##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION  Washington, D.C. 20549
 FORM 10-K þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year endedDecember 31, 2004 OR o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period fromto Commission file number0-18387 Pegasus Aircraft Partners II, L.P.  (Exact name of Registrant as specified in its charter)
 Delaware
    
    84-1111757(State of organization)
    
    (I.R.S. EmployerIdentification No.)Four Embarcadero Center, 35thFloorSan Francisco, California
    
    94111(Address of principal
    
    (Zip Code)executive offices)
 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 þ     No o 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.  þ State the aggregate market value of the voting stock held by non-affiliates of the Registrant:
Not applicable.    1




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Pegasus Aircraft Partners II, L.P.
Annual Report on Form 10-K for the
Fiscal Year Ended December 31, 2004 Table of Contents PagePart IItem 1 Business
    
    3Item 2 Properties
    
    6Item 3 Legal Proceedings
    
    6Item 4 Submission of Matters to a Vote of Unit Holders
    
    6Part IIItem 5 Market for Registrants Common Partnership Capital and Related
Unitholder Matters
    
    7Item 6 Selected Financial Data
    
    8Item 7 Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    8Item 8 Financial Statements and Supplementary Data
    
    12Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
    
    25Item 9A Controls and Procedures
    
    25Part IIIItem 10 Directors and Executive Officers of the Registrant
    
    26Item 11 Executive Compensation
    
    27Item 12 Security Ownership of Certain Beneficial Owners and Management
    
    28Item 13 Certain Relationships and Related Transactions
    
    28Item 14 Principal Accounting Fees and Services
    
    29Part IVItem 15 Exhibits, Financial Statement Schedules and Reports on Form 8-K
    
    31EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
  2




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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. 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 former
lessees in lieu of the aircraft meeting the return conditions specified in the leases and the
aircraft are being offered for sale in an as-is, where is condition. The net proceeds of the
prior 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. While improving economies in most parts of the world and the US have begun to
increase passenger and air freight traffic, significantly higher jet fuel costs have adversely
affected operating results and cash flow of airlines and air freight operators. A large number of
carriers filed for bankruptcy protection and are operating in bankruptcy, 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 a 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, 2004 was estimated to be $0.33 per Unit. It
should be noted that the net asset value per unit amount 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 and is also
different from the per unit amount basis used for the liquidating distribution. 3




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##### Table of Contents



The following table describes the Partnerships aircraft portfolio at December 31, 2004: Dec.2004
    
    
    
    
    
    
    Cumu-
    
    
    Cumu-Owner-
    
    
    Acqui-
    
    
    Estimated
    
    
    Original
    
    Noise
    
    lative
    
    
    lativeCurrent
    
    Aircraft
    
    ship
    
    
    sition
    
    
    Realizable
    
    
    Delivery
    
    Abatement
    
    Flight
    
    
    FlightLessee
    
    Type
    
    Interest
    
    
    Costs(1)
    
    
    Value(2)
    
    
    Date
    
    Compliance
    
    Hours(3)
    
    
    Cycles(3)(dollar amounts in millions)Off-Lease (2)
    
    McDonnellDouglas DC-9-31
    
    
    100
    %
    
    $
    8.9
    
    
    $
    0.075
    
    
    1971
    
    Stage  II
    
    
    69,350
    
    
    
    64,879Off Lease (2)
    
    Boeing 727-200Freighter
    
    
    100
    
    
    
    8.4
    
    
    
    0.1
    
    
    1973
    
    Stage III (4)
    
    
    75,396
    
    
    
    54,033McDonnell Douglas DC10-10Off Lease (2)
    
    Freighter
    
    
    100
    
    
    
    31.9
    
    
    
    0.2
    
    
    1973
    
    Stage III
    
    
    84,545
    
    
    
    30,73549.2
    
    
    
    0.375
   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, 2004. 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, 2004.(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




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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
    
    
    EstimatedAircraft
    
    Age
    
    
    Cycle
    
    
    Hour
    
    
    ADType
    
    Threshold
    
    
    Threshold
    
    
    Threshold
    
    
    Costs(Years)Boeing 727
    
    
    20
    
    
    
    60,000
    
    
    
    N/A
    
    
    $
    1,100,000McDonnell Douglas DC-9
    
    
    20
    
    
    
    100,000
    
    
    
    75,000
    
    
    
