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, 2002

                                       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
           ---

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Rule 12b-2 of the Act). Yes      No  X
                                       ---     ---
No formal  market  exists  for the units of  limited  partnership  interest  and
therefore there exists no aggregate market value at December 31, 2002.

                    Documents incorporated by reference: None

                       This document consists of 44 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,  Polaris Investment Management  Corporation (PIMC
or the General  Partner),  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,  Airplanes  Group,  together  with its
subsidiaries (APG), which 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,  APG, and other third  parties to whom GECAS
provides aircraft management services from time to time.

As of  December  31,  2002,  the  Partnership  had 6 McDonnell  Douglas  DC-9-30
aircraft  on  operating  lease  to TWA  Airlines  LLC (TWA  LLC) a wholly  owned
subsidiary  of American  Airlines,  Inc.  (American)  (the Current  Leases).  On
January 10, 2001, TWA filed a voluntary petition in the United States Bankruptcy
Court of the District of Delaware for reorganization  relief under Chapter 11 of
the Federal  Bankruptcy Code (the Bankruptcy  Code). One day prior to filing its
bankruptcy petition,  TWA entered into an Asset Purchase Agreement (the Purchase
Agreement) with American that provided for the sale to American of substantially
all of TWA's  assets.  On February  28,  2001,  American  presented  the General
Partner with a draft letter of intent  reflecting a proposal to take  assignment
of eleven of the  fourteen  then  existing  leases  (collectively  the  Previous
Leases) on modified  terms and  conditions as part of the TWA leased assets that
American  wished to acquire  (collectively  the  Assumed  Leases).  The  General
Partner  evaluated  American's  proposal and  determined  that  accepting such a
proposal was in the best interests of the  Partnership.  The lease term,  rental
and  maintenance  terms of the Assumed  Leases  were  changed  materially  under
American's  proposal from the terms of the Previous Leases.  In particular,  the
monthly  rental rate for each Aircraft has been reduced from $85,000 to $40,000,
and the reduced  rate was made  effective  as of March 12, 2001 by a rent credit
granted to TWA LLC for the amount of rent above $40,000  previously  paid by TWA
in respect of the period from and after March 12, 2001. In addition, the term of
each  Assumed  Lease is  scheduled  to expire at the time of the next  scheduled
heavy  maintenance check of the applicable  Aircraft,  compared to the scheduled
expiry  dates of  November  27,  2004 and  February  7, 2005 under the  Previous
Leases,  provided  that the  aggregate  average  number of months  for which all
eleven  Aircraft  are on lease to TWA LLC would not be less than 22 months  from
and after March 12, 2001. The maintenance condition of the aircraft to be met at
lease  expiry was eased in favor of TWA LLC, as  compared  to the  corresponding
conditions  required under the Previous  Leases.  One of the eleven aircraft was
returned in 2001 and was sold on February 13,  2002.  Four  additional  aircraft
were returned in 2002 and were being remarketed as of December 31, 2002.

                                       2
<PAGE>


See additional discussion of TWA LLC and of Trans World Airlines,  Inc. (TWA) in
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations".




Item 2.       Properties

At December  31, 2002,  the  Partnership  owned six  McDonnell  Douglas  DC-9-30
(DC-9-30) aircraft on operating lease to TWA LLC, four DC-9-30 aircraft held for
sale on the ground in New Mexico,  and an inventory of spare parts.  Originally,
the  portfolio  consisted of 30 aircraft.  The  Partnership  sold three  DC-9-30
aircraft to Aeroturbine,  Inc. in October 2001. The Partnership sold one DC-9-30
aircraft to Amtec Corp.  in February  2002.  The spare parts are carried at book
value of zero as of December 31, 2002.

The following table describes the Partnership's  aircraft  portfolio at December
31, 2002:

                                                  Year of             Cycles
Aircraft Type                Serial Number       Manufacture      As of 12/31/02
-------------                -------------       -----------      --------------
McDonnell Douglas DC-9-30       47107               1968              88,774
McDonnell Douglas DC-9-30       47135               1968              85,851
McDonnell Douglas DC-9-30       47137               1968              85,637
McDonnell Douglas DC-9-30       47249               1968              91,603
McDonnell Douglas DC-9-30       47251               1968              89,725
McDonnell Douglas DC-9-30       47343               1969              88,518
McDonnell Douglas DC-9-30       47345               1969              86,860
McDonnell Douglas DC-9-30       47357               1969              83,335
McDonnell Douglas DC-9-30       47411               1969              84,397
McDonnell Douglas DC-9-30       47412               1969              83,502

The 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 noise  restrictions.  Hushkits have been
installed  on  the  remaining   Partnership   aircraft.   Certain  Airworthiness
Directives  (Ads)  applicable to the DC-9-30 have been issued to prevent fatigue
cracks and control corrosion.

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.

In May of 1998,  Braniff's bankrupt estate made a $200,000 payment in respect of
the unsecured  claims of the Partnership and other  affiliates of PIMC, 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

                                       3
<PAGE>

$84,000 payment in respect of the unsecured  claims of the Partnership and other
affiliates of PIMC, of which $6,462 was  allocated to the  Partnership  based on
its pro rata share of the total claims. On January 16, 2001,  Braniff's bankrupt
estate  made a  $110,890  payment  in  respect  of the  unsecured  claims of the
Partnership  and other  affiliates of PIMC, of which $8,530 was allocated to the
Partnership based on its pro rata share of the total claims.  Braniff's bankrupt
estate has made its final distribution and this matter is now closed.


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 PIMC,
Polaris  Securities  Corporation,  PHC, PALC, 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, GE Capital,
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 sought,  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.  Subsequently,
several of the plaintiffs filed a motion with the Court to dismiss their claims,
which the court granted.

On June 5, 2001,  the remaining  plaintiffs who did not ask the court to dismiss
their claims,  Gerald and Judy Beckman,  made a motion to retain the case on the
docket of the  District  Court of Harris  County,  Texas  with  respect to their
purported claims against all defendants except  Prudential  Insurance Company of
America and James J. Darr. On June 27, 2001,  the Court entered a docket control
order  providing  for a schedule for  discovery  and a trial date of December 3,
2001. On October 17, 2001,  the remaining  plaintiffs  entered into a settlement
agreement with PIMC, Polaris Securities Corporation, PHC, PALC, 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, and GE Capital.  The  Partnership  did not contribute to the settlement
payments and has no further liability in respect of such matter. On December 11,
2002,  the court  entered an order  non-suiting  this action as to the remaining
plaintiffs and accordingly the case has been finally disposed.

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.


                                       4
<PAGE>

                                     PART II

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

a)       PAIF-II's  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, 2002
         ------------------------------------        ---------------------------

         Limited Partnership Interest:                         13,178

         General Partnership Interest:                            1

c)       Dividends:

         The  Partnership  distributed  cash to partners  on a  quarterly  basis
         beginning  July 1986.  As of January 2002 the  Partnership  switched to
         making  distributions on an annual basis. Cash distributions to Limited
         Partners  during  2002 and 2001  totaled  $4,999,659  and  $11,399,384,
         respectively.  Cash  distributions  per Limited  Partnership  unit were
         $10.00 and $22.80 in 2002 and 2001, respectively.  On January 15, 2003,
         the  Partnership  distributed  $6,248,875 to the Limited  Partners,  or
         $12.50 per Limited Partnership Unit.


                                       5
<PAGE>



Item 6.       Selected Financial Data

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

                                2002          2001        2000            1999         1998
                                ----          ----        ----            ----         ----

<S>                          <C>          <C>          <C>            <C>           <C>
Revenues                     $ 5,912,312  $10,034,851  $13,729,468    $13,559,480   $13,901,118

Net Income (Loss)            $ 1,813,623  $ 4,325,509  $(7,634,415)   $ 6,622,183   $ 3,456,655

Net Income (Loss)
  Allocated to Limited
  Partners                   $ 1,282,066  $ 3,142,429  $(8,317,954)   $ 5,742,360   $ 1,607,397

Net Income (Loss) per
  Limited Partnership Unit   $      2.56  $      6.29  $    (16.64)   $     11.49   $      3.22

Cash Distributions per
  Limited Partnership
  Unit                       $     10.00  $     22.80  $     15.20    $     16.40   $     37.35

Limited Partnership Units        499,910     499,966       499,973        499,973       499,973

Amount of Cash
  Distributions Included
  Above Representing
  a Return of Capital on
  a Generally Accepted
  Accounting Principle
  Basis per Limited
  Partnership Unit*          $      0.00  $      0.00  $      1.46**  $     16.40   $     37.35

Total Assets                 $13,905,238  $19,794,199  $31,992,732    $51,760,515   $57,461,885

Partners' Capital            $12,796,533  $16,538,087  $24,878,560    $40,956,964   $43,445,400
</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.

** During 2000 total  cumulative  distributions,  per unit,  reached  $500,  the
initial capital contribution per unit, such that all further distributions would
be considered a return on capital.


