UNITED STATES SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                              --------------------

                                    FORM 10-K

                              --------------------

             _X_ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                   For the fiscal year ended December 31, 1999

                                       OR

        ___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                    For the transition period from ___ to ___

                           Commission File No.33-2794

                         POLARIS AIRCRAFT INCOME FUND II,
                        A California Limited Partnership
                        --------------------------------
             (Exact name of registrant as specified in its charter)

                 California                               94-2985086
       -------------------------------             -----------------------
       (State or other jurisdiction of             (IRS Employer I.D. No.)
       incorporation or organization)

        201 High Ridge Road, Stamford, Connecticut                06927
        ------------------------------------------             ----------
         (Address of principal executive offices)              (Zip Code)

       Registrant's telephone number, including area code: (203) 357-3776

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

           Securities registered pursuant to Section 12(g) of the Act:
                      Units of Limited Partnership Interest

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.  X
           ---

No formal  market  exists  for the units of  limited  partnership  interest  and
therefore there exists no aggregate market value at December 31, 1999.

                    Documents incorporated by reference: None

                       This document consists of 40 pages.
<PAGE>

                                     PART I

Item 1.  Business

Polaris Aircraft Income Fund II, A California  Limited  Partnership  (PAIF-II or
the Partnership), was formed primarily to purchase and lease used commercial jet
aircraft in order to provide quarterly distributions of cash from operations, to
maximize the residual  values of aircraft  upon sale and to protect  Partnership
capital  through  experienced   management  and  diversification.   PAIF-II  was
organized  as a  California  Limited  Partnership  on June  27,  1984  and  will
terminate no later than December 2010.

PAIF-II has many competitors in the aircraft leasing market, including airlines,
aircraft leasing companies, other Limited Partnerships,  banks and several other
types of financial institutions.  This market is highly competitive and there is
no  single  competitor  who has a  significant  influence  on the  industry.  In
addition  to  other  competitors,   the  General  Partner,   Polaris  Investment
Management Corporation (PIMC), and its affiliates, including GE Capital Aviation
Services,  Inc. (GECAS),  Polaris Aircraft Leasing Corporation  (PALC),  Polaris
Holding  Company (PHC) and General  Electric  Capital  Corporation (GE Capital),
acquire,  lease,  finance, sell and remarket aircraft for their own accounts and
for existing  aircraft and aircraft leasing  programs managed by them.  Further,
GECAS  provides a  significant  range of aircraft  management  services to third
parties, including without limitation, AerFi Group plc (formerly GPA Group plc),
a public limited company  organized in Ireland,  together with its  consolidated
subsidiaries (AerFi), and Airplanes Group, together with its subsidiaries (APG),
each of which two groups leases and sells aircraft.  Accordingly,  in seeking to
re-lease and sell its aircraft,  the Partnership may be in competition  with the
General  Partner,  its affiliates,  AerFi,  APG, and other third parties to whom
GECAS provides aircraft management services from time to time.

A brief  description  of the aircraft  owned by the  Partnership is set forth in
Item  2.  The  following   table  describes   certain   material  terms  of  the
Partnership's  leases to Trans World  Airlines,  Inc.  (TWA) as of December  31,
1999.
                                                  Scheduled
                                    Number of       Lease
Lessee       Aircraft Type          Aircraft     Expiration     Renewal Options
------       -------------          --------     ----------     ---------------
TWA     McDonnell Douglas DC-9-30       11       11/04 (1)          none
TWA     McDonnell Douglas DC-9-30        3        2/05 (1)          none

(1)      These  leases  to TWA were  modified  in 1991.  The  leases  for  these
         aircraft were extended for an aggregate of 75 months beyond the initial
         lease  expiration  date in November  1991 at  approximately  46% of the
         original lease rates. The Partnership also agreed to share in the costs
         of certain  Airworthiness  Directives (ADs). If such costs are incurred
         by TWA,  they will be  credited  against  rental  payments,  subject to
         annual  limitations  with a maximum of $500,000 per  aircraft  over the
         lease terms.  TWA may specify a lease expiration date for each aircraft
         up to six months  before the date shown,  provided the average date for
         all of the aircraft equals the dates shown.

         In October 1994, TWA notified its creditors, including the Partnership,
         of a proposed restructuring of its debt. Subsequently, GECAS negotiated
         a  standstill  agreement  with TWA which was  approved on behalf of the
         Partnership by PIMC.  That  agreement  provided for a moratorium of the
         rent due the  Partnership in November 1994 and 75% of the rents due the
         Partnership  from December 1994 through March 1995. The deferred rents,
         which  aggregated  $3.6 million plus  interest,  were repaid in monthly
         installments  beginning in May 1995 through  October 1995. In 1995, the
         Partnership  received as consideration  for the agreement  $218,171 and
         warrants for 227,133  shares of TWA Common Stock.  These  warrants were
         exercised in 1995 and the related stock was subsequently sold in 1996.

                                       2
<PAGE>


         In 1996,  GECAS, on behalf of the Partnership,  negotiated with TWA for
         the  acquisition  of  noise-suppression   devices,  commonly  known  as
         "hushkits", for 14 of the Partnership's aircraft on lease to TWA at the
         time, as well as other  aircraft owned by affiliates of PIMC and leased
         to TWA. The 14 aircraft that received  hushkits were designated by TWA.
         The  hushkits  reconditioned  the  aircraft so as to meet Stage 3 noise
         level restrictions.  Hushkits were installed on 11 of the Partnership's
         aircraft during 1996 and the leases for these 11 aircraft were extended
         for a  period  of  eight  years  until  November  2004.  Hushkits  were
         installed on the remaining  three aircraft during February 1997 and the
         leases for these three  aircraft  were  extended  for a period of eight
         years until February 2005.

         The rent  payable by TWA under the leases  was  increased  by an amount
         sufficient  to cover the monthly debt service  payments on the hushkits
         and  fully  repay,  during  the  term of the  TWA  leases,  the  amount
         borrowed. The loan from the engine/hushkit manufacturer is non-recourse
         to the  Partnership  and  secured by a security  interest  in the lease
         receivables.

A discussion of the current  market  condition for the type of aircraft owned by
the Partnership follows. For further information, see Demand for Aircraft in the
Industry Update section of Item 7.

McDonnell  Douglas  DC-9-30  - The  McDonnell  Douglas  DC-9-30  is a short-  to
medium-range  twin-engine jet that was introduced in 1967.  Providing  reliable,
inexpensive  lift, these aircraft fill thin niche markets,  mostly in the United
States.  Hushkits are  available to bring these  aircraft into  compliance  with
Stage 3 requirements at a cost of  approximately  $1.6 million per aircraft.  As
noted above,  hushkits have been  installed on the 14 remaining  fund  aircraft.
Certain ADs applicable to the McDonnell Douglas DC-9 have been issued to prevent
fatigue cracks and control corrosion as discussed in the Industry Update section
of Item 7.

The General Partner  believes that, in addition to the factors cited above,  the
deteriorated  market  for  the  Partnership's   aircraft  reflects  the  airline
industry's  reaction to the significant  expenditures  potentially  necessary to
bring these aircraft into compliance with certain ADs issued by the FAA relating
to aging aircraft,  corrosion prevention and control, and structural  inspection
and modification as discussed in the Industry Update section of Item 7.


Item 2.  Properties

At December  31,  1999,  the  Partnership  owned 14  McDonnell  Douglas  DC-9-30
aircraft leased to TWA and spare parts inventory (as discussed in Note 8) out of
its original portfolio of 30 aircraft.  All leases are operating leases. Polaris
Aircraft  Income  Fund II  (the  Partnership)  transferred  six  Boeing  727-200
aircraft,  previously  leased to Pan Am, to aircraft  inventory  in 1992.  These
aircraft,  which are not included in the following table,  were disassembled for
sale of their component parts, the remainder of which was sold to Soundair, Inc.
in 1998.  The  Partnership  sold one Boeing  727-200  aircraft  equipped  with a
hushkit in February 1995. The Partnership  sold the airframe and one engine from
the Boeing  737-200  Combi  aircraft in March  1996.  The  Partnership  sold the
remaining  engine along with a Boeing 737-200 in January 1997.  The  Partnership
sold three Boeing  727-200,  one McDonnell  Douglas  DC-9-40 and three McDonnell
Douglas DC-9-30 aircraft to Triton Aviation Services II LLC in May 1997 and June
1997.

                                       3
<PAGE>


The following table describes the Partnership's  aircraft  portfolio at December
31, 1999 in greater detail:

                                              Year of              Cycles
Aircraft Type               Serial Number    Manufacture     As of 10/31/99 (1)
-------------               -------------    -----------     -------------------
McDonnell Douglas DC-9-30      47027            1967               86,459
McDonnell Douglas DC-9-30      47107            1968               86,547
McDonnell Douglas DC-9-30      47108            1968               83,343
McDonnell Douglas DC-9-30      47135            1968               82,809
McDonnell Douglas DC-9-30      47137            1968               81,589
McDonnell Douglas DC-9-30      47174            1968               84,046
McDonnell Douglas DC-9-30      47249            1968               88,254
McDonnell Douglas DC-9-30      47251            1968               86,009
McDonnell Douglas DC-9-30      47324            1969               80,814
McDonnell Douglas DC-9-30      47343            1969               84,513
McDonnell Douglas DC-9-30      47345            1969               82,877
McDonnell Douglas DC-9-30      47357            1969               80,140
McDonnell Douglas DC-9-30      47411            1969               80,585
McDonnell Douglas DC-9-30      47412            1969               81,088

(1) Cycle information as of 12/31/99 was not available.


Item 3.       Legal Proceedings

Braniff, Inc. (Braniff) Bankruptcy - In September 1989, Braniff filed a petition
under Chapter 11 of the Federal  Bankruptcy Code in the United States Bankruptcy
Court for the Middle District of Florida, Orlando Division. The Bankruptcy Court
disposed  of the  Partnership's  claim  in this  bankruptcy  by  permitting  the
Partnership  to exchange a portion of its unsecured  claim for  Braniff's  right
(commonly  referred  to as a "Stage 2 Base  Level  right")  under  the FAA noise
regulations  to operate one Stage 2 aircraft and by allowing the  Partnership  a
net remaining unsecured claim of $769,231 in the proceedings.

Braniff's  bankrupt  estate made a $200,000  payment in respect of the unsecured
claims of the Partnership and other affiliates of Polaris Investment  Management
Corporation,  of which $15,385 was allocated to the Partnership based on its pro
rata share of the total claims. On January 20, 1999,  Braniff's  bankrupt estate
made an additional  $84,000  payment in respect of the  unsecured  claims of the
Partnership and other affiliates of Polaris Investment  Management  Corporation,
of which $6,462 was allocated to the Partnership  based on its pro rata share of
the  total  claims.  No  further  payments  have  been  made in  respect  of the
Partnership's unsecured claim in the bankruptcy proceeding.

Viscount Air Services,  Inc.  (Viscount)  Bankruptcy - As previously reported in
the  Partnership's  1998 Form 10-K,  all disputes  between the  Partnership  and
Viscount have been resolved,  and there is no further  pending  litigation  with
Viscount.  However, when Viscount rejected its lease of one of the Partnership's
aircraft  ("306  Aircraft"),  as authorized  by the  Bankruptcy  Court,  the 306
Aircraft was located at a maintenance  facility  called BAE  Aviation,  Inc. dba
Tucson Aerospace (BAE). BAE and its subcontractors STS Services, Inc. and Piping
Design Services, Inc., dba PDS Technical Services asserted mechanics' liens over
the 306 Aircraft.

On May 22, 1996,  First  Security Bank,  National  Association  (FSB),  as owner
trustee,  filed suit in the Superior  Court of Arizona in Pima County to recover
the 306 Aircraft. After FSB filed a bond in the penal amount of $1,371,000,  the
claimants in the action  released the 306 Aircraft and filed a claim against the

                                       4
<PAGE>

bond.  FSB filed a motion  for  summary  judgment  on all  claims  raised by the
claimants in the counterclaim. The Superior Court granted the motion and entered
judgment on October 30, 1998  dismissing the  counterclaim  and  exonerating the
bond.  The  Court  has  stayed  exoneration  of the bond  pending  appeal by the
claimant.  FSB filed a motion seeking  recovery of its attorneys' fees and costs
incurred in defending the  litigation,  and the Court entered an order  awarding
$159,374.51 to FSB, GE Capital  Aviation  Services,  Inc. and Federal  Insurance
Company,  as surety,  for partial  reimbursement  of their  attorneys'  fees and
expenses.  On February 4, 2000, the Court denied the claimants' motion for a new
trial and denied FSB's supplemental application for award of attorneys' fees and
expenses. The claimants have indicated that they will file an appeal.

Kepford, et al. v. Prudential Securities, et al. -On April 13, 1994, this action
was  filed in the  District  Court  of  Harris  County,  Texas  against  Polaris
Investment  Management  Corporation,  Polaris  Securities  Corporation,  Polaris
Holding Company, Polaris Aircraft Leasing Corporation, the Partnership,  Polaris
Aircraft  Income Fund I,  Polaris  Aircraft  Income Fund III,  Polaris  Aircraft
Income Fund IV, Polaris Aircraft Income Fund V, Polaris Aircraft Income Fund VI,
General Electric Capital Corporation,  Prudential  Securities,  Inc., Prudential
Insurance Company of America and James J. Darr. The complaint alleges violations
of the Texas  Securities Act, the Texas Deceptive Trade Practices Act,  sections
11 and  12 of the  Securities  Act of  1933,  common  law  fraud,  fraud  in the
inducement,  negligent misrepresentation,  negligence,  breach of fiduciary duty
and civil conspiracy arising from the defendants' alleged  misrepresentation and
failure  to  disclose  material  facts in  connection  with the sale of  limited
partnership  units in the  Partnership  and the other  Polaris  Aircraft  Income
Funds.  Plaintiffs seek, among other things, an award of compensatory damages in
an  unspecified  amount plus  interest,  and double and treble damages under the
Texas  Deceptive Trade Practices Act. The trial date for this action was set and
rescheduled  by the trial court  several  times,  and on September 2, 1999,  the
court  granted a stay of this action  pending the  submission  of the  remaining
plaintiffs' claims to arbitration.

