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, 2003
                          ------------------------------------------------------

                                       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 42 pages.

                                       1

<PAGE>

                       Pegasus Aircraft Partners II, L.P.
                       Annual Report on Form 10-K for the
                       Fiscal Year Ended December 31, 2003

                                Table of Contents
                                                                            Page

Part I
------

Item 1    Business............................................................3
Item 2    Properties..........................................................6
Item 3    Legal Proceedings...................................................6
Item 4    Submission of Matters to a Vote of Unit Holders.....................6

Part II
-------

Item 5    Market for Registrant's Common Partnership Capital and Related
            Unitholder Matters................................................7
Item 6    Selected Financial Data.............................................8
Item 7    Management's Discussion and Analysis of Financial Condition
             and Results of Operations........................................8
Item 8    Financial Statements and Supplementary Data........................13
Item 9    Changes in and Disagreements with Accountants on Accounting
             and Financial Disclosure........................................29
Item 9A   Controls and Procedures............................................29

Part III
--------

Item 10   Directors and Executive Officers of the Registrant.................30
Item 11   Executive Compensation.............................................31
Item 12   Security Ownership of Certain Beneficial Owners and Management.....32
Item 13   Certain Relationships and Related Transactions.....................32
Item 14   Principal Accounting Fees and Services.............................33

Part IV

Item 15   Exhibits, Financial Statement Schedules and Reports on Form 8-K....34

                                       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 UBS Americas, Inc. UBS Americas
is the  successor to Paine  Webber  Group,  Inc.  (Pegasus  Aircraft  Management
Corporation  and Air  Transport  Leasing,  Inc.  are herein  referred  to as 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 were
principally  subject to triple net  operating  leases with  domestic and foreign
commercial air carriers.

         Although it is likely to liquidate sooner,  the Partnership is required
to dissolve and  distribute  all of its assets no later than  December 31, 2007.
The  Partnership  sold its MD-82 and one of its Boeing 727 airframes in 2001. In
2002, the Partnership  sold two of its Boeing  727-200s,  its Airbus A-300,  its
Lockheed  L-1011,  its  engines  from the Boeing 727  formerly  leased to Falcon
Express and its 50% ownership for the  Partnership  (McDonnell  Douglas  MD-81).
These sales resulted in the Partnership  owning three aircraft,  a DC-9, a DC-10
freighter and a Boeing 727-200  freighter,  all of which are parked.  Due to the
age and number of aircraft of similar  type  available  for lease and sale,  the
Partnership  accepted  payments from the lessees in lieu of the aircraft meeting
the return conditions  specified in the leases and the aircraft offered for sale
in an "as-is,  where is" condition.  The net proceeds of the aircraft sales were
generally utilized to pay off the Partnership's debt.

Outlook for the Airline and Aircraft Leasing Industries

         The airline industry's results historically have been highly correlated
to general economic activity.  During the recent past, there has been a downturn
in the world economic  climate.  This economic  downturn was  exacerbated by the
terrorist attacks in the United States on September 11, 2001, as well as the war
in Iraq and the Severe Acute  Respiratory  Syndrome  (SARS) outbreak in Asia and
elsewhere. A large number of carriers filed for bankruptcy protection, including
United  Airlines and US Airways.  Passenger and freighter  aircraft  leasing and
equipment sales continue to be a highly competitive business.

         Given  the  age  and  maintenance  status  of the  Partnership's  three
remaining aircraft and the intention to sell in an "as-is,  where-is" condition,
the Partnership is competing in the used aircraft sales and parts segment of the
market.  Many used aircraft of a type similar to the Partnership's  aircraft are
off-lease and are parked,  available for sale,  leases or part-out.  A number of
these  aircraft are newer or are in better  maintenance  status than that of the
Partnership's  aircraft.  Also,  the  number  of  carriers  using  this  type of
equipment has declined significantly.

Aircraft Portfolio

         The Partnership's net asset value at December 31, 2003 was estimated to
be $0.37 per Unit. It should be noted that this is only an estimate of values as
of that date,  and is not  necessarily  representative  of the values  that will
ultimately be realized upon the disposition of the remaining aircraft.

                                       3
<PAGE>


         The following table describes the Partnership's  aircraft  portfolio at
December 31, 2003:

<TABLE>
<CAPTION>
                                                        Dec.2003                                        Cumu-       Cumu-
                                   Owner-     Acqui-    Estimated             Original      Noise      lative      lative
   Current          Aircraft        ship      sition   Realizable             Delivery    Abatement    Flight      Flight
   Lessee             Type        Interest   Costs(1)   Value(2)                Date     Compliance   Hours(3)    Cycles(3)
   ------             ----        --------   --------   --------                 ----     ----------   --------    ---------
                                           (dollar amounts in millions)
<S>              <C>                 <C>        <C>       <C>                   <C>     <C>            <C>         <C>
Off-Lease (2)    McDonnell
                 Douglas DC-9-31     100%       $ 8.9     $ 0.075               1971    Stage  II      69,350      64,879


Off Lease (2)    Boeing 727-200
                 Freighter           100          8.4       0.1                 1973    Stage III (4)  75,396      54,033

                 McDonnell Douglas
Off Lease (2)    DC10-10 Freighter   100         31.9       0.2                 1973    Stage III      84,545      30,735
                                                 ----      -----
                                                 49.2      0.375
</TABLE>


Notes:            (1)      Acquisition costs do not include related  acquisition
                           fees paid to the General  Partners.  The  Partnership
                           previously owned a McDonnell  Douglas DC-9, which was
                           a total  loss in an  accident  in 2000,  a  McDonnell
                           Douglas  MD-82,  which was sold in 2001, and a Boeing
                           727-200, of which the airframe was sold to the lessee
                           in  2001  and the  engines  were  sold in a  separate
                           transaction  in 2002,  two  Boeing  727-200  (sold in
                           2002),  one Airbus A-300 (sold in 2002), one Lockheed
                           L-1011 (sold   in  2002),  and  50%  ownership  in  a
                           McDonnell Douglas MD-81 (sold in 2002).

                  (2)      Aircraft off lease at December  31,  2003.  The value
                           shown  represents  the book value of the aircraft and
                           engines,   which  represents   estimated   realizable
                           values.

                  (3)      The number of cumulative flight cycles and cumulative
                           flight hours shown are as of December 31, 2003.

                  (4)      Federal Express hushkit installed.


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  pressurizations.  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.

                                       4
<PAGE>


         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.

                          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
McDonnell Douglas DC-9       20         100,000      75,000          79,000
McDonnell Douglas DC-10    None          42,000      60,000         187,000

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

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  provided  that  Stage II
aircraft  would be phased out from  operation  within United States  airspace by
December 31, 1999.

         Implementing  regulations  proposed  by the FAA  required  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  provided,  that if by July 1, 1999, at least
85% of an air carrier's fleet complied 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.  The
Partnership's  Boeing  727-200  aircraft  has  had  a  Federal  Express  hushkit
installed.

         The European  Commission  has  promulgated  rules  relating to aircraft
noise that ban aircraft  that are modified  ("hushkitted")  to achieve Stage III
noise compliance from European airspace after the year 2002.

                                       5
<PAGE>

Competition

         The aircraft  leasing  industry is highly  competitive.  There are many
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.  Many
used aircraft of a type similar to the Partnership's  aircraft are off-lease and
are parked,  available for sale, leases or part-out.  A number of these aircraft
are newer or are in a better  maintenance  status than that of the Partnership's
aircraft. Also, the number of carriers using this type of equipment has declined
significantly.

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

         None.

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, 2003.

                                       6
<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.  Effective July 15, 2003, the Partnership
halted third party transfers of units.

         As of March 1,  2004,  the  number of  Limited  Partners  of record was
approximately 6,941.

         The  Partnership  declared the following  distributions  to its Limited
Partners out of cash flow received from operations during 2003 and 2002:

                      Amount of
                    Distribution
         Period       Per Unit       Record Date               Payment Date
         ------       --------       -----------               ------------
1st Quarter 2003          .00                                  None Paid
2nd Quarter 2003        $0.40        August 1, 2003 (1)        August 7, 2003
3rd Quarter 2003          .00                                  None Paid
4th Quarter 2003          .00                                  None Paid
1st Quarter 2002          .00                                  None Paid
2nd Quarter 2002          .00                                  None Paid
3rd Quarter 2002          .00                                  None Paid
4th Quarter 2002        $1.50        September 30, 2002 (2)    October 31, 2002

(1)  Distribution  declared in second  quarter for Unit  holders as of August 1,
     2003.

(2)  Distribution  declared in fourth  quarter for Unit  holders as of September
     30, 2002.