                                       6
<PAGE>

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

Critical Accounting Policies

In  response to the  Securities  and  Exchange  Commission's  (SEC)  Release No.
33-8040,  "Cautionary  Advice  Regarding  Disclosure  About Critical  Accounting
Policies," we identified the most critical accounting  principles upon which our
financial   reporting  depends.   We  determined  the  critical   principles  by
considering  accounting  policies  that involve the most  complex or  subjective
decisions or assessments. We identified our most critical accounting policies to
be those  related  to lease  revenue  recognition,  depreciation  policies,  and
valuation of aircraft.  We state these  accounting  policies in the notes to the
financial statements and in relevant sections in this discussion and analysis.

Business Overview

At  December  31,  2002,  Polaris  Aircraft  Income  Fund  II  (PAIF-II  or  the
Partnership)  owned a portfolio of 10 used McDonnell Douglas DC-9-30  commercial
jet aircraft (DC-9-30),  and spare parts inventory out of its original portfolio
of 30 aircraft.  Six of these  aircraft were on lease to TWA Airlines,  LLC (TWA
LLC) (collectively the Current Leases). The four remaining DC-9-30 aircraft were
being  stored in New Mexico.  The  Partnership  sold three  DC-9-30  aircraft to
Aeroturbine,  Inc. in October 2001. The Partnership sold one DC-9-30 aircraft to
Amtec Corporation in February 2002 that resulted in a net gain of $65,000 to the
Partnership.  The spare  parts are  carried at book value of zero as of December
31, 2002.


Industry Update

Demand for Aircraft - At year end 2002, there were approximately  17,500 western
built  passenger and freighter jet aircraft in the world fleet. As a result of a
slowdown  in travel  that began in the spring of 2001 as well as the large shift
in  travel  levels in the wake of the  September  11th  tragedy,  2,100 of those
aircraft are currently  stored or out of active service.  Air travel as measured
by global revenue  passenger miles for 2002 is expected to be 1-2% less than the
poor  results  from the year 2001  when the final  numbers  are  compiled.  2003
traffic  levels  are  expected  to show  growth  from  this low  base,  but many
uncertainties remain. The threat of war with Iraq and continued threat of global
terrorism continue to impact traffic levels as does the sluggish economy.  While
production  rates are coming down and retirements are increasing,  the number of
surplus aircraft is still at record levels.

The unprecedented and worldwide decrease in demand has had profound implications
to airlines as well as aircraft  owners and  manufacturers.  Airlines  are still
experiencing  huge losses,  and are  struggling to match capacity and pricing to
demand.  Manufacturers  have  attempted to deliver the aircraft that were in the
backlog  and the  modest  orders in 2002 and  achieve  some  stability  in their
production  lines.  Trading  values  and  lease  rates  have  declined  further,
particularly on older aircraft as the demand shock took a cyclical downturn into
a deep  trough.  The  bankruptcy  of two of the  largest  carriers in the world,
subsequent aircraft availability and renegotiation of terms has just added to an
already bad situation.  As manufacturers reduce production,  airlines accelerate
retirements  of older  aircraft,  and a recovering  air travel  market begins to
reduce the  aircraft  surplus,  this  cyclical  downturn  is expected to reverse
itself and the market is  expected  to return to a stable  condition.  This will
take more time as manufacturers cannot drop production overnight and owners will
be  reluctant  to scrap  aircraft  that they own  despite  the lack of a current
market for them.

                                       7
<PAGE>


Low cost  carriers  are the only ones able to  prosper  in this  environment  of
commoditized  airfare pricing.  The bulk of the orders that were actually placed
during 2002 came from those  carriers like Easyjet.  Asia is another bright spot
where the traffic levels have been least impacted by the terrorism in the US and
the economic downturn.


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  Airworthiness  Directives (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.

The  Partnership's  Current Leases require TWA LLC to maintain the Partnership's
aircraft in accordance with an FAA-approved maintenance program during the lease
term.  Under the  Previous  Leases,  TWA was  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.
Three of the  Partnership's  Aircraft were  returned by TWA without  meeting the
return  conditions  specified in the Previous Leases,  and the return conditions
under the modified lease terms and conditions  for the  Partnership's  remaining
Aircraft  were  quite  limited.  The costs of  compliance  with FAA  maintenance
standards  caused the  Partnership  to sell for scrap  value the three  Aircraft
being  returned by TWA under the Rejected  Leases and the  aircraft  returned in
2001 was  likewise  marketed at scrap value.  Similarly,  such costs will likely
cause the Partnership to sell for scrap value, at the end of the lease term, the
Partnership's remaining Aircraft.

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.

Hushkit   modifications,   which   allow  Stage  2  aircraft  to  meet  Stage  3
requirements,  are currently  available for the Partnership's  aircraft and were
added to the Partnership's aircraft in 1996 and 1997.

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.
Legislation  had been  drafted  and was under  review by the EU for  sometime to
adopt anti-hushkitting  regulations within member states. The legislation sought
to ban  hushkitted  aircraft  from being added to member  states  registers  and
precluded  all  operation of  hushkitted  aircraft  within the EU after  certain
specific  dates.  Due to criticism by the US  Government,  the enactment of this
legislation  has been deferred  twice and it is now uncertain if it will ever be

                                       8
<PAGE>

enacted at this point.  However,  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.

Remarketing Update

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.

Partnership Operations

The  Partnership  reported  net  income  of  $1,813,623,  or $2.56  per  Limited
Partnership unit for the year ended December 31, 2002,  compared to a net income
of $4,325,509, or $6.29 per Limited Partnership unit for the year ended December
31, 2001, and a net loss of $7,634,415,  or $16.64 per Limited  Partnership unit
for the year ended December 31, 2000. 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.

The  decrease  in net income in 2002 as compared to 2001,  is  primarily  due to
decreases in rental and interest  income,  partially offset by increases in gain
on sale of aircraft  inventory and other income and  decreases in  depreciation,
legal,  operating,  interest and administration and other expenses. The increase
in net income in 2001 as compared  to 2000,  is  primarily  due to a decrease in
depreciation  expense  as a result of  impairment  charges  in 2000,  as well as
decreases in management fees,  interest  expense,  and bad debt expense,  and an
increase in other income,  partially  offset by decreases in rental and interest
income and increases in legal, operating and administration and other expenses.

Rental income  decreased in 2002 as compared to 2001, and in 2001 as compared to
2000  primarily  due to the lower lease  rates and fewer  aircraft on lease as a
result of the TWA bankruptcy.  Additionally, the decrease in rent from operating
leases was also caused by lower recognition of deferred revenue. As discussed in
Note 5 to the financial statements, the deferred revenue balance existing at the
time of the lease revisions in March 2001 is being recognized over the new lease
terms for the Accepted  Aircraft,  while it was recognized  upon lease rejection
for the three Rejected Aircraft.

Interest  income  decreased in 2002 as compared to 2001, and in 2001 as compared
to 2000, primarily due to lower interest rates and lower average cash balances.

Gain on sale of  aircraft  inventory  increased  in 2002 as compared to 2001 and
2000. In 2002, a gain of $65,000 was recorded  from the sale of an aircraft.  In
2001,  three aircraft were sold at their book value resulting in no overall gain
or loss. There were no such sales in 2000.

Other income  increased in 2002 as compared to 2001,  primarily  due to payments
made by TWA LLC for the return of aircraft  that did not meet return  conditions
required by the leases.  Other income  increased  in 2001,  as compared to 2000,
primarily due to the receipt of default  interest  from TWA resulting  from late
rental payments subsequent to the TWA bankruptcy filing. Note 5 to the financial
statements included a further discussion of both of these items.

Depreciation expense decreased in 2002 as compared to 2001 primarily as a result
of fewer aircraft remaining on lease and being depreciated. Depreciation expense
decreased  in 2001 as compared to 2000  primarily  as a result of $15 million of

                                       9
<PAGE>

impairment  charge recognized in 2000 while only $200,000 was recognized in 2001
as discussed below.  Also there were fewer aircraft being depreciated in 2001 as
a result of four aircraft no longer being on lease during the year.

The Partnership periodically reviews the estimated realizability of the residual
values at the projected end of each aircraft's  economic life based on estimated
fair values at that time. 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).

