UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

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

                   For the Fiscal Year Ended December 31, 1999

                           Commission File No. 1-9259


                 AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP
                -------------------------------------------------
             (Exact name of registrant as specified in its charter)

                 California                        94-3008908
          -----------------------     ------------------------------------
          (State of Organization)     (I.R.S. Employer Identification No.)

          555 California Street, Fourth Floor, San Francisco, CA 94104
          ------------------------------------------------------ -----
               (Address of principal executive offices) (Zip Code)

       Registrant's telephone number, including area code: (415) 765-1814

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

            Title of each class:             Name of each exchange
        Depositary Units Representing         on which registered:
        Limited Partnership Interests       New York Stock Exchange

        Securities registered pursuant to Section 12(g) of the Act: NONE

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

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

     Aggregate market value of Depositary  Units,  held by non-affiliates of the
registrant as of the close of business at March 7, 2000 was $40,620,925.00.

<PAGE>

                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----

                                     PART I

ITEM 1.          BUSINESS....................................................  3

ITEM 2.          PROPERTIES.................................................. 14

ITEM 3.          LEGAL PROCEEDINGS........................................... 14

ITEM 4.          SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......... 14

                                     PART II

ITEM 5.          MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
                 STOCKHOLDER MATTERS......................................... 15

ITEM 6.          SELECTED FINANCIAL DATA..................................... 18

ITEM 7.          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                 CONDITION AND RESULTS OF OPERATIONS......................... 19

ITEM 7A.         QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT
                 MARKET RISK................................................. 22

ITEM 8.          FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................. 23

ITEM 9.          CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
                 ACCOUNTING AND FINANCIAL DISCLOSURE........... ............. 23

                                    PART III

ITEM 10.         DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.......... 23

ITEM 11.         EXECUTIVE COMPENSATION...................................... 25

ITEM 12.         SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
                 AND MANAGEMENT.............................................. 25

ITEM 13.         CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 26

                                     PART IV

ITEM 14.         EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND
                 REPORTS ON FORM 8-K............................. ........... 27

SIGNATURES................................................................... 30

INDEX TO EXHIBITS.......................................................... A-14

                                       2

<PAGE>

                 AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP

                                    FORM 10-K

                   For the Fiscal Year Ended December 31, 1999

                                     PART I
                                     ------

ITEM 1.  BUSINESS

GENERAL

         Airlease Ltd., A California  Limited  Partnership (the "Partnership" or
"Airlease"),  was formed in 1986. The General  Partner of the  Partnership  (the
"General   Partner")  is  Airlease   Management   Services,   Inc.,  a  Delaware
corporation.  Until  October  31, 1996 the  General  Partner was a wholly  owned
subsidiary  of USL Capital  Corporation  ("USL  Capital"),  which in turn was an
indirect  subsidiary  of Ford Motor  Company.  On October 31, 1996, BA Leasing &
Capital Corporation ("BA Leasing & Capital"), a wholly owned indirect subsidiary
of BankAmerica Corporation,  purchased the stock of the General Partner from USL
Capital and the General Partner became a wholly owned subsidiary of BA Leasing &
Capital. On September 29, 1999, BA Leasing & Capital merged into Banc of America
Leasing and  Capital,  LLC, a Delaware  limited  liability  company  ("BALCAP").
BALCAP is also a wholly owned indirect subsidiary of BankAmerica Corporation.  A
total of 4,625,000 Depository Units representing  limited partnership  interests
("Units") in the Partnership are outstanding, of which 3,600,000 are held by the
public and 1,025,000 are owned by BALCAP and its subsidiaries.

         The Partnership  invests in commercial aircraft and leases the aircraft
to others,  primarily  airlines,  pursuant to finance (full payout) or operating
leases.

PRINCIPAL INVESTMENT OBJECTIVES

         The business of the  Partnership is to acquire and own, either directly
or through  joint  ventures,  aircraft and to lease such  aircraft  primarily to
airlines.  The  Partnership's  principal  investment  objectives are to generate
income for quarterly cash distributions to Unitholders and to own a portfolio of
leased  aircraft.  The  Partnership's  original intent was that until January 1,
2005,  it would use a  substantial  portion of the cash  derived  from the sale,
refinancing or other disposition of aircraft to purchase  additional aircraft if
attractive investment opportunities were available.

                                       3

<PAGE>

         As  previously  reported,  as part of a plan to  mitigate  the  adverse
financial  effects of changes in tax law,  in 1997  Unitholders  authorized  the
General Partner to decide not to make new aircraft investments, to sell aircraft
when attractive opportunities arise, to distribute the proceeds and to liquidate
the  Partnership  when all assets are sold.  The General  Partner will  consider
whether it is in the best interest of  Unitholders  to cease making new aircraft
investments  as  opportunities  arise,  in light of  market  conditions  and the
Partnership's  competitive position.  Based on its investment experience and its
knowledge of the market, the General Partner believes that attractive investment
opportunities  like those made by the  Partnership in the past probably will not
be available.  In the event that aircraft are sold and  appropriate  alternative
investments are not available,  the Partnership will distribute sale proceeds to
Unitholders  (after repaying debt and establishing  appropriate  reserves),  and
this would result in a further reduction of the Partnership's portfolio.

AIRCRAFT PORTFOLIO

         The   Partnership's   aircraft   portfolio   consists  of   narrow-body
(single-aisle)  twin and tri-jet commercial aircraft which were acquired as used
aircraft.  Although the Partnership is permitted to do so, the Partnership  does
not own interests in aircraft which were acquired as new aircraft;  nor does the
Partnership own any wide-body aircraft, such as the Boeing 747 and MD-11, or any
turboprop or prop-fan powered aircraft.

                                       4

<PAGE>

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

<TABLE>

                   Number &                                  Current      Purchase
                 type; year of   Ownership   Acquired by      lease       price (in       Type           Noise
Lessee              Delivery     Interest    Partnership    expiration    millions)     of lease     compliance(1)
------           ------------    ---------   -----------    ----------    ---------     --------     -------------
<S>               <C>             <C>          <C>            <C>        <C>           <C>            <C>

USAirways           5 MD-82        100%          1986          2001         $91.0        Direct        Stage III
                    1981 (2)                                                            finance


FedEx              1 727-200FH     100%          1987          2006       $18.5(3)       Direct
                       1979                                                             finance        Stage III

TWA                  1 MD-82       100%         1988(4)        2002       $15.8(4)       Direct
                       1984                                                             finance        Stage III

(1)      See "Government Regulation-Aircraft Noise" below, for a description of laws and regulations governing
         aircraft noise.

(2)      The investment tax credits and the accelerated depreciation originally available upon delivery of the
         aircraft on lease to US Airways, Inc. (formerly USAir, Inc.) ("US Airways") were sold in 1981 pursuant to
         a tax benefit transfer lease, which terminated November, 1991.  See Note 8 of Notes to Financial
         Statements.

(3)      The purchase  price  includes $6.9 million of conversion  costs for the upgrade  of the  aircraft
         from a Stage II passenger to a Stage III freighter aircraft.

(4)      The Partnership originally acquired a 50% interest in this aircraft in 1988 for a purchase price of $10.1 million.
         On January 31, 1997 the Partnership purchased the remaining 50% interest from USL Capital for a purchase price of
         $5.7 million.

</TABLE>

         At December 31, 1999, the book value of aircraft by lessee as a percent
of total assets was as follows:  US Airways,  71.7%; FedEx, 13%; and TWA, 14.9%.
Revenues  by  lessee  as a  percentage  of total  revenue  for  1999  and  1998,
respectively,  were as follows:  US  Airways,  77.1% and 77.4%;  TWA,  17.2% and
17.0%; and FedEx, 5.7% and 5.6%.

         See  "MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL  CONDITION AND
RESULTS OF OPERATIONS" for a further discussion of the Partnership's lessees.

                                       5

<PAGE>

         The Partnership's  lessees have the following fair market value renewal
options:  US Airways has the right to renew its lease as to any of the  aircraft
for up to three additional renewal terms of one year each at a fair market value
rental,  provided  that the number of  aircraft to be returned at the end of any
renewal  term may not be less than  two;  Fedex has the right to renew its lease
for one  six-month  term at the  current  rent  payable  under  the  lease,  and
thereafter for four successive one year terms at a fair market value rental; and
TWA has the right to renew its  lease  for one term of one,  two,  three or four
years at fair market value rentals.

COMPETITIVE POSITION OF THE PARTNERSHIP

         The aircraft leasing industry has become increasingly  competitive.  In
making aircraft investments, leasing aircraft to lessees, and seeking purchasers
of aircraft,  the Partnership  competes with large leasing  companies,  aircraft
manufacturers,  airlines  and other  operators,  equipment  managers,  financial
institutions  and other  parties  engaged in  leasing,  managing,  marketing  or
remarketing  aircraft.  Affiliates of the General Partner are engaged in many of
these  businesses and may be deemed to be in competition  with the  Partnership.
There are many large  leasing  companies  which have the  financial  strength to
borrow at very low rates and to obtain  significant  discounts  when  purchasing
large quantities of aircraft. The lower capital and acquisition costs enjoyed by
these large leasing  companies  permit them to offer  airlines lower lease rates
than smaller  leasing  companies can offer.  The  Partnership  does not have the
resources to purchase newer aircraft or to purchase aircraft at volume discounts
and has only a limited ability to use tax deferrals in its pricing.

         As previously  reported to  Unitholders,  the  Partnership's  access to
capital is limited. Since all Cash Available from Operations,  as defined in the
Limited Partnership  Agreement,  is distributed,  there is no build up of equity
capital,  and acquisitions must be funded from proceeds  available when aircraft
are  sold  or  from  debt.  Access  to  debt  is  limited  because  most  of the
Partnership's aircraft are being used to collateralize  existing borrowings.  In
general, the Partnership's pricing is uncompetitive for new acquisitions because
of its limited sources and high cost of capital.

         Because of these factors,  finding new aircraft  investments like those
made by the  Partnership  in the past and that offer an  appropriate  balance of
risk and reward has been  difficult.  During the past six years the  Partnership
has made only two aircraft  investments,  both of which were possible because of
special circumstances.

         In 1996 and 1997, the  Partnership  sold interests in eight aircraft (a
50%  interest in an aircraft  on lease to Finnair,  a one-third  interest in six
aircraft on lease to  Continental,  and a 50% interest in one aircraft leased to
Sun Jet  International,  Inc.) at a profit. See "Disposition of Aircraft" below.
However,  because of the factors  described above, the Partnership was unable to
reinvest  the  proceeds  in aircraft at an  acceptable  return,  and the General
Partner  determined that the best use of the net proceeds was to distribute them
to  Unitholders.  These  sales and  distributions  have  reduced the size of the
Partnership's portfolio.

                                       6

<PAGE>

PARTICIPANTS IN LEASES

         USL Capital originally participated equally with the Partnership in all
aircraft now owned by the Partnership except the aircraft on lease to US Airways
(the "US Airways  Aircraft").  In April 1993 the Partnership leased two aircraft
(held jointly with USL Capital),  which were  previously off lease, to FedEx. In
September  1993 the  Partnership  exchanged its 50% interest in the two aircraft
for a 100%  interest in one  aircraft  and pledged the aircraft and the lease as
collateral  to obtain  funds to upgrade the  aircraft  from a Stage II passenger
aircraft to a Stage III freighter.  In January 1997, the Partnership purchased a
50% interest in the TWA Aircraft  formerly owned by USL Capital,  and now owns a
100% interest in this aircraft.