         Total  distributions to all partners for 2003 and 2002 were declared as
follows (in thousands):

                                                     2003         2002
                                                     ----         ----

         Limited Partners                          $ 2,901      $10,882
         General Partners                               31          110
                                                   -------      -------
                                                   $ 2,932      $10,992
                                                   -------      -------

         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 net loss  reported by the  Partnership
for the years ended  December 31, 2003,  2002 and December 31, 2001,  all of the
cash  distributions  paid to the partners for the years ended December 31, 2003,
2002 and 2001  constituted  a return of  capital.  Also,  based on the amount of
cumulative  net income  reported by the  Partnership  for  accounting  purposes,
approximately  87% of the  cash  distributions  paid to the  partners  from  the
inception of the Partnership  through  December 31, 2003 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. On
June 25, 2003 the Partnership declared distributions to record holders of August
1, 2003, which were paid in the third quarter 2003.

         The  Partnership  sold 4.5 aircraft and the Falcon  engines in 2002 and
used the proceeds from the asset sales to retire debt.  The  Partnership  has no
more  indebtedness,  but does have cash flow from  operations  that  consists of
interest or  dividends  on its money  market  investments.  The asset sales have
resulted  in the  Partnership  having  only three  off-lease  aircraft  left and
therefore is not generating any cash flow from  operations.  The  Partnership is
attempting  to  sell  the  remaining  three  aircraft  in an  "as-is,  where-is"
condition. With the sale of the final aircraft, the Partnership will continue to
hold its funds in an interest bearing money-market account. A final distribution
of the  funds,  net of  intervening  expenses  and  any  other  liabilities,  is
anticipated to be made within twelve months of the final aircraft sale.

                                       7
<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 Report on Form 10-K.

<TABLE>
<CAPTION>
                                                              As of December 31,
                                                          or Year Ended December 31,
                                                          --------------------------
                                     2003            2002            2001            2000            1999
                                                    (in thousands, except per unit amounts)

<S>                                <C>               <C>            <C>              <C>            <C>
Rental Revenue                     $      -          $3,370         $ 7,357          $9,344         $10,603
Net Income (Loss)                      (67)            (25)         (3,354)           1,788             978
Net Income  (Loss) per Limited
  Partnership Unit                   (0.01)          (0.00)          (0.46)            0.10            0.11
Distributions per Limited
  Partnership Unit (1)                 0.40            1.50            0.20            0.60            1.50
Total Assets                          3,846           6,853          32,894          48,870          48,163
Notes Payable                             -               -           9,483          21,210          16,530
Partners' Capital                     2,740           5,739          16,756          21,576          24,185
</TABLE>


(1)  The  fourth  quarter  distribution  for  1999 was  paid in  January  of the
     subsequent year.

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  one  commercial   passenger  aircraft  and  two
freighter aircraft,  which are off-lease.  The Partnership is attempting to sell
the remaining three aircraft, in an "as-is,  where-is" condition.  With the sale
of the final  aircraft,  the  Partnership  will continue to hold its funds in an
interest bearing money-market account. A final distribution of the funds, net of
intervening expenses and any other liabilities, is anticipated to be made within
twelve months of the final aircraft sale.

         The  Partnership  invests working capital and cash flow from operations
prior to its distributions to the partners in a fund that invests in short-term,
highly liquid investments.  At December 31, 2003, the Partnership's unrestricted
cash and cash equivalents of $3,446,000 were primarily  invested in such a fund.
This amount was $1,123,000  less than the  Partnership's  unrestricted  cash and
cash  equivalents  at  December  31,  2002  of  $4,569,000.   This  decrease  in
unrestricted cash was primarily  attributable to a $2,932,000  distribution paid
to partners and to cash used in  operating  activities  of  $371,000,  offset by
$2,180,000 cash from investing activities.

         Net cash used by operating  activities was $371,000 in 2003 as compared
to net cash provided by operating  activities of $14.7 million in 2002 and $10.5
million in 2001. In the aggregate, for this three-year period, net cash provided
by operating  activities  totaled  $24.8  million.  The $371,000 of cash used in
operating  activities in 2003 is comprised of a net loss,  adjusted for non-cash
items such as write downs,  gains on sale and changes in assets and liabilities,
as discussed below.

                                       8
<PAGE>


         Rent and other  receivables  decreased from  $1,370,000 at December 31,
2002 to zero at December 31, 2003.  This decrease came from the $1,104,000  note
receivable  payments from the Capital  Cargo sale and $266,000  note  receivable
payments from the Kitty Hawk sale.

         Accounts payable and accrued expenses  decreased by $8,000, or 6%, from
$140,000 at December 31, 2002 to $132,000 at December 31, 2003, primarily due to
payments of obligations accrued at December 31, 2002.

         Net cash provided by investing activities for 2003 was $2,180,000, as a
result  of the  $1,104,000  cash  proceeds  from the sale of the  Boeing  727 to
Capital  Cargo,  $257,000 cash proceeds from the sale of the Boeing 727 to Kitty
Hawk, and cash proceeds of $819,000 from the insurance  compensation  for damage
to the McDonnell Douglas DC-9 formerly leased to Aeromexico.

         Partnership  capital was $2,740,000 at December 31, 2003, a decrease of
approximately $2,999,000 or 52% from $5,739,000 at December 31, 2002, due to net
loss of $67,000 and  $2,932,000  of  distributions  to partners  during the year
ended  December  31,  2003,  as  compared  to the 2002 net loss of  $25,000  and
$10,992,000 of cash distributions to partners during the year ended December 31,
2002.

         Net cash used in financing  activities was  $2,932,000  for 2003.  This
amount represents cash distributions paid to partners in August 2003.

         Cash distributions  declared by the Partnership were approximately $2.9
million  for 2003  ($.40 per unit),  $11  million  for 2002 ($1.50 per Unit) and
$1.5 million for 2001 ($.20 per Unit).  In the  aggregate,  for this  three-year
period, cash distributions declared by the Partnership totaled $15.4 million.

Critical Accounting Policies

         High-quality  financial  statements  require  rigorous  application  of
high-quality accounting policies. The policies discussed below are considered by
management to be critical to an  understanding  of the  Partnership's  financial
statements  because  their  application  requires  significant  judgment,   with
financial  reporting  results relying on estimation  about the effect of matters
that are inherently  uncertain.  Specific  risks for these  critical  accounting
policies are described in the following  paragraphs.  For all of these policies,
management  cautions that future events rarely develop exactly as forecast,  and
the best estimates routinely require adjustment.

Lease Revenue Recognition:
Revenue under operating leases is recognized as rental income on a straight line
basis over the lease term.

Depreciation:
Aircraft  are  recorded at expected  liquidation  value.  Depreciation  has been
suspended on the aircraft as they are not in service.

The  Partnership  determined the critical  accounting  principles by considering
accounting  policies  that involve the most complex or  subjective  decisions or
assessments. The Partnership identified the most critical accounting policies to
be those related to lease revenue  recognition  and  depreciation  methods.  The
Partnership  also  states  these  accounting   policies  in  the  notes  to  the
consolidated  financial  statements and at relevant  sections in this discussion
and analysis.

Results of Operations

         The  Partnership's  2003  revenue  was the result of a gain on aircraft
from  insurance  settlement  proceeds  and  interest  income  from cash and cash
equivalents  deposited in money market accounts.  Due to the off lease status of
the  Partnership's  three  remaining  aircraft  in 2003,  there  was no  revenue
generated from the leasing of the Partnership's aircraft.

         The  Partnership  also  recorded  write down  expense on  aircraft  and
incurred  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.  The Partnership also recorded a substantial write
down of the value of several aircraft in 2003.

                                       9
<PAGE>


2003 as compared to 2002

         The  Partnership's net loss was $67,000 for the year ended December 31,
2003 ("2003 Period") as compared to $25,000 net loss for the year ended December
31, 2002 ("2002 Period").

         The  Partnership's  higher net loss for the 2003 Period, as compared to
the 2002 Period, is primarily due to lower revenues in the 2003 Period, compared
to the 2002 Period.  The Partnership  had rental income,  income for early lease
terminations,  the  reversal of accrued  management  fees and other  income from
maintenance  reserves  and  security  deposits  in  the  2002  Period,  with  no
corresponding amounts in the 2003 Period.

         Rentals from operating  leases  decreased from  $3,370,000 for the 2002
Period to zero in the 2003  Period,  principally  due to the sale in 2002 of the
Boeing 727 formerly  leased to Kitty Hawk, and the off-lease  status in the 2003
Period of the DC-10,  formerly leased to Emery, the Boeing 727,  formerly leased
to TNT and the DC-9, formerly leased to Aeromexico.

         Gain on aircraft from insurance  proceeds  increased by $819,000,  from
zero for the 2002 Period to $819,000  for the 2003  Period,  due to the proceeds
received from insurance  compensation  for hail damage to the McDonnell  Douglas
DC-9 formerly leased to Aeromexico (see Note 4 also).

         Gain on the  sale of  aircraft  decreased  from  $435,000  for the 2002
Period to zero for the 2003 Period. This decrease was attributable to an absence
of sales of aircraft  in the 2003 Period as compared to the net gain  recognized
in the 2002  Period on the sale of the Boeing  727,  formerly  leased to Capital
Cargo,  the sale of the A-300 airframe and engines,  the sale of the Boeing 727,
formerly leased to Kitty Hawk and the sale of the off-lease L-1011 aircraft.

