FORM 10-K

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended                                 Commission File Number
December 31, 1996                                                        0-17785

                          AIRCRAFT INCOME PARTNERS L.P.
             (Exact name of Registrant as specified in its charter)

           Delaware                                      13-3430508
(State or other jurisdiction of                         (IRS Employer
incorporation or organization)                      Identification Number)

411 West Putnam Avenue, Greenwich, CT                        06830
(Address of principal executive offices)                  (Zip Code)

Registrant's telephone number, including area code:     (203) 862-7000
                                                        ---------------

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

                                      NONE

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

                      UNITS OF LIMITED PARTNERSHIP INTEREST 

Indicate by check mark whether  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 and (2) has been subject to such filing requirements for
the past 90 days.

                                   Yes [ X ]  No [  ]

There is no  public  market  for the  Limited  Partnership  Units.  Accordingly,
information  with respect to the aggregate  market value of Limited  Partnership
Units held by non-affiliates of Registrant has not been supplied.

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. [ X ]

                       Documents incorporated by reference 

                                                  Location in Form 10-K in which
Document                                          Document is Incorporated
--------                                          ------------------------

Registrant's Prospectus, dated                   Parts I, II and III
February 29, 1988, as supplemented
by Supplements dated May 20, 1988,               Exhibit Index: page IV-1
August 16, 1988, November 4, 1988, 
January 6, 1989 and February 28, 1989.
<PAGE>
PART I


Item 1.           Business

General

Registrant  was organized as a Delaware  limited  partnership on October 8, 1987
with Integrated Aircraft Fund Management Corp. (the "General  Partner"),  as its
general partner.

Through  November 2, 1994, the General Partner was a wholly-owned  subsidiary of
Integrated Resources,  Inc. ("Integrated").  On November 3, 1994, as a result of
the consummation of the reorganization plan relating to Integrated's bankruptcy,
indirect  ownership of the General Partner was  transferred to Presidio  Capital
Corp.  ("Presidio").  Presidio is managed by Presidio  Management  Company,  LLC
("Presidio  Management"),  a  company  controlled  by a  director  of  Presidio.
Presidio is also party to an  administrative  services  agreement  with  Wexford
Management  LLC  ("Wexford")  pursuant to which Wexford is  responsible  for the
day-to-day  management  of Presidio and,  among other  things,  has authority to
designate directors of the General Partner.

Registrant  is  engaged in the  business  of  acquiring  and  leasing  aircraft.
Commencing on February 29, 1988, Registrant offered a maximum of 500,000 limited
partnership units (the "Units") at an offering price of $500 per Unit. The Units
were registered under the Securities Act of 1933 (Registration No. 33-18891) and
sold  pursuant to a prospectus,  dated  February 29, 1988,  as  supplemented  by
supplements  dated May 20, 1988, August 16, 1988,  November 4, 1988,  January 6,
1989 and February 28, 1989 (the  "Prospectus").  The Prospectus is  incorporated
herein by reference (see Exhibit 28).  Registrant  terminated the offering as of
May 1, 1989, at which time it had accepted  subscriptions for a total of 385,800
Units, aggregating $192,900,000.  Registrant completed the investment of the net
proceeds of the offering on May 31, 1989.

The aircraft owned by Registrant,  consisting of used commercial jet aircraft as
well as related  engines and other  aircraft  parts,  were  initially  leased to
various  lessees for terms  ranging from 17 to 88 months.  Through  December 31,
1996,  Registrant had acquired interests in 18 aircraft  (including an undivided
47.92231%  joint venture  interest in one  aircraft) at a cost of  approximately
$169,748,000  (inclusive of associated  acquisition fees).  Through December 31,
1996,  Registrant had sold or disposed of six aircraft with an original purchase
price  aggregating  $42,070,000  (See  below;  Item  2,  "Properties";  Item  7,
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations";  and Item 8, "Financial  Statements and  Supplementary  Data" for a
more detailed description of the acquisition and disposition of such aircraft.)

Of the 18 aircraft  originally  purchased by  Registrant,  at December 31, 1996,
Registrant  had an interest in 12 of the  aircraft  (inclusive  of an  undivided
47.92231%  joint  venture  interest  in one  aircraft)  which  had an  aggregate
original cost  (inclusive of capitalized  major additions and  improvements)  of
approximately $127,678,000 (net carrying value of approximately $27,529,000). In
1997,  excluding rents from future renewals,  Registrant  anticipates  receiving
rentals of  approximately  $7,732,000  on  non-cancelable  leases  (inclusive of
amounts which may be set-off by lessees  against basic rent  obligations  (i.e.,
rent credits) as  reimbursement  for, in general,  modifications to the aircraft
which are the  obligation of Registrant as provided in the  applicable  leases).
After deducting  operating  expenses,  the foregoing  aggregate  rentals are not
sufficient to maintain previous distribution levels.
<PAGE>
11 of Registrant's remaining Aircraft are currently on lease. One Boeing 737-200
Advanced aircraft previously leased to Aloha Airlines Inc.  ("Aloha"),  came off
lease on October 15, 1996, and is currently being actively remarketed. Of the 11
leased  aircraft,  6 aircraft which generate  aggregate gross rental revenues of
approximately  $4,399,000 per year, are scheduled to come off-lease during 1997.
Registrant's other remaining aircraft are leased pursuant to leases which expire
in 1998.

Recent Developments

A.   Hawaiian Airlines, Inc.

On September 21, 1993,  Hawaiian Airlines,  Inc.  ("Hawaiian"),  the lessee of a
McDonnell Douglas DC-9-51 aircraft (the "Hawaiian Aircraft"),  filed a voluntary
petition  for  reorganization  pursuant to the  Provisions  of Chapter 11 of the
United States  Bankruptcy Code (the "Bankruptcy  Code"). On August 30, 1994, the
United States  Bankruptcy court entered an order  confirming  Hawaiian's plan of
reorganization. On September 12, 1994 (the "Effective Date"), Hawaiian's plan of
reorganization became effective.

In September  1994, the Registrant  entered into a new lease with Hawaiian which
commenced on the Effective  Date (the "New Lease").  The New Lease  provided for
monthly  rentals  of  $60,000  payable on a weekly  basis,  which  stepped up to
$65,000 per month effective August 1, 1995 through November 1999. The Registrant
and Hawaiian had entered into an agreement to settle both the Registrant's proof
of claim and its administrative claim filed in the Hawaiian bankruptcy case with
respect to the Hawaiian Aircraft. Hawaiian has since settled such claims through
the issuance of Hawaiian stock to the Registrant.

In June 1995, Registrant received approximately 227,000 shares of Class A Common
Stock in the  reorganized  Hawaiian in  consideration  of its general  unsecured
claims filed against  Hawaiian.  Through  December 31, 1995, the Registrant sold
all shares for sales proceeds aggregating approximately $1,046,000.

On September 1, 1996, the Registrant and Hawaiian amended the lease agreement of
the  Hawaiian  Aircraft.  Under the terms of the  agreement,  Hawaiian  paid the
Registrant  a down  payment of $450,000  and the balance will be paid in monthly
installments  (39  payments of $72,000  and then 36  payments of $50,000)  until
November 30, 2002, at which time Hawaiian has a bargain  purchase  option on the
aircraft. The Registrant has treated this transaction as an installment sale and
has  classified  the net present value of the  anticipated  future cash flows of
approximately  $4,052,000  on the balance  sheet as note  receivable-installment
sale. On September 1, 1996 the  Registrant  removed the  associated  cost of the
equipment  and the net  carrying  value  from the books of the  Registrant,  and
recognized a gain on the sale of approximately $1,655,000.

B.    Continental Airlines, Inc.

The Registrant  originally  owned three McDonnell  Douglas DC-9-32  aircraft and
three Boeing 727-100 aircraft  (collectively,  the "Continental Aircraft") which
were leased to Continental Airlines,  Inc.  ("Continental") for terms originally
scheduled to expire in November 1993. On December 3, 1990,  Continental Airlines
Holdings,  Inc. and its subsidiary  companies,  including  Continental,  filed a
petition  for   reorganization   under  the  Bankruptcy  Code.  In  April  1993,
Continental's plan for reorganization was confirmed by the Bankruptcy court.
<PAGE>
In October 1991, the Registrant and Continental  restructured  the leases of the
three DC-9-32 aircraft (the "Continental Restructured Leases"), under which such
leases were extended to December 1, 1997.  Pursuant to the restructuring,  rents
accrued at a rate of $76,500 per aircraft per month, effective September 1, 1990
for 13 months,  with simple interest accruing at a rate of 12% (the "Continental
Deferred Rents") and have been repaid over a 36 month period  commencing July 1,
1992.  The  Continental  Restructured  Leases  provided  for monthly  rentals of
$64,500  per  aircraft  per month to December  31,  1997.  Additionally,  either
Continental or the Registrant may fund certain improvements and modifications to
such DC-9-32 aircraft,  however, if such amounts are funded by Continental,  the
Registrant will allow  Continental a rental credit with simple interest accruing
at a rate of 12%. Continental is obligated to repay the aggregate rental credits
taken as well as any modifications funded by the Registrant,  over the remaining
term of the Continental  Restructured Leases accruing interest at a rate of 12%.
To date,  such credits and  Registrant  fundings have  aggregated  approximately
$762,400,  and the  remaining  amounts to be recovered  are included in Deferred
Rents and Modifications Advances Receivable on the balance sheets as of December
31, 1996 and December 31, 1995.

In October 1992,  the Registrant  and  Continental  entered into an agreement to
defer rentals due under the  Continental  Restructured  Leases for a three month
period  effective  January 1, 1993 (the  "Second  Continental  Rent  Deferral").
Pursuant to the terms of the Second  Continental  Rent  Deferral,  the  deferred
rents (aggregating  $580,500),  plus interest accruing at a rate equal to 8.64%.
Through  March 31,  1997,  Continental  has repaid the second  Continental  Rent
Deferral.

In November  1991,  Continental  rejected the leases of the three Boeing 727-100
aircraft,  which had been out of service since mid-1991. Due to the condition of
such aircraft and the related market for such aircraft,  the Registrant provided
aggregate  allowances  for  equipment  impairment of  approximately  $6,483,000.
During  1993,  the  Registrant  sold all  three  Boeing  727-100  aircraft.  The
Registrant retains its rights pursuant to a proof of claim and an administrative
claim filed in the  Continental  Bankruptcy  case with respect to such aircraft.
The amount of recovery  under such claims,  if any, is  impossible to predict at
this time.

C.     Aloha Airlines, Inc.

Aloha Airlines,  Inc.  ("Aloha") had leased a Boeing 737-200  Advanced  aircraft
(the  "Aloha  Aircraft")  whose  lease  was  originally  schedule  to  expire in
accordance  with its terms on February 1, 1996. The Aloha Aircraft is subject to
a tax benefit  transfer lease ("TBT Lease") under which Allied  Signal,  the TBT
Lessor,  retains the  federal  income tax  benefits  that  normally  accrue from
ownership  of the aircraft  other than lease  rentals.  There are  approximately
three years remaining on the TBT Lease, until May 21, 2000.

Prior to the  expiration of the Aloha lease on February 1, 1996,  the Registrant
and Aloha  agreed to a three month lease  extension  with rent based on $300 per
flight  hour.  The  Registrant  and  Aloha  subsequently  agreed  on  a  further
short-term  lease  extension,  to October 15,  1996,  on the same terms,  and on
October 15, 1996,  the Aloha Aircraft was returned by Aloha to the Registrant at
a facility in Marana, Arizona.

At Marana, the Aloha Aircraft is undergoing  significant repair and modification
work required to bring it into compliance with certain current FAA standards and
to make it more readily  marketable.  The  Registrant  is  currently  engaged in
actively  seeking a new lessee,  or possibly a purchaser for the Aloha Aircraft.
The Registrant anticipates a lengthy remarketing process for the Aloha Aircraft.
<PAGE>
Additionally,  Aloha leases another Boeing  737-200  Advanced  aircraft from the
Registrant  which was schedule to expire in  accordance  with its lease terms on
August 15, 1996.  Aloha agreed to a fifteen month lease  extension at 50% of the
prior lease rate.

D.    Tax assessment

In September 1996, the Registrant  received  proposed notices of assessment from
the State of Hawaii with respect to general excise tax ("GET") of  approximately
$1,338,000 (including interest and penalties) for the years 1991, 1992, 1993 and
1994. The state is alleging that GET is owed by the  Registrant  with respect to
rents received from Aloha Airlines,  Inc. and Hawaiian Airlines,  Inc. under the
leases between the Registrant and each of the airlines.

The leases with both Aloha and Hawaiian provide for full  indemnification of the
Registrant for such taxes,  but the bankruptcy of Hawaiian may relieve  Hawaiian
of its  indemnification  obligation for any periods prior to September 21, 1993,
when Hawaiian and its affiliates sought bankruptcy protection.  In any event, it
is the Registrant, as taxpayer, which is ultimately liable for the GET, if it is
applicable.

The State of Hawaii has never previously  applied the GET to rentals received by
a lessor of aircraft where the lessor's only contact with the State of Hawaii is
that it has leased its aircraft to airlines which are based in the state.  Aloha
and Hawaiian, as well as the Registrant, have separately engaged tax counsel and
both airlines are  cooperating  with the  Registrant  to vigorously  contest the
proposed assessments.

Final notices of assessment  have not yet been issued.  Although there can be no
assurance that the contest of the assessments will be successful, the Registrant
believes that the state's position on the  applicability of GET in this instance
is without  merit.  The Registrant has not recorded any liability as a result of
the proposed notices of assessment.

E.    Southwest Airlines Co.

On April 15, 1996, the Registrant sold to Southwest Airlines Co. ("Southwest") a
Boeing 737-200 Advanced  aircraft which has been leased to Southwest through May
1996 and early  terminated  such  lease.  The  Registrant  received  proceeds of
approximately  $6,784,000,  net of an associated  aircraft sales  commission and
other  related  costs.  The net proceeds from the sale were  distributed  to the
partners of the Registrant in August 1996. The Southwest aircraft was originally
purchased  by  the  Registrant  in  July,  1988  for  approximately  $12,804,000
inclusive of associated  acquisition  costs.  As of April 15, 1996,  when it was
sold, the net carrying value of the aircraft was  approximately  $3,216,000 (net
of allowance for equipment impairment of $2,300,000).  The Registrant recognized
a gain on the sale of approximately $3,568,000.

Significant Lessees

Registrant's  revenues  from  aircraft  are  derived  from lease  payments  from
lessees.  None of such lessees are affiliated with  Registrant.  During the year
ended December 31, 1996, lease payments due from the following  lessees were the
source of 10% or more of Registrant's gross rental revenues:  Continental (24%),
Aloha (21%),  American  Trans Air, Inc.  ("ATA") (18%),  Ladeco S.A.  ("Ladeco")
(12%) and Southwest (11%). With respect to the Continental Aircraft,  Registrant
<PAGE>
has $699,000 included in accounts receivable and deferred rents and modification
advances receivable from Continental at December 31, 1996,  approximately 36% of
which  represents the  Continental  Deferred Rents.  (See Item 7,  "Management's
Discussion and Analysis of Financial  Condition and Results of  Operations"  and
Item 8, "Financial Statements and Supplementary Data".)

Competition

The  equipment  leasing  industry,  particularly  as it relates to aircraft,  is
highly competitive. The aircraft leasing industry offers users an alternative to
the purchase of nearly every type of aircraft.  The competitive  conditions vary
considerably depending on the type of aircraft and the nature of the prospective
user.

Registrant will encounter considerable  competition from lessors which may write
leases  for  longer  terms  and  at  lower  rates  than  Registrant  can  offer.
Competitors  of  Registrant  may, at the writing of their initial  leases,  give
their  lessees  options to renew their  leases or purchase  the  aircraft at the
expiration  of the  lease at  favorable  or  bargain  rates,  and,  as a result,
Registrant may be at a competitive  disadvantage  if it does not also grant such
bargain renewals and purchase options. Manufacturers and other leasing companies
may provide certain  ancillary  services which Registrant  cannot offer, such as
maintenance  services (including possible  substitution of aircraft or engines),
crews, warranty services and trade-in privileges. Also, there are numerous other
entities, including distributors,  manufacturers,  airlines, equipment managers,
leasing  companies,  financial  institutions  and  public  and  private  limited
partnerships  organized and managed similarly to Registrant,  some of which have
greater financial  resources and more experience than Registrant and the General
Partner.