    79,000McDonnell 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




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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 the
type of equipment owned by the Partnership 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, 2004. 6




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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, 2005, the number of Limited Partners of record was approximately 6,978. The Partnership declared the following distributions to its Limited Partners out of cash flow
received from operations during 2004 and 2003: Amount ofDistributionPeriod
    
    Per Unit
    
    
    Record Date
    
    
    Payment Date1st Quarter 2004
    
    $
    0.00
    
    
    
    
    
    
    None Paid2nd Quarter 2004
    
    $
    0.00
    
    
    
    
    
    
    None Paid3rd Quarter 2004
    
    $
    0.00
    
    
    
    
    
    
    None Paid4th Quarter 2004
    
    $
    0.00
    
    
    
    
    
    
    None Paid1st Quarter 2003
    
    $
    0.00
    
    
    
    
    
    
    None Paid2nd Quarter 2003
    
    $
    0.40
    
    
    August 1, 2003 (1)
    
    August 7, 20033rd Quarter 2003
    
    $
    0.00
    
    
    
    
    
    
    None Paid4th Quarter 2003
    
    $
    0.00
    
    
    
    
    
    
    None Paid
 (1) Distribution declared in second quarter for Unit holders as of August 1, 2003. Total distributions to all partners for 2004 and 2003 were declared as follows (in thousands): 2004
    
    
    2003Limited Partners
    
    $
    0
    
    
    $
    2,901General Partners
    
    
    0
    
    
    
    31$
    0
    
    
    $
    2,932
 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, 2004 and 2003, all of the cash distributions paid
to the partners, in the aggregate, for the year ended December 31, 2003 constituted a return of
capital. Also, based on the amount of cumulative net income reported by the Partnership for
accounting purposes, approximately 88% of the cash distributions paid to the partners from the
inception of the Partnership through December 31, 2004 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
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 it 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. 7




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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. As of December 31,or Year Ended December 31,2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000(in thousands, except per unit amounts)Rental Revenue
    
    $
    
    
    
    $
    
    
    
    $
    3,370
    
    
    $
    7,357
    
    
    $
    9,344Net Income (Loss)
    
    
    (341
    )
    
    
    (67
    )
    
    
    (25
    )
    
    
    (3,354
    )
    
    
    1,788Net Income (Loss) per Limited
Partnership Unit
    
    
    (0.05
    )
    
    
    (0.01
    )
    
    
    (0.00
    )
    
    
    (0.46
    )
    
    
    0.10Distributions per Limited
Partnership Unit
    
    
    0.00
    
    
    
    0.40
    
    
    
    1.50
    
    
    
    0.20
    
    
    
    0.60Total Assets
    
    
    3,115
    
    
    
    3,846
    
    
    
    6,853
    
    
    
    32,894
    
    
    
    48,870Notes Payable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,483
    
    
    
    21,210Partners Capital
    
    
    2,399
    
    
    
    2,740
    
    
    
    5,739
    
    
    
    16,756
    
    
    
    21,57
 
 ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Selected Financial Data and
the Financial Statements of the Partnership and the Notes thereto. This report may contain, in
addition to historical information, forward-looking statements that include risks and other
uncertainties. The Partnerships actual results may differ materially from those anticipated in
these forward-looking statements. Factors that might cause such a difference include those
discussed below, as well as general economic and business conditions, competition and other factors
discussed elsewhere in this report. The Partnership undertakes no obligation to release publicly
any revisions to the forward-looking statements, if any, to reflect events or circumstances after

the date hereof or to reflect the occurrence of anticipated or unanticipated events. Liquidity and Capital Resources The Partnership owns and manages one commercial passenger aircraft and two freighter aircraft,
all of 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, 2004, the Partnerships unrestricted cash and cash equivalents of $2,725,000 were
primarily invested in such a fund. This amount was $721,000 less than the Partnerships
unrestricted cash and cash equivalents at December 31, 2003 of $3,446,000. This decrease in
unrestricted cash was primarily attributable to cash used in operating activities and payment of
previously accrued payables. Net cash used in operating activities was $721,000 and $371,000 in 2004 and 2003,
respectively, as compared to net cash provided by operating activities of $14.7 million in 2002.
In the aggregate, for this three-year period, net cash provided by operating activities totaled
$13.6 million. The $721,000 of cash used in operating activities in 2004 is comprised of a net
loss, adjusted for changes in assets and liabilities, as discussed below. Other assets decreased by $10,000, or 40%, from $25,000 at December 31, 2003 to $15,000 at
December 31, 2004, primarily due to the receipt of returned insurance premium credits of $21,000,
which was partially offset by an increase in the insurance premium credits of $10,000 and pre-paid
insurance of $1,000 during the year ended December 31, 2004. 8




