SECURITIES AND EXCHANGE COMMISSION

                              Washington, DC 20549

                                    FORM 10-K
                                    ---------

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

For the fiscal year ended                     December 31, 1999
                          ------------------------------------------------------

                                       OR

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

For the transition period from _______________________ to ______________________

Commission file number                              0-18387
                       ---------------------------------------------------------

                       Pegasus Aircraft Partners II, L.P.
                       ----------------------------------
             (Exact name of Registrant as specified in its charter)

              Delaware                               84-1111757
              --------                               ----------
       (State of organization)                      (IRS employer
                                                  Identification No.)

   Four Embarcadero Center, 35th Floor
       San Francisco, California                                        94111
---------------------------------------                               ---------
(Address of principal executive offices)                             (Zip Code)

        Registrant's telephone number, including area code (415) 434-3900
                                                           --------------

        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
                                (Title of Class)

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

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

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

                       This document consists of 47 pages.
<PAGE>
                       Pegasus Aircraft Partners II, L.P.
                       Annual Report on Form 10-K for the
                       Fiscal Year Ended December 31, 1999

                                Table of Contents

                                                                           Page
                                                                           ----
PART I
------

Item 1    Business...........................................................3
Item 2    Properties.........................................................8
Item 3    Legal Proceedings..................................................8
Item 4    Submission of Matters to a Vote of Unit Holders....................8

PART II
-------

Item 5    Market for Registrant's Common Partnership Capital and Related
            Unitholder Matters...............................................9
Item 6    Selected Financial Data...........................................10
Item 7    Management's Discussion and Analysis of Financial Condition
             and Results of Operations......................................10
Item 8    Financial Statements..............................................15
Item 9    Changes in and Disagreements with Accountants on Accounting
             and Financial Disclosure.......................................33

PART III
--------

Item 10   Directors and Executive Officers of the Registrant................34
Item 11   Executive Compensation............................................35
Item 12   Security Ownership of Certain Beneficial Owners and Management....36
Item 13   Certain Relationships and Related Transactions....................37

PART IV
-------

Item 14   Exhibits, Financial Statement Schedules and Reports on Form 8-K...38


                                       2
<PAGE>


                                     PART I

ITEM 1.       BUSINESS

General

         Pegasus   Aircraft   Partners  II,  L.P.  (the   "Partnership"  or  the
"Registrant") is a limited partnership  organized under the laws of the State of
Delaware on April 26, 1989. The general  partners of the Partnership are Pegasus
Aircraft  Management  Corporation,  the Managing General  Partner,  a California
corporation  that is a wholly owned  subsidiary of Pegasus Capital  Corporation,
and Air Transport Leasing,  Inc., the Administrative General Partner, a Delaware
corporation  that is a wholly  owned  subsidiary  of Paine  Webber  Group,  Inc.
(collectively, the "General Partners").

         On August 15, 1989, the  Partnership  commenced an offering of units of
limited partnership interest ("Units"). The offering of the Units was terminated
during  the  third  quarter  of  1990,  when  the  total  capitalization  of the
Partnership  reached $145.1  million.  The Partnership  incurred  $16,295,000 of
commissions and other expenses in connection with the sale of these Units.

         Although  the   Partnership  was  organized  on  April  26,  1989,  the
Partnership  conducted no  activities  and  recognized  no revenues,  profits or
losses  prior to  September  20,  1989 at which time the  Partnership  commenced
operations.  During the period  between  September 21, 1989 and August 22, 1990,
the  Partnership  acquired its portfolio of used  commercial  aircraft which are
principally  subject to triple net  operating  leases with  domestic and foreign
commercial air carriers.

         The  Partnership  is  required to dissolve  and  distribute  all of its
assets no later than December 31, 2007. The Partnership  had the right,  subject
to certain conditions, to reinvest the proceeds from sales of aircraft occurring
prior to August 21, 1998.  The net proceeds of any future sales of aircraft will
be utilized  to retire  debt with the  remainder  utilized  for working  capital
purposes.

Outlook for the Airline and Aircraft Leasing Industries

         Although  not a record year,  the US airline  industry had a profitable
year in 1999 that continued the industry's sustained trend of profitability. The
industry  also accepted  delivery of a record number of new aircraft  which also
put pressure on profitability.

         Fuel prices have  continued to rise during 1999 and early 2000. If fuel
prices were to continue to rise to significantly  higher levels,  cost pressures
could  adversely  affect  airline  financial  performance,   particularly  those
airlines already experiencing cash flow difficulties.  Historically,  periods of
extraordinary  energy cost increases  have  corresponded  with general  economic
slowdown  and/or price  inflation,  which could have a further adverse affect on
air travel and airline performance.

         Due to concern regarding  potential  inflation,  the US Federal Reserve
Board has recently increased its key lending rate on a number of occasions in an
attempt to moderate economic  activity.  It is unclear as to the ultimate impact
on  the  level  of  economic  activity  of  these  rate  increases,  however,  a
significant  economic  slowdown  could have an adverse  affect on air travel and
airline performance.

         The supply of newer  aircraft has led to further  retirements  of older
aircraft,  such as those owned by the Partnership.  The full  implementation  of
Stage III noise standards by year-end 1999 also led to additional older Stage II
aircraft being retired.  The industry's  results  historically  have been highly
correlated to general economic activity.

         Trans World  Airlines,  Inc.  ("TWA")  which  accounted  for 19% of the
Partnership's revenues in 1999, announced its eleventh consecutive  unprofitable
year.  While TWA is replacing  older  aircraft with newer,  more  fuel-efficient
aircraft, its inability to achieve sustained profitability is of concern.

         The General Partners believe that installing  hushkits to achieve Stage
III noise  compliance  and the  conversion of three Boeing  727-200  aircraft to
freighters has improved marketability of the Partnership's portfolio.  Passenger
aircraft and freighter  aircraft  leasing  continues to be a highly  competitive
business  and the  Partnership's  lessees  also  continue  to  face  significant
challenges.

                                       3
<PAGE>

Aircraft Portfolio

         Immediately  below  is a  table  which  shows  the  December  31,  1999
appraised value of the Partnership's aircraft to be approximately $76.5 million,
or   approximately   48%   of   the   original   acquisition   cost   (excluding
acquisition-related  fees) plus related capital  expenditures.  Based in part on
these appraised  values,  the Partnership's net asset value at December 31, 1999
was equal to $5.87  per  Unit.  The net  asset  value  was  calculated  assuming
additional  expenditures of $11.8 million for the DC 10-10 freighter conversion.
The book  value of $4.4  million,  net of  maintenance  reserves,  for the A-300
aircraft  was  used in lieu of the  appraised  value  and $1.7  million  for the
L-1011, based on a prior offer. It should be noted that these are only estimates
of values as of that date, and not necessarily representative of the values that
will  ultimately be realized  when these  aircraft are disposed of nor does this
represent the values that may be realized upon the disposition of a Unit.

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


<TABLE>
<CAPTION>

                                                         Dec.      Current                                   Cumu-       Cumu-
                                   Owner-     Acqui-     1999       Lease     Original      Noise            lative      lative
   Current          Aircraft        ship      sition   Appraised Expiration   Delivery    Abatement          Flight      Flight
   Lessee             Type        Interest   Costs(1)  Value(2)   Date (3)      Date     Compliance          Hours(4)    Cycles(4)
   ------             ----        --------   --------  --------   --------      ----     ----------          --------    ---------
<S>              <C>                 <C>        <C>       <C>      <C>          <C>       <C>                <C>         <C>
                                                          (in millions)


Aerovias de
Mexico, S.A.     McDonnell
de C.V.          Douglas DC-9-31     100%       $ 8.9     $ 2.8    02/6/00      1970      Stage  II          66,683      62,740

Aerovias de
Mexico, S.A.     McDonnell
de C.V.          Douglas DC-9-31     100          8.9       2.8    02/25/00     1971      Stage  II          72,412      68,300

Kitty Hawk       Boeing 727-200
Aircargo, Inc    Freighter           100          9.2       8.5    12/6/06      1973      Stage  III (8)     75,710      52,256

TNT Transport    Boeing 727-200
Intl.  B.V.      Freighter           100          8.5       6.7    06/22/02     1973      Stage III (8)      73,047      51,734

(7)              McDonnell
                 Douglas DC10-10     100         18.7      15.4    (7)          1973      Stage III          83,838      30,433

(6)              Airbus Industrie
                 A300-B4-103         100         27.1       4.4    (6)          1979      Stage III          46,226      19,527

Falcon Air       Boeing 727-200
Express Inc.     Non-Advanced (8)    100         11.5       4.8    03/01/02     1970      Stage III (8)      77,340      56,910

Capital Cargo    Boeing 727-200
International    Freighter (8)       100         17.2      10.1    07/25/05     1973      Stage III (8)      61,314      32,107
Airlines Inc.

Trans World      McDonnell
Airlines.        Douglas MD-82       100         21.0      14.3    11/01/04     1983      Stage III          50,915      26,004

(9)              Lockheed
                 L-1011              100         17.7       1.7    (9)          1974      Stage III          61,209      22,907

USAirways        McDonnell
Group, Inc.      Douglas MD-81        50(5)      10.0       5.0     06/01/01    1982      Stage III          48,877      42,841
                                               ------     -----
                                               $158.7     $76.5
                                               ======     =====
</TABLE>

Notes: (1) Acquisition  costs do not include  related  acquisition  fees of $3.0
           million paid to the General Partners.  The cost amounts shown include
           aggregate  capital  expenditures,  net of retirements,  incurred from
           1993 to 1999 of $21  million.  This $21 million  does not include the
           $12.6 million in freighter  conversion costs scheduled for the second
           and  third  quarters  of 2000.  The total  cost  amount is net of the
           application of maintenance reserves of approximately $2.2 million.

       (2) The December 1999 appraised  values were determined by an independent
           aircraft  appraisal firm.  Appraised values include the present value
           of rents  due  under  leases in place  plus the  present  value of an
           estimated  residual  value for the  aircraft at the end of the lease,
           generally  assuming half time  condition.  The appraiser also assumes
           that  achieving  fair  market  value may  require  12 to 18 months of
           exposure to prospective  buyers.  It should be noted that  appraisals
           are only  estimates  of value and should not be relied on as measures
           of immediately  realizable value. A discount rate of 10% was utilized
           and  inflation  was assumed to be 2.5%.  The  appraised  value of the
           McDonnell  Douglas  DC 10-10  aircraft  assumes  it is in a freighter

                                       4
<PAGE>

           configuration  and includes the present value of the Emery lease. See
           Footnotes 6 and 9 for a discussion of the A-300 and L-1011 values.

       (3) Lease  expiration dates do not include renewal options unless already
           exercised. Discussions with Aeromexico regarding lease extensions are
           in progress.

       (4) The number of cumulative  flight cycles and  cumulative  flight hours
           shown  are  as of  December  31,  1999,  with  the  exception  of the
           McDonnell Douglas MD-81 leased to USAirways Group,  Inc., which is as
           of  January  6, 2000 and the  Boeing  727-200  leased  to Kitty  Hawk
           Aircargo, Inc., which is as of February 25, 2000.

       (5) The  remaining  one-half  beneficial  interest  is owned  by  Pegasus
           Aircraft Partners, L.P., an affiliated partnership.

       (6) Aircraft off lease at December 31,  1999.  The CF6-50C2  engines from
           this  aircraft,  were on short-term  leases to Viacao Aerea Sao Paulo
           S.A.  The value shown  represents  the book value of the aircraft and
           engines, net of maintenance  reserves.  The appraisal for an airframe
           in  need  of a  heavy  maintenance  check  and  engines  in  halftime
           condition was $5.9 million.

       (7) The extended lease with Continental expired on December 16, 1999. The
           Partnership will convert the McDonnell Douglas DC 10-10 aircraft to a
           freighter pursuant to an aircraft modification agreement for delivery
           to Emery  Worldwide  Airlines,  Inc.  ("Emery").  Conversion  work is
           expected to commence  in June 2000 and take  approximately  6 months.
           Appraisal  assumed the plane was converted to a freighter,  the Emery
           lease and the residual value at the end of the lease.

       (8) Federal Express hushkit installed.

       (9) Lease  terminated and aircraft  returned in October 1996. TWA prepaid
           the lease, on a discounted basis and paid the Partnership  $3,000,000
           in lieu of meeting  certain  lease  return  conditions.  The aircraft
           value  shown is based upon a purchase  offer  received  in the fourth
           quarter of 1998, which was not finalized.

         A  description  of the  principal  financial  terms  of the  leases  is
described in Item 8, which is incorporated herein by reference.

Significant Lessees

         The Partnership  leased its aircraft to eight  different  airlines (and
leased  engines  separately  to another)  during 1999.  Revenue from each of the
airlines  which  accounted for 10% or greater of the total rental revenue of the
Partnership during 1999 are as follows:

                                                                   Percentage of
                                                                       Total
          Airline                                                 Rental Revenue
          -------                                                 --------------

Continental Airlines, Inc.(2)                                          20%(1)
Trans World Airlines, Inc.                                             19%
Aerovias de Mexico S.A. de C.V.                                        15%
Capital Cargo International Airlines, Inc.                             14%
TNT Transport International B.V.                                       13%
USAirways Group Inc.                                                   10%

         (1) Includes the periodic  recognition  of amounts that were prepaid in
connection with certain lease settlements.

         (2)  Includes  rental  revenue  from  Continental  Micronesia,  Inc., a
subsidiary of Continental Airlines, Inc.

                                       5
<PAGE>

Safety Requirements and Aircraft Aging

         In  addition  to  registration,  the FAA  imposes  strict  requirements
governing  aircraft   inspection  and  certification,   maintenance,   equipment
requirements,  general  operating and flight rules (including limits on arrivals
and departures),  noise levels, certification of personnel and record keeping in
connection with aircraft  maintenance.  FAA regulations  establish standards for
repairs,  periodic  overhauls  and  alterations,  and require  that the owner or
operator of an aircraft  establish  an  airworthiness  inspection  program to be
carried out by certified mechanics.  Pursuant to the leases and FAA regulations,
no aircraft of the Partnership may be operated  without a current  airworthiness
certificate.

         The FAA periodically  reviews Service Bulletins which are issued by the
aircraft  manufacturers.  These  bulletins  focus on safety  problems  that have
developed during the aircraft's operation. The FAA may incorporate these Service
Bulletins in Airworthiness  Directives ("ADs"), which are mandates requiring the
airline to perform specific maintenance within a specified period of time.

         Aircraft aging is a significant issue in aircraft safety regulation. In
the past,  certain  aviation  incidents and accidents  raised  concerns over the
structural  integrity of older aircraft.  In 1989, in its "Report to Congress on
the Status of the U.S. Stage II Commercial  Aircraft Fleet," the FAA stated that
"no  correlation  has  been  established  between  the  chronological  age of an
aircraft and its  structural  airworthiness.  A more accurate  assessment of the
physical  "age" of an aircraft is the total  number of flight  cycles and flight
hours flown." A flight cycle is defined as one takeoff and one landing. A flight
cycle is important because of the added stress on the airframe, landing gear and
other  components  from repeated  takeoffs,  landings and  pressurization's.  As
different  types of aircraft have different  missions and carriers fly a variety
of  routes,   flight  cycles  can  vary  widely  among   aircraft  of  the  same
chronological  age.  In  general,   narrow-body  aircraft  which  are  used  for
short-haul  service will have greater  cycles per year than  wide-body  aircraft
used for  longer  routes.  Other  factors  which  contribute  to the aging of an
aircraft are the number of hours actually flown, the predominant  environment in
which an aircraft has flown, and its actual age in years.

         The FAA has  adopted  certain  ADs for  Boeing  and  McDonnell  Douglas
aircraft  models,  including  Boeing 727s,  737s and 747s and McDonnell  Douglas
DC-9s,  MD-80s and DC-10s, as well as Lockheed L-1011s and Airbus A-300s.  These
ADs make  mandatory  the periodic  replacement  or  modification  of  structural
materials,  fittings  and skin at  certain  times  in the  life of an  aircraft,
typically  when the aircraft  reaches a certain  number of flight  cycles or age
threshold.  Previously, these aircraft were subject only to periodic inspection,
and the  replacement  and  modification  of  materials  and parts was done where
deemed necessary. In addition, it is widely expected that foreign civil aviation
authorities,  especially  in Europe and Japan,  will adopt  similar  measures to
protect the structural integrity of older aircraft.

         These aging aircraft ADs will initially impact only a limited number of
older  aircraft,  but  additional  aircraft  will be covered as they  accumulate
time-and-service  and  reach  the  thresholds  for the  required  modifications.
Significantly,  in the case of each  aircraft  type, a  significant  majority of
replacements or modifications are mandated when a plane reaches a certain number
of flight cycles and relatively few required  replacements  are triggered when a
plane reaches a certain chronological age or number of flight hours.

         The following table  summarizes the age, flight cycle,  and flight hour
thresholds  for each  major  aircraft  type  under the ADs.  In  general,  these
thresholds  are based on the  "economic  design goal" of an  aircraft,  which is
typically  considered  to be the period of service  after  which an  increase in
maintenance  costs is  expected  to take  place in  order  to  assure  continued
operational  safety.  In addition,  the table provides an estimate by the FAA of
the costs of complying with all of the mandated  replacements and  modifications
of the ADs. It is important  to note that since most of the proposed  work under
the ADs is based on flight cycle thresholds,  those  lower-cycle  aircraft which
reach the aircraft  age or flight hour  thresholds  should  incur  significantly
lower AD compliance cost than the total amounts estimated below.

                                       6
<PAGE>
                              Aircraft      Flight       Flight      Estimated
         Aircraft               Age         Cycle        Hour           AD
           Type              Threshold    Threshold    Threshold       Costs
         --------            ---------    ---------    ---------     ---------
                               (Years)

Boeing 727                       20         60,000        N/A       $1,100,000
Boeing 737                       20         75,000        N/A          934,000
Boeing 747                       20*        20,000*       N/A        3,400,000
McDonnell Douglas DC-9           20        100,000     75,000           79,000
McDonnell Douglas MD-80          20         75,000     75,000            4,000
McDonnell Douglas DC-10         None        42,000     60,000          187,000

* Substantially cycle limited

         Flight  cycle  and  flight  hour   information   with  respect  to  the
Partnership's  aircraft are included in the aircraft  portfolio  table  included
earlier in Item 1.

