	$	10.98


Weighted Average Number of Units of Class A Limited Partner Interest Outstanding			54,027		54,027

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

PW PREFERRED YIELD FUND II, L.P.

STATEMENTS OF PARTNERS’ EQUITY

FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(unaudited)

	General Partners			Class A Limited Partners			Class B Limited Partner			Total


Balance, January 1, 2001	$	468,812		$	8,062,265		$	1,152,615		$	9,683,692
Net income	29,478			532,052			28,027			589,557
Distributions declared to partners	(86,843		)	(1,485,742		)	(164,268		)	(1,736,853		)


Balance, June 30, 2001	$	411,447		$	7,108,575		$	1,016,374		$	8,536,396


Balance, January 1, 2000	$	568,137		$	9,713,555		$	1,388,514		$	11,670,206
Net income	33,142			592,961			36,728			662,831
Distributions declared to partners	(86,843		)	(1,485,742		)	(164,268		)	(1,736,853		)


Balance, June 30, 2000	$	514,436		$	8,820,774		$	1,260,974		$	10,596,184

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

PW PREFERRED YIELD FUND II, L.P.

STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2001 and 2000
(unaudited)

				2001			2000

Cash Flows From Operating Activities:
	Net income			$	589,557		$	662,831

	Adjustments to reconcile net income to net cash from operating activities:
		Depreciation		1,167,429			1,350,550
		Loss (gain) on sale of equipment		499,666			(30,000		)
	Change in assets and liabilities:
		Rents and other receivables		(1,749		)	40,058
		Receivable from general partner		(54,945		)	57,813
		Allowance for doubtful accounts		(15,000		)	(14,000		)
		Accounts payable and accrued liabilities		(24,500		)	6,400
		Payable to affiliates		2,753			(4,850		)
		Deferred rental income		91,762			23,616


			Net cash from operating activities	2,254,973			2,092,418


Cash Flows From Investing Activities:
	Purchase of equipment			—			(697,611		)
	Proceeds from equipment sales			638,418			133,228


			Net cash from (used in) investing activities	638,418			(564,383		)


Cash Flows From Financing Activities:
	Distributions paid to partners			(1,736,853		)	(1,736,853		)


			Net cash used in financing activities	(1,736,853		)	(1,736,853		)

Net Increase (Decrease) in Cash And Cash Equivalents				1,156,538			(208,818		)

Cash and Cash Equivalents at Beginning of Period				1,403,646			1,926,081


Cash and Cash Equivalents at End of Period				$	2,560,184		$	1,717,263

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

PW PREFERRED YIELD FUND II, L.P.

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2001
(unaudited)

1. General

The financial statements presented herein are prepared in conformity with generally accepted accounting principles for interim financial information and the instructions for preparing Form 10-Q under Rule 10-01 of Regulation S-X of the Securities and Exchange Commission and are unaudited. As such, these financial statements do not include all information and footnote disclosures required under generally accepted accounting principles for complete financial statements and, accordingly, the accompanying financial statements should be read in conjunction with the footnotes presented in the 2000 Annual Report. Except as disclosed herein, there has been no material change to the information presented in the footnotes to the 2000 Annual Report.

In the opinion of management, all adjustments (consisting of normal and recurring adjustments) considered necessary for a fair presentation have been included.

Certain 2000 amounts have been reclassified to conform to the current year presentation.

2. Transactions with Affiliates

Acquisition and Operating Stages

Acquisition of Equipment Pursuant to its investment objectives, the Partnership acquired, on an all–cash basis, certain leased equipment from Equis Financial Group L.P. (“EFG”) (formerly American Finance Group or AFG), an affiliate of the Managing General Partner.

The purchase price of the equipment acquired from EFG is equal to the lesser of the adjusted cost of the equipment or the appraised value of the equipment at the time of its acquisition by the Partnership (“EFG carrying value”). The adjusted cost of the equipment is equal to the price paid by EFG, plus the cost of an appraisal, EFG’s cost of interim financing for the equipment and any taxes paid by EFG, less certain interim rentals received by EFG with respect to the equipment.

Acquisition Fee The Managing General Partner, or its affiliates, received or was entitled to receive a fee equal to (i) 2.25% of the purchase price of equipment purchased with net offering proceeds from the sale of Units, and (ii) 3% of the purchase price of equipment purchased with reinvested Partnership cash flow as compensation for evaluating, selecting, negotiating and consummating the acquisition of the equipment.

Management Fees The General Partners are entitled to receive a monthly fee in an amount equal to 2% of gross rentals for Full Payout Leases, as defined in the Partnership Agreement and 5% of gross rentals for Operating Leases (payable 66.67% to the Managing General Partner and 33.33% to the Administrative General Partner) as compensation for services rendered in connection with the management of the equipment. Management fees of $34,565 and $100,189 were earned by the General Partners during the quarter and six months ended June 30, 2001. Effective July 1, 1998, the Managing General Partner agreed to perform certain administrative functions on behalf of the Partnership that previously had been performed by the Administrative General Partner. For these services, the Administrative General Partner pays the Managing General Partner an amount equivalent to the fees otherwise due the Administrative General Partner.