         Equity in deficits of the MD-81 trust  decreased  from $548,000 for the
2002  Period to zero for the 2003 Period due to the sale of the MD-81 in October
2002.

         Depreciation  expense  decreased from $1,267,000 for the 2002 Period to
zero for the 2003 Period due to the off lease status of the  remaining  aircraft
in the 2003 Period.

         Write  down  of  aircraft  decreased  by  $16,503,000,   or  97%,  from
$17,018,000 for the 2002 Period to $515,000 for the 2003 Period primarily due to
the Partnership  owning fewer aircraft during the 2003 Period as compared to the
2002 Period and the value of those aircraft  already  having been  substantially
written down in the 2002 Period.  During the 2003 Period, the carrying values of
the three aircraft owned by the Partnership  were reduced by a total of $515,000
to reflect the market value for these types of aircraft and the price management
is currently  negotiating to sell these aircraft for, as the remaining assets of
the Partnership are being liquidated.

         Interest  expense  decreased  by $393,000,  from  $393,000 for the 2002
Period to zero for the 2003  Period,  due to the  retirement  of the note in May
2002.

         General and administrative expenses decreased by 48%, or $245,000, from
$511,000 for the 2002 Period to $266,000 for the 2003 Period.  This decrease was
primarily due to legal fees related to the Capital Cargo  litigation in the 2002
Period that were not incurred in the 2003 Period.

         Direct lease expenses decreased by 47%, or $131,000,  from $282,000 for
the 2002 Period to $151,000 for the 2003 Period. This decrease was due primarily
to the recording of a refund due to the Partnership for insurance  premiums paid
in 2002 in the 2003 Period and lower aircraft  storage and maintenance  costs in
the 2003 Period as compared to the 2002 Period.

2002 as compared to 2001

         The  Partnership's net loss was $25,000 for the year ended December 31,
2002  ("2002  Period") as  compared  to  $3,354,000  net loss for the year ended
December 31, 2001 ("2001 Period").

         The  Partnership's  net loss for the 2002 Period  compared to a greater
net loss of the 2001 Period was  principally  due to higher  revenues from early
lease termination fees from Emery in the 2002 Period,  revenue from the reversal
of accrued  management fees in the 2002 Period, and more recognition of security
deposits  and  maintenance  reserves to income in the 2002 Period as compared to

                                       10
<PAGE>

the 2001 Period,  partially  offset by the  reduction in rental  income in 2002,
lower  gains on sale of  aircraft  in the 2002  Period as  compared  to the 2001
Period,  and also offset by income from a VASP  Judgment and  settlement  in the
2001 Period, and higher write downs in the 2002 Period.

         Rentals from operating  leases  decreased by  $3,987,000,  or 54%, from
$7,357,000 in the 2001 Period to  $3,370,000  in the 2002 Period.  This decrease
was  principally  due to the sale of the Boeing 727,  formerly leased to Falcon,
the Boeing 727,  formerly  leased to Capital  Cargo,  and the McDonnell  Douglas
MD-82,  formerly leased to TWA in the 2001 Period, no rent payments from the two
DC-9,  formerly leased to Aeromexico,  the end of the lease of the Boeing 727 to
TNT in June 2002, the end of the lease of the DC-10-10 to Emery in October 2002,
and the decrease in rent payments from Kitty Hawk in the 2002 Period.

         Gain  on  sale  and  disposition  of  aircraft,  engines  or  equipment
decreased by $5,621,000, or 93%, from $6,056,000 for the 2001 Period to $435,000
for the 2002 Period.  This decrease was  attributable to lower gains  recognized
from the sale of the Boeing 727,  formerly leased to Capital Cargo,  the sale of
the A-300 airframe and engines,  the sale of the Boeing 727,  formerly leased to
Kitty Hawk, and the sale of the off-lease L-1011 aircraft in the 2002 Period, as
compared to the sale of the McDonnell  Douglas MD-82 to American Airlines in the
2001 Period.

         Equity in deficit of the MD-81 Trust  increased  by 338%,  or $423,000,
from a deficit of $125,000  for the 2001 Period to a deficit of $548,000 for the
2002 Period,  due to no receipts of rent from  Vanguard in the 2002 period and a
write down,  partially  offset by the ultimate  sale of the aircraft in the 2002
Period.

         The  Partnership  received  $11,440,000  from  Emery  for  early  lease
termination  fees in the 2002  Period.  There  was no such  income  for the 2001
Period.

         The  Partnership   received  $3,791,000  from  the  VASP  Judgment  and
settlement in the 2001 Period. There was no such income for the 2002 Period.

         Interest  income  decreased by $611,000,  or 84%, from $730,000 for the
2001 Period to $119,000 for the 2002 Period,  due to the interest  earned on the
VASP Judgment and Settlement in the 2001 Period.

         Other income  increased by $1,078,000,  or 88%, from $1,222,000 for the
2001 period to $2,300,000  for the 2002 Period.  This increase was due primarily
to the $1,048,000  maintenance reserves and security deposits from TNT, $792,000
maintenance  reserves  and  security  deposits  from Kitty  Hawk,  and  $436,000
security  deposit  from  Emery,  all taken into  income in the 2002  Period,  as
compared to $688,000 return condition  settlement from Aeromexico,  and $527,000
of maintenance reserves taken into income from Falcon in 2001.

         Depreciation  decreased by $2,204,000 or 63%, from  $3,471,000  for the
2001 Period to $1,267,000  for the 2002 Period.  This decrease was due primarily
to the sale of the  Boeing  727,  formerly  leased to Falcon,  the  Boeing  727,
formerly  leased to Capital  Cargo,  and the McDonnell  Douglas  MD-82  formerly
leased  to TWA,  and the  off-lease  status  of the  DC-9,  formerly  leased  to
Aeromexico and the Boeing 727, formerly leased to TNT until June 2002.

         Write downs increased by $1,542,000,  or 10%, from  $15,476,000 for the
2001 Period to $17,018,000  for the 2002 Period.  This increase was due to write
downs for the  A-300,  formerly  leased to VASP,  and the Boeing  727,  formerly
leased to Falcon in the 2001 Period,  as compared to more of a write down in the
2002 Period.  In the 2002 Period,  there were write downs of $1,316,000  for the
Boeing 727,  formerly  leased to TNT, a write down of $277,000 of the investment
in the MD-81 Trust, a write down of $453,000 for the Boeing 727 formerly  leased
to Kitty  Hawk,  a write down of  $204,000  for the three  Pratt & Whitney  JT8D
engines  from the Boeing  airframe  that was sold to Falcon  Express in 2001,  a
write down of $500,000 for the Boeing 727,  formerly  leased to TNT, and a write
down of $14,268,000 for the DC-10, formerly leased to Emery.

         Management fees and Re-lease fees to the General Partners  decreased by
100%,  from  $1,287,000  for the 2001 Period to zero for the 2002 Period.  Based
upon Preferred  Return as determined  pursuant to the Partnership  Agreement and
the estimated value of the  Partnership's  remaining assets, a determination was
made to reverse the fees  accrued but unpaid to the General  Partners for fiscal
year 2000 through the first quarter of 2002.

                                       11
<PAGE>


         Interest expense decreased by $968,000, or 71%, from $1,361,000 for the
2001 Period to $393,000 for the 2002 Period due to the payoff of the loan in May
2002, partially offset by the write off of debt placement fees in June 2002.

         Direct lease  expense  decreased by $171,000 or 38%,  from $453,000 for
the 2001 Period to $282,000 for the 2002 Period, due primarily to costs incurred
in the 2001 Period,  relating to the VASP  aircraft  engines and less  insurance
expense for the 2002 Period.  Direct lease  expense was lower in the 2002 Period
and primarily related to storage costs for aircraft off lease.

Inflation and Changing Prices

         Inflation has overall not had a significant impact on the operations or
financial  condition of the Partnership from inception.  As jet fuel costs are a
major  component  of the cost of  operating  an  aircraft,  periods of high fuel
prices have negatively  impacted the active airline and air freight  industries.
The  Partnership  owns  three  aircraft  that are being  offered  for sale on as
"as-is, where is" basis.

Risks and Uncertainties

         The events of September  11, 2001 have had a negative  impact on the US
economy and the passenger airlines, including increases in airline costs such as
insurance and security,  and a significant  decline in passenger  demand for air
travel. Due to the conversion of its aircraft to freighter  configurations,  the
Partnership  is more  reliant on the air  freight  industry  than the  passenger
airlines.  While certain  prohibitions  on passenger  planes carrying cargo have
increased  cargo for the fully dedicated air freight  business,  the air freight
business in general has been negatively impacted by the economic slowdown. Also,
because of reduced passenger traffic, major airlines such as United Airlines and
American  Airlines  announced plans to accelerate the retirement of their Boeing
727-200 aircraft,  which also negatively impacted the value of the Partnership's
aircraft.