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, the Partnership
recognizes  an  impairment  loss for the  amount  by which the  carrying  amount
exceeds  its fair value.  The  impairment  loss is  recognized  as  depreciation
expense. The Partnership recognized impairment losses aggregating  approximately
$200,000,  or $0.41 per Limited  Partnership  unit in 2001, and $15 million,  or
$30.09 per Limited Partnership unit in 2000 as increased depreciation expense as
a result of the TWA  bankruptcy  and the  modified  lease terms with TWA LLC. As
discussed  below under "TWA  Bankruptcy  Filing and  Transaction  with  American
Airlines",  the  Partnership  decided  to  accept  American's  proposal  to take
assignment  of eleven of the  fourteen  existing  leases on  modified  terms and
conditions  (collectively the Previous Leases).  This acceptance  constituted an
event that  required  the  Partnership  to review the aircraft  carrying  values
pursuant to Statement of Financial Accounting Standards 121, "Accounting for the
Impairment of  Long-Lived  Assets and for  Long-Lived  Assets to be Disposed of"
(SFAS 121). As a result of a review of the Aircraft,  future cash flows expected
to be derived  from the Aircraft  and  projected  lease terms were less than the
carrying  value of the Aircraft,  and the  Partnership  has recorded  impairment
losses as of December 31, 2000, and September 30, 2001.  Management believes the
assumptions  related  to fair  value of  impaired  assets  represented  the best
estimates based on reasonable and supportable assumptions and projections.

Management fees to the General Partner increased slightly in 2002 as compared to
2001, primarily as a result of the deferred management fees being recognized for
the  three  Rejected  Leases  and  leases  expiring  during  2001 due to the TWA
bankruptcy. Management fees to the General Partner decreased in 2001 as compared
to 2000, primarily due to lower rental rates from the modified lease terms.

Interest expense  decreased in 2002 as compared to 2001, and in 2001 as compared
to  2000  primarily  due  to  the  debt  incurred  to  install  hushkits  on the
Partnership's aircraft being fully repaid in 2001. In November 1996 and February
1997  hushkits were  installed on the 14  Partnership  aircraft.  The leases for
these 14  aircraft  were then  extended  for a period of eight  years.  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.

Bad debt expense  decreased in 2002 and 2001 as compared to 2000, due to the TWA
Bankruptcy Filing in 2001. TWA subsequently cured outstanding defaults on eleven
of the fourteen Previous Leases. One of the three leases, which was not cured by
TWA,  had a rent  payment due on December  27,  2000;  the rent  payments on the
remaining  two leases  were due in January  2001.  The  Partnership  recorded an
allowance  for credit  losses and bad debt expense equal to the rent payment due
December 27, 2000 for the respective lease.

Operating expense decreased in 2002 as compared to 2001 primarily due to reduced
costs  associated  with the storage of aircraft from the time of their return to
the time of their sale. During 2002, four aircraft were prepared for storage and
stored for an average of 5 months each. During 2001, four aircraft were prepared

                                       10
<PAGE>

for storage  and stored for an average of 6 months  each at a facility  that was
more expensive than the facility  aircraft are now flown to at lease expiration.
Operating  expense  increased in 2001 as compared to 2000 primarily due to these
same storage costs as there were no aircraft returned or stored during 2000.

Legal expenses were  significantly  higher in 2001 as compared to 2002 and 2000,
primarily due to the costs incurred in connection with the TWA bankruptcy.

Administration  and other  expenses  decreased in 2002 as compared to 2001,  and
increased in 2001 as compared to 2000  primarily  due to costs  incurred in 2001
that were related to the TWA  bankruptcy.  This includes  audit fees, as well as
additional printing and postage expenses.


Liquidity and Cash Distributions

Liquidity - The  Partnership  received  all rent  payments  due in 2002 from the
lessee according to the modified terms of the Current Leases. As discussed below
under "TWA  Bankruptcy  Filing and  Transaction  with  American  Airlines",  the
General Partner has filed administrative claims in the TWA bankruptcy proceeding
in an effort to recover (i) the fair value of TWA's actual use, if any, of these
three Aircraft during the 60-day period following TWA's filing of its bankruptcy
petition,  and (ii) claims  relating to these Aircraft for the period from March
12, 2001 (the expiration of the 60-day automatic stay period after the filing of
bankruptcy  petition) to April 20, 2001, the date on which these Previous Leases
were rejected by TWA.

PIMC has  determined  that the  Partnership  maintain cash reserves as a prudent
measure to ensure that the  Partnership  has available  funds for  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.

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.


Cash  Distributions - Cash  distributions  to Limited  Partners were $4,999,659,
$11,399,384,  and  $7,599,590  in  2002,  2001,  and  2000,  respectively.  Cash
distributions per Limited  Partnership unit were $10.00,  $22.80,  and $15.20 in
2002,  2001 and 2000,  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 discussed  above;  the receipt of rental  payments from TWA LLC; and
payments generated from the aircraft disassembly and sales proceeds.

The  Partnership  does not have any material off balance  sheet  commitments  or
obligations.

                                       11
<PAGE>



TWA Bankruptcy Filing and Transaction with American Airlines

TWA filed a voluntary  petition  in the United  States  Bankruptcy  Court of the
District of Delaware  (the  Bankruptcy  Court) for  reorganization  relief under
Chapter 11 of the  Bankruptcy  Code on January 10, 2001. One day prior to filing
its  bankruptcy  petition,  TWA entered into an Asset  Purchase  Agreement  with
American  that provided for the sale to American of  substantially  all of TWA's
assets and  permitted  American  to exclude  certain  TWA  contracts  (including
aircraft leases) from the assets of TWA to be acquired by American.  On February
28, 2001,  American  presented  the General  Partner with a written  proposal to
assume,  on modified terms and conditions,  eleven of the fourteen then existing
leases  (collectively,  the Previous  Leases).  The General  Partner  decided to
accept American's proposal.

On April 9,  2001,  the  American  acquisition  of the  selected  TWA assets was
consummated.  As a result of this closing,  TWA LLC assumed the Previous  Leases
applicable to eleven of the fourteen Aircraft, and simultaneously, such Previous
Leases were amended to  incorporate  modified  terms (as so assumed and amended,
the Assumed Leases).  The Assumed Leases are substantially less favorable to the
Partnership than the Previous Leases. In particular, the monthly rental rate for
each Aircraft was reduced from $85,000 to $40,000, and the reduced rate was made
effective  as of March  12,  2001 by a rent  credit  granted  to TWA LLC for the
amount of rent  above  $40,000  previously  paid by TWA in respect of the period
from and after March 12, 2001.  In addition,  the term of each Assumed  Lease is
scheduled to expire at the time of the next scheduled heavy maintenance check of
the applicable Aircraft,  compared to the scheduled expiry dates of November 27,
2004 and February 7, 2005 under the Previous Leases, provided that the aggregate
average  number of months for which all eleven  Aircraft are on lease to TWA LLC
is not  less  than 22  months  from and  after  March  12,  2001.  Finally,  the
maintenance  condition  of the  aircraft to be met at lease  expiry was eased in
favor of TWA LLC, as compared to the corresponding conditions required under the
Previous Leases.

With respect to the three  Aircraft  that TWA LLC did not elect to acquire,  TWA
officially   rejected  the  Previous   Leases   applicable  to  these   Aircraft
(collectively,  the Rejected Leases) as of April 20, 2001. One of these aircraft
was  leased  to TWA for the  period  of March  12,  2001 to April  12,  2001 for
$85,000.  All three Aircraft have been returned to the Partnership.  As aircraft
were  returned to the  Partnership  they were parked in storage in Arizona while
the General  Partner  remarketed  them for sale. The three aircraft were sold on
October 19, 2001,  for $565,000,  resulting in neither a gain nor a loss for the
Partnership.  In addition,  the General  Partner has filed  administrative  rent
claims in the amount of $422,989 in the TWA  bankruptcy  proceeding in an effort
to recover the fair value of TWA's  actual use, if any, of these three  Aircraft
under the Rejected Leases during the 60-day period following TWA's filing of its
bankruptcy petition.  These administrative rent claims have been approved by the
estate with the plan of  reorganization  on June 25, 2002 (the Plan) and will be
paid to the Partnership through periodic  distributions over the next one to two
years. These funds will be recognized on a cash basis as they are received.  The
General Partner also filed administrative claims in the amount of $95,359 in the
TWA bankruptcy  proceeding in connection with certain legal expenses incurred by
the Partnership in connection with the bankruptcy  proceeding which were settled
for $73,448 with the estate under the Plan.  The  settlement was received by the
Partnership on September 26, 2002.  Furthermore,  the General  Partner has filed
general  unsecured  claims for damages arising from TWA's breach of the Rejected
Leases.  However, there can be no assurances as to whether, or when, the General
Partner  will be  successful  in  asserting  the value of the general  unsecured
claims or be able to collect any amounts out of the TWA bankruptcy estate.

                                       12
<PAGE>


The Accounting Treatment of the TWA Transaction

In accordance with accounting principles generally accepted in the United States
(GAAP),  the  Partnership  recognized  rental  income and  management  fees on a
straight line basis over the original lease terms of the Previous  Leases.  As a
result,  deferred  revenue and accrued  management fees were recorded each month
since the  inception of each Previous  Lease,  resulting in balances of deferred
rental  income  and  accrued   management   fees  of  $5,068,954  and  $232,533,
respectively,  as of March 12, 2001.  Since the Previous Leases were effectively
modified on March 12, 2001, the Partnership  recognized the balances of deferred
revenue and accrued  management fees over the new lease terms, from the date the
leases were modified.  For the three Rejected  Leases,  the deferred revenue and
accrued  management  fees  amounting to $950,130 and $38,432 were  recognized as
rental revenue and a reduction of management fee,  respectively,  in March 2001.
For the  Assumed  Leases,  the  deferred  revenue and  accrued  management  fees
associated with each Aircraft were recognized over the new lease terms,  ranging
from 4 months to 30 months  beginning as of March 31,  2001.  As of December 31,
2002, the Partnership had a deferred revenue balance of $475,788, and a deferred
management  fee  balance of $22,058  included  in Payable to  Affiliates  on the
Balance Sheet, which will be recognized over the remaining lives of the aircraft
leases, up to 9 months.