Other Proceedings - Part III, Item 10 discusses certain other actions which have
been filed  against  the  general  partner in  connection  with  certain  public
offerings,  including that of the Partnership. The Partnership is not a party to
these actions.


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

None.


                                       5
<PAGE>

                                     PART II

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

a)       Polaris Aircraft Income Fund II's (PAIF-II or the Partnership)  Limited
         Partnership interests (Units) are not publicly traded.  Currently there
         is no market for  PAIF-II's  Units and it is  unlikely  that any market
         will develop.

b)       Number of Security Holders:

                                                       Number of Record Holders
               Title of Class                           as of December 31, 1999
         -------------------------                     ------------------------

         Limited Partnership Interest:                           14,093

         General Partnership Interest:                              1

c)       Dividends:

         The  Partnership  distributed  cash to partners  on a  quarterly  basis
         beginning July 1986. Cash distributions to Limited Partners during 1999
         and  1998  totaled  $8,199,557  and  $18,673,991,   respectively.  Cash
         distributions  per Limited  Partnership  unit were $16.40 and $37.35 in
         1999 and 1998, respectively.



                                       6
<PAGE>

Item 6.  Selected Financial Data

<TABLE>
<CAPTION>
                                               For the years ended December 31,
                                               --------------------------------

                                 1999          1998          1997          1996           1995
                                 ----          ----          ----          ----           ----

<S>                         <C>           <C>           <C>           <C>            <C>
Revenues                    $ 13,559,480  $ 13,901,118  $ 17,609,635  $ 16,304,608   $ 21,093,341

Net Income (Loss)              6,622,183     3,456,655     4,469,336   (14,708,486)     5,717,065

Net Income (Loss)
  Allocated to Limited
  Partners                     5,742,360     1,607,397     4,424,643   (16,311,216)     4,972,468

Net Income (Loss) per
  Limited Partnership Unit         11.49          3.22          8.85        (32.62)          9.94

Cash Distributions per
  Limited Partnership
  Unit                             16.40         37.35         28.70         35.00          13.75

Amount of Cash
  Distributions Included
  Above Representing
  a Return of Capital on
  a Generally Accepted
  Accounting Principle
  Basis per Limited
  Partnership Unit*                16.40         37.35         28.70         35.00          13.75

Total Assets                  51,760,515    57,461,885    77,546,425    87,622,742    107,820,317

Partners' Capital             40,956,964    43,445,400    60,740,696    72,215,709    106,368,523
</TABLE>

* The portion of such  distributions  which represents a return of capital on an
economic  basis  will  depend  in  part  on  the  residual  sale  value  of  the
Partnership's  aircraft and thus will not be ultimately  determinable  until the
Partnership disposes of its aircraft.  However,  such portion may be significant
and may equal, exceed or be smaller than the amount shown in the above table.


                                       7
<PAGE>

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

At December 31, 1999,  Polaris Aircraft Income Fund II (the Partnership) owned a
portfolio  of 14 used  commercial  jet aircraft  and spare parts  inventory  (as
discussed in Note 8) out of its original portfolio of 30 aircraft. The portfolio
consists  of 14  McDonnell  Douglas  DC-9-30  aircraft  leased  to  Trans  World
Airlines,  Inc. (TWA). The Partnership  transferred six Boeing 727-200 aircraft,
previously leased to Pan American World Airways,  Inc., to aircraft inventory in
1992.  These aircraft were  disassembled  for sale of their component parts. The
Partnership  sold  its  remaining  inventory  of  aircraft  parts  from  the six
disassembled  aircraft,  to Soundair,  Inc., in 1998. The  Partnership  sold one
Boeing  727-200  aircraft in February 1995, one Boeing 737-200 Combi aircraft in
March 1996, and one Boeing 737-200  aircraft in January 1997.  During the second
quarter of 1997, the Partnership  sold three McDonnell  Douglas DC-9-30 aircraft
and one McDonnell  Douglas  DC-9-40  aircraft  leased to TWA, two Boeing 727-200
Advanced   aircraft  leased  to  Continental   Micronesia,   Inc.   (Continental
Micronesia),  and one Boeing  727-200  Advanced  aircraft  leased to Continental
Airlines, Inc. (Continental), to Triton Aviation Services II LLC.


Remarketing Update

General - Polaris  Investment  Management  Corporation  (the General  Partner or
PIMC)  evaluates,  from time to time,  whether the investment  objectives of the
Partnership are better served by continuing to hold the Partnership's  remaining
portfolio of Aircraft or marketing such Aircraft for sale. This evaluation takes
into account the current and potential earnings of the Aircraft,  the conditions
in the markets for lease and sale and future  outlook for such markets,  and the
tax consequences of selling rather than continuing to lease the Aircraft.


Partnership Operations

The  Partnership  reported  net  income of  $6,622,183,  or $11.49  per  Limited
Partnership unit for the year ended December 31, 1999, compared to net income of
$3,456,655,  or $3.22 per Limited Partnership unit and net income of $4,469,336,
or $8.85 per Limited Partnership unit, for the years ended December 31, 1998 and
1997,  respectively.  Variances in net income may not correspond to variances in
net income per Limited  Partnership  unit due to the allocation of components of
income and loss in accordance with the Partnership agreement.

Interest income decreased during 1998, as compared to 1997, primarily due to the
December  1997 payoff of the  Promissory  note related to the  aircraft  sold to
Triton  Aviation  Services II LLC in 1997.  Interest  income  further  decreased
during  1999,  as  compared  to 1998  primarily  due to a  decrease  in the cash
reserves.

The Partnership  recorded other income of $802,443 in 1997,  compared to $50,000
and $-0- during 1998 and 1999, respectively.  Other income in 1997 was comprised
of the receipt of amounts due under a TWA  maintenance  credit and rent deferral
agreement.

The decrease in rental revenues, depreciation expense and management fees during
1999 and  1998,  compared  to 1997  was  primarily  attributable  to the sale of
aircraft to Triton during 1997.  Depreciation  expense was further  decreased in
1999 and 1998,  compared to 1997,  as a result of several  aircraft  having been
fully depreciated down to their original  estimated residual values during 1998.
This  decrease  was  partially  offset by  additional  depreciation,  due to the
Partnership's  downward  adjustment  of  the  estimated  residual  value  of the
portfolio aircraft, beginning in the fourth quarter of 1999.

                                       8
<PAGE>


In November 1996 and February  1997  hushkits were  installed on the 14 aircraft
currently  leased to TWA. The leases for these 14 aircraft  were  extended for a
period  of eight  years.  The rent  payable  by TWA under  the  leases  has been
increased by an amount  sufficient to cover the monthly debt service payments on
the  hushkits  and fully  repay,  during the term of the TWA leases,  the amount
borrowed.  The  Partnership  recorded  $834,791,  $1,290,441  and  $1,659,897 in
interest  expense on the amount  borrowed to finance the  hushkits  during 1999,
1998 and 1997, respectively.

Operating  expense  decreased in 1999,  when  compared to 1998  primarily due to
legal expense related to the Ron Wallace  Litigation  Settlement in 1998 as more
fully described below.

Administrative  expenses  decreased in 1999 compared to 1998 and 1997  primarily
due to additional printing and postage costs incurred in 1998 as a result of the
Triton litigation and settlement.

The Partnership periodically reviews the estimated realizability of the residual
values at the projected end of each aircraft's  economic life based on estimated
residual  values  obtained from  independent  parties which provide  current and
future estimated aircraft values by aircraft type.

The  Partnership's  future  earnings  are  impacted  by the  net  effect  of the
adjustments  to the  carrying  value of the  aircraft  (which  has the effect of
decreasing future  depreciation  expense),  and the downward  adjustments to the
estimated   residual   values  (which  has  the  effect  of  increasing   future
depreciation expense).

The Partnership  made a downward  adjustment to the estimated  residual value of
its aircraft as of October 1, 1999.  As a result of the 1999  adjustment  to the
estimated  residual value,  the Partnership  recognized  increased  depreciation
expense in 1999 of approximately $144,721 or $.29 per Limited Partnership unit.

The Partnership had been holding a security deposit,  received from Jet Fleet in
1992, pending the outcome of bankruptcy  proceedings.  The bankruptcy proceeding
of Jet Fleet  Corporation  was  closed on August  6,  1997,  and the  bankruptcy
proceeding of Jet Fleet International  Airlines, Inc. was closed on February 10,
1998. Consequently,  the Partnership recognized,  during the quarter ended March
31, 1998, revenue of $50,000 that had been held as a deposit.

The Partnership recorded other revenue during 1997 as compared to 1998 and 1999.
This amount reflected in other revenue was the result of the receipt of $802,443
related  to  amounts  due under the TWA  maintenance  credit  and rent  deferral
agreement as discussed above.


Liquidity and Cash Distributions

Liquidity - The Partnership  received all payments due from lessees during 1999,
except for the December  1999 lease  payment  from TWA. On January 3, 2000,  the
Partnership  received  its  $935,000  rental  payment  from  TWA that was due on
December 27, 1999. This amount was included in rent and other receivables on the
balance sheet at December 31, 1999.  While TWA has committed to an uninterrupted
flow of lease  payments,  there can be no  assurance  that TWA will  continue to
honor its obligations in the future.

As discussed in Note 3 to the  Financial  Statements  (Item 8), the  Partnership
agreed to share in the cost of meeting certain  Airworthiness  Directives  (ADs)
with TWA. In accordance with the cost-sharing agreement, TWA may offset up to an
additional $1.7 million against rental payments,  subject to annual limitations,
over the remaining lease terms.

The Partnership sold one Boeing 727-200 aircraft  equipped with a hushkit to AIA
in February  1995 as  previously  discussed.  The  agreement  with AIA specified
payment of the sales price in 36 monthly  installments  of $55,000  beginning in

                                       9
<PAGE>

March 1995. The Partnership  received all scheduled  payments due from AIA. This
note was sold to Triton during 1997 as part of the  transaction  discussed later
under Sale of Aircraft.

In March 1996, the Partnership sold its Boeing 737-200 Combi aircraft to Westjet
for cash and a note due in 22 monthly  installments,  with interest at a rate of
10% per  annum  beginning  in March  1996.  The  Partnership  has  received  all
scheduled  payments  from  Westjet.  This note was sold to Triton during 1997 as
part of the transaction discussed later under sale of Aircraft.

Payments of $69,700,  $133,285, and $214,749 were received during 1999, 1998 and
1997, respectively, from the sale of inventoried parts from the six disassembled
aircraft.

PIMC has  determined  that the  Partnership  maintain cash reserves as a prudent
measure to ensure that the Partnership has available funds in the event that the
aircraft  presently  on  lease  to  TWA  require  remarketing,   and  for  other
contingencies  including  expenses of the Partnership.  The  Partnership's  cash
reserves  will be  monitored  and may be  revised  from time to time as  further
information becomes available in the future.

Cash  Distributions - Cash  distributions  to Limited  Partners were $8,199,557,
$18,673,991,  and  $14,349,914  in  1999,  1998  and  1997,  respectively.  Cash
distributions per Limited  Partnership unit were $16.40,  $37.35, and $28.70 per
Limited  Partnership  unit in 1999, 1998 and 1997,  respectively  The timing and
amount of future  cash  distributions  are not yet known and will  depend on the
Partnership's  future cash requirements  (including expenses of the Partnership)
and need to retain  cash  reserves  as  previously  discussed  in the  Liquidity
section;  the receipt of rental  payments from TWA; and payments  generated from
the aircraft disassembly process.


Impact of the Year 2000 Issue

To date, the Partnership has not incurred any  expenditures  related to the Year
2000 issue nor does it expect to incur any material costs in the future.


Sale of Aircraft

Sale of Boeing  737-200  Aircraft  - On January  30,  1997,  one Boeing  737-200
formerly  on  lease  to  Viscount,  was sold to  American  Aircarriers  Support,
Inc.(American  Aircarriers) on an "as-is,  where-is" basis for $660,000 cash. In
addition, the Partnership retained maintenance reserves from the previous lessee
of $217,075,  that had been held by the  Partnership,  which were  recognized as
additional sale proceeds.  A net loss of $26,079 was recorded on the sale of the
aircraft.

Sale  of  Aircraft  to  Triton  - On  May  28,  1997,  PIMC,  on  behalf  of the
Partnership,  executed  definitive  documentation  for the  purchase of 7 of the
Partnership's  21 remaining  aircraft (the  "Aircraft") and certain of its notes
receivables by Triton  Aviation  Services II LLC, a special purpose company (the
"Purchaser"  or  "Triton").  The  closings  for the  purchase  of the 7 Aircraft
occurred from May 28, 1997 to June 16, 1997.  The Purchaser is managed by Triton
Aviation Services,  Ltd. ("Triton Aviation" or the "Manager"),  a privately held
aircraft leasing company which was formed in 1996 by Triton Investments, Ltd., a
company  which has been in the marine cargo  container  leasing  business for 17
years and is diversifying  its portfolio by leasing  commercial  aircraft.  Each
Aircraft was sold subject to the existing leases.