DESCRIPTION OF LEASES

         All aircraft now owned by the  Partnership  are leased to third parties
pursuant to full-payout (direct finance) leases. Generally, operating leases are
for a shorter term than full-payout  leases and,  therefore,  it is necessary to
remarket  the  aircraft  in order to recover  the full  investment.  Full-payout
leases  are  generally  for a longer  term and hence  provide  more  predictable
revenue than do operating leases.

         All of the Partnership's  leases are net leases, which provide that the
lessee will bear the direct operating costs and the risk of physical loss of the
aircraft;  pay sales, use or other similar taxes relating to the lease or use of
the aircraft;  maintain the aircraft;  indemnify the Partnership-lessor  against
any liability  suffered by the  Partnership as the result of any act or omission
of the lessee or its agents;  maintain casualty  insurance in an amount equal to
the  specific  amount  set forth in the lease  (which  may be less than the fair
value of the aircraft);  and maintain liability insurance naming the Partnership
as an additional insured with a minimum coverage which the General Partner deems
appropriate.  In  general,  substantially  all  obligations  connected  with the
ownership  and  operation  of the leased  aircraft are assumed by the lessee and
minimal  obligations are imposed upon the  Partnership.  Default by a lessee may
cause  the  Partnership  to  incur  unanticipated   expenses.   See  "Government
Regulation" below.

         Certain  provisions of the Partnership's  leases may not be enforceable
upon a  default  by a lessee  or in the  event  of a  lessee's  bankruptcy.  The
enforceability  of leases  will be subject to  limitations  imposed by  Federal,
California, or other applicable state law and equitable principles.

         In order to encourage  equipment  financing  to certain  transportation
industries,   Federal   bankruptcy  laws  traditionally  have  afforded  special
treatment  to certain  lenders  or lessors  who have  provided  such  financing.
Section 1110 ("Section  1110") of the United States  Bankruptcy Code, as amended
(the  "Bankruptcy  Code"),  implements  this  policy by  creating a category  of
aircraft  lenders and lessors  whose rights to  repossession  are  substantially
improved.  If a transaction  is eligible  under  Section 1110,  the right of the
lender  or  lessor to take  possession  of the  equipment  upon  default  is not
affected by the automatic stay provisions of the Bankruptcy Code,  unless within

                                       7

<PAGE>

60 days after  commencement  of a bankruptcy  proceeding  the trustee  agrees to
perform  all  obligations  of the debtor  under the  agreement  or lease and all
defaults  (except those  relating to insolvency or insolvency  proceedings)  are
cured  within such  60-day  period or 30 days after the  default.  One court has
recently held that Section 1110 does not apply after the 60-day period, and thus
the automatic stay may apply after such 60-day period.

         On October 22, 1994, the President signed the Bankruptcy  Reform Act of
1994 (the "Reform  Act").  The Reform Act made several  changes to Section 1110,
such that it now  protects  all  transactions  involving  qualifying  equipment,
whether the transaction is a lease,  conditional sale,  purchase money financing
or customary  refinancing.  For equipment first placed in service on or prior to
the date of enactment,  the requirement  that the lender provide  purchase money
financing  continues  to apply,  but  there is a "safe  harbor"  definition  for
leases,  so that Section 1110 benefits  will be available to the lessor  without
regard to  whether  or not the  lease is  ultimately  determined  to be a "true"
lease.  This safe harbor is not the exclusive test so that other leases which do
not qualify under the safe harbor,  but which are true leases,  will continue to
be covered as leases by Section 1110. The Partnership may not be entitled to the
benefits of Section 1110 upon  insolvency  of a lessee  airline under all of its
leases.

         In the past,  the  Partnership  had  interests  in  aircraft  leased to
operators based outside the United States. It is possible that the Partnership's
aircraft could be leased or subleased to foreign airlines.  Aircraft on lease to
such foreign  operators  are not  registered  in the United States and it is not
possible  to file  liens on such  foreign  aircraft  with the  Federal  Aviation
Administration  (the  "FAA").  Further,  in the  event  of a lessee  default  or
bankruptcy, repossession and claims would be subject to laws other than those of
the United States.

AIRCRAFT REMARKETING

         On   termination  of  a  lease  and  return  of  the  aircraft  to  the
Partnership,  the  Partnership  must  remarket  the aircraft to realize its full
investment.  Under the Amended and Restated Agreement of Limited Partnership, as
amended ("Limited  Partnership  Agreement"),  the remarketing of aircraft may be
through a lease or sale.  The terms and  conditions  of any such lease  would be
determined  at the  time  of the  re-lease,  and it is  possible  (although  not
anticipated  at this time) that the lease may not be a net  lease.  The  General
Partner will evaluate the risks  associated with leases which are not net leases
prior to entering into any such lease.  The General  Partner has not established
any  standards  for  lessees to which it will lease  aircraft  and, as a result,
there is no  investment  restriction  prohibiting  the  Partnership  from  doing
business with any lessee,  including "start-up"  airlines.  However, the General
Partner  will  analyze  the  credit  of a  potential  lessee  and  evaluate  the
aircraft's potential value prior to entering into any lease.

                                       8

<PAGE>

DISPOSITION OF AIRCRAFT

         The Partnership's original intent was to dispose of all its aircraft by
the year 2011,  subject  to  prevailing  market  conditions  and other  factors.
However,  in 1997  unitholders  authorized  the General  Partner not to make new
investments, to sell aircraft when attractive opportunities arise, to distribute
the proceeds  and to liquidate  the  Partnership  when all assets are sold.  See
"Principal Investment Objectives" above.

         Under the Limited  Partnership  Agreement,  aircraft may be sold at any
time  whether or not the  aircraft  are subject to leases if, in the judgment of
the General Partner, it is in the best interest of the Partnership to do so.

         In March 1996,  the  Partnership  sold its 50% interest in one MD-82 on
lease to Finnair to a third party for approximately $6.9 million, resulting in a
net gain of approximately $556,000. The Partnership had acquired its interest in
this aircraft in April 1992, for  approximately  $8.5 million.  A portion of the
sale proceeds were used to pay off the outstanding  balance under a non-recourse
loan which was collateralized by this aircraft and the balance,  after retaining
a  reserve  for  liquidity  purposes,   was  distributed  to  Unitholders.   See
"Competitive Position of the Partnership" above.

         The Partnership sold its one-third  interest in six 737-200 aircraft on
lease to Continental  at lease  expiration on December 31, 1996, at a sale price
of approximately  $3.1 million,  resulting in a net gain of  approximately  $1.9
million.  The proceeds were  distributed  to Unitholders in the first quarter of
1997. See "Competitive Position of the Partnership" above.

         On  September  29, 1997 the  Partnership  sold its  one-half  ownership
interest in a DC9-51 aircraft on lease to Sun Jet  International,  Inc. The sale
price was $1.2  million,  resulting in a gain of $393,000 even though the lessee
had filed for  bankruptcy in June 1997, and had ceased making the rent payments.
The proceeds were  distributed to Unitholders in the fourth quarter of 1997. See
"Competitive Position of the Partnership" above.

         The  Partnership  is permitted to sell  aircraft to  affiliates  of the
General  Partner at the fair market value of the aircraft at the time of sale as
established  by an  independent  appraisal.  The General  Partner will receive a
Disposition or Remarketing Fee for any such sale.

JOINT VENTURES/GENERAL ARRANGEMENTS

         Under the Limited Partnership Agreement, the Partnership may enter into
joint  ventures  with third  parties to acquire or own  aircraft.  No such joint
ventures  presently exist.  Generally,  each party to a joint venture is jointly
responsible for all debts and obligations incurred by the joint venture, and the
joint venture will be treated as a single entity by third parties. If party to a
joint  venture,   the  Partnership  may  become  liable  to  third  parties  for
obligations of the joint venture in excess of those contemplated by the terms of
the joint venture agreement. There can be no assurance that the Partnership will

                                       9

<PAGE>

be able to obtain control in any joint ventures, or that, even with such control
the Partnership  will not be adversely  affected by the decisions and actions of
the  co-venturers.  The  General  Partner  attempts  to  ensure  that  all  such
agreements  will be fair  and  reasonable  to the  Partnership,  although  joint
ventures with affiliates of the General Partner may involve potential  conflicts
of interest.

BORROWING POLICIES

         Under the Limited  Partnership  Agreement,  the  Partnership may borrow
funds or assume  financing in an aggregate  amount equal to less than 50% of the
higher  of the cost or fair  market  value at the time of the  borrowing  of all
aircraft owned by the Partnership. The Partnership may exceed such 50% limit for
short-term  borrowing  so long as the General  Partner  uses its best efforts to
comply with such 50% limit  within 120 days from the date such  indebtedness  is
incurred or if the borrowed  funds are necessary to prevent  foreclosure  on any
Partnership  asset.  There is no  limitation  on the  amount of such  short-term
indebtedness.  The General  Partner is authorized to borrow for working  capital
purposes and to make distributions. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Liquidity  and Capital Resources"
and Note 4 of Notes to Financial Statements.

MANAGEMENT OF AIRCRAFT PORTFOLIO

         Aircraft  management  services are provided by the General  Partner and
its affiliates.  The fees and expenses for these services are reviewed  annually
and are subject to approval by the Audit Committee of the Partnership.  See Note
6 of Notes to Financial Statements.

REGISTRATION OF AIRCRAFT; UNITED STATES PERSON

         Under the  Federal  Aviation  Act,  as  amended  (the "FAA  Act"),  the
operation of an aircraft not registered with the Federal Aviation Administration
(the  "FAA") in the  United  States is  generally  unlawful.  Subject to certain
limited  exceptions,  an aircraft may not be registered under the FAA Act unless
it is owned by a "citizen  of the United  States" or a  "resident  alien" of the
United States.  In order to attempt to ensure  compliance  with the  citizenship
requirements of the FAA Act, the Limited Partnership Agreement requires that all
Unitholders (and all transferees of Units) be United States citizens or resident
aliens within the meaning of the FAA Act.

                                       10

<PAGE>

GOVERNMENT REGULATION

         GENERAL

         The  ownership  and  operation  of  aircraft  in the United  States are
strictly  regulated by the FAA, which imposes certain minimum  restrictions  and
economic  burdens upon the use,  maintenance and ownership of aircraft.  The FAA
Act and FAA regulations  contain strict provisions  governing various aspects of
aircraft   ownership  and   operation,   including   aircraft   inspection   and
certification, maintenance, equipment requirements, general operating and flight
rules, noise levels, certification of personnel and record keeping in connection
with  aircraft  maintenance.  FAA  policy has given high  priority  to  aviation
safety,  and a primary  objective  of FAA  regulations  is that an  aircraft  be
maintained properly during its service life. 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  qualified to perform aircraft repairs.  Each
aircraft in operation is required to have a Standard  Airworthiness  Certificate
issued by the FAA.