         The FAA has  recently  issued an AD  relating  to  certain  Boeing  727
freighter conversions that requires strengthening of certain floor beams and the
installation  of  restraint  systems in the cargo  area.  The  General  Partners
estimate  the cost of  compliance  will not exceed  $100,000 per  aircraft.  For
discussion of the cost of compliance see TNT Transport  International  B.V., and
Capital  Cargo  International  Airlines,  Inc.  in  Footnote 5 to the  Financial
Statements.

         The  Partnership's  leases  generally  require  the lessees to bear the
costs of compliance  with ADs which require  action during the lease terms.  The
only  exceptions  relate to the  McDonnell  Douglas  DC-10  aircraft on lease to
Continental,  and the  two  McDonnell  Douglas  DC-9-31  aircraft  on  lease  to
Aeromexico.  Under certain  circumstances,  for these leases the  Partnership is
obligated  to share in the  costs of  complying  with  certain  ADs.  All of the
Partnership's  Boeing 727  aircraft  have had the major  calendar  modifications
performed as required.

         In 1999,  the FAA organized a two year  industry task force,  the Aging
Transport Systems Rulemaking Advisory Committee, to investigate  non-structural,
aging   aircraft   systems.   It  cannot  be   determined   at  this  time  what
recommendations, if any, will be made by the task force.

         Overall,  increased maintenance costs mandated for older aircraft has a
negative  impact on re-lease and resale values for these planes,  but mitigating
this,  compliance with the ADs should also serve to prolong the revenue lives of
the affected aircraft.

Aircraft Noise Regulations

         On November 5, 1990,  Congress  enacted into law the Airport  Noise and
Capacity Act of 1990 (the  "Act").  On  September  24, 1991,  the FAA issued the
final  rules of  implementation  for the Act.  The Act  provides  that  Stage II
aircraft will be phased out from  operation  within  United  States  airspace by
December 31, 1999.

         Implementing  regulations  proposed by the FAA required or require each
United States operator to increase its Stage III airplane fleet to 50 percent by
December  31, 1996;  to 75 percent by December  31, 1998,  and to 100 percent by
December 31, 1999.

         However,  the Act further  provides,  that if by July 1, 1999, at least
85% of an air carrier's fleet complies with Stage III noise levels,  the carrier
may apply for a waiver of the operational ban for the remaining  aircraft in the
operator's fleet until December 31, 2003. The application for such a waiver must
be submitted to the Secretary of the Department of  Transportation no later than
January 1, 1999 and must include a plan with firm orders for making all aircraft
operated by the air carrier  comply with Stage III noise  levels by December 31,
2003.

         Stage III hushkitting and re-engineering for the Boeing 727-200 and the
McDonnell  Douglas  DC-9-30  aircraft  have been approved by the FAA. All of the
Partnership's   Boeing  727-200  aircraft  have  had  Federal  Express  hushkits
installed.


                                       7
<PAGE>

         The European  Commission  has  promulgated  rules  relating to aircraft
noise that would ban aircraft that are modified  ("hushkitted") to achieve Stage
III noise  compliance from European  airspace after the year 2002. Such aircraft
cannot be added to European  fleets  after April of 1999.  It is unclear in what
manner and if such rules will achieve full implementation.

Competition

         The aircraft  leasing industry is highly  competitive.  The Partnership
competes  with  aircraft   manufacturers,   distributors,   airlines  and  other
operators,  equipment managers,  leasing companies,  financial  institutions and
other parties  engaged in leasing,  managing or  remarketing  aircraft,  many of
which have significantly greater financial resources and greater experience than
the  Partnership.  Such  competitors  may lease aircraft at lower rates than the
Partnership and provide benefits,  such as direct  maintenance,  crews,  support
services  and  trade-in  privileges,  which the  Partnership  does not intend to
provide. Competitors may include certain affiliates of the General Partners.

Employees

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

ITEM 2.       PROPERTIES

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

ITEM 3.       LEGAL PROCEEDINGS

         After  not  being  able  to  arrive  at  a  negotiated   settlement  of
outstanding  issues with VASP, the Partnership filed suit in May, 1999 in Brazil
and June, 1999 in Florida to repossess the two CF6-50C2 engines. It also sued in
Florida for unpaid rent, reserves and the repair of the engine in Florida, which
was damaged in January of 1999.  In  conjunction  with the Brazilian  suit,  the
Partnership  was  required  to post a letter of credit and the bank  issuing the
letter of credit  required the  segregation by the  Partnership of $371,000 in a
restricted cash account.

         The Brazilian Court ruled in May that the  Partnership  could repossess
the engine in Brazil,  although  that ruling was stayed until  September 3, 1999
after the completion of all of VASP's appeals.  The Partnership has the right to
export the  Brazilian  engine and is  working  with local  counsel to obtain the
necessary approval to do so.

         A trial was held in Florida in December  and January  2000 and an order
of the  court  favorable  to the  Partnership  with  respect  to  the  rent  and
maintenance  reserve  claims is  anticipated,  pending the  resolution of VASP's
appeals as to the proper  venue.  The  damaged  engine has been sent to a repair
facility in California and will be disassembled  for inspection when the Florida
court issues its final ruling as to  possession.  It is  anticipated  that there
will be an additional trial with respect to the damages.

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

         No matters  were  submitted  to a vote of the  Limited  Partners of the
Partnership, through the solicitation of proxies or otherwise, during the fourth
quarter of the fiscal year ended December 31, 1999.


                                       8
<PAGE>



                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON PARTNERSHIP CAPITAL AND RELATED UNIT
         HOLDER MATTERS

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

         As of March 1,  2000,  the  number of  Limited  Partners  of record was
approximately 7,653.

         The  Partnership  declared the following  distributions  to its Limited
Partners out of cash flow received from operations during 1999 and 1998:

                         Amount of
                       Distribution
     Period              Per Unit       Record Date             Payment Date
     ------            ------------     -----------             ------------

1st Quarter 1999            $.40        March 31, 1999          April 27, 1999
2nd Quarter 1999             .40        June 30, 1999           July 27, 1999
3rd Quarter 1999             .40        September 30, 1999      October 27, 1999
4th Quarter 1999             .30        December 31, 1999       January 19, 2000
1st Quarter 1998             .40        March 31, 1998          April 25, 1998
2nd Quarter 1998             .40        June 30, 1998           July 23, 1998
3rd Quarter 1998             .40        September 30, 1998      October 28, 1998
4th Quarter 1998             .40        December 31, 1998       January 27, 1999

         Total  distributions to all partners for 1999 and 1998 were declared as
follows (in thousands):


                                                          1999            1998
                                                          ----            ----

Limited Partners                                      $   10,883      $   11,608
General Partners                                             110             117
                                                      ----------      ----------
                                                      $   10,993      $   11,725
                                                      ----------      ----------

         Distributions  may be  characterized  for tax,  accounting and economic
purposes as a return of capital,  a return on capital,  or both.  The portion of
each cash  distribution  by a  partnership  which  exceeds its net income may be
deemed a return of  capital.  Based on the amount of net income  reported by the
Partnership   for  accounting   purposes,   approximately   92%,  84%  and  89%,
respectively, of the cash distributions paid to the partners for the years ended
December 31, 1999, 1998 and 1997 constituted a return of capital. Also, based on
the amount of cumulative net income  reported by the  Partnership for accounting
purposes,  approximately 84% of the cash distributions paid to the partners from
the inception of the Partnership  through December 31, 1999 constituted a return
of capital.  However,  the total actual return on capital over the Partnership's
life can be determined only at the termination of the Partnership after all cash
flows, including proceeds from the sale of the aircraft, have been realized.

         The Partnership paid out  distributions  relating to the fourth quarter
1999 on January 19, 2000 at the rate of $0.30 per Unit.  The $0.30 per Unit is a
decrease from the $0.40 per Unit  distributions paid for the third quarter 1999.
Delays in refinancing the Partnership's  debt have necessitated the reduction in
the  distribution.  As has historically been the case, the amount of future cash
distributions will be determined on a quarterly basis after an evaluation of the
Partnership's operating results and its current and expected financial position.


                                       9
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

         The following  selected  financial data of the  Partnership was derived
from the audited financial statements for the indicated periods. The information
set forth below should be read in conjunction with the  Partnership's  Financial
Statements  and Notes  thereto  and  "Management's  Discussion  and  Analysis of
Financial  Condition  and  Results  of  Operations"  included  in Items 8 and 7,
respectively, of this Form 10-K Report.

                                                   As of December 31,
                                               or Year Ended December 31,
                                               --------------------------
                                       1999     1998     1997     1996     1995
                                        (in thousands, except per unit amounts)

Rental Revenue                       $11,817  $12,424  $12,183  $15,231  $14,026
Net Income                               978    1,855    1,255    2,898    2,019
Net Income per Limited
  Partnership Unit                      0.11     0.22     0.17     0.40     0.28
Distributions per Limited
  Partnership Unit (1)                  1.50     1.60     1.60     1.60     1.60
Total Assets                          48,163   51,423   58,273   72,039   80,799
Notes Payable                         16,530   10,000    4,751    4,751    6,638
Partners' Capital                     24,185   34,200   44,070   54,540   63,367

(1)      The fourth  quarter  distribution  for each year was paid in January of
         the subsequent year.

         As  has  historically   been  the  case,  the  amount  of  future  cash
distributions will be determined on a quarterly basis after an evaluation of the
Partnership's operating results and its current and expected financial position.

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

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

Liquidity and Capital Resources

         The  Partnership  owns and manages a  diversified  portfolio  of leased
commercial  aircraft and makes  quarterly  distributions  to the partners of net
cash flow generated by operations.  In certain  situations,  the Partnership may
retain cash flow from operations to finance authorized capital expenditures.

         Cash  distributions   declared  and  cash  distributions  paid  by  the
Partnership were  approximately  $11 million for 1999 ($1.50 per Unit) and $11.7
million  ($1.60  per  Unit) for each of 1998 and  1997,  respectively.  Net cash
provided by operating  activities  was $10.4  million in 1999,  $11.7 million in
1998 and $9.5 million in 1997. In the aggregate, for this three-year period, net
cash   provided  by  operating   activities   totaled  $31.2  million  and  cash
distributions declared by the Partnership totaled $34.4 million.

         The Partnership paid distributions  relating to the fourth quarter 1999
on  January  19,  2000 at the rate of $0.30  per  Unit.  The $0.30 per Unit is a
decrease from the $0.40 per Unit  distributions paid for the third quarter 1999.
Delays in refinancing the Partnership's  debt have necessitated the reduction in
the  distribution.  As has historically been the case, the amount of future cash
distributions will be determined on a quarterly basis after an evaluation of the
Partnership's operating results and its current and expected financial position.

                                       10
<PAGE>


         Partnership capital declined by approximately $10,015,000 from December
31, 1998 to December 31, 1999 as a result of the declaration and payment of cash
distributions to the partners in excess of the  Partnership's  net income.  This
resulted  primarily from the fact that,  unlike net income,  cash flow generated
from  operations,  which  is the  source  of  the  cash  utilized  to  make  the
distributions,  is not reduced by non-cash  depreciation expense attributable to
the Partnership's aircraft.

         The  Partnership  invests working capital and cash flow from operations
prior  to  its  distribution  to  the  partners  in  short-term,  highly  liquid
investments  or a fund that invests in such  instruments.  At December 31, 1999,
the Partnership's  unrestricted cash and cash equivalents of $2,300,000 was held
in an interest bearing money market account.  This amount was $563,000 less than
the Partnership's unrestricted cash and cash equivalents at December 31, 1998 of
$2,863,000. This decrease in unrestricted cash was attributable to the amount by
which cash  distributions  to partners  and  capitalized  aircraft  improvements
exceeded  cash  generated  by  operating  activities,  including  the  unapplied
maintenance reserves, and proceeds from notes payable during 1999.

         Rent and other  receivables  decreased  by  $295,000  from  $491,000 at
December 31, 1998 to $196,000 at December 31, 1999.  This  decrease is primarily
the result of rentals  due from VASP,  which  were  netted  against  maintenance
reserves during 1999.  Also  contributing to this decrease was the completion of
payments relating to deferred rentals by Capital Cargo.

         TWA was  current  on its  lease  payments  in 1999,  but  reported  its
eleventh  consecutive  annual loss in 1999.  Although TWA had a cash position of
$180   million  at  December  31,  1999,   given  TWA's   historical   financial
difficulties, the ongoing losses increase the possibility of default or deferral
of lease payments by TWA,  which  accounted for 19% of the  Partnership's  lease
revenue in 1999.

         Due to its failure to pay rents in the fourth  quarter of 1998,  Falcon
was placed on  non-accrual  status  beginning  October 1, 1998.  At December 31,
1999, Falcon was  approximately  six months in arrears to the Partnership,  with
respect to  scheduled  rent  payments,  for a total of $538,000  and $212,000 in
arrears  with respect to  maintenance  reserve  payments.  The  Partnership  has
recorded a receivable for $95,000 of past due rent and is also holding a $95,000
security deposit from Falcon.

         Falcon has become significantly leveraged and there can be no assurance
that Falcon will meet its future obligations.  If Falcon were to fall further in
arrears,  the  Partnership  may  need  to  repossess  the  aircraft  and  if the
Partnership remarkets the aircraft,  there can be no assurance as to the ability
to do so, the time it would take and the lease rate that might be achieved.

         Accounts  payable  and accrued  expenses  increased  by  $388,000  from
$106,000 at December 31, 1998 to $494,000 at December 31, 1999  primarily due to
an increase in amounts due for capitalized aircraft improvements.

         The  payable to  affiliates  increased  by  $377,000  from  $592,000 at
December  31,  1998 to  $969,000 at  December  31,  1999  principally  due to an
increase in unpaid management fees due to the General Partners.

         Deferred  rental  income  and  deposits   decreased  by  $423,000  from
$1,898,000  at  December  31, 1998 to  $1,475,000  at December  31,  1999.  This
decrease was primarily  attributable to the security  deposits from VASP,  which
were applied against maintenance reserve amounts due during 1999.

         Maintenance  reserves payable  increased by $615,000 from $1,696,000 at
December  31,  1998 to  $2,311,000  at December  31,  1999,  principally  due to
increased cash reserves received from lessees.

         During 1999,  the  Partnership  invested  $5.5  million in  capitalized
aircraft  improvements,   none  of  which  was  funded  by  the  application  of
maintenance  reserves.  During  1999,  the  Partnership  delivered  one  727-200
aircraft to Kitty Hawk Aircargo,  Inc.  ("Kitty Hawk").  The L-1011 aircraft and
the A-300  remained  off lease  during 1999,  and the  Partnership  continues to
remarket  these  aircraft  for lease or sale.  If the  aircraft  are  sold,  the
Partnership  would  utilize  such  proceeds  for debt  reduction  or for working
capital or distributions to partners.

         In the fourth quarter of 1997, the Partnership entered into discussions
with  the  lessee  regarding  the DC 10-10  aircraft,  the  lease  of which  was
scheduled to expire on June 30, 1998.  Continental  Micronesia  agreed to extend
the lease for an additional  fifteen months at a lease rate ($138,500 per month)
equal to 92% of the previous rate.  The extended lease on the McDonnell  Douglas
DC10-10 with  Continental  expired on September 15, 1999. Work necessary for the
aircraft to meet the lease return  conditions was done at Continental's  expense
at a maintenance facility.  Continental continued to pay rent until the aircraft
achieved the lease requirements for its return, which took place on December 16,
1999. The aircraft is being stored at a modification facility until June 2000 at
which time it will be converted to a freighter for Emery Worldwide Airlines Inc.

                                       11
<PAGE>

("Emery"). The work scope under the aircraft modification agreement requires the
investment of  approximately  $12.6 million,  subject to price  escalation.  The
Partnership and Emery have signed an agreement, which provides for a lease of 84
months  with rent of  $218,000  per month.  The lease  also  provides a two-year
renewal at $200,000 per month,  followed by three  additional  two-year  renewal
options at the then fair market  rental.  Emery  provided a security  deposit of
$218,000.  The  Partnership  also has $790,000 on deposit with the  modification
facility.

         The Boeing  727-200  aircraft  returned  by  Continental  Airlines  was
converted to a freighter and  hushkitted to achieve Stage III noise  compliance.
It was  delivered to Kitty Hawk Air Cargo,  Inc. in December,  1999 under lease.
The  Partnership  has swapped the three JT8D-15  engines that were returned with
the aircraft  for three  JT8D-9A  engines  owned by an affiliate of the Managing
General  Partner.  The Partnership  also received a payment of $259,000 from the
affiliate to compensate the Partnership for the relative value of the engines as
determined by a third party appraiser.

         The lease with Kitty Hawk is for 84 months,  the lease rate is $112,700
per month and maintenance reserves are paid at the rate of $375 per flight hour,
with engine reserves to be increased if the flight  hour/cycle ratio falls below
1.5  to 1.  Kitty  Hawk  has  provided  a  security  deposit  of  $225,400.  The
Partnership  had incurred  costs of  approximately  $4.7 million  related to the
cargo conversion and hushkitting, as of December 31, 1999.

         The  Partnership  increased its loan facility from $12.5 million to $19
million  and the  interest  rate was  increased  from 125 basis  points over the
bank's prime rate to 150 basis points over the prime rate.  Approximately $16.53
million was borrowed at year end. The increase was  primarily for the funding of
the conversion of the Boeing 727 to a freighter for Kitty Hawk. The  Partnership
has  provided a  mortgage  to the bank  relative  to  certain  aircraft  and has
guaranteed the repayment of the indebtedness. The balance of this loan is due in
March,  2000. Subject to final  documentation,  the Partnership has negotiated a
loan with a new lender that will permit the borrowing of up to $30 million. (See
Note 11 to the Financial Statements, "Subsequent Event").