Registrant  has  encountered  severe  competition  in attempting to re-lease its
aircraft  as  they  have  come  off-lease  due to a  surplus  in the  market  of
narrow-body  aircraft similar to the types owned by Registrant.  The substantial
costs required to maintain and bring used aircraft into  compliance  with United
States   Federal   Aviation   Administration   ("FAA")  noise  and   maintenance
requirements  adopted since 1990 are the primary  factors  which have  adversely
affected the narrow body aircraft  market.  In addition,  Registrant's  aircraft
will also have to compete with newer, more fuel efficient  aircraft which comply
with the recently adopted FAA noise requirements.  Registrant also believes that
as a result of the factors listed above there has been a significant  decline in
the re-sale value of narrow-body aircraft of the types owned by Registrant.

Employees

Registrant does not have any employees.  Wexford currently performs  accounting,
secretarial,  transfer and administrative  services for the Registrant.  Wexford
also performs  similar  services for other  affiliates  of the General  Partner.
Aviation Capital Group,  L.P. ("ACG"),  an entity comprised  primarily of former
officers of the General Partner, periodically performs remarketing services with
respect to Registrant's aircraft, and Simat, Helliesen & Eichner, Inc. ("SH&E"),
an aviation consulting firm,  provides  consulting  services to Registrant.  All
fees for SH&E's and ACG's  services are paid by the General  Partner (other than
normal competitive aircraft sales commissions, if any) and are not reimbursed by
Registrant.
<PAGE>
In April 1995,  the  General  Partner and  certain  affiliates  entered  into an
agreement with Fieldstone Private Capital Group, L.P. ("Fieldstone") pursuant to
which  Fieldstone  performs  certain  management  and  administrative   services
relating  to  the  Registrant.  Substantially  all  costs  associated  with  the
retention  of  Fieldstone  are  paid  by  the  General  Partner.  (See  Item  7,
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations",  Item  8,  "Financial  Statements"  and  Item  10,  "Directors  and
Executive Officers of the Registrant".)

Foreign Operations

Registrant  currently has three aircraft operated in foreign  countries.  Two of
such aircraft are leased to Ladeco S.A.  ("Ladeco"),  a Chilean airline, and are
operated  primarily in South America.  A third aircraft is leased to Continental
Micronesia Inc. ("CMI"),  a stand-alone air carrier affiliated with Continental,
and such  aircraft  is  operated  primarily  in  Southeast  Asia.  (See  Item 8,
"Financial Statements and Supplementary Data - Note 9".)


Item 2.           Properties

The aircraft owned by Registrant as of March 1, 1997 (see "General" under Item 1
"Business" hereof) consist of the following:
<TABLE>
<CAPTION>
                                                                                     Type of Ownership
Type of Equipment                           Date of Purchase                             or Interest
-----------------                           ----------------                             -----------
<S>                                         <C>                                    <C>

One McDonnell                               April 20, 1988                         Full ownership, not subject
Douglas DC-9-32                                                                    to any lien.
aircraft(1)

Two McDonnell Douglas                       May 13, 1988                           Full ownership, not subject
DC-9-32 aircraft(1)                                                                to any lien.

One Boeing 727-200                          June 15, 1988                          Full ownership, not subject
Advanced aircraft(2)                                                               to any lien.

One Boeing 737-200                          August 23, 1988                        Full ownership, not subject
Advanced aircraft(2)                                                               to any lien.

One Boeing 737-200                          November 4, 1988                       Full ownership, not subject
Advanced aircraft(2)                                                               to any lien.

One Boeing 727-200                          December 15, 1988                      Full ownership, not subject
Advanced aircraft                                                                  to any lien.

One Boeing 727-200                          January 18, 1989                       Full ownership, not subject
Advanced aircraft                                                                  to any lien.

One Boeing 737-200                          February 9, 1989                       Full ownership, not subject
Advanced aircraft                                                                  to any lien.

One Boeing 737-200                          March 31, 1989                         Full ownership, not subject
Advanced aircraft                                                                  to any lien.
<PAGE>
One Boeing 737-200                          March 31, 1989                         Full ownership, subject to
Advanced aircraft                                                                  the TBT Lease.

One Boeing 727-200                          May 31, 1989                           Full ownership of a
Advanced aircraft                                                                  47.92231% undivided
                                                                                   interest(3).
-------------------


(1)      See Item 1, "Business";  Item 7, "Management's  Discussion and Analysis
         of  Financial  Condition  and  Results of  Operations";  and Note 5, to
         Registrant's  Financial  Statements  included  in  Item  8,  "Financial
         Statements  and  Supplementary   Data"  to  this  report,  for  further
         discussion of the Continental Aircraft.

(2)      Such  aircraft  are  operated  in  foreign   countries.   See  Item  1,
         "Business"; and Note 9 to Registrant's Financial Statements included in
         Item 8, "Financial  Statements and Supplementary  Data" to this report,
         for further discussion.

(3)      The remaining interest is owned by an affiliate of the  General Partner.
</TABLE>

Item 3.           Legal Proceedings

In December  1993, a class action  complaint  was filed by Carla  Wright,  Plato
Kinias, Getrude E. Boland and Hilda Duarte, purportedly on behalf of the limited
partners of Registrant, in the Supreme Court of the State of New York, County of
New York (the "New York Action").  This action was substantially  identical to a
class  action  filed by  certain  of the same  plaintiffs  in March  1993 in the
District of Columbia Superior Court, which action was dismissed in October 1993.
The New York Action named as  defendants  Registrant,  Integrated  Aircraft Fund
Management Corp., Dean Witter Reynolds,  Inc.,  Integrated  Resources Marketing,
Inc.,  Integrated Resources Equity Corporation and Citicorp Aircraft Management,
Inc.  ("CAMI").  The complaint  alleged,  among other things,  that the offering
material  used in connection  with  Registrant's  1988 public  offering of Units
contained false and misleading  representations  constituting  common law fraud,
breach of  fiduciary  duty and  negligence  on the part of the  defendants.  The
complaint sought rescision of the plaintiffs' investment in Registrant including
rescissionary and compensatory damages, plus interest and punitive damages.

On  February  8, 1994,  the  Registrant  filed a motion to dismiss  the New York
Action. In response to such motion, Plaintiffs filed an Amended Complaint which,
among other things,  removed the Partnership and CAMI as defendants.  Subsequent
to the  Amended  Complaint,  the  defendants  filed a  motion  to  dismiss  that
pleading.

In October 1995, the New York Action was dismissed in its entirety without leave
to  replead.  Plaintiffs  filed a Notice of Appeal of that  decision on or about
January 26, 1996.  However,  in a  stipulation  dated June 26, 1996,  Plaintiffs
agreed not to perfect their appeal,  and their appeal  expired as of October 26,
1996.

The Registrant has reimbursed the General Partner  approximately  $62,000 during
1996  representing  legal fees incurred by the General Partner arising from such
litigation.
<PAGE>

Item 4.           Submission of Matters to a Vote of Security Holders

No  matters  were  submitted  to a vote of  security  holders  during the fourth
quarter of the fiscal year covered by this report.

PART II


Item 5.           Market for Registrant's Common Equity and Related Stockholder
                  Matters

There is no developed public market for the Units of the Registrant.

As of March 1, 1997,  there were  approximately  15,000 record holders of Units,
owning an aggregate of 385,805 Units.

During the years  ended  December  31,  1996 and 1995,  Registrant  has made the
following cash  distributions with respect to the Units to holders thereof as of
the dates set forth below in the amounts set forth opposite such dates:
<TABLE>
<CAPTION>
           Distribution with
        Respect to Quarter Ended           Amount of Distribution Per Unit(*)
   ----------------------------------- -----------------------------------------
                                               1996                  1995
   ----------------------------------- -----------------------------------------
<S>                                          <C>                   <C>
   March 31                                  $   7.00              $   7.00
   ----------------------------------- --------------------- -------------------
   June 30                                   $  21.50              $   7.00
   ----------------------------------- --------------------- -------------------
   September 30                              $   6.50              $  10.00
   ----------------------------------- --------------------- -------------------
   December 31                               $   5.50              $   8.00
   ----------------------------------- --------------------- -------------------


 (*)     The amounts listed represent  distributions of cash from operations and
         cash from sales. (See Item 7, "Management's  Discussion and Analysis of
         Financial  Condition  and  Results  of  Operations",   for  information
         relating to Registrant's future distributions.)
</TABLE>
<PAGE>
Item 6.           Selected Financial Data
<TABLE>
<CAPTION>
                                                           Year ended December 31,

                            1996               1995                1994               1993                1992
                     ------------------ ------------------  ---------------    ----------------    -----------
<S>                  <C>                <C>                 <C>                <C>                 <C>

Revenues (1)         $    10,284,238    $    12,372,475     $    13,755,528    $    16,227,532     $    21,342,494
Net Income
    (Loss) (2)       $     5,988,174    $     1,496,774     $       564,907    $   (10,306,115)    $    (1,053,373)
Net income
    (Loss) Per       $         13.97    $          3.49     $          1.32    $        (24.04)    $         (2.46)
    Unit (3)
Distribution Per
    Unit             $         40.50    $         32.00     $         31.00    $         34.50     $         43.75
Total Assets         $    40,045,819    $    52,365,622     $    63,596,742    $    76,239,996     $   101,811,366
Total Partners'
    Equity           $    34,661,785    $    46,034,837     $    58,255,574    $    70,979,506     $    96,074,813

(1)      Included in this amount is $582,674,  $443,904,  $259,805, $195,071 and
         $254,873 of  interest  income for the years ended  December  31,  1996,
         1995,  1994,  1993,  and  1992,  respectively.  Additionally,  revenues
         include $(32,767),  $108,487,  $184,033, $968,541 and $417,061 of other
         income or loss for the years ended December 31, 1996,  1995, 1994, 1993
         and 1992, respectively.

(2)      Registrant  provided  allowances for equipment  impairment of $848,000,
         $13,460,000  (including  $20,000  provided  in  respect  to  a  727-100
         aircraft  sold in  August  1993)  and  $8,700,121  (including  $800,000
         provided in respect to a 727-100  aircraft  sold in May 1992),  for the
         years  ended  December  31,  1994,  1993  and  1992,  respectively,  to
         recognize  the loss in value of  certain  aircraft.  No  allowance  was
         considered necessary in the 1996 period.

         Additionally,  Registrant  realized  approximately  $1,002,000 from the
         sale of the marketable securities for the year ended December 31, 1995.
         Such amount is included in Net Income (Loss).

(3)      Calculated on a weighted average basis.
</TABLE>


Item 7.           Management's Discussion and Analysis of Financial Condition 
                  and Results of Operations

Liquidity and Capital Resources

Registrant  made a cash  distribution  of $5.50  per Unit  with  respect  to the
quarter  ended  December 31, 1996 (the "1996  Quarter"),  which  represented  an
annualized cash  distribution  rate of 4.4% (based on the initial offering price
of $500 per Unit) as  compared  to $8.00 per Unit with  respect  to the  quarter
ended  December 31, 1995.  For the 1996 Period,  cash  distributions  aggregated
$40.50 per Unit (a 8.1% annualized  rate) as compared to $32.00 per Unit (a 6.4%
annualized  rate) with  respect to the year ended  December  31, 1995 (the "1995
Period").
<PAGE>
During  the  1996  Period,   Registrant   generated  cash  from   operations  of
approximately  $10,555,000  (before rent credits),  or approximately  $24.62 per
Unit,  as  compared to  approximately  $12,745,000  (before  rent  credits),  or
approximately $29.73 per Unit, during the 1995 Period. Additionally,  during the
1996 Period,  Registrant  collected  proceeds on the sale of one Boeing  737-200
leased to Southwest Airlines, Inc. of approximately $6,784,000.

During the 1996 Period,  Registrant increased its gross aggregate cash reserves,
inclusive of collected  maintenance reserves and original working capital (1% of
original  offering  proceeds),  by an  aggregate of  approximately  $101,000 (as
discussed  below),  from  approximately  $4,296,000  at  December  31,  1995  to
approximately  $4,397,000 at December 31, 1996. The aggregate cash reserves were
comprised of approximately $301,000,  which represented  undistributed cash from
operations  and  cash  from  sales,  as  well as  original  working  capital  of
$1,929,000 (1% of original offering  proceeds) and  approximately  $2,167,000 of
collected maintenance reserves.

Such  increase  in  aggregate  cash  reserves  was the result of an  increase of
approximately  $245,000 of  collected  maintenance  reserves  and  approximately
$56,000 of cash from operations in excess of cash distributions  during the 1996
Period.

During the first  quarter of 1995,  Registrant  provided  ATA with  $150,000  of
aggregate  rent  credits  representing  Registrant's  obligation  to  contribute
$75,000 per aircraft towards bridging "C" check  inspections with respect to the
two  ex-USAir  Aircraft  leased  to ATA.  Further,  if the  transition  to ATA's
maintenance  program requires that the aircraft undergo heavy maintenance checks
during the initial lease term, Registrant will contribute an additional $150,000
per  aircraft  towards  the  completion  of  such  heavy   maintenance   checks.
Additionally,  during the Basic Terms, ATA may request that Registrant  retrofit
the aircraft to comply with the Stage III noise emission  standards  pursuant to
FAR Part 36. In the event that Registrant consents to retrofitting the aircraft,
ATA will  make  Improvements  as may be  required  to bring  the  aircraft  into
compliance  with  such  standards.  Upon  completion  of the  improvements  (the
"Improvements"), Registrant will reimburse ATA for the cost of the Improvements.
In consideration for Registrant's consenting to the Improvements, the ATA leases
will be  extended  for a term of five  years  from  the date  the  aircraft  are
returned to service.  During this five year  period,  the lease  rentals will be
increased by an amount  reflecting the enhanced value of the aircraft  including
the Improvements.

As  Registrant's  aircraft come  off-lease  (one  currently and six of which are
scheduled to come off-lease in 1997),  it may be necessary for Registrant to use
a portion of its operating  reserves  and/or its  anticipated  future cash flow,
which would otherwise be available for distribution, to upgrade or enhance these
aircraft or related engines if Registrant  determines that such expenditures are
in its best  interests in order to maximize  remarketing  value.  Registrant  is
currently evaluating strategies, including potential engine upgrades for certain
aircraft,  to  increase  marketability  and is  reviewing  its  possible  future
obligations to pay for bridging costs in order to facilitate  such  remarketing.
Furthermore,  because of market  conditions,  Registrant may be required to bear
some  of  the  related  costs  of  compliance  with  recent  mandatory   federal
regulations covering  maintenance and upgrading of aging aircraft.  Registrant's
ability to make  distributions  may be  impacted by its  obligation  to pay such
costs.
<PAGE>
Registrant  has  encountered  severe  competition  in attempting to re-lease its
aircraft  as  they  have  come  off-lease  due to a  surplus  in the  market  of
narrow-body  aircraft similar to the types owned by Registrant.  The substantial
costs  required to maintain and bring used  aircraft  into  compliance  with FAA
noise and  maintenance  requirements  adopted since 1990 are the primary factors
which have  adversely  affected the narrow body  aircraft  market.  In addition,
Registrant  will also have to compete with newer,  more fuel efficient  aircraft
which  comply with  recently  adopted FAA noise  requirements.  Registrant  also
believes  that  as a  result  of the  factors  listed  above  there  has  been a
significant decline in the re-sale value of narrow-body  aircraft similar to the
types owned by Registrant.

Although  Registrant  believes that its anticipated gross cash flow in 1997 will
be less than its gross cash flow generated in the 1996 Period (approximately 76%
of 1996 cash flow based upon gross firm term  leases  plus the net  amounts  due
under  notes  issued  by   Continental   as  repayment  for  deferred  rent  and
modification  advances),  its anticipated  cash flow in 1997 and the foreseeable
future will be sufficient to pay its operating expenses and make  distributions.
Cash flow in 1997, as compared to the prior year, will be reduced as a result of
the aircraft which come off lease in 1997, as well as the scheduled reduction in
Continental's   repayment  of  modification  advances  and  previously  deferred
rentals.

During the 1996 Period,  lease payments due from the following  lessees were the
source of 10% or more of Registrant's gross rental revenues:  Continental (24%),
Aloha (21%),  ATA (18%),  Ladeco (12%) and Southwest  (11%). 

