SECURITIES AND EXCHANGE COMMISSION

                              Washington, DC 20549

                                   FORM 10-K/A
                                   -----------
                               Amendment No. 1 to
                               ------------------

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

For the fiscal year ended                     December 31, 2000
                          ------------------------------------------------------

                                       OR

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

For the transition period from _______________________ to ______________________

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

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

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

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

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

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

           Securities registered pursuant to Section 12(g) of the Act:

                      Units of Limited Partnership Interest
                                (Title of Class)

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

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

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

         The  registrant  hereby  files this  report on Form 10-K/A to amend its
Annual  Report on Form 10-K,  as  amended on April ___,  2002 for the year ended
December 31, 2000, to amend Part III, Item 10 "Directors and Executive  Officers
of  the  Registrant",   specifically  Carmine  Fusco.  No  other  items  in  the
registrant's Annual Report on Form 10-K for the year ended December 31, 2000 are
amended.

                       This document consists of 47 pages.
<PAGE>

                       Pegasus Aircraft Partners II, L.P.
                       Annual Report on Form 10-K for the
                       Fiscal Year Ended December 31, 2000

                                Table of Contents

                                                                            Page
                                                                            ----

Part I
------

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


Part II
-------

Item 5        Market for Registrant's Common Partnership Capital
                and Related Unitholder Matters.................................9
Item 6        Selected Financial Data.........................................10
Item 7        Management's Discussion and Analysis of Financial
                 Condition and Results of Operations..........................10
Item 8        Financial Statements............................................16
Item 9        Changes in and Disagreements with Accountants on
                 Accounting and Financial Disclosure..........................33

Part III
--------

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


Part IV
-------

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


                                        2
<PAGE>
                                     PART I

ITEM 1.       BUSINESS

General

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

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

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

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

Outlook for the Airline and Aircraft Leasing Industries

         The US airline  industry had a profitable  year in 2000 that  continued
the industry's trend of sustained profitability. However, results were adversely
affected by  continuing  high fuel prices and higher labor  costs.  The industry
also  accepted  delivery  of a record  number of new  aircraft,  which  also put
pressure on profitability.  The industry's results historically have been highly
correlated to general economic activity.

         Due to concern regarding an economic  slowdown,  the US Federal Reserve
Board has  recently  reduced its key lending rate on a number of occasions in an
attempt to stimulate economic activity.  It is unclear as to the ultimate impact
on  the  level  of  economic  activity  of  these  rate  decreases,  however,  a
significant  economic  slowdown  could have an adverse  affect on air travel and
airline  performance.  In fact,  a number  of  airlines,  including  Partnership
lessees, filed for bankruptcy protection in 2000 and early 2001.

         Kitty  Hawk  Aircargo,  Inc.  which  leases  a  Boeing  727  freighter,
accounted  for 13% of the  Partnership's  revenue  in the year  2000  and  while
current  in its  obligations  to  the  Partnership,  has  been  operating  under
protection of the Federal bankruptcy code since May, 2000.

         On January 10, 2001 Trans World Airlines, Inc. ("TWA"), which accounted
for 21% of the  Partnership's  revenues in 2000, filed for Chapter 11 Bankruptcy
protection.  On January 9, 2001,  TWA entered into an Asset  Purchase  Agreement
with American  Airlines,  Inc. If the transaction is consummated,  American will
purchase   substantially   all  of  TWA's  assets  and  assume  certain  of  its
liabilities.  American  Airlines has also agreed to purchase  the  Partnership's
MD-82 for $9.5  million in a  transaction  expected to close in April  2001.  In
2000,  United  Airlines,  Inc.  made a tender offer for US Airways,  Inc.  which
leases the MD-81 of which the  Partnership  owns 50% through its investment in a
trust.  This lease  accounted for 12% of the  Partnership's  revenue in 2000 and
expires  in June,  2001 at which  time US  Airways  is  scheduled  to return the
aircraft.

                                       3
<PAGE>
         The General Partners believe that installing  hushkits to achieve Stage
III noise  compliance and the conversion of three of the Boeing 727-200 aircraft
and the McDonnell  Douglas DC-10 to freighters has improved the marketability of
the Partnership's  portfolio.  Passenger aircraft and freighter aircraft leasing
continues to be a highly competitive business and the Partnership's lessees also
continue to face significant challenges.

Aircraft Portfolio

         Based in part on appraised values for the Partnership's  aircraft,  the
Partnership's net asset value at December 31, 2000 was estimated to be $5.30 per
Unit.  It should be noted  that  this is only an  estimate  of values as of that
date, and is not necessarily  representative  of the values that will ultimately
be realized  when these  aircraft  are disposed of nor does this  represent  the
values that may be realized upon the disposition of a Unit.

         The following table describes the Partnership's  aircraft  portfolio at
December 31, 2000:

<TABLE>
<CAPTION>
                                                                  Dec.      Current                              Cumu-       Cumu-
                                            Owner-     Acqui-     2000       Lease     Original      Noise      lative      lative
   Current          Aircraft                 ship      sition   Appraised Expiration   Delivery    Abatement    Flight      Flight
   Lessee             Type                 Interest   Costs(1)  Value(2)   Date (3)      Date     Compliance   Hours(4)    Cycles(4)
   ------             ----                 --------   --------  --------   --------      ----     ----------   --------    ---------
                                                   (dollar amounts in millions)
<S>               <C>                        <C>        <C>       <C>       <C>         <C>       <C>            <C>         <C>
Aerovias de
Mexico, S.A.      McDonnell
de C.V.           Douglas DC-9-31            100%       $ 8.9     $ 3.0     09/30/01    1971      Stage  II      69,343      64,873

Kitty Hawk        Boeing 727-200
Aircargo, Inc     Freighter                  100          9.2       8.3     12/6/06     1973      Stage  III (8) 76,915      53,153

TNT Transport     Boeing 727-200
Intl.  B.V.       Freighter                  100          8.4       5.9     06/22/02    1973      Stage III (8)  73,959      52,730

Emery Worldwide   McDonnell Douglas DC10-10
Airlines Inc. (7) Freighter                  100         31.2      16.5     11/01/07    1973      Stage III      83,866      30,440

Off-Lease (6)     Airbus Industrie
                  A300-B4-103                100         27.9       3.0     (6)         1979      Stage III      46,226      19,527

Falcon Air        Boeing 727-200
Express Inc.      Non-Advanced (8)           100         11.5       2.5     09/30/01    1970      Stage III (8)  78,757      58,030

Capital Cargo     Boeing 727-200
International     Freighter (8)              100         17.2       9.3     07/25/05    1973      Stage III (8)  62,220      32,716

Trans World       McDonnell
Airlines, Inc.    Douglas MD-82              100         21.0      10.1     11/01/04    1983      Stage III      54,158      27,826

                  Lockheed
Off-Lease (9)     L-1011                     100         17.8       1.7     (9)         1974      Stage III      61,209      22,907

USAirways         McDonnell
Group, Inc.       Douglas MD-81               50(5)      10.1       4.3     6/01/01     1982      Stage III      51,961      45,168
                                                       ------     -----
                                                       $163.2     $64.6
</TABLE>
Notes:   (1)       Acquisition costs do not include related  acquisition fees of
                   $2.7 million paid to the General Partners.  The amounts shown
                   include additional investments, net of retirements, for $12.5
                   million in 2000,  5.5  million in 1999,  and $6.0  million in
                   1998. A DC-9 leased to Aeromexico with an acquisition cost of
                   $8.9  million was a total loss  during a landing  incident in
                   2000.

         (2)       An  independent   aircraft   appraisal  firm  determined  the
                   December 2000 appraised values.  Appraised values include the
                   present  value of rents  due under  leases in place  plus the
                   present value of an estimated residual value for the aircraft
                   at  the  end of  the  lease,  generally  assuming  half  time
                   condition.  The appraiser  also assumes that  achieving  fair
                   market  value may  require  12 to 18 months  of  exposure  to
                   prospective  buyers.  It should be noted that  appraisals are
                   only  estimates  of value  and  should  not be  relied  on as
                   measures of immediately  realizable value. A discount rate of
                   10% was utilized and  inflation  was assumed to be 2.5%.  See
                   Footnotes  6 and 9 for a  discussion  of the A-300 and L-1011
                   values.  Falcon and TNT  aircraft  are at current book value,
                   which is below the third party  appraisal.  The TWA  aircraft

                                       4
<PAGE>

                   value is  based on a  negotiated  sale to  American  Airlines
                   anticipated  to close in April 2001 and  including  rent from
                   January 1, 2001 until the close.

         (3)       Lease  expiration dates do not include renewal options unless
                   already exercised.

         (4)       The number of cumulative  flight cycles and cumulative flight
                   hours shown are as of December 31, 2000,  with the  exception
                   of the McDonnell  Douglas  MD-81 leased to US Airways  Group,
                   Inc., which is as of March 9, 2001.

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

         (6)       Aircraft  off lease at  December  31,  2000.  The value shown
                   represents the book value of the aircraft and engines,  which
                   represents estimated realizable values.

         (7)       the lease with Continental  expired on December 16, 1999. the
                   Partnership  has  converted  the  McDonnell  Douglas DC 10-10
                   aircraft to a freighter.  Conversion  work was  completed and
                   the  aircraft  was put  into  service  with  Emery  Worldwide
                   Airlines, Inc. in December 2000.

         (8)       Federal Express hushkit installed.

         (9)       Aircraft  off lease at  December  31,  2000.  The value shown
                   represents  the book value of the aircraft  which  represents
                   estimated realizable value.

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

Significant Lessees

         The Partnership  leased its aircraft to eight different airlines during
2000.  Revenue from each of the airlines  which  accounted for 10% or greater of
the total rental revenue of the Partnership during 2000 are as follows:

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

Trans World Airlines Inc.                                               21%
Aerovias de Mexico S.A. de C.V.                                         16%
Capital Cargo International Airlines Inc.                               16%
TNT Transport International B.V.                                        14%
Kitty Hawk Aircargo, Inc.                                               13%
US Airways Group Inc.                                                   12%



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.