Disposition Fees The General Partners, or their affiliates, were entitled to receive a subordinated disposition fee in an amount equal to the lesser of (i) 50% of the fee that would be charged by an unaffiliated party, or (ii) 3% of the gross contract price relating to each sale of equipment (payable 50% to the Managing General Partner or its affiliates and 50% to the Administrative General Partner) as compensation for negotiating and consummating sales of equipment. During the fourth quarter of 1998, the Partnership reversed previously accrued subordinated disposition fees because the General Partners concluded that it was no longer probable that these subordinated disposition fees would be paid. The Partnership has not accrued for subordinated disposition fees during 1999, 2000 or 2001.

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

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

Liquidity and Capital Resources

The Partnership invests working capital and cash flow from operations prior to its distribution to the partners in short–term highly liquid investments. These investments are primarily short–term commercial paper issued by large domestic corporations. At June 30, 2001, the Partnership had approximately $1.9 million invested in a money market fund that invests in commercial paper and similar instruments.

Cash and cash equivalents increased $1,156,538 from $1,403,646 at December 31, 2000 to $2,560,184 at June 30, 2001. This increase primarily represents the amount by which cash generated by operating activities and equipment sales exceeded distributions to partners.

During the six months ended June 30, 2001, the Partnership declared distributions of cash flow received from operations in the amount of $1,736,853. All distributions to the Class A Limited Partners represented an annualized distribution rate of 11% of their contributed capital and all distributions to the Class B Limited Partner represented an annualized distribution rate of 10% of its contributed capital.

Distributions may be characterized for tax, accounting and economic purposes as a return of capital, a return on capital or both. The portion of each cash distribution by a partnership, which exceeds its net income for the fiscal period, may be deemed a return of capital. Based upon the amount of net income reported by the Partnership for accounting purposes, approximately 65% of the 11% cash distributions to the Class A Limited Partners for the six months ended June 30, 2001 constituted a return of capital. Additionally, since inception, approximately 69% of the Class A Limited Partner’s 11% cash distributions constituted a return of capital. However, the total actual return on capital over a leasing partnership’s life can only be determined at the termination of the Partnership after all residual cash flows (which include proceeds from the re–leasing and sale of equipment after initial lease terms expire) have been realized.

Results of Operations

For the three and six months ended June 30, 2001, the Partnership recognized lease revenue of $890,997 and $2,390,103, respectively, compared to $1,037,157 and $2,102,862 for the same periods in 2000. The overall increase in lease revenue from 2000 to 2001 is due principally to the receipt of lease termination proceeds in 2001 from a lessee of the Partnership. In March 2001, the lessee paid $513,479 as part of an agreement to early terminate its lease. In the future, lease revenue is expected to decline as a result of primary lease term expirations and the sale of equipment. The Partnership also earns interest income from temporary investments of rental receipts and equipment sales proceeds in short-term instruments. During the three months ended June 30, 2001, the Partnership sold equipment having a net book value of $17,430 to existing lessees and third parties. These sales resulted in a net gain, for financial statement purposes, of $15,994 compared to a net gain in 2000 of $6,427 on equipment having a net book value of $88,671.

During the six months ended June 30, 2001, the Partnership sold equipment having a net book value of $1,138,084 to existing lessees and third parties. These sales resulted in a net loss, for financial statement purposes, of $499,666 compared to a net gain in 2000 of $30,000 on equipment having a net book value of $103,228.

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

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

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

Depreciation expense for the three and six months ended June 30, 2001 was $571,410 and $1,167,429, respectively, compared to $635,900 and $1,350,550, for the same periods in 2000. For financial reporting purposes, to the extent that an asset is held on primary lease term, the Partnership depreciates the difference between (i) the cost of the asset and (ii) the estimated residual value of the asset on a straight-line basis over such term. For purposes of this policy, estimated residual values represent estimates of equipment values at the date of primary lease expiration. To the extent that an asset is held beyond its primary lease term, the Partnership continues to depreciate the remaining net book value of the asset on a straight-line basis over the asset's remaining economic life.

Management fees were approximately 3.9% and 4.2% of lease revenue during the three and six months ended June 30, 2001, respectively, compared to 4.1% of lease revenue during both the three and six months ended June 30, 2000, respectively. Management fees are based on 5% of gross lease revenue generated by operating leases and 2% of gross lease revenue generated by full payout leases.

The General Partners, or their affiliates, were entitled to receive a subordinated disposition fee in an amount equal to the lesser of (i) 50% of the fee that would be charged by an unaffiliated party, or (ii) 3% of the gross contract price relating to each sale of equipment (payable 50% to the Managing General Partner or its affiliates and 50% to the Administrative General Partner) as compensation for negotiating and consummating sales of equipment. During the fourth quarter of 1998, the Partnership reversed previously accrued subordinated disposition fees because the General Partners concluded that it was no longer probable that these subordinated disposition fees would be paid. The Partnership has not accrued for subordinated disposition fees during 1999, 2000 or 2001.

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

Part II. OTHER INFORMATION

Item 1.	Legal Proceedings

	None.

Item 5.	Other Information

	None.

Item 6.	Exhibits and Reports on Form 8–K

	(a)	None.

	(b)	The Partnership did not file any Forms 8-K during the second quarter of the fiscal year ending December 31, 2001.

SIGNATURE

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

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

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

Date: August 10, 2001	By:	/s/ Carmine Fusco
		Carmine Fusco
		Vice President, Secretary,
		Treasurer and Chief Financial
		and Accounting Officer

SIGNATURE

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

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

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

Date: August 10, 2001	By:

		Carmine Fusco
		Vice President, Secretary,
		Treasurer and Chief Financial
		and Accounting Officer

PAINEWEBBER PREFERRED YIELD FUND 2 LP 10-Q