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Accounts payable and accrued expenses increased by $49,000, or 37%, from $132,000 at December
31, 2003 to $181,000 at December 31, 2004, primarily due to the receipt of a $50,000 deposit,
during the year ended December 31, 2004, for the sale of a DC-10 aircraft. The deposit is
reimbursable to the purchaser net of costs expended to test and evaluate the aircraft prior to
sale. Payables to affiliates decreased by $439,000, or 45%, from $974,000 at December 31, 2003 to
$535,000 at December 31, 2004, primarily due to a payment to the General Partners of previously
accrued management fees. Partnership capital was $2,399,000 at December 31, 2004, a decrease of approximately $341,000
or 12% from $2,740,000 at December 31, 2003, due to net loss of $341,000 during the year ended
December 31, 2004. Cash distributions declared by the Partnership were $0 for 2004, approximately $2.9 million
for 2003 ($.40 per Unit) and $11 million for 2002 ($1.50 per Unit). In the aggregate, for this
three-year period, cash distributions declared by the Partnership totaled $13.9 million. Critical 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 2004 revenue was the result of 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 2004, there was no revenue generated from the leasing of the
Partnerships aircraft. The Partnership also 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. 2004 as compared to 2003 The Partnerships net loss was $341,000 for the year ended December 31, 2004 (2004 Period)
as compared to $67,000 net loss for the year ended December 31, 2003 (2003 Period). The Partnerships higher net loss for the 2004 Period, as compared to the 2003 Period, is
primarily due to lower revenues in the 2004 Period, compared to the 2003 Period. The Partnership
had a gain from an aircraft insurance settlement in the 2003 Period, with no corresponding amount
in the 2004 Period. 9




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Gain on aircraft from insurance proceeds decreased by $819,000, from $819,000 for the 2003
Period to $0 for the 2004 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). Write down of aircraft decreased by $515,000, or 100%, from $515,000 for the 2003 Period to $0
for the 2004 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 managements estimate of the market
value for these types of aircraft and the price management was negotiating to sell the aircraft
for, as the remaining assets of the Partnership are being liquidated. Direct lease expenses decreased by 31%, or $47,000, from $151,000 for the 2003 Period to
$104,000 for the 2004 Period. This decrease was due primarily to lower aircraft storage and
maintenance costs in the 2004 Period as compared to the 2003 Period. 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. 10




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##### Table of Contents



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. Inflation and Changing Prices As jet fuel costs are a major component of the cost of operating an aircraft, periods of high
fuel prices, as experienced in 2004, have negatively impacted the passenger 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 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 industry. Certain prohibitions on passenger planes carrying cargo have increased cargo
for the fully dedicated air freight business. . While general world economic activity has recently
increased, higher jet fuel prices have significantly strained the operating finances of airlines
and air freight operators. The age and maintenance status of the Partnerships aircraft make the
equipment potentially attractive to more thinly capitalized operators and used parts firms, thereby
making the sale of the aircraft more uncertain. 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. 11




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##### Table of Contents



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA PEGASUS AIRCRAFT PARTNERS II, L.P. List of Financial Statements
    
    PageReport
of Independent Registered Public Accounting Firm
    
    
    13Balance Sheets  December 31, 2004 and 2003
    
    
    14Statements of Loss for the years ended
December 31, 2004, 2003, and 2002
    
    
    15Statements of Partners Capital for the years ended
December 31, 2004, 2003, and 2002
    
    
    16Statements of Cash Flows for the years ended
December 31, 2004, 2003, and 2002
    
    
    17Notes to Financial Statements
    
    
    19
 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. 12




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##### Table of Contents



REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM 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) at December 31, 2004 and
December 2003, and the results of its operations and its cash flows for each of the three years in
the period ended December 31, 2004 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 statements in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosure 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
February 25, 2005 13




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##### Table of Contents



PEGASUS AIRCRAFT PARTNERS II, L.P. 
 BALANCE SHEETS DECEMBER 31, 2004 AND 2003 2004
    
    
    2003(in thousands, except unit data)ASSETSCash and cash equivalents
    
    $
    2,725
    
    
    $
    3,446Aircraft, net
    
    
    375
    
    
    