                                       5
<PAGE>


         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.

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

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

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

                            Aircraft      Flight        Flight      Estimated
       Aircraft               Age         Cycle         Hour           AD
         Type              Threshold    Threshold     Threshold       Costs
         ----              ---------    ---------     ---------       -----
                             (Years)

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

* Substantially cycle limited

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

                                       6
<PAGE>


         The  Partnership's  leases  generally  require  the lessees to bear the
costs of compliance  with ADs, which require action during the lease terms.  All
of  the   Partnership's   Boeing  727  aircraft  have  had  the  major  calendar
modifications performed as required.

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

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

Aircraft Noise Regulations

         On November 5, 1990,  Congress  enacted into law the Airport  Noise and
Capacity Act of 1990 (the  "Act").  On  September  24, 1991,  the FAA issued the
final  rules of  implementation  for the Act.  The Act  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. All of the
Partnership's   Boeing  727-200  aircraft  have  had  Federal  Express  hushkits
installed.

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

Competition

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

Employees

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

                                       7
<PAGE>


ITEM 2.       PROPERTIES

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

ITEM 3.       LEGAL PROCEEDINGS

         After  not  being  able  to  arrive  at  a  negotiated   settlement  of
outstanding  issues with VASP, the Partnership filed suit in May, 1999 in Brazil
and June,  1999 in Florida to repossess the two CF6-50C2  engines which had been
leased to VASP,  one then being in Brazil  and one then  being in Florida  ("the
Brazilian engine" and "the Florida engine").  It also sued in Florida for unpaid
rent,  reserves  and the  repair of the  Florida  engine,  which was  damaged in
January of 1999.

         The  Brazilian  Court  ruled in May 1999  that  the  Partnership  could
repossess the engine in Brazil,  although that ruling was stayed until September
3, 1999 after the  completion  of all of VASP's  appeals.  The  Partnership  has
returned  the  Brazilian  engine to the U.S.  and is offering it for lease.  The
Brazilian court action was concluded on February 9, 2001.

         A trial was held in Florida in December  and January  2000 and an order
of the  court  favorable  to the  Partnership  with  respect  to  the  rent  and
maintenance  reserve claims was entered in March 2000.  VASP and the Partnership
entered into a Stipulation  in March of 2001 which,  for the payment of $800,000
by VASP,  resulted in the settling of any claims  relating to the damaged engine
and the estimated  Partnership's  legal fees. In addition,  VASP has agreed to a
monthly  payment of  $100,000  per month  starting  in April 2001 to satisfy the
March  judgment.  The March  judgment will be further  satisfied by a receiver's
sale of a VASP owned  property in Florida.  Upon the sale of the  property,  the
monthly payments will be adjusted to retire the remaining  balance (see Footnote
10 to the Financial  Statements,  "Subsequent  Events"),  with interest over the
remaining months until February,  2002. If VASP fails in its payment,  there are
additional  Florida  properties  which will be liquidated  by a court  appointed
receiver to satisfy the Partnership's March judgment.

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, 2000.



                                       8
<PAGE>

                                     PART II

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

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

         As of March 1,  2001,  the  number of  Limited  Partners  of record was
approximately 7,317.

         The  Partnership  declared the following  distributions  to its Limited
Partners out of cash flow received from operations during 2000 and 1999:

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

1st Quarter 2000            $.30       March 31, 2000        April 25, 2000
2nd Quarter 2000             .30       June 30, 2000         July 25, 2000
3rd Quarter 2000             .00                             None Paid
4th Quarter 2000             .00                             None Paid
1st Quarter 1999             .40       March 31, 1999        April 27, 1999
2nd Quarter 1999             .40       June 30, 1999         July 27, 1999
3rd Quarter 1999             .40       September 30, 1999    October 27, 1999
4th Quarter 1999             .30       December 31, 1999     January 19, 2000

         Total  distributions to all partners for 2000 and 1999 were declared as
follows (in thousands):

                                                       2000                1999
                                                       ----                ----

Limited Partners                                      $ 4,353            $10,883
General Partners                                           44                110
                                                      -------            -------
                                                      $ 4,397            $10,993
                                                      -------            -------

         Distributions  may be  characterized  for tax,  accounting and economic
purposes as a return of capital,  a return on capital,  or both.  The portion of
each cash  distribution by a partnership,  which exceeds its net income,  may be
deemed a return of  capital.  Based on the amount of net income  reported by the
Partnership   for  accounting   purposes,   approximately   73%,  92%  and  84%,
respectively, of the cash distributions paid to the partners for the years ended
December 31, 2000, 1999, and 1998  constituted a return of capital.  Also, based
on  the  amount  of  cumulative  net  income  reported  by the  Partnership  for
accounting  purposes,  approximately 83% of the cash  distributions  paid to the
partners  from the  inception  of the  Partnership  through  December  31,  2000
constituted  a return of capital.  However,  the total actual  return on capital
over the  Partnership's  life can be determined  only at the  termination of the
Partnership  after  all  cash  flows,  including  proceeds  from the sale of the
aircraft, have been realized.

         The  Partnership  paid out no  distributions  relating to the third and
fourth quarter 2000. The Partnership's  lending facility has been limited to $25
million instead of the $30 million originally  negotiated.  This limitation is a
result of the fact that  Aeromexico  decided  not to  extend  the  leases on the
Partnership's two DC-9's for two years. Due to this limitation,  the Partnership
suspended  distributions  in  October  2000 in order to fully  fund the  DC10-10
conversion.  As has  historically  been the case,  the  amount  of  future  cash
distributions will be determined on a quarterly basis after an evaluation of the
Partnership's operating results and its current and expected financial position.
However, the Partnership is required to reduce the principal on its loan through
twenty quarterly installments starting April 2001. Such principal repayment will
further  reduce  cash  available  for  distributions.  Additionally,  the  MD-82
aircraft  leased to TWA,  which  accounted for 21% of the  Partnership's  rental
revenues in 2000, will be sold to American Airlines, as described in Footnote 10
to the Financial Statements,  "Subsequent Events". Accordingly indebtedness will
be  substantially  reduced,  and cash flow from  operations will be additionally
reduced.  The  Partnership had drawn down $25 million on its loan facility as of

                                       9
<PAGE>

the fourth  quarter,  but the  outstanding  balance  was  reduced  by  insurance
proceeds relating to the Aeromexico DC-9 that was a total loss.


ITEM 6.       SELECTED FINANCIAL DATA

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

<TABLE>
<CAPTION>
                                                       As of December 31,
                                                   or Year Ended December 31,
                                                   --------------------------
                              2000            1999            1998            1997            1996
                                             (in thousands, except per unit amounts)

<S>                         <C>             <C>              <C>             <C>             <C>
Rental Revenue (2)          $  9,344        $ 10,603         $11,210         $10,969         $14,017
Net Income                     1,788             978           1,855           1,255           2,898
Net Income per Limited
  Partnership Unit              0.10            0.11            0.22            0.17             .40
Distributions per Limited
  Partnership Unit (1)          0.60            1.50            1.60            1.60            1.60
Total Assets                  48,870          48,163          51,423          58,273          72,039
Notes Payable                 21,210          16,530          10,000           4,751           4,751
Partners' Capital             21,576          24,185          34,200          44,070          54,540
</TABLE>


(1)      The fourth quarter  distribution for the years 1996 to 1999 was paid in
         January of the subsequent year.

(2)      Prior Years restated to include  ownership in MD 81 Trust on the equity
         method,  which  results  in a revenue  reduction  of $1,214 per year in
         years 1999 through 1996. There was no effect on Net Income.

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

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

Liquidity and Capital Resources

         The  Partnership  owns and manages a  diversified  portfolio  of leased
commercial  aircraft and makes  quarterly  distributions  to the partners of net
cash flow generated by operations.  In certain  situations,  the Partnership may
retain cash flow from operations to finance authorized capital expenditures, for
general working capital purposes or to reduce debt. As has historically been the
case, the amount of future cash  distributions will be determined on a quarterly
basis after an evaluation of the Partnership's operating results and its current
and expected financial position.

         Cash distributions  declared by the Partnership were approximately $4.4
million  for 2000 ($.60 per Unit),  $11  million  for 1999  ($1.50 per Unit) and
$11.7  million  for 1998  ($1.60  per  Unit).  Net cash  provided  by  operating
activities  was $5.9 million in 2000,  $9.2 million in 1999 and $10.4 million in
1998.  In the  aggregate,  for this  three-year  period,  net cash  provided  by
operating  activities totaled $25.5 million and cash  distributions  declared by
the Partnership totaled $27.1 million.

                                       10
<PAGE>


         The Partnership  closed on a new $30 million lending  facility on April
14, 2000 and an initial  draw down was made of $19.5  million.  The facility was
limited to $25 million  because the Aeromexico  leases were not extended for two
years.  The balance was $21.21  million at December 31, 2000.  The proceeds were
used to  retire  existing  debt of  $16.53  million,  and to  replenish  working
capital.  The term of the loan is six years,  with  interest  only  payments the
first  twelve  months.  Thereafter,  principal is required to be repaid in equal
quarterly  installments over 60 months with the first payment due in April 2001.
Proceeds  from the sale of aircraft  must be applied to principal  reduction and
the  subsequent  required  principal  payments  will be reset over the remaining
term. The  Partnership  paid a 1.0%  commitment fee and the interest rate is 225
basis  points  over a major money  center  bank's  prime rate.  The lender has a
mortgaged  interest in all  aircraft,  except the 50% interest in the US Airways
MD-81 aircraft. The loan agreement requires that the Partnership's cash be equal
to or in excess of maintenance reserves.