Of the 18 aircraft  originally  purchased by  Registrant,  at December 31, 1996,
Registrant  had an interest in 12 of the  aircraft  (inclusive  of an  undivided
47.92231% joint venture  interest in one aircraft) which had an original cost of
approximately  $127,678,000  (net book value of approximately  $27,529,000).  In
1997,   excluding  rents  from  renewals,   Registrant   anticipates   receiving
approximately  $7,732,000  of rentals on  non-cancelable  leases  (inclusive  of
amounts which may be set-off by lessees against basic rent as reimbursement  for
certain  modifications  required under the applicable  leases).  After deducting
operating  expenses,  the  foregoing  aggregate  rentals are not  sufficient  to
maintain previous distribution levels.

Of the remaining 12 aircraft, six aircraft which generate aggregate gross rental
revenues of  approximately  $4,399,000  per year are scheduled to come off-lease
during 1997. Registrant's remaining aircraft are leased pursuant to leases which
expire in 1998 (5 aircraft) and the Aloha  Aircraft which is presently off lease
and is being actively remarketed.  (See Item 1,  "Business-Recent  Developments,
Aloha Airlines").

On September 1, 1996, the Registrant and Hawaiian amended the lease agreement of
the Hawaiian Aircraft.  Under the terms of the agreement,  Hawaiian has paid the
Registrant  a down  payment of $450,000  and the balance will be paid in monthly
installments  (39  payments of $72,000  and then 36  payments of $50,000)  until
November 30, 2002, at which time Hawaiian has a bargain  purchase  option on the
aircraft. The Registrant has treated this transaction as an installment sale and
has  classified  the net present value of the  anticipated  future cash flows of
approximately  $4,052,000  on the balance  sheet as note  receivable-installment
sale. On September 1, 1996 the  Registrant  removed the  associated  cost of the
equipment  and the net  carrying  value  from the books of the  Registrant,  and
recognized a gain on the sale of approximately $1,655,000.
<PAGE>
Aloha had leased a Boeing 737-200 Advance Aircraft (the "Aloha  Aircraft") whose
lease was schedule to expire in  accordance  with its terms on February 1, 1996.
The Aloha  Aircraft is subject to a tax  benefit  transfer  lease ("TBT  Lease")
under  which  Allied  Signal,  the TBT Lessor,  retains  the federal  income tax
benefits that normally  accrue from  ownership of the aircraft  other than lease
rentals. There are approximately three years remaining on the TBT Lease, through
May 21, 2000.

Prior to the scheduled  expiration  of the Aloha lease on February 1, 1996,  the
Registrant and Aloha agreed to a three month lease  extension with rent based on
$300 per flight hour. The Registrant and Aloha subsequently  agreed on a further
short-term  lease  extension,  to October 15,  1996,  on the same terms,  and on
October 15, 1996,  the Aloha Aircraft was returned by Aloha to the Registrant at
a facility in Marana, Arizona.

At Marana, the Aloha Aircraft is undergoing  significant repair and modification
work required to bring it into compliance with certain current FAA standards and
to make it more readily  marketable.  The  Registrant  is  currently  engaged in
actively  seeking a new lessee or,  possibly a purchaser for the Aloha Aircraft.
The Registrant anticipates a lengthy remarketing process for the Aloha Aircraft.

Additionally,  Aloha leases  another Boeing  737-200  Advance  Aircraft from the
Registrant  which was schedule to expire in  accordance  with its lease terms on
August 15, 1996.  Aloha agreed to a fifteen month lease  extension at 50% of the
prior lease rate.

In September 1996, the Registrant  received  proposed notices of assessment from
the  State of  Hawaii  with  respect  to  general  excise  tax of  approximately
$1,338,000 (including interest and penalties) for the years 1991, 1992, 1993 and
1994. The state is alleging that GET is owed by the  Registrant  with respect to
rents received from Aloha Airlines,  Inc. and Hawaiian Airlines,  Inc. under the
leases between the Registrant and each of the airlines.

The leases with both Aloha and Hawaiian provide for full  indemnification of the
Registrant for such taxes,  but the bankruptcy of Hawaiian may relieve  Hawaiian
of its  indemnification  obligation for any periods prior to September 21, 1993,
when Hawaiian and its affiliates sought bankruptcy protection.  In any event, it
is the Registrant, as taxpayer, which is ultimately liable for the GET, if it is
applicable.

The State of Hawaii has never previously  applied the GET to rentals received by
a lessor of aircraft where the lessor's only contact with the State of Hawaii is
the fact that it has  leased its  aircraft  to  airlines  which are based in the
state.  Aloha and Hawaiian,  as well as the Registrant,  have separately engaged
tax counsel and both airlines are cooperating  with the Registrant to vigorously
contest the proposed assessments.

Final notices of assessment  have not yet been issued.  Although there can be no
assurance that the contest of the assessments will be successful, the Registrant
believes that the state's position on the  applicability of GET in this instance
is without  merit.  The Registrant has not recorded any liability as a result of
the proposed notices of assessment.
<PAGE>
On April 15, 1996,  the Registrant  sold to Southwest a Boeing 737-200  Advanced
aircraft leased to Southwest  through May 1996 and early  terminated such lease.
The  Registrant  received  proceeds  of  approximately  $6,784,000,  net  of  an
associated  aircraft sales  commission and other related costs. The net proceeds
from the sale were distributed to the partners of the Registrant in August 1996.
The Southwest aircraft was originally  purchased by the Registrant in July, 1988
for approximately  $12,804,000 inclusive of associated  acquisition costs. As of
April 15, 1996,  when it was sold,  the net  carrying  value of the aircraft was
approximately   $3,216,000  (net  of  allowance  for  equipment   impairment  of
$2,300,000).  The  Registrant  recognized  a  gain  on  the  sale  approximately
$3,568,000.

Inflation has not had any material  effect on  Registrant's  revenues  since its
inception nor does  Registrant  anticipate  any material  effect on its business
from this  factor.  The prior  softness in the aircraft  industry and  resulting
declines in the value of the types of aircraft owned by Registrant have resulted
in  Registrant  providing  allowances  for  equipment  impairment  of  $848,000,
$13,460,000 and $8,700,121 for the 1994 Period, the year ended December 31, 1993
and the year ended  December  31,  1992 (the "1992  Period"),  respectively.  No
allowance was considered  necessary for the 1996 or 1995 Periods.  Additionally,
because of the  financial  troubles  of certain  airlines  which are  lessees of
Registrant's  aircraft,  cash  flow  and,  therefore,  distributions  have  been
reduced.

In April 1995,  the  General  Partner and  certain  affiliates  entered  into an
agreement  with  Fieldstone   pursuant  to  which  Fieldstone  performs  certain
management and administrative services relating to the Registrant. Substantially
all  costs  associated  with the  retention  of  Fieldstone  will be paid by the
General Partner.

Results of Operations - 1996 as Compared to 1995

Registrant's  rental revenues decreased by approximately 18% for the 1996 Period
as compared to the 1995 Period. The decrease was principally attributable to the
following:

i)    a 59% reduction in rental revenues on a McDonnell Douglas DC-9-51 aircraft
      (the "Hawaiian Aircraft") leased to Hawaiian.  The Aircraft was sold on an
      installment  basis on September 1, 1996. The reduction in rental  revenues
      recognized  represented  approximately 14% of the Registrant's 1996 Period
      rental revenue reduction as compared to the corresponding  rental revenues
      recognized for the 1995 Period;

ii)   a reduction in rental revenue on the Southwest  Aircraft sold to Southwest
      on April 15, 1996  offset by an increase in rental  revenue as a result of
      the  extension  of the lease with  Southwest  for another  Boeing  737-200
      Advanced  Aircraft for two years  beginning  November 1995 for 125% of the
      prior lease  rental.  The net  reduction  in rental  revenues  represented
      approximately 35% of the Registrant's 1996 Period rental revenue reduction
      as compared to the corresponding  rental revenues  recognized for the 1995
      Period; and
<PAGE>
iii)  a 53%  reduction  in rental  revenue  on the two Boeing  737-200  Advanced
      Aircraft  leased  to  Aloha.  One of the  Aloha  Aircraft  was  originally
      schedule  to come off  lease on  February  1,  1996 and was  renewed  on a
      utilization  basis at $300 per flight hour until the aircraft was returned
      on October 15, 1996, and still remains off lease at December 31, 1996. The
      other Aloha aircraft lease was originally schedule to expire on August 15,
      1996,  and was renewed at 50% of its prior lease rate.  The  reduction  in
      rental revenues  recognized under these leases  represented  approximately
      51% of the Registrant's  1996 Period rental revenue  reduction as compared
      to the corresponding rental revenues recognized for the 1995 Period.

Investment interest income increased by approximately 7% for the 1996 Period, as
compared to the 1995 Period,  primarily  because of higher market interest rates
during 1996 Period as well as higher balances available for investment in 1996.

In 1996,  there was interest on  installment  sale of the  Hawaiian  Aircraft of
approximately $106,000; no such interest was recorded in the 1995 Period.

Other  income/loss  decreased  for the 1996 Period,  as compared to 1995 Period,
primarily due to the reduction of interest  payments by  Continental  associated
with the repayments of rent deferrals and modification advances.

Depreciation  expense  decreased by  approximately  20% for the 1996 Period,  as
compared to the 1995  Period,  primarily  due to the  Hawaiian  Aircraft and the
Southwest Aircraft being sold during the 1996 Period and reduction on the Ladeco
Aircraft which has reached its salvage value during or prior to the 1996 Period.

Operating  expenses  decreased  significantly in the 1996 Period, as compared to
the 1995 Period, primarily due to rental credits provided to ATA of $150,000 for
the  completion of "C" checks in the 1995 Period per the lease  agreement on the
ex-USAir Aircraft leased to ATA.

Management fees decreased  approximately 23% for the 1996 Period, as compared to
the 1995  Period,  due to lower  rental  income in the 1996 Period on which such
fees are  based,  due to the  aircraft  sale,  and lower  renewal  rates in 1996
Period.

General  and  administrative  expenses  increased  approximately  2% in the 1996
Period, as compared to the 1995 Period.

Gain from the sale of aircraft was  approximately  $5,223,000 in the 1996 Period
for the sale of the Southwest and Hawaiian Aircraft.  No sales took place in the
1995 Period.

Realized gain on sale of marketable  securities was approximately  $1,002,000 in
the 1995  Period.  No such gain was  recognized  for the 1996  Period.  The gain
represents  the settlement of general  unsecured  claims the Registrant had with
Hawaiian Airlines.  Hawaiian issued the Registrant  approximately 227,000 shares
of Class A Common stock in the reorganized  Hawaiian Airlines.  Through December
31, 1995 the Registrant sold all shares aggregating approximately $1,046,000.

Registrant's  net income for the 1996 Period was  $5,988,174  as compared to net
income of $1,496,774  recognized in the 1995 Period.  The principal  reasons for
the change in the Registrant's 1996 net income compared to 1995 are:

i)       Gain on sale of aircraft in the 1996 Period of approximately $5,223,000
         compared with no such gain in the 1995 Period; and
<PAGE>
ii)      reduction of depreciation expense, approximately $8,608,000 in the 1996
         Period as compared to approximately $10,794,000 in the 1995 Period; and

iii)     reduction of  management  fee,  $422,000 in the 1996 Period as compared
         with $548,000 in 1995; and

iv)      reduction  in  operating  expense,  approximately  $85,000  in the 1996
         Period as compared with $193,000 in 1995 Period; offset by

v)       reduction  of  rental  revenue,  approximately  $9,734,000  in the 1996
         Period compared with approximately $11,820,000 in the 1995 Period; and

vi)      reduction in other income (loss) of  approximately  $33,000 in the 1996
         Period  compared  with a gain of  approximately  $108,000  in the  1995
         Period; and

vii)     gain on sale of marketable  securities of  approximately  $1,002,000 in
         the 1995  Period,  compared  with no such gain  recognized  in the 1996
         Period.

Results of Operations - 1995 as Compared to 1994

Registrant's  rental revenues decreased by approximately 11% for the 1995 Period
as compared to the 1994 Period. The decrease was principally attributable to the
following:

i)    the reduction in rental revenues by  approximately  22%  attributable to a
      McDonnell  Douglas DC-9-51  aircraft (the "Hawaiian  Aircraft")  leased to
      Hawaiian Airlines,  Inc.  ("Hawaiian").  In September 1994, the Registrant
      entered into a new lease agreement with Hawaiian which provide for monthly
      rentals of $60,000 per month through July 31, 1995,  which then stepped up
      to  $65,000  through  November  1999.  The  reduction  in rental  revenues
      recognized  under  this new  lease  represented  approximately  15% of the
      Registrant's  1995  Period  rental  revenue  reduction  as compared to the
      corresponding rental revenues recognized for the 1994 Period;

ii)   the reduction in rental revenue by  approximately  67% with respect to the
      Southwest  Aircraft extended to Southwest for one year beginning  November
      1994.  The  reduction  in rental  revenues  recognized  under  this  lease
      represented  approximately  67% of the  Registrant's  1995  Period  rental
      revenue  reduction  as  compared  to  the  corresponding  rental  revenues
      recognized for the 1994 Period.  The Registrant further extended the lease
      with Southwest for two years beginning November 1995 for 125% of the prior
      lease rental; and

iii)  the reduction in rental revenue by  approximately  16% with respect to the
      ex-USAir  Aircraft  remarketed  to ATA in November and December 1994 for a
      period of  approximately  39  months.  The  reduction  in rental  revenues
      recognized  under  these  leases  represented  approximately  18%  of  the
      Registrant's  1995  Period  rental  revenue  reduction  as compared to the
      corresponding rental revenues recognized for the 1994 Period.

Investment  interest income increased by approximately  71% for the 1995 Period,
as compared to the 1994  Period,  primarily  because of higher  market  interest
rates during 1995 Period as well as higher balances  available for investment in
1995.
<PAGE>
Other income decreased by approximately  41% for the 1995 Period, as compared to
1994 Period,  primarily due to the reduction of interest payments by Continental
associated with the repayments of rent deferrals and modification advances.

Depreciation  expense  decreased by  approximately  3% for the 1995  Period,  as
compared to the 1994 Period, primarily due to the reduction on one of the Ladeco
Aircraft  which has reached its salvage value in the 1995 Period.  Additionally,
during the 1995  Period,  Registrant  did not incur a  provision  for  equipment
impairment as compared to $848,000 provided for the 1994 Period.

No provision for doubtful accounts was considered  necessary in the 1995 Period,
as compared to the 1994 Period where an allowance of approximately  $258,000 was
set up relating to the lease of the Hawaiian Aircraft.

Operating  expenses  increased  significantly in the 1995 Period, as compared to
the 1994 Period, primarily due to rental credits provided to ATA of $150,000 for
the  completion of "C" checks in the 1995 Period per the lease  agreement on the
ex-USAir Aircraft leased to ATA.

Management fees increased  approximately 5% for the 1995 Period,  as compared to
the 1994 Period,  due to higher cash  distributions  in the 1995 Period on which
such fees are based.

General  and  administrative  expenses  increased  approximately  6% in the 1995
Period,  as compared to the 1994 Period,  primarily  due to  increased  investor
relations expenses incurred in the 1995 Period.

Realized gain on sale of marketable  securities was approximately  $1,002,000 in
the 1995  Period.  No such gain was  recognized  for the 1994  Period.  The gain
represents the settlement of general unsecured claims the Registrant had against
Hawaiian Airlines.  Hawaiian issued the Registrant  approximately 227,000 shares
of Class A Common stock in the reorganized  Hawaiian Airlines.  Through December
31, 1995 the Registrant sold all shares aggregating approximately $1,046,000.

Registrant's  net income for the 1995 Period was  $1,496,774  as compared to net
income of $564,907  recognized in the 1994 Period. The principal reasons for the
change in the Registrant's 1995 net income compared to 1994 are:

i)       gain on sale of marketable  securities of  approximately  $1,002,000 in
         the 1995 Period; no such gain in the 1994 Period;

ii)      no provision  for  equipment  impairment  required for the 1995 Period,
         compared to $848,000 provided for the 1994 Period; and

iii)     no  provision  for  doubtful  accounts  required  for the 1995  Period,
         compared to approximately $258,000 provided for the 1994 Period.