Sarbanes-Oxley Act

         On July 30,  2002,  the  Sarbanes-Oxley  Act of 2002  (the  "Act")  was
enacted.  Section 302 of the Act required the Securities  Exchange Commission to
adopt final  rules that became  effective  on August 29,  2002,  under which the
principal  executive  officer and the principal  financial  officer,  or persons
providing  similar  functions,  of an issuer each must  certify the  information
contained  in the  issuer's  quarterly  and  annual  reports.  Section  302 also
requires these officers to certify that: they are responsible for  establishing,
maintaining and regularly  evaluating the effectiveness of the issuer's internal
controls,  they have made certain  disclosures to the issuer's  auditors and the
audit committee of the board of directors about the issuer's internal  controls;
and they have included  information in the issuer's quarterly and annual reports
about their  evaluation and whether there have been  significant  changes in the
issuer's internal controls or in other factors that could  significantly  affect
internal controls subsequent to the evaluation.

                                       12
<PAGE>


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                       PEGASUS AIRCRAFT PARTNERS II, L.P.

List of Financial Statements                                                Page
                                                                            ----

Report of Independent Auditors.............................................  14

Balance Sheets -- December 31, 2003 and 2002...............................  15

Statements of Loss for the years ended
     December 31, 2003, 2002, and 2001.....................................  16

Statements of Partners' Capital for the years ended
     December 31, 2003, 2002, and 2001.....................................  17

Statements of Cash Flows for the years ended
     December 31, 2003, 2002, and 2001.....................................  18

Notes to Financial Statements..............................................  20


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.

                                       13
<PAGE>



                         REPORT OF INDEPENDENT AUDITORS



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


         In our  opinion,  the  accompanying  balance  sheets  and  the  related
statements of loss, 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, 2003 and 2002,  and the results of
its  operations  and its cash  flows for each of the three  years in the  period
ended  December 31, 2003, in conformity  with  accounting  principles  generally
accepted in the United States of America.  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  auditing  standards
generally  accepted in the United States of America,  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 our opinion.



                                                      PricewaterhouseCoopers LLP

Los Angeles, California
March 25, 2004

                                       14
<PAGE>

                       PEGASUS AIRCRAFT PARTNERS II, L.P.

                                 BALANCE SHEETS

                           DECEMBER 31, 2003 AND 2002



                                     ASSETS

                                                       2003       2002
                                                       ----       ----
                                                (in thousands, except unit data)

  Cash and cash equivalents                            $3,446     $4,569
  Rent and other receivables                             --        1,370
  Aircraft, net                                           375        890
  Other assets                                             25         24
                                                       ------     ------
     Total Assets                                      $3,846     $6,853
                                                       ======     ======

                       LIABILITIES AND PARTNERS' CAPITAL

LIABILITIES:
  Accounts payable and accrued expenses                $  132     $  140
  Payable to affiliates                                   974        974
                                                       ------     ------
     Total Liabilities                                  1,106      1,114
                                                       ------     ------

COMMITMENTS AND CONTINGENCIES

PARTNERS' CAPITAL:
  General Partners                                         27         59
  Limited Partners (7,255,000 units issued and
    outstanding in 2003 and 2002)                       2,713      5,680
                                                       ------     ------
     Total Partners' Capital                            2,740      5,739
                                                       ------     ------
         Total Liabilities and Partners' Capital       $3,846     $6,853
                                                       ======     ======


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

                                       15
<PAGE>

                       PEGASUS AIRCRAFT PARTNERS II, L.P.

                               STATEMENTS OF LOSS

              FOR THE YEARS ENDED DECEMBER 31, 2003, 2002, AND 2001


                                           2003           2002          2001
                                           ----           ----          ----
                                              (in thousands, except unit
                                              data and per unit amounts)

REVENUES:
    Rentals from operating leases       $      --     $     3,370   $     7,357
    Gain from aircraft - insurance
      settlement                                819          --            --
    Interest                                     46           119           730
    Equity in deficit of MD-81 Trust           --            (548)         (125)
    VASP judgment and settlement               --            --           3,791
    Emery lease termination fees               --          11,440          --
    Management and re-lease fees
      reversal                                 --           2,330          --
    Other income                               --           2,300         1,222
    Gain on sale of aircraft,
      engines or equipment                     --             435         6,056
                                        -----------   -----------   -----------
                                                865        19,446        19,031
                                        -----------   -----------   -----------

EXPENSES:
    Depreciation and amortization              --           1,267         3,471
    Write-down of aircraft                      515        17,018        15,476
    Management and re-lease fees               --            --           1,287
    Interest                                   --             393         1,361
    General and administrative                  266           511           337
    Direct lease                                151           282           453
                                        -----------   -----------   -----------
                                                932        19,471        22,385
                                        -----------   -----------   -----------

NET LOSS                                $       (67)  $       (25)  $    (3,354)
                                        ===========   ===========   ===========

NET LOSS ALLOCATED:
    To the General Partners             $        (1)  $      --     $       (34)
    To the Limited Partners                     (66)          (25)       (3,320)
                                        -----------   -----------   -----------
                                        $       (67)  $       (25)  $    (3,354)
                                        -----------   -----------   -----------

NET LOSS PER LIMITED PARTNERSHIP UNIT   $     (0.01)  $     (0.00)  $     (0.46)
                                        ===========   ===========   ===========

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.

                                       16
<PAGE>



                       PEGASUS AIRCRAFT PARTNERS II, L.P.

                         STATEMENTS OF PARTNERS' CAPITAL

              FOR THE YEARS ENDED DECEMBER 31, 2003, 2002, AND 2001




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


Balance, December 31, 2000                     $    218    $ 21,358    $ 21,576

     Net loss                                       (34)     (3,320)     (3,354)

     Distributions declared to partners             (15)     (1,451)     (1,466)
                                               --------    --------    --------

Balance, December 31, 2001                          169      16,587      16,756

     Net loss                                      --           (25)        (25)

     Distributions declared to partners            (110)    (10,882)    (10,992)
                                               --------    --------    --------

Balance, December 31, 2002                           59       5,680       5,739

     Net loss                                        (1)        (66)        (67)

     Distributions declared to partners             (31)     (2,901)     (2,932)
                                               --------    --------    --------

Balance, December 31, 2003                     $     27    $  2,713    $  2,740
                                               ========    ========    ========


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

                                       17
<PAGE>

                       PEGASUS AIRCRAFT PARTNERS II, L.P.

                            STATEMENTS OF CASH FLOWS

              FOR THE YEARS ENDED DECEMBER 31, 2003, 2002, AND 2001

                                                    2003       2002      2001
                                                    ----       ----      ----
                                                  (dollar amounts in thousands)

CASH FLOWS FROM OPERATING ACTIVITIES:
    Net loss                                     $    (67)  $    (25)  $ (3,354)
    Adjustments to reconcile net loss to net
    cash (used in)/provided by operating
    activities:
      Gain from aircraft - insurance settlement      (819)      --         --
      Gain on sale or sale of engines and
        equipment                                    --         (435)    (6,056)
      Depreciation                                   --        1,267      3,471
      Equity in deficit of MD-81 Trust               --          548        125
      Write down of aircraft                          515     17,018     15,476
      Change in assets and liabilities:
       Rent and other receivables                       9        100        211
       Other assets                                    (1)       222         63
       Accounts payable and accrued expenses           (8)       (85)      (381)
       Accrued interest payable                      --          (28)      (104)
       Deferred rental income and deposits           --         (811)      (534)
       Payable to affiliates                         --       (2,302)     1,264
       Maintenance reserves payable                  --         (817)       326
                                                 --------   --------   --------
          Net cash (used in)/provided by
            operating activities                     (371)    14,652     10,507
                                                 --------   --------   --------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Proceeds from aircraft - insurance
      settlement                                      819       --         --
    Proceeds from sale of aircraft - note
      collections                                   1,361       --         --
    Proceeds from sale of engines and equipment      --        1,698      9,500
    Cash distributions from investment in MD-81
      Trust                                          --          250        162
    Capitalized aircraft improvements                --         --         (829)
                                                 --------   --------   --------
          Net cash provided by investing
            activities                              2,180      1,948      8,833
                                                 --------   --------   --------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Repayment notes payable                          --       (9,483)   (11,727)
    Cash distributions paid to partners            (2,932)   (10,992)    (1,466)
                                                 --------   --------   --------
          Net cash used in financing activities    (2,932)   (20,475)   (13,193)
                                                 --------   --------   --------

NET (DECREASE)/INCREASE IN CASH AND
   CASH EQUIVALENTS                                (1,123)    (3,875)     6,147

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR      4,569      8,444      2,297
                                                 --------   --------   --------
CASH AND CASH EQUIVALENTS AT END OF YEAR         $  3,446   $  4,569   $  8,444
                                                 ========   ========   ========


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

                                       18
<PAGE>

                       PEGASUS AIRCRAFT PARTNERS II, L.P.