         The Partnership paid no distributions  relating to the third and fourth
quarter  of 2000.  Aeromexico  elected  not to extend  its two leases for the 24
months  anticipated  at the time the  Partnership's  loan was  negotiated.  As a
result the  Partnership's  lending  facility  has been  limited  to $25  million
instead of $30 million.  Due to this  limitation,  the Partnership has suspended
distributions  to the partners  since  October,  2000 in order to fully fund the
DC10-10  conversion.  The Partnership had drawn down $25 million on the facility
as of the fourth quarter,  but the outstanding  balance was reduced by insurance
proceeds  relating to the loss of the Aeromexico DC-9. As has historically  been
the case,  the  amount of future  cash  distributions  will be  determined  on a
quarterly basis after an evaluation of the  Partnership's  operating results and
its current and expected financial position.

         Partnership capital declined by approximately  $2,609,000 from December
31, 1999 to December 31, 2000. This resulted from the declaration and payment of
cash  distributions to the partners in excess of the  Partnership's  net income.
Unlike net income,  cash flow  generated from  operations,  which is the primary
source  of the  cash  utilized  to make the  distributions,  is not  reduced  by
non-cash  depreciation expense and write downs attributable to the Partnership's
aircraft.

         The  Partnership  invests working capital and cash flow from operations
prior  to  its  distribution  to  the  partners  in  short-term,  highly  liquid
investments  or a fund that invests in such  instruments.  At December 31, 2000,
the Partnership's unrestricted cash and cash equivalents of $2,297,000 were held
in an interest  bearing money market  account.  This amount was $3,000 less than
the Partnership's unrestricted cash and cash equivalents at December 31, 1999 of
$2,300,000.

         Rent and other  receivables  increased  by  $115,000  from  $196,000 at
December 31, 1999 to $311,000 at December 31, 2000.  This  increase is primarily
the result of rentals due from TWA, which failed to make its December 2000 lease
payment.

         On January 10,  2001,  TWA filed a voluntary  petition  for  bankruptcy
under  Chapter 11 of the U.S.  Bankruptcy  Code.  TWA  accounted  for 21% of the
Partnership's  lease  revenue  in  2000.  TWA did not make  its  monthly  rental
payments  during  December  2000,  or January  or  February  2001.  In March the
Bankruptcy Court approved the sale of TWA's assets to American  Airlines,  Inc.,
lease payments  resumed and, as of March 19, 2001,  TWA was again  current.  The
Partnership  has agreed to sell its MD-82 to American  Airlines for $9.5 million
and will  receive  rent  payments  until  the  transaction  is  closed  which is
anticipated in April 2001.

         Kitty Hawk filed for Bankruptcy  protection  under Chapter 11 on May 1,
2000, but was current with regard to its lease payments as of December 31, 2000.
Kitty Hawk accounted for 13% of the  Partnership's  lease revenue during 2000. A
default or  deferral of lease  payments on the part of Kitty Hawk,  or any other
lessee, would adversely affect cash flow from operations.

         Due to its failure to pay rents in the fourth  quarter of 1998,  Falcon
was placed on non-accrual  status beginning October 1, 1998. Lease revenues from
Falcon are now being recognized by the Partnership  based on cash received,  and
additional  receivables  are not being  accrued.  For the period January 1, 2000
through  December 31, 2000,  Falcon owed  $1,140,000  in rent and  approximately
$486,000  in  maintenance  reserves.  For the  period  January  1, 2000  through
December  31, 2000 Falcon paid  approximately  $538,000 in rent and  $286,000 in
maintenance  reserves.  The Partnership has recorded a receivable for $95,000 of
past due rent and is also holding a $95,000  security  deposit from Falcon.  The
Partnership has agreed in principle to an early  termination of the lease at the
occasion of the next "C" check, anticipated to be September, 2001, at which time
the Partnership will evaluate its options relating to performing a "C" check and
the re-marketing of the aircraft.

                                       11
<PAGE>


         Falcon has become significantly leveraged and there can be no assurance
that Falcon will meet its future obligations.  If Falcon were to fall further in
arrears, the Partnership may need to repossess the aircraft.  If the Partnership
repossesses  the  plane  there  can  be no  assurance  as to  whether  it can be
re-marketed, the time it would take and the lease rate that might be achieved.

         The lease on the McDonnell Douglas DC10-10 with Continental  expired on
September 15, 1999.  The aircraft was stored at a  modification  facility  until
June 2000 at which time work  commenced  to convert it to a freighter  for Emery
Worldwide Airlines, Inc. ("Emery").  During 2000, the Partnership invested $12.5
million  related to the McDonnell  Douglas  DC10-10  freighter  conversion.  The
aircraft  was  delivered  to Emery in December  2000.  The Emery lease is for 84
months  with rent of  $218,000  per month.  The lease  also  provides a two-year
renewal at $200,000 per month,  followed by three  additional  two-year  renewal
options at the then fair market  rental.  Emery  provided a security  deposit of
$436,000.

         The McDonnell  Douglas MD-81  aircraft under lease to US Airways Group,
Inc.  ("USAir") is owned by a trust in which the Partnership has a 50% interest.
An affiliated  Partnership  owns the other 50%  interest.  The  Partnership  has
adopted the guidance in EITF Issue No. 00-1  "Investor  Balance Sheet and Income
Statement Display under the Equity Method of Investments in Certain Partnerships
and Other Ventures" (EITF 00-1) in its Annual Report on Form 10-K for the fiscal
year ended  December 31, 2000 and accounts for its investment in the Trust which
owns the MD-81 aircraft  leased to US Airways under the equity method.  In prior
years,  the  Partnership  had  reported  its  ownership  in the MD-81 Trust on a
proportionately  consolidated  basis.  The  financial  results  for prior  years
contained  herein have been restated  utilizing the equity method.  The aircraft
had been subject to a tax benefit  transfer lease,  which expired in April 2000.
Net  investment  in the MD-81 Trust  decreased by $771,000  from  $2,354,000  at
December  31,1999 to $1,583,000 at December 31, 2000, due to the receipt of cash
distributions of $1,214,000 offset by equity interest earnings of $443,000 for a
net of $771,000.  US Airways will return the aircraft in June 2001. There can be
no assurance as to whether the plane can be remarketed, the time it will take or
the lease rate which may be achieved.

         Other  assets  decreased by $496,000  from  $805,000 as of December 31,
1999 to $309,000 as of December 31, 2000,  primarily due to the application of a
$790,000  deposit  made by the  Partnership  in 1998 to a  freighter  conversion
facility  related to the  conversion of the DC10-10  aircraft prior to its being
leased  to Emery Air  Freight.  This was  partially  offset  by an  increase  of
$274,000  related  to a  commitment  fee  paid in  connection  with the new loan
facility.

         Accounts  payable  and accrued  expenses  increased  by  $112,000  from
$494,000 at December 31, 1999 to $606,000 at December 31, 2000  primarily due to
capital expenditures accrued for work performed on the McDonnell Douglas DC10-10
aircraft.

         Payables  to  affiliates  increased  by  $1,043,000  from  $969,000  at
December  31, 1999 to  $2,012,000  at December  31, 2000  principally  due to an
increase  in  unpaid  management  fees  due  to  the  General  Partners.  Due to
subordination  provisions in the Partnership Agreement,  fees are not being paid
on a current basis but are being accrued.

         Notes payable  increased by $4,680,000 from $16,530,000 at December 31,
1999 to  $21,210,000  at December 31, 2000 due primarily to additional  proceeds
received from a new lender net of a principal  payment from  insurance  proceeds
related to the loss of the DC-9 leased to Aeromexico.

         Accrued  interest  payable was  $132,000 as of December 31, 2000 due to
interest  accrued related to the new note payable (a difference in payment dates
between the new and old debt facilities).

         Deferred  rental  income  and  deposits   decreased  by  $130,000  from
$1,475,000  at  December  31, 1999 to  $1,345,000  at December  31,  2000.  This
decrease was primarily  attributable  to the  recognition of amounts  previously
received in connection with the A-300 Lease Settlement.

         Maintenance  reserves payable  decreased by $322,000 from $2,311,000 at
December 31, 1999 to $1,989,000 at December 31, 2000.  The reduction in reserves
is a result of the application of the A-300 reserves offset by the collection of
reserves from TNT, Kitty Hawk and Capital Cargo.

         Distributions  payable  to  partners  were  $2,199,000  as of  December
31,1999. There is no corresponding liability balance as of December 31, 2000 due
to the suspension of cash distributions in October 2000. Cash distributions were

                                       12
<PAGE>

suspended  so that  available  cash  flow  could  be used  to fund  the  DC10-10
freighter  conversion.  This was necessary as a result of the  limitation of the
Partnership's debt facility to $25 million instead of $30 million.

         The L-1011  aircraft and the A-300  remained off lease during 2000, and
the  Partnership  continues to remarket these aircraft for lease or sale. If the
aircraft  are  sold,  the  Partnership  would  utilize  such  proceeds  for debt
reduction,  for working capital or for  distributions  to partners.  It has been
determined in early 2001,  that one of the A-300,  CF6-50C2  engines was damaged
beyond economic repair. (See Footnote 10 to the Financial Statements "Subsequent
Events")

         During 2000,  one of the DC-9's leased to Aeromexico  was involved in a
runway  accident which resulted in a total loss of the aircraft.  The asset cost
and accumulated depreciation related to this aircraft was written off in 2000 to
reflect the loss of the aircraft.  The insurance  proceeds received were greater
than  the net book  value of the  aircraft,  and a gain on  disposition  of $4.8
million was  recognized  in 2000.  Aeromexico  is scheduled to return the second
DC-9 in late March or early April, 2001. There can be no assurance as to whether
the plane can be  remarketed,  the time it will take or the lease rate which may
be achieved.