    375Other assets
    
    
    15
    
    
    
    25Total Assets
    
    $
    3,115
    
    
    $
    3,846LIABILITIES AND PARTNERS CAPITALLIABILITIES:Accounts payable and accrued expenses
    
    $
    181
    
    
    $
    132Payable to affiliates
    
    
    535
    
    
    
    974Total Liabilities
    
    
    716
    
    
    
    1,106COMMITMENTS AND CONTINGENCIESPARTNERS CAPITAL:General Partners
    
    
    24
    
    
    
    27Limited Partners (7,255,000 units issued and outstanding in 2004 and 2003)
    
    
    2,375
    
    
    
    2,713Total Partners Capital
    
    
    2,399
    
    
    
    2,740Total Liabilities and Partners Capital
    
    $
    3,115
    
    
    $
    3,846
 The accompanying notes are an integral part of these financial statements. 14




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PEGASUS AIRCRAFT PARTNERS II, L.P. 
 STATEMENTS OF LOSS AND COMPREHENSIVE LOSS FOR THE YEARS ENDED DECEMBER 31, 2004, 2003, AND 2002 2004
    
    
    2003
    
    
    2002(in thousands, except unit data and per unit amounts)REVENUES:Rentals from operating leases
    
    $
    
    
    
    $
    
    
    
    $
    3,370Gain from aircraft  insurance settlement
    
    
    
    
    
    
    819
    
    
    
    Interest
    
    
    28
    
    
    
    46
    
    
    
    119Equity in deficit of MD-81 Trust
    
    
    
    
    
    
    
    
    
    
    (548
    )Emery lease termination fees
    
    
    
    
    
    
    
    
    
    
    11,440Management and re-lease fees reversal
    
    
    
    
    
    
    
    
    
    
    2,330Other income
    
    
    2
    
    
    
    
    
    
    
    2,300Gain on sale of aircraft, engines or equipment
    
    
    
    
    
    
    
    
    
    
    43530
    
    
    
    865
    
    
    
    19,446EXPENSES:Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    1,267Write-down of aircraft
    
    
    
    
    
    
    515
    
    
    
    17,018Interest
    
    
    
    
    
    
    
    
    
    
    393General and administrative
    
    
    267
    
    
    
    266
    
    
    
    511Direct lease
    
    
    104
    
    
    
    151
    
    
    
    282371
    
    
    
    932
    
    
    
    19,471NET AND
COMPREHENSIVE LOSS
    
    $
    (341
    )
    
    $
    (67
    )
    
    $
    (25
    )NET LOSS ALLOCATED:To the General Partners
    
    $
    (3
    )
    
    $
    (1
    )
    
    $
    To the Limited Partners
    
    
    (338
    )
    
    
    (66
    )
    
    
    (25
    )$
    (341
    )
    
    $
    (67
    )
    
    $
    (25
    )NET LOSS PER LIMITED PARTNERSHIP UNIT
    
    $
    (0.05
    )
    
    $
    (0.01
    )
    
    $
    (0.00
    )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. 15




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PEGASUS AIRCRAFT PARTNERS II, L.P. 
 STATEMENTS OF PARTNERS CAPITAL FOR THE YEARS ENDED DECEMBER 31, 2004, 2003, AND 2002 General
    
    
    LimitedPartners
    
    
    Partners
    
    
    Total(dollar amounts in thousands)Balance, December 31, 2001
    
    $
    169
    
    
    $
    16,587
    
    
    $
    16,756Net loss
    
    
    
    
    
    
    (25
    )
    
    
    (25
    )Distributions declared to partners
    
    
    (110
    )
    
    
    (10,882
    )
    
    
    (10,992
    )Balance, December 31, 2002
    
    
    59
    
    
    
    5,680
    
    
    
    5,739Net loss
    
    
    (1
    )
    
    
    (66
    )
    
    
    (67
    )Distributions declared to partners
    
    
    (31
    )
    
    
    (2,901
    )
    
    
    (2,932
    )Balance, December 31, 2003
    
    
    27
    
    
    
    2,713
    
    
    
    2,740Net loss
    
    
    (3
    )
    
    
    (338
    )
    
    
    (341
    )Balance, December 31, 2004
    
    $
    24
    
    
    $
    2,375
    
    
    $
    2,399
 The accompanying notes are an integral part of these financial statements. 16