Results of Operations

         Substantially all of the  Partnership's  revenue was generated from the
leasing of the Partnership's aircraft to commercial air carriers under operating
leases.

         Under the terms of the  triple  net  leases,  substantially  all of the
expenses  related to the operation and  maintenance of the aircraft during 1999,
were paid for by the  lessees  directly  or funded out of  maintenance  reserves
collected.  The direct lease expenses incurred by the Partnership  represent the
costs of providing  insurance coverage for the Partnership's  aircraft in excess
of the amounts  required to be carried by the  lessees,  trustee fees related to
the ownership of the aircraft,  the cost of the letter of credit  required under
the terms of the TBT lease on the  McDonnell  Douglas MD-81 leased to USAirways,
Inc.  ("USAir")  and the costs of storing the Airbus A-300 and  Lockheed  L-1011
aircraft.

         The Partnership  also records  depreciation  expense  pertaining to the
aircraft on lease and incurs  interest  expense and management  fees and certain
general and  administrative  expenses in connection  with the  operations of the
Partnership.  General and administrative  expenses consist primarily of investor
reporting  expenses,  transfer  agent and audit fees, and the cost of accounting
services.

1999 as compared to 1998

         The  Partnership's  net income was $978,000 for the year ended December
31, 1999 ("1999  Period") as compared to $1,855,000  for the year ended December
31, 1998 ("1998 Period").

         The  decrease in the  Partnership's  net income for the 1999 Period was
principally  due to the  decreases  in rental,  interest and other income in the
1999 Period as compared to the 1998 Period and increases in interest and general
and  administrative  expenses in the 1999 Period as  compared  the 1998  Period.
Partially  offsetting  the  decrease  were the  writedowns  required in the 1998
Period  compared to none in the 1999 Period,  and a decrease in  management  and
re-lease fees in the 1999 Period compared to the 1998 Period.

         Rental  income  decreased  by  $607,000  or 5% in the  1999  Period  as
compared to the 1998 Period.  The decrease was  principally  due to decreases in
the  rental  income  attributable  to the A-300  engines  leased to VASP and the
decrease in rental income related to the Boeing 727 aircraft which was converted
to a freighter and is currently leased to Kitty Hawk. Also  contributing to this

                                       12
<PAGE>

decrease was a decrease in rental  income  related to the  DC-10-10  returned by
Continental  in December  1999.  These  decreases  were  partially  offset by an
increase in the rental  income  from the  aircraft  leased to Capital  Cargo and
Falcon  and the  rental  income  from the  aircraft  leased  to TNT,  which  was
off-lease for nearly half of the 1998 Period.

         Interest  income  decreased  $75,000 or 40% for the 1999  Period.  This
decrease was  primarily  attributable  to the  utilization,  during  1999,  of a
significant  portion  of the cash  reserves  held by the  Partnership,  for cash
distributions and improvements in aircraft, as well as the complete repayment of
advances by lessees, in 1998, on which interest had been earned.

         During the 1998  Period,  the  Partnership  recognized  other income of
$124,000,  primarily due to the realization of a gain of $116,000,  representing
the  difference   between  the  amount  realized  and  the  book  value  of  the
Partnership's  claim from the 1991  Continental  bankruptcy.  There was no other
income recognized in 1999.

         Also during  1998,  the  Partnership  realized a gain of  $254,000,  of
which,  $241,000  was from the sale of an engine  that had been  dismantled  and
stored,  since the return of the Boeing 727-200 aircraft by Kiwi in 1996. During
the 1999 Period,  the  Partnership  swapped the three JT8D-15  engines that were
returned with the Boeing 727-200 aircraft  returned by Continental  Airlines for
$259,000 in cash and three JT8D-9A engines owned by an affiliate of the Managing
General Partner. The Partnership realized a gain of $173,000 related to the swap
in 1999.

         The Partnership  provided  write-downs  aggregating $537,000 to reflect
the loss in value of the L-1011  aircraft and various  engines and  interiors at
December 31, 1998. There were no write-downs during the 1999 period.

         Management and re-lease fees for the 1999 Period,  decreased by $57,000
or 6% in  comparison  to the 1998 Period  primarily  because of the  decrease in
rental  income  which  serves as the basis upon  which  certain  management  and
re-lease fees are calculated.

         Interest  expense for the 1999 Period  increased  by $476,000 or 63% in
comparison to the 1998 Period,  primarily due to the 1999 increase in the amount
of debt outstanding and the related interest rate.

         General and administrative  expenses increased by $82,000 or 26% in the
1999  Period as  compared to the 1998  period,  primarily  due to an increase in
legal expenses  associated with the VASP litigation.  Partially  offsetting this
increase was a decrease in transfer agent fees and investor report costs, due to
lower volume and lower rates from a new service provider.

         Direct lease expenses  decreased by $21,000 or 9% in the 1999 Period as
compared to the 1998 period,  due to a reduction in the cost of maintenance work
performed on aircraft borne by the Partnership.

1998 as compared to 1997

         The Partnership's net income was $1,855,000 for the year ended December
31, 1998 ("1998  Period") as compared to $1,255,000  for the year ended December
31, 1997 ("1997 Period").

         The  increase in the  Partnership's  net income for the 1998 Period was
principally  due to the increase in rental income in the 1998 Period as compared
to the 1997 Period, the gain recognized on the sale of an engine in 1998 and the
write-downs  required  in the 1997  Period,  partially  offset by an increase in
interest expense in the 1998 Period.

         Rental  income  increased  by  $241,000  or 2% in the  1998  Period  as
compared to the 1997 Period. The increase was substantially  attributable to the
income  recognized  during the 1998 Period with  respect to the VASP and Capital
Cargo leases.

         Interest  income  decreased  $280,000 or 60% for the 1998 Period.  This
decrease  was  primarily  attributable  to  the  utilization  during  1998  of a
significant  portion  of the cash  reserves  held by the  Partnership,  for cash
distributions and improvements in aircraft, as well as the repayment of advances
by lessees, on which interest had been earned.

         During the 1998  Period,  the  Partnership  recognized  other income of
$124,000,  primarily due to the realization of a gain of $116,000,  representing
the  difference   between  the  amount  realized  and  the  book  value  of  the
Partnership's  claim from the 1991  Continental  bankruptcy.  There was no other
income recognized in 1997.

                                       13
<PAGE>


         Depreciation and amortization  expense increased $410,000 or 5% for the
1998 Period in comparison to the 1997 Period.  The increase was  attributable to
the increase in depreciation  relating to the engines from the A-300 aircraft on
lease to VASP and the  capital  improvements  made to the  aircraft  on lease to
Falcon and Capital Cargo.

         The Partnership  provided  write-downs  aggregating $537,000 to reflect
the loss in value of the L-1011  aircraft and various  engines and  interiors at
December 31, 1998, compared to write-downs of $1,400,000 in the 1997 period.

         Management and re-lease fees for the 1998 Period,  increased by $40,000
or 4% in  comparison  to the 1997 Period  primarily  because of the  increase in
rental  income  which  serves as the basis upon  which  certain  management  and
re-lease fees are calculated.

         Interest  expense for the 1998 Period  increased  by $303,000 or 67% in
comparison to the 1997 Period,  primarily due to the 1998 increase in the amount
of debt outstanding and the related interest rate.

         Direct lease  expenses  decreased by $147,000 or 38% in the 1998 Period
as compared to the 1997 period,  due to a reduction  in the cost of  maintenance
work performed on aircraft borne by the Partnership.

Inflation and Changing Prices

         Inflation  has had no material  impact on the  operations  or financial
condition of the Partnership from inception through December 31, 1999.  However,
market and  worldwide  economic  conditions  and  changes in federal and foreign
aircraft regulations have in the past, and may in the future, affect the airline
industry and thus lease rates and aircraft values.  Additionally,  inflation and
changing  prices,  may affect  subsequent  lease rates and the eventual  selling
prices of the  aircraft.  Higher fuel  prices in 1999  negatively  affected  the
airline industry profitability and that of the Partnership's lessees.

         Due to concern regarding  potential  inflation,  the US Federal Reserve
Board has recently increased its key lending rate on a number of occasions in an
attempt to moderate economic  activity.  It is unclear as to the ultimate impact
on  the  level  of  economic  activity  of  these  rate  increases,  however,  a
significant  economic  slowdown  could have an adverse  affect on air travel and
airline performance.

Accounting Pronouncements

         In  March  1998  the  Partnership  adopted  SFAS  No.  130,  "Reporting
Comprehensive Income," which establishes standards for the reporting and display
of  comprehensive  income and its  components  in a full set of general  purpose
financial statements. Comprehensive income is defined as the change in equity of
a business  enterprise  during a period from  transactions  and other events and
circumstances arising from non-owner sources. The adoption of this pronouncement
did not impact the reporting of the Partnership's results of operations.

Impact of the Year 2000 Issue

         The Year 2000 issue  ("Y2K") is the result of computer  programs  being
written using two digits rather than four digits to define the applicable  year.
This  could  result in a  failure  of the  information  technology  systems  (IT
systems) and other equipment  containing imbedded technology (non-IT systems) in
the  beginning  of  the  year  2000,  causing  disruption  of  operation  of the
Partnership, its lessees or vendors. The Partnership has not encountered any Y2K
related issues.


                                       14
<PAGE>


ITEM 8.       FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                       PEGASUS AIRCRAFT PARTNERS II, L.P.

List of Financial Statements                                              Page
                                                                          ----

Report of Independent Accountants ....................................     16

Balance Sheets -- December 31, 1999 and 1998..........................     17

Statements of Income for the years ended
     December 31, 1999, 1998 and 1997.................................     18

Statements of Partners' Capital for the years ended
     December 31, 1999, 1998 and 1997.................................     19

Statements of Cash Flows for the years ended
     December 31, 1999, 1998 and 1997.................................     20

Notes to Financial Statements.........................................     22


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


                                       15
<PAGE>



                        REPORT OF INDEPENDENT ACCOUNTANTS

To the Partners of
Pegasus Aircraft Partners II, L.P.

         In our  opinion,  the  accompanying  balance  sheets  and  the  related
statements of income,  of partners' capital and of cash flows present fairly, in
all material  respects,  the financial position of Pegasus Aircraft Partners II,
L.P. (the  "Partnership")  as of December 31, 1999 and 1998,  and the results of
its  operations  and its cash  flows for each of the three  years in the  period
ended  December 31, 1999, in conformity  with  accounting  principles  generally
accepted in the United States. These financial statements are the responsibility
of the Partnership's management;  our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of these
financial  statements in accordance with generally  accepted auditing  standards
which 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,  assessing the  accounting  principles
used and  significant  estimates made by management,  and evaluating the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for the opinion expressed above.

                                                      PricewaterhouseCoopers LLP

New York, New York
March 20, 2000


                                       16
<PAGE>

                       PEGASUS AIRCRAFT PARTNERS II, L.P.

                                 BALANCE SHEETS

                           DECEMBER 31, 1999 AND 1998

                                     ASSETS

                                                             1999       1998
                                                             ----       ----
                                                             (in thousands,
                                                            except unit data)

  Cash and cash equivalents                               $  2,300   $  2,863
  Restricted cash                                              371         --
  Rent receivable                                              196        491
  Aircraft, net                                             44,491     47,258
  Other assets                                                 805        811
                                                          --------    -------
     Total Assets                                         $ 48,163   $ 51,423
                                                          ========   ========

                        LIABILITIES AND PARTNERS' CAPITAL

LIABILITIES:

  Accounts payable and accrued expenses                   $    494   $    106
  Payable to affiliates                                        969        592
  Maintenance reserves payable                               2,311      1,696
  Notes payable                                             16,530     10,000
  Deferred rental income and deposits                        1,475      1,898
  Distributions payable to partners                          2,199      2,931
                                                          --------   --------
     Total Liabilities                                      23,978     17,223
                                                          --------   --------

COMMITMENTS AND CONTINGENCIES (NOTES 4, 5, 8 AND 10)

PARTNERS' CAPITAL:
  General Partners                                            (796)      (868)
  Limited Partners (7,255,000 units issued and
    outstanding in 1999 and 1998)                           24,981     35,068
                                                          --------   --------
      Total Partners' Capital                               24,185     34,200
                                                          --------   --------
        Total Liabilities and Partners' Capital           $ 48,163   $ 51,423
                                                          ========   ========





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


                                       17
<PAGE>


                       PEGASUS AIRCRAFT PARTNERS II, L.P.

                              STATEMENTS OF INCOME

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

                                                 1999         1998        1997
                                                 ----         ----        ----
                                                (in thousands, except unit data
                                                       and per unit amounts)

REVENUES:
    Rentals from operating leases             $   11,817  $   12,424  $   12,183
    Interest                                         112         187         467
    Other income                                      --         124          --
    Gain on sale of engines and equipment            173         254          --
                                              ----------  ----------  ----------
                                                  12,102      12,989      12,650
                                              ----------  ----------  ----------

EXPENSES:
    Depreciation and amortization                  8,320       8,273       7,863
    Write-downs                                       --         537       1,400
    Management and re-lease fees                     960       1,017         977
    Interest                                       1,234         758         455
    General and administrative                       394         312         316
    Direct lease                                     216         237         384
                                              ----------  ----------  ----------
                                                  11,124      11,134      11,395
                                              ----------  ----------  ----------

NET INCOME                                           978       1,855       1,255
                                              ==========  ==========  ==========

NET INCOME ALLOCATED:

    To the General Partners                          182         257          13
    To the Limited Partners                          796       1,598       1,242
                                              ----------  ----------  ----------
                                                     978       1,855       1,255
                                              ----------  ----------  ----------

NET INCOME PER LIMITED PARTNERSHIP UNIT       $     0.11  $     0.22  $     0.17
                                              ==========  ==========  ==========

WEIGHTED AVERAGE NUMBER OF LIMITED
    PARTNERSHIP UNITS ISSUED AND OUTSTANDING   7,255,000   7,255,000   7,255,000
                                              ==========  ==========  ==========



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

                                       18
<PAGE>



                       PEGASUS AIRCRAFT PARTNERS II, L.P.

                         STATEMENTS OF PARTNERS' CAPITAL

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


                                               General     Limited
                                              Partners    Partners       Total
                                              --------    --------       -----
                                               (dollar amounts in thousands)

Balance, December 31, 1996                   $   (904)    $ 55,444     $ 54,540

     Net income                                    13        1,242        1,255

Distributions declared to partners                (117)    (11,608)     (11,725)
                                             ---------    --------     --------

Balance, December 31, 1997                      (1,008)     45,078       44,070

     Net income                                    257       1,598        1,855

Distributions declared to partners                (117)    (11,608)     (11,725)
                                              ---------    --------     --------

Balance, December 31, 1998                        (868)     35,068       34,200

     Net income                                    182         796          978

Distributions declared to partners                (110)    (10,883)     (10,993)
                                             ---------    --------     --------

Balance, December 31, 1999                   $    (796)   $ 24,981     $ 24,185
                                             ==========   ========     ========

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

                                       19
<PAGE>


                       PEGASUS AIRCRAFT PARTNERS II, L.P.

                            STATEMENTS OF CASH FLOWS

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

                                                   1999        1998       1997
                                                   ----        ----       ----
                                                  (dollar amounts in thousands)


CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income                                  $    978   $  1,855   $  1,255
    Adjustments to reconcile net income to net
     cash provided by operating activities:
      Gain on sale of engines and equipment         (173)      (254)        --
      Depreciation and amortization                8,320      8,273      7,863
      Write-downs                                     --        537      1,400
      Change in assets and liabilities:
        Rent and other receivables                   295       (289)        53
        Other assets                                   6          5        (47)
        Accounts payable and accrued expenses        388        (17)        27
        Deferred rental income and deposits         (423)        57     (1,195)
        Payable to affiliates                        377        381       (425)
        Maintenance Reserves Payable                 615      1,105        591
                                                --------   --------   --------

        Net cash provided by operating
          activities                              10,383     11,653      9,522
                                                --------   --------   --------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Deposit for aircraft modifications                --       (790)        --
    Capitalized aircraft improvements             (5,639)    (9,012)    (5,240)
    Proceeds from the sale of engines and
      equipment                                      259      1,553         --
    Repayment of advances by lessees                  --        242        363
    Increase in restricted cash                     (371)        --         --
                                                --------   --------   --------

       Net cash used in investing activities      (5,751)    (8,007)    (4,877)
                                                --------   --------   --------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Proceeds from notes payable                 $  6,530   $  5,249   $     --
    Cash distributions paid to partners          (11,725)   (11,737)   (11,771)
                                                --------   --------   --------

       Net cash used in financing activities      (5,195)    (6,488)   (11,771)
                                                --------   --------   --------

NET DECREASE IN CASH AND CASH EQUIVALENTS           (563)    (2,842)    (7,126)

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR     2,863      5,705     12,831
                                                --------   --------   --------

CASH AND CASH EQUIVALENTS AT END OF YEAR        $  2,300   $  2,863   $  5,705
                                                ========   ========   ========

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


                                       20
<PAGE>

                       PEGASUS AIRCRAFT PARTNERS II, L.P.