         MAINTENANCE

         The  Partnership,  as the  beneficial  owner  of  aircraft,  bears  the
ultimate   responsibility  for  compliance  with  certain  federal  regulations.
However,  under all of the  Partnership's  aircraft  leases,  the lessee has the
primary obligation to ensure that at all times the use,  operation,  maintenance
and repair of the aircraft are in compliance  with all  applicable  governmental
rules and regulations and that the  Partnership/lessor  is indemnified from loss
by the  lessee for breach of any of these  lessee  responsibilities.  Changes in
government  regulations  after the  Partnership's  acquisition  of aircraft  may
increase the cost to, and other burdens on, the  Partnership  of complying  with
such regulations.

         The  General   Partner   monitors   the   physical   condition  of  the
Partnership's  aircraft and periodically inspects them to attempt to ensure that
the lessees comply with their  maintenance  and repair  obligations  under their
respective  leases.  Maintenance  is  further  regulated  by the FAA which  also
monitors  compliance.  At lease termination,  the lessees are required to return
the aircraft in airworthy  condition.  The Partnership  may incur  unanticipated
maintenance  expenses  if a  lessee  were  to  default  under  a  lease  and the
Partnership  were  to  take  possession  of the  leased  aircraft  without  such
maintenance  having been completed.  If the lessee  defaulting is in bankruptcy,
the  General  Partner  will file a proof of claim for the  required  maintenance
expenses in the lessee's bankruptcy proceedings and attempt to negotiate payment
and  reimbursement  of a portion of these  expenses.  The bankruptcy of a lessee
could adversely impact the Partnership's ability to recover maintenance expense.

         From time to time,  aircraft  manufacturers issue service bulletins and
the FAA issues airworthiness directives.  These bulletins and directives provide
instructions  to aircraft  operators  in the  maintenance  of  aircraft  and are
intended to prevent the  occurrence of accidents  arising from flaws  discovered
during  maintenance  or as the result of  aircraft  incidents.  Compliance  with
airworthiness directives is mandatory.

                                       11

<PAGE>

         A formal  program to control  corrosion  in all aircraft is included in
the FAA mandatory requirements for maintenance for each type of aircraft.  These
FAA  rules  and  proposed  rules  evidence  the  current  approach  to  aircraft
maintenance  developed  by  the  manufacturers  and  supported  by  the  FAA  in
conjunction with an aircraft  industry group. The Partnership may be required to
pay for these FAA  requirements if a lessee defaults or if necessary to re-lease
or sell the aircraft.

         In  January  1999 the FAA  issued an  airworthiness  directive  setting
payload weight  limitations on the Boeing 727 aircraft which were converted from
passenger to freight configuration.  The directive requires extensive structural
modifications to strengthen the aircraft's floor, if the aircraft is to continue
to operate under the existing  payload limits.  If these  modifications  are not
performed,  the  directive  sets  substantially  reduced  payload  limits.  This
airworthiness  directive  applies to the  aircraft on lease to FedEx.  Under the
lease covering this aircraft,  FedEx is required to take the steps  necessary to
comply with  airworthiness  directives  imposed during the lease term.  However,
airworthiness  directives  may  affect the  residual  value of the  aircraft  or
FedEx's decision to exercise fair market value renewal options under the lease.

         AIRCRAFT NOISE

         The FAA, through regulations, has categorized certain aircraft types as
Stage I, Stage II and Stage III  according  to the noise  level as  measured  at
three  designated  points.  Stage I aircraft  create the highest  measured noise
levels.  Stage I and Stage II  aircraft  are no longer  allowed to operate  from
civil airports in the United States.

         See "Aircraft  Portfolio" above, for a description of the Partnership's
aircraft  portfolio.   At  December  31,  1999,  all  of  the  aircraft  in  the
Partnership's portfolio were Stage III aircraft

ACQUISITION OF ADDITIONAL AIRCRAFT

         In 1997  Unitholders  authorized  the General  Partner to decide not to
make new aircraft  investments,  to sell aircraft when attractive  opportunities
arise,  to  distribute  the proceeds and to liquidate the  Partnership  when all
assets are sold. See "Principal Investment Objectives" above.

         Not  withstanding  the  above,  if  the  Partnership  were  to  acquire
additional  aircraft,  it  could  do so in  many  different  forms,  such  as in
sale/leaseback  transactions,  by purchasing  interests in existing  leases from
other lessors,  by making loans secured by aircraft or by acquiring or financing
leasehold  interests  in  aircraft.  The  Partnership  is  permitted  to acquire
aircraft from affiliates of the General Partner subject to limitations set forth
in the Limited Partnership Agreement.

                                       12

<PAGE>

         Prior to  September  30,  1991,  the  General  Partner  and USL Capital
("Related  Entities") were required to offer the Partnership a 50% participation
interest in certain aircraft leasing  investments made by Related  Entities,  as
defined in the Limited Partnership Agreement. After September 30, 1991 and while
the General Partner was an affiliate of USL Capital, the General Partner and USL
Capital could, but were not obligated to, offer investment  opportunities to the
Partnership.  The  Partnership  was  required to accept  suitable  opportunities
provided  that the  General  Partner  and  Related  Entities  made at least  20%
(including their investment through ownership of Units and the General Partner's
interest) of the total  investment made by Related  Entities and the Partnership
in such transactions.  In the event that the Partnership  elected not to make or
to make only a portion  of an  investment  offered  to it by an  affiliate,  the
remaining investment could be made by affiliates of the General Partner or third
parties.

         The General Partner believes that since it is no longer affiliated with
USL Capital,  the  limitation  as to making  investments  with Related  Entities
should no longer apply and that the Partnership  should be able to invest in any
aircraft  leasing  transactions  deemed  suitable  by the  General  Partner.  In
determining  whether an investment is suitable for the Partnership,  the General
Partner will  consider the  following  factors:  the expected cash flow from the
investment and whether  existing  Unitholders'  investment will be diluted;  the
existing  portfolio of the  Partnership  and the effect of the investment on the
diversification  of the Partnership's  assets;  the amount of funds available to
finance the  investment;  the ability of the  Partnership  to obtain  additional
funds through debt financing,  by issuing Units, or otherwise;  the cost of such
additional  funds and the time needed to obtain  such funds;  the amount of time
available  to remove  contingencies  prior to making the  investment;  projected
Federal income tax effect of the investment;  projected  residual value, if any;
any legal or regulatory  restrictions;  and other factors deemed relevant by the
General Partner.

         The General  Partner and its  affiliates  are not obligated to make any
investment  opportunity  available  to the  Partnership,  and if any of them are
presented with a potential investment opportunity, it may be made by any of them
without being offered to the  Partnership.  In addition,  in  determining  which
entity  should  invest  in a  particular  transaction,  it  may be  possible  to
structure the transaction in various ways to make the  acquisition  more or less
suitable for the Partnership or for the General Partner or its affiliates.

FEDERAL INCOME TAXATION

         The  Partnership is considered a publicly  traded  partnership  ("PTP")
under the Revenue Act of 1987 with a special tax status, whereby it has not been
subject to federal  income  taxation.  This special tax status was  scheduled to
expire at the beginning of 1998. However, during 1997 federal and California tax
laws were  amended to provide  that PTPs may elect to  continue  to be  publicly
traded and retain their Partnership tax status if they pay a federal tax of 3.5%
and a  California  state  tax of 1% on  their  respective  annual  gross  income
beginning  in January  1998.  The  Partnership  made an election to pay this tax
beginning in 1998.

                                       13

<PAGE>

EMPLOYEES

         The Partnership has no employees. See "DIRECTORS AND EXECUTIVE OFFICERS
OF THE REGISTRANT - General"  below.  Employees of the General  Partner  Provide
services on behalf of the Partnership.

ITEM 2.  PROPERTIES

         The Partnership does not own any real property, and shares office space
in the offices of BALCAP and its affiliates.

ITEM 3.  LEGAL PROCEEDINGS

         None.

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

         None.









                                       14

<PAGE>

                                     PART II
                                     -------


ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

UNITS OUTSTANDING

         The Units are  traded on the New York Stock  Exchange  under the symbol
FLY. As of February 23, 2000, there were 1,011 holders of record of Units.

MARKET PRICE

         The following  chart sets forth the high and low closing  prices on the
New York Stock  Exchange and the trading  volume for each of the quarters in the
years ended December 31, 1998 and 1999.

<TABLE>

                           Trading Volume
Quarter Ended              (in thousands)          Unit Prices (high-low)
-------------              --------------          ----------------------
<S>                        <C>                     <C>
March 31, 1998                  343                 $14 1/2   - $12 5/8
June 30, 1998                   303                 $14       - $12 1/2
September 30, 1998              302                 $13 7/16  - $12 1/2
December 31, 1998               281                 $13 3/8   - $12 3/8

March 31, 1999                  309                 $12 3/4   - $12 3/16
June 30, 1999                   293                 $12 3/8   - $10 13/16
September 30, 1999              250                 $12 5/16  - $11 1/2
December 31, 1999               246                 $11 14/16 - $10 15/16

</TABLE>

DISTRIBUTIONS TO UNITHOLDERS

         CASH DISTRIBUTIONS

         The Partnership makes quarterly cash distributions to Unitholders which
are  based  on  Cash  Available  from  Operations  (as  defined  in the  Limited
Partnership  Agreement) and are partially tax  sheltered.  Form time to time the
Partnership  also has made cash  distributions  from Cash Available from Sale or
Refinancing (as defined in the Limited  Partnership  Agreement.)  Information on
the tax  status of such  payments,  which is  necessary  in the  preparation  of
individual  tax  returns,  is prepared and mailed to  Unitholders  as quickly as
practical after the close of each year. The size of the Partnership's  portfolio
and future aircraft sales will affect distributions.

                                       15

<PAGE>

         Distributions declared during 1998 and 1999 were as follows:

<TABLE>

         Record Date                  Payment Date                Per Unit
         -----------                  ------------                --------
         <S>                          <C>                         <C>

         March 31, 1998               May 15, 1998                41 cents
         June 30, 1998                August 14, 1998             41 cents
         September 30, 1998           November 13, 1998           41 cents
         December 31, 1998            February 15, 1999           41 cents

         March 31, 1999               May 14, 1999                41 cents
         June 30, 1999                August 13, 1999             41 cents
         September 30, 1999           November 15, 1999           41 cents
         December 31, 1999            February 15, 2000           41 cents

</TABLE>

         CASH AVAILABLE FROM OPERATIONS

         The  Partnership  distributes  all Cash Available  from  Operations (as
defined in the Limited Partnership Agreement).  The Partnership is authorized to
make  distributions  from any source,  including  reserves and  borrowed  funds.
Distributions of Cash Available from Operations are allocated 99% to Unitholders
and 1% to the General  Partner.  The  Partnership  makes  distributions  of Cash
Available from Operations generally on the fifteenth day of each February,  May,
August and  November to  Unitholders  of record on the last  business day of the
calendar quarter preceding payment.