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##### Table of Contents



PEGASUS AIRCRAFT PARTNERS II, L.P. 
 STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2004, 2003, AND 2002 2004
    
    
    2003
    
    
    2002(dollar amounts in thousands)CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    $
    (341
    )
    
    $
    (67
    )
    
    $
    (25
    )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
    )Depreciation
    
    
    
    
    
    
    
    
    
    
    1,267Equity in deficit of MD-81 Trust
    
    
    
    
    
    
    
    
    
    
    548Write down of aircraft
    
    
    
    
    
    
    515
    
    
    
    17,018Change in assets and liabilities:Rent and other receivables
    
    
    
    
    
    
    9
    
    
    
    100Other assets
    
    
    10
    
    
    
    (1
    )
    
    
    222Accounts payable and accrued expenses
    
    
    49
    
    
    
    (8
    )
    
    
    (85
    )Accrued interest payable
    
    
    
    
    
    
    
    
    
    
    (28
    )Deferred rental income and deposits
    
    
    
    
    
    
    
    
    
    
    (811
    )Payable to affiliates
    
    
    (439
    )
    
    
    
    
    
    
    (2,302
    )Maintenance reserves payable
    
    
    
    
    
    
    
    
    
    
    (817
    )Net cash (used in)/provided by operating activities
    
    
    (721
    )
    
    
    (371
    )
    
    
    14,652CASH 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
    
    
    
    
    
    
    
    
    
    
    1,698Cash distributions from investment in MD-81 Trust
    
    
    
    
    
    
    
    
    
    
    250Net cash provided by investing activities
    
    
    
    
    
    
    2,180
    
    
    
    1,948CASH FLOWS FROM FINANCING ACTIVITIES:Repayment notes payable
    
    
    
    
    
    
    
    
    
    
    (9,483
    )Cash distributions paid to partners
    
    
    
    
    
    
    (2,932
    )
    
    
    (10,992
    )Net cash used in financing activities
    
    
    
    
    
    
    (2,932
    )
    
    
    (20,475
    )NET DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    (721
    )
    
    
    (1,123
    )
    
    
    (3,875
    )CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
    
    
    3,446
    
    
    
    4,569
    
    
    
    8,444CASH AND CASH EQUIVALENTS AT END OF YEAR
    
    $
    2,725
    
    
    $
    3,446
    
    
    $
    4,569
 The accompanying notes are an integral part of these financial statements. 17




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PEGASUS AIRCRAFT PARTNERS II, L.P. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2004, 2003, AND 2002 (continued) 2004
    
    
    2003
    
    
    2002(dollar amounts in thousands)SUPPLEMENTAL CASH FLOW INFORMATION:Cash paid during the period for interest paid
    
    $
    
    
    
    $
    
    
    
    $
    199NON-CASH TRANSACTIONS:Maintenance reserves recognized upon sales of aircraft
    
    $
    
    
    
    $
    
    
    
    $
    1,498Receivable arising from sales of aircraft
    
    $
    
    
    
    $
    
    
    
    $
    1,370
 The accompanying notes are an integral part of these financial statements. 18




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PEGASUS AIRCRAFT PARTNERS II, L.P.
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 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. 19




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##### Table of Contents



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, 2004 and 2003 consisted of the
following (in thousands): 2004
    
    
    2003Aircraft held for sale, at cost
    
    $
    49,860
    
    
    $
    49,860Less: Accumulated depreciation
    
    
    (26,237
    )
    
    
    (26,237
    )Write-downs
    
    
    (23,248
    )
    
    
    (23,248
    )Aircraft, net
    
    $
    375
    
    
    $
    375
 Financial Terms of Leases DC-9
Aircraft.The aircraft was damaged during a hailstorm early 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. 20




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##### Table of Contents



Boeing 727-200 Advanced Aircraft. The aircraft was returned at the end of the lease in June
2002 and has not been released. During the year ended December 31, 2003, the Partnership wrote
down the aircrafts carrying value by an additional $90,000 to its estimated realizable value. The
aircraft and engines are being offered for sale on an as-is, where-is basis. MD-81 Aircraft.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. 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, 2004, 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). 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. DC-10-10 Freighter.The DC-10 aircraft was returned to the Partnership in December 2002, and
has not been released. The Partnership wrote down the aircrafts carrying value by an additional
$200,000 during the year ended December 31, 2003 to its estimated realizable value. The
Partnership is offering the aircraft for sale on an as-is, where-is basis. Lockheed L-1011.The aircraft was sold for $75,000 in November 2002. Airbus A-300 Aircraft. 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). 21




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##### Table of Contents



Significant Lessees There were no aircraft on lease during the 2004 and 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: Percentage of Rental Revenue(a)Airlines
    
    2004
    
    
    2003
    
    
    2002TNT Transport International B.V.
    