                            STATEMENTS OF CASH FLOWS

        FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 and 1997 (continued)

                                                   1999        1998       1997
                                                   ----        ----       ----
                                                  (dollar amounts in thousands)

SUPPLEMENTAL CASH FLOW INFORMATION:

Interest Paid                                   $  1,226   $    750   $    456
                                                ========   ========   ========

NONCASH TRANSACTIONS:

Distributions declared to partners but unpaid   $  2,199   $  2,931   $  2,943

Transfers from restricted cash utilized to
  restore aircraft                              $     --   $     --   $  2,248

Deferred income transferred to write-down       $     --   $    743   $     --

Lease settlement reserve transferred to
  write-down                                    $     --   $  3,000   $     --



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


                                       21
<PAGE>


                       PEGASUS AIRCRAFT PARTNERS II, L.P.
                          NOTES TO FINANCIAL STATEMENTS

                                DECEMBER 31, 1999

1.       Significant Accounting Policies

         Basis  of  Presentation.   Pegasus  Aircraft  Partners  II,  L.P.  (the
"Partnership"), a Delaware limited partnership, maintains its accounting records
and  prepares  financial  statements  on the accrual  basis of  accounting.  The
preparation  of financial  statements  in  conformity  with  generally  accepted
accounting principles requires management to make estimates and assumptions that
affect  the  reported  amounts  of assets  and  liabilities  and  disclosure  of
contingent  assets and liabilities at the dates of the financial  statements and
the reported amounts of revenues and expenses during the reporting periods.  The
most   significant   assumptions  and  estimates   relate  to  useful  life  and
recoverability of the aircraft and tax and other indemnity  provisions described
below.  Actual results could differ from such estimates.  Certain 1997 financial
statement items have been reclassified to conform to the 1999 presentation.

         Cash  and  Cash   Equivalents.   The  Partnership   invests  funds  not
immediately  required for operations or distributions  in temporary  investments
until such time as the funds are  required  to meet its  obligations.  The short
term,  highly liquid  investments are recorded at cost which  approximates  fair
market  value.  For purposes of the balance  sheets and the  statements  of cash
flows, the Partnership  considers all highly liquid debt  instruments  purchased
with an original maturity of three months or less to be cash equivalents.

         Aircraft and  Depreciation.  The  aircraft are recorded at cost,  which
includes  acquisition costs and the acquisition fee and the financial management
advisory fee paid upon acquisition to the General  Partners.  Depreciation to an
estimated  salvage value (in general,  10%) is computed using the  straight-line
method over an estimated  economic life of twelve years.  Major  improvements to
aircraft are capitalized  when incurred and depreciated  over the useful life of
the  improvement.  The Partnership  evaluates the carrying value of the aircraft
based upon changes in market and other physical and economic conditions and will
record  write-downs  to  recognize  a loss in the  value  of the  aircraft  when
management   believes   that,   based  on  expected   future  cash  flows,   the
recoverability  of the  Partnership's  investment  has been  impaired.  Proceeds
received in lease  settlements  are accounted for under the cost recovery method
when based upon third party appraisals and market  conditions,  there has been a
diminution to the carrying value of the aircraft.

         Lease  settlement  payments  received  in  connection  with  the  early
termination  or  modification  of a lease of an aircraft,  the carrying value of
which has not been  impaired,  have been  recognized  ratably over the remaining
original  lease term in the case of a lease  termination  and over the  modified
lease term in connection  with a lease  modification.  In certain  cases,  where
management  believes there has been an impairment in value, the payment has been
recorded under the cost recovery method.

         Tax Benefit Transfer Lease. The McDonnell  Douglas MD-81 aircraft under
lease to USAirways Group, Inc. ("USAir"), was purchased subject to a tax benefit
transfer lease which provided for the transfer of the investment tax credits and
depreciation  deductions  with  respect to the  aircraft  to a tax  lessor.  The
transfer was  accomplished  by the sale,  for income tax purposes  only,  of the
aircraft to the tax lessor for cash and a note and a leaseback  of the  aircraft
for rental payments which match the payments on the note. Under the terms of the
tax benefit  transfer  lease,  the  Partnership's  required  rental payments are
contingent upon and may, by agreement,  be offset by the lessor's  required note
payments.  Accordingly, no asset or liability for the tax benefit transfer lease
has been recorded.

         Maintenance  Reserve Funds.  The  Partnership has four leases where the
lessee is  required  to make  monthly  payments  to  maintenance  reserve  funds
administered by the  Partnership.  The Partnership may be obligated to reimburse
the  lessee for  specified  maintenance  costs out of the  reserve  funds,  upon
submission of appropriate evidence documenting the maintenance costs incurred by
the lessee. Excess costs over the reserve are the lessees' responsibility.

         Operating Leases. The aircraft leases, which are structured principally
as triple net leases, are accounted for as operating leases.  Lease revenues are
recognized in equal installments over the terms of the related leases.

         Deferred  Income.  Some of the  Partnership's  operating leases require
rental payments to be paid monthly, or quarterly, in advance. Lease revenues not
yet earned are deferred and recognized as income when earned.

                                       22
<PAGE>


         Income  Taxes.  No  provision  for  income  taxes  has been made in the
financial  statements since such taxes are the  responsibility of the individual
partners rather than the Partnership.

         Net Income Per  Limited  Partnership  Unit.  The net income per limited
partnership unit is computed by dividing the net income allocated to the Limited
Partners by the weighted average number of Units outstanding during the year.

Accounting Pronouncements

         In March 1998 the Partnership adopted SFAS No. 130, "Reporting
Comprehensive Income", which establishes standards for the reporting and display
of  comprehensive  income and its  components  in a full set of general  purpose
financial statements. Comprehensive income is defined as the change in equity of
a business  enterprise  during a period from  transactions  and other events and
circumstances arising from non-owner sources. The adoption of this pronouncement
did not impact the reporting of the Partnership's results of operations.

2.       Organization of the Partnership

         The  Partnership  was  formed  on April  26,  1989 for the  purpose  of
acquiring, leasing and ultimately selling used commercial aircraft. The Managing
General Partner of the Partnership is Pegasus Aircraft Management Corporation, a
wholly owned subsidiary of Pegasus Capital  Corporation,  and the Administrative
General  Partner is Air Transport  Leasing,  Inc., a wholly owned  subsidiary of
Paine Webber Group Inc. (collectively, the "General Partners").

         The  Partnership  is  required to dissolve  and  distribute  all of its
assets no later than December 31, 2007. The Partnership  had the right,  subject
to certain conditions, to reinvest the proceeds from sales of aircraft occurring
prior to August 21, 1998.  The net proceeds of any future sales of aircraft will
be retained for working capital  purposes with the remainder  distributed to all
partners.

         Upon  formation  of  the   Partnership,   the  General   Partners  each
contributed  $500 to the capital of the  Partnership.  An  additional  7,255,000
units of limited partnership interest ("Units") were then sold at a price of $20
per Unit with the Partnership receiving gross offering proceeds of $145,100,000.

         Title  to  the   aircraft   owned  by  the   Partnership   is  held  by
non-affiliated trustees of trusts of which the Partnership is the beneficiary or
one of two  beneficiaries.  The  purpose of this  method of holding  title is to
satisfy   certain   registration    requirements   of   the   Federal   Aviation
Administration.

3.       Partnership Allocations

         The  Partnership  Agreement  provides that cash flow from operations be
distributed on a quarterly basis at the General Partners' discretion, 99% to the
Limited  Partners  and 1% to the General  Partners.  Cash flow is defined in the
Partnership  Agreement as including  cash receipts from  operations and interest
income earned,  less expenses incurred and paid in connection with the ownership
and operation of the aircraft.  Depreciation and  amortization  expenses are not
deducted from cash receipts in  determining  cash flow.  Distributable  proceeds
from sales of aircraft upon  liquidation of the Partnership  will be distributed
in accordance  with the partners'  capital  accounts  after all  allocations  of
income and losses.

         Income  and  losses  generally  will be  allocated  99% to the  Limited
Partners  and 1% to the  General  Partners.  Upon  the  sale of  aircraft,  gain
generally will be allocated,  first, to the General  Partners in an amount equal
to the difference between their capital contributions and 1.01% of the aggregate
capital  contributions  of the Limited  Partners,  and then,  99% to the Limited
Partners, and 1% to the General Partners.

                                       23
<PAGE>


4.       Aircraft

                           Net Investment in Aircraft

         The  Partnership's  net  investment in aircraft as of December 31, 1999
and 1998 consisted of the following (in thousands):

                                                             1999        1998
                                                             ----        ----

Aircraft on operating leases, at cost                     $  96,525   $ 110,149
Less: Accumulated depreciation                              (54,586)    (62,050)
         Write-downs                                         (7,710)     (8,058)
                                                          ---------   ---------
                                                          $  34,229   $  40,041
                                                          =========   =========

Aircraft held for lease or sale, at cost                  $  65,921   $  46,744
Less: Accumulated depreciation                              (34,877)    (19,093)
         Write-downs                                        (10,667)    (10,319)
         Lease settlement accounted for under the
           cost recovery method                             (10,115)    (10,115)
                                                          ---------   ---------
                                                             10,262       7,217
                                                          ---------   ---------
         Aircraft, net                                    $  44,491   $  47,258
                                                          =========   =========

                            Financial Terms of Leases

         Continental  Airlines  Leases.  During  September 1989, the Partnership
Acquired a McDonnell  Douglas  DC-10-10  aircraft for a total  purchase price of
$18,301,000,  subject to an  operating  lease with  Continental.  This lease was
modified as  discussed  below.  The  aircraft  was subject to an extended  lease
scheduled to expire on September 15, 1999 which provided for rentals of $138,500
per month.  The  aircraft  was  returned on December  16, 1999 with  Continental
paying rent through that date.

         The Partnership will convert the McDonnell Douglas DC-10-10 aircraft to
a freighter pursuant to an aircraft modification agreement for delivery to Emery
Worldwide  Airlines,  Inc.  ("Emery").  The  Partnership and Emery have signed a
lease which  provides for 84 months rent at $218,000  per month.  The lease also
provides a two-year  renewal option at $200,000 per month,  and three additional
two-year  renewal  options at the then fair market rental.  Emery has provided a
security  deposit  aggregating  $218,000 at December 31, 1999.  The  Partnership
provided a deposit of $790,000 to the third party modification center which will
perform the conversion.  This deposit is included in other assets on the balance
sheet as of December 31, 1999. The aircraft is being stored until June,  2000 at
which  time it  will  enter  the  modification  facility  to be  converted  to a
freighter for Emery.  The  Partnership's  estimated  commitments to deliver this
aircraft to Emery are $12.6 million, subject to price escalation.

         During  September  1989,  the  Partnership  acquired  a Boeing  727-200
non-advanced  aircraft for a total purchase  price of $6,116,000,  subject to an
operating lease with Continental.  This aircraft was returned to the Partnership
during  Continental's  bankruptcy,  remarketed to Kiwi (and recovered from Kiwi,
after Kiwi filed for bankruptcy in late 1996) and was delivered in March 1997 to
Falcon Air Express Inc. (see discussion below).

         During August 1990, the Partnership  acquired an Airbus Industrie Model
A300-B4-103  ("A-300")  aircraft  for a total  purchase  price  of  $28,070,000,
subject to an operating lease with Continental,  originally  scheduled to expire
on December 29, 2000 and with monthly rentals, in advance, of $312,000.

         In January 1995,  Continental announced that it was grounding its fleet
of Airbus  A-300  aircraft,  including  the A-300  aircraft  leased to it by the
Partnership,  and  notified  the  Partnership  of its  intention  to return  the
aircraft.  On November  15, 1995,  the  Partnership  reached an  agreement  with
Continental  regarding the settlement for the lease  obligations under the A-300
lease ("A-300 Lease  Settlement"),  which also included a  restructuring  of the
DC-10-10 Aircraft lease.

         Under the terms of the A-300 Lease Settlement, the Partnership received
a cash payment of approximately $3,721,000,  including approximately $325,000 as
reimbursement  for  certain   integration  and  transaction   expenses  for  the
remarketing of the aircraft, and (i) title to a Boeing 727-200 advanced aircraft
subject to lease with  Continental  for a term of  approximately  26 months at a
lease  rate of  $85,000  per  month.  ("Continental  727 No. 1") (ii) title to a
second Boeing 727-200 advanced  aircraft subject to a lease with Continental for
a term of 42 months at a lease  rate of  $85,000  per  month  ("Continental  727
No.2").  Additionally,  the Partnership  received  approximately  $557,000 as an

                                       24
<PAGE>

economic  settlement for the return conditions  required by the A-300 lease. The
lease of the  Continental 727 No. 1 expired January 31, 1998 and the Partnership
entered into a lease of the  aircraft for a term of four years to TNT  Transport
International  B.V.  ("TNT") a  foreign  cargo  carrier  and has  converted  the
aircraft to cargo configuration,  including a low gross weight hushkit. (See TNT
discussion below). See Kitty Hawk Aircargo, Inc. discussion, herein with respect
to Continental 727 No. 2.

         During  June 1998,  the  Partnership  entered  into an Engine  Exchange
Agreement  and Bill of Sale with an affiliate of the Managing  General  Partner.
Pursuant  to this  agreement,  the  Partnership  received  cash in the amount of
$190,000  and a  General  Electric  CF6-50C2  engine in  exchange  for a General
Electric  CF6-50C2  engine from the Airbus A-300  aircraft.  The  $190,000  boot
received was deducted  from the net book value of the  aircraft,  but no gain or
loss resulted  from the  transaction.  The amount of the payment was  determined
through a third party  appraisal  of the engines,  which were $2.53  million and
$2.72 million, respectively.

         In December 1997, the  Partnership  leased,  on a short-term (six month
minimum)  basis,  one of the CF6-50C2  engines from the Airbus A-300 aircraft to
Viacao Aerea Sao Paulo S.A. ("VASP"),  a Brazilian carrier,  for rents of $2,200
per day, plus hourly  rental of $225 per engine hour,  with a minimum of 4 hours
per cycle. The Partnership and VASP extended the lease to December 1998 and then
to June,  1999.  In December  1998,  the  Partnership  and VASP  entered into an
agreement for the lease of the second engine from the A-300 aircraft,  the terms
of which  were the same as the first  engine  lease.  Both  engine  leases  were
scheduled to expire in June 1999.  The  Partnership  continues to re-market this
aircraft for lease or sale, although given the fact that the airframe requires a
heavy maintenance check, it is more likely to be sold.

         At December  31,  1999,  VASP was in arrears  with respect to scheduled
rent payments,  for a total of $838,000,  and $1,265,000 in arrears with respect
to  maintenance  reserve  payments.  VASP  failed to pay rent on the engines and
after being unable to come to agreement with VASP, the Partnership filed suit in
Brazil and Florida. (See Note 8, "Litigation" ).

         During the first  quarter of 1999,  one of the engines on lease to VASP
failed.  As part of the Florida legal  action,  this engine was  repossessed  in
Florida in June,  1999.  It was sent to a General  Electric  repair  facility in
California and based on legal advice, the Partnership is awaiting the conclusion
of the  Florida  lawsuit  prior to a  disassembly  of the  engine for a detailed
analysis of its condition.

         Trans World Airlines, Inc. Lease. During December 1989, the Partnership
acquired a  McDonnell  Douglas  MD-82  aircraft  for a total  purchase  price of
$20,763,000,  subject to an  operating  lease with Trans  World  Airlines,  Inc.
("TWA"),  which was  originally  scheduled to expire on April 13, 1993,  but was
amended and extended  until November 1, 1998 with monthly  rental  payments,  in
advance,  of $185,000.  This lease was further  extended to November 2004 during
TWA's prepackaged bankruptcy in 1995.

         Upon execution of the 1993 lease amendment,  the Partnership reimbursed
TWA for  $225,000 of capital  improvements  which were made to the  aircraft and
advanced $750,000 to TWA to finance certain major maintenance procedures,  which
was fully repaid in monthly  installments through November 1998 with interest at
a fixed rate of 9.70%.

         During  January  1990,  the  Partnership  acquired  a  Lockheed  L-1011
aircraft  for a total  purchase  price of  $17,555,000,  subject to an operating
lease with TWA,  which was amended  and  extended to October 1, 1998 with rental
payments payable monthly, in advance, at the rate of $130,000.

         Upon execution of the lease amendment,  the Partnership  reimbursed TWA
for  $225,000  of  capital  improvements  which  were made to the  aircraft  and
advanced $550,000 to TWA to finance certain major maintenance procedures,  which
were fully  repaid in monthly  installments  by October  1998 with  interest  at
9.68%.

         In mid-1996, as part of a fleet restructuring,  TWA returned the L-1011
aircraft it leased from the Partnership.  The lease,  which provided for monthly
rentals of $130,000,  was originally  scheduled to expire in September  1998. In
connection  with the  return of the  L-1011  aircraft  TWA paid the  Partnership
$2,846,000,  which  represented rents due under the remaining term of the lease,
discounted  at 5% ("L-1011  Lease  Prepayment")  plus  $3,000,000 as an economic
settlement for noncompliance with certain lease return conditions. The lease was
terminated, the aircraft was returned and $5,846,000 was received on October 16,
1996.

                                       25
<PAGE>


         During the third  quarter of 1998,  the  Partnership  reclassified  the
$3,000,000 return condition  settlement and the $743,000 unearned portion of the
L-1011 lease prepayment,  as an additional write-down on the L-1011 aircraft. No
additional  impairment  expense was  recognized.  In addition,  a write-down  of
$420,000 was taken to reflect the  estimated  market value of the  aircraft.  At
December  31, 1999 the L-1011  aircraft had a book value of  approximately  $1.7
million. The Partnership continues to remarket the Lockheed L-1011 aircraft.

         TWA was current on its lease  payments in 1999.  However,  TWA reported
its 11th  consecutive  annual  loss in  1999.  TWA had a cash  position  of $180
million at December 31, 1999. Given TWA's historical financial difficulties, the
ongoing  losses  increase  the  possibility  of a default or  deferral  of lease
payments by TWA, which accounted for 19% of the  Partnership's  lease revenue in
1999.

         Aeromexico  Leases.  The  Partnership's  two McDonnell  Douglas DC-9-31
aircraft were  originally  acquired in March and April 1990 for purchase  prices
aggregating  $14,295,000.  During 1992, the Partnership repossessed the aircraft
from Midway Airlines Inc. ("Midway") and leased them to Aerovias de Mexico, S.A.
de C.V.  ("Aeromexico") for terms of approximately five years. The leases, which
originally provided for quarterly rentals in advance of $234,000, were scheduled
to expire  in July  1997;  one lease was  extended  to  November  6, 1999  (with
Aeromexico  given the right,  subject to notice to extend to February  2000) and
one of which was extended to February  25,  2000,  each at a rate of $75,000 per
month.  The lease  expiring in November was extended at  Aeromexico's  option to
February 6, 2000.  Aeromexico  has been paying on a  month-to-month  basis while
lease extensions are under discussion.