         CASH AVAILABLE FROM SALE OR REFINANCING

         The Partnership's  original intent was that Cash Available From Sale or
Refinancing (as defined in the Limited Partnership  Agreement) received prior to
January  1,  2005  would  be  retained  for use in the  Partnership's  business,
provided that if the General Partner did not believe that attractive  investment
opportunities  exist for the Partnership,  the Partnership could distribute Cash
Available from Sale or Refinancing.  Any Cash Available from Sale or Refinancing
received  after  January  1,  2005  was  not  to be  reinvested  but  was  to be
distributed.  However,  in 1997,  Unitholders  authorized the General Partner to
decide not to make new aircraft  investments,  to sell aircraft when  attractive
opportunities arise, to distribute the proceeds and to liquidate the Partnership
when all assets are sold. See  "BUSINESS--Principal  Investment Objectives." For
information  as to the sales giving rise to  distributions  from Cash  Available
from Sales or Refinancing, see "BUSINESS--Disposition of Aircraft."

                                       16

<PAGE>

         TAX ALLOCATIONS

         Allocations for tax purposes of income,  gain,  loss deduction,  credit
and tax preference are made on a monthly basis to Unitholders who owned Units on
the first day of each month.  Thus,  for example,  if an aircraft were sold at a
gain,  that gain would be allocated to Unitholders  who owned Units on the first
day of the month in which the sale  occurred.  If  proceeds  from this sale were
distributed  to  Unitholders,  such proceeds would be distributed to Unitholders
who owned  Units on the record  date for such  distribution,  which,  because of
notice  requirements,  likely would not occur in the same month as the sale.  In
addition,  a Unitholder who transfers his or her Units after the commencement of
a quarter  but prior to the record  date for that  quarter  will be  allocated a
share of tax  items  for the  first  two  months  of that  quarter  without  any
corresponding  distribution  of Cash Available from  Operations for, among other
things, payment of any resulting tax.









                                       17

<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

         The following  table sets forth selected  financial data and other data
concerning the Partnership for each of the last five years:

<TABLE>
<CAPTION>


                                                                   For years ended December 31,

     (In thousands except per-unit amounts)            1999       1998        1997         1996        1995
     ----------------------------------------------------------------------------------------------------------

     OPERATING RESULTS

<S>                                                    <C>        <C>          <C>         <C>         <C>
     Lease and other income                            $ 7,614    $ 8,400      $ 9,210     $10,747     $12,492

     Gain on disposition of aircraft                        --         --          393       2,501          21
                                                    -----------------------------------------------------------

     Total Revenues                                      7,614      8,400        9,603      13,248      12,513
                                                    -----------------------------------------------------------

     Interest Expense                                    1,270      1,704        2,028       1,830       2,366

     Depreciation expense                                   --         --          273       1,500       2,129

     Other expenses                                      1,088      1,123        1,820       1,266       1,196

     Tax on gross income                                   548        699            0           0           0
                                                    -----------------------------------------------------------
     Total Expenses                                      2,906      3,526        4,121       4,596       5,691
                                                    -----------------------------------------------------------
     Net income                                        $ 4,708    $ 4,874      $ 5,482     $ 8,652     $ 6,822
                                                    -----------------------------------------------------------

     Net income per unit(1)                              $1.01      $1.04        $1.17       $1.85       $1.46

     Cash distributions declared per unit(2)             $1.64      $1.64        $2.02       $3.28       $2.07

     FINANCIAL POSITION

     Total Assets                                      $67,787    $75,813      $82,859     $85,130    $103,021

     Long-term obligations                             $10,092    $14,505      $19,115     $14,071    $ 27,483

     Total partners' equity                            $55,347    $58,301      $61,089     $65,042    $ 71,712

     Limited Partners' equity per unit                 $ 11.85    $ 12.48      $ 13.08     $ 13.92    $  15.35

     (1) After allocation of the 1% General Partner's interest.

     (2) Includes special cash distributions of $.10 per unit in 1995, $1.43 per unit in 1996, of which $.63 was paid in
         January 1997,  and $.22 per unit in 1997.

</TABLE>

                                       18

<PAGE>


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

FORWARD-LOOKING STATEMENTS

         The  information set forth below and elsewhere in this Annual Report on
Form 10-K contains certain forward-looking statements, which reflect the current
view of the Partnership with respect to future events and financial performance.
The words "expect", "intend", "believe",  "anticipate",  "likely" and "will" and
similar  expressions  generally  identify  forward-looking   statements.   These
statements  are subject to certain  risks and  uncertainties,  which could cause
actual  results and events to differ  materially  from those  anticipated in the
forward-looking statements.

         Factors  that could cause the  Partnership's  actual  results to differ
from current  expectations  include,  among  others,  changes in the aircraft or
aircraft leasing market,  economic downturn in the airline industry,  default by
lessees under leases causing the Partnership to incur uncontemplated expenses or
not to receive rental income as and when expected, changes in interest rates and
legislative or regulatory changes that adversely affect the value of aircraft.

LIQUIDITY AND CAPITAL RESOURCES

         The  Partnership  presently has three  long-term  debt  facilities.  At
December 31, 1999,  the following  amounts were  outstanding:  $4.6 million on a
7.4%  non-recourse  note  collateralized  by one aircraft leased to FedEx;  $3.7
million on a 9.35% non-recourse note  collateralized by one aircraft on lease to
Trans World  Airlines;  and $1.8 million on a long-term  variable rate revolving
loan facility  guaranteed by the Partnership and  collateralized by two aircraft
on lease to US Airways.  At December 31, 1999 and 1998,  $10.1 million and $14.5
million,  respectively, was outstanding under the Partnership's loan facilities.
At December 31, 1999  approximately  $5.9 million  remained  available under the
revolving loan facility.

         Long-term  borrowings  at  December  31, 1999  represented  8.3% of the
original  cost of the aircraft  presently  owned by the  Partnership,  including
capital expenditures for upgrades. The terms of the Partnership Agreement permit
debt to be at a level not exceeding 50% of such cost.

         Total  scheduled  debt service  (principal  and  interest) on the fixed
loans in 2000 is $2.7 million, and the principal payment on the floating loan in
2000 is  projected to be $0.7 million (if no purchase or sale of aircraft or any
unforeseen  business events occur). Debt service will be paid primarily from the
rental payments received under aircraft leases.

         Net cash  provided by operating  activities  was $5.1 million for 1997,
$5.3  million  for 1998,  and $4.1  million  for 1999.  Aside from the cash flow
activity associated with taxes payable,  the net cash flow provided by operating
activities showed moderate  decreases over the three-year  period.  The decrease
was due to reduced rentals as a result of a smaller portfolio.

                                       19

<PAGE>

         Total  debt  service  on the fixed  loans as a  percentage  of net cash
provided by operating  activities  was 152%,  166%,  and 78% for 1997,  1998 and
1999, respectively.  However, cash flow from operating activities does not fully
reflect cash receipts from lease  payments.  When the excess of rental  receipts
above finance lease income is added to cash flow from operating activities,  the
ratios become 68%, 71%, and 26%, respectively.  The lower 1999 ratio as compared
with 1998 and 1997  reflects a greater  rate of debt  repayment,  while the cash
received  from  lease  rentals  remained  about  the same  for each  year of the
three-year  period.  The  higher  1998  ratio as  compared  with 1997  primarily
reflects the $2 million early  principal  pay-down of a fixed loan in 1998.  The
pay-down was mainly financed by the variable line of credit.

         Cash  distributions  paid by the Partnership  were $12.4 million ($2.65
per unit) in 1997,  $7.8  million  ($1.68  per unit) in 1998,  and $7.7  million
($1.64 per unit) in 1999.  Distributions  paid in 1997 included two special cash
distributions.  The first, was a distribution of 63 cents per unit made with the
proceeds received from the December 31, 1996 sale of the Partnership's  interest
in six 737-200  aircraft and the second was a distribution  of 22 cents per unit
made  with  the  proceeds  received  from the  September  29,  1997  sale of the
Partnership's   50%  interest  of  one  DC9-51.   There  were  no  special  cash
distributions paid in either 1998 or 1999.

         Partnership  net income was $5.5 million in 1997, $4.9 million in 1998,
and $4.7 million in 1999.  The decline in net income from 1997 to 1998 primarily
reflects the imposition of federal  taxation at the Partnership  level,  and the
decline  from  1998 to 1999 is due to a  smaller  asset  base.  Pursuant  to the
Limited Partnership  Agreement,  the Partnership  distributed all Cash Available
from Operations and also made special cash  distributions,  as described  above.
Since such distributions were in excess of earnings, Partnership equity declined
from $58.3  million at December 31, 1998 to $55.3  million at December 31, 1999,
and limited  partner  equity per unit  declined  from  $12.48 to $11.85.  From a
limited partner  perspective,  the portion of the  distribution in excess of net
income constitutes a return of capital.  Total cash distributions declared since
inception of the Partnership have exceeded total net income by $6.94 per unit.

RESULTS OF OPERATIONS

1997
----
         In 1997,  revenues were earned from seven  aircraft  subject to finance
leases (US Airways,  TWA, and Fedex). In 1997 revenues were also earned from one
aircraft  subject to an operating  lease (Sun Jet). Sun Jet filed for bankruptcy
in June 1997, and the 22-year old aircraft was sold in September 1997, at a gain
of $393,000.  As of December 31, 1997, the Partnership no longer owned interests
in any  aircraft  subject to  operating  leases.  At year-end  1997,  all of the
Partnership's  lessees were current under their lease agreements and none was in
bankruptcy.

1998 vs. 1997
-------------
         In 1998,  all  revenues  were earned from  aircraft  subject to finance
leases.  The revenue reduction in 1998 as compared with 1997 is primarily due to
the  scheduled  decline in finance lease income as the asset base  declined.  In
addition,  in  1997  the  Partnership  earned  revenue  from an  aircraft  on an
operating lease and from a gain on sale of such aircraft.  No such revenues were
earned in 1998. At year-end  1998,  all the  Partnership's  lessees were current
under their lease agreements and none was in bankruptcy.

                                       20

<PAGE>

1999 vs. 1998
-------------

         In 1999,  all  revenues  were earned from  aircraft  subject to finance
leases.  The revenue reduction in 1999 as compared with 1998 is primarily due to
the  scheduled  decline in finance  lease  income as the  balances  due from the
lessees declined.

         US Airways,  the Partnership's major lessee (72% of total 1999 year-end
assets)  reported  profits of $197 million on revenues of $8.6 billion for 1999,
compared with profits of $538 million on revenues of $8.7 billion for 1998.

         FedEx  (13% of total 1999  year-end  assets)  reported  profits of $631
million on revenues of $16.8  billion for 1999 (fiscal year ended May 31, 1999),
compared with profits of $503 million on revenues of $15.9 billion for 1998.

         TWA (15% of total  1999  year-end  assets)  reported a net loss of $353
million on revenues of $3.3 billion for 1999,  compared  with a net loss of $120
million on revenues of $3.3 billion for 1998.

         For information  regarding the percentage of total  Partnership  assets
and revenues  represented by aircraft owned and leased by the  Partnership,  see
"BUSINESS--Aircraft Portfolio."

         The  Partnership  believes  that its  revenues and income have not been
materially affected by inflation and changing prices because its principal items
of revenue  (rental  payments) and a majority of its expenses  (interest) are at
fixed long-term rates.