Sale of Aircraft

Sale of  McDonnell  Douglas  DC-9-30  Aircraft - On October 19, 2001,  PIMC,  on
behalf of the Partnership,  sold three DC-9-30 aircraft to Aeroturbine, Inc. for
$565,000  cash.  The  Partnership  recognized  neither  a loss nor a gain on the
transaction due to an impairment expense being taken during 2001 in anticipation
of the sales.  On February  13,  2002,  the General  Partner sold one DC-9-30 to
Amtec Corp for $250,000, resulting in a gain of $65,000.


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.

In May of 1998,  Braniff's bankrupt estate made a $200,000 payment in respect of
the unsecured  claims of the Partnership and other  affiliates of PIMC, 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 PIMC, of which $6,462 was  allocated to the  Partnership  based on
its pro rata share of the total claims. On January 16, 2001,  Braniff's bankrupt
estate  made a  $110,890  payment  in  respect  of the  unsecured  claims of the
Partnership  and other  affiliates of PIMC, of which $8,530 was allocated to the
Partnership based on its pro rata share of the total claims.  Braniff's bankrupt
estate has made its final distribution and this matter is now closed.

                                       13
<PAGE>


Aircraft Impairment Assessment

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 is 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 for the amount by which the carrying  amount exceeds its fair
values.

The  Partnership  uses  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.  144,  "Accounting  for the  Impairment  or
Disposal of Long-Lived  Assets" (SFAS 144) and to determine residual values. 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 downward  adjustments to the estimated  residual value of
certain of its  aircraft  on-lease  as of  September  30,  2001.  This  decrease
reflected the weakening used aircraft market and reflected the additional  facts
and  circumstances  resulting from the advanced  negotiations  with Aeroturbine,
which resulted in a sale of three held for sale aircraft on October 19, 2001. As
a result, the Partnership decreased the residual values as of September 30, 2001
to reflect the  depressed  market.  This  decrease  in  residual  values will be
reflected  in  greater  depreciation  expense  over  the  remaining  life of the
aircraft.

The  Partnership  made previous  downward  adjustments to the estimated net book
values and residual value of its aircraft as of December 31, 2000 as a result of
the TWA  bankruptcy  and the  modified  lease  terms  proposed  by  American  as
previously  discussed.  After a review  of the  carrying  value of the  Aircraft
pursuant  to  applicable  accounting  literature  including  SFAS 121 (which was
superceded  by SFAS 144),  the  Partnership  recognized  an  impairment  loss as
increased  depreciation  expense in 2000 of approximately $15 million, or $30.09
per Limited Partnership unit.


Item 7A. Quantitative and Qualitative Disclosures About Market Risk

The following discussion about market risk disclosures involves  forward-looking
statements.  Market  risks may  include  exposure  to changes in equity  prices,
interest rates and foreign currency exchange rates.  Actual results could differ
materially  from  those  projected  in  the  forward-looking   statements.   The
Partnership  does not use  derivative  financial  instruments  for  speculative,
trading or any other purpose.

Equity Price Risk - The  potential for changes in the market value of marketable
securities is referred to as "market  risk".  The  Partnership  does not own any
marketable securities.

Interest Rate Risk - Exposure to market risk  resulting from changes in interest
rates relates  primarily to the Partnership's  lease portfolio.  Income and cash
flows would not be impacted  by changes in the  general  level of U.S.  interest
rates since the  Partnership's  leases are fixed rate. The General Partner would
not expect an immediate  10% increase or decrease in current  interest  rates to
have a  material  effect on the fair  market  value of the  Partnership's  lease
portfolio.

Foreign  Currency  Risk - The  Partnership  does not have any  foreign  currency
denominated  assets or liabilities or purchase  commitments  and has not entered
into any foreign currency contracts. Accordingly, the Partnership is not exposed
to fluctuations in foreign currency exchange rates.


                                       14
<PAGE>


Foreign Currency Risk - We do not have any foreign currency  denominated  assets
or  liabilities  or purchase  commitments  and have not entered into any foreign
currency contracts.  Accordingly,  we are not exposed to fluctuations in foreign
currency exchange rates.



                                       15
<PAGE>



Item 8.       Financial Statements and Supplementary Data











                        POLARIS AIRCRAFT INCOME FUND II,
                        A California Limited Partnership




              FINANCIAL STATEMENTS AS OF DECEMBER 31, 2002 AND 2001


            AND FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000


                                TOGETHER WITH THE


                         REPORT OF INDEPENDENT AUDITORS





                                       16
<PAGE>



                         REPORT OF INDEPENDENT AUDITORS



The Partners
Polaris Aircraft Income Fund II

We have audited the  accompanying  balance sheet of Polaris Aircraft Income Fund
II (a California  limited  partnership) as of December 31, 2002, and the related
statements of operations,  changes in partners'  capital and cash flows for year
then ended.  These financial  statements are the  responsibility  of the General
Partner.  Our  responsibility  is to  express  an  opinion  on  these  financial
statements  based on our  audit.  The 2001 and 2000  financial  statements  were
audited by other auditors who have ceased  operations.  Those auditors expressed
an  unqualified  opinion on those  financial  statements  in their  report dated
February 1, 2002.

We conducted our audit in accordance with auditing standards  generally accepted
in the United States. 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 audit provides a reasonable  basis
for our opinion.

In our opinion,  the 2002 financial statements referred to above present fairly,
in all material respects, the financial position of Polaris Aircraft Income Fund
II as of December 31, 2002, and the results of its operations and its cash flows
for the year then  ended in  conformity  with  accounting  principles  generally
accepted in the United States.




                                                           /s/ Ernst & Young LLP


San Francisco, California,
February 5, 2003


                                       17
<PAGE>


This is a copy of the audit report  previously  issued by Arthur Andersen LLP in
connection  with the Polaris  Aircraft  Income Fund II's filing on Form 10-K for
the year ended  December  31, 2001.  This audit report has not been  reissued by
Arthur Andersen LLP in connection with this filing on Form 10-K.



                    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, 2001 and 2000, 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, 2001.
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 auditing standards generally accepted
in the United States. 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, 2001 and 2000, and the
results of its  operations and its cash flows for each of the three years in the
period  ended  December 31,  2001,  in  conformity  with  accounting  principles
generally accepted in the United States.


ARTHUR ANDERSEN LLP


San Francisco, California,
    February 1, 2002 (except with respect to the matter discussed in Note 13, as
    to which the date is February 13, 2002)




                                       18
<PAGE>


                        POLARIS AIRCRAFT INCOME FUND II,
                        A California Limited Partnership

                                 BALANCE SHEETS

                           DECEMBER 31, 2002 AND 2001

                                                        2002            2001
                                                        ----            ----
ASSETS:

CASH AND CASH EQUIVALENTS                           $ 10,605,028   $ 12,639,824

RENT AND OTHER RECEIVABLES                               241,560        404,822

AIRCRAFT HELD FOR SALE                                   740,000        185,000

AIRCRAFT ON OPERATING LEASE, net of accumulated
depreciation of $46,906,230 in 2002 and
$75,763,132 in 2001                                    2,318,650      6,564,553
                                                    ------------   ------------

       Total Assets $                                 13,905,238   $ 19,794,199
                                                    ============   ============

LIABILITIES AND PARTNERS' CAPITAL (DEFICIT):

PAYABLE TO AFFILIATES                               $     81,151   $    637,651

ACCOUNTS PAYABLE AND ACCRUED
  LIABILITIES                                            551,766        618,589

DEFERRED INCOME                                          475,788      1,999,872
                                                    ------------   ------------

       Total Liabilities                               1,108,705      3,256,112
                                                    ------------   ------------

PARTNERS' CAPITAL (DEFICIT):
  General Partner                                     (3,555,808)    (3,531,847)
  Limited Partners, 499,910 units (499,966 in
     001) issued and outstanding                      16,352,341     20,069,934
                                                    ------------   ------------

       Total Partners' Capital                        12,796,533     16,538,087
                                                    ------------   ------------

       Total Liabilities and Partners' Capital      $ 13,905,238   $ 19,794,199
                                                    ============   ============