The Terms of the Transaction - The total contract  purchase price (the "Purchase
Price") to the Purchaser was $13,988,000 which was allocated to the Aircraft and
to certain notes  receivable  by the  Partnership.  The  Purchaser  paid into an
escrow account  $1,575,888 of the Purchase Price in cash upon the closing of the

                                       10
<PAGE>

first aircraft and delivered a promissory note (the  "Promissory  Note") for the
balance of $12,412,112.  The Partnership received payment of $1,575,888 from the
escrow account on June 24, 1997. On December 30, 1997, the Partnership  received
prepayment in full of the outstanding note receivable and interest earned by the
Partnership to that date.

Under the purchase agreement,  the Purchaser purchased the Aircraft effective as
of April 1, 1997 notwithstanding the actual closing dates. The utilization of an
effective  date  facilitated  the  determination  of rent and other  allocations
between  the  parties.  The  Purchaser  had the right to receive  all income and
proceeds,  including rents and receivables,  from the Aircraft accruing from and
after April 1, 1997, and the Promissory  Note commenced  bearing  interest as of
April 1, 1997  subject to the closing of the  Aircraft.  Each  Aircraft was sold
subject to the existing leases.

The  Accounting  Treatment of the  Transaction  - In accordance  with GAAP,  the
Partnership recognized rental income up until the closing date for each aircraft
which occurred from May 28, 1997 to June 16, 1997.  However,  under the terms of
the  transaction,  the Purchaser  was entitled to receive  payment of the rents,
receivables  and other  income  accruing  from April 1, 1997.  As a result,  the
Partnership  made  payments  to the  Purchaser  in  the  amount  of  the  rents,
receivables  and other income due and received from April 1, 1997 to the closing
date of $1,001,067, which is included in rent from operating leases and interest
income. For financial reporting  purposes,  the cash down payment portion of the
sales  proceeds of  $1,575,888  has been adjusted by the  following:  income and
proceeds,  including rents and  receivables  from the effective date of April 1,
1997 to the  closing  date,  interest  due on the cash  portion of the  purchase
price,  interest on the Promissory Note from the effective date of April 1, 1997
to the  closing  date and  estimated  selling  costs.  As a result of these GAAP
adjustments, the net adjusted sales price recorded by the Partnership, including
the Promissory Note, was $13,205,140.

The Aircraft sold pursuant to the definitive  documentation  executed on May 28,
1997 had been  classified  as  aircraft  held for sale from that date  until the
actual  closing  date.  Under GAAP,  aircraft held for sale are carried at their
fair market value less  estimated  costs to sell.  The  adjustment  to the sales
proceeds  described  above and revisions to estimated costs to sell the Aircraft
required the  Partnership  to record an adjustment to the net carrying  value of
the  aircraft  held for sale of $749,373  during the three months ended June 30,
1997. This adjustment to the net carrying value of the aircraft held for sale is
included in depreciation expense on the statement of operations.


Ron Wallace Litigation Settlement

Ron Wallace v. Polaris Investment Management  Corporation,  et al. - On or about
June 18,  1997,  a  purported  class  action  entitled  Ron  Wallace v.  Polaris
Investment Management Corporation, et al. was filed on behalf of the unitholders
of Polaris  Aircraft  Income  Funds II through VI in the  Superior  Court of the
State of  California,  County of San  Francisco.  The  complaint  names  each of
Polaris Investment Management  Corporation (PIMC), GE Capital Aviation Services,
Inc.  (GECAS),  Polaris Aircraft Leasing  Corporation,  Polaris Holding Company,
General Electric Capital  Corporation,  certain executives of PIMC and GECAS and
John E. Flynn, a former PIMC  executive,  as defendants.  The complaint  alleges
that defendants committed a breach of their fiduciary duties with respect to the
Sale  Transaction  involving the  Partnership  as described in Item 7, under the
caption  "Sale of Aircraft -- Sale of Aircraft to Triton." On September 2, 1997,
an amended complaint was filed adding additional plaintiffs, and on December 18,
1997, the plaintiffs  filed a second amended  complaint  asserting  their claims
derivatively.

On November 9, 1998,  defendants,  acting through their counsel,  entered into a
settlement agreement with plaintiffs and with the plaintiff in a related action,
"Accelerated"  High Yield  Income  Fund II,  Ltd.,  L.P. v.  Polaris  Investment
Management Corporation, et al. The settlement agreement does not provide for any

                                       11
<PAGE>

payments to be made to the Partnership. Plaintiff's counsel sought reimbursement
from the Partnership for its attorneys' fees and expenses.  A settlement  notice
setting forth the terms of the  settlement  was mailed to the last known address
of each  unitholder  of the  Partnership  on November 20, 1998.  On December 24,
1998, the Court  approved the terms of the  settlement and approved  plaintiffs'
attorney's  fees and  expenses in the amount of  $438,766,  which is included in
1998 operating expenses.


Viscount Default and Bankruptcy Filing

On January 24, 1996,  Viscount filed a petition for protection  under Chapter 11
of the United States  Bankruptcy Code in the United States  Bankruptcy  Court in
Tucson,  Arizona.  In April 1996,  GECAS,  on behalf of the  Partnership,  First
Security Bank,  National  Association  (formerly known as First Security Bank of
Utah,  National  Association)  (FSB), the owner/trustee  under the Partnership's
leases with Viscount (the Leases),  Viscount,  certain  guarantors of Viscount's
indebtedness  and  others  executed  in April  1996 a  Compromise  of Claims and
Stipulation  under  Section  1110 of the  Bankruptcy  Code (the  Compromise  and
Stipulation),  which was  subsequently  approved by the  Bankruptcy  Court.  The
Compromise and Stipulation provided,  among other things, that Viscount rejected
the lease of the Partnership's aircraft. The rejection of the lease gave rise to
a pre-petition  unsecured claim in Viscount's  bankruptcy for breach of contract
damages.  Notwithstanding  Viscount's  rejection of the  Partnership's  aircraft
lease,  Viscount  continued  to  possess  and use the  Partnership's  engine and
refused  to  return  various  aircraft  parts  removed  from  the  Partnership's
aircraft.

During 1995,  Viscount delivered the Partnership's  Boeing 737-200 aircraft to a
repair facility operated by BAE Aviation, Inc., d/b/a Tucson Aerospace,  located
in  Arizona,  to  perform  a  heavy  maintenance  check  on  the  aircraft.  The
Partnership has paid to Tucson Aerospace approximately $565,000 from maintenance
reserves  and cash  reserves  for this  aircraft  as  progress  payments on this
maintenance  check.  Work on the  maintenance  check was suspended  prior to the
filing of the Chapter 11 petition by  Viscount.  Tucson  Aerospace  asserts that
Viscount owes it approximately $866,000 for work done on the aircraft,  which is
in addition to the  approximately  $565,000 already paid by the Partnership from
maintenance  reserves. In addition, a third party vendor, who claims it provided
personnel to work on the aircraft, is asserting a claim against Tucson Aerospace
and a lien against the aircraft in the amount of $720,000.  Another  third-party
vendor,  who claims it provided  inspectors,  is claiming  $185,000  from Tucson
Aerospace.  On May 22, 1996, First Security Bank, National Association (formerly
known  as  First  Security  Bank  of  Utah,  National   Association)  (FSB),  as
owner/trustee,  filed suit in the Superior  Court of Arizona in Pima County,  to
recover the airframe  from BAE  Aviation,  Inc. and certain  creditors  alleging
mechanics liens and to determine the validity of the claimed liens.

Pursuant to a stipulated  order of the Superior  Court  entered on July 9, 1996,
FSB  filed  a bond  in the  penal  sum of  $1,371,000  for  the  benefit  of the
lienholders,  who subsequently  released the aircraft to the Partnership on July
11,  1996 and filed a claim  against  the bond.  FSB filed a motion for  summary
judgment on all claims raised by the claimants in the counterclaim. The Superior
Court granted the motion and entered judgment on October 30, 1998 dismissing the
counterclaim  and exonerating the bond. The Court has stayed  exoneration of the
bond  pending  appeal by the  claimants.  The Court has  denied  the  claimants'
subsequent  motion for a new trial seeking  reconsideration.  FSB filed a motion
seeking  recovery of its  attorneys'  fees and costs  incurred in defending  the
litigation,  and the Court  set a  hearing  on the  motion  for  March 8,  1999.
Subsequently,  FSB and the  claimants  agreed to settle this claim for an agreed
judgement of  $159,374.51  in attorney's  fees to be paid to FSB. The settlement
agreement is subject to approval by the Court.  The  claimants are appealing the
Court's rulings.

On July 12, 1996, GECAS and FSB filed a motion in Viscount's  bankruptcy case to
recover  the  engines  and parts  leased in  connection  with the  Partnership's
aircraft.  GECAS and FSB assert that these  engines  and parts  should have been
delivered to FSB pursuant to the  Compromise and  Stipulation.  Viscount paid to
the  Partnership  $10,000  for the use of the engine  during the month of August
1996, and continued through August 1996 to pay maintenance  reserves pursuant to
the lease terms.

                                       12
<PAGE>


On September  18, 1996,  GECAS (on behalf of the  Partnership,  Polaris  Holding
Company,  Polaris  Aircraft  Income Fund I, Polaris  Aircraft Income Fund IV and
Polaris  Aircraft  Investors  XVIII)  (collectively,  the Polaris  Entities) and
Viscount   entered  into  a  Stipulation  and  Agreement  (the  Stipulation  and
Agreement) by which  Viscount  agreed to  voluntarily  return all of the Polaris
Entities'  aircraft and  engines,  turn over  possession  of the majority of its
aircraft parts inventory, and cooperate with GECAS in the transition of aircraft
equipment and maintenance, in exchange for which, upon Bankruptcy Court approval
of the  Stipulation and Agreement,  the Polaris  Entities would waive their pre-
and post-petition claims against Viscount for amounts due and unpaid.

A  consignment  agreement  has been  entered  into  with a sales  agent  for the
disposal of the spare parts inventory  recovered from Viscount.  Given that many
of the  parts  require  repair/overhaul,  the cost of  which  is not  accurately
determinable in advance,  and the inherent  uncertainty of sales prices for used
spare parts, there remains uncertainty as to whether the Partnership will derive
further proceeds from the sale of this inventory.

The Stipulation and Agreement also provides that the Polaris Entities, GECAS and
FSB would release any and all claims  against  Viscount,  Viscount's  bankruptcy
estate, and the property of Viscount's  bankruptcy estate,  effective upon entry
of a final  non-appealable  court order approving the Stipulation and Agreement.
The  Bankruptcy  Court  entered  such an order  approving  the  Stipulation  and
Agreement on October 23, 1996.

The Partnership evaluated the airframe and engines previously leased to Viscount
for potential  re-lease or sale and estimated that maintenance and refurbishment
costs aggregating  approximately  $1.6 million would be required to re-lease the
airframe and engines.  Alternatively,  a sale of the airframe and engines  would
likely be made on an "as is, where is" basis, without the Partnership  incurring
substantial  maintenance  costs.  The  aircraft  was  sold in  January  1997 for
$660,000.

Viscount's failure to perform its financial obligations to the Partnership had a
material adverse effect on the Partnership's  financial position. As a result of
Viscount's  defaults  and Chapter 11  bankruptcy  filing,  the  Partnership  had
accrued legal costs of approximately $15,000,  $116,000 and $107,000,  which are
reflected  in operating  expense in the  Partnership's  1999,  1998 and 1997 and
statement of  operations,  respectively.  In 1998, the  Partnership  revised its
estimate of legal costs and reduced the accrual for legal costs by $68,753.


Claims Related to Lessee Defaults

Braniff, Inc. (Braniff) Bankruptcy - In September 1989, Braniff filed a petition
under Chapter 11 of the Federal  Bankruptcy Code in the United States Bankruptcy
Court for the Middle District of Florida, Orlando Division. The Bankruptcy Court
disposed  of the  Partnership's  claim  in this  bankruptcy  by  permitting  the
Partnership  to exchange a portion of its unsecured  claim for  Braniff's  right
(commonly  referred  to as a "Stage 2 Base  Level  right")  under  the FAA noise
regulations  to operate one Stage 2 aircraft and by allowing the  Partnership  a
net remaining unsecured claim of $769,231 in the proceedings.

Braniff's  bankrupt  estate made a $200,000  payment in respect of the unsecured
claims of the Partnership and other affiliates of Polaris Investment  Management
Corporation,  of which $15,385 was allocated to the Partnership based on its pro
rata share of the total claims. On January 20, 1999,  Braniff's  bankrupt estate
made an additional  $84,000  payment in respect of the  unsecured  claims of the
Partnership and other affiliates of Polaris Investment  Management  Corporation,
of which $6,462 was allocated to the Partnership  based on its pro rata share of
the  total  claims.  No  further  payments  have  been  made in  respect  of the
Partnership's unsecured claim in the bankruptcy proceeding.

                                       13
<PAGE>



Industry Update

Maintenance  of Aging Aircraft - The process of aircraft  maintenance  begins at
the  aircraft  design  stage.  For aircraft  operating  under  Federal  Aviation
Administration  (FAA) regulations,  a review board consisting of representatives
of the manufacturer,  FAA representatives and operating airline  representatives
is responsible for specifying the aircraft's initial  maintenance  program.  The
General  Partner  understands  that this  program  is  constantly  reviewed  and
modified throughout the aircraft's operational life.

Since 1988, the FAA, working with the aircraft manufacturers and operators,  has
issued a series of ADs which  mandate  that  operators  conduct  more  intensive
inspections, primarily of the aircraft fuselages. The results of these mandatory
inspections may result in the need for repairs or structural  modifications that
may not have been required under pre-existing maintenance programs.

In addition,  an AD adopted in 1990,  applicable to McDonnell  Douglas aircraft,
requires  replacement or modification of certain  structural items on a specific
timetable.  These structural items were formerly subject to periodic inspection,
with replacement when necessary.  The AD requires  specific work to be performed
at various cycle thresholds  between 40,000 and 100,000 cycles,  and on specific
date or age  thresholds.  The  estimated  cost  of  compliance  with  all of the
components  of this AD is  approximately  $850,000 per  aircraft.  The extent of
modifications  required  to  an  aircraft  varies  according  to  the  level  of
incorporation of design improvements at manufacture.