    
    0
    %
    
    
    0
    %
    
    
    21
    %Kitty Hawk Aircargo, Inc.
    
    
    0
    
    
    
    0
    
    
    
    14Emery
    
    
    0
    
    
    
    0
    
    
    
    65
   (a)
    
    Such percentages include the periodic recognition of amounts that were prepaid in connection
with certain lease settlements.Revenues include rentals from aircraft leased to foreign airlines or carriers of $704,000 in
2002. 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. 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 has not accrued during 2004 and 2003 and does not expect to accrue
Management and Re-lease fees in future quarters. 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. 22




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##### Table of Contents



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, 2004, 2003, and 2003. 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, the Partnership paid $70,000 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, the Partnership paid $49,000 for
aircraft parts to a company in which the President and Director of the Managing General Partner had
an ownership interest. 7. Reconciliation to Income Tax Method of Accounting The following is a reconciliation of the net loss as shown in the accompanying financial
statements to the taxable (loss) income reported for federal income tax purposes (in thousands): 2004
    
    
    2003
    
    
    2002Net loss per financial statements
    
    $
    (341
    )
    
    $
    (67
    )
    
    $
    (25
    )Increase/(decrease) resulting from:Depreciation
    
    
    (2,368
    )
    
    
    (2,607
    )
    
    
    13,733Gain/(loss) on sale of engines
    
    
    
    
    
    
    (146
    )
    
    
    (772
    )Maintenance reserve payable
    
    
    
    
    
    
    
    
    
    
    (816
    )Management fees
    
    
    
    
    
    
    
    
    
    
    (24
    )Other
    
    
    
    
    
    
    
    
    
    
    23Taxable income/(loss) per federal income tax return
    
    $
    (2,709
    )
    
    $
    (2,820
    )
    
    $
    12,119
 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): 2004
    
    
    2003
    
    
    2002Total Partnership capital per financial statements
    
    $
    2,399
    
    
    $
    2,740
    
    
    $
    5,739Increase/(decrease) resulting from:Commission and expenses paid in connection with the
sale of limited partnership units
    
    
    16,295
    
    
    
    16,295
    
    
    
    16,295Reserves for maintenance costs and write-downs
    
    
    23,248
    
    
    
    23,248
    
    
    
    27,733Accumulated depreciation
    
    
    (6,795
    )
    
    
    (4,427
    )
    
    
    (10,228
    )Fixed assets
    
    
    (9,069
    )
    
    
    (9,069
    )
    
    
    Other
    
    
    
    
    
    
    1
    
    
    
    Tax bases of net assets
    
    $
    (26,078
    )
    
    $
    28,788
    
    
    $
    34,539
 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. 23




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##### Table of Contents



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. 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, 2004 and 2003 (in thousands, except per unit amounts): 2003
    
    Mar. 31
    
    
    Jun.30
    
    
    Sep.30
    
    
    Dec.31Total Revenues
    
    $
    22
    
    
    $
    12
    
    
    $
    825
    
    
    $
    6Net 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
    )
 2004
    
    Mar. 31
    
    
    Jun.30
    
    
    Sep.30
    
    
    Dec.31Total Revenues
    
    $
    7
    
    
    $
    5
    
    
    $
    7
    
    
    $
    11Net Loss
    
    $
    (73
    )
    
    $
    (82
    )
    
    $
    (89
    )
    
    $
    (97
    )Net Loss per General Partnership
    
    $
    (1
    )
    
    $
    (1
    )
    
    $
    (1
    )
    
    $
    Net Loss per Limited Partnership
    
    $
    (72
    )
    
    $
    (81
    )
    
    $
    (88
    )
    
    $
    (97
    )Net Loss per Limited Partnership Unit
    
    $
    (0.01
    )
    
    $
    (0.01
    )
    
    $
    (0.01
    )
    