                            STATEMENTS OF CASH FLOWS

        FOR THE YEARS ENDED DECEMBER 31, 2003, 2002, AND 2001 (continued)



                                                   2003         2002      2001
                                                   ----         ----      ----
                                                  (dollar amounts in thousands)

SUPPLEMENTAL CASH FLOW INFORMATION:

Cash paid during the period for interest paid    $     --   $    199   $  1,413

NON-CASH TRANSACTIONS:

Maintenance reserves recognized upon sales of
  aircraft                                       $     --   $  1,498   $   --
Proceeds from sale of Boeing 727-200 not
  received                                       $     --   $   --     $    140
Receivable arising from sales of aircraft        $     --   $  1,370   $   --



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

                                       19
<PAGE>


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

                                DECEMBER 31, 2003

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. Actual results could differ from such estimates.
Certain  reclassifications of prior year numbers have been made to be consistent
with current year presentation.

         Pegasus Aircraft  Partners II, L.P. is attempting to sell the remaining
aircraft in an "as-is, where-is" condition. With the sale of the final aircraft,
the  Partnership  will  continue  to  hold  its  funds  in an  interest  bearing
money-market  account.  A final  distribution  of the funds,  net of intervening
expenses and any other  liabilities,  is  anticipated  to be made upon the final
aircraft sale. The carrying  values of the  Partnership's  remaining  assets and
liabilities,  based on the  Partnership's  accounting  policies,  approximate  a
liquidation basis of accounting.

         Cash  and  Cash   Equivalents.   The  Partnership   invests  funds  not
immediately  required for  operations  or  distributions  in short term,  highly
liquid  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 expected
liquidation value. Depreciation has been suspended since the aircraft are not in
service.

         MD-81 Trust. The McDonnell  Douglas MD-81 aircraft,  formerly leased to
Vanguard  Airlines  ("Vanguard"),  was owned by a trust in which the Partnership
had a 50% interest. An affiliated  Partnership owned the other 50% interest. The
Partnership  had adopted the guidance in EITF Issue No. 00-1  "Investor  Balance
Sheet and Income  Statement  Display  under the Equity  Method of  Investment in
Certain  Partnerships  and Other  Ventures"  (EITF 00-1) and  accounted  for its
investment in the Trust which owned the MD-81 aircraft  leased to Vanguard under
the equity  method.  The  aircraft  had been  subject to a tax benefit  transfer
lease, which expired in April 2000. In October 2002, the McDonnell Douglas MD-81
aircraft was sold and the Trust was liquidated.

         Maintenance  Reserve  Funds.  For the year ended December 31, 2002, the
Partnership  had leases  under  which the lessee was  required  to make  monthly
payments to  maintenance  reserve funds  administered  by the  Partnership.  The
Partnership   retained  the  collected   maintenance  reserves  when  the  lease
terminated, or when the lessees defaulted on their lease payments.

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

         Deferred Income.  Some of the  Partnership's  operating leases required
rental  payments  to  be  paid  monthly,  in  advance.  Deferred  rental  income
represented payments received in advance, which had not been earned.

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

                                       20
<PAGE>

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 UBS
Americas,  Inc.  UBS  Americas is the  successor  to 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 net proceeds from any future sales
of the remaining aircraft will be distributed in accordance with the Partnership
Agreement.

         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.
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.

4.       Aircraft
                           Net Investment in Aircraft

         The  Partnership's  net  investment in aircraft as of December 31, 2003
and 2002 consisted of the following (in thousands):

                                                          2003            2002
                                                          ----            ----

Aircraft held for sale, at cost                         $ 49,860       $ 49,860
Less: Accumulated depreciation                           (26,237)       (26,237)
      Write-downs                                        (23,248)       (22,733)
                                                        --------       --------
Aircraft, net                                           $    375       $    890
                                                        ========       ========

                            Financial Terms of Leases


         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.

                                       21
<PAGE>


         TWA  filed for  Chapter  11  bankruptcy  protection  under the  Federal
Bankruptcy  code in January  2001 and just before it filed,  it entered  into an
Asset Sale and Purchase  Agreement  with  American  Airlines,  Inc. TWA paid the
Partnership, during the first quarter of 2001, all arrearages in lease payments.
On April 9,  2001,  American  Airlines  purchased  the  Partnership's  McDonnell
Douglas MD-82  aircraft for $9.5  million.  The proceeds were utilized to reduce
the Partnership's debt and the Partnership  recognized a gain on the sale of the
aircraft of $6,156,000.

         DC-9 Aircraft.  One of the  Partnership's  McDonnell Douglas DC-9's was
formerly  leased  to  Aeromexico.  The  lease  expired  in  February  2000,  but
Aeromexico  continued to pay rent for the aircraft on a month-to-month basis and
returned the aircraft in July 2001. In August 2001,  Aeromexico paid $688,000 in
return condition settlements and $56,500 of remaining rent. The aircraft,  while
parked in Texas,  was damaged  during a hailstorm  earlier in the year 2002. The
Partnership  filed an insurance claim and on September 30, 2003, the Partnership
received  insurance  proceeds of $819,421 as compensation for the hail damage to
this  aircraft.  Because the decision was made not to repair the aircraft to its
pre-damage  condition,  the  Partnership  recognized the proceeds as revenue and
wrote down the aircraft's  carrying value by an additional  $225,000  during the
year ended December 31, 2003. The Partnership  retains ownership of the aircraft
and the airframe and engines are being offered for sale on an "as-is,  where-is"
basis.

         Kitty Hawk  Aircargo,  Inc.  ("Kitty  Hawk") Lease.  A Boeing  727-200,
received from Continental as partial satisfaction of the A-300 return conditions
was  converted  to a  freighter,  hushkitted  and  delivered  to  Kitty  Hawk in
November,  1999. The lease with Kitty Hawk was for 84 months, the lease rate was
$112,700 per month and maintenance  reserves were to be paid at the rate of $375
per flight hour. Kitty Hawk also provided a security deposit of $225,400.

         Kitty Hawk filed for Bankruptcy  protection  under Chapter 11 on May 1,
2000,  but stayed current with regard to its lease  payments  through  September
2001. For the months of October,  November,  and December 2001, Kitty Hawk could
not make a full payment of the monthly  rent,  and the  Partnership  agreed to a
payment  of  only  half of the  amount  due.  The  Partnership  agreed  to a 50%
reduction of the maintenance reserves due for the months of September,  October,
and November 2001. The Partnership  also agreed to a payment of 71% of the rents
for December  2001,  and January and February 2002 and no  maintenance  reserves
payments  for these  months.  However,  Kitty Hawk could not make any payment in
March and April 2002.

         In 2001, the  Partnership  wrote down the value of the aircraft by $4.3
million  to a  value  of $1.1  million,  based  on  collected  reserves  and the
estimated value of lease unencumbered  aircraft.  In 2002, the Partnership wrote
down the value of the aircraft by an additional  $453,000 based on the estimated
realizable value of the aircraft.

         The  Partnership  agreed in May 2002 to a sale of the aircraft to Kitty
Hawk  for a  $750,000  note,  subject  to  documentation  and  approval  of  the
bankruptcy  court.  The lease was  reinstated  with a per  month  lease  rate of
$65,000  beginning  in May  2002.  The sale of the  aircraft  to Kitty  Hawk was
completed  in  October  2002 with  lease  payments  made  from May 2002  through
September  2002 being applied to the note. The remainder of the note was paid at
the rate of  $65,000  per month from  November  2002  through  April  2003.  The
Partnership  received  the last  installment  on the Kitty Hawk Note on April 1,
2003.

         US Airways Group Inc.  ("USAir")  Lease.  During  September  1989,  the
Partnership  acquired  one-half of the beneficial  interest in a trust ("Trust")
that was the  owner/lessor of a McDonnell  Douglas MD-81 aircraft for a purchase
price of $10,041,000.  The remaining one-half interest in the Trust was owned by
Pegasus Aircraft  Partners,  L.P., an affiliated  partnership.  The aircraft was
purchased subject to a tax benefit transfer lease ("TBT lease") which expired in
2000. The aircraft was subject to an operating  lease with USAir,  which expired
on June 1, 2001  pursuant  to the  renewal  option  exercised  by USAir in 1997.
Rental payments were payable quarterly, in arrears, at the rate of $304,000 (for
the  Partnership's  one-half  interest  in the  aircraft).  USAir also had three
additional  one-year  renewal options at fair market rental rates,  but chose to
return the aircraft at the end of the lease.  In July 2001,  USAir  returned the
aircraft and paid rent through the return date.  The aircraft was then leased to
Vanguard Airlines as described below.

         Vanguard Airlines  ("Vanguard") Lease. USAir returned the MD-81 in July
2001,  and in August 2001,  the Trust  entered  into a  three-year  lease of the
aircraft with  Vanguard  Airlines,  a Kansas City,  Missouri  airline  providing
passenger services to a number of U.S. cities.

         The lease  agreement  had been on a "power  by the  hour"  basis for 36
months,  starting  August 27, 2001,  at the rate of $600 per flight  hour,  to a
maximum of $130,000  per month.  Vanguard was also  responsible  for funding the
maintenance reserves for the aircraft. From the beginning of the lease in August

                                       22
<PAGE>

2001 through September 30, 2002, Vanguard paid a total of $442,000, of which the
Trust paid 50% to the Partnership and 50% to an affiliated Partnership.