In January 1993,  the FAA adopted  another AD intended to mitigate  corrosion of
structural components,  which would require repeated inspections from 5 years of
age throughout the life of an aircraft,  with replacement of corroded components
as needed.  Integration  of the new  inspections  into each aircraft  operator's
maintenance program was required by January 31, 1994.

The   Partnership's   existing  leases  require  the  lessees  to  maintain  the
Partnership's  aircraft in accordance with an FAA-approved  maintenance  program
during  the lease  term.  At the end of the  leases,  each  lessee is  generally
required to return the aircraft in airworthy condition including compliance with
all ADs for which  action is  mandated  by the FAA  during  the lease  term.  An
aircraft  returned to the  Partnership as a result of a lease default would most
likely  not be  returned  to the  Partnership  in  compliance  with  all  return
conditions  required by the lease.  The Partnership has agreed to bear a portion
of the costs of compliance  with certain ADs with respect to the aircraft leased
to  TWA,  as  described  in Item 1. In  negotiating  subsequent  leases,  market
conditions  may require  that the  Partnership  bear some or all of the costs of
compliance  with  future  ADs or ADs that  have been  issued,  but which did not
require  action  during the  previous  lease term.  The  ultimate  effect on the
Partnership of compliance with the FAA maintenance standards is not determinable
at this time and will depend on a variety of factors, including the state of the
commercial aircraft industry,  the timing of the issuance of ADs, and the status
of compliance therewith at the expiration of the current leases.

Aircraft  Noise - Another issue which has affected the airline  industry is that
of aircraft noise levels.  The FAA has categorized  aircraft  according to their
noise  levels.  Stage 1 aircraft,  which have the highest  noise  level,  are no
longer  allowed to operate  from civil  airports in the United  States.  Stage 2
aircraft meet current FAA requirements, subject to the phase-out rules discussed
below.  Stage 3 aircraft  are the most quiet and Stage 3 is the standard for all
new aircraft.

On September  24, 1991,  the FAA issued final rules on the  phase-out of Stage 2
aircraft by the end of this decade. The key features of the rule include:

         -        Compliance can be  accomplished  through a gradual  process of
                  phase-in or  phase-out  (see  below) on each of three  interim
                  compliance dates: December 31, 1994, 1996, and 1998. All Stage

                                       14
<PAGE>

                  2 aircraft must be phased out of operations in the  contiguous
                  United States by December 31, 1999, with waivers  available in
                  certain specific cases to December 31, 2003.

         -        All operators have the option of achieving  compliance through
                  a gradual  phase-out of Stage 2 aircraft (i.e.,  eliminate 25%
                  of its  Stage 2 fleet on each of the  compliance  dates  noted
                  above),  or a gradual phase-in of Stage 3 aircraft (i.e., 55%,
                  65% and 75% of an  operator's  fleet  must  consist of Stage 3
                  aircraft  by the  respective  interim  compliance  dates noted
                  above).

The federal rule does not prohibit  local  airports from issuing more  stringent
phase-out  rules.  In fact,  several local  airports have adopted more stringent
noise  requirements  which restrict the operation of Stage 2 and certain Stage 3
aircraft.

Other  countries  have also adopted  noise  policies.  The  European  Union (EU)
adopted a non-addition  rule in 1989, which directed each member country to pass
the necessary  legislation to prohibit  airlines from adding Stage 2 aircraft to
their fleets after November 1, 1990, with all Stage 2 aircraft phased-out by the
year 2002. The International  Civil Aviation  Organization has also endorsed the
phase-out of Stage 2 aircraft on a world-wide basis by the year 2002.

Hushkit   modifications,   which   allow  Stage  2  aircraft  to  meet  Stage  3
requirements,  are currently  available for the Partnership's  aircraft and have
been added to eleven of the Partnership's aircraft in 1996 and to three of their
aircraft in 1997.

Currently  legislation  has been  drafted and is under review by the EU to adopt
anti-hushkitting  regulations within member states. The legislation seeks to ban
hushkitted  aircraft  from being added to member states  registers  after May 1,
2000  (deferred  from an April 1, 1999 deadline) and will preclude all operation
of  hushkitted  aircraft  within  the EU by April 1,  2002.  The  effect of this
proposal has been to reduce the demand for hushkitted aircraft within the EU and
its neighboring states, including the former Eastern Block states.

Demand for  Aircraft - At year end 1999,  there  were  approximately  13,550 jet
aircraft in the world fleet.  Approximately  1,800  aircraft were leased or sold
during 1999, an increase of 9% over 1998.  Air travel  continued to be strong in
1999 with traffic  growth  around the 5% level.  In 2000 traffic is projected to
drop off  slightly to an estimated  growth rate of 4.5%.  Surging fuel prices in
1999 hit the Gulf War levels as airlines added a $20 surcharge to their tickets.
The increase in fuel prices cost the industry an approximate $350 million in the
fourth  quarter  of 1999.  Alliances  continued  to evolve  in 1999 as  airlines
aligned themselves with code sharing,  joint pricing,  schedule  integration and
corporate agreements. The stage II fleet was projected to drop to 5% at year end
1999 and to 2% in 2002.  During 1999 Airbus captured 55% of the orders placed as
they outpaced  Boeing by 10%.  Manufacturers  continue to produce at high levels
compared to what demand will require in the future years. Asia has improved over
1998,  however South America continues its economic turmoil.  Timing of when the
down cycle ends or how severe it will be is still in question, however it should
be less severe than anticipated in 1998.

Effects on the Partnership's Aircraft - The Partnership periodically reviews the
estimated  realizability  of the residual  values at the  projected  end of each
aircraft's  economic  life based on  estimated  residual  values  obtained  from
independent  parties which provide current and future estimated  aircraft values
by aircraft  type.  For any downward  adjustment in estimated  residual value or
decrease in the projected remaining economic life, the depreciation expense over
the projected remaining economic life of the aircraft is increased.

                                       15
<PAGE>


If the projected net cash flow for each aircraft (projected rental revenue,  net
of management fees, less projected maintenance costs, if any, plus the estimated
residual  value) is less than the carrying value of the aircraft,  an impairment
loss is recognized.

As discussed above,  the Partnership uses information  obtained from third party
valuation  services in arriving  at its  estimate of fair value for  purposes of
determining residual values. The Partnership will use similar information,  plus
available  information and estimates related to the Partnership's  aircraft,  to
determine  an estimate of fair value to measure  impairment  as required by SFAS
No. 121.  The  estimates  of fair value can vary  dramatically  depending on the
condition of the specific aircraft and the actual marketplace  conditions at the
time of the  actual  disposition  of the asset.  If assets are deemed  impaired,
there could be substantial write-downs in the future.

The Partnership  made a downward  adjustment to the estimated  residual value of
its aircraft as of October 1, 1999.  As a result of the 1999  adjustment  to the
estimated  residual value,  the Partnership  recognized  increased  depreciation
expense in 1999 of approximately $144,721 or $.29 per Limited Partnership unit.



                                       16
<PAGE>

Item 8.  Financial Statements and Supplementary Data











                        POLARIS AIRCRAFT INCOME FUND II,
                        A California Limited Partnership




              FINANCIAL STATEMENTS AS OF DECEMBER 31, 1999 AND 1998


            AND FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997


                                TOGETHER WITH THE


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS








                                       17
<PAGE>


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To the Partners of
Polaris Aircraft Income Fund II,
A California Limited Partnership:

We have audited the accompanying  balance sheets of Polaris Aircraft Income Fund
II, A California  Limited  Partnership as of December 31, 1999 and 1998, and the
related  statements of operations,  changes in partners'  capital  (deficit) and
cash flows for each of the three years in the period  ended  December  31, 1999.
These financial  statements are the  responsibility of the General Partner.  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 the
General  Partner,   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 Polaris Aircraft Income Fund
II, A California  Limited  Partnership as of December 31, 1999 and 1998, and the
results of its  operations and its cash flows for each of the three years in the
period ended December 31, 1999, in conformity with generally accepted accounting
principles.


                                                             ARTHUR ANDERSEN LLP


San Francisco, California,
    January 21, 2000


                                       18
<PAGE>


                        POLARIS AIRCRAFT INCOME FUND II,
                        A California Limited Partnership

                                 BALANCE SHEETS

                           DECEMBER 31, 1999 AND 1998

                                                        1999            1998
                                                        ----            ----
ASSETS:

CASH AND CASH EQUIVALENTS                           $ 18,789,625   $ 19,228,093

RENT AND OTHER RECEIVABLES                               935,004        941,563

AIRCRAFT, net of accumulated depreciation of
  $83,330,258 in 1999 and $78,075,872 in 1998         32,033,051     37,287,437

OTHER ASSETS                                               2,835          4,792
                                                    ------------   ------------

       Total Assets                                 $ 51,760,515   $ 57,461,885
                                                    ============   ============

LIABILITIES AND PARTNERS' CAPITAL (DEFICIT):

PAYABLE TO AFFILIATES                               $    226,242   $    155,123

ACCOUNTS PAYABLE AND ACCRUED
  LIABILITIES                                            518,032        456,414

DEFERRED INCOME                                        4,022,256      2,324,958

NOTES PAYABLE                                          6,037,021     11,079,990
                                                    ------------   ------------

       Total Liabilities                              10,803,551     14,016,485
                                                    ------------   ------------

PARTNERS' CAPITAL (DEFICIT):
  General Partner                                     (3,287,469)    (3,256,230)
  Limited Partners, 499,973 units
     issued and outstanding                           44,244,433     46,701,630
                                                    ------------   ------------

       Total Partners' Capital (Deficit)              40,956,964     43,445,400
                                                    ------------   ------------

       Total Liabilities and Partners' Capital
         (Deficit)                                  $ 51,760,515   $ 57,461,885
                                                    ============   ============

        The accompanying notes are an integral part of these statements.

                                       19
<PAGE>


                        POLARIS AIRCRAFT INCOME FUND II,
                        A California Limited Partnership

                            STATEMENTS OF OPERATIONS

              FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

                                            1999          1998          1997
                                            ----          ----          ----
REVENUES:
    Rent from operating leases         $ 12,582,702  $ 12,582,702  $ 14,792,071
    Interest                                907,078     1,113,284     1,939,699
    Claims related to lessee defaults          --          21,847          --
    Loss on sale of aircraft                   --            --         (26,079)
    Gain on sale of aircraft inventory       69,700       133,285       101,501
    Other                                      --          50,000       802,443
                                       ------------  ------------  ------------

         Total Revenues                  13,559,480    13,901,118    17,609,635
                                       ------------  ------------  ------------

EXPENSES:
    Depreciation                          5,254,386     7,729,294    10,435,053
    Management fees to General Partner      486,468       486,468       531,135
    Interest                                834,791     1,290,441     1,659,897
    Operating                                41,387       581,127       145,905
    Administration and other                320,265       357,133       368,309
                                       ------------  ------------  ------------

         Total Expenses                   6,937,297    10,444,463    13,140,299
                                       ------------  ------------  ------------

NET INCOME                             $  6,622,183  $  3,456,655  $  4,469,336
                                       ============  ============  ============

NET INCOME ALLOCATED TO
    THE GENERAL PARTNER                $    879,823  $  1,849,258  $     44,693
                                       ============  ============  ============

NET INCOME ALLOCATED
    TO THE LIMITED PARTNERS            $  5,742,360  $  1,607,397  $  4,424,643
                                       ============  ============  ============

NET INCOME PER LIMITED
    PARTNERSHIP UNIT                   $      11.49  $       3.22  $       8.85
                                       ============  ============  ============

        The accompanying notes are an integral part of these statements.

                                       20
<PAGE>


                        POLARIS AIRCRAFT INCOME FUND II,
                        A California Limited Partnership

              STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)

              FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

                                        General        Limited
                                        Partner       Partners         Total
                                        -------       --------         -----

Balance, December 31, 1996           $ (1,480,858)  $ 73,696,567   $ 72,215,709

    Net income                             44,693      4,424,643      4,469,336

    Cash distributions to partners     (1,594,435)   (14,349,914)   (15,944,349)
                                     ------------   ------------   ------------

Balance, December 31, 1997             (3,030,600)    63,771,296     60,740,696

    Net income                          1,849,258      1,607,397      3,456,655

    Capital redemptions                      --           (3,072)        (3,072)

    Cash distributions to partners     (2,074,888)   (18,673,991)   (20,748,879)
                                     ------------   ------------   ------------

Balance, December 31, 1998             (3,256,230)    46,701,630     43,445,400

    Net income                            879,823      5,742,360      6,622,183

    Cash distributions to partners       (911,062)    (8,199,557)    (9,110,619)
                                     ------------   ------------   ------------

Balance, December 31, 1999           $ (3,287,469)  $ 44,244,433   $ 40,956,964
                                     ============   ============   ============

        The accompanying notes are an integral part of these statements.