These  amounts  were  partially  offset by the  decrease  in rental  revenues of
approximately $1,492,000 discussed above.
<PAGE>


Item 8.           Financial Statements and Supplementary Data

                          AIRCRAFT INCOME PARTNERS L.P.

                              FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

                                      INDEX



 

     Independent Auditor's Report              

     Independent Auditors' Report              

     Financial statements - years ended
       December 31, 1996, 1995 and 1994

           Balance sheets                      
           Statements of operations            
           Statement of partners' equity       
           Statements of cash flows            
           Notes to financial statements       

Schedule:

           II -- Valuation and Qualifying Accounts                            

All other  schedules  have been  omitted  because they are  inapplicable  or the
information is included in the financial statements or notes thereto.

<PAGE>
To the Partners of
Aircraft Income Partners L.P.
Greenwich, Connecticut


                          INDEPENDENT AUDITOR'S REPORT

We have audited the accompanying balance sheets of Aircraft Income Partners L.P.
(a limited  partnership)  as of  December  31,  1996 and 1995,  and the  related
statements  of  operations,  partners'  equity and cash flows for the years then
ended. Our audits also included the financial  statement  schedule listed in the
Index at Item 14(a)2.  These  financial  statements and the financial  statement
schedule  are  the   responsibility   of  the  Partnership's   management.   Our
responsibility  is to  express  an opinion  on these  financial  statements  and
financial statement schedule based on our audits.

We  conducted  our  audits  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 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 Aircraft Income Partners L.P.
as of December 31, 1996 and 1995, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted  accounting
principles.  Also,  in our opinion,  such  financial  statement  schedule,  when
considered  in  relation  to the basic  financial  statements  taken as a whole,
presents fairly in all material respects the information set forth therein.




Hays & Company


February 21, 1997
New York, New York
<PAGE>

INDEPENDENT AUDITORS' REPORT


To the Partners of
Aircraft Income Partners L.P.

We have audited the accompanying statements of operations,  partners' equity and
cash flows of Aircraft  Income  Partners  L.P.  for the year ended  December 31,
1994.  Our audit also included the financial  statement  schedule  listed in the
Index at Item 14(a)2 as it relates to the year ended  December 31,  1994.  These
financial statements and the financial statement schedule are the responsibility
of the Partnership's management.  Our responsibility is to express an opinion on
these  financial  statements and the financial  statement  schedule 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,  such  financial  statements  present  fairly,  in all material
respects,  the results of operations and cash flows of Aircraft  Income Partners
L.P. for the year ended December 31, 1994 in conformity with generally  accepted
accounting principles.  Also, in our opinion, such financial statement schedule,
when considered in relation to the basic financial  statements taken as a whole,
presents fairly in all material respects the information set forth therein.






March 17, 1995

/s/Deloitte & Touche LLP
------------------------
Deloitte & Touche LLP
New York, New York
<PAGE>
<TABLE>
<CAPTION>
                                 AIRCRAFT INCOME PARTNERS L.P.

                                         BALANCE SHEETS


                                                                          December 31,

                                                                     1996              1995
                                                                ------------      ------------
<S>                                                             <C>               <C>
 ASSETS

     Leased aircraft - net ................................     $ 27,529,419      $ 41,868,907
     Cash and cash equivalents ............................        6,279,937         7,448,455
     Note receivable - installment sale ...................        3,887,665              --
     Accounts receivable ..................................          769,547         1,388,026
     Deferred rents and modification advances receivable ..          254,432           641,745
     Restricted cash - security deposits ..................          481,677           458,683
     Deferred costs .......................................          223,866           352,226
     Other receivables ....................................          523,915           116,952
     Prepaid expenses .....................................           95,361            90,628
                                                                ------------      ------------

                                                                $ 40,045,819      $ 52,365,622
                                                                ============      ============


LIABILITIES AND PARTNERS' EQUITY

Liabilities
     Distributions payable ................................     $  2,357,697      $  3,429,378
     Maintenance reserves .................................        2,167,329         1,922,478
     Security deposits payable ............................          481,677           458,683
     Deferred income ......................................          131,550           179,216
     Management fee payable ...............................           94,000           137,000
     Deferred costs payable ...............................           48,016           121,930
     Accounts payable and accrued expenses ................          103,765            82,100
                                                                ------------      ------------

            Total liabilities .............................        5,384,034         6,330,785
                                                                ------------      ------------

Commitments and contingencies (Notes 3, 4, 5, 6, 10 and 12)

Partners' equity
     Limited partners' equity (385,805 units issued .......       50,476,902        60,712,648
        and outstanding)
     General partner's deficit ............................      (15,815,117)      (14,677,811)
                                                                ------------      ------------

            Total partners' equity ........................       34,661,785        46,034,837
                                                                ------------      ------------

                                                                $ 40,045,819      $ 52,365,622
                                                                ============      ============

                              See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                    AIRCRAFT INCOME PARTNERS L.P.

                                      STATEMENTS OF OPERATIONS




                                                                  Year ended December 31,

                                                          1996              1995             1994
                                                     ------------      ------------     ------------ 
<S>                                                  <C>               <C>              <C>  
Revenues

     Rental ....................................     $  9,734,331      $ 11,820,084     $ 13,311,690
     Interest ..................................          476,659           443,904          259,805
     Interest - installment note ...............          106,015              --               --
     Other .....................................          (32,767)          108,487          184,033
                                                     ------------      ------------     ------------ 

                                                       10,284,238        12,372,475       13,755,528
                                                     ------------      ------------     ------------ 

Costs and expenses
     Depreciation ..............................        8,608,539        10,794,471       11,149,440
     Management fee ............................          422,000           548,000          521,000
     General and administrative ................          336,248           328,439          308,765
     Operating .................................           84,522           192,553           56,452
     Provision for bad debts ...................           66,133              --            257,924
     Interest ..................................            1,570            13,969           49,040
     Provision for equipment impairment ........             --                --            848,000
                                                     ------------      ------------     ------------ 

                                                        9,519,012        11,877,432       13,190,621
                                                     ------------      ------------     ------------ 

                                                          765,226           495,043          564,907

Gain on disposition of aircraft - net ..........        5,222,948              --               --

Realized gain from sale of marketable securities             --           1,001,731             --
                                                     ------------      ------------     ------------ 

Net income .....................................     $  5,988,174      $  1,496,774     $    564,907
                                                     ============      ============     ============ 

<PAGE>
<CAPTION>
                                    AIRCRAFT INCOME PARTNERS L.P.

                                STATEMENTS OF OPERATIONS (continued) 




                                                                  Year ended December 31,

                                                          1996              1995             1994
                                                     ------------      ------------     ------------ 
<S>                                                  <C>               <C>              <C>                  
                                 
Net income attributable to
     Limited partners ..........................     $  5,389,357      $  1,347,097     $    508,416
     General partner ...........................          598,817           149,677           56,491
                                                     ------------      ------------     ------------ 

                                                     $  5,988,174      $  1,496,774     $    564,907
                                                     ============      ============     ============ 

Net income per unit of limited partnership
     interest (385,805 units outstanding) ......     $     13.97       $       3.49     $       1.32
                                                     ===========       ============     ============ 



                                 See notes to financial statements.

</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                    AIRCRAFT INCOME PARTNERS L.P.

                                    STATEMENT OF PARTNERS' EQUITY

                            YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996



                                                      Limited           General            Total
                                                     Partners'          Partner's        Partners'
                                                      Equity             Deficit          Equity
                                                  ------------      ------------      ------------
<S>                                               <C>               <C>               <C>
Balance, January 1, 1994 ....................     $ 83,162,850      $(12,183,344)     $ 70,979,506

Net income - 1994 ...........................          508,416            56,491           564,907

Distributions to partners ($31.00 per limited
     partnership unit) ......................      (11,959,955)       (1,328,884)      (13,288,839)
                                                  ------------      ------------      ------------

Balance, December 31, 1994 ..................       71,711,311       (13,455,737)       58,255,574

Net income - 1995 ...........................        1,347,097           149,677         1,496,774

Distributions to partners ($32.00 per limited    
     partnership unit).......................      (12,345,760)       (1,371,751)      (13,717,511)      
                                                  ------------      ------------      ------------       
Balance, December 31, 1995 ..................       60,712,648       (14,677,811)       46,034,837

Net income - 1996 ...........................        5,389,357           598,817         5,988,174

Distributions to partners ($40.50 per limited
     partnership unit) ......................      (15,625,103)       (1,736,123)      (17,361,226)
                                                  ------------      ------------      ------------

Balance, December 31, 1996 ..................     $ 50,476,902      $(15,815,117)     $ 34,661,785
                                                  ============      ============      ============




                                 See notes to financial statements.

</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                             AIRCRAFT INCOME PARTNERS L.P.

                                               STATEMENTS OF CASH FLOWS




                                                                                   Year ended December 31,
                                                                     ------------------------------------------------
                                                                          1996              1995              1994
                                                                     ------------      ------------      ------------
<S>                                                                  <C>               <C>               <C>
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS

Cash flows from operating activities
    Net income .................................................     $  5,988,174      $  1,496,774      $    564,907
    Adjustments to reconcile net income to net
       cash provided by operating activities
          Depreciation .........................................        8,608,539        10,794,471        11,149,440
          Realized gain from sale of marketable securities .....             --          (1,001,731)             --
          Provision for equipment impairment ...................             --                --             848,000
          Provision for bad debts ..............................           66,133              --             257,924
          Gain on disposition of aircraft - net ................       (5,222,948)             --                --
    Changes in assets and liabilities
       Accounts receivable .....................................          552,346           281,186          (535,466)
       Deferred rents and modification advances receivable .....          387,313         1,009,001         1,519,546
       Deferred costs ..........................................          128,360           128,360           128,360
       Other receivables .......................................         (406,963)           63,698           (27,946)
       Prepaid expenses ........................................           (4,733)           29,466           (48,340)
       Maintenance reserves ....................................          362,698           803,338           680,623
       Deferred income .........................................          (47,666)             --              72,274
       Management fee payable ..................................          (43,000)           17,000           (24,000)
       Accounts payable and accrued expenses ...................           21,665          (112,900)          (54,857)
       Restricted cash  - security deposits ....................          (22,994)          (20,996)         (124,187)
       Security deposits payable ...............................           22,994            20,996           124,187
                                                                     ------------      ------------      ------------

             Net cash provided by operating activities .........       10,389,918        13,508,663        14,530,465
                                                                     ------------      ------------      ------------

Cash flows from investing activities
    Proceeds from sale of marketable securities ................             --           1,045,941              --
    Proceeds from installment sale note receivable .............          163,985              --                --
    Additions and modifications to leased aircraft - net .......          (73,914)         (167,487)         (121,242)
    Proceeds from sale of aircraft - net .......................        6,784,400              --                --
                                                                     ------------      ------------      ------------

             Net cash provided by (used in) investing activities        6,874,471           878,454          (121,242)
                                                                     ------------      ------------      ------------
<PAGE>
<CAPTION>
                                             AIRCRAFT INCOME PARTNERS L.P.

                                         STATEMENTS OF CASH FLOWS (continued)




                                                                                   Year ended December 31,
                                                                     ------------------------------------------------
                                                                          1996              1995              1994
                                                                     ------------      ------------      ------------
<S>                                                                  <C>               <C>               <C>
Cash flows from financing activities
    Distributions to partners ..................................      (18,432,907)      (13,288,839)      (13,931,847)
                                                                     ------------      ------------      ------------

Net (decrease) increase in cash and cash equivalents ...........       (1,168,518)        1,098,278           477,376

Cash and cash equivalents, beginning of year ...................        7,448,455         6,350,177         5,872,801
                                                                     ------------      ------------      ------------

Cash and cash equivalents, end of year .........................     $  6,279,937      $  7,448,455      $  6,350,177
                                                                     ============      ============      ============

Supplemental disclosure of cash flow information
    Interest paid ..............................................     $      1,570      $     13,969      $     49,040
                                                                     ============      ============      ============

                                          See notes to financial statements.
</TABLE>
<PAGE>
                          AIRCRAFT INCOME PARTNERS L.P.

                          NOTES TO FINANCIAL STATEMENTS

                   YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994


1         ORGANIZATION

         Aircraft  Income  Partners  L.P.,  (the  "Partnership"),  was formed in
         October 1987,  under the Delaware  Revised Uniform Limited  Partnership
         Act for the  purpose of  engaging  in the  business  of  acquiring  and
         leasing aircraft.  The Partnership will terminate on December 31, 2010,
         or sooner,  in  accordance  with the terms of the  Agreement of Limited
         Partnership (the "Limited Partnership Agreement").

         Limited partners' units were originally issued at a price value of $500
         per unit.  Five  limited  partner  units  were  issued to the  original
         limited partner for a capital contribution of $2,500. In addition,  the
         General  Partner  contributed  a total of $9,950 to the  capital of the
         Partnership.  Through the final admission of limited partners on May 1,
         1989,   the   Partnership   had  14  admissions  of  limited   partners
         representing an additional  385,800  limited partner units  aggregating
         $192,900,000.

2         SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Leases

         The  Partnership  accounts for all of its leases in accordance with the
         operating method. Under the operating method,  revenue is recognized on
         a straight-line basis and expenses (including depreciation) are charged
         to  operations  as  incurred.   When  the  Partnership  enters  into  a
         utilization arrangement, rents are recorded as earned based upon actual
         use of the related aircraft.

         Leased aircraft

         The cost of leased aircraft represents the initial cost of the aircraft
         to the Partnership plus miscellaneous acquisition and closing costs and
         are carried at the lower of depreciated cost or net realizable value.

         Depreciation  is  computed  using the  straight-line  method,  over the
         estimated useful lives of such aircraft (15 years for McDonnell Douglas
         DC9-32 aircraft, 12 to 12.5 years for Boeing 737-200 Advanced aircraft,
         Boeing  727-200   Advanced   aircraft  and  McDonnell   Douglas  DC9-51
         aircraft).  The Partnership capitalizes major additions to its aircraft
         and depreciates such capital  improvements over the remaining estimated
         useful life of the aircraft.
<PAGE>
                          AIRCRAFT INCOME PARTNERS L.P.

                          NOTES TO FINANCIAL STATEMENTS

                   YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

2         SUMMARY OF- SIGNIFICANT ACCOUNTING POLICIES (continued)

         When  aircraft  are  sold  or  otherwise  disposed  of,  the  cost  and
         accumulated  depreciation  (and any  related  allowance  for  equipment
         impairment)  are removed from the accounts and any gain or loss on such
         sale or disposal is reflected in  operations.  Normal  maintenance  and
         repairs are charged to operations as incurred. The Partnership provides
         allowances for equipment  impairment  based upon a quarterly  review of
         all aircraft in its portfolio,  when  management  believes that,  based
         upon market analysis,  appraisal  reports and leases currently in place
         with respect to specific aircraft,  the investment in such aircraft may
         not be recoverable.

         The allowance is inherently  subjective and is based upon  management's
         best estimate of current  conditions  and  assumptions  about  expected
         future conditions. The Partnership may provide for additional losses in
         subsequent years and such provisions could be material.

         Financial statements

         The financial  statements include only those assets,  liabilities,  and
         results of operations which relate to the business of the Partnership.

         Cash and cash equivalents

         For the  purpose  of the  statements  of cash  flows,  the  Partnership
         considers all short-term  investments which have original maturities of
         three months or less to be cash equivalents.

         Substantially  all of the  Partnership's  cash and cash equivalents are
         held at one financial institution.

         Fair value of financial instruments

         The fair value of financial  instruments  is determined by reference to
         market  data  and  other  valuation  techniques  as  appropriate.   The
         Partnership's  financial  instruments include cash and cash equivalents
         and a note receivable.  Unless otherwise  disclosed,  the fair value of
         financial instruments approximates their recorded values.

         Deferred costs

         Deferred  costs  represent  amounts  paid,  directly  or  through  rent
         credits,  based upon the terms of certain leases, for maintenance which
         enhanced  the  marketability  of  such  aircraft.  Deferred  costs  are
         amortized over the terms of the remarketed lease.

         Maintenance reserves

         Maintenance  reserves  represent  cash received in accordance  with the
         terms of the leases of certain  aircraft,  which has been set aside for
         certain required repairs or scheduled maintenance on the aircraft.
<PAGE>
                          AIRCRAFT INCOME PARTNERS L.P.