        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, 2002, 2001 AND 2000

                                           2002           2001          2000
                                           ----           ----          ----
REVENUES:
    Rent from operating leases         $  5,424,084  $  9,341,022  $ 12,582,702
    Interest                                158,165       647,909     1,144,783
    Gain on sale of aircraft
      inventory                              65,000          --            --
    Other                                   265,063        45,920         1,983
                                       ------------  ------------  ------------

         Total Revenues                   5,912,312    10,034,851    13,729,468
                                       ------------  ------------  ------------

EXPENSES:
    Depreciation                          3,505,903     4,616,341    20,102,157
    Management fees to General
      Partner                               126,059       124,065       486,468
    Interest                                   --          13,525       333,665
    Bad debt expense                           --            --          85,000
    Operating                               178,072       376,626        41,782
    Legal                                    24,483       229,465        10,511
    Administration and other                264,172       349,320       304,300
                                       ------------  ------------  ------------

         Total Expenses                   4,098,689     5,709,342    21,363,883
                                       ------------  ------------  ------------

NET INCOME (LOSS)                      $  1,813,623  $  4,325,509  $ (7,634,415)
                                       ============  ============  ============

NET INCOME ALLOCATED TO
    THE GENERAL PARTNER                $    531,557  $  1,183,080  $    683,539
                                       ============  ============  ============

NET INCOME (LOSS) ALLOCATED
    TO THE LIMITED PARTNERS            $  1,282,066  $  3,142,429  $ (8,317,954)
                                       ============  ============  ============

NET INCOME (LOSS) PER LIMITED
    PARTNERSHIP UNIT                   $       2.56  $       6.29  $     (16.64)
                                       ============  ============  ============

UNITS USED TO CALCULATE
    NET INCOME (LOSS) PER
       LIMITED PARTNERSHIP UNIT             499,910       499,966       499,973

        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, 2002, 2001 AND 2000

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


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

    Net income (loss)                     683,539     (8,317,954)    (7,634,415)

    Cash distributions to partners       (844,399)    (7,599,590)    (8,443,989)
                                     ------------   ------------   ------------

Balance, December 31, 2000             (3,448,329)    28,326,889     24,878,560

    Net income                          1,183,080      3,142,429      4,325,509

    Cash distributions to partners     (1,266,598)   (11,399,384)   (12,665,982)
                                     ------------   ------------   ------------

Balance, December 31, 2001             (3,531,847)    20,069,934     16,538,087

    Net income                            531,557      1,282,066      1,813,623

    Cash distributions to partners       (555,518)    (4,999,659)    (5,555,177)
                                     ------------   ------------   ------------

Balance, December 31, 2002           $ (3,555,808)  $ 16,352,341   $ 12,796,533
                                     ============   ============   ============



        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, 2002, 2001 AND 2000

<TABLE>
<CAPTION>
                                                              2002            2001           2000
                                                              ----            ----           ----
OPERATING ACTIVITIES:
<S>                                                       <C>            <C>            <C>
  Net income (loss)                                       $  1,813,623   $  4,325,509   $ (7,634,415)
  Adjustments to reconcile net income (loss) to
     net cash provided by operating activities:
     Depreciation                                            3,505,903      4,616,341     20,102,157
     Gain on sale of aircraft inventory                        (65,000)          --             --
     Bad debt expense                                             --             --           85,000
     Changes in operating assets and liabilities:
       Decrease (increase) in rent and other receivables       163,262        447,796         (2,614)
       Decrease (increase) in other assets                        --           13,915        (11,080)
       Increase (decrease) in payable to affiliates           (556,500)       342,317         69,092
       Increase (decrease) in accounts payable and
          accrued liabilities                                  (66,823)        12,693         87,864
       Increase (decrease) in deferred income               (1,524,084)    (3,719,682)     1,697,298
                                                          ------------   ------------   ------------

          Net cash provided by operating activities          3,270,381      6,038,889     14,393,302
                                                          ------------   ------------   ------------

INVESTING ACTIVITIES:
  Net proceeds from sale of aircraft inventory                 250,000        565,000           --
                                                          ------------   ------------   ------------


          Net cash provided by investing activities            250,000        565,000           --
                                                          ------------   ------------   ------------

FINANCING ACTIVITIES:
  Principal payments on notes payable                             --         (493,388)    (5,543,633)
  Cash distributions to partners                            (5,555,177)   (12,665,982)    (8,443,989)
                                                          ------------   ------------   ------------

          Net cash used in financing activities             (5,555,177)   (13,159,370)   (13,987,622)
                                                          ------------   ------------   ------------

CHANGES IN CASH AND CASH
  EQUIVALENTS                                               (2,034,796)    (6,555,481)       405,680

CASH AND CASH EQUIVALENTS AT
  BEGINNING OF YEAR                                         12,639,824     19,195,305     18,789,625
                                                          ------------   ------------   ------------

CASH AND CASH EQUIVALENTS AT
  END OF YEAR                                             $ 10,605,028   $ 12,639,824   $ 19,195,305
                                                          ============   ============   ============

</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, 2002


1.       Organization and the Partnership

Polaris Aircraft Income Fund II, A California  Limited  Partnership  (PAIF-II or
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 of the  Partnership  (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. During 2001,
7 units were abandoned,  and during 2002, 56 units were  abandoned.  At December
31, 2002, there were 499,910 units outstanding.

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 8 and 9.

2.       Accounting Principles and Policies

Accounting  Method - The  Partnership  maintains  its  accounting  records,  and
prepares  its  financial  statements  on the accrual  basis of  accounting.  The
preparation of financial  statements in conformity  with  accounting  principles
generally  accepted in the United  States  (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 the  residual  values  of the
aircraft,  the useful lives of the aircraft and the estimated  amount and timing
of  cash-flows  associated  with  each  aircraft  which  are  used to  determine
impairment, if any.

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 or the end
of the remaining lease term if beyond the 30 year life. Depreciation in the year
of acquisition  was  calculated  based upon the number of days that the aircraft
were in service.

                                       23
<PAGE>


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 No.
144 "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS 144),
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.  Aircraft  held for sale
are carried at the lower of cost or fair value less cost to sell.

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 or the remaining  lease term, if shorter.  These
costs are also subject to periodic impairment evaluation as discussed above.

Operating  Leases - The aircraft  leases are accounted for as operating  leases.
Lease  revenues  are  recognized  in equal  installments  over the  terms of the
leases.  Due to the fact that the Partnership  received  greater payments in the
beginning  of the  lease  than at the end of the  lease  under  the terms of the
leases in effect at the time of the TWA bankruptcy  filing (the Previous Leases)
(See Note 5), this has resulted in deferred income on the balance sheet.

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 as liabilities  when received and
balances  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 or loss, allocated in
accordance with the Partnership  Agreement,  and the number of units outstanding
of 499,910 for the year ended December 2002, 499,966 for the year ended December
2001, and 499,973 for the year ended December 2000.

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



3.       Aircraft

At December 31, 2002, the  Partnership  owned a portfolio of six used commercial
jet aircraft that are leased to TWA LLC, four used  commercial jet aircraft held
for  sale,  and  spare  parts  inventory  out of its  original  portfolio  of 30
aircraft,  which were acquired,  leased or sold as discussed below. All aircraft

                                       24
<PAGE>

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. 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.  The spare  parts are carried at book value of zero as
of December 31, 2002.

The following table describes the Partnership's  aircraft  portfolio at December
31, 2002:

                                                                  Year of
Aircraft Type                        Serial Number              Manufacture
-------------                        -------------              -----------
McDonnell Douglas DC-9-30              47107                      1968
McDonnell Douglas DC-9-30              47135                      1968
McDonnell Douglas DC-9-30              47137                      1968
McDonnell Douglas DC-9-30              47249                      1968
McDonnell Douglas DC-9-30              47251                      1968
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

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.  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. 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.  As a  result  of the  bankruptcy  of  TWA in  2001,  modified  terms  and
conditions  were  accepted  that  were   substantially  less  favorable  to  the
Partnership than the terms and conditions  specified in the Previous Leases (see
Note 5). In  particular,  rather than  returning the Aircraft at the  previously
scheduled expiry date under the Previous Leases,  TWA LLC, who, in 2001, assumed
eleven of the fourteen  then existing TWA leases of the  Partnership's  aircraft
under modified terms,  would return each Aircraft at the time when such Aircraft
requires a heavy maintenance check of the airframe,  provided that the aggregate
average  number of months for which all eleven  Aircraft are on lease to TWA LLC
is not less than 22 months from and after March 12, 2001.  In addition,  TWA LLC
reduced the rental rate for each of the Aircraft to $40,000 per month.  Further,
at lease expiry,  TWA LLC is required to return each airframe in a "serviceable"
condition,  rather than being  required to meet the more  stringent  maintenance
requirements of the Previous Leases.  Finally, TWA LLC is required to return the
installed  engines on each  Aircraft  with a target level of average  cycle life
remaining to replacement for all life limited parts of 25%. If the average cycle
life  remaining on the installed  engines on an Aircraft is below the 25% target
level, a financial  adjustment is payable by TWA LLC to the Partnership  (but no
payment will be owed by the  Partnership  to TWA LLC if cycle life  remaining at
return  exceeds  the  target  level).  For the  four  aircraft  returned  to the
Partnership  during  2002,  $191,615  was paid by the lessee for  engines  being
returned below such target levels.