         The Boeing  727-200  aircraft  returned  by  Continental  Airlines  was
converted to a freighter and  hushkitted to achieve Stage III noise  compliance.
It was  delivered to Kitty Hawk Air Cargo,  Inc. in December,  1999 under lease.
The lease with Kitty Hawk is for 84 months, the lease rate is $112,700 per month
and  maintenance  reserves  are paid at the rate of $375 per flight  hour,  with
engine reserves to be increased if the flight  hour/cycle  ratio falls below 1.5
to 1. Kitty Hawk has provided a security  deposit of $225,400.  The  Partnership
had incurred costs of approximately $4.7 million related to the cargo conversion
and  hushkitting,  as of December 31, 1999.  The  Partnership  swapped the three
JT8D-15  engines that were returned with the aircraft for three JT8D-9A  engines
owned by an affiliate of the Managing  General  Partner.  The  Partnership  also
received a payment of $259,000 from the affiliate to compensate the  Partnership
for the relative value of the engines as determined by a third party  appraiser.
As  previously  discussed,  Kitty  Hawk is  operating  under  protection  of the
Bankruptcy Court, but is current in its lease and reserve payments.


Results of Operations

         Substantially all of the  Partnership's  revenue was generated from the
leasing of the  Partnership's  aircraft to commercial  air carriers under triple
net operating  leases.  The balance of the  Partnership's  revenue  consisted of
interest income earned with respect to cash held in interest bearing accounts.

         Under the terms of the  triple  net  leases,  substantially  all of the
expenses  related to the operation and  maintenance of the aircraft  during 2000
were paid for by the  lessees  directly  or funded out of  maintenance  reserves
collected.  The direct lease expenses incurred by the Partnership  represent the
costs of providing  insurance coverage for the Partnership's  aircraft in excess
of the amounts  required to be carried by the  lessees,  trustee fees related to
the  ownership  of the  aircraft,  and the costs of storing the Airbus A-300 and
Lockheed L-1011 aircraft.

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

2000 as compared to 1999

         The Partnership's net income was $1,788,000 for the year ended December
31, 2000 ("2000 Period") as compared to $978,000 for the year ended December 31,
1999 ("1999 Period").

         The  increase in the  Partnership's  net income for the 2000 Period was
principally  due to a decrease  in  depreciation  expense in the 2000  Period as
compared to the 1999 period,  and a gain on  disposition of aircraft in the 2000
period.  Partially offsetting these items was a decrease in rental income in the
2000  Period as compared  to the 1999  Period,  and  increases  in write  downs,
interest  expense and direct lease expense in the 2000 Period as compared to the
1999 Period.

                                       13
<PAGE>


         Depreciation  and  amortization  decreased by  $1,653,000 or 22% in the
2000 Period as compared to the 1999 Period.  This  decrease was due primarily to
the DC10-10 aircraft not being  depreciated in the 2000 Period and a decrease in
depreciation  related to the Boeing 727-200 aircraft on lease to Kitty Hawk. The
decrease in  depreciation  related to the Boeing 727-200  aircraft was due to an
increased useful life after capital improvements.

         Rental  income  decreased  by  $1,259,000  or 12% in the 2000 Period as
compared to the 1999 Period.  The decrease was principally due to the absence of
rental  income  related to the DC10-10  aircraft and a decrease in rental income
related to the Boeing  727-200  aircraft on lease to Falcon.  This was partially
offset by an increase in rental income related to the Boeing 727-200 aircraft on
lease to Kitty Hawk.

         During  the 2000  Period,  the  Partnership  provided a  write-down  of
$1,400,000 on the A-300  aircraft in order to reduce its value to estimated fair
market value at June 30, 2000. At December 31, 2000 the  Partnership  wrote down
the  Boeing  727-200  freighter  on  lease  to TNT by  $901,000.  There  were no
corresponding write-downs during the 1999 Period.

         Interest  expense for the 2000 Period increased by $1,075,000 or 87% in
comparison  to the 1999 Period,  primarily  due to increases in the note balance
and the related interest rate during the 2000 period.

         Direct lease expenses  increased by $700,000 or 324% in the 2000 Period
as compared to the 1999  Period,  due  primarily  to  increases  in  maintenance
expense  related  to  several  aircraft  and  insurance  expense  related to the
DC-10-10 aircraft which was off lease for most of the year.

         Gain  on  disposition  of  aircraft,  engines  or  equipment  increased
$4,643,000  for the 2000 period  compared to the 1999 period.  This increase was
primarily  attributable  to the gain recognized as a result of the total loss of
an aircraft  leased to  Aeromexico  as a result of a runway  accident.  Proceeds
received from insurance exceeded the net book value of the aircraft.

         During the 1999  Period,  the  Partnership  swapped  the three  JT8D-15
engines that were part of the Boeing  727-200  aircraft  returned by Continental
Airlines for three JT8D-9A engines owned by an affiliate of the Managing General
Partner.  The Partnership realized a gain of $173,000 related to the swap in the
1999 Period.

         Return condition  settlement  expense of $51,000 was recognized  during
the 2000 Period,  resulting from a return condition  settlement with Continental
Airlines,  Inc.,  relating to the aircraft on lease to Kitty Hawk.  There was no
corresponding expense in the 1999 Period.


1999 as compared to 1998

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

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

         Rental  income  decreased  by  $607,000  or 5% in the  1999  Period  as
compared to the 1998 Period.  The decrease was  principally  due to decreases in
the  rental  income  attributable  to the A-300  engines  leased to VASP and the
decrease in rental income related to the Boeing 727 aircraft which was converted
to a freighter and is currently leased to Kitty Hawk. Also  contributing to this
decrease was a decrease in rental  income  related to the  DC-10-10  returned by
Continental  in December  1999.  These  decreases  were  partially  offset by an
increase in the rental  income  from the  aircraft  leased to Capital  Cargo and
Falcon  and the  rental  income  from the  aircraft  leased  to TNT,  which  was
off-lease for nearly half of the 1998 Period.

                                       14
<PAGE>


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

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

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

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

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

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

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

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

Inflation and Changing Prices

         Inflation  has had no material  impact on the  operations  or financial
condition of the Partnership from inception through December 31, 2000.  However,
market and  worldwide  economic  conditions  and  changes in federal and foreign
aircraft regulations have in the past, and may in the future, affect the airline
industry and thus lease rates and aircraft values.  Additionally,  inflation and
changing  prices,  may affect  subsequent  lease rates and the eventual  selling
prices of the aircraft.  High oil prices in 2000 affected the airline industry's
profitability and that of the Partnership's lessees.

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

Accounting Pronouncements

         The  Partnership  has  adopted  the  guidance  in EITF  Issue No.  00-1
"Investor  Balance Sheet and Income Statement Display under the Equity Method of
Investments  in Certain  Partnerships  and Other  Ventures"  (EITF  00-1) in its
Annual  Report on Form 10-K for the fiscal  year  ended  December  31,  2000 and
accounts for its investment in the Trust which owns the MD-81 aircraft leased to
US Airways under the equity method. In prior years, the Partnership had reported
its ownership in the MD-81 Trust on a  proportionately  consolidated  basis. The
financial  results in prior years contained herein have been restated  utilizing
the equity  method.  The  aircraft  had been  subject to a tax benefit  transfer
lease, which expired in April 2000.

                                       15
<PAGE>


ITEM 8.       FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                       PEGASUS AIRCRAFT PARTNERS II, L.P.

List of Financial Statements                                                Page
                                                                            ----

Report of Independent Accountants ..........................................  17

Balance Sheets -- December 31, 2000 and 1999................................  18

Statements of Income for the years ended
     December 31, 2000, 1999 and 1998.......................................  19

Statements of Partners' Capital for the years ended
     December 31, 2000, 1999 and 1998.......................................  20

Statements of Cash Flows for the years ended
     December 31, 2000, 1999 and 1998.......................................  21

Notes to Financial Statements...............................................  23


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.



                                       16
<PAGE>

                        REPORT OF INDEPENDENT ACCOUNTANTS



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


         In our  opinion,  the  accompanying  balance  sheets  and  the  related
statements of income,  of partners' capital and of cash flows present fairly, in
all material  respects,  the financial position of Pegasus Aircraft Partners II,
L.P. (the  "Partnership")  as of December 31, 2000 and 1999,  and the results of
its  operations  and its cash  flows for each of the three  years in the  period
ended  December 31, 2000, in conformity  with  accounting  principles  generally
accepted in the United States of America.  These  financial  statements  are the
responsibility of the Partnership's management; our responsibility is to express
an opinion on these financial  statements based on our audits.  We conducted our
audits of these  financial  statements  in accordance  with  auditing  standards
generally  accepted in the United States of America,  which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements,  assessing the accounting  principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.



                                                      PricewaterhouseCoopers LLP

New York, New York
March 20, 2001



                                       17
<PAGE>

                       PEGASUS AIRCRAFT PARTNERS II, L.P.

                                 BALANCE SHEETS

                           DECEMBER 31, 2000 AND 1999



                                     ASSETS

                                                        2000        1999
                                                        ----        ----
                                                (in thousands, except unit data)

  Cash and cash equivalents                           $  2,297    $  2,300
  Restricted cash                                         --           371
  Rent and other receivables                               311         196
  Aircraft, net                                         45,953      44,491
  Other assets                                             309         805
                                                      --------    --------
     Total Assets                                     $ 48,870    $ 48,163
                                                      ========    ========

                       LIABILITIES AND PARTNERS' CAPITAL

LIABILITIES:
  Accounts payable and accrued expenses               $    606    $    494
  Payable to affiliates                                  2,012         969
  Maintenance reserves payable                           1,989       2,311
  Notes payable                                         21,210      16,530
  Accrued interest payable                                 132        --
  Deferred rental income and deposits                    1,345       1,475
  Distributions payable to partners                       --         2,199
                                                      --------    --------
     Total Liabilities                                  27,294      23,978
                                                      --------    --------

COMMITMENTS AND CONTINGENCIES (Notes 5 and 8)

PARTNERS' CAPITAL:
  General Partners                                         218        (796)
  Limited Partners (7,255,000 units issued and
     outstanding in 2000 and 1999)                      21,358      24,981
                                                      --------    --------
     Total Partners' Capital                            21,576      24,185
                                                      --------    --------
         Total Liabilities and Partners' Capital      $ 48,870    $ 48,163
                                                      ========    ========



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

                                       18
<PAGE>

                       PEGASUS AIRCRAFT PARTNERS II, L.P.