                                       21
<PAGE>

                                   POLARIS AIRCRAFT INCOME FUND II,
                                   A California Limited Partnership

                                       STATEMENTS OF CASH FLOWS

                         FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

<TABLE>
<CAPTION>
                                                               1999           1998           1997
                                                               ----           ----           ----

<S>                                                       <C>            <C>            <C>
OPERATING ACTIVITIES:
  Net income                                              $  6,622,183   $  3,456,655   $  4,469,336
  Adjustments to reconcile net income to
     net cash provided by operating activities:
     Depreciation                                            5,254,386      7,729,294     10,435,053
     Loss on sale of aircraft                                     --             --           26,079
     Gain on sale of aircraft inventory                        (69,700)      (133,285)      (101,501)
     Changes in operating assets and liabilities:
       Decrease (increase) in rent and other receivables         6,559         (5,934)      (929,403)
       Decrease in other assets                                  1,957          1,779        110,444
       Increase in payable to affiliates                        71,119         12,362         76,130
       Increase in accounts payable and
          accrued liabilities                                   61,618        138,615         42,619
       Decrease in security deposits                              --          (50,000)       (66,000)
       Decrease in maintenance reserves                           --             --           (6,453)
       Increase in deferred income                           1,697,298      1,697,298         29,745
                                                          ------------   ------------   ------------

          Net cash provided by operating activities         13,645,420     12,846,784     14,086,049
                                                          ------------   ------------   ------------

INVESTING ACTIVITIES:
  Proceeds from sale of aircraft                                  --             --        2,519,495
  Increase in aircraft capitalized costs                          --             --       (4,784,633)
  Principal payments on notes receivable                          --             --       12,798,106
  Payments to Purchaser related to sale of aircraft               --             --       (1,001,067)
  Net proceeds from sale of aircraft inventory                  69,700        133,285        214,749
                                                          ------------   ------------   ------------

             Net cash provided by investing activities          69,700        133,285      9,746,650
                                                          ------------   ------------   ------------

FINANCING ACTIVITIES:
  Increase in note payable                                        --             --        3,884,633
  Principal payments on notes payable                       (5,042,969)    (4,587,519)    (2,410,302)
  Capital redemptions                                             --           (3,072)          --
  Cash distributions to partners                            (9,110,619)   (20,748,879)   (15,944,349)
                                                          ------------   ------------   ------------

          Net cash used in financing activities            (14,153,588)   (25,339,470)   (14,470,018)
                                                          ------------   ------------   ------------

CHANGES IN CASH AND CASH
  EQUIVALENTS                                                 (438,468)   (12,359,401)     9,362,681

CASH AND CASH EQUIVALENTS AT
  BEGINNING OF YEAR                                         19,228,093     31,587,494     22,224,813
                                                          ------------   ------------   ------------

CASH AND CASH EQUIVALENTS AT
  END OF YEAR                                             $ 18,789,625   $ 19,228,093   $ 31,587,494
                                                          ============   ============   ============
</TABLE>

        The accompanying notes are an integral part of these statements.

                                                  22
<PAGE>

                        POLARIS AIRCRAFT INCOME FUND II,
                        A California Limited Partnership

                          NOTES TO FINANCIAL STATEMENTS

                                DECEMBER 31, 1999


1.       Accounting Principles and Policies

Accounting  Method -  Polaris  Aircraft  Income  Fund II, A  California  Limited
Partnership  (PAIF-II or the  Partnership),  maintains its  accounting  records,
prepares its financial statements and files its tax returns on the accrual basis
of  accounting.  The  preparation  of financial  statements in  conformity  with
generally  accepted  accounting  principles  (GAAP) requires  management to make
estimates and assumptions that affect reported amounts and related  disclosures.
Actual results could differ from those estimates. The most significant estimates
with regard to these  financial  statements  are related to the  projected  cash
flows analysis in determining the fair value of assets.

Cash and Cash  Equivalents - This includes  deposits at banks and investments in
money  market  funds.  Cash and  Cash  Equivalents  are  stated  at cost,  which
approximates fair value.

Aircraft and  Depreciation  - The aircraft are recorded at cost,  which includes
acquisition costs. Depreciation to an estimated residual value is computed using
the straight-line  method over the estimated economic life of the aircraft which
was  originally  estimated  to  be  30  years  from  the  date  of  manufacture.
Depreciation in the year of acquisition was calculated  based upon the number of
days that the aircraft were in service.

The Partnership periodically reviews the estimated realizability of the residual
values at the projected end of each  aircraft's  economic life. For any downward
adjustment in estimated  residual  value or decrease in the projected  remaining
economic life, the depreciation  expense over the projected  remaining  economic
life of the aircraft will be increased.

If the projected net cash flow for each aircraft (projected rental revenue,  net
of management fees, less projected maintenance costs, if any, plus the estimated
residual  value) is less than the carrying value of the aircraft,  an impairment
loss is  recognized.  Pursuant to Statement of  Financial  Accounting  Standards
(SFAS) No. 121, as discussed in Note 3,  measurement of an impairment  loss will
be based on the "fair value" of the asset as defined in the statement.

Capitalized  Costs -  Aircraft  modification  and  maintenance  costs  which are
determined  to increase  the value or extend the useful life of the aircraft are
capitalized  and  amortized  using the  straight-line  method over the estimated
useful  life of the  improvement.  These  costs  are also  subject  to  periodic
evaluation as discussed above.

Aircraft  Inventory - Aircraft  held in inventory  for sale are reflected at the
lower of depreciated cost or estimated net realizable value. Proceeds from sales
are  applied  against  inventory  until the book value is fully  recovered.  The
remaining book value of the inventory was recovered in 1997.  Proceeds in excess
of inventory net book value were recorded as revenue when received.

Operating  Leases - The aircraft  leases are accounted for as operating  leases.
Lease  revenues  are  recognized  in equal  installments  over the  terms of the
leases.

Maintenance  Reserves - The Partnership  received  maintenance  reserve payments
from certain of its lessees that were to be  reimbursed to the lessee or applied
against certain costs incurred by the Partnership or lessee for maintenance work
performed on the Partnership's  aircraft or engines, as specified in the leases.
Maintenance   reserve  payments  were  recognized  when  received  and  balances

                                       23
<PAGE>

remaining at the  termination of the lease, if any, were used by the Partnership
to offset future maintenance expenses or recognized as revenue.

Operating  Expenses - Operating  expenses  include  costs  incurred to maintain,
insure,  lease and sell the Partnership's  aircraft,  including costs related to
lessee defaults and costs of disassembling aircraft inventory.

Net Income Per Limited  Partnership  Unit - Net income per  Limited  Partnership
unit is  based  on the  Limited  Partners'  share of net  income,  allocated  in
accordance with the Partnership  Agreement,  and the number of units outstanding
of 499,973 for the years ended  December 1999 and 1998, and 499,997 for the year
ended December 31, 1997.

Income Taxes - The Partnership  files federal and state  information  income tax
returns only. Taxable income or loss is reportable by the individual partners.


2.    Organization and the Partnership

The  Partnership  was formed on June 27, 1984 for the purpose of  acquiring  and
leasing  aircraft.  The Partnership  will terminate no later than December 2010.
Upon  organization,  both the General  Partner and the initial  Limited  Partner
contributed  $500.  The  Partnership  recognized no profits or losses during the
periods ended  December 31, 1985 and 1984.  The offering of Limited  Partnership
units  terminated on December 31, 1986, at which time the  Partnership  had sold
499,997 units of $500, representing $249,998,500.  All partners were admitted to
the  Partnership  on or before  December 1, 1986.  During January 1998, 24 units
were redeemed by the  Partnership  in accordance  with section 18 of the Limited
Partnership   agreement.   At  December  31,  1999,  there  were  499,973  units
outstanding, net of redemptions.

Polaris Investment  Management  Corporation  (PIMC), the sole General Partner of
the Partnership,  supervises the day-to-day operations of the Partnership.  PIMC
is a wholly-owned  subsidiary of Polaris  Aircraft Leasing  Corporation  (PALC).
Polaris  Holding Company (PHC) is the parent company of PALC.  General  Electric
Capital Corporation (GE Capital), an affiliate of General Electric Company, owns
100% of PHC's  outstanding  common  stock.  PIMC  has  entered  into a  services
agreement  dated as of July 1,  1994 with GE  Capital  Aviation  Services,  Inc.
(GECAS). Allocations to related parties are described in Notes 11 and 12.


3.    Aircraft

At December 31, 1999,  Polaris Aircraft Income Fund II (the Partnership) owned a
portfolio  of 14 used  commercial  jet aircraft  and spare parts  inventory  (as
discussed  in Note 8) out of its original  portfolio of 30 aircraft,  which were
acquired,  leased or sold as  discussed  below.  All aircraft  acquired  from an
affiliate were purchased  within one year of the affiliate's  acquisition at the
affiliate's  original price paid. The aircraft leases are net operating  leases,
requiring the lessees to pay all operating expenses associated with the aircraft
during the lease  term.  While the leases  require  the  lessees to comply  with
Airworthiness  Directives  (ADs) which have been or may be issued by the Federal
Aviation Administration and require compliance during the lease term, in certain
of the leases the Partnership has agreed to share in the cost of compliance with
ADs. TWA may offset up to an additional  $1.7 million  against rental  payments,
subject to annual  limitations,  over the remaining  lease terms. In addition to
basic rent, one lessee was required to pay supplemental  amounts based on flight
hours or  cycles  into a  maintenance  reserve  account,  to be used  for  heavy
maintenance  of the engines or airframe.  The leases  generally  state a minimum
acceptable  return  condition  for which the lessee is liable under the terms of
the lease agreement.  In the event of a lessee default,  these return conditions
are not likely to be met.  Certain leases also provide that, if the aircraft are
returned at a level above the minimum  acceptable  level,  the Partnership  must
reimburse the lessee for the related excess, subject to certain limitations. The

                                       24
<PAGE>

related  liability to these lessees,  if any, cannot  currently be estimated and
therefore is not reflected in the financial statements.

The following table describes the Partnership's  aircraft  portfolio at December
31, 1999 in greater detail:

                                                                      Year of
Aircraft Type                            Serial Number              Manufacture
-------------                            -------------              -----------
McDonnell Douglas DC-9-30                  47027                      1967
McDonnell Douglas DC-9-30                  47107                      1968
McDonnell Douglas DC-9-30                  47108                      1968
McDonnell Douglas DC-9-30                  47135                      1968
McDonnell Douglas DC-9-30                  47137                      1968
McDonnell Douglas DC-9-30                  47174                      1968
McDonnell Douglas DC-9-30                  47249                      1968
McDonnell Douglas DC-9-30                  47251                      1968
McDonnell Douglas DC-9-30                  47324                      1969
McDonnell Douglas DC-9-30                  47343                      1969
McDonnell Douglas DC-9-30                  47345                      1969
McDonnell Douglas DC-9-30                  47357                      1969
McDonnell Douglas DC-9-30                  47411                      1969
McDonnell Douglas DC-9-30                  47412                      1969

14 McDonnell Douglas DC-9-30 - Initially there were 17 McDonnell Douglas DC-9-30
and one McDonnell  Douglas DC-9-40 which were acquired for  $122,222,040  during
1986 and leased to Ozark Air Lines, Inc. (Ozark). In 1987, Trans World Airlines,
Inc.  (TWA) merged with Ozark and assumed the leases.  The leases were  modified
and extended in 1991 prior to TWA's bankruptcy filing. Two of the aircraft had a
lease  expiration  date of  February  1998 and two  other  aircraft  had a lease
expiration  date of  November  1998.  These  four  aircraft  were sold to Triton
Aviation Services II LLC in June 1997, as discussed in Note 4. The leases for 11
of the aircraft that previously had lease expiration dates in 1998 were extended
until November  2004.  The leases for three of the aircraft that  previously had
lease  expiration  dates in 1998 were  extended in February 1997 for eight years
until February 2005.

The following is a schedule by year of future  minimum  rental revenue under the
existing leases:

              Year                                        Amount
              ----                                     -----------
              2000                                     $14,280,000
              2001                                      14,280,000
              2002                                      10,655,000
              2003                                      10,080,000
              2004 and thereafter                        8,940,000
                                                       -----------

              Total                                    $58,235,000
                                                       ===========

Future  minimum  rental  payments  may be offset or reduced  by future  costs as
described above.

As  discussed  in Note 1, the  Partnership  periodically  reviews the  estimated
realizability  of the residual  values at the projected  end of each  aircraft's
economic  life based on estimated  residual  values  obtained  from  independent
parties which provide current and future  estimated  aircraft values by aircraft
type.

The  Partnership's  future  earnings  are  impacted  by the  net  effect  of the
adjustments  to the  carrying  values of the  aircraft  (which has the effect of
decreasing  future  depreciation  expense) and the downward  adjustments  to the
estimated   residual   values  (which  has  the  effect  of  increasing   future
depreciation expense).

The Partnership  made a downward  adjustment to the estimated  residual value of
its aircraft as of October 1, 1999.  As a result of the 1999  adjustment  to the

                                       25
<PAGE>

estimated  residual value,  the Partnership  recognized  increased  depreciation
expense in 1999 of approximately $144,721 or $.29 per Limited Partnership unit.

As discussed above,  the Partnership uses information  obtained from third party
valuation  services in arriving  at its  estimate of fair value for  purposes of
determining residual values. The Partnership will use similar information,  plus
available  information and estimates related to the Partnership's  aircraft,  to
determine  an  estimate of fair value to measure  impairment  as required by the
statement.  The estimates of fair value can vary  dramatically  depending on the
condition of the specific aircraft and the actual marketplace  conditions at the
time of the  actual  disposition  of the asset.  If assets are deemed  impaired,
there could be substantial write-downs in the future.

The  General  Partner  evaluates,  from  time to time,  whether  the  investment
objectives  of the  Partnership  are  better  served by  continuing  to hold the
Partnership's  remaining  portfolio of Aircraft or marketing  such  Aircraft for
sale. This evaluation  takes into account the current and potential  earnings of
the  Aircraft,  the  conditions  in the  markets  for lease and sale and  future
outlook  for such  markets,  and the tax  consequences  of selling  rather  than
continuing to lease the Aircraft.  The General Partner has had discussions  with
third  parties  regarding  the  possibility  of  selling  some  or all of  these
Aircraft. While such discussions may continue, and similar discussions may occur
again in the future,  there is no assurance that such discussions will result in
the Partnership  receiving a purchase offer for all or any of the Aircraft which
the General Partner would regard as acceptable.