         Kitty Hawk Aircargo,  Inc.  ("Kitty Hawk") Lease.  The Boeing  727-200,
Described as Continental 727 No. 2 was converted to a freighter,  hushkitted and
delivered to Kitty Hawk in November, 1999. The Partnership has swapped the three
JT8D-15  engines that were returned with the aircraft for three JT8D-9A  engines
owned by an affiliate of the Managing  General  Partner.  The  Partnership  also
received a payment of $259,000 from the affiliate to compensate the  Partnership
for the relative  difference  in value of the engines as  determined  by a third
party appraiser,  resulting in a $173,000 gain. The lease with Kitty Hawk is for
84 months, the lease rate is $112,700 per month and maintenance  reserves are to
be paid at the  rate of  $375  per  flight  hour,  with  engine  reserves  to be
increased  if the flight  hour/cycle  ratio falls below 1.5 to 1. Kitty Hawk has
provided a security  deposit of $225,400.  The Partnership had incurred costs of
approximately  $4.7 million related to the cargo conversion and hushkitting,  as
of December 31, 1999.

         USAirways  Group Inc.  ("USAir")  Lease.  During  September  1989,  the
Partnership  acquired  one-half of the beneficial  interest in a trust ("Trust")
which is the  owner/lessor  of a McDonnell  Douglas  MD-81  aircraft for a total
purchase price of $10,041,000.  The remaining  one-half interest in the Trust is
owned by  Pegasus  Aircraft  Partners,  L.P.,  an  affiliated  partnership.  The
aircraft is subject to an  operating  lease with USAir,  which is  scheduled  to
expire to June 1, 2001  pursuant to the  renewal  option  exercised  by USAir in
1997. Rental payments are payable quarterly, in arrears, at the rate of $304,000
(for the Partnership's  one-half interest in the aircraft).  The lessee also has
three  additional  one-year  renewal  options at fair market rental  rates.  The
lessee may elect to purchase  the  aircraft at its then fair market value at the
end of any renewal term.

         The  aircraft was  purchased  subject to a tax benefit  transfer  lease
("TBT lease") which  provided for the transfer of the investment tax credits and
depreciation  deductions with respect to the aircraft to a tax lessor. Under the
TBT lease,  the Trust, as the owner of the aircraft and the tax lessee under the
TBT lease,  has agreed to indemnify  the tax lessor if certain  anticipated  tax
benefits are lost by the tax lessor as a result of, among other things,  acts or
omissions  by the Trust,  breach of  covenants by the Trust under the TBT lease,
loss or damage to the aircraft or use of the aircraft outside the United States.
The TBT lease requires that a letter of credit be posted to  collateralize  this
obligation.  The Partnership shares in one-half of the annual cost of the letter
of credit and is obligated for one-half of any calls on the letter of credit.

         Under  the  operating  lease,  the  lessee,   USAir,  has  assumed  all
liabilities,  indemnities  and  obligations of the Trust to the tax lessor under
the TBT lease and has agreed to indemnify the Trust for any liability, indemnity
or  obligation  to the tax  lessor  under the TBT  lease  except  for  liability
resulting  from breaches by the Trust of covenants  under the  operating  lease.
USAir has not posted a letter of credit to collateralize  this obligation.  As a
result of the  foregoing,  if the tax lessor  draws on the letter of credit as a
result of action by the lessee,  the Partnership and Pegasus Aircraft  Partners,
L.P.  through the trust will be responsible for the loss to the tax lessor until
and if the lessee performs under its indemnification.

         The tax lessor is entitled to call on the letter of credit  whether its
loss of tax  benefits  is caused  by  Pegasus  Aircraft  Partners,  L.P.  or the
Partnership.  Pegasus Aircraft Partners, L.P. and the Partnership have agreed to
indemnify  each other for any loss  occasioned  by the acts of the other.  There

                                       26
<PAGE>

have been no calls on the letter of credit  through  December 31, 1999.  The TBT
lease and letter of credit will expire by May 2000.

         Kiwi  International  Air Lines, Inc. - Bankruptcy.  Kiwi  International
Airlines,  Inc. ("Kiwi"), a former lessee of two of the Boeing 727-200s, is in a
Chapter 7 liquidation. The General Partners believe that it is likely that there
will be minimal or no  recovery  with  respect to the  Partnership's  bankruptcy
claims.

         Falcon Air Express,  Inc.  Lease.  In December  1996,  the  Partnership
entered into a lease  agreement  with Falcon Air  Express,  Inc.  ("Falcon"),  a
charter  airline,  with respect to the 727-200  non-advanced  aircraft  formerly
leased to Kiwi.  The lease is for a term of 60 months and provides for a monthly
rental of $95,000. Falcon provided a security deposit of $95,000. The lease also
requires  Falcon to fund, on a monthly basis,  maintenance  reserves of $317 per
flight hour. In connection  with the delivery of the aircraft,  the  Partnership
completed  a  heavy  maintenance  check  on  the  aircraft,   including  certain
modifications  at a cost  of  approximately  $2,700,000.  The  Partnership  also
purchased an engine at a cost of $760,000  prior to delivery of the aircraft and
spent  approximately  $700,000  with respect to  maintenance  work on one engine
returned  by  Kiwi.  The  aircraft  was  delivered  to  Falcon  in  March  1997.
Maintenance reserves previously collected from Kiwi of approximately  $1,104,000
were applied to such costs.

         In September 1998, the  Partnership  received cash proceeds of $300,000
and  realized  a gain  of  $241,000  on the  sale of an  engine  that  had  been
dismantled and stored since the return of this aircraft by Kiwi in 1996.

         Due to its failure to pay rents in the fourth  quarter of 1998,  Falcon
was placed on  non-accrual  status  beginning  October 1, 1998.  At December 31,
1999, Falcon was  approximately  six months in arrears to the Partnership,  with
respect to  scheduled  rent  payments,  for a total of $538,000  and $212,000 in
arrears  with respect to  maintenance  reserve  payments.  The  Partnership  has
recorded a receivable for $95,000 of past due rent and is also holding a $95,000
security deposit from Falcon.

         The   Partnership   is  in  discussions   with  Falcon   regarding  the
establishment  of an interest  bearing note in favor of the  Partnership for the
remaining arrearages. Falcon has become significantly leveraged and there can be
no  assurance  that Falcon will meet its future  obligations.  If Falcon were to
fall further in arrears in the future, the Partnership may need to repossess the
aircraft  and  if  the  Partnership  remarkets  the  aircraft,  there  can be no
assurance  as to the ability to do so, the time it would take and the lease rate
that might be achieved.

         Capital Cargo International  Airlines, Inc. Lease. In January 1997, the
Partnership  entered into a lease  agreement  with Capital  Cargo  International
Airlines,  Inc. ("Capital  Cargo"), a start-up freight carrier,  with respect to
the Boeing 727-200  advanced  aircraft  formerly leased to Kiwi. The Partnership
agreed to finance the  conversion  of the aircraft to a freighter and complete a
C-check (totaling approximately $2.4 million). The Capital Cargo Lease ("Capital
Cargo  Lease") is for a term of  approximately  eight years and  provides for an
initial  monthly  lease rate of  $105,000  per month.  The  Capital  Cargo Lease
requires the  Partnership  to hushkit the aircraft on or before its 1999 C-check
visit at its own expense  (approximately  $2.5  million) at which time the lease
rate  increases  to $139,000  per month.  Pursuant to the lease  agreement,  the
aircraft  underwent  a "C" check and  received a hushkit in December  1998.  The
Partnership incurred costs of approximately $2,412,000 related to the hushkit in
1998 and 1999.

         The lease requires Capital Cargo to fund  maintenance  reserves monthly
at a rate of $377 per flight hour.  Capital Cargo  provided an initial  security
deposit of $50,000 and added  $17,000 per month to the security  deposit  during
the lease term until the deposit  totaled  $220,000.  The lease was executed and
aircraft was delivered to Capital Cargo in July 1997.

         Shortly after delivery of the aircraft to Capital Cargo in 1997, one of
the engines failed.  In August 1998, the  Partnership  reached an agreement with
Capital  Cargo,  in which the  Partnership  shared in the cost to  overhaul  the
engine on this aircraft. The Partnership's share of the overhaul was $266,000.

         TNT Transport  International  B.V.  Lease. In June 1998 the Partnership
delivered a Boeing 727-200 advanced aircraft formerly leased to Continental to a
European freight carrier,  TNT Transport  International B.V. ("TNT") for a lease
term of four years. The lease provides for monthly rentals of $123,500  (subject
to a reduction of approximately 10% after two years if TNT exercises, during the
lease term, an option to extend the lease for an additional two years beyond the
original expiration date) and airframe and landing gear reserves aggregating $85
per flight hour.  TNT has  contracted  with a third party  service  provider for
maintenance of the engines.  TNT has provided a $150,000 security  deposit.  TNT
also has the right to extend the lease for an additional two years at the end of
the initial  lease term (if the above  option is not  exercised)  at $95,000 per
month.

                                       27
<PAGE>


         The Partnership has invested approximately $7.8 million for a low gross
weight hushkit and cargo  conversion of the aircraft,  and the purchase of three
JT8D-7B  engines.  The Partnership  received cash proceeds of $1,050,000 for the
sale of the JT8D-15  engines  from this  aircraft,  which  resulted in a $60,000
impairment  expense. In the third quarter of 1998, due to the conversion of this
aircraft to a freighter,  the Partnership wrote-off the remaining net book value
of the interior,  determined through a third party appraisal,  which resulted in
an impairment expense of $57,000.

         TNT is responsible  for the first $50,000 of cost in complying with the
newly  issued  freighter  conversion  AD.  Costs in  excess of this  amount  are
initially  paid for by TNT. At the end of the lease,  TNT will be  reimbursed by
the  Partnership  for a portion of the AD compliance cost based on a formula set
forth in the Partnership agreement, not to exceed $250,000.

Significant Lessees

         The Partnership  leased its aircraft to nine different  airlines during
1999.  Revenues from each of the airlines which  accounted for 10% or greater of
the  Partnership's  total  rental  revenue  during  1999,  1998  and 1997 are as
follows:


Airlines                                         Percentage of Rental Revenue(a)
                                                   1999       1998      1997
                                                   ----       ----      ----

Continental Airlines, Inc. (b)                      20%        25%        33%
Trans World Airlines, Inc.                          19         21         30
Aerovias de Mexico S.A. de C.V.                     15         14         15
Capital Cargo International Airlines, Inc.          14         (c)        (c)
TNT Transport International B.V.                    13         (c)        (c)
USAirways Group Inc.                                10         (c)        (c)

(a)      Such percentages include the periodic  recognition of amounts that were
         prepaid in connection with certain lease settlements.

(b)      Includes rental revenue from Continental Micronesia, Inc., a subsidiary
         of Continental Airlines, Inc.

(c)      Represents less than 10%.

         Revenues  include rentals from aircraft  leased to foreign  airlines or
carriers  of  $3,350,200,  $3,429,000  and  $1,851,000  in  1999,  1998 and 1997
respectively.

                          Future Minimum Rental Income

         The  following is a schedule by year of future  minimum  rental  income
under the leases as of December 31, 1999 (in thousands):

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

              2000                                           $ 9,304
              2001                                             8,368
              2002                                             6,139
              2003                                             5,240
              2004                                             4,870
              Thereafter                                       3,565
                                                             -------
              Total                                          $37,486
                                                             =======

         The above schedule of future minimum rental income, includes a total of
$2,470 of rents from those lessees on non-accrual  status,  but does not include
rental  income  which would  result  from the renewal of existing  leases or the
re-leasing of the aircraft, unless the renewal has been exercised.

                                       28
<PAGE>


         The Partnership operates in one industry,  the leasing of used aircraft
to commercial passenger and freight airlines.

5.       Notes Payable

         In December  1996,  the  Partnership  established  a  $10,000,000  loan
facility with an unaffiliated  third party lender. The loan commitment was for a
period  of  36  months,  terminating  December  31,  1999,  at  which  time  the
outstanding  principal was due. The Partnership  utilized  $4,751,000 to pay off
its prior two facilities.  In February,  1999, the lender agreed to increase the
borrowing  commitment  from  $10,000,000  to  $12,500,000.  The  lender  further
increased  the  line  of  credit  to  $19.0  million  in  September,  1999.  The
outstanding  balance under this facility at December 31, 1999 was $16.5 million.
The lender has agreed to extend the maturity date until March 31, 2000 while the
Partnership  obtains a replacement  lender.  The loan provides for interest at a
rate of 1.5% over the lender's prime rate of interest and is payable monthly. At
December 31, 1999 the interest  rate was 10%. The  Partnership  must  maintain a
minimum balance outstanding of $4,000,000 during the loan commitment period. The
loan is  collateralized  by the  Partnership's  interest  in the MD-82  aircraft
leased to TWA, the three 727-200  aircraft  leased to Kitty Hawk,  Capital Cargo
and Falcon and the MD DC-10-10  aircraft.  Subject to final  documentation,  the
Partnership  has  negotiated  a loan  with a new  lender  that will  permit  the
borrowing  of up to $30  million.  (See  Note  11 to the  Financial  Statements,
"Subsequent Event").

         The Limited Partnership  Agreement permits the Partnership to borrow up
to 35% (or $50,785,000) of the original offering  proceeds.  It is the intent of
the General  Partners to obtain  financing to fund the  conversion  to freighter
configuration  of the DC 10-10  aircraft  and to replace  the  existing  lender.
However, if the Partnership is unable to secure additional borrowing capacity to
fund these  commitments the Partnership may elect to sell the DC 10-10 aircraft.
Alternatively,  the  Partnership  may have to utilize  cash from  operations  to
finance such commitments,  thus potentially reducing or suspending distributions
to partners.

6.       Transactions With Affiliates

         Management  Fees.  The  General  Partners  are  entitled to a quarterly
subordinated  base management fee in an amount  generally equal to 1.5% of gross
aircraft rentals,  net of re-lease fees paid. Of this amount, 1.0% is payable to
the Managing General Partner and 0.5% is payable to the  Administrative  General
Partner.  During the years ended  December 31, 1999,  1998 and 1997, the General
Partners  earned  base  management  fees of  $174,000,  $177,000  and  $179,000,
respectively.

         The General  Partners  also are  entitled  to a quarterly  subordinated
incentive  management fee, in an amount equal to 4.5% of quarterly cash flow and
sales  proceeds (net of resale  fees),  of which 2.5% is payable to the Managing
General  Partner  and 2.0% is payable  to the  Administrative  General  Partner.
During the years ended December 31, 1999,  1998 and 1997,  the General  Partners
earned   incentive   management   fees  of  $442,000,   $505,000  and  $495,000,
respectively.

         Re-lease  Fee.  The  General  Partners  are  entitled  to  a  quarterly
subordinated fee for re-leasing  aircraft or renewing a lease in an amount equal
to 3.5% of the gross  rentals from such re-lease or renewal for each quarter for
which such payment is received.  Of this amount, 2.5% is payable to the Managing
General  Partner  and 1.0% is payable  to the  Administrative  General  Partner.
During the years ended December 31, 1999,  1998 and 1997,  the General  Partners
earned re-lease fees of $344,000, $335,000 and $303,000, respectively.

         Beginning  July 1,  1995,  as part of the 1996 and  1997  class  action
settlement,  the  Administrative  General  Partner  remits to an affiliate,  all
management fees as well as all 1997 and future fees and  distributions  received
by the  Administrative  General Partner,  for deposit into an escrow account for
the benefit of the class action members.

         Accountable   Expenses.   The   General   Partners   are   entitled  to
reimbursement  of certain  expenses paid on behalf of the Partnership  which are
incurred  in  connection   with  the   administration   and  management  of  the
Partnership. Such reimbursable expenses amounted to $-0-, $19,000 and $75,000 in
each of the years ended  December 31, 1999,  1998 and 1997, of which $38,000 was
payable to the Administrative  General Partner at December 31, 1999. The decline
in  accountable  expenses  is due to the  subcontracting  of certain  accounting
services, and their cost is included in general and administrative expenses.

         Other.  During  1999,  1998 and 1997,  the  Partnership  paid  $87,000,
$1,313,000 and  $1,694,000,  respectively,  to a licensed  maintenance  facility
affiliated  with the  Managing  General  Partner for work  performed  on certain
aircraft.  Additionally,  during  1999,  1998 and  1997,  the  Partnership  paid
$1,294,000,  $1,887,000 and $2,308,000,  respectively, to a company owned by the

                                       29
<PAGE>

President  and  Director and two former  officers and  directors of the Managing
General  Partner,  for the purchase of parts in connection  with certain capital
projects.