         Expenses  in 1999 were $2.9  million  or  $620,000  lower than the 1998
expenses of $3.5  million.  The decline in  expenses is  primarily  due to lower
interest expense in 1999 as a result of the Partnership's reduced debt balances.
Debt balances  declined from $14.5 million at December 31, 1998 to $10.1 million
at December 31, 1999.

YEAR 2000 ISSUE

         The year 2000 issue  results from older  computer  programs  using two,
rather than four digits to define a year,  thus the programs do not  recognize a
year that begins with "20" rather than the familiar "19." If not corrected, many
computer applications could fail or create erroneous results.

         Since the  Partnership's  operations  consist  primarily of  collecting
periodic lease  payments on a limited number of leases and making  periodic debt
payments and  distributions  to its partners,  the General Partner believes that
the  Partnership's  exposure to the Year 2000 problem is limited to the software
programs and services it obtains from suppliers and vendors.  The  Partnership's

                                       21

<PAGE>

leases  and loans are  supported  by  amortization  schedules  generated  at the
inception of these  transactions,  generally making the tracking of payments and
recording of income and interest  expense a manual process and thus  independent
of computer software.

         The Partnership relies on third parties ("external relationships") such
as banks,  financial  intermediaries,  and tax  services to  facilitate  certain
business  transactions.  The  Partnership  reviewed the impact of these external
relationships  on its  business  during  1999  and  concluded  that the two most
critical service  providers were: the provider of the tax service that generates
the K1 tax  statements to be used by our limited  partners to complete their tax
returns and the stock transfer agent that  facilitates the public trading of the
Partnership's  units. In 1999, the  Partnership  contacted both vendors and were
advised that their systems were Year 2000 compliant.

         The Partnership  believes that due to its minimal  reliance on computer
software to conduct its internal day to day  transactions  processing,  the Year
2000 ongoing costs are negligible.

         The  year  2000  compliance  of each of the  Partnership's  lessees  is
available  from reports  filed by the lessees with the  Securities  and Exchange
Commission.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

         The  Partnership's   assets  consist  of  aircraft  subject  to  leases
accounted for as financing leases,  and thus consist of a future stream of fixed
rental payments and a residual interest in the aircraft. See Note 2 to Financial
Statements  for  information  as to finance lease  receivables.  At December 31,
1999, the Partnership had long-term fixed-rate notes payable of $8,309,000 and a
revolving   variable  rate  loan  facility  with   $1,783,000   outstanding  and
approximately $5,937,000 of credit available. See Note 4 to Financial Statements
for  information  as to minimum future  principal  payments due and the interest
rates applicable to the notes and revolving  credit  facility.  Since the rental
payments under its leases are fixed,  but a portion of its liabilities are based
on a variable  interest rate, the assets and  liabilities of the Partnership are
not  perfectly  hedged  and the  Partnership  bears some risk of  interest  rate
fluctuations. Since a portion of its debt under the revolving credit facility is
for variable  working capital needs,  the General Partner believes that the risk
of interest fluctuations is appropriate under the circumstances.

                                       22

<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The financial statements and Notes to Financial Statements described in
Item 14(a) are set forth in Appendix A and are filed as part of this report.

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

         None.

                                    PART III
                                    --------


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

GENERAL

         The  Partnership  has no  directors or  executive  officers.  Under the
Limited Partnership Agreement,  the General Partner has full power and authority
in the  management  and control of the business of the  Partnership,  subject to
certain provisions requiring the consent of the Limited Partners.

DIRECTORS AND EXECUTIVE OFFICERS

         Set  forth  below  is  certain  information  about  the  directors  and
executive  officers of the  General  Partner as of February  28,  2000.  As used
below,  "BALCAP"  refers both to BALCAP and to BA Leasing & Capital prior to its
merger into BALCAP in September 1999.

<TABLE>

                                Position with                               Principal Occupation and
         Name                  General Partner       Age                   Employment for Last 5 Years
---------------------      ---------------------     ---    ------------------------------------------------------------------
<S>                        <C>                       <C>    <C>

David B. Gebler            Chairman of the           50     Mr.  Gebler is a Managing  Director  of Bank of America
                           Board, President,                National  Association  ("Bank  of America") and of BALCAP.
                           Chief Executive                  He  has  been  with  BALCAP since September 1996. From
                           Officer and a                    1993 to September 1996 he was Senior Vice President of the
                           Director                         Transportation  and Industrial Financing business unit of USL Capital.
                                                            Mr. Gebler has  been  President of the General Partner  since  1989
                                                            and a Director since 1990, and has been Chairman and CEO
                                                            since September 1996.   Mr. Gebler holds a bachelor
                                                            degree in mathematics from Clarkson University and graduate
                                                            degrees in  Engineering and Management from the University
                                                            of Michigan.


Richard V. Harris          Director                  51     Mr. Harris is Managing Director and Head of Global Leasing
                                                            of Bank of America, and Chairman and President of BALCAP.
                                                            He was elected President and CEO in 1982, adding the title
                                                            of Chairman in 1988.  He has been a Director of the General
                                                            Partner since October 1996.  Other assignments at Bank of America
                                                            have included responsibilities for Project Finance and Asset-Backed
                                                            Finance along with Leasing.  Prior to assuming his present
                                                            responsibilities, Mr. Harris held both transactional and marketing
                                                            management positions at BankAmerica Leasing.  Mr. Harris holds
                                                            a B.S.E.E. degree in Electrical Engineering from Brigham Young
                                                            University and a Master of Business Administration
                                                            degree also from BYU.

                                       23

<PAGE>


                            Position with                                Principal Occupation and
      Name                 General Partner           Age                Employment for Last 5 Years
-----------------          ---------------          -----   ------------------------------------------------------

William A. Hasler          Director                  58     Mr. Hasler has been the Co-Chief Executive Officer of
                                                            Aphton Corporation, a biopharmaceutical company, since
                                                            July 1998 and a Director of the General Partner since
                                                            1995.  From August 1991 to June 1998 he was the Dean of
                                                            the Haas School of Business at the University of California
                                                            at Berkeley. From 1984 to 1991, he was vice chairman and
                                                            director of KPMG Peat Marwick and was responsible for its
                                                            worldwide consulting business. He is a member of the board
                                                            of governors of The Pacific Stock Exchange and of the
                                                            board of directors of Selectron Corp., TCSI, Tenera,
                                                            Walker Interactive, and Aphton Corporation. He serves on
                                                            a presidential advisory board on critical technologies. He
                                                            is a graduate of Pomona College and earned his MBA
                                                            from Harvard.

Richard P. Powers          Director                  59     Mr. Powers has been Executive Vice President of Finance and
                                                            Administration of Eclipse Surgical Technologies, Inc., a medical
                                                            device company, since 1996 and a Director of the General Partner
                                                            since 1996.  From 1981 to 1994, he was with Syntex Corporation, a
                                                            pharmaceutical company, serving as Senior Vice President and Chief
                                                            Financial Officer of that company from 1986 to 1994. From 1994 to
                                                            1996 he served as consultant to various companies, including advising
                                                            and assisting in the sale of Syntex Corporation to Roche Corporation
                                                            in 1994.  Mr. Powers holds a Bachelor of Science degree in Accounting
                                                            from Canisius College and a Masters in Business Administration from
                                                            the University of Rochester.

K. Thomas Rose             Director                  54     Mr. Rose  has been Managing Director, Credit of BALCAP since 1992.
                                                            He has been a Director of the General Partner since October
                                                            1996.  Prior to his present responsibilities, Mr. Rose was with
                                                            Security Pacific Leasing Corporation as Executive Vice President -
                                                            Lease Services since 1973.  Mr.Rose holds a B.A. from California
                                                            State University, Fullerton and a Juris Doctorate degree from
                                                            Golden Gate University, School of Law.

Richard C. Walter          Chief Financial           54     Mr.   Walter  has  been  Senior  Vice   President   and Controller
                           Officer and a                    of  BALCAP  since  1992.  He  has  been  a director of the General
                           Director                         Partner  since  October  1996. Prior  to   assuming his present
                                                            responsibilities  at BALCAP,  Mr.  Walter was  with   Security
                                                            Pacific Leasing Corporation as Senior Vice President, Financial
                                                            Adminisrtration since 1973. He holds a Bachelor of Science degree
                                                            in Business Administration and Accounting from Montana State
                                                            University.

</TABLE>

                                       24

<PAGE>

ITEM 11. EXECUTIVE COMPENSATION

         The  Partnership  does not pay or  employ  directly  any  directors  or
officers.  Each of the  officers  of the  General  Partner is also an officer or
employee of BALCAP and is not separately  compensated by the General  Partner or
the Partnership for services on behalf of the  Partnership.  Thus, there were no
deliberations  of the  General  Partner's  Board of  Directors  with  respect to
compensation of any officer or employee.

         The  Partnership  reimburses  the  General  Partner  for  fees  paid to
Directors  of the General  Partner  who are not  otherwise  affiliated  with the
General Partner or its affiliates.  In 1999,  such  unaffiliated  directors were
paid an annual fee of $14,500 plus $500 for each meeting attended.

         The Partnership has not established any plans pursuant to which cash or
non-cash  compensation has been paid or distributed  during the last fiscal year
or is proposed to be paid or distributed in the future.  The Partnership has not
issued or established  any options or rights  relating to the acquisition of its
securities or any plans therefor.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

UNIT OWNERSHIP BY CERTAIN BENEFICIAL OWNERS

         As of  February  28,  2000,  the  following  persons  were known to the
Partnership  to  be  beneficial   owners  of  more  than  five  percent  of  the
Partnership's equity securities:

<TABLE>

                                 Name and Address                 Amount and Nature of
   Title of Class              Of Beneficial Owner                Beneficial Ownership          Percent of Class
   --------------              -------------------                --------------------          ----------------
<S>                    <C>                                        <C>                           <C>
  Depositary Units     United States Airlease Holding, Inc.            231,250(1)                      5%
                              555 California Street
                           San Francisco, CA 94104(2)

  Depositary Units                    BALCAP                           793,750(3)                    17.2%
                              555 California Street
                           San Francisco, CA  94104(2)

--------------------

(1)      United States Airlease Holding, Inc. ("Holding") reported that it had sole voting and dispositive power over these Units.

(2)      BALCAP owns all of the outstanding stock of Holding.  Therefore, BALCAP may be deemed  also to be the  indirect  beneficial
         owner of the Units owned by Holding. In addition, BALCAP owns all the outstanding stock of the General Partner. Therefore,
         BALCAP may be deemed to be the indirect beneficial owner of the General  Partner's 1% General Partner interest.

                                       25

<PAGE>

         BALCAP  is  a  wholly  owned   indirect   subsidiary   of   BankAmerica Corporation.  Therefore,  BankAmerica  Corporation
         and each BankAmerica Corporation subsidiary which is the direct or indirect parent of BALCAP is also indirectly the
         beneficial owner of all Units and of the General Partner's 1% General Partner interest owned or deemed owned by BALCAP.

(3)      BALCAP reported that it had sole voting and dispositive power over  these Units.

</TABLE>

UNIT OWNERSHIP BY MANAGEMENT

         Set forth below is information  regarding  interests in the Partnership
owned by each director of and all directors and executive officers,  as a group,
of the General Partner.  Unless otherwise noted, each person has sole voting and
investment power over all units owned.