                              STATEMENTS OF INCOME

              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 and 1998


                                                2000         1999        1998
                                                ----         ----        ----
                                                 (in thousands, except unit data
                                                      and per unit amounts)

REVENUES:
    Rentals from operating leases            $    9,344  $   10,603  $   11,210
    Interest                                        136         112         187
    Equity in earnings of MD-81 Trust               443         443         443
    Other income                                   --          --           124
    Gain on disposition of aircraft,
       engines or equipment                       4,816         173         254
                                             ----------  ----------  ----------
                                                 14,739      11,331      12,218
                                             ----------  ----------  ----------

EXPENSES:
    Depreciation and amortization                 5,896       7,549       7,502
    Write-downs                                   2,301        --           537
    Management and re-lease fees                  1,043         960       1,017
    Interest                                      2,309       1,234         758
    General and administrative                      435         394         312
    Direct lease                                    916         216         237
    Return condition settlement                      51        --          --
                                             ----------  ----------  ----------
                                                 12,951      10,353      10,363
                                             ----------  ----------  ----------

NET INCOME                                        1,788         978       1,855
                                             ==========  ==========  ==========

NET INCOME ALLOCATED:
    To the General Partners                       1,058         182         257
    To the Limited Partners                         730         796       1,598
                                             ----------  ----------  ----------
                                                  1,788         978       1,855
                                             ----------  ----------  ----------

NET INCOME PER LIMITED PARTNERSHIP UNIT      $     0.10  $     0.11  $     0.22
                                             ==========  ==========  ==========

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.

                                       19
<PAGE>

                       PEGASUS AIRCRAFT PARTNERS II, L.P.

                         STATEMENTS OF PARTNERS' CAPITAL

              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 and 1998




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

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

     Net income                                     257       1,598       1,855

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

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

     Net income                                     182         796         978

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

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

     Net income                                   1,058         730       1,788

     Distributions declared to partners             (44)     (4,353)     (4,397)
                                               --------    --------    --------

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


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

                                       20
<PAGE>

                       PEGASUS AIRCRAFT PARTNERS II, L.P.

                            STATEMENTS OF CASH FLOWS

              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 and 1998

<TABLE>
<CAPTION>
                                                       2000       1999       1998
                                                       ----       ----       ----
                                                     (dollar amounts in thousands)

<S>                                                  <C>        <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income                                       $  1,788   $    978   $  1,855
    Adjustments to reconcile net income to net
     cash provided by operating activities:
      Gain on disposition or sale of engines
        and equipment                                  (4,816)      (173)      (254)
      Depreciation and amortization                     5,896      7,549      7,502
      Equity in earnings of MD-81 Trust                  (443)      (443)      (443)
      Write-downs                                       2,301       --          537
      Change in assets and liabilities:
       Rent and other receivables                        (115)       295       (289)
       Other assets                                      (294)         6          5
       Accounts payable and accrued expenses              112        388        (17)
       Accrued interest payable                           132       --         --
       Deferred rental income and deposits               (130)      (423)        57
       Payable to affiliates                            1,043        377        381
       Maintenance reserves payable                       459        615      1,105
                                                     --------   --------   --------
          Net cash provided by operating activities     5,933      9,169     10,439
                                                     --------   --------   --------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Cash distributions from investment in
      MD-81 Trust                                       1,214      1,214      1,214
    Deposit for aircraft modifications                   --         --         (790)
    Capitalized aircraft improvements                 (11,755)    (5,639)    (9,012)
    Proceeds from the disposition or sale of
      engines and equipment                             6,150        259      1,553
    Repayment of advances by lessees                     --         --          242
    Decrease (increase) in restricted cash                371       (371)      --
                                                     --------   --------   --------
          Net cash used in investing activities        (4,020)    (4,537)    (6,793)
                                                     --------   --------   --------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Net Proceeds from notes payable                     4,680      6,530      5,249
    Cash distributions paid to partners                (6,596)   (11,725)   (11,737)
                                                     --------   --------   --------
          Net cash used in financing activities        (1,916)    (5,195)    (6,488)
                                                     --------   --------   --------

NET DECREASE IN CASH AND CASH EQUIVALENTS                  (3)      (563)    (2,842)

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR          2,300      2,863      5,705
                                                     --------   --------   --------

CASH AND CASH EQUIVALENTS AT END OF YEAR             $  2,297   $  2,300   $  2,863
                                                     ========   ========   ========

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

                                       21
<PAGE>


                       PEGASUS AIRCRAFT PARTNERS II, L.P.

                            STATEMENTS OF CASH FLOWS

        FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 and 1998 (continued)



                                                       2000       1999       1998
                                                       ----       ----       ----
                                                     (dollar amounts in thousands)

SUPPLEMENTAL CASH FLOW INFORMATION:

Interest paid                                        $  2,143   $  1,226   $    750

NONCASH TRANSACTIONS:

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

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

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

Application of maintenance reserves payable
  to the carrying value of aircraft                     $  781   $ --     $ --

Deposit applied to capitalized aircraft
  improvements                                          $  790   $ --     $ --
</TABLE>


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

                                       22
<PAGE>


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

                                DECEMBER 31, 2000

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 financial  statement items have been reclassified to conform to the 2000
presentation.

         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 cost,  which
includes  acquisition costs and the acquisition fee and the financial management
advisory fee paid upon acquisition to the General  Partners.  Depreciation to an
estimated  salvage value (in general,  10%) is computed using the  straight-line
method over an estimated  economic life of twelve years.  Major  improvements to
aircraft are capitalized  when incurred and depreciated  over the useful life of
the improvement.

         In accordance with Statement of Financial  Accounting Standards No.121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of" ("SFAS 121"),  the recognition of an impairment for a long-lived
asset is required when the estimate of  undiscounted  future cash flows expected
to be generated by the asset is less than its carrying amount. Measurement of an
impairment  loss is to be recognized  based on the fair value of the asset.  The
Partnership  generally  bases its  estimate of fair market value of the aircraft
upon  valuation by an  independent  third  party.  SFAS 121 also  requires  that
long-lived  assets to be disposed  of be  reported at the lower of the  carrying
amount or fair value less estimated disposal costs.

         MD-81 Trust.  The McDonnell  Douglas MD-81  aircraft  under lease to US
Airways Group, Inc. ("USAir") is owned by a trust in which the Partnership has a
50%  interest.  An  affiliated  Partnership  owns the  other 50%  interest.  The
Partnership  has 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) in its Annual Report on
Form 10-K for the fiscal  year ended  December  31,  2000 and  accounts  for its
investment in the Trust which owns the MD-81 aircraft leased to US Airways under
the equity method.  In prior years the Partnership had reported its ownership in
the MD-81 Trust on a proportionately  consolidated  basis. The financial results
in prior years contained herein have been restated  utilizing the equity method.
The aircraft had been subject to a tax benefit transfer lease,  which expired in
April 2000.

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

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

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

                                       23
<PAGE>


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

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

Accounting Pronouncements

         The  Partnership  has  adopted  the  guidance  in EITF  Issue No.  00-1
"Investor  Balance Sheet and Income Statement Display under the Equity Method of
Investments  in Certain  Partnerships  and Other  Ventures"  (EITF  00-1) in its
Annual  Report on Form 10-K for the fiscal  year  ended  December  31,  2000 and
accounts for its investment in the Trust which owns the MD-81 aircraft leased to
USAirways under the equity method.  In prior years, the Partnership had reported
its ownership in the MD-81 Trust on a  proportionately  consolidated  basis. The
financial  results in prior years contained herein have been restated  utilizing
the equity  method.  The  aircraft  had been  subject to a tax benefit  transfer
lease, which expired in April 2000.


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 Partnership had the right,  subject to certain
conditions,  to reinvest the proceeds from sales of aircraft  occurring prior to
August 21, 1998.  The net proceeds of any future sales of aircraft  will be used
be used to reduce Partnership indebtedness.

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

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

3.   Partnership Allocations

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

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

                                       24
<PAGE>

4.   Aircraft
                           Net Investment in Aircraft

         The  Partnership's  net  investment in aircraft as of December 31, 2000
and 1999 consisted of the following (in thousands):

                                                         2000            1999
                                                         ----            ----

Aircraft on operating leases, at cost                  $ 108,866      $  86,247
Less: Accumulated depreciation                           (61,914)       (46,662)
         Write-downs                                      (7,279)        (7,710)
                                                       ---------      ---------
                                                       $  39,673      $  31,875
                                                       ---------      ---------

Net Investment in MD-81 Trust                          $   1,583      $   2,354
                                                       ---------      ---------

Aircraft held for lease or sale, at cost               $  46,744      $  65,921
Less: Accumulated depreciation                           (19,334)       (34,877)
         Write-downs                                     (22,713)       (20,782)
                                                       ---------      ---------
                                                           4,697         10,262
                                                       ---------      ---------
Aircraft, net                                          $  45,953      $  44,491
                                                       =========      =========

                            Financial Terms of Leases


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

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

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

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

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

         During the third  quarter of 1998,  the  Partnership  reclassified  the
$3,000,000 return condition  settlement and the $743,000 unearned portion of the
L-1011 lease prepayment,  as an additional write-down on the L-1011 aircraft. No
additional  impairment  expense was  recognized.  In addition,  a write-down  of
$420,000 was taken to reflect the  estimated  market value of the  aircraft.  At
December  31, 2000 the L-1011  aircraft had a book value of  approximately  $1.7
million. The Partnership continues to remarket the Lockheed L-1011 aircraft.

                                       25
<PAGE>


         On January 10,  2001,  TWA filed a voluntary  petition  for  bankruptcy
under  Chapter 11 of the U.S.  Bankruptcy  Code.  TWA  accounted  for 21% of the
Partnership's  lease  revenue  in  2000.  TWA did not make  its  monthly  rental
payments  during  December  2000,  or January  or  February  2001.  In March the
Bankruptcy Court approved the sale of TWA's assets to American  Airlines,  Inc.,
lease payments  resumed and, as of March 19, 2001,  TWA was again  current.  The
Partnership  has agreed to sell its MD-82 to American  Airlines for $9.5 million
and will receive rent payments  until the  transaction  is closed.  The purchase
price of the aircraft is in excess of the net book value.  This  transaction  is
expected to close in April,  2001,  at which time the  proceeds  will be applied
primarily to reduce Partnership debt.