                                       30
<PAGE>

7.       Reconciliation to Income Tax Method of Accounting

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

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

Net income per financial statements              $    978   $  1,855   $  1,255
Increase (decrease) resulting from:
   Depreciation                                      (648)    (4,523)    (4,547)
   TBT interest income, less
      TBT rental expense                           (1,492)    (1,174)      (932)
   Gain on sale of engines                             85        524         --
   Reserves for maintenance costs,
      net of maintenance expense and
      write-downs of aircraft                        (192)       459      1,400
   Maintenance reserve payable                      1,113      1,184        590
   Deferred rental income                            (192)      (526)    (1,686)
   Rental income                                     (285)       285         --
   Provisions for bad debts                            --     (1,678)        --
   Management fees                                     27        (26)        --
   Other                                               13        (18)       123
                                                 --------   --------   --------
Taxable (loss) income per federal
  income tax return                              $   (593)  $ (3,638)  $ (3,797)
                                                 ========   ========   ========

         The following is a  reconciliation  of the amount of the  Partnership's
total Partnership capital as shown in the accompanying  financial  statements to
the tax bases of the Partnership's net assets (in thousands):

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

Total Partnership capital per
   financial statements                          $ 24,185    $ 34,200  $ 44,070
Increase (decrease) resulting from:
   Commission and expenses paid
      in connection with the sale of limited
      partnership units                            16,295      16,295    16,295
   Accounts receivable                                233         285        --
   Distributions payable to partners                2,169       2,931     2,943
   Management fees payable                             --         (26)       --
   Reserves for maintenance costs and
      write-downs                                  22,627      22,321    20,276
   Deferred income                                    167         759     2,028
   Accumulated depreciation                       (43,096)    (42,448)  (38,712)
   TBT interest income less TBT rental expense     (6,516)     (5,055)   (3,881)
   Lease settlement payment, including lease
      aircraft received accounted for under the
      cost recovery method                         10,115      10,115    10,115
   Allowance for bad debts                             --          --       640
   Securities received in leasing transaction          --          --       599
   Fixed Assets                                       538          --        --
   Other                                              328         (13)      354
                                                 --------    --------  --------
Tax bases of net assets                          $ 27,045    $ 39,364  $ 54,727
                                                 ========    ========  ========


                                       31
<PAGE>


8.       Litigation

         After  not  being  able  to  arrive  at  a  negotiated   settlement  of
outstanding  issues with VASP, the Partnership filed suit in May, 1999 in Brazil
and June, 1999 in Florida to repossess the two CF6-50C2 engines. It also sued in
Florida for unpaid rent, reserves and the repair of the engine in Florida, which
was damaged in January of 1999.  In  conjunction  with the Brazilian  suit,  the
Partnership  was  required  to post a letter of credit and the bank  issuing the
letter of credit  required the  segregation by the  Partnership of $371,000 in a
restricted cash account.

         The Brazilian Court ruled in May that the  Partnership  could repossess
the engine in Brazil,  although that ruling was stayed until  September 3, 1999,
after the completion of all of VASP's appeals.  The Partnership has the right to
export the  Brazilian  engine and is  working  with local  counsel to obtain the
necessary approval to do so.

         A trial was held in Florida in December  and January  2000 and an order
of the  court  favorable  to the  Partnership  with  respect  to  the  rent  and
maintenance  reserve  claims is  anticipated,  pending the  resolution of VASP's
appeals as to the proper  venue.  The  damaged  engine has been sent to a repair
facility in California and will be disassembled  for inspection when the Florida
court issues its final ruling as to  possession.  It is  anticipated  that there
will be an additional trial with respect to the damages.

9.       Fair Value of Financial Instruments

         SFAS No. 107, "Disclosures about Fair Value of Financial  Instruments,"
requires disclosure of fair value of certain financial  instruments,  whether or
not reported in the balance  sheet.  Where quoted market prices are  unavailable
the  values  are  based on  estimates  using  present  value or other  valuation
techniques.  The results are  significantly  affected  by the  assumptions  used
including  the discount  rate and  estimates of future cash flows.  In addition,
because SFAS No. 107 excludes  certain  assets such as leased  aircraft owned by
the Partnership, the aggregate fair value amounts discussed below do not purport
to  represent  and should not be  considered  representative  of the  underlying
market value of the Partnership.

         The methods  and  assumptions  used to estimate  the fair value of each
class of the financial instruments are described below.

         Cash and cash  equivalents,  rents  and  other  receivables.  For these
balances, carrying value approximates fair value due to their short-term nature.

         Notes payable.  For notes payable,  carrying  value  approximates  fair
value due to its short term remaining maturity.

         Accounts  payable  and accrued  expenses,  payable to  affiliates,  and
accrued interest payable.  For these balances  carrying value  approximates fair
value due to their short-term nature.

10.      Commitments

         The extended lease on the McDonnell  Douglas  DC10-10 with  Continental
expired on September 15, 1999. Work necessary for the aircraft to meet the lease
return conditions was done at Continental's  expense at a maintenance  facility.
Continental  continued  to pay  rent  until  the  aircraft  achieved  the  lease
requirements for its return, which took place on December 16, 1999. The aircraft
is being  stored  until  June,  2000 at which time it will enter a  modification
facility  to be  converted  to a freighter  for Emery  Worldwide  Airlines  Inc.
("Emery"). The conversion work is estimated to cost $12.6 million.

11.      Subsequent Event

         The Partnership has completed loan  negotiations and loan documents are
being  written  with a new lender  that will permit the  borrowing  of up to $30
million.  The new  borrowings  are intended to retire the  outstanding  debt and
provide funds for the DC 10-10 freighter  conversion.  The term of the loan will
be six years, with interest only payments the first twelve months. The principal
will then be repaid in equal quarterly installments over the next 60 months. The
Partnership  will pay a 1.0%  commitment  fee and the interest  rate will be 225
basis  points  over the  lenders  prime  rate.  The lender will have a mortgaged
interest  in all  aircraft,  except  the 50%  interest  in the  USAirways  MD-81
aircraft.

                                       32
<PAGE>



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

         There were no changes in accountants or disagreements  with accountants
with respect to accounting or financial  disclosure issues during 1999, 1998 and
1997.

                                       33
<PAGE>


                                    PART III

ITEM 10.      DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

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

                     Pegasus Aircraft Management Corporation

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

Richard S. Wiley            President and Chairman of the Board
Carol L. Chase              Senior Vice President, General Counsel and Secretary
Robert M. Brown             Senior Vice President
Richard L. Funk             Senior Vice President, Technical

         Richard S. Wiley, age 46, is President and Chairman of the Board of the
Managing  General Partner and Pegasus  Capital  Corporation  ("PCC"),  which was
formed in 1988.  Prior to forming Pegasus Capital  Corporation,  Mr. Wiley was a
Vice  President  of CIS  Corporation  ("CIS"),  a  wholly  owned  subsidiary  of
Continental Information Systems Corporation  ("Continental") for the period 1986
to 1988. Mr. Wiley  originated  aircraft  transactions  throughout the world and
sold aircraft to third-party  investors.  From 1985 to 1986, Mr. Wiley worked as
Treasurer of Caterpillar Capital Company in San Diego, California.  From 1983 to
1985,  he served as Managing  General  Partner and  President  of RAM  Financial
Corporation in Houston,  Texas, an equipment  leasing  venture capital  company.
Prior to joining  RAM,  he worked  for GATX  Leasing  Corporation  as a District
Manager  from 1980 to 1983.  Mr. Wiley  received a B.S.  degree from the Indiana
University  School of Business and an M.B.A.  from the University of California,
Los Angeles.

         Carol L.  Chase,  Esq.,  age 47, is a Senior  Vice  President,  General
Counsel and  Secretary  of the  Managing  General  Partner  and Pegasus  Capital
Corporation.  She is responsible  for providing legal counsel for all aspects of
capital equipment  leasing,  financing and placement.  Prior to joining Pegasus,
from 1987 to 1988,  Ms.  Chase was  Senior  Corporate  Counsel  at CIS where she
provided  legal  counsel  for  transactions   involving   aircraft  and  related
equipment.  From  1981 to 1987,  Ms.  Chase was legal  counsel  at  Transamerica
Airlines where she was responsible for the legal  negotiation and  documentation
for the  purchase,  sale,  lease and  finance of aircraft  and  aircraft-related
equipment.  Ms. Chase received a B.A. degree from California  State  University,
Hayward and a J.D.  degree from the  University of California,  Davis.  She is a
member of the State Bar of  California,  the American Bar  Association,  and the
American Corporate Counsel Association.

         Robert M.  Brown,  41,  joined PCC in 1988 and is  involved in aircraft
acquisitions, finance and leasing. His primary responsibility is the structuring
of debt transactions  which accommodate the PCC trading and long-term  investing
activities.  Previously,  he served as Vice President,  Aircraft  Sales,  and as
Regional  Marketing  Director  during the  offerings of the  Partnership  and an
affiliated  partnership.  Prior to joining PCC,  Mr. Brown was District  Manager
with the Chrysler  Corporation.  He holds a BA degree from Dartmouth College and
an MBA from the University of Washington.

         Richard L. Funk,  62,  joined  PCC in 1992 and is  responsible  for the
technical aspects of aircraft  marketing,  including  delivery and redelivery of
aircraft  to  airlines  world wide.  From 1990 to 1992,  he served as  technical
marketing  consultant  to the  aviation  industry  and from  1987 to 1990 he was
President of Avtek  Industries,  Inc.,  an  aircraft,  missile,  and  electronic
components manufacturer which he founded. From 1984 to 1986 he was President and
Chief  Operating  Officer of Standard Aero Western,  Inc., a commercial  airline
maintenance  facility.  From  1979 to 1982,  he was  Senior  Vice  President  of
Engineering  and  Maintenance at World  Airways,  Inc. From 1963 to 1979 he held
various  positions with United Air Lines,  Inc.,  including  Manager of Airframe
Maintenance for a period of six years.

                                       34
<PAGE>


                           Air Transport Leasing, Inc.

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

Clifford B. Wattley             President and Director
Stephen R. Dyer                 Vice President, Assistant Secretary and Director
Carmine Fusco                   Vice President, Secretary, Treasurer and
                                Chief Financial and Accounting Officer

         Clifford  B.  Wattley,  age 50,  is  President  and a  Director  of the
Administrative  General Partner.  Mr. Wattley is a Corporate Vice President with
PaineWebber  Incorporated,  having joined the firm in 1986. He also was employed
previously by Paine,  Webber,  Jackson & Curtis from 1979 to 1980.  From 1986 to
1992, Mr. Wattley  participated in PaineWebber's  Principal  Transactions Group.
Since 1992, Mr. Wattley has been a member of the Private Investment  Department.
He holds a Bachelor of Science  degree in engineering  from Columbia  University
and a Masters in Business Administration from Harvard University.

         Stephen R. Dyer, age 40, is Vice President,  Assistant  Secretary and a
Director  of  the   Administrative   General  Partner.   He  joined  PaineWebber
Incorporated  in June 1988 as a  Divisional  Vice  President  and is currently a
Senior Vice  President  and  Director of Private  Investments.  Prior to joining
PaineWebber  Incorporated,  Mr. Dyer had been  employed,  since June 1987, as an
Assistant  Vice  President  in  the  Retail  National  Products  Group  of  L.F.
Rothschild & Co. Incorporated. Prior to joining L.F. Rothschild he was employed,
beginning in January  1985,  as an Associate  in the Real Estate  Department  of
Thomson McKinnon  Securities Inc. From July 1981 to August 1983, Mr. Dyer was on
the audit staff of the  accounting  firm of Arthur  Young & Co. He received  his
Bachelor  of Science  degree in  Accounting  in 1981 from  Boston  College and a
Masters of Business Administration from Indiana University in December 1984. Mr.
Dyer is a Certified Public Accountant.

         Carmine  Fusco,  age 31, is Vice  President,  Secretary,  Treasurer and
Chief Financial and Accounting Officer of the Administrative General Partner, he
also  serves as an  Assistant  Vice  President  within the  Private  Investments
Department of PaineWebber  Incorporated.  Mr. Fusco had previously been employed
as a Financial Valuation  Consultant in the Business Valuation Group of Deloitte
& Touche,  LLP from January 1997 to August 1998.  He was employed as a Commodity
Fund  Analyst  in  the  Managed  Futures  Department  of  Dean  Witter  Reynolds
Incorporated,  from October 1994 to November 1995. Prior to joining Dean Witter,
Mr.  Fusco  was a Mutual  Fund  Accountant  with  the  Bank of New York  Company
Incorporated.  He received  his  Bachelor of Science  degree in  Accounting  and
Finance  in  May  1991  from  Rider   University   and  a  Master  of   Business
Administration from Seton Hall University in June 1996.

ITEM 11.      EXECUTIVE COMPENSATION

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


                                       35
<PAGE>


ITEM 12.      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

(a)      As of the date hereof,  no person is known by the Partnership to be the
         beneficial owner of more than 5% of the Units of the  Partnership.  The
         Partnership  has no directors  or officers,  and neither of the General
         Partners  of the  Partnership  owns any  Units.  The  Assignor  Limited
         Partner  for  the  Partnership,   Pegasus  Assignor  L.P.A.,  Inc.  (an
         affiliate of the Managing General Partner), owns 5 Units. Additionally,
         ATL Inc.,  an  affiliate  of the  Administrative  General  Partner owns
         approximately 112,916 units.

The names and addresses of the General Partners are as follows:

                Managing General Partner:

                     Pegasus Aircraft Management Corporation
                     Four Embarcadero Center, 35th Floor
                     San Francisco, CA 94111

                Administrative General Partner:

                      Air Transport Leasing, Inc.
                      1200 Harbor Boulevard, 5th Floor
                      Weehawken, NJ 07087

         The General Partners,  collectively, have a 1% interest in each item of
         the  Partnership's  income,  gains,  losses,  deductions,  credits  and
         distributions.

(b)      The following table sets forth the number of Units  beneficially  owned
         by directors of the General  Partners and by all directors and officers
         of such corporations as a group as of March 1, 2000.

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

         Richard S. Wiley                        25,296                 *

         Carol L. Chase                           1,300                 *

         Robert M. Brown                          1,000                 *

         All directors and
         officers as a group
         (4 persons)                             27,596                 *

         Air Transport Leasing, Inc.
         ---------------------------
             None

         *  Less than 1% of class.

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


                                       36
<PAGE>

ITEM 13.      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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

         Following  is a summary of the  amounts  paid or payable to the General
Partners and their affiliates during 1999.

         Base  Management  Fee.  The  General   Partners   receive  a  quarterly
subordinated  base management fee in an amount  generally equal to 1.5% of gross
aircraft rentals,  net of re-lease fees paid. Of this amount, 1.0% is payable to
the Managing General Partner and 0.5% is payable to the  Administrative  General
Partner.  During  1999,  the General  Partners  earned base  management  fees of
$174,000.

         Incentive  Management  Fee.  The General  Partners  receive a quarterly
subordinated  incentive  management fee, in an amount equal to 4.5% of quarterly
cash flow and sales  proceeds (net of resale fees),  of which 2.5% is payable to
the Managing General Partner and 2.0% is payable to the  Administrative  General
Partner.  The General  Partners  earned  incentive  management  fees of $442,000
during 1999.

         Re-lease Fee. The General Partners receive a quarterly subordinated fee
for  re-leasing  aircraft or renewing a lease in an amount  equal to 3.5% of the
gross  rentals  from such  re-lease or renewal  for each  quarter for which such
payment is  received.  Of this amount,  2.5% is payable to the Managing  General
Partner and 1.0% is payable to the Administrative  General Partner.  The General
Partners earned re-lease fees of $344,000 during 1999.

         Accountable   Expenses.   The   General   Partners   are   entitled  to
reimbursement  of certain  expenses paid on behalf of the Partnership  which are
incurred  in  connection   with  the   administration   and  management  of  the
Partnership.  Such  reimbursable  expenses  amounted to $-0- during 1999, all of
which was paid or accrued to the Administrative General Partner. As discussed in
Note 6 to the Financial  Statements,  accountable  expenses  declined due to the
subcontracting  of certain  accounting  services,  and their cost is included in
general and administrative expenses.

         Other. In 1999, the Partnership  purchased  certain equipment and parts
for two Partnership  aircraft from a company owned by the Director and President
and two former  officers and  directors of the Managing  General  Partner in the
amount of $1,294,000.  During 1999, the  Partnership  paid $87,000 to a licensed
maintenance  facility  affiliated  with the  Managing  General  Partner for work
performed on certain aircraft.

         Partnership Interest. The General Partners received or were entitled to
receive distributions of $110,000 as their allocable share of distributable cash
flow for 1999. In addition, $182,000 of the Partnership's net taxable income for
1999 was allocated to the General Partners.


                                       37
<PAGE>



                                     PART IV

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

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

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

         (b)  The  Partnership  filed a Report  on Form 8-K on  October  5, 1999
              reporting  an increase  in its line of credit  under Item 5, Other
              Events.

              The  Partnership  also filed a Report on Form 8-K on  January  21,
              2000  reporting  a  change  in the  distribution  rate to  limited
              partners under Item 5, Other Events.

         (c)  Exhibits required to be filed.