                          NOTES TO FINANCIAL STATEMENTS

                   YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994


2         SUMMARY OF- SIGNIFICANT ACCOUNTING POLICIES (continued)
         Deferred income

         Deferred income is comprised of the unearned portion of advance rentals
         received with respect to the leases of the aircraft.

         Net income and distributions per unit of limited partnership interest

         Net income and distributions per unit of limited  partnership  interest
         are  computed  based  upon the number of units  outstanding  (385,805),
         during the years ended December 31, 1996, 1995 and 1994.

         Income taxes

         No provisions have been made for federal, state and local income taxes,
         since they are the personal responsibility of the partners.

         The income tax returns of the Partnership are subject to examination by
         federal,  state and local taxing  authorities.  Such examinations could
         result in adjustments to  Partnership  income or losses,  which changes
         could affect the income tax liability of the individual partners.

         Reclassifications

         Certain  reclassifications  have been made to the financial  statements
         shown for the prior  years in order to  conform to the  current  year's
         classifications.

         Estimates

         The  preparation  of  the  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.

3         CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES

         The  general  partner  of the  Partnership,  Integrated  Aircraft  Fund
         Management  Corp.  ("IAFM"),  is a wholly owned  subsidiary of Presidio
         Capital  Corp.  ("Presidio").  Other limited  partnerships  and similar
         investment  programs  have been formed by affiliates of IAFM to acquire
         equipment and, accordingly, conflicts of interest may arise between the
         Partnership  and such other  limited  partnerships.  Affiliates of IAFM
         have also engaged in businesses  related to the management of equipment
         and the sale of various  types of equipment  and may transact  business
         with the Partnership.
<PAGE>
                          AIRCRAFT INCOME PARTNERS L.P.

                          NOTES TO FINANCIAL STATEMENTS

                   YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

3         CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES(continued)

         Subject  to the  rights  of the  Limited  Partners  under  the  Limited
         Partnership  Agreement,  Presidio controls the Partnership  through its
         indirect ownership of all of the shares of IAFM. Presidio is managed by
         Presidio Management  Company,  LLC ("Presidio  Management"),  a company
         controlled  by a director  of  Presidio.  Presidio  is also party to an
         administrative   services   agreement   with  Wexford   Management  LLC
         ("Wexford") pursuant to which Wexford is responsible for the day-to-day
         management  of Presidio  and,  among other  things,  has  authority  to
         designate  directors of IAFM.  During the year ended December 31, 1996,
         reimbursable  expenses  to  Wexford  by  the  Partnership  amounted  to
         $34,184.

         Presidio is a liquidating  company.  Although Presidio has no immediate
         plans to do so, it will  ultimately seek to dispose of the interests it
         acquired from Integrated Resources, Inc. through liquidation;  however,
         there can be no  assurance  of the  timing of such  transaction  or the
         effect it may have on the Partnership.

         IAFM is entitled to a 10 percent  interest in the net income,  loss and
         distributions  from operations and cash from sales. For the years ended
         December  31,   1996,   1995  and  1994,   IAFM   received  or  accrued
         distributions  approximating  $1,736,000,  $1,372,000  and  $1,329,000,
         respectively.

         In  June  1992,  IAFM  assumed   responsibilities  to  provide  certain
         management services previously provided by Citicorp Aircraft Management
         Inc. ("CAMI").  IAFM has also retained the aviation  consulting firm of
         Simat,  Helliesen  &  Eichner,  Inc.  ("SH&E")  to  provide  consulting
         services  with respect to the  Partnership.  Services to be provided by
         SH&E  include  advice  as to  commercial  aviation  market  conditions,
         long-term marketing and financial strategies,  as well as technical and
         financial advice on the sale or re-lease of the Partnership's aircraft.

         IAFM has also entered into an agreement  with  Aviation  Capital  Group
         ("ACG"),  an entity comprised  primarily of former  management of IAFM,
         pursuant to which ACG will perform remarketing services with respect to
         the sale or re-lease of certain of the Partnership's  aircraft. ACG has
         previously performed certain administrative services for IAFM.

         All costs  associated  with the  retention  of SH&E and ACG (other than
         normal competitive aircraft sales commissions,  if any) will be paid by
         IAFM.

         As  compensation  for  the  foregoing   services,   IAFM  receives  the
         management fee provided for in the Limited Partnership  Agreement which
         is equal to 4% of  Distributions of Cash from Operations from Operating
         Leases and 2% of Distributions of Cash from Operations from Full Payout
         Leases, as such terms are defined in the Limited Partnership Agreement.
         In  conjunction  with such  services,  IAFM earned  management  fees of
         $422,000, $548,000 and $521,000, for the years ended December 31, 1996,
         1995 and 1994, respectively.
<PAGE>
                          AIRCRAFT INCOME PARTNERS L.P.

                          NOTES TO FINANCIAL STATEMENTS

                   YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

3         CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES(continued)

         Upon ultimate  liquidation of the Partnership,  IAFM may be required to
         remit to the Partnership certain payments  representing capital account
         deficit  restoration  based upon a formula  provided within the Limited
         Partnership  Agreement.  Such  restoration  amount may be less than the
         recorded IAFM's  deficit,  which could result in  distributions  to the
         limited partners of less than their recorded equity.

         In April 1995,  IAFM and certain  affiliates  entered into an agreement
         with Fieldstone Private Capital Group, L.P.  ("Fieldstone") pursuant to
         which  Fieldstone   performs  certain   management  and  administrative
         services   relating  to  the  Partnership.   Substantially   all  costs
         associated with the retention of Fieldstone will be paid by IAFM.
<PAGE>
                          AIRCRAFT INCOME PARTNERS L.P.

                          NOTES TO FINANCIAL STATEMENTS

                   YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

4         DEFERRED RENTS AND MODIFICATION ADVANCES RECEIVABLE

         Deferred rents and  modification  advances  receivable from Continental
         Airlines, Inc. are summarized as follows:
<TABLE>
<CAPTION>
                                                                                       December 31,
                                                                           -----------------------------------
                                                                                 1996                1995
                                                                           ---------------     ---------------
<S>                                                                        <C>                 <C>      
              12% note due in 66 monthly installments of $805
                  commencing June 1, 1992, to  and  including
                  November 1, 1997, the date of expiration.  All
                  installments are of interest and principal.              $         8,346     $        16,468

              12% note due in 56 monthly installments of $907
                  commencing  May 1, 1993, to  and  including
                  December 1, 1997, the date of expiration. All
                  installments are of interest and principal.                       10,211              19,274

              8.64% note due in 42 monthly  installments  of
                  $16,870  commencing  October 1, 1993, to and
                  including  March 1, 1997,  the date of expiration.
                  All installments are of interest and principal.                   49,889     $       239,045

              12% note due in 1 monthly  installment  of $11,286 on 
                  November 1, 1993,   followed  by  48  monthly 
                  installments   of  $13,984 commencing  December
                  1, 1993, to and  including  November 1, 1997, the
                  date of expiration. All installments are of interest
                  and principal.                                                   144,982             286,055

              12% note  due  in 46 monthly installments of $3,955
                  commencing February 1, 1994, to and including
                  November 1,  1997,  the  date of expiration. All
                  installments are of interest and principal.                       41,004              80,903
                                                                           ---------------     ---------------

                                                                           $       254,432     $       641,745
                                                                           ===============     ===============
</TABLE>
<PAGE>
                          AIRCRAFT INCOME PARTNERS L.P.

                          NOTES TO FINANCIAL STATEMENTS

                   YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994


5         LEASED AIRCRAFT

         Leased aircraft and related equipment, is summarized as follows:
<TABLE>
<CAPTION>
                                                                                       December 31,
                                                                           -----------------------------------
                                                                                 1996                1995
                                                                           ---------------     ---------------
<S>                                                                        <C>                 <C>
              Five Boeing   737-200   Advanced   aircraft  (net  of 
                  accumulated  depreciation  of $33,689,105  and 
                  $30,771,499 and an allowance  for equipment
                  impairment of $16,468,000 at December 31,
                  1996 and 1995)                                           $     9,240,270     $    12,157,876

              Four Boeing   727-200   Advanced   aircraft  (net  of 
                  accumulated depreciation  of $27,805,929  and
                  $24,286,739 and an allowance for equipment
                  impairment of $9,414,000 at December 31,
                  1996 and 1995)                                                 9,589,060          13,108,250

              Three McDonnell Douglas  DC9-32 aircraft (net of
                  accumulated depreciation of $11,152,473 and
                  $9,864,239  and an allowance  for  equipment
                  impairment  of  $1,618,000  at  December  31,
                  1996 and 1995)                                                 8,700,089           9,988,323

              One McDonnell   Douglas   DC9-51   aircraft (net  of 
                  accumulated depreciation  of  $6,274,895  and
                  an allowance  for  equipment impairment of
                  $2,425,000 at December 31, 1995)                                   -               3,104,855

              One Boeing   737-200   Advance   aircraft (net  of 
                  accumulated  depreciation  of  $7,321,024  and 
                  an allowance  for  equipment  impairment
                  of $2,300,000 at December 31, 1995)                                -               3,509,603
                                                                           ---------------     ---------------
                                                                           $    27,529,419     $    41,868,907
                                                                           ===============     ===============
</TABLE>
         Minimum  future  rentals  receivable  on  noncancelable  leases  as  of
         December 31, 1996 (except as described below) are due as follows:
<TABLE>
<CAPTION>
              Year ending December 31,
<S>                                               <C>
                  1997                            $       7,333,000
                  1998                                    1,586,000
                                                  -----------------
                                                  $       8,919,000
                                                  =================
</TABLE>
<PAGE>
                          AIRCRAFT INCOME PARTNERS L.P.

                          NOTES TO FINANCIAL STATEMENTS

                   YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994


5         LEASED AIRCRAFT (continued)

         The amounts in the above table do not reflect  potential  rent credits,
         as  provided  for  under  certain  leases,  to fund  the  Partnership's
         obligations under such leases.

         Maintenance  and repairs expense for the years ended December 31, 1996,
         1995 and 1994 was $1,963, $163,772 and $24,022, respectively.

6         DISTRIBUTIONS TO PARTNERS

         Distributions  payable to partners  represent  distributable  cash from
         operations,  as defined in the Limited Partnership  Agreement,  for the
         fourth  quarter  of 1996 and 1995.  Distributions  payable  to  limited
         partners  were  $5.50  and  $8.00  per  limited  partnership  unit  and
         distributions  payable to IAFM  aggregated  $235,770  and  $342,938  at
         December 31, 1996 and 1995, respectively.

7         RECONCILIATION OF NET INCOME AND NET ASSETS PER FINANCIAL STATEMENTS
          TO TAX BASIS

         The principal  differences between the financial statements and the tax
         basis  of  accounting  are  accelerated   depreciation  taken  for  tax
         purposes,  the tax treatment of an aircraft  purchased subject to a tax
         benefit  transfer,  and the  write-off  for tax purposes of certain bad
         debts  provided for financial  statement  purposes in previous  periods
         offset by provisions for equipment impairment  recognized for financial
         statement  purposes.  A  reconciliation  of net  income  per  financial
         statements to the tax basis of accounting is as follows:
<TABLE>
<CAPTION>

                                                                   Year ended December 31,
                                                       --------------------------------------------
                                                           1996            1995             1994
                                                       -----------     -----------      -----------
<S>                                                    <C>             <C>              <C>
Net income per financial statements ..............     $ 5,988,174     $ 1,496,774      $   564,907

Tax depreciation in (excess) of financial
  statement depreciation .........................         869,343         (15,767)      (1,449,977)

Provision for equipment impairment provided for
  financial statement purposes ...................            --              --            848,000

Difference  between  financial  statements and tax
  basis in aircraft sold or disposed of ..........       4,266,647            --               --

Difference  between  financial  statements and tax
  basis in reserves ..............................         362,698         803,338          680,623

</TABLE>
<PAGE>
                          AIRCRAFT INCOME PARTNERS L.P.

                          NOTES TO FINANCIAL STATEMENTS

                   YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994


7        RECONCILIATION OF NET INCOME AND NET ASSETS PER FINANCIAL
         STATEMENTS TO TAX BASIS (continued)
<TABLE>
<CAPTION>

                                                                 Year ended December 31,
                                                  ------------------------------------------------
                                                       1996              1995             1994
                                                  ------------      ------------      ------------
<S>                                               <C>               <C>               <C>
Difference  between tax basis and  financial
  statement  treatment of aircraft subject to
  Temporary Regulation Section
  5c.168(f)(8)-2(a)(5) of the Internal
  Revenue Code ..............................       (1,189,364)       (1,006,685)         (861,209)


Financial statement recognition of advance
  rental payments recognized in prior periods
  for tax purposes ..........................          (47,666)             --              72,274
                                                  ------------      ------------      ------------

Net income (loss) per tax basis .............     $ 10,249,832      $  1,277,660      $   (145,382)
                                                  ============      ============      ============

</TABLE>
<PAGE>
                          AIRCRAFT INCOME PARTNERS L.P.

                          NOTES TO FINANCIAL STATEMENTS

                   YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

         The  differences  between the  Partnership's  net assets per  financial
         statements and tax basis of accounting are as follows:
<TABLE>
<CAPTION>
                                                           December 31,
                                                      1996             1995
                                                 ------------      ------------
<S>                                              <C>               <C>
Net assets per financial statements ........     $ 34,661,785      $ 46,034,837

Net carrying value of aircraft .............      (10,631,459)      (15,885,296)

Syndication costs ..........................       22,665,750        22,665,750

Tax basis of aircraft purchased subject to
    Temporary Regulation Section
    5c.168(f)(8)-2(a)(5) of the
    Internal Revenue Code ..................        6,183,974         7,373,338

Receipt of:
     - advanced rental payment .............          131,550           179,216
     - maintenance reserves ................        2,167,329         1,922,478

Other ......................................           65,238            65,238
                                                 ------------      ------------

Net assets per tax basis ...................     $ 55,244,167      $ 62,355,561
                                                 ============      ============

</TABLE>
<PAGE>
                          AIRCRAFT INCOME PARTNERS L.P.

                          NOTES TO FINANCIAL STATEMENTS

                   YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

8        MAJOR LESSEES

         Revenues from aircraft  leased by individual  lessees,  which generated
         10% or more of leasing revenues, are as follows:
<TABLE>
<CAPTION>
                                                                   Year ended December 31,
                                                 --------------------------------------------------------
                                                          1996                1995                1994
                                                 ----------------    ----------------    ----------------
<S>                                               <C>                <C>                 <C>   

           Continental Airlines, Inc.             $     2,322,000    $      2,322,000    $      2,322,000
           % of revenues                                  24%                 20%                 17%

           Aloha Airlines, Inc.                   $      2,023,650   $      3,095,216    $      3,095,216
           % of revenues                                  21%                 26%                 23%

           American Trans Air, Inc.               $     1,781,168    $      1,781,168    $           -
           % of revenues                                  18%                 15%                 - %

           Ladeco S.A.                            $     1,140,000    $      1,140,000    $           -
           % of revenues                                  12%                 10%                 - %

           Southwest Airlines, Co.                $     1,087,667    $      1,817,000    $      2,812,613
           % of revenues                                  11%                 15%                 21%

           USAir, Inc.                            $          -       $           -       $      1,648,995
           % of revenues                                  -%                   -%                  12%
</TABLE>
9         BUSINESS SEGMENTS

         The Partnership leases aircraft  domestically and in foreign countries.
         Below  is a  breakdown  of the  Partnership's  aircraft  and  operating
         results by geographic location:
<TABLE>
<CAPTION>

                                                                     Year ended December 31, 1996
                                                     -------------------------------------------------------
                                                           United             Western
                                                            States            Pacific              Chile
                                                     ----------------    ---------------     ---------------
<S>                                                  <C>                 <C>                 <C>
                  Rental revenues                    $      7,699,275    $       895,056     $     1,140,000
                  Net income (loss)                  $      5,453,602    $      (201,373)    $       735,945
                  Leased aircraft - net              $     21,522,018    $     3,564,751     $     2,442,650
</TABLE>
<PAGE>
                          AIRCRAFT INCOME PARTNERS L.P.