                                       25
<PAGE>


The following is a schedule by year of future minimum rental revenue:

                Year                                  Amount
                ----                                  ------

                2003                                 1,453,333
                                                    ----------

                Total                               $1,453,333
                                                    ==========

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. 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 net book values and
residual  value of its  aircraft  as of  September  30,  2001 as a result of the
anticipated  sale of  three  aircraft  to  Aeroturbine.  After a  review  of the
carrying  value of the Aircraft  pursuant to  applicable  accounting  literature
including SFAS 121, the  Partnership  recognized an impairment loss as increased
depreciation  expense in 2001 of  approximately  $200,000  or $0.41 per  Limited
Partnership unit. The Partnership  recorded impairment losses to the extent that
the carrying value exceeded the  anticipated  sales price less expected costs to
sell.  Management believes the assumptions related to the fair value of impaired
assets  represented  the best  estimates  based on  reasonable  and  supportable
assumptions and projections.

The  Partnership  recognized an impairment loss on aircraft held and used by the
Partnership  aggregating  approximately  $15  million,  or  $30.09  per  Limited
Partnership unit as increased  depreciation expense in 2000. The impairment loss
was the result of the TWA  bankruptcy  and the modified  lease terms proposed by
American as discussed in Note 5, which  constituted  an event that  required the
Partnership  to review the  aircraft  carrying  values  pursuant to SFAS 121. In
determining the impairment  loss, the Partnership  estimated fair value based on
the  present  value  of the  estimated  future  net cash  flows of the  aircraft
(projected  rental revenue,  net of management fees, less projected  maintenance
costs, if any, plus the estimated residual value) using the current  incremental
borrowing rate as the discount rate.


4.       Sale of Aircraft

On October 19, 2001,  PIMC,  on behalf of the  Partnership,  sold three  DC-9-30
aircraft to  Aeroturbine,  Inc. for $565,000  cash. The  Partnership  recognized
neither a loss nor a gain on the transaction due to an impairment  expense being
taken on these aircraft  during 2001 in  anticipation  of the sales. On February
13, 2002, the General  Partner sold one DC-9-30 to Amtec Corp for $250,000 for a
gain of $65,000.


5.       TWA Bankruptcy Filing and Transaction with American Airlines

Trans World Airlines, Inc. (TWA) filed a voluntary petition in the United States
Bankruptcy  Court  of the  District  of  Delaware  (the  Bankruptcy  Court)  for
reorganization  relief under  Chapter 11 of the  Bankruptcy  Code on January 10,
2001. One day prior to filing its bankruptcy petition, TWA entered into an Asset
Purchase Agreement with American Airlines, Inc. (American) that provided for the
sale to American of substantially all of TWA's assets and permitted  American to
exclude certain TWA contracts (including aircraft leases) from the assets of TWA
to be acquired by American. On February 28, 2001, American presented the General

                                       26
<PAGE>

Partner with a written  proposal to assume,  on modified  terms and  conditions,
eleven of the fourteen then existing leases (collectively, the Previous Leases).
The General Partner decided to accept American's proposal.

On April 9,  2001,  the  American  acquisition  of the  selected  TWA assets was
consummated.  As a result of this closing,  TWA LLC, assumed the Previous Leases
applicable to eleven of the fourteen Aircraft, and simultaneously, such Previous
Leases were amended to  incorporate  modified  terms (as so assumed and amended,
the Assumed Leases).  The Assumed Leases are substantially less favorable to the
Partnership than the Previous Leases. In particular, the monthly rental rate for
each Aircraft was reduced from $85,000 to $40,000, and the reduced rate was made
effective  as of March  12,  2001 by a rent  credit  granted  to TWA LLC for the
amount of rent  above  $40,000  previously  paid by TWA in respect of the period
from and after March 12, 2001.  In addition,  the term of each Assumed  Lease is
scheduled to expire at the time of the next scheduled heavy maintenance check of
the applicable Aircraft,  compared to the scheduled expiry dates of November 27,
2004 and February 7, 2005 under the Previous Leases, provided that the aggregate
average  number of months for which all eleven  Aircraft are on lease to TWA LLC
were not less  than 22 months  from and  after  March  12,  2001.  Finally,  the
maintenance  condition  of the  aircraft to be met at lease  expiry was eased in
favor of TWA LLC, as compared to the corresponding conditions required under the
Previous Leases.

With respect to the three  Aircraft  that TWA LLC did not elect to acquire,  TWA
officially   rejected  the  Previous   Leases   applicable  to  these   Aircraft
(collectively,  the Rejected Leases) as of April 20, 2001. One of these aircraft
was  leased  to TWA for the  period  of March  12,  2001 to April  12,  2001 for
$85,000.  All three Aircraft have been returned to the Partnership.  As aircraft
were  returned to the  Partnership  they were parked in storage in Arizona while
the General  Partner  remarketed  them for sale. The three aircraft were sold on
October 19, 2001,  for $565,000,  resulting in neither a gain nor a loss for the
Partnership.  In addition,  the General  Partner has filed  administrative  rent
claims in the amount of $422,989 in the TWA  bankruptcy  proceeding in an effort
to recover the fair value of TWA's  actual use, if any, of these three  Aircraft
under the Rejected Leases during the 60-day period following TWA's filing of its
bankruptcy petition.  These administrative rent claims have been approved by the
estate with the plan of  reorganization  on June 25, 2002 (the Plan) and will be
paid to the Partnership through periodic  distributions over the next one to two
years. These funds will be recognized on a cash basis as they are received.  The
General Partner also filed administrative claims in the amount of $95,359 in the
TWA bankruptcy  proceeding in connection with certain legal expenses incurred by
the Partnership in connection with the bankruptcy  proceeding which were settled
for $73,448 with the estate under the Plan.  The  settlement was received by the
Partnership on September 26, 2002.  Furthermore,  the General  Partner has filed
general  unsecured  claims for damages arising from TWA's breach of the Rejected
Leases.  However, there can be no assurances as to whether, or when, the General
Partner  will be  successful  in  asserting  the value of the general  unsecured
claims or be able to collect any amounts out of the TWA bankruptcy estate.

The Accounting  Treatment of the TWA  Transaction
In accordance with GAAP, the Partnership recognized rental income and management
fees on a straight  line basis over the  original  lease  terms of the  Previous
Leases. As a result,  deferred revenue and accrued management fees were recorded
each month since the inception of each Previous Lease,  resulting in balances of
deferred  rental income and accrued  management fees of $5,068,954 and $232,533,
respectively,  as of March 12, 2001.  Since the Previous Leases were effectively
modified on March 12,  2001,  the  Partnership  is  recognizing  the balances of
deferred revenue and accrued  management fees over the new lease terms, from the
date the leases were  modified.  For the three  Rejected  Leases,  the  deferred
revenue and accrued  management  fees  amounting  to $950,130  and $38,432  were
recognized as rental revenue and a reduction of management fee, respectively, in
March 2001. For the Assumed Leases,  the deferred revenue and accrued management

                                       27
<PAGE>

fees  associated  with each  Aircraft  are being  recognized  over the new lease
terms,  ranging from 4 months to 30 months as of March 31, 2001.  As of December
31, 2002, the  Partnership  had a deferred  revenue  balance of $475,788,  and a
deferred  management fee balance of $22,058 included in Payable to Affiliates on
the Balance  Sheet,  which will be recognized  over the  remaining  lives of the
aircraft leases, up to 9 months.


6.       Notes Payable

In 1996,  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  formerly 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.
All of these leases were  modified due to TWA's  bankruptcy in 2001 as discussed
above.

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  on all the loans was $0,  $12,841,  and
$336,367 in 2002,  2001 and 2000,  respectively.  The notes were completely paid
off in 2001.


7.       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.

In May of 1998,  Braniff's bankrupt estate made a $200,000 payment in respect of
the unsecured  claims of the Partnership and other  affiliates of PIMC, 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 PIMC, of which $6,462 was  allocated to the  Partnership  based on
its pro rata share of the total claims. On January 16, 2001,  Braniff's bankrupt
estate  made a  $110,890  payment  in  respect  of the  unsecured  claims of the

                                       28
<PAGE>

Partnership  and other  affiliates of PIMC, of which $8,530 was allocated to the
Partnership based on its pro rata share of the total claims.  Braniff's bankrupt
estate has made its final distribution and this matter is now closed.