         Aeromexico  Leases.  The  Partnership's  two McDonnell  Douglas DC-9-31
aircraft were  originally  acquired in March and April 1990 for purchase  prices
aggregating  $14,295,000.  During 1992, the Partnership repossessed the aircraft
from Midway Airlines Inc. ("Midway") and leased them to Aerovias de Mexico, S.A.
de C.V.  ("Aeromexico") for terms of approximately five years. The leases, which
originally provided for quarterly rentals in advance of $234,000, were scheduled
to expire  in July  1997;  one lease was  extended  to  November  6, 1999  (with
Aeromexico  given the right,  subject to notice to extend to February  2000) and
one of which was extended to February  25,  2000,  each at a rate of $75,000 per
month.  The lease  expiring in November was extended at  Aeromexico's  option to
February  6,  2000.   Aeromexico   has  been  paying  for  the   aircraft  on  a
month-to-month basis and is scheduled to return it in late March or early April,
2001. Upon return of the aircraft,  the Partnership  will remarket the aircraft.
There can be no assurance as to whether the plane can be remarketed, the time it
will take or the lease rate which may be achieved.

         During 2000,  one of the DC-9's leased to  Aeromexico  suffered a total
loss in a runway accident.  The asset cost and accumulated  depreciation related
to this  aircraft  was written off in 2000 to reflect the loss of the  aircraft.
Since the  insurance  proceeds  received were greater than the net book value of
the aircraft, a gain on disposition of $4.8 million was recognized in 2000.


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

         Kitty Hawk filed for Bankruptcy  protection  under Chapter 11 on May 1,
2000,  but has stayed  current with regard to its lease  payments as of December
31, 2000. Kitty Hawk accounted for 13% of the Partnership's lease revenue during
2000. A default or deferral of lease  payments on the part of Kitty Hawk, or any
other lessee, may adversely affect future cash distributions by the Partnership.


         US Airways Group Inc.  ("USAir")  Lease.  During  September  1989,  the
Partnership  acquired  one-half of the beneficial  interest in a trust ("Trust")
which is the  owner/lessor  of a McDonnell  Douglas  MD-81  aircraft for a total
purchase price of $10,041,000.  The remaining  one-half interest in the Trust is
owned by  Pegasus  Aircraft  Partners,  L.P.,  an  affiliated  partnership.  The
aircraft is subject to an  operating  lease with USAir,  which is  scheduled  to
expire on June 1, 2001  pursuant to the  renewal  option  exercised  by USAir in
1997. Rental payments are payable quarterly, in arrears, at the rate of $304,000
(for the Partnership's  one-half interest in the aircraft).  The lessee also has
three  additional  one-year  renewal  options at fair market rental  rates.  The
lessee may elect to purchase  the  aircraft at its then fair market value at the
end of any renewal  term.  USAirways  has  indicated its intention to return the
aircraft at the end of the lease in June 2001. Upon return of the aircraft,  the
Partnership will remarket the aircraft.  There can be no assurance as to whether
the plane can be  remarketed,  the time it will take or the lease rate which may
be achieved.

                                       26
<PAGE>


         The  aircraft was  purchased  subject to a tax benefit  transfer  lease
("TBT lease") which expired in 2000.

         Shareholders  of US Airways have voted to accept a merger proposal from
UAL Corporation, the parent company of United Airlines, Inc.


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

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

         Due to its failure to pay rents in the fourth  quarter of 1998,  Falcon
was placed on non-accrual  status beginning October 1, 1998. Lease revenues from
Falcon are now being recognized by the Partnership  based on cash received,  and
additional  receivables  are not being  accrued.  For the period January 1, 2000
through  December 31, 2000,  Falcon owed  $1,140,000  in rent and  approximately
$486,000  in  maintenance  reserves.  For the  period  January  1, 2000  through
December  31, 2000 Falcon paid  approximately  $538,000 in rent and  $286,000 in
maintenance  reserves.  The Partnership has recorded a receivable for $95,000 of
past due rent and is also holding a $95,000  security  deposit from Falcon.  The
Partnership has agreed in principle to an early  termination of the lease at the
occasion of the next "C" check, anticipated to be September, 2001, at which time
the Partnership will evaluate its options relating to performing a "C" check and
the re-marketing of the aircraft.

         Falcon has become significantly leveraged and there can be no assurance
that Falcon will meet its future obligations.  If Falcon were to fall further in
arrears, the Partnership may need to repossess the aircraft.  If the Partnership
must  repossess  the plane and  re-market  it,  there can be no  assurance as to
whether  it can be  re-marketed,  the time it would take and the lease rate that
might be achieved.


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

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

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

         As of January  25,  2001,  Capital  Cargo  failed to make its lease and
reserve  payment.  A notice  of  default  was sent on  February  8, 2001 and the
February and March rent and reserve  payments have been missed.  The Partnership
is in discussion with Capital Cargo regarding the restructuring of its lease.

                                       27
<PAGE>



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

         The Partnership has invested approximately $7.8 million for a low gross
weight hushkit and cargo  conversion of the aircraft,  and the purchase of three
JT8D-7B  engines.  The Partnership  received cash proceeds of $1,050,000 for the
sale of the JT8D-15  engines  from this  aircraft,  which  resulted in a $60,000
impairment  expense. In the third quarter of 1998, due to the conversion of this
aircraft to a freighter,  the Partnership wrote-off the remaining net book value
of the interior,  determined through a third party appraisal,  which resulted in
an  impairment  expense of  $57,000.  This  aircraft  was also  written  down at
December 31, 2000 by $901,000.

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

         Emery  Worldwide  Airlines  Inc.  ("Emery")  Lease.  The  lease  on the
McDonnell  Douglas DC10-10 with Continental  expired on September 15, 1999. Work
necessary  for the  aircraft  to meet the lease  return  conditions  was done at
Continental's  expense at a maintenance  facility.  Continental continued to pay
rent until the aircraft  achieved the lease  requirements for its return,  which
took place on December  16,  1999.  The  aircraft  was stored at a  modification
facility  until  June  2000 at which  time work  commenced  to  convert  it to a
freighter for Emery Worldwide Airlines Inc. ("Emery"). The Partnership and Emery
have signed a lease for a term of 84 months with rent of $218,000 per month. The
lease also provides a two-year renewal at $200,000 per month,  followed by three
additional  two-year  renewal  options  at the then fair  market  rental.  Emery
provided a  security  deposit of  $436,000.  The  aircraft  was  converted  to a
freighter in 2000 and delivered to Emery in December, 2000. At December 31, 2000
the conversion work totaled approximately $13 million.


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

         At December  31,  1999,  VASP was in arrears  with respect to scheduled
rent payments,  for a total of $838,000,  and $1,265,000 in arrears with respect
to  maintenance  reserve  payments.  VASP  failed to pay rent on the engines and
after being unable to come to agreement with VASP, the Partnership filed suit in
Brazil and Florida.  (See Note 8, "Litigation" ). The Partnership wrote down the
carrying value of the aircraft and engines by $1.4 million in the second quarter
of 2000. In addition,  $781,000 of collected maintenance reserves related to the
aircraft's  engines were applied against the carrying value of the aircraft,  so
that the carrying value  approximates the estimated  current market value.  (See
Footnote 8 "Litigation" and Footnote 10 "Subsequent Events")


         General.  The aircraft  leases are  principally  triple net leases.  As
such,  during  the  terms  of  the  leases,  the  lessees  are  required  to pay
substantially all expenses associated with the aircraft.

                                       28
<PAGE>


                               Significant Lessees

         The Partnership  leased its aircraft to eight different airlines during
2000.  Revenues from each of the airlines which  accounted for 10% or greater of
the  Partnership's  total  rental  revenue  during  2000,  1999  and 1998 are as
follows:

Airlines                                         Percentage of Rental Revenue(a)
--------                                         -------------------------------
                                                      2000    1999    1998
                                                      ----    ----    ----

Continental Airlines, Inc. (b)                         (c)     20%     25%
Trans World Airlines, Inc.                             21%     19      21
Aerovias de Mexico S.A. de C.V                         16      15      14
Capital Cargo International Airlines, Inc.             16      14      (c)
TNT Transport International B.V                        14      13      (c)
Kitty Hawk Aircargo, Inc.                              13      (c)     (c)
US Airways Group Inc.                                  12      10      (c)

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

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

(c)      Represents less than 10%.

         Revenues  include rentals from aircraft  leased to foreign  airlines or
carriers  of  $3,132,000,  $3,350,000  and  $3,429,000  in  2000,  1999 and 1998
respectively.

                          Future Minimum Rental Income

         The  following is a schedule by year of future  minimum  rental  income
under the leases as of December 31, 2000 (in thousands):

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

            2001                                               $  9,141
            2002                                                  6,345
            2003                                                  5,636
            2004                                                  5,636
            2005                                                  5,196
            Thereafter                                            6,326
                                                               --------
            Total                                              $ 38,280
                                                               ========

         The above schedule of future minimum rental income, includes a total of
$760,000 of rents from those lessees on non-accrual status, but does not include
rental  income  which would  result  from the renewal of existing  leases or the
re-leasing of the aircraft, unless the renewal has been exercised.