<TABLE>

                                     Name of                      Amount and Nature of
   Title of Class                Beneficial Owner                 Beneficial Ownership          Percent of Class
   --------------                ----------------                 --------------------          ----------------
<S>                              <C>                              <C>

  Depositary Units               David B. Gebler                         700(1)                       (2)

  Depositary Units              William A. Hasler                         8,700                       (2)

                           All directors and executive                    9,400                       (2)
                               Officers as a group

--------------------

(1)      Includes 200 Units held by Mr. Gebler as custodian for a minor child as to which Mr. Gebler has shared voting and
         dispositive  power and as to which beneficial ownership is disclaimed.

(2)      Represents less than 1%.

</TABLE>

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         For a discussion of certain fees,  expenses and reimbursements  payable
and paid to the General Partner and its affiliates by the Partnership,  see Note
6 of Notes to  Financial  Statements.  From time to time,  the  Partnership  has
borrowed  funds  from  BALCAP or BA Leasing & Capital,  including  advances  for
expense  payments.  All such  borrowings  were  unsecured and bore interest at a
floating  rate not  exceeding the prime rate. At December 31, 1999 Airlease owed
BALCAP $129,439 for such borrowings.

         For a discussion of certain terms of the Limited Partnership  Agreement
regarding the Partnership's  participation in aircraft leasing  investments made
by USL Capital and its Related Entities, see "BUSINESS-Acquisition of Additional
Aircraft."  For a  discussion  of aircraft  formerly  held  jointly  between the
Partnership and USL Capital, see "BUSINESS- Participants in Leases."

                                       26

<PAGE>

                                     PART IV
                                     -------
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K

         (a)   The following financial statements of the Partnership are
               included in this report as Appendix A:
                                                                           Page
                                                                           ----

               Management's Responsibility for Financial Statements         A-1

               Independent Auditors' Report                         A-2 and A-3

               Financial Statements:

                    Statements of Income for the Years Ended
                    December 31, 1999, 1998 and 1997                        A-4

                    Balance Sheets, as of December 31, 1999 and
                    1998                                                   A-5

                    Statements of Cash Flows for the Years
                    Ended December 31, 1999, 1998 and 1997                 A-6

                    Statements of Changes in Partners' Equity
                    for the Years Ended December 31, 1999, 1998
                    and 1997                                               A-7

               Notes to Financial Statements                               A-7

               Financial  statement  schedules  other than those listed above
               are omitted  because the required  information  is included in
               the  financial  statements  or the notes thereto or because of
               the absence of conditions under which they are required.

         (b)   The  Partnership  did not file any  reports on Form 8-K during
               the last quarter of the fiscal year ended December 31, 1999.

                                       27

<PAGE>

         (c)   Exhibits required by Item 601 of Regulation S-K:

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

  3.1(1)      Amended and Restated  Agreement of Limited  Partnership of
              Partnership.

  3.2(1)      Form of Certificate for Limited Partnership Units of  Partnership.

  3.3(1)      Form of Depositary  Agreement among Partnership,  Chase-Mellon
              Shareholder Services (formerly Manufacturers Hanover Trust
              Company), the General Partner and Limited Partners and Assignees
              holding Depositary Receipts.

  3.4(1)      Form of Depositary Receipt for Units of Limited Partners' Interest
              in the  Partnership

  3.5(2)      Amendments  to Amended  and  Restated Partnership Agreement.

  4.1(1)      Form of Application for Transfer of Depositary  Unit.

  4.2(2)      Loan and Security  Agreement dated as of March 20, 1987 between
              Meridian  Trust  Company,  as Trustee, as Borrower and The World
              Wing Company Limited, as Lender.

  4.3(2)      8.75% Secured  Non-recourse  Note of Meridian  Trust Company dated
              March 31, 1987 in favor of The World Wing Company Limited.

  4.4(2)      Instructions  and  Consent  Agreement dated as of March 31, 1987
              between the Registrant and The Meridian Trust Company and the
              General Partner.

  10.1(1)     Trust Agreement, together with Trust Agreement Supplement No. 1-5,
              dated as of July 10, 1986, between the Registrant, Meridian Trust
              Company and the General Partner.

  10.3(1)     Lease Agreement, together with Lease Supplement Nos. 1-5, dated as
              of July 10, 1986, between Meridian Trust Company, not in its
              individual capacity but solely as Trustee, and Pacific Southwest
              Airlines.

--------------------

(1)      Incorporated by reference to the Partnership's Registration Statement
         on Form S-1 (File No. 33-7985), as amended.

(2)      Incorporated by reference to the Partnership's Annual Report on
         Form 10-K for the year ended December 31, 1995.

                                       28

<PAGE>

  10.44(3)    Aircraft Lease Agreement dated as of April 15, 1993 between Taurus
              Trust Company, Inc.(formerly Trust Company for USL, Inc.) as Owner
              Trustee, Lessor, and Federal Express Corporation, Lessee with
              respect to one (1) Boeing 727-2D4 Aircraft, U.S. Registration
              No. 362PA (manufacture serial no. 21850).

  10.49(4)    Assignment  and Assumption  Agreement  dated as of January
              31,  1997   between  USL  Capital   Corporation   and  the
              Registrant.

  10.50(4)    Lease, together with Lease Supplement No. 1, dated as of March 15,
              1984 between DC-9T-III, Inc., as Lessor, and Trans World Airlines,
              Inc., as Lessee, with respect to one (1) McDonnell Douglas DC-9-82
              Aircraft, as amended by Amendment Agreement dated as of December
              15, 1986.

  10.51(5)    Loan agreement secured by two aircraft leased to US Airways dated
              as of December 22, 1997, amended and restated as of December 15,
              1998, 6 between Meridian Trust Company, as Trustee, as Borrower
              and Credit Lyonnais/PK AIRFINANCE, as Lender.

  27          Financial Data Schedule

--------------------

(3)      Incorporated by reference to the Partnership's Annual Report on Form
         10-K for the year ended December 31, 1993.

(4)      Incorporated by reference to the Partnership's Annual Report on Form
         10-K for the year ended December 31, 1996.

(5)      Incorporated by reference to the Partnership's Annual Report on Form
         10-K for the year ended December 31, 1998.

                                       29

<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 on March 10, 2000.

                         AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP
                         (Registrant)

                         By:     Airlease Management Services, Inc.,
                                 General Partner

                         By: /s/ DAVID B. GEBLER
                             ---------------------------------------------------
                                 David B. Gebler
                                 Chairman, Chief Executive Officer and President











                                       30

<PAGE>

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 in
the capacities and on the dates indicated.

For Airlease Management
Services, Inc. ("AMSI"), General Partner
----------------------------------------



 /s/ DAVID B. GEBLER                                              March 10, 2000
----------------------------------------
     David B. Gebler
     Chairman, Chief Executive Officer, President
     and Director of AMSI


 /s/ RICHARD C. WALTER                                            March 10, 2000
----------------------------------------
     Richard C. Walter
     Chief Financial Officer and Director of AMSI
     (Principal Financial Officer and Accounting Officer)


 /s/ RICHARD V. HARRIS                                            March 10, 2000
----------------------------------------
     Richard V. Harris
     Director of AMSI


 /s/ K. THOMAS ROSE                                               March 10, 2000
----------------------------------------
     K. Thomas Rose
     Director of AMSI



The  foregoing  constitute a majority of the members of the Board of  Directors
of Airlease  Management  Services,  Inc.  (the General Partner).

                                       31

<PAGE>

MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS

Airlease  Management  Services,  Inc.  ("AMSI"),  the  General  Partner  of  the
Partnership is responsible  for the preparation of the  Partnership's  financial
statements  and  the  other   financial   information   in  this  report.   This
responsibility  includes  maintaining  the  integrity  and  objectivity  of  the
financial records and the presentation of the Partnership's financial statements
in accordance with generally accepted accounting principles.

The General Partner maintains an internal control structure designed to provide,
among other things,  reasonable  assurance that Partnership  records include the
transactions  of  its  operations  in  all  material  respects  and  to  provide
protection  against  significant  misuse  or loss  of  Partnership  assets.  The
internal  control  structure is supported by careful  selection  and training of
financial  management  personnel,  by written  procedures  that  communicate the
details of the control structure to the Partnership's  activities,  and by staff
of operating control  specialists of Banc of America Leasing and Capital,  LLC.,
which owns 100% of the stock of AMSI,  who conduct  reviews of  adherence to the
Partnership's procedures and policies.

The  Partnership's  financial  statements  have  been  audited  by Ernst & Young
L.L.P.,  independent auditors for the year ended December 31, 1999 and 1998, and
by Coopers & Lybrand L.L.P.,  independent  auditors for the years ended December
31, 1997.  Their audits were  conducted in accordance  with  generally  accepted
auditing  standards  which  included  consideration  of  the  General  Partner's
internal control  structure.  The Independent  Auditor's Reports appears on page
A-2 and A-3.

The  board of  directors  of the  General  Partner,  acting  through  its  Audit
Committee  composed  solely of  directors  who are not  employees of the General
Partner, is responsible for overseeing the General Partner's  fulfillment of its
responsibilities  in the preparation of the Partnership's  financial  statements
and the financial control of its operations.  The independent auditors have full
and free access to the Audit  Committee  and meet with it to discuss their audit
work, the Partnership's internal controls, and financial reporting matters.

 /s/ DAVID B. GEBLER
-----------------------------------------------
     David B. Gebler
     Chairman, Chief Executive Officer and President
     Airlease Management Services, Inc.


 /s/ RICHARD C. WALTER
-----------------------------------------------
     Richard C. Walter
     Chief Financial Officer
     Airlease Management Services, Inc.


                                      A-1

<PAGE>

REPORT OF INDEPENDENT AUDITORS

To the Partners of Airlease Ltd.,
A California Limited Partnership:

We have audited the accompanying  balance sheets of Airlease Ltd. as of December
31,  1999  and  1998  and  the  related   statements   of  income,   changes  in
Partners'equity,  and cash flows for each of the two years in the  period  ended
December 31, 1999.  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 audit.  The financial  statements of Airlease
Ltd. for the years ended December 31, 1997, were audited by other auditors whose
report  dated  January  21,  1998,  expressed  an  unqualified  opinion on those
statements.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable  assurance about whether the financial  statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting  the amounts and  disclosures in the financial  statements.  An audit
also includes assessing the accounting principles used and significant estimates
made by  management,  as well as  evaluating  the  overall  financial  statement
presentation.  We believe  that our audits  provide a  reasonable  basis for our
opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the financial position of Airlease Ltd. at December 31,
1999 and 1998,  and the results of its operations and its cash flows for each of
the  two  years  in the  period  ended  December  31,  1999 in  conformity  with
accounting principles generally accepted in the United States.


/s/ ERNST & YOUNG L.L.P.
------------------------
    Ernst & Young L.L.P.
    San Francisco, California
    January 31, 2000

                                      A-2

<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Partners of Airlease Ltd.,
A California Limited Partnership:

We have audited the financial  statements of Airlease Ltd., a California Limited
Partnership  listed  in Part IV 14(A)  of this  form  10-K  for the  year  ended
December 31, 1997.  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 audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards  require that we plan and perform the audit to obtain reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the results of the partnership's  operations and its cash
flows for the year  ended  December  31,  1997,  in  conformity  with  generally
accepted accounting principles.