         Exhibit No.    Description
         -----------    -----------

         3.1 (a)        Amended and Restated Limited Partnership Agreement dated
                        April 27, 1989,  as amended and restated  July 11, 1989.
                        Filed  as  Exhibit  3.1  to the  Registrant's  Quarterly
                        Report on Form 10-Q for the quarter ended  September 30,
                        1989.*

         (b)            Amendment, dated as of December 26, 1990, to the Amended
                        and Restated  Limited  Partnership  Agreement dated July
                        11, 1989. Filed as Exhibit 1 to the Registrant's Current
                        Report on Form 8-K dated December 26, 1990.*

         (c)            Amendment,  dated as of March 31,  1992,  to the Amended
                        and Restated  Limited  Partnership  Agreement dated July
                        11, 1989. Filed as Exhibit 4 to the Registrant's Current
                        Report on Form 8-K dated April 16, 1992.*

         10.1 (a)       Agreement   pursuant  to  Selection   168(f)(8)  of  the
                        Internal  Revenue  Code of  1954,  as  amended,  between
                        Pacific Southwest Airlines and General Mills, Inc. Filed
                        as Exhibit 19.3(c) to the Quarterly  Report on Form 10-Q
                        for  the  quarter  ended  March  31,  1989  for  Pegasus
                        Aircraft Partners, L.P. (Commission File No. 33-22986).*

         (b)            Participation Agreement, dated September 21, 1989, among
                        Pegasus  Aircraft  Partners,  L.P.,  a Delaware  limited
                        partnership   ("Pegasus   Aircraft   Partners"),   First
                        Security Bank of Utah, National  Association (the "Owner
                        Trustee"),  Concord Asset  Management,  Inc., a Delaware
                        corporation  ("CAMI"),  and  the  Registrant.  Filed  as
                        Exhibit 19.2(e) to the Registrant's  Quarterly Report on
                        Form 10-Q for the quarter ended September 30, 1989.*

         (c)            Amended  and  Restated  Reimbursement  Agreement,  dated
                        September 21, 1989 between Pegasus Aircraft Partners and
                        CAMI.  Filed  as  Exhibit  19.2(f)  to the  Registrant's
                        Quarterly  Report  on Form  10-Q for the  quarter  ended
                        September 30, 1989.*

         (d)            Reimbursement  Agreement,   dated  September  21,  1989,
                        between  the  Registrant  and  CAMI.  Filed  as  Exhibit
                        19.2(g)  to the  Registrant's  Quarterly  Report on Form
                        10-Q for the quarter ended September 30, 1989.*

         (e)            Amended and Restated Security Agreement, dated September
                        21, 1989  between  Pegasus  Aircraft  Partners and CAMI.
                        Filed as Exhibit 19.2(h) to the  Registrant's  Quarterly
                        Report on Form 10-Q for the quarter ended  September 30,
                        1989.*

                                       38
<PAGE>

         (f)            Security  Agreement,  dated September 21, 1989,  between
                        the Registrant and CAMI. Filed as Exhibit 19.2(i) to the
                        Registrant's  Quarterly  Report  on  Form  10-Q  for the
                        quarter ended September 30, 1989.*

         (g)            Security  Agreement,  dated September 21, 1989,  between
                        the Registrant and Pegasus Aircraft  Partners.  Filed as
                        Exhibit 19.2(j) to the Registrant's  Quarterly Report on
                        Form 10-Q for the quarter ended September 30, 1989.*

         (h)            Security  Agreement,  dated September 21, 1989,  between
                        Pegasus Aircraft  Partners and the Registrant.  Filed as
                        Exhibit 19.2(k) to the Registrant's  Quarterly Report on
                        Form 10-Q for the quarter ended September 30, 1989.*

         (i)            Trust  Agreement 814, dated as of March 10, 1989,  among
                        Pegasus Capital  Corporation,  a California  corporation
                        ("PCC") as  Beneficiary,  Pegasus  Aircraft  Partners as
                        Beneficiary,  and the Owner  Trustee.  Filed as  Exhibit
                        19.3(i)  to the  Quarterly  Report  on Form 10-Q for the
                        quarter  ended  March  31,  1989  for  Pegasus  Aircraft
                        Partners, L.P. (Commission File No. 33-22986).*

         (j)            First  Amendment to Trust Agreement 814, dated September
                        21,   1989,   among   Pegasus   Aircraft   Partners   as
                        Beneficiary,  the  Registrant  as  Beneficiary,  and the
                        Owner   Trustee.   Filed  as  Exhibit   19.2(m)  to  the
                        Registrant's  Quarterly  Report  on  Form  10-Q  for the
                        quarter ended September 30, 1989.*

         (k)            Amended  and  Restated  Lease No. 1, dated  October  14,
                        1988,  between PS Group,  Inc. and USAir,  Inc. Filed as
                        Exhibit 10.2.9 to Form S-1 Registration  Statement dated
                        July 3, 1989 (Commission File No. 33-28359).*

         (l)            Assumption  Agreement,  dated March 22, 1989, among PCC,
                        the Buyer, CAMI and Pegasus Aircraft Partners.  Filed as
                        Exhibit No. 19.3(e) to the Quarterly Report on Form 10-Q
                        for  the  quarter  ended  March  31,  1989  for  Pegasus
                        Aircraft Partners, L.P. (Commission File No. 33-22986).*

         (m)            Letter of Credit Agreement,  dated as of April 30, 1992,
                        between First Security Bank of Utah as Owner Trustee and
                        Philadelphia National Bank, Incorporated,  as CoreStates
                        Bank, N.A. Filed as Exhibit 10.4(a) to the  Registrant's
                        Quarterly Report on Form 10-Q for the quarter ended June
                        30, 1992.*

         (n)            Assumption  Agreement,   dated  April  30,  1992,  among
                        Pegasus  Aircraft  Partners,  L.P. and Pegasus  Aircraft
                        Partners II, L.P. as Obligors and Philadelphia  National
                        Bank,  Incorporated,  as CoreStates  Bank, N.A. Filed as
                        Exhibit 10.4(b) to the Registrant's  Quarterly Report on
                        Form 10-Q for the quarter ended June 30, 1992.*

         (o)            Security  Agreement and Assignment of Lease, dated as of
                        April 30, 1992,  between  First  Security  Bank of Utah,
                        National  Association as Owner Trustee and  Philadelphia
                        National Bank,  Incorporated,  as CoreStates  Bank, N.A.
                        Filed as Exhibit 10.4(c) to the  Registrant's  Quarterly
                        Report  on Form  10-Q  for the  quarter  ended  June 30,
                        1992.*

         (p)            Assignment  of  Collateral,  dated as of April 30, 1992,
                        between   Pegasus   Aircraft   Partners   II,  L.P.  and
                        Philadelphia National Bank, Incorporated,  as CoreStates
                        Bank, N.A. Filed as Exhibit 10.4(d) to the  Registrant's
                        Quarterly Report on Form 10-Q for the quarter ended June
                        30, 1992.*

         10.2 (a)       Trust Agreement 047, dated as of April 12, 1989, between
                        PCC as  Beneficiary,  and First  Security  Bank of Utah,
                        National Association as Owner Trustee.  Filed as Exhibit
                        19.3(b)  to the  Registrant's  Quarterly  Report on Form
                        10-Q for the quarter ended September 30, 1989.*

         (b)            Lease Agreement 047, dated as of April 12, 1989, between
                        Owner Trustee and  Continental  Airlines,  Inc. Filed as
                        Exhibit 19.3(c) to the Registrant's  Quarterly Report on
                        Form 10-Q for the quarter ended September 30, 1989.*

                                       39
<PAGE>


         (c)            Amendment No. 1 to Lease  Agreement 047, dated September
                        21, 1989.  Filed as Exhibit 10.3(f) to the  Registrant's
                        Annual  Report on Form 10-K for the year ended  December
                        31, 1989.*

         (d)            Stipulation  and  Order,  dated  June  19,  1991,  among
                        Continental Airlines, Inc., New York Airlines, Inc., Bay
                        Air Lease I, Cirrus Capital Corporation of Florida,  Bay
                        Air Lease III, Meridian Trust Company, as Owner Trustee,
                        IAL  Aircraft   Acquisitions,   Inc.,  Pegasus  Aircraft
                        Partners  II, L.P.,  Pegasus  Capital  Corporation,  IAL
                        Aviation  Resources,   Inc.,  Aircraft  Leasing,   Inc.,
                        Pegasus  Aircraft   Partners,   L.P.,  Gilman  Financial
                        Services, Inc. and First Security Bank of Utah, as Owner
                        Trustee   concerning   various   aircraft  and  aircraft
                        engines.  Filed as Exhibit  19.1(a) to the  Registrant's
                        Quarterly Report on Form 10-Q for the quarter ended June
                        30, 1991.*

         (e)            Agreed Order,  dated July 3, 1991,  in  connection  with
                        approval of Stipulation and Order,  dated June 19, 1991,
                        among  Continental  Airlines,  Inc.,  New York Airlines,
                        Inc.,  Bay Air Lease I, Cirrus  Capital  Corporation  of
                        Florida,  Bay Air Lease III, Meridian Trust Company,  as
                        Owner Trustee, IAL Aircraft Acquisitions,  Inc., Pegasus
                        Aircraft Partners II, L.P., Pegasus Capital Corporation,
                        IAL Aviation Resources,  Inc.,  Aircraft Leasing,  Inc.,
                        Pegasus  Aircraft   Partners,   L.P.,  Gilman  Financial
                        Services, Inc. and First Security Bank of Utah, as Owner
                        Trustee   concerning   various   aircraft  and  aircraft
                        engines.  Filed as Exhibit  19.1(b) to the  Registrant's
                        Quarterly Report on Form 10-Q for the quarter ended June
                        30, 1991.*

         (f)            Supplemental  Stipulation and Order,  dated December 30,
                        1992, among Continental Airlines, Inc., Bay Air Lease I,
                        Cirrus  Capital  Corporation  of Florida,  Bay Air Lease
                        III,  Aviation  Assets I, Aviation  Assets II,  Aviation
                        Assets   III,   Aviation   Assets   IV,   IAL   Aircraft
                        Acquisitions,  Inc., Pegasus Aircraft Partners II, L.P.,
                        Pegasus  Capital  Corporation,  IAL Aviation  Resources,
                        Inc., Pegasus Aircraft Partners,  L.P., Gilman Financial
                        Services,  and  First  Security  Bank of Utah,  as Owner
                        Trustee   concerning   various   aircraft  and  aircraft
                        engines.  Filed as Exhibit  10.2(f) to the  Registrant's
                        Annual  Report on Form 10-K for the year ended  December
                        31, 1992.*

         (g)            Amendment  No. 2 to Lease  Agreement  047 between  First
                        Security  Bank of Utah,  N.A. as Lesser and  Continental
                        Micronesia as Lessee dated March 15, 1995.

         10.3 (a)       Trust  Agreement  32719 between the Registrant and First
                        Security  Bank of Utah,  National  Association  as Owner
                        Trustee.  Filed as Exhibit  19.4(c) to the  Registrant's
                        Quarterly  Report  on Form  10-Q for the  quarter  ended
                        September 30, 1989.*

         (b)            Aircraft Lease Agreement, dated as of February 15, 1993,
                        between   First   Security   Bank  of   Utah,   National
                        Association as Owner Trustee and KIWI  International Air
                        Lines, Inc. Filed as Exhibit 10.1(a) to the Registrant's
                        Quarterly  Report  on Form  10-Q for the  quarter  ended
                        March 31, 1993.*

         (c)            Lease  Supplement  No. 1, dated  March 5, 1993,  between
                        First  Security Bank of Utah,  National  Association  as
                        Owner  Trustee and KIWI  International  Air Lines,  Inc.
                        Filed as Exhibit 10.1(b) to the  Registrant's  Quarterly
                        Report  on Form  10-Q for the  quarter  ended  March 31,
                        1993.*

         (d)            Amendment  No.  1 dated  March  15,  1995  to the  lease
                        between First Security Bank of Utah National Association
                        as Trustee  (Lessor)  and Kiwi  International  Air Lines
                        Inc.  with  respect  to  a  certain  727  Aircraft,   US
                        Registration N32719.*

         10.4 (a)       Trust  Agreement 909, dated as of May 25, 1989,  between
                        PCC as  Beneficiary  and  First  Security  Bank of Utah,
                        National Association as Owner Trustee.  Filed as Exhibit
                        10.5(b) to the  Registrant's  Annual Report on Form 10-K
                        for the year ended December 31, 1989.*

         (b)            Lease  Agreement,  dated as of October 1, 1983,  between
                        DC-9T-II  as  Lessor  and  Trans  World  Airlines,  Inc.
                        ("TWA") as Lessee.  Filed as Exhibit  10.2.8 to Form S-1
                        Registration  Statement  dated July 3, 1989  (Commission
                        File No. 33-28359).*

                                       40
<PAGE>


         (c)            Lease Supplement No. 1 dated,  October 13, 1983, between
                        TWA and DC-9T-II.  Filed with Lease Agreement as Exhibit
                        10.2.8 to Form S-1 Registration  Statement dated July 3,
                        1989 (Commission File No. 33-28359).*

         (d)            Amendment No. 1, dated as of May 1, 1991, to Lease dated
                        as of October 1, 1983,  each between First Security Bank
                        of  Utah,  National  Association  as Owner  Trustee  and
                        Lessor and Trans World Airlines,  Inc. as Lessee.  Filed
                        as Exhibit 19.1(a) to the Registrant's  Quarterly Report
                        on Form 10-Q for the quarter ended March 31, 1991.*

         (e)            Provisional  Amendment,  dated  as of  March  31,  1993,
                        between   First   Security   Bank  of   Utah,   National
                        Association  as Owner Trustee and Trans World  Airlines,
                        Inc.  Filed  as  Exhibit  10.3(a)  to  the  Registrant's
                        Quarterly  Report  on Form  10-Q for the  quarter  ended
                        March 31, 1993.*

         (f)            Amendment  No. 2,  dated as of April 15,  1993,  between
                        First  Security Bank of Utah,  National  Association  as
                        Owner Trustee and Trans World  Airlines,  Inc.  Filed as
                        Exhibit 10.3(b) to the Registrant's  Quarterly Report on
                        Form 10-Q for the quarter ended March 31, 1993.*

         (g)            Agreed  Order,  dated April 14,  1993,  approving  lease
                        amendments  among Trans World  Airlines,  Inc.,  Pegasus
                        Aircraft Partners,  L.P., Registrant and Pegasus Capital
                        Corporation  relating  to  leases of  certain  aircraft.
                        Filed as Exhibit 10.3(c) to the  Registrant's  Quarterly
                        Report  on Form  10-Q for the  quarter  ended  March 31,
                        1993.*

         (h)            Amendment  No. 3 dated  January 16, 1995  between  First
                        Security  Trust of Utah as Lessor Owner  Trustee and TWA
                        as lessee  with  respect  to the  lease of one  Lockheed
                        L-1011 aircraft, U.S.

                        Registration No. N41016.*

         (i)            Amendment  No. 3 dated as of January  16,  1995  between
                        Meridian  Trust  Company as Lessor Owner Trustee and TWA
                        as lessee  with  respect  to the lease of one  McDonnell
                        Douglas MD-82 aircraft, U.S. Registration No. 909TW.*

         10.5 (a)       Lease Agreement,  dated as of December 30, 1981, between
                        First  Security Bank of Utah,  National  Association  as
                        Lessor  and TWA as Lessee.  Filed as  Exhibit  10.2.3 to
                        Form  S-1  Registration  Statement  dated  July 3,  1989
                        (Commission File No. 33-28359).*

         (b)            Trust Agreement,  dated as of December 30, 1981, between
                        BWL as Owner  Participant  and  First  Security  Bank of
                        Utah,  National  Association as Owner Trustee.  Filed as
                        Exhibit  10.6(h) to the  Registrant's  Annual  Report on
                        Form 10-K for the year ended December 31, 1989.*

         (c)            Amendment No. 1, dated as of May 1, 1991, to Lease dated
                        as of December 30, 1981,  each  between  First  Security
                        Bank of Utah, National  Association as Owner Trustee and
                        Lessor and Trans World Airlines,  Inc. as Lessee.  Filed
                        as Exhibit 19.1(a) to the Registrant's  Quarterly Report
                        on Form 10-Q for the quarter ended March 31, 1991.*

         (d)            Provisional  Amendment,  dated  as of  March  31,  1993,
                        between   First   Security   Bank  of   Utah,   National
                        Association  as Owner Trustee and Trans World  Airlines,
                        Inc.  Filed  as  Exhibit  10.4(a)  to  the  Registrant's
                        Quarterly  Report  on Form  10-Q for the  quarter  ended
                        March 31, 1993.*

         (e)            Amendment  No. 2,  dated as of April 15,  1993,  between
                        First  Security Bank of Utah,  National  Association  as
                        Owner Trustee and Trans World  Airlines,  Inc.  Filed as
                        Exhibit 10.4(b) to the Registrant's  Quarterly Report on
                        Form 10-Q for the quarter ended March 31, 1993.*

         (f)            Agreed  Order,  dated April 14,  1993,  approving  lease
                        amendments  among Trans World  Airlines,  Inc.,  Pegasus
                        Aircraft Partners,  L.P., Registrant and Pegasus Capital
                        Corporation  relating  to  leases of  certain  aircraft.
                        Filed as Exhibit 10.4(c) to the  Registrant's  Quarterly
                        Report  on Form  10-Q for the  quarter  ended  March 31,
                        1993.*

                                       41
<PAGE>


         10.6 (a)       Trust Agreement 935, dated as of April 2, 1990,  between
                        Registrant  as  Beneficiary  and First  Security Bank of
                        Utah, National Association,  as Owner Trustee.  Filed as
                        Exhibit 19.1(b) to the Registrant's  Quarterly Report on
                        Form 10-Q for the quarter ended March 31, 1990.*

         (b)            Aircraft  Lease  Agreement,  dated  as of June 1,  1992,
                        between   First   Security   Bank  of   Utah,   National
                        Association  as Owner Trustee and Lessor and Aerovias de
                        Mexico,  S.A.  de  C.V.  as  Lessee,  pertaining  to one
                        McDonnell  Douglas DC-9-31 aircraft,  U.S.  Registration
                        No. N935ML. Filed as Exhibit 10.1(a) to the Registrant's
                        Quarterly Report on Form 10-Q for the quarter ended June
                        30, 1992.*

         (c)            Estoppel and Acceptance Certificate, dated July 1, 1992,
                        executed by  Aerovias de Mexico,  S.A. de C.V. as Lessee
                        under  Aircraft  Lease  Agreement,  dated  as of June 1,
                        1992, between Aerovias de Mexico, S.A. de C.V. and First
                        Security  Bank of Utah,  National  Association  as Owner
                        Trustee and Lessor,  pertaining to one McDonnell Douglas
                        DC-9-31 aircraft, U.S. Registration No. N935ML. Filed as
                        Exhibit 10.1(b) to the Registrant's  Quarterly Report on
                        Form 10-Q for the quarter ended June 30, 1992.*

         10.7 (a)       Trust  Agreement 936,  dated as of May 9, 1990,  between
                        Registrant  as  Beneficiary  and First  Security Bank of
                        Utah, National Association,  as Owner Trustee.  Filed as
                        Exhibit 19.1(b) to the Registrant's  Quarterly Report on
                        Form 10-Q for the quarter ended June 30, 1990.*

         (b)            Aircraft  Lease  Agreement,  dated  as of June 1,  1992,
                        between   First   Security   Bank  of   Utah,   National
                        Association  as Owner Trustee and Lessor and Aerovias de
                        Mexico,  S.A.  de  C.V.  as  Lessee,  pertaining  to one
                        McDonnell  Douglas DC-9-31 aircraft,  U.S.  Registration
                        No. N936ML. Filed as Exhibit 10.2(a) to the Registrant's
                        Quarterly Report on Form 10-Q for the quarter ended June
                        30, 1992.*

         (c)            Estoppel  and  Acceptance  Certificate,  dated  July 20,
                        1992,  executed by  Aerovias de Mexico,  S.A. de C.V. as
                        Lessee under Aircraft Lease Agreement,  dated as of June
                        1, 1992,  between  Aerovias de Mexico,  S.A. de C.V. and
                        First  Security Bank of Utah,  National  Association  as
                        Owner  Trustee and Lessor,  pertaining  to one McDonnell
                        Douglas DC-9-31 aircraft,  U.S. Registration No. N936ML.
                        Filed as Exhibit 10.2(b) to the  Registrant's  Quarterly
                        Report  on Form  10-Q  for the  quarter  ended  June 30,
                        1992.*

         10.7 (d)       Standstill  Agreement  dated December 13, 1994,  between
                        Aerovias de Mexico SA de CV and First  Security  Bank of
                        Utah  National  Association  as  Owner  Trustee  of  two
                        DC-9-31 Aircraft, US Registration N936ML and N937ML.