    $
    (0.02
    )
   *
    
    Net income in the September 30, 2003 quarter resulted from proceeds from aircraft  insurance
settlement. 11. Subsequent Events Previous reports filed by the Partnership with the Securities and Exchange Commission
indicated that after the last aircraft was sold, the Partnership would enter into a liquidating
trust. The General Partners have subsequently determined that it will be more efficient to wind
down the affairs of the Partnership by maintaining the partnership format and not entering into a
liquidating trust. On March 24, 2005, the Administrative General Partner declared that a special distribution of
$0.20 per Partnership Unit is scheduled to be paid on April 28, 2005 to investors of record as of
April 1, 2005. 24




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##### Table of Contents



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 2004, 2003, and 2002. 
  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. 25




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##### Table of Contents



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 HeldRichard S. Wiley
    
    President and Chairman of the BoardCarol L. Chase
    
    Executive Vice President, General Counsel and SecretaryRichard M. Oster
    
    Senior Vice President, Chief Financial OfficerErvin Bach
    
    Senior Vice President, Technical
 Richard S. Wiley, age 51, 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 52, is an 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 53, 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, 43, 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. 26




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##### Table of Contents



Air Transport Leasing, Inc. Name
    
    Positions HeldClifford B. Wattley
    
    President and Director
 Clifford B. Wattley, age 55, is President and a Director of the Administrative General
Partner. Upon the resignation of Timothy F. Kelly, discussed below, Mr. Wattley assumed the
positions of Chief Financial Officer and Chief Accounting Officer. Mr. Wattley is a Corporate Vice
President with UBS Financial Services, 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, resigned as Vice President, Secretary, Treasurer, Chief Financial and
Accounting Officer and a Director of the Administrative General Partner effective March 2005. Section 16 (a) Beneficial Ownership Reporting Compliance Based solely 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,
2004. 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 2004. 27




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##### Table of Contents



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, 2005. Amount and Natureof Beneficial
    
    
    PercentName
    
    Ownership
    
    
    of ClassManaging 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. 28




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##### Table of Contents



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. As described below, there were no fees paid or payable to the General Partners and their
affiliates for the year 2004. 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 2004, 2003 and 2002.
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 distributions of $0, $31,000 and $110,000
as their allocable share of distributable cash flow for 2004, 2003 and 2002, respectively.
Pursuant to the Partnership Agreement, one percent of the Partnerships net loss of $341,000,
$67,000 and $25,000 for 2004, 2003 and 2002, respectively, was allocated to the General Partners. 
 ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES Audit Fees  During the year ended December 31, 2004 and 2003, the Partnership was billed
$53,000 and $50,000 respectively, by its independent registered public accounting firm
PricewaterhouseCoopers LLP. Audit fees for 2004 and 2003 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, 2004 and 2003, the Partnership was billed $12,500
and $10,000, respectively, by PricewaterhouseCoopers LLP for the review of federal and state
partnership tax returns. 29




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The boards of directors of each of the General Partners function as the audit committee in the
absence of an actual designated audit committee. 30




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##### Table of Contents



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.
    
    Description3.1(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.*
 31




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##### Table of Contents



Exhibit No.

    Description(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
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.* 32




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Exhibit No.

    Description(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 as Exhibit 19.1(a) to the
Registrants Quarterly Report on Form 10-Q for the quarter ended March 31, 1991.* 33




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Exhibit No.

    Description(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.* 34




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Exhibit No.

    Description(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.* 35




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Exhibit No.
    
    Description(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
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.*
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Exhibit No.
    
    Description(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.*(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.*
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Exhibit No.
    
    Description(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.
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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 30, 2005 Pegasus Aircraft Partners II, L.P.(Registrant)By:
    
    Air Transport Leasing, Inc.Administrative General PartnerBy:
    
    /s/ Clifford B. WattleyClifford B. WattleyPresident, Director, Chief Financial and Accounting OfficerBy:
    
    Pegasus Aircraft Management CorporationManaging General PartnerBy:
    
    /s/ Richard S. WileyRichard S. WileyPresident 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, 2005. Signature
    
    Title/s/ Richard S. Wiley
    
    President and Chairman of the Board ofPegasus Aircraft Management CorporationRichard S. Wiley/s/ Clifford B. Wattley
    
    President, Director, Chief Financial andAccounting Officer of Air Transport Leasing, Inc.Clifford B. Wattley
 39