         Vanguard, as many other airlines, has been adversely affected by events
of September 11, 2001.  After being denied a loan guarantee for a second time by
the Airline  Transportation  Stabilization  Board,  Vanguard Airlines  suspended
flight operations on July 30, 2002, dismissed all but 80 employees and filed for
protection under Chapter 11 of the U.S.  Bankruptcy Code.  Vanguard rejected the
lease and returned the MD-81 aircraft to the Trust on September 30, 2002. At the
time of its  filing,  Vanguard  was in  arrears  to the  Trust in the  amount of
$1,389,000  ($694,500  to the  Partnership,  for its 50%  interest)  in rent and
reserves.  At December 31, 2003, recovery of this amount is unlikely.  The Trust
wrote down the value of the aircraft by $1,030,000  for the Trust  ($515,000 for
the Partnership for its 50% interest) in the third quarter of 2002.

         The Trust sold the MD-81 aircraft on October 25, 2002 for $500,000 cash
($250,000 for the Partnership for its 50% interest). The Trust retained $442,000
of maintenance reserves ($221,000 for the Partnership for its 50% interest).

         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 was for a term of 60 months and provided for a monthly
rental of $95,000. Falcon provided a security deposit of $95,000. The lease also
required  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 a prior lessee of approximately
$1,104,000 were applied to such costs.

         Due to its failure to pay rents in the fourth  quarter of 1998,  Falcon
was placed on non-accrual  status beginning October 1, 1998. Lease revenues from
Falcon were  recognized  by the  Partnership  on a cash  collection  basis,  and
additional  receivables  were not  accrued.  For the period from January 1, 2001
through  December  31,  2001,  Falcon owed  $855,000  in rent and  approximately
$287,000  in  maintenance  reserves.   Falcon  paid,  during  the  same  period,
approximately  $808,000  in rent  and  $527,000  in  maintenance  reserves.  The
Partnership had recorded a receivable for $95,000 of past due rent and also held
a $95,000 security deposit from Falcon, which were offset in September 2001. The
Partnership  agreed to an early  termination  of the lease at the  occasion of a
required "C" check and the aircraft was returned in September, 2001.

         In October 2001, the Partnership decided to accept an offer from Falcon
to buy the  airframe  for  $140,000  and to pay  $100,000  for a release  of all
obligations under the lease. As a result, the Partnership  recorded, at December
31, 2001, a receivable of $140,000 for the sale of the aircraft, a receivable of
$100,000  for the rent,  and  recognized  a loss of  $100,000 on the sale of the
aircraft. The $240,000 receivable was paid in 2002.

         In 2001,  the aircraft was written down by an additional  $1,464,000 to
$279,000, the estimated value of its engines. A total of $527,000 of maintenance
reserves  collected in 2001 was taken into income.  In October 2002, the engines
were sold for $75,000.

         Capital Cargo  International  Airlines,  Inc.  ("Capital Cargo") Lease.
Capital  Cargo had leased a Boeing  727-200  freighter.  Capital Cargo failed to
make its lease and  reserve  payments  starting  in  January  2001.  A notice of
default  was sent on  February 8, 2001 and  Capital  Cargo  returned  the Boeing
727-200 on May 23, 2001. On June 14, 2001,  the  Partnership  sued Capital Cargo
for breach of its monetary  obligations  and damages  relating to the failure of
the aircraft to meet return  conditions.  On March 15, 2002, the Partnership and
Capital Cargo reached a court mediated settlement.  According to the settlement,
the  Partnership  agreed to sell the aircraft to Capital  Cargo for $2.0 million
and the Partnership  retained  maintenance reserves of $1,277,000 and a $220,000
security  deposit.  The $2.0  million  purchase  price for the aircraft was paid
through an initial payment of $625,000,  which was received in April 2002, and a
twelve-month  note  with  11  payments  of  $35,000  and a  balloon  payment  of
$1,050,000  received in February 2003 which paid off the note in full.  The note
bore interest in favor of the Partnership.

         TNT Transport  International  B.V.  ("TNT")  Lease.  In June 1998,  the
Partnership  delivered a Boeing 727-200  advanced  aircraft  formerly  leased to
Continental  and which had been  converted to a freighter to a European  freight
carrier,  TNT  Transport  International  B.V.  ("TNT")  for a lease term of four
years.  The lease  provided  for monthly  rentals of $123,500  and  airframe and
landing gear reserves  aggregating  $85 per flight hour. TNT  contracted  with a
third party  service  provider  for  maintenance  of the engines and  provided a
$150,000 security deposit.

                                       23
<PAGE>


         TNT returned the aircraft at the end of the lease in June 2002 and paid
$507,000 in lieu of the aircraft  meeting  return  conditions,  and rent through
July 10, 2002.  Due to the large number of Boeing 727  freighters  available for
sale or lease, the Partnership wrote down the aircraft by $500,000 in the second
quarter of 2002.

         In the third  quarter of 2002,  the  Partnership  took into  income the
$150,000 security deposit and the $391,000  maintenance  reserves collected from
TNT and the $507,000 payment in lieu of the aircraft meeting return  conditions,
originally booked to maintenance  reserves.  The Partnership also wrote down the
aircraft's  value by  $1,315,000.  During the year ended  December 31, 2003, the
Partnership wrote down the aircraft's  carrying value by an additional  $90,000.
The  aircraft  and  engines are being  offered for sale on an "as-is,  where-is"
basis.

         Emery  Worldwide  Airlines Inc.  ("Emery")  Lease.  In June 2000,  work
commenced to convert the DC-10-10 to a freighter  for Emery  Worldwide  Airlines
Inc.  ("Emery").  The Emery lease was for 84 months  with rent of  $218,000  per
month.  The lease also  provided  for 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  $436,000.  The  aircraft  was
delivered to Emery in December 2000. At December 31, 2001,  the conversion  work
totaled approximately $13.6 million.

         Due to Federal  Aviation  Administration  certification  issues,  Emery
grounded the DC-10 but had  continued  to pay rent.  The  Partnership  and Emery
reached a Return and Early Termination  Agreement on October 24, 2002, where the
Partnership accepted the early termination of the lease for a fee of $11,925,000
which included  $436,000  security deposit  previously  received from Emery. The
DC-10  aircraft  was  returned  to  the  Partnership.   In  December  2002,  the
Partnership   wrote  down  the  aircraft  by  $14,268,000  based  on  the  early
termination  fees received and a purchase  offer of the aircraft,  which was not
consummated.  The  Partnership  wrote down the  aircraft's  carrying value by an
additional  $200,000 during the year ended December 31, 2003. The Partnership is
offering the aircraft for sale on an "as-is, where-is" basis.

         Lockheed  L-1011.  Based  on the  amount  of time the  L-1011  had been
unsuccessfully  offered  for  lease  or sale and the  large  number  of  similar
aircraft  available  for lease or sale,  the aircraft was written down from $1.7
million to a zero value in 2001.  The  aircraft was sold for $75,000 in November
2002.

         Airbus A-300 Aircraft Lease. In 1998 and 1999, the Partnership  leased,
on a short-term  (six month minimum)  basis,  its two CF6-50C2  engines from the
Airbus  A-300  aircraft  to Viacao  Aerea Sao Paulo S.A.  ("VASP"),  a Brazilian
carrier.  VASP fell in arrears with respect to rent and maintenance reserves and
the  Partnership  won a  judgment  in court of $3.0  million  for past rents and
reserves.  VASP-owned  property  in  Florida  was  sold  by  a  court  appointed
liquidating  trustee and the  Partnership  received a $3.0 million  judgment and
$500,000 interest in late 2001. In addition,  the Partnership received,  earlier
in  2001,  an  $800,000  negotiated  settlement  payment  for  legal  costs  and
compensation  for damage to one of the engines.  In March 2002, the  Partnership
sold  the  A-300  airframe  for  $121,000  and in a  separate  transaction,  the
Partnership sold the A-300 engines for $200,000.

         General.  In the sale of its aircraft,  the  Partnership is essentially
competing in the market for used aircraft.  The Partnership will seek to dispose
of the  remaining  aircraft and engines as soon as possible in an "as-is,  where
is"  condition,  although  there  can be no  assurance  as to when the  sales or
dispositions will be completed (See "Note 9").

                                       24
<PAGE>


                               Significant Lessees

         There were no aircraft on lease during the 2003 Period.  Revenues  from
each of the airlines,  which  accounted for 10% or greater of the  Partnership's
total rental revenues, are as follows for the years ended:

Airlines                                      Percentage of Rental Revenue(a)
--------                                      -------------------------------
                                             2003           2002          2001
                                             ----           ----          ----

Trans World Airlines, Inc.                      0%            0%          (c)
Aerovias de Mexico S.A. de C.V.                 0             0           (c)
Capital Cargo International Airlines, Inc.      0             0           (c)
TNT Transport International B.V.                0            21            18%
Kitty Hawk Aircargo, Inc.                       0            14            15
US Airways Group Inc.                           0             0           (c)
Emery                                           0            65            31
Falcon                                          0             0            12

(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  $704,000  and  $1,767,000,  in  2002  and  2001, respectively.