8.       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 2002,  2001, and 2000, the Partnership paid management fees to
         PIMC of $490,933,  $-0-, and $420,000,  respectively.  Management  fees
         payable to PIMC at December 31, 2002 and 2001 were $34,925 and $399,799
         respectively.

b.       Reimbursement of certain out-of-pocket  expenses incurred in connection
         with the management of the  Partnership  and supervision of its assets.
         In 2002, 2001, and 2000, $384,423, $475,321 and $390,268, respectively,
         were reimbursed by the Partnership to PIMC for administrative and legal
         expenses.  Administrative and legal  reimbursements of $-0- and $84,888
         were   payable   at   December   31,   2002  and  2001,   respectively.
         Reimbursements for operational costs of $335,851,  $392,194,  and $-0-,
         were paid by the  Partnership  in 2002,  2001 and  2000,  respectively.
         Operational  reimbursements  of $46,226 and  $152,965,  were payable at
         December 31, 2002 and 2001, respectively.

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
         original  aircraft cost,  gains from additional sales or disposals must
         be allocated to the General Partner's capital account until the General
         Partner's capital account is no longer in a deficit position.

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 9).

                                       29
<PAGE>



9.       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 8). Such  allocations are made using income or loss  calculated  under
GAAP for book purposes,  which,  as more fully described in Note 11, 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.  Cash  distributions  paid in 2002 were $555,518 and $4,999,659 to the
General  Partner  and the  Limited  Partners,  respectively.  In  January  2003,
distributions  of $694,319 and $6,248,875  were paid to the General  Partner and
the Limited Partners, respectively.

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, 2002 at
the current  carrying  value,  the tax basis capital  (deficit)  accounts of the
General  Partner and the Limited  Partners is  estimated  to be  $(941,668)  and
$43,521,639, respectively.


10.      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,  2002 and 2001 are as
follows:

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

2002:    Assets            $ 13,905,238         $ 43,177,964       $(29,272,726)
         Liabilities          1,108,705              597,992            510,713

2001:    Assets            $ 19,794,199         $ 47,204,681       $(27,410,482)
         Liabilities          3,256,112              856,441          2,399,671

                                       30
<PAGE>


11.      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,

                                                   2002      2001      2000
                                                   ----      ----      ----

Book net income (loss) per Limited
  Partnership unit                               $  2.56   $  6.29   $(16.64)
Adjustments for tax purposes represent
   differences between book and tax
   revenue and expenses:
     Rental revenue                                (3.02)    (5.93)     3.53
     Management fee expense                        (0.72)     0.25      0.13
     Depreciation                                   3.77      5.05     34.08
     Loss on sale of aircraft or inventory          --       (1.56)     --
                                                 -------   -------   -------

Taxable net income per Limited Partnership unit  $  2.59   $  4.10   $ 21.10
                                                 =======   =======   =======

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 on a
straight line basis for operating  leases.  For tax purposes,  certain temporary
differences  exist in the  recognition of revenue which is generally  recognized
when received.  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.

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
less 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.


12.      Selected Quarterly Financial Data (unaudited)

The following is a summary of the quarterly  results of operations for the years
ended December 31, 2002 and 2001:

                                       31
<PAGE>


         2002               March 31         June 30     Sept. 30       Dec. 31
                            --------     -----------  -----------   -----------

Total Revenues              $ 1,869,320  $ 1,475,293  $ 1,425,232   $ 1,142,467
Net Income                  $   638,011  $   408,164  $   479,664   $   287,784
Net Income - General
  Partner                   $   519,800  $     4,083  $     4,796   $     2,878
Net Income - Limited
  Partners                  $   118,211  $   404,081  $   474,868   $   284,906
Net Income Per Limited
Partnership Unit            $      0.24  $      0.81  $      0.95   $      0.56


         2001                  March 31      June 30     Sept. 30       Dec. 31
                            -----------  -----------  -----------   -----------

Total Revenues              $ 3,687,526  $ 2,486,139  $ 2,099,481   $ 1,761,705
Net Income                  $ 2,383,097  $   989,000  $   595,342   $   358,070
Net Income - General
  Partner                   $   248,796  $   197,362  $   608,360   $   128,562
Net Income (Loss) -
  Limited Partners          $ 2,134,301  $   791,638  $   (13,018)  $   229,508
Net Income (Loss) Per
  Limited Partnership Unit  $      4.27  $      1.58  $     (0.03)  $      0.47



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

On August 1, 2002,  the Board of  Directors  of the  general  partner of Polaris
Aircraft Income Fund II, A California Limited Partnership (the Partnership),  on
behalf of the Partnership,  adopted a resolution  dismissing Arthur Andersen LLP
(Andersen) as the  Partnership's  auditors and appointed Ernst & Young LLP (E&Y)
to replace Andersen.

Andersen's reports on the Partnership's  financial statements as of and for each
of the years ended December 31, 2001 and 2000 did not contain an adverse opinion
or disclaimer of opinion, nor were they qualified or modified as to uncertainty,
audit scope or accounting principles.

During the years ended  December  31, 2001 and 2000 and through the date hereof,
there were no disagreements with Andersen on any matter of accounting principles
or practices,  financial  statement  disclosure,  or auditing scope or procedure
which, if not resolved to Andersen's satisfaction, would have caused Andersen to
make  reference  to the  subject  matter in  connection  with its  report on the
Partnership's  financial statements for such years; and there were no reportable
events as described in Item 304(a)(1)(v) of Regulation S-K.

During the years ended  December  31, 2001 and 2000 and through the date hereof,
the  Partnership  did  not  consult  E&Y  with  respect  to the  application  of
accounting principles to a specified transaction,  either completed or proposed,
or the  type of  audit  opinion  that  might be  rendered  on the  Partnership's
financial statements,  or any other matters or reportable events as set forth in
Items 304(a)(2)(i) and (ii) of Regulation S-K.

The Partnership has provided  Andersen with a copy of the foregoing  statements.
Because the Partnership has been informed by Andersen that as of July 1, 2002 it
would not be providing  the letter  stating  that it was in  agreement  with the
statements  contained  herein,  no such  letter is attached to this filing as an


                                       32
<PAGE>

Exhibit.  The  inability to obtain such letter from Andersen and not attaching a
letter to this filing is permitted by Item 304T(b)(2) of Regulation S-K.

                                       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 Delaware
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
         -------------------        ------------------------------------

         William Carpenter          President; Director
         Stephen E. Yost            Chief Financial Officer
         Melissa Hodes              Vice President; 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.  Carpenter,  39,  assumed the  position of  President  and  Director of PIMC
effective  October 1, 2001. Mr.  Carpenter  holds the position of Executive Vice
President and Chief Risk Manager of GECAS,  having  previously held the position
of Vice President - Chief Risk Manager of GECAS (Acting). Prior to joining GECAS
eight  years ago,  Mr.  Carpenter  was an  aerospace  engineer  specializing  in
aircraft  handling  qualities.  Prior to that, Mr.  Carpenter was a commissioned
officer and pilot in the United States Armed Forces.

Mr. Yost 41, assumed the position of Chief  Financial  Officer of PIMC effective
April 17, 2002. Mr. Yost  presently  holds the position of Senior Vice President
and Manager  Transaction  Advisory for GECAS.  Mr Yost has been with the General
Electric Company (GE) and its  subsidiaries  since 1994. Prior to joining GECAS,
Mr. Yost held the position of European  Controller for GE Capital Fleet Services
and prior to that  Controller of GE Capital  Commercial  Finance.  Mr. Yost is a
Certified  Public  Accountant  and prior to joining GE was an audit manager with
Coopers & Lybrand.

Ms. Hodes,  37, assumed the position of Director of PIMC effective May 19, 2000.
Ms.  Hodes  presently  holds the  position of Senior Vice  President,  Financial
Planning and Analysis  for GECAS.  Ms. Hodes has been with the General  Electric
Company (GE) and its subsidiaries  since 1987. Prior to joining GECAS, Ms. Hodes
held various financial  management  positions with GE Capital Card Services,  GE
Audit Staff and GE Power Systems.

                                       34
<PAGE>


Mr. Liu, 45,  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 - Sales and  Marketing  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 for General Electric Capital  Corporation and in
Syndications and Leasing for the Transportation & Industrial Funding division of
General  Electric Capital  Corporation.  Mr. Liu previously held the position of
managing director of Kidder, Peabody & Co., Incorporated.

Mr. Warman,  54,  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,  61,  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

                                       36
<PAGE>

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.

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.