         10.7 (e)       Standstill  Extension and Amendment dated as of February
                        28, 1995  between  Aerovias de Mexico SA de CV and First
                        Security  Bank of Utah  National  Association  as  Owner
                        Trustee of two DC-9-31 Aircraft,  US Registration N936ML
                        and N937ML.

         10.8 (a)       Trust  Agreement  16982,  dated as of August  22,  1990,
                        between  Registrant as  Beneficiary  and First  Security
                        Bank of Utah,  National  Association  as Owner  Trustee.
                        Filed as Exhibit 19.1(b) to the  Registrant's  Quarterly
                        Report on Form 10-Q for the quarter ended  September 30,
                        1990.*

         (b)            Lease  Agreement  212,  dated as of December  15,  1988,
                        between  Wilmington  Trust  Company as Owner Trustee and
                        Lessor and Continental  Airlines,  Inc. as Lessee. Filed
                        as  Exhibit  10.2.5 to Form S-1  Registration  Statement
                        dated July 3, 1989, (Commission File No. 33-28359).*

         (c)            Amendment  No.  1,  dated as of May 26,  1989,  to Lease
                        Agreement 212, between Wilmington Trust Company as Owner
                        Trustee  and Lessor and  Continental  Airlines,  Inc. as
                        Lessee. Filed as Exhibit 10.2.5 to Form S-1 Registration
                        Statement  dated  July 3,  1989,  (Commission  File  No.
                        33-28359).*

         (d)            Stipulation  and  Order,  dated  June  19,  1991,  among
                        Continental Airlines, Inc., New York Airlines, Inc., Bay
                        Air Lease I, Cirrus Capital Corporation of Florida,  Bay
                        Air Lease III, Meridian Trust Company, as Owner Trustee,

                                       42
<PAGE>

                        IAL  Aircraft   Acquisitions,   Inc.,  Pegasus  Aircraft
                        Partners  II, L.P.,  Pegasus  Capital  Corporation,  IAL
                        Aviation  Resources,   Inc.,  Aircraft  Leasing,   Inc.,
                        Pegasus  Aircraft   Partners,   L.P.,  Gilman  Financial
                        Services, Inc. and First Security Bank of Utah, as Owner
                        Trustee   concerning   various   aircraft  and  aircraft
                        engines.  Filed as Exhibit  19.1(a) to the  Registrant's
                        Quarterly Report on Form 10-Q for the quarter ended June
                        30, 1991.*

         (e)            Agreed Order,  dated July 3, 1991,  in  connection  with
                        approval of Stipulation and Order,  dated June 19, 1991,
                        among  Continental  Airlines,  Inc.,  New York Airlines,
                        Inc.,  Bay Air Lease I, Cirrus  Capital  Corporation  of
                        Florida,  Bay Air Lease III, Meridian Trust Company,  as
                        Owner Trustee, IAL Aircraft Acquisitions,  Inc., Pegasus
                        Aircraft Partners II, L.P., Pegasus Capital Corporation,
                        IAL Aviation Resources,  Inc.,  Aircraft Leasing,  Inc.,
                        Pegasus  Aircraft   Partners,   L.P.,  Gilman  Financial
                        Services, Inc. and First Security Bank of Utah, as Owner
                        Trustee   concerning   various   aircraft  and  aircraft
                        engines.  Filed as Exhibit  19.1(b) to the  Registrant's
                        Quarterly Report on Form 10-Q for the quarter ended June
                        30, 1991.*

         (f)            Supplemental  Stipulation and Order,  dated December 30,
                        1992, among Continental Airlines, Inc., Bay Air Lease I,
                        Cirrus  Capital  Corporation  of Florida,  Bay Air Lease
                        III,  Aviation  Assets I, Aviation  Assets II,  Aviation
                        Assets   III,   Aviation   Assets   IV,   IAL   Aircraft
                        Acquisitions,  Inc., Pegasus Aircraft Partners II, L.P.,
                        Pegasus  Capital  Corporation,  IAL Aviation  Resources,
                        Inc., Pegasus Aircraft Partners,  L.P., Gilman Financial
                        Services,  and  First  Security  Bank of Utah,  as Owner
                        Trustee   concerning   various   aircraft  and  aircraft
                        engines.  Filed as Exhibit  10.8(f) to the  Registrant's
                        Annual  Report on Form 10-K for the year ended  December
                        31, 1992.*

         (g)            Lease  Termination  Agreement  dated  November  15, 1995
                        between  and among  Continental  Airlines,  Inc.,  First
                        Security   Bank  of   Utah,   N.A.,   Pegasus   Aircraft
                        Management, Inc. and Air Transport Leasing, Inc.

         (h)            Supplement to Lease  Termination  Agreement  between and
                        among Continental Airlines, Inc., First Security Bank of
                        Utah, N.A.,  Pegasus Aircraft  Management,  Inc. and Air
                        Transport Leasing, Inc.

         10.9           Prospectus  of  Registrant,  dated as of July 11,  1989.
                        Filed as  Exhibit 2 of the  Registrant's  Form 8-K filed
                        for the Event occurring on September 20, 1989.*

         10.10(a)       Loan  Agreement,  dated June 10, 1992,  between  Pegasus
                        Aircraft  Partners  II, L.P. and  Philadelphia  National
                        Bank,  Incorporated,  as CoreStates  Bank, N.A. Filed as
                        Exhibit 10.3(a) to the Registrant's  Quarterly Report on
                        Form 10-Q for the quarter ended June 30, 1992.*

         (b)            Promissory  Note,  dated June 10, 1992,  made by Pegasus
                        Aircraft  Partners  II,  L.P.  in favor of  Philadelphia
                        National Bank,  Incorporated,  as CoreStates  Bank, N.A.
                        Filed as Exhibit 10.3(b) to the  Registrant's  Quarterly
                        Report  on Form  10-Q  for the  quarter  ended  June 30,
                        1992.*

         (c)            Assignment  of  Collateral,  dated as of June 10,  1992,
                        between   Pegasus   Aircraft   Partners   II,  L.P.  and
                        Philadelphia National Bank, Incorporated,  as CoreStates
                        Bank, N.A. Filed as Exhibit 10.3(c) to the  Registrant's
                        Quarterly Report on Form 10-Q for the quarter ended June
                        30, 1992.*

         (d)            Security  Agreement and Assignment of Lease, dated as of
                        June 10,  1992,  between  First  Security  Bank of Utah,
                        National  Association as Owner Trustee and  Philadelphia
                        National Bank,  Incorporated,  as CoreStates  Bank, N.A.
                        Filed as Exhibit 10.3(d) to the  Registrant's  Quarterly
                        Report  on Form  10-Q  for the  quarter  ended  June 30,
                        1992.*

         10.11(a)       Secured Loan Agreement,  dated September 10, 1992, among
                        Greyhound  Financial  Corporation,  as Lender  and First
                        Security  Bank of Utah,  National  Association  as Owner
                        Trustee under (i) Trust Agreement 935, dated as of April
                        2, 1990,  between First Security Bank of Utah,  National
                        Association and Pegasus Aircraft Partners II, L.P., (ii)
                        Trust  Agreement 936,  dated as of May 9, 1990,  between
                        First Security Bank of Utah,  National  Association  and
                        Pegasus  Aircraft  Partners  II,  L.P.,  and (iii) Trust
                        Agreement 909,  dated as of May 25, 1989,  between First

                                       43
<PAGE>

                        Security Bank of Utah, National  Association and Pegasus
                        Aircraft  Partners  II, L.P. as  Co-Borrowers.  Filed as
                        Exhibit 10.1(a) to the Registrant's  Quarterly Report on
                        Form 10-Q for the quarter ended September 30, 1992.*

         (b)            Promissory Note, dated September 10, 1992, made by First
                        Security  Bank of Utah,  National  Association  as Owner
                        Trustee under (i) Trust Agreement 935, dated as of April
                        2, 1990,  between First Security Bank of Utah,  National
                        Association and Pegasus Aircraft Partners II, L.P., (ii)
                        Trust  Agreement 936,  dated as of May 9, 1990,  between
                        First Security Bank of Utah,  National  Association  and
                        Pegasus  Aircraft  Partners  II,  L.P.,  and (iii) Trust
                        Agreement 909,  dated as of May 25, 1989,  between First
                        Security Bank of Utah, National  Association and Pegasus
                        Aircraft   Partners  II,  L.P.  in  favor  of  Greyhound
                        Financial  Corporation.  Filed as Exhibit 10.1(b) to the
                        Registrant's  Quarterly  Report  on  Form  10-Q  for the
                        quarter ended September 30, 1992.*

         (c)            Beneficial  Interest  Security  Agreement,  dated  as of
                        September 10, 1992,  between Pegasus  Aircraft  Partners
                        II, L.P. and Greyhound Financial  Corporation.  Filed as
                        Exhibit 10.1(c) to the Registrant's  Quarterly Report on
                        Form 10-Q for the quarter ended September 30, 1992.*

         (d)            Continuing Guaranty and Subordination  Agreement,  dated
                        September   10,  1992,   between   Greyhound   Financial
                        Corporation  and First  Security Bank of Utah,  National
                        Association  as Owner Trustee under (i) Trust  Agreement
                        935,  dated as of April 2, 1990,  between First Security
                        Bank of Utah, National  Association and Pegasus Aircraft
                        Partners II, L.P., (ii) Trust Agreement 936, dated as of
                        May 9,  1990,  between  First  Security  Bank  of  Utah,
                        National  Association and Pegasus Aircraft  Partners II,
                        L.P., and (iii) Trust Agreement 909, dated as of May 25,
                        1989,  between  First  Security  Bank of Utah,  National
                        Association and Pegasus Aircraft Partners II, L.P. Filed
                        as Exhibit 10.1(d) to the Registrant's  Quarterly Report
                        on Form 10-Q for the quarter ended September 30, 1992.*

         (e)            Negative  Pledge  Agreement,  dated as of September  10,
                        1992, by and among Greyhound  Financial  Corporation and
                        First  Security Bank of Utah,  National  Association  as
                        Owner Trustee under (i) Trust Agreement 935, dated as of
                        April 2,  1990,  between  First  Security  Bank of Utah,
                        National  Association and Pegasus Aircraft  Partners II,
                        L.P., (ii) Trust Agreement 936, dated as of May 9, 1990,
                        between   First   Security   Bank  of   Utah,   National
                        Association  and Pegasus  Aircraft  Partners  II,  L.P.,
                        (iii) Trust  Agreement  909,  dated as of May 25,  1989,
                        between   First   Security   Bank  of   Utah,   National
                        Association and Pegasus Aircraft  Partners II, L.P., and
                        (iv) Trust  Agreement  16982 between First Security Bank
                        of  Utah,  National  Association  and  Pegasus  Aircraft
                        Partners  II,  L.P.  Filed  as  Exhibit  10.1(e)  to the
                        Registrant's  Quarterly  Report  on  Form  10-Q  for the
                        quarter ended September 30, 1992.*

         (f)            First Priority  Aircraft  Chattel  Mortgage and Security
                        Agreement,  dated  September  10,  1992,  between  First
                        Security  Bank of Utah,  National  Association  as Owner
                        Trustee under Trust  Agreement 935, dated as of April 2,
                        1990,  between  First  Security  Bank of Utah,  National
                        Association and Pegasus  Aircraft  Partners II, L.P., as
                        Mortgagor,  and  Greyhound  Financial  Corporation,   as
                        Mortgagee.  Filed as Exhibit 10.1(f) to the Registrant's
                        Quarterly  Report  on Form  10-Q for the  quarter  ended
                        September 30, 1992.*

         (g)            First Priority  Aircraft  Chattel  Mortgage and Security
                        Agreement,  dated  September  10,  1992,  between  First
                        Security  Bank of Utah,  National  Association  as Owner
                        Trustee under Trust  Agreement  936,  dated as of May 9,
                        1990,  between  First  Security  Bank of Utah,  National
                        Association and Pegasus  Aircraft  Partners II, L.P., as
                        Mortgagor,  and  Greyhound  Financial  Corporation,   as
                        Mortgagee.  Filed as Exhibit 10.1(g) to the Registrant's
                        Quarterly  Report  on Form  10-Q for the  quarter  ended
                        September 30, 1992.*

         (h)            First Priority  Aircraft  Chattel  Mortgage and Security
                        Agreement,  dated  September  10,  1992,  between  First
                        Security  Bank of Utah,  National  Association  as Owner
                        Trustee under Trust  Agreement  909, dated as of May 25,
                        1989,  between  First  Security  Bank of Utah,  National
                        Association and Pegasus  Aircraft  Partners II, L.P., as
                        Mortgagor,  and  Greyhound  Financial  Corporation,   as
                        Mortgagee.  Filed as Exhibit 10.1(h) to the Registrant's
                        Quarterly  Report  on Form  10-Q for the  quarter  ended
                        September 30, 1992.*

                                       44
<PAGE>


         10.12(a)       Trust  Agreement  357,  dated as of February  15,  1993,
                        between  Registrant  and  First  Security  Bank of Utah,
                        National Association as Owner Trustee.  Filed as Exhibit
                        10.2(a)  to the  Registrant's  Quarterly  Report on Form
                        10-Q for the quarter ended March 31, 1993.*

         (b)            Aircraft  Lease  Agreement,  dated as of March 15, 1993,
                        between   First   Security   Bank  of   Utah,   National
                        Association as Owner Trustee and KIWI  International Air
                        Lines, Inc. Filed as Exhibit 10.2(b) to the Registrant's
                        Quarterly  Report  on Form  10-Q for the  quarter  ended
                        March 31, 1993.*

         (c)            Lease  Supplement  No. 1,  dated May 24,  1993,  between
                        First  Security Bank of Utah,  National  Association  as
                        Owner  Trustee and KIWI  International  Air Lines,  Inc.
                        Filed as Exhibit 10.1(a) to the  Registrant's  Quarterly
                        Report  on Form  10-Q  for the  quarter  ended  June 30,
                        1993.*

         (d)            Amendment  No.  1 dated  March  15,  1995  to the  lease
                        between First Security Bank of Utah National Association
                        as Trustee  (Lessor)  and Kiwi  International  Air Lines
                        Inc.  with  respect  to  a  certain  727  Aircraft,   US
                        Registration N357KP.*

         10.13          (a) Aircraft lease of 727-200  Advanced  Aircraft N16784
                        (formerly  N516PE) as of  September  25, 1984 by Seventh
                        HFC  Leasing  Corporation  as Lessor and People  Express
                        Airlines, Inc. as Lessee.

         (b)            Amendment  No. 1 to lease of 727-200  Advanced  Aircraft
                        N16784  dated  November  15,  1995  between  Continental
                        Airlines, Inc. as Lessee and First Security Bank of Utah
                        as Owner  Trustee of a trust in which  Pegasus  Aircraft
                        Partners II, L.P. is the sole beneficiary.

         10.14(a)       Aircraft  lease  of  727-200  advanced  Aircraft  N77780
                        (formerly  N512PE)  as of  August  23,  1984  by  Mellon
                        Financial  Services  Corporation #3 as Lessor and People
                        Express as Lessee.

         (b)            Amendment  No. 1 to lease of 727-200  Advanced  Aircraft
                        N77780  dated  November  21,  1995  between  Continental
                        Airlines, Inc. as Lessee and First Security Bank of Utah
                        as Owner  Trustee of a trust in which  Pegasus  Aircraft
                        Partners II, L.P. is the sole beneficiary.

         10.15(a)       Promissory  note  issued  in favor of  Pegasus  Aircraft
                        Partners  II, L.P.  with face  amount of $307,166  dated
                        March 16, 1996 from Kiwi International Airlines Inc.

         10.16(a)       Loan and  Security  Agreement  dated  December  23, 1996
                        between  Provident Bank, N.A. and First Security Bank as
                        Owner Trustee.

         11             Partnership Policy for Requests for Partner Lists.


                                       45
<PAGE>


                                   SIGNATURES

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

         Dated: March 29, 2000

                                  Pegasus Aircraft Partners II, L.P.
                                  (Registrant)

                                  By:   Air Transport Leasing, Inc.
                                        Administrative General Partner

                                  By:   /s/ CLIFFORD B. WATTLEY
                                        Clifford B. Wattley
                                        President and Director

                                  By:   /s/ CARMINE FUSCO
                                        Carmine Fusco
                                        Vice President, Secretary,
                                        Treasurer and Chief Financial
                                        and Accounting Officer

                                  By:   Pegasus Aircraft Management Corporation
                                        Managing General Partner

                                  By:   /s/ RICHARD S. WILEY
                                        Richard S. Wiley
                                        President and Chairman of the Board


         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
Registrant and in the capacities indicated on March 29, 2000.

Signature                                        Title
---------                                        -----

/s/ RICHARD S. WILEY                             President and Chairman of
Richard S. Wiley                                 the Board of Pegasus Aircraft
                                                 Management Corporation

/s/ CLIFFORD B. WATTLEY                          President and Director of
Clifford B. Wattley                              Air Transport Leasing, Inc.

/s/ STEPHEN R. DYER                              Vice-President, Assistant
Stephen R. Dyer                                  Secretary and Director of
                                                 Air Transport Leasing, Inc.


                                       46