5.       Notes Payable

         The Partnership  obtained a $30 million  lending  facility on April 14,
2000, and an initial draw down was made of $19.5 million. The loan proceeds were
used to retire the existing debt of $16.5 million,  to replenish working capital
and to fund the  DC10-10  conversion.  The  facility  was later  limited  to $25
million because the Aeromexico  leases were not extended for two years. The term
of the loan was 6 years,  with  interest  only  payments  for the  first  twelve
months.  Thereafter,  principal  was  required  to be repaid in equal  quarterly
installments  over 60 months  with the first  payment  having  been paid in July
2001.  Proceeds from the sale of aircraft must be applied to principal reduction
and the  subsequent  required  principal  payments were reset over the remaining
term.  The interest  rate was 225 basis points over a major money center  bank's
prime rate.  The lender had a mortgage  interest in all aircraft  except the 50%
interest in the US Airways MD-81 aircraft.  The loan agreement required that the
Partnership  maintain  working  capital  equal to or in  excess  of  maintenance
reserves payable and have these amounts available for payment to the lessees.

         On April 9, 2001, the  Partnership  sold the MD-82,  formerly leased to
TWA, for $9.5 million and used the proceeds to pay down principal on the note.

         In 2002,  partial  principal  payments  on the note were  made  through
proceeds of asset sales, and on May 1, 2002, the remaining debt was retired.

6.       Transactions with Affiliates

         The  Management  fee,  Incentive  fee and  Re-lease  fee payable to the
General  Partners  are  subordinated  to the Limited  Partners  receiving  an 8%
annual,  non-cumulative  return based upon Unreturned Capital  Contribution,  as
Unreturned Capital Contribution is defined in the Partnership Agreement.  As the
Partnership  had not achieved this level of  distribution  since 2000, fees were
being accrued but not paid. Based upon Preferred  Return as determined  pursuant
to the  Partnership  Agreement  and the  estimated  value  of the  Partnership's
remaining  assets,  a  determination  was made to reverse  the fees  accrued but
unpaid to the General  Partners for fiscal years 2000 through the first  quarter
of 2002. In June 2002,  fees  previously  accrued of $2,330,000  were taken into
revenue with a  corresponding  reduction in Payable to Affiliates.  In addition,
based on anticipated future revenues,  the Partnership does not expect to accrue
Management and Re-lease fees in future quarters.

                                       25
<PAGE>


         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.  Of this  amount,  1.0% is  payable to the  Managing  General
Partner and 0.5% is payable to the  Administrative  General Partner.  Management
fees of $17,000  were accrued for the three months ended March 31, 2002 and this
accrual was reversed at June 30, 2002.

         Incentive  Management Fees. 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.  Incentive  Management  fees of $113,000  were
accrued for the three  months ended March 31, 2002 and this accrual was reversed
at June 30, 2002.

         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.
Re-lease  Fees of $42,000 were accrued for the three months ended March 31, 2002
and this accrual was reversed at June 30, 2002.

         As part of a class  action  settlement  agreement,  an affiliate of the
Administrative  General Partner has agreed to pay to members of the class,  fees
and distributions remitted to it by the Administrative General Partner.

         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.  There was no such reimbursable expenses in each of the years ended
December 31, 2003, 2002, and 2001. The continued absence of accountable expenses
is due to the subcontracting of certain accounting  services,  and their cost is
included in general and administrative expenses.

         Other. During 2002 and 2001, the Partnership paid $70,000 and $118,000,
respectively,  to a licensed maintenance facility, which was affiliated with the
Managing General Partner until March 2002, for the storage of and work performed
on the off-lease aircraft.  Additionally,  during 2002 and 2001, the Partnership
paid $49,000 and  $929,000,  respectively,  for  aircraft  parts to a company in
which  the  President  and  Director  of the  Managing  General  Partner  had an
ownership interest.

                                       26
<PAGE>


7.       Reconciliation to Income Tax Method of Accounting

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

                                                   2003        2002       2001
                                                   ----        ----       ----

Net loss per financial statements                $    (67)  $    (25)  $ (3,354)
Increase/(decrease) resulting from:
   Depreciation                                    (2,607)    13,733     13,627
   TBT interest income, less TBT rental
     expense                                         --         --          128
   Gain/(loss) on sale of engines                    (146)      (772)     1,499
   Maintenance reserve payable                       --         (816)       195
   Deferred rental income                            --         --         (311)
   Rental income                                     --         --       (3,190)
   Management fees                                   --          (24)        46
   Other                                             --           23        (24)
                                                 --------   --------   --------
Taxable income/(loss) per federal income
  tax return                                     $ (2,820)  $ 12,119   $  8,616
                                                 ========   ========   ========

         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):

                                                    2003       2002      2001
                                                    ----       ----      ----

Total Partnership capital per financial
  statements                                     $  2,740   $  5,739   $ 16,756
Increase/(decrease) resulting from:
   Commission and expenses paid in connection
     with the sale of limited partnership
     units                                         16,295     16,295     16,295
   Management fees payable                           --         --           24
   Reserves for maintenance costs and
     write-downs                                   23,248     22,733     34,882
   Accumulated depreciation                        (4,427)   (10,228)   (34,521)
   Fixed assets                                    (9,069)      --         --
   Other                                                1       --          (24)
                                                 --------   --------   --------
Tax bases of net assets                          $ 28,788   $ 34,539   $ 33,412
                                                 ========   ========   ========

8.       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.

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

                                       27
<PAGE>

9.       Other

         Upon the sale of the remaining aircraft, the Partnership will liquidate
pursuant  to the  Partnership  Agreement.  At that time,  the  Partnership  will
suspend all transfers, withdraw from regulatory filings and make a distribution.
The remaining  funds will be placed in an  interest-bearing  escrow  account and
will be  disbursed,  net of any  liabilities  that may arise.  It is the current
intention of the General Partners, subject to no other contingencies arising, to
distribute the balance of any remaining escrow balance within 12 months.

10.      Selected Quarterly Financial Data (unaudited)

         The following is a summary of the quarterly  results of operations  for
the years  ended  December  31,  2003 and 2002 (in  thousands,  except  per unit
amounts):

         2002                        Mar. 31     Jun.30     Sep.30      Dec.31
         ----                        -------     ------     ------      ------

Total Revenues                       $  1,537   $  3,618   $  2,199    $ 12,092
Net Income/(Loss)                    $    556   $  2,224   $   (699)   $ (2,106)
Net Income/(Loss) per
  General Partnership                $      5   $     23   $     (7)   $    (21)
Net Income/(Loss) per
  Limited Partnership                $    551   $  2,201   $   (692)   $ (2,085)
Net Income/(Loss) per
   Limited Partnership Unit          $   0.08   $   0.30   $  (0.10)   $  (0.28)


         2003                        Mar. 31     Jun.30     Sep.30      Dec.31
         ----                        -------     ------     ------      ------

Total Revenues                       $     22   $     12   $    825    $      6
Net Income/(Loss)                    $   (118)  $    (92)  $    209*   $    (66)
Net Income/(Loss) per
  General Partnership                $     (1)  $     (1)  $      2    $     (1)
Net Income/(Loss) per
  Limited Partnership                $   (117)  $    (91)  $    207    $    (65)
Net Income/(Loss) per
   Limited Partnership Unit          $  (0.02)  $  (0.01)  $   0.03    $  (0.01)

*   Net income in the  September  30, 2003 quarter  resulted  from proceeds from
    aircraft - insurance settlement.

                                       28
<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 2003, 2002, and
2001.

ITEM 9A. CONTROLS AND PROCEDURES

         The President and Chairman of the Board of Pegasus Aircraft  Management
Corporation and the President of Air Transport Leasing, Inc. (collectively,  the
"Certifying  Officers") have evaluated the  effectiveness  of the  Partnership's
disclosure  controls and  procedures as of the end of the period covered by this
report.  These  disclosure  controls  and  procedures  are  those  controls  and
procedures which are designed to insure that all the information  required to be
disclosed  by the  Partnership  in all  its  periodic  reports  filed  with  the
Securities  and Exchange  Commission  is  recorded,  processed,  summarized  and
reported,  within the time  periods  specified  by the  Commission  and that the
information  is  communicated  to the  President  and  Chairman  of the Board of
Pegasus  Aircraft  Management  Corporation  and the  President of Air  Transport
Leasing, Inc. on a timely basis.

         The Certifying Officers concluded,  based on such evaluation,  that the
Partnership's disclosure controls and procedures were suitable and effective for
the Partnership as of the end of the period covered by this report,  taking into
consideration the size and nature of the Partnership's  business and operations.
No significant deficiencies or material weaknesses in the controls or procedures
were detected, so no corrective actions needed to be taken.