                          NOTES TO FINANCIAL STATEMENTS

                   YEARS ENDED DECEMBER 31,1996, 1995 AND 1994

9         BUSINESS SEGMENTS (continued)
<TABLE>
<CAPTION>

                                                                     Year ended December 31, 1995
                                                     -------------------------------------------------------
                                                           United             Western
                                                            States            Pacific              Chile
                                                     ----------------    ---------------     ---------------
<S>                                                  <C>                 <C>                 <C>
                  Rental revenues                    $      9,785,028    $       895,056     $     1,140,000
                  Net income (loss)                  $      2,130,886    $      (194,220)    $      (439,892)
                  Leased aircraft - net              $     34,574,058    $     4,557,407     $     2,737,442
<CAPTION>

                                                                     Year ended December 31, 1994
                                                     -------------------------------------------------------
                                                           United             Western
                                                            States            Pacific              Chile
                                                     ----------------    ---------------     ---------------
<S>                                                  <C>                 <C>                 <C>
                  Rental revenues                    $     11,276,634    $       895,056     $     1,140,000
                  Net income (loss)                  $      1,606,904    $      (231,241)    $      (810,756)
                  Leased aircraft, net               $     42,904,076    $     5,550,063     $     4,209,239
</TABLE>


10        COMMITMENTS AND CONTINGENCIES

         a Southwest Airlines Co.

         During May 1991,  the  Partnership  entered into a 23-month  lease with
         Southwest Airlines Co. ("Southwest").  In August 1992, Southwest agreed
         to extend  the lease of one Boeing  737-200  Advanced  aircraft  for an
         additional  three  year  period at a reduced  rate.  Additionally,  the
         Partnership  had  agreed to  contribute  certain  amounts  towards  the
         installation  of a Traffic  Collision  Avoidance  System and  windshear
         detection,  amongst other items, in the form of rent credits.  To date,
         the Partnership has contributed approximately $304,000 as rent credits.

         In July 1995, Southwest agreed to a second lease extension on the lease
         scheduled to terminate in November  1995,  for an  additional  two year
         period.  During the second  lease  extension,  the lease  provides  for
         increased rentals of approximately 125% of the prior lease rate.

         In July 1994,  Southwest  agreed to extend the lease of another  Boeing
         737-200  Advanced  aircraft,   originally  scheduled  to  terminate  in
         November 1994, for an additional one year period.  During the extension
         period,  the lease provided for reduced rentals equal to  approximately
         29% of the original lease rate.
<PAGE>
                          AIRCRAFT INCOME PARTNERS L.P.

                          NOTES TO FINANCIAL STATEMENTS

                   YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

10        COMMITMENTS AND CONTINGENCIES (continued)

         a Southwest Airlines Co. (continued)

         On April 15,  1996,  the  Partnership  sold the  Southwest  the  Boeing
         737-200 Advanced aircraft leased to Southwest. The Partnership received
         proceeds of  approximately  $6,784,000,  net of an associated  aircraft
         sales  commission  and other related  costs.  The net proceeds from the
         sale were  distributed  to the  partners of the  Partnership  in August
         1996.  The  Southwest   aircraft  was   originally   purchased  by  the
         Partnership  in July 1988 for  approximately  $12,804,000  inclusive of
         associated  acquisition  costs. As of April 15, 1996, when it was sold,
         the net carrying  value of the aircraft  was  approximately  $3,216,000
         (net of allowance for equipment impairment of $2,300,000).

         b Hawaiian Airlines, Inc.

         On September 21, 1993, Hawaiian Airlines, Inc. ("Hawaiian"), the lessee
         of a McDonnell Douglas Model DC9-51 aircraft (the "Hawaiian Aircraft"),
         filed  a  voluntary  petition  for   reorganization   pursuant  to  the
         provisions  of Chapter  11 of the United  States  Bankruptcy  Code.  On
         August 30, 1994 the United  States  Bankruptcy  Court  entered an order
         confirming  Hawaiian's  plan of  reorganization.  On September 12, 1994
         (the  "Effective  Date"),  Hawaiian's  plan  of  reorganization  became
         effective.

         Hawaiian had failed to make required monthly payments due November 1992
         and December 1992, under a lease  restructuring.  In January 1993, IAFM
         along  with a certain  affiliated  entities,  entered  into an  interim
         settlement   agreement  with  Hawaiian,   pursuant  to  which  Hawaiian
         consented  to the  issuance of a temporary  restraining  order with the
         First Circuit Court of Hawaii,  requiring  Hawaiian to cease  operating
         the Hawaiian Aircraft without compensation to the Partnership.

         In March  1993,  the  Partnership  agreed  to  forebear  from  filing a
         restraining order in consideration of Hawaiian's agreement to make four
         weekly rental payments aggregating $50,000; all four payments were made
         by Hawaiian. On May 18, 1993, Hawaiian proposed a revised restructuring
         plan under which  Hawaiian  established  a fair market value rental for
         the Hawaiian Aircraft equal to approximately  $55,000 per month.  Under
         the revised  restructuring  plan,  Hawaiian was scheduled to pay 80% of
         the fair market rental, on a weekly basis, through December 1993.

         In July 1993,  Hawaiian  indicated that due to its continuing cash flow
         problems,  it would seek to  further  reduce  its  rental  payments  to
         approximately 50% of the fair market rental (approximately  $27,500 per
         month).  Hawaiian  continued to operate the  Hawaiian  Aircraft and had
         paid monthly  rentals equal to  approximately  $27,500 per month,  on a
         weekly basis, through December 1993.

         In January 1994, Hawaiian commenced making weekly rental payments equal
         to approximately  $60,000 per month. Hawaiian had continued to make its
         weekly payments at such rate through September 1, 1994.
<PAGE>
                          AIRCRAFT INCOME PARTNERS L.P.

                          NOTES TO FINANCIAL STATEMENTS

                   YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

10        COMMITMENTS AND CONTINGENCIES (continued)

         b Hawaiian Airlines, Inc. (continued)


         In September 1994, the  Partnership  entered into a new lease (the "New
         Lease") with Hawaiian  which  commenced on the Effective  Date. The New
         Lease  provided  for monthly  rentals of  $60,000,  payable on a weekly
         basis,  which stepped up to $65,000 per month effective  August 1, 1995
         through November 1999.

         The  Partnership  and  Hawaiian had entered into an agreement to settle
         both the  Partnership's  proof of claim  and its  administrative  claim
         filed in the  Hawaiian  bankruptcy  case with  respect to the  Hawaiian
         Aircraft.  Hawaiian has since settled such claims  through the issuance
         of Hawaiian Class A Common stock to the  Partnership.  During 1995, the
         Partnership sold all shares for net proceeds aggregating $1,045,941.

         On September 1, 1996, the  Partnership  and Hawaiian  amended the lease
         agreement of the Hawaiian  Aircraft.  Under the terms of the agreement,
         Hawaiian  paid the  Partnership  a down  payment  of  $450,000  and the
         balance  will be paid in monthly  installments  (39 payments of $72,000
         and then 36 payments of $50,000) until November 30, 2002, at which time
         Hawaiian has a bargain purchase option of the aircraft. The Partnership
         has treated this  transaction as an installment sale and has classified
         the  net  present  value  of  the  anticipated  future  cash  flows  of
         approximately    $4,052,000    on   the    balance    sheet   as   note
         receivable-installment  sale.  On  September  1,  1996 the  Partnership
         removed the associated cost of the equipment and the net carrying value
         from the books of the Partnership, and recognized a gain on the sale of
         approximately $1,655,000.

         c Continental Airlines, Inc.

         The Partnership  originally owned three McDonnell  Douglas Model DC9-32
         aircraft and three Boeing Model  727-100  aircraft  (collectively,  the
         "Continental Aircraft") which were leased to Continental Airlines, Inc.
         ("Continental")  for terms  originally  scheduled to expire in November
         1993. On December 3, 1990, Continental Airlines Holdings,  Inc. and its
         subsidiary  companies,  including  Continental,  filed a  petition  for
         reorganization  under the United States Bankruptcy Code. In April 1993,
         Continental's  plan of  reorganization  was confirmed by the Bankruptcy
         Court.
<PAGE>
                          AIRCRAFT INCOME PARTNERS L.P.

                          NOTES TO FINANCIAL STATEMENTS

                   YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

10        COMMITMENTS AND CONTINGENCIES (continued)

        c Continental Airlines, Inc. (continued)

         In October 1991,  the  Partnership  and  Continental  restructured  the
         leases  of the three  McDonnell  Douglas  Model  DC9-32  aircraft  (the
         "Continental   Restructured  Leases"),  under  which  the  leases  were
         extended  to December 1, 1997.  Pursuant  to the  restructuring,  rents
         accrued at a rate of $76,500 per aircraft per month effective September
         1, 1990 for 13 months,  with simple interest  accruing at a rate of 12%
         per annum (the "Continental Deferred Rents") and were to be repaid over
         a 36 month period commencing July 1, 1992. The accrual of such interest
         is included in other revenue on the  statements  of operations  and the
         related  receivable  is  included in  deferred  rents and  modification
         advances receivable on the balance sheets.

         The Continental Restructured Leases provide for monthly rental payments
         of $64,500 per  aircraft  per month to December 1, 1997.  Additionally,
         either Continental or the Partnership may fund certain improvements and
         modifications to such Continental  Aircraft,  however,  if such amounts
         are funded by  Continental,  the Partnership  will allow  Continental a
         rental credit with simple interest accruing at a rate of 12% per annum.

         Continental  is obligated to repay the aggregate  rental credits taken,
         as  well as any  modifications  funded  by the  Partnership,  over  the
         remaining term of the Continental Restructured Leases accruing interest
         at a rate of 12% per  annum.  To date,  such  credits  and  Partnership
         fundings  have  aggregated  approximately  $762,400  and the  remaining
         amounts to be recovered are included in deferred rents and modification
         advances  receivable on the balance  sheets as of December 31, 1996 and
         1995.

         In October  1992,  the  Partnership  and  Continental  entered  into an
         agreement  to defer  rentals  due  under the  Continental  Restructured
         Leases for a three month period beginning  January 1, 1993 (the "Second
         Continental  Rent  Deferral").  Pursuant  to the  terms  of the  Second
         Continental Rent Deferral,  the deferred rents (aggregating  $580,500),
         plus  interest  accruing  at a rate equal to 8.64%.  Through  March 31,
         1997, Continental has repaid the Second Continental Rent Defferal.

         In November 1991,  Continental  rejected the leases of the three Boeing
         727-100 aircraft,  which had been out of service since 1991. Due to the
         condition and the related  market for such  aircraft,  the  Partnership
         provided aggregate allowances for equipment impairment of approximately
         $6,483,000.  During 1993, the Partnership sold all three Boeing 727-100
         aircraft.  The  Partnership  retains its rights  pursuant to a proof of
         claim and an administrative  claim filed in the Continental  Bankruptcy
         case with respect to such  aircraft.  The amount of recovery under such
         claims, if any, is impossible to predict at this time.
<PAGE>
                          AIRCRAFT INCOME PARTNERS L.P.

                          NOTES TO FINANCIAL STATEMENTS

                   YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

         d     Continental Air Micronesia

         On January 20, 1993, the Partnership  leased a Boeing 727-200  Advanced
         aircraft to  Continental  for a term of  approximately  71 months to be
         used by Continental Air Micronesia (the "Air Mike Lease"). The Air Mike
         Lease  provides  for  a  monthly  base  rent  of  $76,750,  subject  to
         adjustments  for  rental  credits  relating  to  initial  modifications
         (including Traffic Collision  Avoidance Systems,  windshear  detection,
         upgrade  avionics and auxiliary  fuel tank)  aggregating  approximately
         $794,000, of which approximately  $300,000 has been contributed in cash
         and the  balance  will be  contributed  in the form of  rental  credits
         provided  to  Continental.  Continental  will be  allowed  to take such
         rental credits ($13,741 per month through May 1996) such that they will
         recoup  their  aggregate  cost of the initial  modifications  over a 36
         month period with interest at 9.31% per annum. Further, the Partnership
         has agreed to provide up to $813,500 of financing for certain new image
         modifications  through credits ("Lessor Financing") against base rental
         payments due from  Continental.  Continental will then repay any Lessor
         Financing credits through monthly  installments which will be amortized
         at the rate of 9.31%  per annum  over the then  remaining  lease  term.
         Through  December 31, 1996, the Partnership  had provided  financing of
         approximately  $755,000.  Such  amounts,  net of  amounts  repaid,  are
         included  within  deferred  costs on the balance  sheet at December 31,
         1996 and 1995.

         e      Ladeco S.A.

         During 1993, the  Partnership  consummated  two leases with Ladeco S.A.
         ("Ladeco"), each for a Boeing 737-200 Advanced aircraft for terms of 48
         and 60 months.  Both leases  provide for,  among other things,  monthly
         rentals of $47,500 each, plus certain maintenance  reserves for engines
         and landing gear,  based upon the number of hours flown. As of December
         31,  1996,   such   maintenance   reserves   aggregated   approximately
         $1,376,000. At lease inception of both aircraft, Ladeco paid a security
         deposit of $125,000  per  aircraft.  Pursuant to the terms of the above
         mentioned  leases,  the  Partnership  removed the two aircraft from the
         United States Federal Aviation  Administration ("FAA") Registry causing
         the  aircraft  to  be  re-registered   under  Chilean   Registry.   The
         Partnership  may be  obligated  to  contribute  in the  form of  rental
         credits, to the completion of certain airworthiness  directives and FAA
         regulations based on certain thresholds. The amount of such obligation,
         if any, is undeterminable at this time.

         f American Trans Air, Inc.

         In November 1993,  Alaska Airlines,  Inc.  ("Alaska"),  the lessee of a
         Boeing  727-200  Advanced  aircraft (in which the  Partnership  owns an
         undivided 47.92231% joint venture interest) (the "JV Aircraft") and the
         Partnership  agreed to terminate the lease which was to have originally
         terminated on May 1, 1994 (the "Alaska JV Lease").  In conjunction with
         the early  termination of the Alaska JV Lease,  the Partnership  leased
<PAGE>
                          AIRCRAFT INCOME PARTNERS L.P.

                          NOTES TO FINANCIAL STATEMENTS

                   YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

10        COMMITMENTS AND CONTINGENCIES (continued)

         f American Trans Air, Inc. (continued)


         the JV  Aircraft  to  American  Trans Air,  Inc.  ("ATA") for a term of
         approximately  36 months (the "ATA Lease").  The ATA Lease provides for
         monthly   rentals  of  $63,500  of  which   approximately   $30,400  is
         attributable  to  the  Partnership's   undivided  interest  in  the  JV
         Aircraft. Additionally,  Alaska made a termination payment based on the
         difference  between the  remaining  Alaska JV Lease rentals due and the
         ATA Lease rate  discounted  at 8% for the period from the delivery date
         of the ATA Lease through May 1, 1994.

         In May 1996, ATA exercised its renewal option for the JV Aircraft.  The
         lease, originally scheduled to expire in November 1996, was renewed for
         an additional two years at the same lease rate.

         g Aloha Airlines, Inc.

         In December  1993,  Aloha  Airlines,  Inc.  ("Aloha"),  the lessee of a
         Boeing  737-200  Advanced  aircraft  (the  "Aloha  Aircraft")  and  the
         Partnership agreed to amend the terms of its lease which was originally
         scheduled to  terminate  on  September  1, 1994.  Pursuant to the lease
         amendment,  Aloha agreed to extend the term of the lease to February 1,
         1996,  providing for rentals of approximately 66% of the original lease
         rate plus maintenance  reserves,  both payable quarterly in arrears. As
         of December  31,  1996,  the balance for such  maintenance  reserves is
         approximately  $791,000,  inclusive  of  a  $391,000  return  provision
         allowance.

         The Aloha  Aircraft  is subject to a tax benefit  transfer  lease ("TBT
         Lease") under which Allied Signal, the TBT Lessor,  retains the federal
         income  tax  benefits  that  normally  accrued  from  ownership  of the
         aircraft other than lease rentals.  There are approximately three years
         remaining on the TBT Lease, until May 21, 2000.

         Prior to the  originally  scheduled  expiration  of the Aloha  lease on
         February  1, 1996 the  Partnership  and Aloha  agreed to a three  month
         lease   extension  with  rent  based  on  $300  per  flight  hour.  The
         Partnership and Aloha subsequently agreed on a further short-term lease
         extension,  to October 15, 1996, on the same terms,  and on October 15,
         1996, the Aloha Aircraft was returned by Aloha to the  Partnership at a
         facility in Marana, Arizona.