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


5.   Notes Payable

         The Partnership  closed on a new $30 million lending  facility on April
14, 2000 and an initial  draw down was made of $19.5  million.  The  facility is
limited to $25 million  because the Aeromexico  leases were not extended for two
years.  Due to this  limitation,  the  Partnership  suspended  distributions  to
partners in October 2000 and used the  resulting  cash to fully fund the DC10-10

                                       29
<PAGE>

conversion. The balance of the Note was $21.21 million at December 31, 2000. The
loan proceeds were used to retire existing debt of $16.53 million,  to replenish
working  capital and to fund the DC10-10  conversion.  The term of the loan is 6
years,  with  interest only  payments for the first twelve  months.  Thereafter,
principal  is  required  to be repaid in equal  quarterly  installments  over 60
months  with the first  payment  due in April  2001.  Proceeds  from the sale of
aircraft  must be applied to principal  reduction  and the  subsequent  required
principal payments will be reset over the remaining term. The Partnership paid a
1.0% commitment fee and the interest rate is 225 basis points over a major money
center  bank's prime rate.  The lender has a mortgaged  interest in all aircraft
except the 50% interest in the US Airways  MD-81  aircraft.  The loan  agreement
requires 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. The facility was also used to fund the DC10-10 conversion.

         The Limited Partnership  Agreement permits the Partnership to borrow up
to 35% (or $50,785,000) of the original offering proceeds.

6.   Transactions with Affiliates

         Management  Fees.  The  General  Partners  are  entitled to a quarterly
subordinated  base management fee in an amount  generally equal to 1.5% of gross
aircraft rentals,  net of re-lease fees paid. Of this amount, 1.0% is payable to
the Managing General Partner and 0.5% is payable to the  Administrative  General
Partner.  During the years ended  December 31, 2000,  1999 and 1998, the General
Partners  earned  base  management  fees of  $155,000,  $174,000  and  $177,000,
respectively.

         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.  During the years ended December 31, 2000, 1999
and 1998, the General  Partners  earned  incentive  management fees of $592,000,
$442,000 and $505,000, respectively.

         Re-lease  Fee.  The  General  Partners  are  entitled  to  a  quarterly
subordinated fee for re-leasing  aircraft or renewing a lease in an amount equal
to 3.5% of the gross  rentals from such re-lease or renewal for each quarter for
which such payment is received.  Of this amount, 2.5% is payable to the Managing
General  Partner  and 1.0% is payable  to the  Administrative  General  Partner.
During the years ended December 31, 2000,  1999 and 1998,  the General  Partners
earned re-lease fees of $319,000, $344,000 and $335,000, respectively.

         Beginning  July 1,  1995,  as part of the 1996 and  1997  class  action
settlement,  the  Administrative  General  Partner  remits to an affiliate,  all
management fees as well as all 1997 and future fees and  distributions  received
by the  Administrative  General Partner,  for deposit into an escrow account for
the benefit of the class action members.  As distributions  from the Partnership
have fallen below a level of 8% per annum of original  capital,  pursuant to the
Partnership  Agreement,  fees to the General  Partners are being accrued but not
paid on a current basis.

         Accountable   Expenses.   The   General   Partners   are   entitled  to
reimbursement  of certain  expenses paid on behalf of the Partnership  which are
incurred  in  connection   with  the   administration   and  management  of  the
Partnership.  Such  reimbursable  expenses amounted to $-0-, $-0- and $19,000 in
each of the years ended December 31, 2000, 1999 and 1998. 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 2000,  1999 and 1998,  the  Partnership  paid  $693,000,
$87,000  and  $1,313,000,  respectively,  to  a  licensed  maintenance  facility
affiliated  with the  Managing  General  Partner for work  performed  on certain
aircraft.  Additionally,  during  2000,  1999 and  1998,  the  Partnership  paid
$1,034,000,  $1,294,000 and $1,887,000,  respectively, to a company owned by the
President  and Director of the  Managing  General  Partner,  for the purchase of
parts in connection with certain capital projects.

                                       30
<PAGE>

7.   Reconciliation to Income Tax Method of Accounting

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

                                                   2000       1999       1998
                                                 --------   --------   --------

Net income per financial statements              $  1,788   $    978   $  1,855
Increase (decrease) resulting from:
   Depreciation                                     3,503       (648)    (4,523)
   TBT interest income, less
      TBT rental expense                             (570)    (1,492)    (1,174)
   Gain on sale of engines                             69         85        524
   Reserves for maintenance costs,
      net of maintenance expense and
      write-downs of aircraft                        (187)      (192)      4590
   Maintenance reserve payable                      1,457      1,113      1,184
   Deferred rental income                            --         (192)      (526)
   Rental income                                     (256)      (285)       285
   Provisions for bad debts                          --         --       (1,678)
   Management fees                                   --           27        (26)
   Other                                              (22)        13        (18)
                                                 --------   --------   --------
Taxable (loss) income per federal
  income tax return                              $  5,782   $   (593)  $ (3,638)
                                                 ========   ========   ========

         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):

                                                   2000       1999       1998
                                                 --------   --------   --------

Total Partnership capital per
   financial statements                          $ 21,575   $ 24,185   $ 34,200
Increase (decrease) resulting from:
   Commission and expenses paid
      in connection with the sale of limited
      partnership units                            16,295     16,295     16,295
   Accounts receivable                               --          233        285
   Distributions payable to partners                 --        2,169      2,931
   Management fees payable                           --         --          (26)
   Reserves for maintenance costs and
      write-downs                                  25,316     22,627     22,321
   Deferred income                                    311        167        759
   Accumulated depreciation                       (40,243)   (43,096)   (42,448)
   TBT interest income less TBT rental expense     (7,086)    (6,516)    (5,055)
   Lease settlement payment, including lease
      aircraft received accounted for under the
      cost recovery method                         10,115     10,115     10,115
   Allowance for bad debts                           --         --         --
   Securities received in leasing transaction        --         --         --
   Fixed Assets                                      --          538       --
   Other                                              (22)       328        (13)
                                                 --------   --------   --------
Tax bases of net assets                          $ 26,261   $ 27,045   $ 39,364
                                                 ========   ========   ========

                                       31
<PAGE>

8.   Litigation

         After  not  being  able  to  arrive  at  a  negotiated   settlement  of
outstanding  issues with VASP, the Partnership filed suit in May, 1999 in Brazil
and June,  1999 in Florida to repossess the two CF6-50C2  engines which had been
leased to VASP,  one then being in Brazil  and one then  being in Florida  ("the
Brazilian engine" and "the Florida engine").  It also sued in Florida for unpaid
rent,  reserves  and the repair of the engine in  Florida,  which was damaged in
January of 1999.

         The Brazilian Court ruled in May that the  Partnership  could repossess
the engine in Brazil,  although that ruling was stayed until  September 3, 1999,
after the completion of all of VASP's appeals.  The Partnership has returned the
Brazilian  engine to the U.S. and is offering it for lease.  The Brazilian court
action was concluded on February 9, 2001.

         A trial was held in Florida in December  1999 and  January  2000 and an
order of the court  favorable  to the  Partnership  with respect to the rent and
maintenance  reserve claims was entered in March 2000.  VASP and the Partnership
entered into a Stipulation  in March of 2001 which,  for the payment of $800,000
by VASP,  resulted in the settling of any claims  relating to the damaged engine
and the estimated  Partnership's  legal fees. In addition,  VASP has agreed to a
monthly  payment of  $100,000  per month  starting  in April 2001 to satisfy the
March  judgment.  The March  judgment will be further  satisfied by a receiver's
sale of a VASP owned  property in Florida.  Upon the sale of the  property,  the
monthly  payment will be adjusted to retire the remaining  balance (See Footnote
10 to the Financial Statements,  "Subsequent Events"),  with interest,  over the
remaining  months until February  2002. If VASP fails in its payment,  there are
additional  Florida  properties  which will be liquidated  by a court  appointed
receiver to satisfy the Partnership's March judgment.

9.   Fair Value of Financial Instruments

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

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

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

         Notes payable.  For notes payable,  carrying  value  approximates  fair
value  based  upon  current  rates  offered  for  notes  of the  same  remaining
maturities.

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


10.  Subsequent Events

         As of January  25,  2001,  Capital  Cargo,  which  leases a Boeing 727,
failed to make its lease and  reserve  payment  and has failed to make lease and
reserve  payment in  February  and March  2001.  A notice of default was sent on
February 8, 2001. The  Partnership  is in  discussions to restructure  the lease
with Capital Cargo.

         During the first  quarter of 2001,  the GE CF6-50C2,  which was damaged
while in service  with VASP,  referred to herein as the  "Florida  engine",  was

                                       32
<PAGE>

dismantled at an engine repair  facility and  determined to be a total  economic
loss. It is anticipated the engine parts can be sold for a nominal  amount.  The
Partnership negotiated a settlement with VASP with regards to the damage to this
engine and the legal costs incurred,  which included  payment to the Partnership
of $800,000 as well as the retention by the Partnership of the $200,000 deposit.

         Also  during  the first  quarter  of 2001,  in order to  prevent a bank
foreclosure on an office building formerly owned by VASP, which was purchased by
the  Partnership at a sheriff's  sale for a nominal credit bid, the  Partnership
purchased the mortgage from the bank for approximately $1.1 million.  As part of
the  aforementioned  settlement  agreement,  starting in March, 2001, VASP is to
retire the  Partenership's  mortgage,  with interest,  over five months. If VASP
fails  to make  said  payments,  the  court  appointed  receiver  will  sell the
building,  which is otherwise  anticipated  to result in the  retirement  of the
mortgage.

         As previously discussed,  TWA filed for Chapter 11 protection under the
US Bankruptcy code in January and entered into an Asset Purchase  Agreement with
American Airlines, Inc. While TWA fell in arrears with respect to lease payments
during the Section 1110 period,  all payments have been brought current.  A sale
of the MD-82 to American has been negotiated at a purchase price of $9.5 million
with rent due until  the  closing  date to be paid at the  current  rate.  It is
anticipated that the sale will close in April,  2001, at which time the proceeds
will be applied primarily to reduce the Partnership's debt.

         It is anticipated that Aeromexico will return the remaining DC-9 to the
Partnership in late March or early April,  2001. The  Partnership  will remarket
the aircraft, although there can be no assurance as to the timeliness or success
of such a remarketing  effort,  nor the lease rate,  which may be achieved.  The
aircraft is only Stage II noise compliant, which will limit the markets in which
it can be operated.


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 2000, 1999 and
1998.