                                       29
<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.  Richard L.
Funk resigned as Senior Vice President, Technical of Pegasus Aircraft Management
Corporation  as of January 15, 2001,  and Ervin Bach assumed the position on the
same day.  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         Executive Vice President, General Counsel and Secretary
Richard M. Oster       Senior Vice President, Chief Financial Officer
Ervin Bach             Senior Vice President, Technical

         Richard S. Wiley, age 50, 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 BS degree  from the  Indiana
University School of Business and an MBA from the University of California,  Los
Angeles.

         Carol L. Chase,  Esq., age 51, is a Executive 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 BA 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.

         Richard M.  Oster,  age 52, is Chief  Financial  Officer,  Senior  Vice
President  Administration of Pegasus Aircraft Management Corporation (PAMC). Mr.
Oster  is  primarily   responsible   within  the  Pegasus   companies   for  all
corporate-wide  Finance and Administration  functions that include all financial
reporting,  planning  and  analysis,  accounting,   information  systems,  human
resources and other  administrative  functions.  Prior to joining  Pegasus,  Mr.
Oster served as Senior Vice  President  and Chief  Financial  Officer of Crowley
Maritime  Corporation;  and prior to that,  as Senior Vice  President  and Chief
Financial Officer of Inchcape Shipping Services.  Mr. Oster is a CPA and holds a
B.S. in Business  Administration  from the  University  of North  Carolina and a
M.B.A. from the Rutgers Graduate School of Business.

         Ervin Bach,  42, is Senior Vice  President,  Technical  of the Managing
General Partner and Pegasus Capital  Corporation.  Mr. Bach has been employed in
various  technical  capacities with  affiliates of the Managing  General Partner
since  1996.  From  1994 to 1996  he was  Manager  of  Structures  for  Hamilton
Aviation, Tucson and he has held the same position with Lockheed Aeromod, Tucson
from 1993 to 1994.  From 1989 to 1993, Mr. Bach held various  positions with the
Evergreen Air Center,  Marana,  Arizona,  the last being Manager of Engineering.
During 1991,  Mr. Bach was  employed  for seven months as a structural  mechanic
with Trans World  Airlines in Kansas City.  Mr. Bach was with the United  States
Air Force  from  1982 to 1989,  rising  to the rank of Staff  Sergeant  with the
responsibility  of maintaining  the mission  worthiness of 13 electronic  combat
C-130's.  Mr. Bach holds an Airframe and Power Plant  license and attended  USAF
technical and  leadership  schools.  Mr. Bach attended  Pima  Community  College
during 1990-91.

                                       30
<PAGE>



                           Air Transport Leasing, Inc.

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

Clifford B. Wattley       President and Director
Timothy F. Kelly          Vice President, Secretary, Treasurer, Chief Financial
                          and Accounting Officer and Director

         Clifford  B.  Wattley,  age 54,  is  President  and a  Director  of the
Administrative  General Partner.  Mr. Wattley is a Corporate Vice President with
UBS  PaineWebber  Inc.  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.

         Timothy F.  Kelly,  age 31, is Vice  President,  Secretary,  Treasurer,
Chief  Financial  and  Accounting  Officer and a Director of the  Administrative
General Partner. Mr. Kelly has also served as a Divisional Vice President within
the Private Investments  Department of UBS PaineWebber Inc. since June 2002. Mr.
Kelly previously served in the UBS PaineWebber  Retirement  Consulting  Services
Department where he was employed since December 1997 as a Product Specialist. He
was  previously  employed  as an  Analyst  for the WTR  Consulting  Group,  from
December  1994 to  December  1997.  He received  his  Bachelor of Arts degree in
Spanish  in  May  1994  from  Hamilton   College  and  his  Master  of  Business
Administration  in Finance and  Accounting  from New York  University in January
2003.

         Stephen R. Dyer  resigned  as a Vice  President  and a Director  of the
Administrative General Partner effective May 2004.

Section 16 (a) Beneficial Ownership Reporting Compliance

         Based  soley on a review  of Forms 3, 4 and 5, the  Partnership  is not
aware of any failures to file  reports of  beneficial  ownership  required to be
filed during or for the year ended December 31, 2003.

Code of Ethics

         The  Partnership has not adopted a specific code of ethics that applies
to its principal  executive  officer,  principal  financial  officer,  principal
accounting officer or persons  performing similar functions.  The Partnership is
in its liquidation  stage,  has limited assets and operations and will liquidate
and   terminate  in  the  near  future.   The  Managing   General   Partner  and
Administrative  General  Partner did not deem it necessary or appropriate  under
these  circumstances  to expend  Partnership  resources  to enact such a code of
ethics.

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 2003.

                                       31
<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.
                           1285 Avenue of the Americas, 37th Floor
                           New York, NY 10019

           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, 2004.



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

              Managing General Partner:
              Richard S. Wiley                             19,135            *
              Carol L. Chase                                1,300            *

              All directors and officers as a group
              (4 persons)                                  20,435            *

              Administrative Managing Partner:
              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.

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.

                                       32
<PAGE>


         The  Management  Fee,  Incentive  Fee and  Re-lease  Fee payable to the
General  partners  are  subordinated  to the Limited  partners  receiving  an 8%
annual,  non-cumulative  return based upon Unreturned Capital  Contribution,  as
Unreturned Capital Contribution is defined in the Partnership Agreement.  As the
Partnership  had not achieved this level of  distribution  since 2000, fees were
being accrued but not paid. Based upon Preferred  Return as determined  pursuant
to the  Partnership  Agreement  and the  estimated  value  of the  Partnership's
remaining  assets,  a  determination  was made to reverse  the fees  accrued but
unpaid to the General  partners for fiscal years 2000 through the first  quarter
of 2002. In June 2002,  fees  previously  accrued of $2,330,000  were taken into
revenue with a  corresponding  reduction in Payable to Affiliates.  In addition,
based on anticipated future revenues,  the Partnership does not expect to accrue
Management and re-lease fees in future quarters.

         Following  is a summary of the  amounts  paid or payable to the General
Partners and their affiliates during 2003.

         Base  Management  Fee.  The General  Partners are entitled to 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.  Management Fees of $17,000 were accrued for the
three  months  ended  March 31, 2002 and this  accrual was  reversed at June 30,
2002.

         Incentive  Management Fee. The General Partners are entitled to 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.  Incentive  Management  Fees of $113,000  were
accrued for the three  months ended March 31, 2002 and this accrual was reversed
at June 30, 2002.

         Re-lease Fee. The General  Partners are entitled to 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.
Re-lease  Fees of $42,000 were accrued for the three months ended March 31, 2002
and this accrual was reversed at June 30, 2002.

         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.  There were no such  reimbursable  expenses  during 2003,  2002 and
2001. As discussed in Note 6 to the Financial  Statements,  accountable expenses
remained $0 due to the subcontracting of certain accounting services,  and their
cost is included in general and administrative expenses.

         Other. In 2002, the Partnership  purchased certain equipment and parts,
which was in the amount of $49,000,  for two Partnership aircraft from a company
in which the Director  and  President  of the  Managing  General  Partner had an
ownership  interest.  Also,  until March 2002, the Partnership paid $70,000 to a
licensed  maintenance  facility affiliated with the Managing General Partner for
the storage of and 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 2002. Pursuant to the Partnership Agreement, there was no allocation of
the  Partnership's net taxable loss of $25,000 for 2002 allocated to the General
Partners.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

         Audit Fees - During  the year ended  December  31,  2003 and 2002,  the
Partnership  was billed  $50,000 and $45,000  respectively,  by its  independent
auditors  PricewaterhouseCoopers  LLP.  Audit  fees for  2003 and 2002  were for
professional  services  provided  for  the  quarterly  review  of the  financial
statements in the Partnership's  Form 10-Q and the annual audit of the financial
statements in the Partnership's Form 10-K.

         Tax  Fees - For  the  year  ended  December  31,  2003  and  2002,  the
Partnership    was   billed    $10,000    and    $10,000,    respectively,    by
PricewaterhouseCoopers  LLP for the review of federal and state  partnership tax
returns.

         The boards of directors of each of the General Partners function as the
audit committee in the absence of an actual designated audit committee.

                                       33
<PAGE>


                                     PART IV

ITEM 15. 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)  No  reports on Form 8-K were  filed by the  Registrant  during the
              quarter for which this report is filed.

         (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.*

         (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.*

                                       34
<PAGE>


         (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.*

         (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

                                       35
<PAGE>

                        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).*

         (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

                                       36
<PAGE>

                        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.*

         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.*

                                       37
<PAGE>
         (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,
                        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.*

                                       38
<PAGE>
         (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
                        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

                                       39
<PAGE>
                        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.*

         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.*

                                       40
<PAGE>
         (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.

         31.1           Rule 13a-14(a)/15d-14(a) Certification.
         31.2           Rule 13a-14(a)/15d-14(a) Certification.

         32.1           Section 1350 Certification.
         32.2           Section 1350 Certification.

                                       41
<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, 2004
                --------------

                                  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:   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 30, 2004.

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

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


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


/s/ TIMOTHY F. KELLY             Vice-President, Secretary, Treasurer, Chief
--------------------             Financial and Accounting Officer and
Timothy F. Kelly                 Director of Air Transport Leasing, Inc.



                                       42