4.       Sale of Aircraft

Sale of Boeing  737-200  Aircraft  - On January  30,  1997,  one Boeing  737-200
formerly  on  lease  to  Viscount,  was sold to  American  Aircarriers  Support,
Inc.(American  Aircarriers) on an "as-is,  where-is" basis for $660,000 cash. In
addition, the Partnership retained maintenance reserves from the previous lessee
of $217,075,  that had been held by the  Partnership,  which were  recognized as
additional sale proceeds.  A net loss of $26,079 was recorded on the sale of the
aircraft.

Sale  of  Aircraft  to  Triton  - On  May  28,  1997,  PIMC,  on  behalf  of the
Partnership,  executed  definitive  documentation  for the  purchase of 7 of the
Partnership's  21 remaining  aircraft (the  "Aircraft") and certain of its notes
receivables by Triton  Aviation  Services II LLC, a special purpose company (the
"Purchaser"  or  "Triton").  The  closings  for the  purchase  of the 7 Aircraft
occurred from May 28, 1997 to June 16, 1997.  The Purchaser is managed by Triton
Aviation Services,  Ltd. ("Triton Aviation" or the "Manager"),  a privately held
aircraft leasing company which was formed in 1996 by Triton Investments, Ltd., a
company  which has been in the marine cargo  container  leasing  business for 17
years and is diversifying  its portfolio by leasing  commercial  aircraft.  Each
Aircraft was sold subject to the existing leases.

The Terms of the Transaction - The total contract  purchase price (the "Purchase
Price") to the Purchaser was $13,988,000 which was allocated to the Aircraft and
to certain notes  receivable  by the  Partnership.  The  Purchaser  paid into an
escrow account  $1,575,888 of the Purchase Price in cash upon the closing of the
first aircraft and delivered a promissory note (the  "Promissory  Note") for the
balance of $12,412,112.  The Partnership received payment of $1,575,888 from the
escrow account on June 24, 1997. On December 30, 1997, the Partnership  received
prepayment in full of the outstanding note receivable and interest earned by the
Partnership to that date.

Under the purchase agreement,  the Purchaser purchased the Aircraft effective as
of April 1, 1997 notwithstanding the actual closing dates. The utilization of an
effective  date  facilitated  the  determination  of rent and other  allocations
between  the  parties.  The  Purchaser  had the right to receive  all income and
proceeds,  including rents and receivables,  from the Aircraft accruing from and
after April 1, 1997, and the Promissory  Note commenced  bearing  interest as of
April 1, 1997  subject to the closing of the  Aircraft.  Each  Aircraft was sold
subject to the existing leases.

                                       26
<PAGE>


The  Accounting  Treatment of the  Transaction  - In accordance  with GAAP,  the
Partnership recognized rental income up until the closing date for each aircraft
which occurred from May 28, 1997 to June 16, 1997.  However,  under the terms of
the  transaction,  the Purchaser  was entitled to receive  payment of the rents,
receivables  and other  income  accruing  from April 1, 1997.  As a result,  the
Partnership  made  payments  to the  Purchaser  in  the  amount  of  the  rents,
receivables  and other income due and received from April 1, 1997 to the closing
date of $1,001,067, which is included in rent from operating leases and interest
income. For financial reporting  purposes,  the cash down payment portion of the
sales  proceeds of  $1,575,888  has been adjusted by the  following:  income and
proceeds,  including rents and  receivables  from the effective date of April 1,
1997 to the  closing  date,  interest  due on the cash  portion of the  purchase
price,  interest on the Promissory Note from the effective date of April 1, 1997
to the  closing  date and  estimated  selling  costs.  As a result of these GAAP
adjustments, the net adjusted sales price recorded by the Partnership, including
the Promissory Note, was $13,205,140.

The Aircraft sold pursuant to the definitive  documentation  executed on May 28,
1997 had been  classified  as  aircraft  held for sale from that date  until the
actual  closing  date.  Under GAAP,  aircraft held for sale are carried at their
fair market value less  estimated  costs to sell.  The  adjustment  to the sales
proceeds  described  above and revisions to estimated costs to sell the Aircraft
required the  Partnership  to record an adjustment to the net carrying  value of
the  aircraft  held for sale of $749,373  during the three months ended June 30,
1997. This adjustment to the net carrying value of the aircraft held for sale is
included  in  depreciation  and   amortization   expense  on  the  statement  of
operations.


5.       Ron Wallace Litigation Settlement

Ron Wallace v. Polaris Investment Management  Corporation,  et al. - On or about
June 18,  1997,  a  purported  class  action  entitled  Ron  Wallace v.  Polaris
Investment Management Corporation, et al. was filed on behalf of the unitholders
of Polaris  Aircraft  Income  Funds II through VI in the  Superior  Court of the
State of  California,  County of San  Francisco.  The  complaint  names  each of
Polaris Investment Management  Corporation (PIMC), GE Capital Aviation Services,
Inc.  (GECAS),  Polaris Aircraft Leasing  Corporation,  Polaris Holding Company,
General Electric Capital  Corporation,  certain executives of PIMC and GECAS and
John E. Flynn, a former PIMC  executive,  as defendants.  The complaint  alleges
that defendants committed a breach of their fiduciary duties with respect to the
Sale  Transaction  involving the  Partnership  as described in Note 4, under the
caption  "Sale of Aircraft -- Sale of Aircraft to Triton." On September 2, 1997,
an amended complaint was filed adding additional plaintiffs, and on December 18,
1997, the plaintiffs  filed a second amended  complaint  asserting  their claims
derivatively.

On November 9, 1998,  defendants,  acting through their counsel,  entered into a
settlement agreement with plaintiffs and with the plaintiff in a related action,
"Accelerated"  High Yield  Income  Fund II,  Ltd.,  L.P. v.  Polaris  Investment
Management Corporation, et al. The settlement agreement does not provide for any
payments to be made to the Partnership. Plaintiff's counsel sought reimbursement
from the Partnership for its attorneys' fees and expenses.  A settlement  notice
setting forth the terms of the  settlement  was mailed to the last known address
of each  unitholder  of the  Partnership  on November 20, 1998.  On December 24,
1998, the Court  approved the terms of the  settlement and approved  plaintiffs'
attorney's  fees and  expenses in the amount of  $438,766,  which is included in
1998 operating expenses.


6.       Disassembly of Aircraft

In an attempt to maximize the economic  return from the  remaining  six aircraft
formerly  leased to Pan Am,  the  Partnership  entered  into an  agreement  with
Soundair,  Inc.  (Soundair) in October  1992,  for the  disassembly  and sale of
certain of the Partnership's  aircraft. The Partnership has incurred the cost of
disassembly  and  received  the  proceeds  from the sale of such  parts,  net of
necessary overhaul expenses,  and commissions paid to Soundair.  The Partnership

                                       27
<PAGE>

received net proceeds from the sale of aircraft  inventory of $69,700,  $133,285
and $214,749 during 1999, 1998 and 1997, respectively. The net book value of the
Partnership's  aircraft  inventory  was  reduced to zero during  1997.  Payments
received by the Partnership of $101,501 in excess of the aircraft  inventory net
book value were recorded as gain on sale of aircraft inventory during 1997.


7.       TWA Lease Extension

GECAS, on behalf of the Partnership,  negotiated with TWA for the acquisition of
noise-suppression  devices, commonly known as "hushkits", for the 14 Partnership
aircraft  currently  on  lease  to TWA,  as  well as  other  aircraft  owned  by
affiliates  of PIMC and leased to TWA. The 14 aircraft  that  received  hushkits
were  designated  by TWA.  The hushkits  recondition  the aircraft so as to meet
Stage  3  noise  level  restrictions.  Hushkits  were  installed  on 11  of  the
Partnership's  aircraft  during 1996 and the leases for these 11  aircraft  were
extended  for a  period  of eight  years  until  November  2004.  Hushkits  were
installed  on 3 of the  Partnership's  aircraft  during  1997 and the leases for
these 3 aircraft were extended for a period of eight years until February 2005.

The  aggregate  cost  of the  hushkit  reconditioning  for the 11  aircraft  was
$17,516,722,  or approximately $1.6 million per aircraft,  which was capitalized
by the  Partnership  during  1996.  The  Partnership  paid $3.3  million  of the
aggregate  hushkit  cost and the  balance of  $14,216,722  was  financed  by the
hushkit manufacturer over 50 months at an interest rate of approximately 10% per
annum.

The aggregate cost of the hushkit reconditioning  completed in February 1997 for
the 3 remaining  aircraft  was  $4,784,633,  or  approximately  $1.6 million per
aircraft,  which was capitalized by the Partnership during 1997. The Partnership
paid  $900,000 of the aggregate  hushkit cost and the balance of $3,884,633  was
financed by UT Finance  Corporation (UT Finance),  a wholly owned  subsidiary of
United Technologies Corporation, of which a division is Pratt and Whitney Group,
the hushkit  manufacturer,  over 50 months at an interest rate of  approximately
10% per  annum.  Cash paid for  interest  expense  on the  loans  was  $837,033,
$1,292,480 and $1,551,093 in 1999, 1998 and 1997, respectively.

The rent payable by TWA under the leases was  increased by an amount  sufficient
to cover the monthly  debt  service  payments on the  hushkits  and fully repay,
during  the term of the TWA  leases,  the  amount  borrowed.  The loans from the
hushkit  manufacturer  are  non-recourse  to the  Partnership  and  secured by a
security interest in the lease receivables. The following, is a schedule of note
principal payments due under the loans:

              Year                                        Amount
              ----                                        ------
              2000                                      $5,768,990
              2001                                         268,031
                                                        ----------

              Total                                     $6,037,021
                                                        ==========


8.       Viscount Restructuring Agreement and Default

On January 24, 1996,  Viscount filed a petition for protection  under Chapter 11
of the United States  Bankruptcy Code in the United States  Bankruptcy  Court in
Tucson,  Arizona.  In April 1996,  GECAS,  on behalf of the  Partnership,  First
Security Bank,  National  Association  (formerly known as First Security Bank of
Utah,  National  Association)  (FSB), the owner/trustee  under the Partnership's
leases with Viscount (the Leases),  Viscount,  certain  guarantors of Viscount's
indebtedness  and  others  executed  in April  1996 a  Compromise  of Claims and
Stipulation  under  Section  1110 of the  Bankruptcy  Code (the  Compromise  and
Stipulation),  which was  subsequently  approved by the  Bankruptcy  Court.  The
Compromise and Stipulation provided,  among other things, that Viscount rejected
the lease of the Partnership's aircraft. The rejection of the lease gave rise to
a pre-petition  unsecured claim in Viscount's  bankruptcy for breach of contract
damages.  Notwithstanding  Viscount's  rejection of the  Partnership's  aircraft

                                       28
<PAGE>

lease,  Viscount  continued  to  possess  and use the  Partnership's  engine and
refused  to  return  various  aircraft  parts  removed  from  the  Partnership's
aircraft.

During 1995,  Viscount delivered the Partnership's  Boeing 737-200 aircraft to a
repair facility operated by BAE Aviation, Inc., d/b/a Tucson Aerospace,  located
in  Arizona,  to  perform  a  heavy  maintenance  check  on  the  aircraft.  The
Partnership has paid to Tucson Aerospace approximately $565,000 from maintenance
reserves  and cash  reserves  for this  aircraft  as  progress  payments on this
maintenance  check.  Work on the  maintenance  check was suspended  prior to the
filing of the Chapter 11 petition by  Viscount.  Tucson  Aerospace  asserts that
Viscount owes it approximately $866,000 for work done on the aircraft,  which is
in addition to the  approximately  $565,000 already paid by the Partnership from
maintenance  reserves. In addition, a third party vendor, who claims it provided
personnel to work on the aircraft, is asserting a claim against Tucson Aerospace
and a lien against the aircraft in the amount of $720,000.  Another  third-party
vendor,  who claims it provided  inspectors,  is claiming  $185,000  from Tucson
Aerospace.  On May 22, 1996, First Security Bank, National Association (formerly
known  as  First  Security  Bank  of  Utah,  National   Association)  (FSB),  as
owner/trustee,  filed suit in the Superior  Court of Arizona in Pima County,  to
recover the airframe  from BAE  Aviation,  Inc. and certain  creditors  alleging
mechanics liens and to determine the validity of the claimed liens.

Pursuant to a stipulated  order of the Superior  Court  entered on July 9, 1996,
FSB  filed  a bond  in the  penal  sum of  $1,371,000  for  the  benefit  of the
lienholders,  who subsequently  released the aircraft to the Partnership on July
11,  1996 and filed a claim  against  the bond.  FSB filed a motion for  summary
judgment on all claims raised by the claimants in the counterclaim. The Superior
Court granted the motion and entered judgment on October 30, 1998 dismissing the
counterclaim  and exonerating the bond. The Court has stayed  exoneration of the
bond  pending  appeal by the  claimants.  The Court has  denied  the  claimants'
subsequent  motion for a new trial seeking  reconsideration.  FSB filed a motion
seeking  recovery of its  attorneys'  fees and costs  incurred in defending  the
litigation,  and the Court  set a  hearing  on the  motion  for  March 8,  1999.
Subsequently,  FSB and the  claimants  agreed to settle this claim for an agreed
judgement of  $159,374.51  in attorney's  fees to be paid to FSB. The settlement
agreement is subject to approval by the Court.  The  claimants are appealing the
Court's rulings.

On July 12, 1996, GECAS and FSB filed a motion in Viscount's  bankruptcy case to
recover  the  engines  and parts  leased in  connection  with the  Partnership's
aircraft.  GECAS and FSB asserted  that these engines and parts should have been
delivered to FSB pursuant to the  Compromise and  Stipulation.  Viscount paid to
the  Partnership  $10,000  for the use of the engine  during the month of August
1996, and continued through August 1996 to pay maintenance  reserves pursuant to
the lease terms.