         At Marana,  the Aloha  Aircraft is  undergoing  significant  repair and
         modification  work  required to bring it into  compliance  with certain
         current  FAA  standards  and to make it more  readily  marketable.  The
         Partnership is currently  engaged in actively  seeking a new lessee or,
         possibly  a  purchaser,   for  the  Aloha  Aircraft.   The  Partnership
         anticipates a lengthy remarketing process for the Aloha Aircraft.
<PAGE>
                          AIRCRAFT INCOME PARTNERS L.P.

                          NOTES TO FINANCIAL STATEMENTS

                   YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

10        COMMITMENTS AND CONTINGENCIES (continued)

         g Aloha Airlines, Inc. (continued)

         Additionally,  Aloha leases another Boeing  737-200  Advanced  aircraft
         from the  Partnership  which was scheduled to expire in accordance with
         its lease terms on August 15,  1996.  Aloha  agreed to a fifteen  month
         lease extension at 50% of the prior lease rate.

         h USAir, Inc.

         In  October  1994,  USAir,  Inc.  ("USAir"),  the  lessee of two Boeing
         727-200  Advanced  aircraft  (the  "USAir   Aircraft"),   notified  the
         Partnership  of its intention to terminate the leases  relating to such
         aircraft  effective December 31, 1994. In light of USAir's intention to
         terminate its leases,  the Partnership  entered into lease negotiations
         with ATA in an effort to  remarket  the USAir  Aircraft to ATA. To meet
         certain ATA fleet scheduling needs, USAir agreed,  pursuant to an early
         termination agreement,  to return one aircraft in November 1994 and the
         second aircraft in December 1994. The Partnership consummated the lease
         of one of the USAir  Aircraft to ATA in November  1994 and the lease of
         the second  USAir  Aircraft in  December  1994  (collectively  the "ATA
         Leases"). Each of the ATA Leases, with an initial term of approximately
         39 months ("Basic Term"),  provides for monthly rentals of $59,000. The
         Partnership  has  contributed  in the  form of cash or  rental  credits
         during  early 1995,  $75,000 per  aircraft  towards  bridging "C" check
         inspections.  In  addition,  if the  transition  to  ATA's  maintenance
         program  requires that both USAir  Aircraft  undergo heavy  maintenance
         checks during the Basic Term, an additional  $150,000 per aircraft will
         be contributed by the Partnership towards the completion of such work.

         Additionally,   during  the  Basic  Term,  ATA  may  request  that  the
         Partnership retrofit the ex-USAir Aircraft to comply with the Stage III
         noise  emission  standards  pursuant  to FAR  Part  36 of  the  Federal
         Aviation  Registry Act. In the event that the  Partnership  consents to
         the retrofitting of the USAir Aircraft, ATA will perform such work (the
         "Improvements")  as  may  be  required  to  bring  such  aircraft  into
         compliance with such standards. Upon completion of the Improvements and
         the return of the USAir Aircraft to revenue  service,  the  Partnership
         will reimburse ATA for the cost of the  Improvements.  In consideration
         for the Partnership's  consenting to the  Improvements,  the ATA Leases
         will be extended  for a term of five years from the date such  aircraft
         are  returned to service.  During  this five year  period,  the monthly
         rentals shall be increased by an amount  reflecting  the enhanced value
         of the USAir Aircraft including the Improvements. In addition, at lease
         inception, ATA paid security deposits of $59,000 per aircraft.
<PAGE>
                          AIRCRAFT INCOME PARTNERS L.P.

                          NOTES TO FINANCIAL STATEMENTS

                   YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 

10        COMMITMENTS AND CONTINGENCIES (continued)

         i Tax assessment

         In  September  1996,  the  Partnership  received  proposed  notices  of
         assessment  from the State of Hawaii with respect to general excise tax
         ("GET") of approximately  $1,338,000 (including interest and penalties)
         for the years 1991, 1992, 1993 and 1994. The state is alleging that GET
         is owed by the  Partnership  with respect to rents  received from Aloha
         Airlines, Inc. and Hawaiian Airlines, Inc. under the leases between the
         Partnership and each of the airlines.

         The   leases   with  both   Aloha  and   Hawaiian   provide   for  full
         indemnification  of the Partnership for such taxes,  but the bankruptcy
         of Hawaiian may relieve Hawaiian of its indemnification  obligation for
         any  periods  prior  to  September  21,  1993,  when  Hawaiian  and its
         affiliates  sought  bankruptcy  protection.  In  any  event,  it is the
         Partnership,  as taxpayer,  who is ultimately liable for the GET, if it
         is applicable.

         The state of Hawaii  has never  previously  applied  the GET to rentals
         received by a lessor of aircraft  where the lessor's  only contact with
         the state of  Hawaiian  is the fact that it has leased its  aircraft to
         airlines which are based in the state.  Aloha and Hawaiian,  as well as
         the Partnership, have separately engaged tax counsel and, both airlines
         are cooperating with the Partnership to vigorously contest the proposed
         assessments.

         Final notices of assessments  have not yet been issued.  Although there
         can be no  assurance  that  the  contest  of the  assessments  will  be
         successful,  the Partnership  believes that the state's position on the
         applicability of GET in this instance is without merit. The Partnership
         has not recorded any  liability as a result of the proposed  notices of
         assessments.

         j Complaints

         In December  1993, a class action  complaint was filed by Carla Wright,
         Plato Kinias, Gertrude E. Boland and Hilda Duarte purportedly on behalf
         of the limited  partners of the Partnership in the Supreme Court of the
         State of New York,  County of New York  (the "New York  Action").  This
         action was  substantially  identical to a class action filed by certain
         of the same  plaintiffs  in March  1993,  in the  District  of Columbia
         Superior  Court,  which action was dismissed in October  1993.  The New
         York Action also named as defendants the Partnership, IAFM, Dean Witter
         Reynolds,  Inc.,  Integrated  Resources  Marketing,   Inc.,  Integrated
         Resources  Equity  Corporation and CAMI. The complaint  alleged,  among
         other things,  that the offering  material used in connection  with the
         Partnership's  1988  public  offering  of  limited   partnership  units
         contained false and misleading representations  constituting common law
         fraud,  breach  of  fiduciary  duty and  negligence  on the part of the
<PAGE>
                          AIRCRAFT INCOME PARTNERS L.P.

                          NOTES TO FINANCIAL STATEMENTS

                   YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

10        COMMITMENTS AND CONTINGENCIES (continued)

         j Complaints (continued)

         defendants.   The  complaint  sought   rescission  of  the  plaintiffs'
         investment  in the  Partnership  plus  rescissionary  and  compensatory
         damages, plus interest and punitive damages.

         On February 8, 1994, the Partnership  filed a motion to dismiss the New
         York Action.  In response to such motion,  Plaintiffs  filed an Amended
         Complaint which,  among other things,  removed the Partnership and CAMI
         as  defendants.  Subsequent to the Amended  Complaint,  the  defendants
         filed a motion to dismiss that pleading.

         In October  1995,  the New York Action was  dismissed  in its  entirety
         without leave to replead.  Plaintiffs  filed a Notice of Appeal of that
         decision on or about January 26, 1996.  However, in a stipulation dated
         June 26, 1996, Plaintiffs agreed not to perfect their appeal, and their
         appeal expired as of October 26, 1996.

         The Partnership has reimbursed IAFM  approximately  $62,000 during 1996
         representing legal fees incurred by IAFM arising from such litigation.

11        AIRCRAFT SALES

         On April 15, 1996, the  Partnership  sold to Southwest a Boeing 737-200
         Advanced  aircraft  leased  to  Southwest.   The  Partnership  received
         proceeds of  approximately  $6,784,000,  net of an associated  aircraft
         sales  commission  and other related  costs.  The net proceeds from the
         sale were  distributed  to the  partners of the  Partnership  in August
         1996.  The  Southwest   aircraft  was   originally   purchased  by  the
         Partnership in July, 1988 for  approximately  $12,804,000  inclusive of
         associated  acquisition  costs. As of April 15, 1996, when it was sold,
         the net carrying  value of the aircraft  was  approximately  $3,216,000
         (net of allowance for equipment impairment of $2,300,000).

         On September 1, 1996, the  Partnership  and Hawaiian  amended the lease
         agreement of the Hawaiian  Aircraft.  Under the terms of the agreement,
         Hawaiian  will pay the  Partnership  a down payment of $450,000 and the
         balance  will be paid in monthly  installments  (39 payments of $72,000
         and then 36 payments of $50,000) until November 30, 2002, at which time
         Hawaiian has a bargain purchase option of the aircraft. The Partnership
         has treated this  transaction as an installment sale and has classified
         the  net  present  value  of  the  anticipated  future  cash  flows  of
         approximately    $4,052,000    on   the    balance    sheet   as   note
         receivable-installment  sale.  On  September  1,  1996 the  Partnership
         removed the associated cost of the equipment and the net carrying value
         from the books of the Partnership, and recognized a gain on the sale of
         approximately $1,655,000.
<PAGE>
                          AIRCRAFT INCOME PARTNERS L.P.

                          NOTES TO FINANCIAL STATEMENTS

                   YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994


12        STATUS OF INTEGRATED

         On February 13, 1990,  Integrated,  the former parent of IAFM,  filed a
         voluntary  petition for  reorganization  under Chapter 11 of the United
         States  Bankruptcy  Code.  While  the  Integrated  bankruptcy  did  not
         directly  affect  the  Partnership's  operations,  it has  resulted  in
         certain changes.

         On  August  8,  1994,  the  Bankruptcy   Court   confirmed  a  Plan  of
         Reorganization   (the   "Steinhardt   Plan")   proposed  by  Steinhardt
         Management   Company  and  the  official   Committee  of   Subordinated
         Bondholders,   and  on  November  3,  1994,  the  Steinhardt  Plan  was
         consummated.  Presidio  purchased  substantially  all of the  assets of
         Integrated,  including  its  interest  in IAFM.  Presidio  is a British
         Virgin  Islands  corporation  owned  12%  by  IR  Partners,  a  general
         partnership, and 88% by former creditors of Integrated.

         In March 1995, Presidio elected new directors for IAFM.  However,  some
         of its executive  officers  remain the same and certain of Integrated's
         former employees who performed services with respect to the Partnership
         have been  hired by  Wexford  Management  Corp.,  formerly  Concurrency
         Management Corp., which provides management and administrative services
         to Presidio,  its direct and indirect  subsidiaries,  as well as to the
         Partnership.  Effective  January  1,  1996,  Wexford  Management  Corp.
         assigned  its  agreement  to  provide   management  and  administrative
         services to Presidio and its subsidiaries to Wexford.
<PAGE>
<TABLE>
<CAPTION>


                                            AIRCRAFT INCOME PARTNERS L.P.
                                                                                                        Schedule II
                                   SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS 



                                                                  Additions
                                                          ---------------------- 
                                          Balance at      Charged to    Charged                          Balance at
                                        Beginning of      Costs and     to Other                           End of
               Description                 Period         Expenses      Accounts      Deductions           Period
               -----------                 ------         --------      --------      ----------           ------
<S>                                     <C>              <C>            <C>           <C>               <C>
YEAR ENDED DECEMBER 31, 1996

Leased aircraft - valuation
     allowance for equipment
     impairment

     Six Boeing 737-200 Advanced
        aircraft ..................     $18,768,000     $   --       $      --       $ 2,300,000(A)     $16,468,000

     Four Boeing 727-200 Advanced
        aircraft ..................       9,414,000         --              --              --            9,414,000

     Three McDonnell Douglas DC9-32
        aircraft ..................       1,618,000         --              --              --            1,618,000

     One McDonnell Douglas DC9-51
        aircraft ..................       2,425,000         --              --         2,425,000(A)            --

Allowance for uncollectible
     accounts - accounts receivable            --           --              --              --                 --
                                        -----------     --------     -----------     -----------        -----------

                                        $32,225,000     $   --       $      --       $ 4,725,000        $27,500,000
                                        ===========     ========     ===========     ===========        ===========


(A) Amounts reresent  valuation  allowances for equipment  impirment relating to
certain equipment sold during 1996.
                                                                                                        (continued)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                                                                               
                                            AIRCRAFT INCOME PARTNERS L.P.
                                                                                                           Schedule II
                             SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (continued)



                                                                  Additions
                                                          ---------------------- 
                                          Balance at      Charged to    Charged                             Balance at
                                        Beginning of      Costs and     to Other                              End of
               Description                 Period         Expenses      Accounts      Deductions              Period
               -----------                 ------         --------      --------      ----------              ------
<S>                                     <C>               <C>          <C>           <C>                  <C>
YEAR ENDED DECEMBER 31, 1995

Leased aircraft - valuation
     allowance for equipment
     impairment

     Six Boeing 737-200 Advanced
        aircraft ..................     $ 18,768,000     $   --       $       --     $       --           $ 18,768,000

     Four Boeing 727-200 Advanced
        aircraft ..................        9,414,000         --               --             --              9,414,000

     Three McDonnell Douglas DC9-32
        aircraft ..................        1,618,000         --               --             --              1,618,000

     One McDonnell Douglas DC9-51
        aircraft ..................        2,425,000         --               --             --              2,425,000

Allowance for uncollectible
     accounts - accounts receivable        1,176,065         --               --      (1,176,065)(B)             --
                                        ------------     --------     ----------      ------------        ------------

                                        $ 33,401,065     $   --       $       --     $(1,176,065)         $ 32,225,000
                                        ============     ========     ==========      ============        ============



(B) Represents allowance for uncollectable accounts written-off during 1995.
                                                                                                           (continued)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                            AIRCRAFT INCOME PARTNERS L.P.
                                                                                                          Schedule II
                             SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (continued) 



                                                                   Additions
                                                           -----------------------
                                          Balance at       Charged to     Charged                       Balance at
                                        Beginning of       Costs and      to Other                        End of
               Description                 Period          Expenses       Accounts      Deductions        Period
               -----------                 ------          --------       --------      ----------        ------
<S>                                     <C>             <C>             <C>            <C>               <C>
YEAR ENDED DECEMBER 31, 1994

Leased aircraft - valuation
     allowance for equipment
     impairment

     Six Boeing 737-200 Advanced
        aircraft ..................     $18,336,000     $   432,000     $      --      $      --       $18,768,000
                                                                                   
     Four Boeing 727-200 Advanced                                                  
        aircraft ..................       9,414,000            --              --             --         9,414,000
                                                                                   
     Three McDonnell Douglas DC9-32                                                
        aircraft ..................       1,202,000         416,000            --             --         1,618,000
                                                                                   
     One McDonnell Douglas DC9-51                                                  
        aircraft ..................       2,425,000            --              --             --         2,425,000
                                                                                   
Allowance for uncollectible                                                        
     accounts - accounts receivable         918,141         257,924            --             --         1,176,065
                                        -----------     -----------     -----------    -----------     -----------
                                                                                   
                                        $32,295,141     $ 1,105,924     $      --      $      --       $33,401,065
                                        ===========     ===========     ===========    ===========     ===========
                                                                        

</TABLE>
<PAGE>
Item 9.           Changes in and Disagreements with Accountants on Accounting 
                  and Financial Disclosure

None.

<PAGE>
PART III


Item 10. Directors and Executive Officers of Registrant

Registrant  has no  officers  or  directors.  The  General  Partner  manages and
controls substantially all of the affairs of Registrant. The names and positions
held by the  officers and  directors of the General  Partner as of March 1, 1997
are as follows:
<TABLE>
<CAPTION>
            Name                                              Position
            ----                                              --------
<S>                           <C>
Robert Holtz                  Director and Vice President
----------------------------- -----------------------------------------------------------
Mark Plaumann                 Director and Vice President
----------------------------- -----------------------------------------------------------
Douglas J. Lambert            President, Treasurer, Secretary and Chief Financial Officer
----------------------------- -----------------------------------------------------------
Jay L. Maymudes               Vice President
----------------------------- -----------------------------------------------------------
Arthur H. Amron               Vice President and Assistant Secretary
----------------------------- -----------------------------------------------------------
</TABLE>
Each director and officer of the General Partner will hold office until the next
annual meeting of stockholders of the General Partner and until his successor is
elected and qualified.