                                       33
<PAGE>

                                    PART III

ITEM 10.      DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The  Partnership  has no officers and directors.  The General  Partners
jointly  manage and  control  the affairs of the  Partnership  and have  general
responsibility  and authority in all matters affecting its business.  Richard L.
Funk resigned as Senior Vice President, Technical of Pegasus Aircraft Management
Corporation  as of January 15, 2001,  and Ervin Bach assumed the position on the
same day.  Information  concerning  the directors and executive  officers of the
General Partners is as follows:

                     Pegasus Aircraft Management Corporation

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

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

         Richard S. Wiley, age 47, 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 48, is a Executive Vice  President,  General
Counsel and  Secretary  of the  Managing  General  Partner  and Pegasus  Capital
Corporation.  She is responsible  for providing legal counsel for all aspects of
capital equipment  leasing,  financing and placement.  Prior to joining Pegasus,
from 1987 to 1988,  Ms.  Chase was  Senior  Corporate  Counsel  at CIS where she
provided  legal  counsel  for  transactions   involving   aircraft  and  related
equipment.  From  1981 to 1987,  Ms.  Chase was legal  counsel  at  Transamerica
Airlines where she was responsible for the legal  negotiation and  documentation
for the  purchase,  sale,  lease and  finance of aircraft  and  aircraft-related
equipment.  Ms. Chase  received a BA degree from  California  State  University,
Hayward and a J.D.  degree from the  University of California,  Davis.  She is a
member of the State Bar of  California,  the American Bar  Association,  and the
American Corporate Counsel Association.

         Robert M. Brown,  42, is an  Executive  Vice  President of the Managing
General  Partner and Pegasus  Capital  Corporation,  and is involved in aircraft
acquisitions, finance and leasing. His primary responsibility is the structuring
of debt transactions,  which accommodate the PCC trading and long-term investing
activities.  Previously,  he served as Vice President,  Aircraft  Sales,  and as
Regional  Marketing  Director  during the  offerings of the  Partnership  and an
affiliated  partnership.  Prior to joining PCC,  Mr. Brown was District  Manager
with the Chrysler  Corporation.  He holds a BA degree from Dartmouth College and
an MBA from the University of Washington.

         Ervin Bach,  39, 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.

                                       34
<PAGE>



                           Air Transport Leasing, Inc.

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

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


         Clifford  B.  Wattley,  age 51,  is  President  and a  Director  of the
Administrative  General Partner.  Mr. Wattley is a Corporate Vice President with
UBS  PaineWebber  Inc.  having  joined  the firm in 1986.  He also was  employed
previously by Paine,  Webber,  Jackson & Curtis from 1979 to 1980.  From 1986 to
1992, Mr. Wattley  participated in PaineWebber's  Principal  Transactions Group.
Since 1992, Mr. Wattley has been a member of the Private Investment  Department.
He holds a Bachelor of Science  degree in engineering  from Columbia  University
and a Masters in Business Administration from Harvard University.

         Stephen R. Dyer, age 41, is Vice President,  Assistant  Secretary and a
Director of the Administrative  General Partner.  He joined UBS PaineWebber Inc.
in June 1988 as a  Divisional  Vice  President  and is  currently  a Senior Vice
President  and  Director of Private  Investments.  Prior to joining  PaineWebber
Incorporated,  Mr. Dyer had been employed, since June 1987, as an Assistant Vice
President  in the  Retail  National  Products  Group  of L.F.  Rothschild  & Co.
Incorporated.  Prior to joining L.F.  Rothschild he was  employed,  beginning in
January 1985, as an Associate in the Real Estate  Department of Thomson McKinnon
Securities  Inc. From July 1981 to August 1983,  Mr. Dyer was on the audit staff
of the  accounting  firm of Arthur Young & Company.  He received his Bachelor of
Science  degree in  Accounting  in 1981 from  Boston  College  and a Masters  of
Business  Administration from Indiana University in December 1984. Mr. Dyer is a
Certified Public Accountant.

         Carmine  Fusco,  age 32, is Vice  President,  Secretary,  Treasurer and
Chief Financial and Accounting Officer of the Administrative General Partner. He
also  serves as an  Assistant  Vice  President  within the  Private  Investments
Department of UBS  PaineWebber  Inc. Mr. Fusco had previously been employed as a
Financial  Valuation  Consultant in the Business  Valuation  Group of Deloitte &
Touche,  LLP from January  1997 to August  1998.  He was employed as a Commodity
Fund  Analyst  in  the  Managed  Futures  Department  of  Dean  Witter  Reynolds
Incorporated,  from October 1994 to November 1995. Prior to joining Dean Witter,
Mr.  Fusco  was a Mutual  Fund  Accountant  with  the  Bank of New York  Company
Incorporated.  He received  his  Bachelor of Science  degree in  Accounting  and
Finance  in  May  1991  from  Rider   University   and  a  Master  of   Business
Administration  from Seton Hall  University  in June 1996. On February 25, 2000,
Mr.  Fusco was  charged  with,  and on  January  14,  2002  pleaded  guilty  to,
conspiracy  to  distribute  a  controlled  substance.  His  employment  with UBS
PaineWebber Inc. and the Administrative  General Partner was terminated on March
11, 2002, the date UBS PaineWebber Inc. and the  Administrative  General Partner
were informed of these facts.

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 2000.



                                       35
<PAGE>

ITEM 12.      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

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

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

                   Managing General Partner:

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

                   Administrative General Partner:

                        Air Transport Leasing, Inc.
                        800 Harbor Boulevard, 3rd Floor
                        Weehawken, NJ 07087

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

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



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

                   Managing General Partner:
                   Richard S. Wiley                           25,296          *
                   Carol L. Chase                              1,300          *
                   Robert M. Brown                             1,000          *
                   All directors and officers as a group
                   (4 persons)                                27,596          *

                   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.

                                       36
<PAGE>

ITEM 13.      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The General Partners and their affiliates have received or will receive
certain types of compensation,  fees, or other  distributions in connection with
the operations of the Partnership.  The fees and compensation were determined in
accordance with the applicable provisions of the Partnership  Agreement.  Due to
the subordination  provisions of the partnership Agreement,  fees to the General
Partners are being accrued but are not being paid on a current basis.

         Following  is a summary of the  amounts  paid or payable to the General
Partners and their affiliates during 2000.

         Base  Management  Fee.  The  General   Partners   receive  a  quarterly
subordinated  base management fee in an amount  generally equal to 1.5% of gross
aircraft rentals,  net of re-lease fees paid. Of this amount, 1.0% is payable to
the Managing General Partner and 0.5% is payable to the  Administrative  General
Partner.  During  2000,  the General  Partners  earned base  management  fees of
$155,000.

         Incentive  Management  Fee.  The General  Partners  receive a quarterly
subordinated  incentive  management fee, in an amount equal to 4.5% of quarterly
cash flow and sales  proceeds (net of resale fees),  of which 2.5% is payable to
the Managing General Partner and 2.0% is payable to the  Administrative  General
Partner.  The General  Partners  earned  incentive  management  fees of $592,000
during 2000.

         Re-lease Fee. The General Partners receive a quarterly subordinated fee
for  re-leasing  aircraft or renewing a lease in an amount  equal to 3.5% of the
gross  rentals  from such  re-lease or renewal  for each  quarter for which such
payment is  received.  Of this amount,  2.5% is payable to the Managing  General
Partner and 1.0% is payable to the Administrative  General Partner.  The General
Partners earned re-lease fees of $ 319,000 during 2000.

         Accountable   Expenses.   The   General   Partners   are   entitled  to
reimbursement  of certain  expenses paid on behalf of the Partnership  which are
incurred  in  connection   with  the   administration   and  management  of  the
Partnership.  Such  reimbursable  expenses  amounted  to $-0-  during  2000.  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 2000, the Partnership  purchased  certain equipment and parts
for two Partnership  aircraft from a company owned by the Director and President
and two former  officers and  directors of the Managing  General  Partner in the
amount of $1,034,000.  During 2000, the Partnership  paid $693,000 to a licensed
maintenance  facility  affiliated  with the  Managing  General  Partner for work
performed on certain aircraft.

         Partnership Interest. The General Partners received or were entitled to
receive  distributions of $44,000 as their allocable share of distributable cash
flow for 2000. In addition,  pursuant to the Partnership Agreement as it relates
to the sale of an asset,  $1,058,000 of the Partnership's net taxable income for
2000 was allocated to the General Partners.


                                       37
<PAGE>

                                     PART IV

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

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

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

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

              The Partnership also filed a Form 8-K on April 27, 2000, reporting
              another  distribution  at  the  lowered  rate  and a  new  lending
              facility, under Item 5, Other Events.

              The  Partnership  also  filed  a Form  8-K  on  October  5,  2000,
              reporting the  suspension of cash  distributions  for at least the
              quarter  ending  September  30, 2000  (payable in October,  2000),
              under Item 5, Other events.

         (c)  Exhibits required to be filed.

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

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

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

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

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

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

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

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

                                       38
<PAGE>


         (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.*

         (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.*

                                       39
<PAGE>
         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.*

         (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.*

                                       40
<PAGE>


         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.*

         (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.*


                                       41
<PAGE>
         (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.*

                        Amendment  No. 2,  dated as of April 15,  1993,  between
         (e)            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.*

         (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.

                                       42
<PAGE>
         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.*

         (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.*

                                       43
<PAGE>


         (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.*

         (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.*

                                       44
<PAGE>
         (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.*

         (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.

                                       45
<PAGE>


         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.


                                       46
<PAGE>


                                   SIGNATURES

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

         Dated: April 22, 2002

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

                               By:  Air Transport Leasing, Inc.
                                    Administrative General Partner

                               By:  /s/ CLIFFORD B. WATTLEY
                                    Clifford B. Wattley
                                    President, Chief Financial and Accounting
                                    Officer and Director

                               By:  Pegasus Aircraft Management Corporation
                                    Managing General Partner

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

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
Registrant and in the capacities indicated on April 22, 2002.

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

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

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

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


                                       47