On September  18, 1996,  GECAS (on behalf of the  Partnership,  Polaris  Holding
Company,  Polaris  Aircraft  Income Fund I, Polaris  Aircraft Income Fund IV and
Polaris  Aircraft  Investors  XVIII)  (collectively,  the Polaris  Entities) and
Viscount   entered  into  a  Stipulation  and  Agreement  (the  Stipulation  and
Agreement) by which  Viscount  agreed to  voluntarily  return all of the Polaris
Entities'  aircraft and  engines,  turn over  possession  of the majority of its
aircraft parts inventory, and cooperate with GECAS in the transition of aircraft
equipment and maintenance, in exchange for which, upon Bankruptcy Court approval
of the  Stipulation and Agreement,  the Polaris  Entities would waive their pre-
and post-petition claims against Viscount for amounts due and unpaid.

A  consignment  agreement  has been  entered  into  with a sales  agent  for the
disposal of the spare parts inventory  recovered from Viscount.  Given that many
of the  parts  require  repair/overhaul,  the cost of  which  is not  accurately
determinable in advance,  and the inherent  uncertainty of sales prices for used
spare parts, there remains uncertainty as to whether the Partnership will derive
further proceeds from the sale of this inventory.

The Stipulation and Agreement also provides that the Polaris Entities, GECAS and
FSB would release any and all claims  against  Viscount,  Viscount's  bankruptcy
estate, and the property of Viscount's  bankruptcy estate,  effective upon entry
of a final  non-appealable  court order approving the Stipulation and Agreement.

                                       29
<PAGE>

The  Bankruptcy  Court  entered  such an order  approving  the  Stipulation  and
Agreement on October 23, 1996.

The Partnership evaluated the airframe and engines previously leased to Viscount
for potential  re-lease or sale and estimated that maintenance and refurbishment
costs  aggregating  approximately  $1.6 million will be required to re-lease the
airframe and engines.  Alternatively,  a sale of the airframe and engines  would
likely be made on an "as is, where is" basis, without the Partnership  incurring
substantial  maintenance  costs.  The  aircraft  was  sold in  January  1997 for
$660,000.

Viscount's failure to perform its financial obligations to the Partnership had a
material adverse effect on the Partnership's  financial position. As a result of
Viscount's  defaults  and Chapter 11  bankruptcy  filing,  the  Partnership  had
accrued legal costs of approximately $15,000,  $116,000 and $107,000,  which are
reflected  in  operating  expense  in the  Partnership's  1999,  1998  and  1997
statement of  operations,  respectively.  In 1998, the  Partnership  revised its
estimate of legal costs and reduced the accrual for legal costs by $68,753.


9.       Claims Related to Lessee Defaults

Braniff, Inc. (Braniff) Bankruptcy - In September 1989, Braniff filed a petition
under Chapter 11 of the Federal  Bankruptcy Code in the United States Bankruptcy
Court for the Middle District of Florida, Orlando Division. The Bankruptcy Court
disposed  of the  Partnership's  claim  in this  bankruptcy  by  permitting  the
Partnership  to exchange a portion of its unsecured  claim for  Braniff's  right
(commonly  referred  to as a "Stage 2 Base  Level  right")  under  the FAA noise
regulations  to operate one Stage 2 aircraft and by allowing the  Partnership  a
net remaining unsecured claim of $769,231 in the proceedings.

Braniff's  bankrupt  estate made a $200,000  payment in respect of the unsecured
claims of the Partnership and other affiliates of Polaris Investment  Management
Corporation,  of which $15,385 was allocated to the Partnership based on its pro
rata share of the total claims. On January 20, 1999,  Braniff's  bankrupt estate
made an additional  $84,000  payment in respect of the  unsecured  claims of the
Partnership and other affiliates of Polaris Investment  Management  Corporation,
of which $6,462 was allocated to the Partnership  based on its pro rata share of
the  total  claims.  No  further  payments  have  been  made in  respect  of the
Partnership's unsecured claim in the bankruptcy proceeding.


10.      Related Parties

Under the Limited Partnership Agreement (Partnership Agreement), the Partnership
paid or agreed to pay the  following  amounts to PIMC and/or its  affiliates  in
connection with services rendered:

a.       An aircraft  management  fee equal to 5% of gross rental  revenues with
         respect to operating leases or 2% of gross rental revenues with respect
         to full payout leases of the  Partnership,  payable upon receipt of the
         rent. In 1999, 1998 and 1997, the  Partnership  paid management fees to
         PIMC of $420,000, $420,000, and $440,295, respectively. Management fees
         payable  to PIMC at  December  31,  1999 and  1998  were  $209,266  and
         $142,798 respectively.

b.       Reimbursement of certain out-of-pocket  expenses incurred in connection
         with the management of the  Partnership  and supervision of its assets.
         In 1999, 1998 and 1997, $285,463, $377,665, and $375,486, respectively,
         were reimbursed by the Partnership to PIMC for administrative expenses.
         Administrative  reimbursements  of $16,976 and $10,874  were payable at
         December   31,  1999  and  1998,   respectively.   Reimbursements   for
         maintenance and remarketing costs of $5,803, $483,221, and $82,633 were
         paid  by  the  Partnership  in  1999,  1998  and  1997,   respectively.
         Maintenance  and  remarketing  reimbursements  of $-0- and $1,451  were
         payable at December 31, 1999 and 1998, respectively.

                                       30
<PAGE>


c.       A 10% interest to PIMC in all cash  distributions  and sales  proceeds,
         gross income in an amount equal to 9.09% of distributed  cash available
         from  operations  and 1% of net  income or loss and  taxable  income or
         loss, as such terms are defined in the Partnership Agreement. After the
         Partnership  has sold or disposed of aircraft  representing  50% of the
         total  aircraft  cost,  gains  from the sale or  other  disposition  of
         aircraft are  generally  allocated  first to the General  Partner until
         such time that the General  Partner's  capital  account is equal to the
         amount to be  distributed  to the General  Partner from the proceeds of
         such sale or disposition.

d.       A subordinated  sales commission to PIMC of 3% of the gross sales price
         of  each  aircraft  for  services   performed  upon   disposition   and
         reimbursement  of  out-of-pocket   and  other   disposition   expenses.
         Subordinated sales commissions will be paid only after Limited Partners
         have  received  distributions  in an  aggregate  amount  equal to their
         capital  contributions  plus a cumulative  non-compounded  8% per annum
         return on their  adjusted  capital  contributions,  as  defined  in the
         Partnership  Agreement.  The  Partnership did not pay or accrue a sales
         commission  on any  aircraft  sales to date as the above  subordination
         threshold has not been met.

e.       In the event that, immediately prior to the dissolution and termination
         of the Partnership, the General Partner shall have a deficit balance in
         its  tax  basis  capital  account,   then  the  General  Partner  shall
         contribute in cash to the capital of the Partnership an amount which is
         equal to such deficit (see Note 11).


11.      Partners' Capital

The Partnership  Agreement (the Agreement) stipulates different methods by which
revenue,  income  and  loss  from  operations  and  gain or loss on the  sale of
aircraft  are to be allocated  to the General  Partner and the Limited  Partners
(see Note 10). Such  allocations are made using income or loss calculated  under
GAAP for book purposes,  which,  as more fully described in Note 13, varies from
income or loss calculated for tax purposes.

Cash  available  for  distributions,  including  the  proceeds  from the sale of
aircraft,  is  distributed  10% to the  General  Partner  and 90% to the Limited
Partners.

The different methods of allocating items of income, loss and cash available for
distribution  combined with the calculation of items of income and loss for book
and  tax  purposes  result  in  book  basis  capital   accounts  that  may  vary
significantly  from tax basis capital  accounts.  The ultimate  liquidation  and
distribution  of remaining cash will be based on the tax basis capital  accounts
following liquidation, in accordance with the Agreement.

Had all the assets of the  Partnership  been  liquidated at December 31, 1999 at
the current  carrying  value,  the tax basis capital  (deficit)  accounts of the
General  Partner and the Limited  Partners is  estimated  to be  $3,203,305  and
$41,985,180, respectively.


12.      Income Taxes

Federal and state  income tax  regulations  provide  that taxes on the income or
loss of the  Partnership  are  reportable  by the  partners in their  individual
income tax returns.  Accordingly,  no provision  for such taxes has been made in
the financial statements.

The net  differences  between  the tax basis  and the  reported  amounts  of the
Partnership's  assets  and  liabilities  at  December  31,  1999 and 1998 are as
follows:

                                       31
<PAGE>


                        Reported Amounts        Tax Basis         Net Difference
                        ----------------        ---------         --------------

1999:    Assets           $51,760,515          $59,381,146         $(7,620,631)
         Liabilities       10,803,551            6,572,029           4,231,522

1998:    Assets           $57,461,885          $63,662,817         $(6,200,932)
         Liabilities       14,016,485           11,841,104           2,175,381


13.      Reconciliation of Net Book Income to Taxable Net Income (Loss)

The  following  is a  reconciliation  between  net  income  (loss)  per  Limited
Partnership  unit  reflected in the  financial  statements  and the  information
provided to Limited Partners for federal income tax purposes:

                                                For the years ended December 31,
                                                --------------------------------

                                                    1999      1998      1997
                                                    ----      ----      ----

Book net income per Limited Partnership unit      $ 11.49   $  3.22   $  8.85
Adjustments for tax purposes represent
   differences between book and tax revenue
   and expenses:
     Rental revenue                                  3.36      3.36     (1.18)
     Management fee expense                          0.71     (0.19)     0.06
     Depreciation                                    2.81     (2.16)   (11.31)
     Gain or loss on sale of aircraft or
       inventory                                    (0.01)     -        (0.02)
     Basis in inventory                               -        -        (0.07)
     Other revenue and expense items                  -       (0.04)    (0.01)
                                                  -------   -------   -------

Taxable net income (loss) per Limited
  Partnership unit                                $ 18.36   $  4.19   $ (3.68)
                                                  =======   =======   =======

The differences between net income and loss for book purposes and net income and
loss for tax purposes  result from the temporary  differences of certain revenue
and deductions.

For book purposes, rental revenue is generally recorded as it is earned. For tax
purposes, certain temporary differences exist in the recognition of revenue. For
tax  purposes,  management  fee  expense  is accrued in the same year as the tax
basis rental revenue.  Increases in the Partnership's  book maintenance  reserve
liability were recognized as rental revenue for tax purposes. Disbursements from
the Partnership's book maintenance  reserves are capitalized or expensed for tax
purposes, as appropriate.

The  Partnership  computes  depreciation  using  the  straight-line  method  for
financial  reporting  purposes  and  generally  an  accelerated  method  for tax
purposes.   The   Partnership   also   periodically   evaluates   the   ultimate
recoverability of the carrying values and the economic lives of its aircraft for
book purposes and,  accordingly,  recognized  adjustments  which  increased book
depreciation  expense. As a result, the current year tax depreciation expense is
greater than the book  depreciation  expense.  These differences in depreciation
methods result in book to tax differences on the sale of aircraft.  In addition,
certain costs were capitalized for tax purposes and expensed for book purposes.


14.      Subsequent Events

The Partnership made a cash distribution,  to Limited Partners, of $1,974,893.35
or $3.95 per Limited Partnership unit, and $219,432.59 to the General Partner on
January 14, 2000.

                                       32
<PAGE>


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

None.


                                       33
<PAGE>

                                    PART III

Item 10. Directors and Executive Officers of the Registrant

Polaris Aircraft Income Fund II, A California  Limited  Partnership  (PAIF-II or
the Partnership) has no directors or officers. Polaris Holding Company (PHC) and
its  subsidiaries,  including  Polaris Aircraft Leasing  Corporation  (PALC) and
Polaris  Investment  Management  Corporation  (PIMC), the General Partner of the
Partnership (collectively Polaris), restructured their operations and businesses
(the Polaris Restructuring) in 1994. In connection therewith,  PIMC entered into
a services  agreement dated as of July 1, 1994 (the Services  Agreement) with GE
Capital Aviation  Services,  Inc.  (GECAS),  a Delaware  corporation  which is a
wholly owned  subsidiary of General  Electric  Capital  Corporation,  a New York
corporation  (GE Capital).  GE Capital has been PHC's parent company since 1986.
As subsidiaries of GE Capital, GECAS and PIMC are affiliates.

The officers and directors of PIMC are:

             Name                       PIMC  Title
         -------------              --------------------

         Eric M. Dull               President; Director
         Marc A. Meiches            Chief Financial Officer
         Barbara Macholl            Director
         Norman C. T. Liu           Vice President; Director
         Ray Warman                 Secretary
         Robert W. Dillon           Assistant Secretary

Substantially all of these management personnel will devote only such portion of
their  time  to the  business  and  affairs  of  PIMC  as  deemed  necessary  or
appropriate.

Mr. Dull,  39,  assumed the position of President and Director of PIMC effective
January 1, 1997. Mr. Dull  previously was a Director of PIMC from March 31, 1995
to July 31, 1995. Mr. Dull holds the position of Executive Vice President - Risk
and  Portfolio  Management  of GECAS,  having  previously  held the positions of
Executive  Vice  President - Portfolio  Management  and Senior Vice  President -
Underwriting  Risk  Management of GECAS.  Prior to joining GECAS,  Mr. Dull held
various positions with Transportation and Industrial Funding Corporation (TIFC).