Sara J.  Bishop,  et al. v.  Kidder,  Peabody & Co., et al.,  Superior  Court of
California,  County of Sacramento;  Wilson et al. v. Polaris  Holding Company et
al.,  Superior  Court  of  California,  County  of  Sacramento,  and  ten  other
California  Actions(1) - In the California actions filed in 1996,  approximately
4000  plaintiffs who purchased  limited  partnership  units in Polaris  Aircraft
Income Funds I through VI and other limited partnerships sold by Kidder, Peabody
named Kidder,  Peabody,  KP Realty  Advisors,  Inc.,  Polaris  Holding  Company,
Polaris Aircraft Leasing Corporation, Polaris Investment Management Corporation,
Polaris  Securities  Corporation,  Polaris Jet Leasing,  Inc., Polaris Technical
Services,  Inc., General Electric Company,  General Electric Financial Services,
Inc.,  General  Electric  Capital  Corporation,   and  General  Electric  Credit
Corporation  and Does 1-100 as defendants.  The  Partnership  was not named as a
defendant in these actions. The complaints all allege violations of state common
law, including fraud, negligent misrepresentation, breach of fiduciary duty, and
violations of the rules of the National  Association of Securities Dealers.  The
complaints  seek to recover  compensatory  damages  and  punitive  damages in an
unspecified  amount,  interest,  and rescission with respect to Polaris Aircraft
Income Funds III-VI and all other limited partnerships alleged to have been sold
by Kidder Peabody to the plaintiffs.  The California  actions have been settled.
An  additional  settlement  was entered  into with  certain  plaintiffs  who had
refused to participate in the first settlement.  Plaintiffs' counsel advised the
Court that they would  withdraw from  representing  the remaining  plaintiffs --
approximately 330 -- who refused to participate in either of the settlements. In
July, 2000,  plaintiffs'  counsel  submitted to the Court motions to withdraw as
counsel  of record for all of the  actions.  The Court  indicated  that it would
grant such motions and thereafter would consider  dismissing each of the actions
if no  plaintiff  came  forward  to  prosecute.  On  August 2,  2001,  the Court
conducted a series of status  conferences in connection  with each of the twelve
California  actions  and at the  conferences  dismissed  most  of the  remaining
plaintiffs in those actions.  On November 9, 2001,  defendants moved for summary
judgment  against most of the remaining  plaintiffs  based upon a settlement and
bar order entered in a  multi-district  litigation in 1997. On March 1, 2002 the
judge granted the defendants'  summary  judgment motions and on August 15, 2002,
the judge entered a judgment of dismissal in each of the California actions.

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.

--------
1 The ten other actions are Abrams,  et al. v. Polaris Holding Company,  et al.,
Elphick,  et al. v. Kidder  Peabody & Co., et al.,  Johnson,  et al. v.  Polaris
Holding  Company,  et al.,  Kuntz, et al. v. Polaris  Holding  Company,  et al.,
McDevitt, et al. v. Polaris Holding Company, et al., Ouellette, et al. v. Kidder
Peabody & Co., et al., Rolph, et al. v. Polaris Holding  Company,  et al., Self,
et al. v. Polaris Holding Company,  et al.,  Tarrer,  et al. v. Kidder Peabody &
Co., et al.,  Zicos,  et al. v. Polaris  Holding  Company,  et al., all filed in
Superior Court of California, County of Sacramento.


                                       37
<PAGE>



Item 11.      Executive Compensation

The  Partnership  has no directors or officers.  The  Partnership  is managed by
PIMC, the General  Partner.  In connection  with management  services  provided,
management  and advisory fees of $490,933 were paid to PIMC in 2002, in addition
to a 10%  interest  in all  cash  distributions  as  described  in Note 8 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 the  Partnership  to own
         beneficially,  more than five percent of any class of voting securities
         of the Partnership.

     b)  The General  Partner of the Partnership  owns the equity  securities of
         the Partnership 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 of         100%
Partner     Management            all cash distributions, gross
Interest    Corporation           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 the  Partnership,  including  any
         pledge by any person of securities of the Partnership, the operation of
         which may at a  subsequent  date  result in a change in  control of the
         Partnership.


Item 13.      Certain Relationships and Related Transactions

None.


Item 14.      Controls and Procedures

PIMC  management,  including  the Chief  Executive  Officer and Chief  Financial
Officer,  have  conducted  an  evaluation  of the  effectiveness  of  disclosure
controls and  procedures  pursuant to Exchange  Act Rule  13a-14.  Based on that
evaluation,  the Chief Executive  Officer and Chief Financial  Officer concluded
that the  disclosure  controls and procedures are effective in ensuring that all
material  information  required to be filed in this annual  report has been made
known to them in a timely  fashion.  There have been no  significant  changes in
internal  controls,  or in factors  that  could  significantly  affect  internal
controls, subsequent to the date the Chief Executive Officer and Chief Financial
Officer completed their evaluation.

                                       38
<PAGE>

                                     PART IV

Item 15.      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 Auditors                           17
                  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,
         2002.

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

         99.1 Certification of President.

         99.2 Certification of Chief Financial Officer.

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.



                                       39
<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 31, 2003                        By:  /S/ William Carpenter
---------------------------                       ---------------------
         Date                                     William Carpenter, 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/William Carpenter    President and Director of Polaris         March 31, 2003
--------------------    Investment Management Corporation,        --------------
(William Carpenter)     General Partner of the Registrant

/S/Stephen E. Yost      Chief Financial Officer of Polaris        March 31, 2003
------------------      Investment Management Corporation,        --------------
(Stephen E. Yost)       General Partner of the Registrant

/S/Melissa Hodes        Vice President and Director of            March 31, 2003
----------------        Polaris Investment Management             --------------
(Melissa Hodes)         Corporation, General Partner of the
                        Registrant

/S/Norman C. T. Liu     Vice President and Director of            March 31, 2003
-------------------     Polaris Investment Management             --------------
(Norman C. T. Liu)      Corporation, General Partner of the
                        Registrant



                                       40
<PAGE>


                        POLARIS AIRCRAFT INCOME FUND II,
                        A California Limited Partnership

                           CERTIFICATIONS PURSUANT TO
                                 SECTION 302 OF
                         THE SARBANES-OXLEY ACT OF 2002

CERTIFICATION

I, William R. Carpenter, certify that:

1. I have reviewed this annual  report on Form 10-K of Polaris  Aircraft  Income
Fund II (A California Limited Partnership);

2.  Based on my  knowledge,  this  annual  report  does not  contain  any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4.  The  registrant's  other  certifying  officers  and  I are  responsible  for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

         a) designed  such  disclosure  controls and  procedures  to ensure that
         material  information relating to the registrant is made known to us by
         others,  particularly  during the period in which this annual report is
         being prepared;

         b) evaluated the effectiveness of the registrant's  disclosure controls
         and  procedures as of a date within 90 days prior to the filing date of
         this annual report (the Evaluation Date); and

         c)  presented  in  this  annual  report  our   conclusions   about  the
         effectiveness  of the disclosure  controls and procedures  based on our
         evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation,  to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):

         a) all significant  deficiencies in the design or operation of internal
         controls  which  could  adversely  affect the  registrant's  ability to
         record,   process,   summarize  and  report  financial  data  and  have
         identified  for the  registrant's  auditors any material  weaknesses in
         internal controls; and

         b) any fraud,  whether or not  material,  that  involves  management or
         other  employees  who  have a  significant  role  in  the  registrant's
         internal controls; and

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<PAGE>


6. The  registrant's  other  certifying  officers  and I have  indicated in this
annual report whether there were significant  changes in internal controls or in
other factors that could  significantly  affect internal controls  subsequent to
the date of our most recent  evaluation,  including any corrective  actions with
regard to significant deficiencies and material weaknesses.

Date: March 31, 2003

By:   Polaris Investment Management Corporation,
      General Partner

/s/ William R. Carpenter
------------------------
William R. Carpenter
President



                                       42
<PAGE>

CERTIFICATION
-------------

I, Stephen E. Yost, certify that:

1. I have reviewed this annual  report on Form 10-K of Polaris  Aircraft  Income
Fund II (A California Limited Partnership);

2.  Based on my  knowledge,  this  annual  report  does not  contain  any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4.  The  registrant's  other  certifying  officers  and  I are  responsible  for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

         a) designed  such  disclosure  controls and  procedures  to ensure that
         material  information relating to the registrant is made known to us by
         others,  particularly  during the period in which this annual report is
         being prepared;

         b) evaluated the effectiveness of the registrant's  disclosure controls
         and  procedures as of a date within 90 days prior to the filing date of
         this annual report (the Evaluation Date); and

         c)  presented  in  this  annual  report  our   conclusions   about  the
         effectiveness  of the disclosure  controls and procedures  based on our
         evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation,  to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):

         a) all significant  deficiencies in the design or operation of internal
         controls  which  could  adversely  affect the  registrant's  ability to
         record,   process,   summarize  and  report  financial  data  and  have
         identified  for the  registrant's  auditors any material  weaknesses in
         internal controls; and

         b) any fraud,  whether or not  material,  that  involves  management or
         other  employees  who  have a  significant  role  in  the  registrant's
         internal controls; and


                                       43
<PAGE>

6. The  registrant's  other  certifying  officers  and I have  indicated in this
annual report whether there were significant  changes in internal controls or in
other factors that could  significantly  affect internal controls  subsequent to
the date of our most recent  evaluation,  including any corrective  actions with
regard to significant deficiencies and material weaknesses.

Date: March 31, 2003

By:   Polaris Investment Management Corporation,
      General Partner

/s/ Stephen E. Yost
-------------------
Stephen E. Yost
Chief Financial Officer



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