/s/ COOPERS AND LYBRAND L.L.P.
------------------------------
    Coopers & Lybrand L.L.P.
    San Francisco, California
    January 21, 1998

                                      A-3

<PAGE>

<TABLE>
<CAPTION>

                 Airlease Ltd., A California Limited Partnership

                              STATEMENTS OF INCOME

                                                      For the years ended
                                                         December 31,
(In thousands except per-unit amount)         1999           1998           1997
--------------------------------------------------------------------------------
<S>                                        <C>            <C>            <C>
REVENUES

Finance lease income                       $ 7,614        $ 8,400        $ 9,028
Operating lease rentals                          0              0            170
Gain on sale of equipment                        0              0            393
Other income                                     0              0             12
                                           -------------------------------------
Total revenues                               7,614          8,400          9,603
                                           -------------------------------------

EXPENSES

Interest                                     1,270          1,704          2,028
Depreciation - operating leases                  0              0            273
Provision for doubtful accounts                  0              0            228
Management fee - general partner               629            651            679
Investor reporting                             339            298            771
General and administrative                     120            174            142
Tax on gross income                            548            699              0
                                           -------------------------------------
Total expenses                               2,906          3,526          4,121
                                           -------------------------------------
NET INCOME                                 $ 4,708        $ 4,874        $ 5,482
                                           -------------------------------------

NET INCOME ALLOCATED TO:

GENERAL PARTNER                            $    47        $    49        $    55
                                           -------------------------------------
Limited partners                             4,661          4,825          5,427
                                           -------------------------------------
NET INCOME PER LIMITED PARTNERSHIP
UNIT                                       $  1.01        $  1.04        $  1.17
                                           -------------------------------------

See notes to financial statements

</TABLE>

                                      A-4

<PAGE>

<TABLE>
<CAPTION>

                 AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP

                                 BALANCE SHEETS

                                                             As of December 31,
(In thousands except unit data)                              1999           1998
--------------------------------------------------------------------------------
<S>                                                       <C>            <C>
ASSETS

Cash                                                      $     2        $     9
Finance leases - net                                       67,509         75,443
Prepaid expenses and other assets                             276            361
                                                          ----------------------
Total assets                                              $67,787        $75,813
                                                          ======================

LIABILITIES AND PARTNERS' EQUITY

LIABILITIES:

Distribution payable to partners                          $ 1,915        $ 1,915
Accounts payable and accrued liabilities                      429            393
Taxes payable                                                   4            699
Long-term notes payable                                    10,092         14,505
                                                          ----------------------
Total liabilities                                          12,440         17,512
                                                          ======================

COMMITMENTS AND CONTINGENCIES

PARTNERS' EQUITY:

Limited partners (4,625,000 units outstanding)             54,794         57,718
General partner                                               553            583
                                                           ---------------------
Total partners' equity                                     55,347         58,301
                                                           ---------------------

TOTAL LIABILITIES AND PARTNERS' EQUITY                    $67,787        $75,813
                                                          ----------------------

See notes to financial statements

</TABLE>

                                      A-5

<PAGE>

<TABLE>
<CAPTION>

                 AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP

                            STATEMENTS OF CASH FLOWS

                                                                                  For the years ended December 31,
(In thousands)                                                               1999               1998               1997
------------------------------------------------------------------------------------------------------------------------
<S>                                                                      <C>                <C>                <C>

CASH FLOWS FROM OPERATING ACTIVITIES
Net income                                                               $  4,708           $  4,874           $  5,482
Adjustments to reconcile net income to net cash
    provided by operating activities:
    Depreciation                                                                0                  0                273
    Provision for doubtful account                                              0                  0                228
    Gain on sale of equipment                                                   0                  0               (393)
    Changes in assets and liabilities:
    Decrease in accounts payable and accrued liabilities                       36               (160)              (390)
    Decrease/(increase) in prepaid expenses and other assets                   85                (93)               (99)
    Increase/(decrease) in taxes payable                                     (695)               699                  0
                                                                         --------           --------           --------
Net cash provided by operating activities                                   4,134              5,320              5,101
                                                                         --------           --------           --------

CASH FLOWS FROM INVESTING ACTIVITIES

Aircraft equipment purchase                                                     0                  0             (5,753)
Proceeds from sale of equipment                                                 0                  0              1,182
Increase/(decrease) in notes receivable                                         0                  0                  8
Rental receipts in excess of earned finance lease income                    7,934              7,147              6,219
                                                                         --------           --------           --------
Net cash provided by investing activities                                   7,934              7,147              1,656
                                                                         --------           --------           --------


CASH FLOWS FROM FINANCING ACTIVITIES
Revolving credit borrowing (repayment)-net                                 (2,474)             2,509              1,748
Repayment of long-term notes payable                                       (1,939)            (7,119)            (5,704)
Proceeds from issuance of long-term notes payable                               0                  0              9,000
Distributions paid to partners                                             (7,662)            (7,849)           (12,379)
                                                                         --------           --------           --------

Net cash used by financing activities                                     (12,075)           (12,459)            (7,335)
                                                                         --------           --------           --------



Increase/(decrease) in cash                                                   (7)                  8              (579)
Cash at beginning of year                                                      9                   1               580
                                                                         --------           --------           --------

Cash at end of year                                                      $     2             $     9          $      1
                                                                         --------           --------           --------
Additional information:
     Cash paid for interest                                              $ 1,187             $ 1,775          $  1,861
                                                                         --------           --------           --------

NON CASH INVESTING ACTIVITY

During 1997,  unpaid  accrued  costs were reduced by $28,000 and included in the gain on sale of aircraft.

See notes to financial statements

</TABLE>

                                      A-6

<PAGE>

<TABLE>
<CAPTION>

                 AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP

                    STATEMENTS OF CHANGES IN PARTNERS' EQUITY

                                                           For the Years Ended
                                                    December 31, 1999, 1998, and 1997
                                                   -----------------------------------
                                                   General       Limited
(In thousands except per-unit amounts)             Partner      Partners         Total
--------------------------------------------------------------------------------------
<S>                                                <C>          <C>            <C>

Balance, December 31, 1996                           $651        $64,391       $65,042
Net Income - 1997                                      55          5,427         5,482
Distributions to partners declared
     ($2.02 per limited partnership unit)             (95)        (9,340)       (9,435)
--------------------------------------------------------------------------------------
Balance, December 31, 1997                            611         60,478        61,089
Net Income - 1998                                      49          4,825         4,874
Distributions to partners declared
     ($1.64 per limited partnership unit)             (77)        (7,585)       (7,662)
--------------------------------------------------------------------------------------
Balance, December 31, 1998                            583         57,718        58,301
Net Income - 1999                                      47          4,661         4,708
Distributions to partners declared
     ($1.64 per limited partnership unit)             (77)        (7,585)       (7,662)
--------------------------------------------------------------------------------------
Balance, December 31, 1999                           $553        $54,794       $55,347
======================================================================================

See notes to financial statements

</TABLE>

                          NOTES TO FINANCIAL STATEMENTS

1.  ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION - Airlease
Ltd.,  A  California  Limited  Partnership  (the  "partnership")  engages in the
business of acquiring, either directly or through joint ventures, commercial jet
aircraft,  spare or separate engines and related rotable parts  ("aircraft") and
leasing such aircraft to domestic and foreign airlines and freight carriers. The
general partner is Airlease Management Services, Inc., a wholly owned subsidiary
of Banc of America  Leasing  and  Capital  LLC.  ("BALCAP").  BALCAP  also holds
793,750  limited  partnership  units and United States  Airlease  Holding,  Inc.
("Holding"),  a  wholly  owned  subsidiary  of  BALCAP,  holds  231,250  limited
partnership units. An additional 3,600,000 units are publicly held.

BASIS OF PRESENTATION - 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 date of
the  financial  statements  and the  reported  amounts of revenues  and expenses
during the reporting period. Actual results could differ from those estimates.

                                      A-7

<PAGE>

FINANCE LEASES  -  Lease  agreements,  under  which  the  partnership  recovers
substantially  all its investment  from the minimum lease payments are accounted
for as finance leases. At lease commencement,  the partnership records the lease
receivable,  estimated residual value of the leased aircraft, and unearned lease
income.  The  original  unearned  income  is  equal to the  receivable  plus the
residual value less the cost of the aircraft (including the acquisition fee paid
to an  affiliate  of the general  partner).  The  remaining  unearned  income is
recognized  as revenue over the lease term so as to  approximate a level rate of
return on the investment.

OPERATING LEASES - Leases that do not meet the criteria for finance  leases are
accounted for as operating  leases.  The  partnership's  undivided  interests in
aircraft  subject to  operating  leases  are  recorded  at cost  which  includes
acquisition  fees paid to an  affiliate  of the general  partner.  Aircraft  are
depreciated  over the related  lease  terms,  generally  five to nine years on a
straight-line  basis to an estimated  residual value, or over their useful lives
for aircraft  held for lease or sale, on a  straight-line  basis to an estimated
salvage value.

DERIVATIVES - The partnership accounts for derivative  financial  instruments on
an accrual  basis when the cash flows  generated  from the  hedging  instruments
fulfill  the  objectives  of  the  hedge  strategy  and  when  there  is a  high
correlation  between the  derivative  and the hedged asset or  liability.  Under
accrual accounting  interest  differentials paid or received under interest rate
swap  agreements  are  recognized as an adjustment to interest  expense over the
life of the  agreements.  Termination  gains or losses of such  derivatives  are
amortized to interest expense over the remaining life of the hedged transaction.

When a derivative no longer fulfills the high correlation objective, it is
accounted for on a  mark-to-market  basis and termination of such derivatives is
recognized  immediately in the Statement of Income as a component of interest
expense.

NET INCOME PER LIMITED PARTNERSHIP UNIT is computed by dividing the net income
allocated to the Limited  Partners by the  weighted  average  units  outstanding
(4,625,000).

2.  FINANCE LEASES

As of December 31, 1999,  the  partnership  owns seven  aircraft,  which are all
leased under finance leases. Five of the aircraft are leased to US Airways, Inc.
In 1998, at the end of the initial 12-year term, US Airways,  Inc. exercised its
option to renew the lease for an additional  three years,  which renewal  period
was  included in the  original  lease term for  accounting  under the  generally
accepted accounting principals. In 1999, 1998, and 1997, leases with US Airways,
Inc.  resulted  in  finance  lease  revenues  of  $5,873,000,   $6,498,000,  and
$7,058,000, respectively.

The sixth aircraft,  wholly owned by the partnership since January 31, 1997 when
it purchased USL  Capital's  50% interest in this aircraft for $5.7 million,  is
leased to Trans World  Airlines (TWA) under a finance lease expiring in 2002. In
1999,  1998,  and 1997 this lease with TWA,  resulted in finance lease income of
$1,310,000, $1,432,000, and $1,463,000, respectively.

The seventh  aircraft is leased to Federal Express  Corporation  (FedEx) under a
13-year finance lease which expires in 2006. In 1999,  1998, and 1997 this lease
with FedEx resulted in finance lease income of $431,000, $470,000, and $507,000,
respectively.