Mr.  Meiches,  47,  assumed  the  position  of Chief  Financial  Officer of PIMC
effective October 9, 1995. Previously, he held the position of Vice President of
PIMC  from  October  1995 to  October  1997.  Mr.  Meiches  presently  holds the
positions of Executive Vice President and Chief Financial and Operating  Officer
of GECAS.  Prior to joining GECAS,  Mr.  Meiches has been with General  Electric
Company (GE) and its  subsidiaries  since 1978. Since 1992, Mr. Meiches held the
position of Vice President of the General  Electric  Capital  Corporation  Audit
Staff.  Between 1987 and 1992, Mr. Meiches held Manager of Finance positions for
GE Re-entry Systems, GE Government Communications Systems and the GE Astro-Space
Division.

Ms. Macholl, 46, assumed the position of Director of PIMC effective February 27,
1999.  Ms.  Macholl  presently  holds the  position  of Senior  Vice  President,
Marketing  Finance for GECAS.  Prior to joining GECAS, Ms. Macholl has been with
the General Electric  Company (GE) and its subsidiaries  since 1977. Ms. Macholl
previously  held the position of Vice President  Finance for CBSI Inc., a wholly
owned  subsidiary of the General  Electric  Company.  Ms.  Macholl has also held
various financial management positions for the GE Lighting business.

                                       34
<PAGE>

Mr. Liu, 42,  assumed the position of Vice  President of PIMC  effective  May 1,
1995 and Director of PIMC effective  July 31, 1995. Mr. Liu presently  holds the
position of  Executive  Vice  President - Marketing  and  Structured  Finance of
GECAS, having previously held the position of Executive Vice President - Capital
Funding and Portfolio  Management of GECAS.  Prior to joining GECAS, Mr. Liu was
with General Electric Capital Corporation for nine years. He has held management
positions in corporate Business  Development and in Syndications and Leasing for
TIFC.  Mr. Liu  previously  held the  position of  managing  director of Kidder,
Peabody & Co., Incorporated.

Mr. Warman,  51,  assumed the position of Secretary of PIMC effective  March 23,
1998.  Mr.  Warman has served as a GECAS  Senior Vice  President  and  Associate
General  Counsel since March 1996, and for 13 years  theretofore  was a partner,
with an air-finance  and corporate  practice of the national law firm of Morgan,
Lewis & Bockius LLP.

Mr.  Dillon,  58,  held the  position  of Vice  President  - Aviation  Legal and
Insurance  Affairs,  from April 1989 to October 1997.  Previously,  he served as
General Counsel of PIMC and PALC effective January 1986. Effective July 1, 1994,
Mr.  Dillon  assumed the position of Assistant  Secretary  of PIMC.  Mr.  Dillon
presently  holds the position of Senior Vice  President  and  Associate  General
Counsel of GECAS.


Certain Legal Proceedings:

On or around  September  27, 1995, a complaint  entitled  Martha J.  Harrison v.
General Electric  Company,  et al. was filed in the Civil District Court for the
Parish of Orleans, State of Louisiana. The complaint names as defendants General
Electric Company and Prudential Securities Incorporated.  The Partnership is not
named as a defendant in this action. Plaintiff alleges claims of tort, breach of
fiduciary duty in tort,  contract and  quasi-contract,  violation of sections of
the Louisiana Blue Sky Law and violation of the Louisiana  Civil Code concerning
the inducement and solicitation of purchases  arising out of the public offering
of Polaris  Aircraft  Income  Fund IV.  Plaintiff  seeks  compensatory  damages,
attorney's fees, interest, costs and general relief.

On or around December 8, 1995, a complaint  entitled  Overby,  et al. v. General
Electric Company, et al. was filed in the Civil District Court for the Parish of
Orleans, State of Louisiana.  The complaint names as defendants General Electric
Company and General Electric Capital  Corporation.  The Partnership is not named
as a defendant  in this  action.  Plaintiffs  allege  claims of tort,  breach of
fiduciary duty, in tort, contract and  quasi-contract,  violation of sections of
the  Louisiana  Blue  Sky Law  and  violation  of the  Louisiana  Civil  Code in
connection with the public offering of Polaris Aircraft Income Funds III and IV.
Plaintiffs seek  compensatory  damages,  attorneys'  fees,  interest,  costs and
general relief.

In or around  November  1994,  a  complaint  entitled  Lucy R.  Neeb,  et al. v.
Prudential Securities  Incorporated et al. was filed in the Civil District Court
for the Parish of Orleans, State of Louisiana. The complaint named as defendants
Prudential  Securities,  Incorporated  and Stephen Derby  Gisclair.  On or about
December 20, 1995,  plaintiffs filed a First  Supplemental and Amending Petition
adding as additional  defendants  General  Electric  Company,  General  Electric
Capital  Corporation  and Smith Barney,  Inc. The  Partnership is not named as a
defendant in this action.  Plaintiffs allege claims of tort, breach of fiduciary
duty,  in tort,  contract  and  quasi-contract,  violation  of  sections  of the
Louisiana  Blue Sky Law and violation of the Louisiana  Civil Code in connection
with the public offering of Polaris Aircraft Income Funds III and IV. Plaintiffs
seek compensatory damages, attorneys' fees, interest, costs and general relief.

                                       35
<PAGE>


In or about  January of 1995,  a complaint  entitled  Albert B.  Murphy,  Jr. v.
Prudential Securities, Incorporated et al. was filed in the Civil District Court
for the Parish of Orleans, State of Louisiana. The complaint named as defendants
Prudential  Securities  Incorporated  and Stephen  Derby  Gisclair.  On or about
January 18, 1996,  plaintiff filed a First  Supplemental  and Amending  Petition
adding  defendants   General  Electric  Company  and  General  Electric  Capital
Corporation.  The  Partnership  is not  named  as a  defendant  in this  action.
Plaintiff alleges claims of tort, breach of fiduciary duty in tort, contract and
quasi-contract,  violation  of  sections  of the  Louisiana  Blue  Sky  Law  and
violation of the Louisiana  Civil Code in connection with the public offering of
Polaris Aircraft Income Funds III and IV. Plaintiffs seek compensatory  damages,
attorneys' fees, interest, costs and general relief.

On or about January 22, 1996, a complaint entitled Mrs. Rita Chambers, et al. v.
General  Electric  Co.,  et al.  was filed in the Civil  District  Court for the
Parish of Orleans, State of Louisiana. The complaint names as defendants General
Electric Company and General Electric  Capital  Corporation.  The Partnership is
not named as a  defendant  in this  action.  Plaintiffs  allege  claims of tort,
breach of  fiduciary  duty in tort,  contract and  quasi-contract,  violation of
sections of the Louisiana Blue Sky Law and violation of the Louisiana Civil Code
in  connection  with the public  offering  of Polaris  Aircraft  Income Fund IV.
Plaintiffs seek  compensatory  damages,  attorneys'  fees,  interest,  costs and
general relief.

In or  around  December  1994,  a  complaint  entitled  John J.  Jones,  Jr.  v.
Prudential Securities  Incorporated et al. was filed in the Civil District Court
for the Parish of Orleans, State of Louisiana. The complaint named as defendants
Prudential  Securities,  Incorporated  and Stephen Derby  Gisclair.  On or about
March 29, 1996,  plaintiffs  filed a First  Supplemental  and Amending  Petition
adding as additional  defendants  General  Electric Company and General Electric
Capital Corporation. The Partnership is not named as a defendant in this action.
Plaintiff alleges claims of tort, breach of fiduciary duty in tort, contract and
quasi-contract, violation of section of the Louisiana Blue Sky Law and violation
of the Louisiana  Civil Code  concerning  the  inducement  and  solicitation  of
purchases  arising out of the public  offering of Polaris  Aircraft  Income Fund
III. Plaintiff seeks compensatory damages,  attorneys' fees, interest, costs and
general relief.

On or around  February  16,  1996, a complaint  entitled  Henry Arwe,  et al. v.
General Electric  Company,  et al. was filed in the Civil District Court for the
Parish of Orleans, State of Louisiana. The complaint named as defendants General
Electric Company and General Electric  Capital  Corporation.  The Partnership is
not named as a  defendant  in this  action.  Plaintiffs  allege  claims of tort,
breach of  fiduciary  duty in tort,  contract and  quasi-contract,  violation of
sections of the Louisiana Blue Sky Law and violation of the Louisiana Civil Code
concerning  the  inducement  and  solicitation  of purchases  arising out of the
public  offering of Polaris  Aircraft  Income Funds III and IV.  Plaintiffs seek
compensatory damages, attorneys' fees, interest, costs and general relief.

On or about May 7, 1996, a petition  entitled  Charles  Rich,  et al. v. General
Electric Company and General Electric Capital Corporation was filed in the Civil
District  Court for the Parish of Orleans,  State of  Louisiana.  The  complaint
names as  defendants  General  Electric  Company  and General  Electric  Capital
Corporation.  The  Partnership  is not  named  as a  defendant  in this  action.
Plaintiffs  allege claims of tort concerning the inducement and  solicitation of
purchases  arising out of the public  offering of Polaris  Aircraft Income Funds
III and IV. Plaintiffs seek  compensatory  damages,  attorneys' fees,  interest,
costs and general relief.

On or about March 4, 1996,  a petition  entitled  Richard J.  McGiven v. General
Electric Company and General Electric Capital Corporation was filed in the Civil
District  Court for the Parish of Orleans,  State of  Louisiana.  The  complaint
names as  defendants  General  Electric  Company  and General  Electric  Capital
Corporation.  The  Partnership  is not  named  as a  defendant  in this  action.

                                       36
<PAGE>

Plaintiff  alleges claims of tort concerning the inducement and  solicitation of
purchases  arising out of the public offering of Polaris Aircraft Income Fund V.
Plaintiff seeks  compensatory  damages,  attorneys'  fees,  interest,  costs and
general relief.

On or about March 4, 1996, a petition  entitled Alex M. Wade v. General Electric
Company and General Electric Capital Corporation was filed in the Civil District
Court for the Parish of Orleans,  State of  Louisiana.  The  complaint  names as
defendants  General Electric  Company and General Electric Capital  Corporation.
The  Partnership is not named as a defendant in this action.  Plaintiff  alleges
claims of tort concerning the inducement and  solicitation of purchases  arising
out of the public  offering of Polaris  Aircraft  Income Fund V. Plaintiff seeks
compensatory damages, attorneys' fees, interest, costs and general relief.

Other  Proceedings - Part I, Item 3 discusses  certain other actions arising out
of certain public  offerings,  including that of the Partnership,  to which both
the Partnership and its general partner are parties.


Item 11. Executive Compensation

PAIF-II has no directors or  officers.  PAIF-II is managed by PIMC,  the General
Partner.  In  connection  with  management  services  provided,  management  and
advisory  fees of  $420,000  were  paid to  PIMC  in 1999 in  addition  to a 10%
interest in all cash  distributions  as  described  in Note 10 to the  financial
statements (Item 8).


Item 12. Security Ownership of Certain Beneficial Owners and Management

     a) No person  owns of record,  or is known by PAIF-II to own  beneficially,
        more than five percent of any class of voting securities of PAIF-II.

     b) The General Partner of PAIF-II owns the equity  securities of PAIF-II as
        set forth in the following table:

          Title        Name of               Amount and Nature of        Percent
         of Class   Beneficial Owner         Beneficial Ownership       of Class
         --------   ----------------         --------------------       --------

         General    Polaris Investment    Represents a 10.0% interest     100%
         Partner    Management            of all cash distributions,
         Interest   Corporation           gross income in an amount
                                          equal to 9.09% of distributed
                                          cash available from operations,
                                          and a 1% interest in net
                                          income or loss

     c)  There are no arrangements known to PAIF-II, including any pledge by any
         person  of  securities  of  PAIF-II,  the  operation  of which may at a
         subsequent date result in a change in control of PAIF-II.


Item 13. Certain Relationships and Related Transactions

None.


                                       37
<PAGE>

                                     PART IV

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

1.       Financial Statements.

         The following are included in Part II of this report:
                                                                        Page No.
                                                                        --------

                  Report of Independent Public Accountants                 18
                  Balance Sheets                                           19
                  Statements of Operations                                 20
                  Statements of Changes in Partners' Capital (Deficit)     21
                  Statements of Cash Flows                                 22
                  Notes to Financial Statements                            23

2.       Reports on Form 8-K.

         No reports on Form 8-K were filed during the quarter ended December 31,
         1999.

3.       Exhibits required to be filed by Item 601 of Regulation S-K.

         27. Financial Data Schedule (in electronic format only).

4.       Financial Statement Schedules.

         All  financial  statement  schedules  are omitted  because they are not
         applicable,  not  required  or  because  the  required  information  is
         included in the financial statements or notes thereto.



                                       38
<PAGE>
                                   SIGNATURES



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


                                    POLARIS AIRCRAFT INCOME FUND II,
                                    A California Limited Partnership
                                    (REGISTRANT)
                                    By:     Polaris Investment
                                            Management Corporation
                                            General Partner




           March 24, 2000                   By:  /S/ Eric M. Dull
           --------------                        -------------------------
                Date                             Eric M. Dull, President


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


      Signature                       Title                            Date
      ---------                       -----                            ----

    /S/Eric M. Dull       President and Director of Polaris       March 24, 2000
    ---------------       Investment Management Corporation,      --------------
    (Eric M. Dull)        General Partner of the Registrant

    /S/Marc A. Meiches    Chief Financial Officer of Polaris      March 24, 2000
    ------------------    Investment Management Corporation,      --------------
    (Marc A. Meiches)     General Partner of the Registrant

    /S/Barbara Macholl    Director of Polaris Investment          March 24, 2000
    -------------------   Management Corporation, General         --------------
    (Barbara Macholl)     Partner of the Registrant

    /S/Norman C. T. Liu   Vice President and Director of          March 24, 2000
    -------------------   Polaris Investment Management           --------------
    (Norman C. T. Liu)    Corporation, General Partner
                          of the Registrant


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