The finance  leases at December 31, 1999 and 1998, are summarized as follows (in
thousands):

                                      A-8

<PAGE>

<TABLE>

                                                    1999               1998
                                                 ---------          ---------
<S>                                              <C>                <C>

Receivable in installments                       $ 34,633           $ 50,180
Residual valuation                                 45,500             45,500
Unearned lease income                             (12,624)           (20,237)
                                                  --------           --------
NET INVESTMENT                                     $67,509            $75,443
                                                   =======            =======
</TABLE>

Residual valuation, which is reviewed annually,  represents the estimated amount
to be received from the  disposition  of aircraft  after lease  termination.  If
necessary,  residual adjustments are made which result in an immediate charge to
earnings and/or a reduction in earnings over the remaining term of the lease.

Finance  lease  receivables  at  December  31, 1999 are due in  installments  of
$15,748,000  in 2000,  $12,589,000  in 2001,  $1,710,000 in 2002,  $1,310,000 in
2003, and $3,276,000 thereafter.

3.  OPERATING LEASES

At December 31, 1999,  the  partnership  did not own any aircraft  subject to an
operating  lease.  The last aircraft that was subject to an operating  lease was
sold in September 1997.

4.  LONG-TERM NOTES PAYABLE

As of December 31, 1999 and 1998 long-term notes payable included the following:

               A 7.4% non-recourse loan facility  collateralized by the aircraft
               leased to FedEx,  due in  semi-annual  installments  of  $451,000
               through April 2006. At December 31, 1999 and 1998, $4,569,000 and
               $5,098,000, were outstanding, respectively.

               A 9.35% non-recourse loan facility collateralized by the aircraft
               leased to TWA, due in monthly  installments  of $150,000  through
               March  2002.  At  December  31,  1999 and  1998,  $3,740,000  and
               $5,150,000,  were  outstanding,  respectively.  During 1998,  the
               partnership renegotiated the terms of the 9.35% loan facility. As
               part of the  re-negotiation,  the  partnership was able to prepay
               $2.0 million in principal  and reduce the interest  rate 50 basis
               points from 9.85% to 9.35%.

               A $7.5 million  three-year  revolving  loan facility  obtained in
               February 1998. The facility was initially  collateralized  by one
               aircraft  on lease to US Airways,  Inc.,  was  guaranteed  by the
               partnership,  and bore an interest rate of three-month Libor plus
               225 basis  points.  In  December  1998,  this loan  facility  was
               expanded  by $5.0  million  and the  variable  interest  rate was
               lowered to 212.50  basis points over the  three-month  Libor when
               another  aircraft  leased to US Airways  was added as  additional
               collateral.  At December 31, 1999  $1,783,000 was outstanding and
               approximately  $5,937,000 was available  under this facility.  At
               December 31, 1998, $4,257,000 was outstanding.

                                      A-9

<PAGE>

Based upon  amounts  outstanding  at  December  31,  1999,  the  minimum  future
principal payments on all outstanding fixed-rate long-term notes payable are due
as follows (in thousands):

<TABLE>

             <S>                                      <C>

             2000                                     $2,214
             2001                                      2,287
             2002                                      1,078
             2003                                        710
             Thereafter                                2,020
                                                     -------
             Total Fixed Term Debt                     8,309

             Revolving Line of Credit
               Outstanding at 12/31/99                 1,783
                                                    --------
             TOTAL LONG TERM DEBT                    $10,092
                                                    ========

</TABLE>

5.  FAIR VALUE OF FINANCIAL INSTRUMENTS

The  following  table  presents   carrying   amounts  and  fair  values  of  the
partnership's  financial  instruments  at December  31, 1999 and 1998.  The fair
value of a financial instrument is defined as the amount at which the instrument
could be exchanged in a current transaction between willing parties,  other than
in a forced or liquidation sale.

<TABLE>

                                  1999              1999             1998              1998
(In thousands)              Carrying Amount      Fair Value     Carrying Amount     Fair Value
                            ---------------      ----------     ---------------     ----------
<S>                         <C>                  <C>            <C>                 <C>

Long-term notes payable
       (Note 4)                  $10,092           $9,956           $14,505          $14,523

</TABLE>

The carrying  amounts  presented in the table are included in the balance  sheet
under the indicated captions.

The  following  notes  summarize  the  major  methods  and  assumptions  used in
estimating the fair values of financial instruments:

Long-term debt is estimated by  discounting  the future cash flows using rates
that are assumed  would be charged to the  partnership  for debt with  similar
terms and remaining maturities.

6.  TRANSACTIONS WITH THE GENERAL PARTNER AND AFFILIATES

In accordance with the Agreement of Limited Partnership, the general partner and
its affiliates  receive expense  reimbursement,  fees and other compensation for
services provided to the partnership.

                                      A-10

<PAGE>

Amounts  earned by the  general  partner  and  affiliates  for the  years  ended
December 31, 1999, 1998, and 1997, were as follows (in thousands):

<TABLE>

                                        1999               1998             1997
                                        ----               ----             ----
<S>                                     <C>                <C>              <C>

Management fees                         $577               $599             $620
Disposition and remarketing fees          52                 52              123
Acquisition fees                           0                  0               85
Reimbursement of other costs              79                 79               79
Reimbursement of interest costs            7                  7                5
                                        ----               ----             ----
TOTAL                                   $715               $737             $912
                                        ====               ====             ====

</TABLE>

The general partner was allocated its 1% share of the partnership net income and
cash distributions.  Holding and BALCAP, each a limited partner and an affiliate
of the  general  partner,  were also  allocated  their  share of income and cash
distributions.

7.  FEDERAL INCOME TAX STATUS

The  Partnership is considered a publicly traded  partnership  ("PTP") under the
Revenue Act of 1987.  Under that Act, the partnership was not subject to federal
income tax as a partnership  until 1998.  Effective  January 1, 1998, PTP's were
required to choose to retain PTP status and be subjected  to federal  income tax
as a corporation or to delist their units thereby  removing  themselves from the
scope of the PTP rules. Faced with these alternatives, the Partnership initially
recommended that its units be delisted.

In  August  1997,  federal  tax  laws  were  amended  to  provide  PTP's a third
alternative.  Under  these  amended  laws,  PTP's are  allowed to continue to be
publicly  traded during 1998 and subsequent  years without  becoming  subject to
corporate income tax if they elect to pay a 3.5% federal tax on gross income.

The board of  directors  of the General  Partner  unanimously  concluded,  after
authorization  from the  unitholders and  consideration  of a number of factors,
including the 1997 tax law changes and the benefits of liquidity, that is was in
the best interests of the  unitholders  for the  partnership to remain  publicly
traded at that  time.  Accordingly,  in  January  1998 the  partnership  made an
election to pay the annual gross income tax at the partnership level.

8.  RECONCILIATION TO INCOME TAX METHOD OF ACCOUNTING (ANAUDITED)

The aircraft on lease to US Airways, Inc. were purchased subject to a tax
benefit transfer lease ("TBT") which provided for the transfer of Federal income
tax ownership of these aircraft to a tax lessor until 1991. The transfer was
accomplished by the sale, for tax purposes only, of the aircraft to the tax
lessor for cash and a note and a leaseback of the aircraft for rental  payments
which equalled the payments on the note.  The rental  payments  resulted in tax
deductions and the interest was included in taxable income. In 1991, the TBT
lease agreement  terminated and the tax attributes transferred under the TBT
lease reverted to the partnership.

                                      A-11

<PAGE>

The difference between the method of accounting for income tax reporting and the
method  of  accounting  used in the  accompanying  financial  statements  are as
follows (in thousands except per unit amounts):

<TABLE>

                                                                         1999              1998              1997
                                                                         ----              ----              ----
<S>                                                                  <C>               <C>               <C>

Net income per financial statements:                                 $  4,708          $  4,874          $  5,482
Increases (decreases) resulting from:

   3.5% Gross Income Tax - non deductible                                 544               544                 0
   Gain on sale of equipment                                                0                 0               482
   Lease rents earned less finance lease income                         7,934             7,147             6,520
Depreciation and amortization                                          (2,605)           (6,071)           (5,557)
                                                                      --------         ---------         ---------
Income per income tax method                                           10,581             6,494             6,927
Allocable to general partner                                             (106)              (65)              (69)
                                                                      --------         ---------         ---------
TAXABLE INCOME ALLOCABLE TO LIMITED PARTNERS                         $ 10,475          $  6,429          $  6,858

Taxable income (loss) per limited partnership unit after
giving effect to taxable income allocable to general partner
(amount based on a unit owned from October 10, 1986)                 $   2.26          $   1.39          $   1.48

Partner's equity per financial statements                            $ 55,347          $ 58,301          $ 61,089
Cumulative increases (decreases) resulting from:

   Gain on sale of equipment                                                0                 0               482
   Lease rents less earned finance lease income                        55,401            47,467            40,420
   Deferred underwriting discounts and commissions
   and organization costs                                               5,361             5,361             5,351

Accumulated depreciation and amortization                             (64,285)          (61,681)          (56,779)
TBT interest income less TBT rental expense                           (54,030)          (54,030)          (54,030)
                                                                     ---------         ---------         ---------
PARTNERS' EQUITY PER INCOME TAX METHOD                               $( 2,206)         $( 4,580)         $( 3,467)

</TABLE>

9.  SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

The following is a summary of the quarterly  results of operations for the years
ended December 31, 1999 and 1998 (in thousands, except per unit amounts):

<TABLE>

1999                                                 March 31                June 30              Sept. 30                  Dec. 31
----                                                 --------                -------              --------                  -------
<S>                                                  <C>                     <C>                  <C>                       <C>
Total Revenues                                         $1,982                 $1,928                $1,879                   $1,825
Net Income                                             $1,192                 $1,157                $1,132                   $1,227
Net Income Per Limited Partnership Unit                 $0.26                  $0.25                 $0.24                    $0.26
Unit
  Unit Trading Data:
  Unit Prices (high-low) on NYSE           $12 3/4 - $12 3/16    $12 3/8 - $10 13/16    $12 5/16 - $11 1/2    $11 14/16 - $10 15/16
  Unit Trading Volumes on NYSE                            309                    293                   250                      246

</TABLE>

                                      A-12

<PAGE>

<TABLE>

1998                                                 March 31                June 30              Sept. 30                  Dec. 31
----                                                 --------                -------              --------                  -------
<S>                                                  <C>                     <C>                  <C>                       <C>
Total Revenues                                         $2,170                 $2,122                $2,079                   $2,029
Net Income                                             $1,296                 $1,190                $1,205                   $1,183
Net Income Per Limited Partnership Unit                 $0.28                  $0.25                 $0.26                    $0.25
Unit
  Unit Trading Data:
  Unit Prices (high-low) on NYSE            $14 1/2 - $12 5/8          $14 - $12 1/2    $13 7/16 - $12 1/2        $13 3/8 - $12 3/8
  Unit Trading Volumes on NYSE                            343                    303                   302                      281

</TABLE>









                                      A-13

<PAGE>

                                INDEX TO EXHIBITS

    Exhibit No.       Description

                 27.  Financial Data Schedule.









                                      A-14