Robert  Holtz,  age 29, has been a Vice  President  and  Director of the General
Partner since  November  1994, a Vice  President and Secretary of Presidio since
its formation in August 1994 and a Vice  President  and  Assistant  Secretary of
Resurgence  Properties,  Inc.  ("Resurgence"),  a company engaged in diversified
real estate  activities  since its formation in March 1994.  Mr. Holtz is also a
Director and Vice President of XRC Corp.,  a holding  company that holds certain
former assets of Integrated,  since its formation in October 1994. Mr. Holtz has
been a Member and Senior Vice President of Wexford since January 1996.  From May
1994  through  December  1995,  Mr.  Holtz was  employed as a Vice  President of
Wexford  Management  Corp.,  the advisor and manager of Presidio and Resurgence.
From 1989 through May 1994, Mr. Holtz was employed by, and since 1993 was a Vice
President  of, Bear Stearns  Real Estate,  a firm engaged in all aspects of real
estate,  where he was responsible for analysis,  acquisitions  and management of
the assets owned by Bear Stearns Real Estate and its clients.

Mark  Plaumann,  age 41, has been a Director  and Vice  President of the General
Partner  since March 1995.  Mr.  Plaumann  has been a Senior Vice  President  of
Wexford since  January 1996.  From  February  1995 through  December  1995,  Mr.
Plaumann was  employed by Wexford  Management  Corp.  as a Vice  President.  Mr.
Plaumann has been a director of Technology Service Group, Inc., a comany engaged
in the  design,  development,  manufacturing  and sale of public  communications
products and services,  since March 1997, and a director in Wahlco Environmental
Systems,  Inc.,  a company  engaged  in the sale of air  pollution  control  and
specialty  engineered  products,  since June 1996. Mr.  Plaumann was employed by
Alvarez & Marsal, Inc., a crisis management  consultant,  as a Managing Director
from February 1990 through  January  1995,  by American  Healthcare  Management,
Inc., an owner  operator of hospitals from February 1985 to January 1990, and by
Ernst & Young from January 1973 to February 1985.
<PAGE>
Douglas J. Lambert,  age 39, was elected  President,  Treasurer and Secretary of
the General  Partner in March 1995.  Mr.  Lambert has been a Vice  President  of
Wexford since  January 1996.  From  November  1994 through  December  1995,  Mr.
Lambert was employed by Wexford  Management  Corp.  as an officer of the various
equipment  leasing  subsidiaries of Presidio.  Mr. Lambert joined  Integrated in
1983. Mr. Lambert has held various financial reporting positions for both public
and private  equipment  leasing  affiliates of Integrated.  In 1992, Mr. Lambert
became Senior Vice President in charge of finance in the Aircraft  Group/Private
Placement Division.

Jay L. Maymudes,  age 36, has been a Vice President of the General Partner since
November 1994, the Chief  Financial  Officer,  a Vice President and Treasurer of
Presidio since its formation in August 1994, the Chief  Financial  Officer and a
Vice  President  of  Resurgence  since  July  1994.  In  addition,  he served as
Assistant  Secretary  of  Resurgence  until  February  1995,  when he became the
Secretary. Mr. Maymudes is also a Vice President, Secretary and Treasurer of XRC
Corp.,  since its formation in October 1994. Mr. Maymudes has been a Senior Vice
President and Chief  Financial  Officer of Wexford since January 1996. From July
1994 through  December  1995,  Mr.  Maymudes was employed by Wexford  Management
Corp. as the Chief Financial  Officer and a Vice  President.  From December 1988
through June 1994,  Mr.  Maymudes was the  Secretary  and  Treasurer,  and since
February  1990 was the Senior  Vice  President  of Dusco,  Inc.,  a real  estate
investment advisor.

Arthur H. Amron,  age 40, has been a Vice  President and Assistant  Secretary of
the General  Partner and certain other  subsidiaries  of Presidio since November
1994. Mr. Amron has been a Senior Vice President and General  Counsel of Wexford
since January 1996.  From November  1994 through  December  1995,  Mr. Amron was
employed by Wexford Management Corp. as Vice President and General Counsel. From
1992  through  November  1994,  Mr.  Amron was an attorney  with the law firm of
Schulte,  Roth & Zabel.  From 1984 through 1992,  Mr. Amron was an attorney with
the law firm of Debevoise & Plimpton.

Messrs.  Holtz and Plaumann  also serve as directors of the general  partners of
the  following  limited   partnerships  whose  limited   partnership  units  are
registered under Section 12 of the Exchange Act: the American Leasing  Investors
series of limited  partnerships (Holtz and Plaumann),  the National Lease Income
Fund series of limited  partnerships  (Holtz and Plaumann),  High Cash Partners,
L.P. (Holtz and Plaumann),  Resources  Pension Shares 5, L.P.  (Holtz) and Vista
Properties (Plaumann). Each of the foregoing general partners is affiliated with
the Managing General Partner.

For information with respect to an agreement between the General Partner and ACG
regarding the performance of certain supervisory and administrative  services by
ACG with respect to Registrant see Item 1, "Business Employees".

Registrant believes,  based on written representations  received by it, that for
the year ended December 31, 1996 all filing  requirements under Section 16(a) of
the  Securities  Exchange  Act  of  1934  applicable  to  beneficial  owners  of
Registrant's  securities,  Registrant's  general  partners  and the officers and
directors of such general partners, were complied with.

Item 11. Executive Compensation

Registrant is not required to pay any  compensation to the officers or directors
of the  General  Partner.  The  General  Partner  does  not  currently  pay  any
compensation  to any  of its  officers  or  directors.  See  Item  13,  "Certain
Relationships and Related Transactions".
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management

As of March 1, 1997, no person owned of record or was known by Registrant to own
beneficially more than 5% of the Units of Registrant.

As of March 1, 1997,  none of the officers and directors of the General  Partner
was known by Registrant  to  beneficially  own Units or shares of Presidio,  the
parent of the General Partner.

The following  table sets forth  certain  information  known to Registrant  with
respect to beneficial ownership of the Class A Shares of Presidio as of March 1,
1997,  by each  person who  beneficially  owns 5% or more of the Class A Shares,
U.S.  $.01 par value.  The holders of Class A Shares are entitled to elect three
out of the five members of Presidio's  Board of Directors with the remaining two
directors being elected by holders of the Class B Shares, U.S. $.01 par value of
Presidio.
<TABLE>
<CAPTION>
                                              Beneficial                Ownership
Name of Beneficial Owner                  Number of Shares        Percentage Outstanding
----------------------------------------- -----------------  --------------------------- 
<S>                                          <C>                       <C>
Thomas F. Steyer/Fleur A. Fairman            4,553,560(1)              51.8%
----------------------------------------- -----------------  --------------------------- 
John M. Angelo/Michael L. Gordon             1,231,762(2)              14.0%
----------------------------------------- -----------------  --------------------------- 
Intermarket Corp.                            1,000,918(3)              11.4%
----------------------------------------- -----------------  --------------------------- 
M.H. Davidson and Co.                          474,205(4)               5.4%
----------------------------------------------------------------------------------------


(1)    As the  managing  partners of each of  Farallon  Capital  Partners,  L.P.
       ("FCP"), Farallon Capital Institutional Partners, L.P. ("FCIP"), Farallon
       Capital Institutional Partners II, L.P. ("FCIP II") and Tinicum Partners,
       L.P. ("Tinicum"),  (collectively, the "Farallon Partnerships"),  may each
       be deemed to own  beneficially for purposes of Rule 13d-3 of the Exchange
       Act  the   1,397,318,   1,610,730,   607,980  and  241,671  shares  held,
       respectively, by each of such Farallon Partnerships.

       Farallon Capital  Management,  LLC ("FCMLLC"),  the investment advisor to
       certain discretionary accounts which collectively hold 695,861 shares and
       Enrique H.  Boilini,  David I. Cohen,  Joseph F.  Downes,  Jason M. Fish,
       Andrew B. Fremder, William F. Mellin, Steven L. Millham, Meridee A. Moore
       and Thomas F. Steyer, as a managing member of FCMLLC  (collectively,  the
       "Managing  Members") may be deemed to be the  beneficial  owner of all of
       the shares owned by such discretionary accounts. FCMLLC and each Managing
       Member disclaims any beneficial ownership of such shares.

       Farallon Partners,  LLC ("FPLLC") (the general partner of FCP, FCIP, FCIP
       II and Tinicum),  and each of Fleur A. Fairman,  Mr. Boilini,  Mr. Cohen,
       Mr. Downes, Mr. Fish, Mr. Fremder, Mr. Mellin, Mr. Millham, Ms. Moore and
       Mr. Steyer, each as managing member of FPLLC (collectively, the "Managing
       Members"),  may be deemed to be the beneficial owner of all of the shares
       owned by FCP, FCIP,  FCIP II and Tinicum.  FPLLC and each managing Member
       disclaims any beneficial ownership of such shares.
<PAGE>
(2)    John  M.  Angelo  and  Michael  L.  Gordon,   the  general  partners  and
       controlling persons of AG Partners, L.P., which is the general partner of
       Angelo,  Gordon & Co., L.P., may be deemed to have  beneficial  ownership
       under  Section 13(d) of the Exchange Act of the  securities  beneficially
       owned by Angelo, Gordon & Co., L.P. and its affiliates.  Angelo, Gordon &
       Co., L.P., a registered investment advisor,  serves as general partner of
       various  limited  partnerships  and as investment  advisor of third party
       accounts with power to vote and direct the  disposition of Class A Shares
       owned by such limited partnerships and third party accounts.

(3)    Intermarket   Corp.   serves  as  General  Partner  for  certain  limited
       partnerships  and as  investment  advisor  to  certain  corporations  and
       foundations. As a result of such relationships,  Intermarket Corp. may be
       deemed  to have the  power to vote and the  power to  dispose  of Class A
       shares held by such partnerships, corporations and foundations.

(4)    Marvin H. Davidson,  Thomas L. Kempner Jr.,  Stephen M. Dowicz,  Scott E.
       Davidson  and  Michael J.  Leffell,  the  general  partners,  members and
       stockholders of certain  entities that are general partners or investment
       advisors of Davidson Kempner Endowment  Partners,  L.P., Davidson Kempner
       Partners,  L.P.,  Davidson  Kempner  Institutional  Partners,  L.P., M.H.
       Davidson and Co., Davidson Kempner International Ltd.  (collectively, the
       "Investment  Funds"),  may be deemed to be the  beneficial  owners  under
       Section 13(d) of the Exchange Act of the securities beneficially owned by
       the Investment Funds and their affiliates.

       In  addition,   Mr.  Kempner  owns  800  shares  and  may  be  deemed  to
       beneficially  own  certain  securities  held by certain  foundations  and
       trusts. Mr. Kempner disclaims beneficial ownership of such shares.

</TABLE>

All of Presidio's  Class B Shares are owned by IR Partners.  Such Class B Shares
are convertible in certain circumstances into 1,200,000 Class A Shares; however,
such shares are not convertible at present. IR Partners is a general partnership
whose general partners are Steinhardt Management,  certain of its affiliates and
accounts  managed by it and Roundhill  Associates.  Roundhill  Associates,  is a
limited partnership whose general partner is Charles E. Davidson,  the principal
of Presidio  Management,  the  Chairman of the Board of Presidio and a Member of
Wexford. Joseph M. Jacobs, the Chief Executive Officer and President of Presidio
and a Member and the President of Wexford,  has a limited partner's  interest in
Roundhill  Associates.  Pursuant to Rule 13d-3 under the Exchange  Act,  each of
Michael H. Steinhardt,  the controlling person of Steinhardt  Management and its
affiliates and Charles E. Davidson may be deemed to be beneficial owners of such
1,200,000 shares.

Shares  held by each Class A Director  of  Presidio  were  issued  pursuant to a
Memorandum  of  Understanding  Regarding  Compensation  of Class A Directors  of
Presidio. (See "Executive Compensation - Compensation of Directors.")

The address of Thomas F. Steyer and the other individuals  mentioned in footnote
1 to the table above  (other  than Fleur A.  Fairman)  is c/o  Farallon  Capital
Partners,  L.P., One Maritime  Plaza,  San Francisco,  California  94111 and the
address of Fleur A. Fairman is c/o Farallon Capital Management,  Inc., 800 Third
Avenue,  40th Floor, New York, New York 10022.  The address of Angelo,  Gordon &
Co., L.P. and its affiliates is 245 Park Avenue,  26th Floor, New York, New York
10167.  The address for Intermarket  Corp. Is 667 Madison Avenue,  New York, New
York 10021. The address for M.H. Davidson and Co. is 885 Third Avenue, New York,
New York 10022.
<PAGE>
Item 13. Certain Relationships and Related Transactions

The  General  Partner  received  $1,736,123  from  Registrant  as its  share  of
distributions  for the year ended  December 31, 1996.  No director or officer of
the General Partner received any direct  remuneration from Registrant during the
year ended December 31, 1996.

The  General  Partner  also  received  a  management  fee of  $422,000  for  the
performance of management services.

For a description of the interest of the General Partner in cash from operations
and  cash  from  sales,  reference  is made  to the  material  contained  in the
Prospectus  under the heading  MANAGEMENT  COMPENSATION,  which is  incorporated
herein by reference.
<PAGE>
PART IV



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

1.       Financial Statements

         See Index to Financial  Statements and  Supplementary  Data in Part II,
Item 8.

2.       Financial Schedules

         Schedule II. Valuation and Qualifying  Accounts (See Index to Financial
         Statements and Supplementary Data in Part II, Item 8).

3.       Exhibits

         3        Certificate of Limited Partnership.1

         4        Limited Partnership Agreement.1

         10.1     Agreement  between  Registrant  and  Integrated  Aircraft Fund
                  Management Corp.1

         10.2     Form of  Trust  Agreement  between  Integrated  Aircraft  Fund
                  Management  Corp., as beneficiary,  and First Security Bank of
                  Utah, N.A., as trustee.1

         10.3     Form  of  Aircraft  Purchase   Agreement  between   Integrated
                  Aircraft Fund Management Corp. and Continental Airlines, Inc.1

         10.4     Form of Lease  Agreement  between First Security Bank of Utah,
                  N.A., as trustee,  Integrated  Aircraft Fund Management  Corp.
                  and Continental Airlines, Inc.1

                  Note:  substantially identical leases in all material respects
                  except  for the  dates of term and  rental  amounts  cover the
                  equipment  described under  "Properties" as purchased on April
                  20, 1988 and the McDonnell Douglas DC-9-32 aircraft  purchased
                  on May 13, 1988.1

         10.5     Form of Lease  Agreement  between First Security Bank of Utah,
                  N.A., as trustee and Midway Airlines, Inc.1

         10.6     Form of Lease  Agreement  between First Security Bank of Utah,
                  N.A., as trustee,  and Braathens  South-American  and Far East
                  Airtransport A/S.2

         10.7     Form of Lease  Agreement  between First Security Bank of Utah,
                  N.A., as trustee, and U.S. Air, Inc.2

                  Note:  substantially identical leases in all material respects
                  except  for  dates  of  term  and  rental  amounts  cover  the
                  equipment  described in  "Properties" as purchased on December
                  15, 1988 and in  "Business - General" as  purchased on January
                  18, 1989.
<PAGE>
         10.8     Form of Lease  Agreement  between First Security Bank of Utah,
                  N.A., as trustee, and Southwest Airlines Co.2

         10.9     Form of Lease  Agreement  between First Security Bank of Utah,
                  N.A., as trustee, and Alaska Airlines.3

         10.10    Form of Lease Agreement I between First Security Bank of Utah,
                  N.A., as trustee, and Aloha Airlines, Inc.3

         10.11    Form of Lease  Agreement  II between  First  Security  Bank of
                  Utah, N.A., as trustee, and Aloha Airlines, Inc.3

         10.12    Form of Lease  Agreement  between First Security Bank of Utah,
                  N.A., as trustee, and Hawaiian Airlines, Inc.4

         10.13    Form of Lease Agreement dated as of May 1, 1991, between First
                  Security  Bank  of  Utah,  N.A.,  as  trustee,  and  Southwest
                  Airlines Co. to be supplemented by Lease Agreement No. 1 dated
                  June 14, 1991 and Amendment No. 2 to Lease  Agreement dated as
                  of May 1, 1991.5

         10.14    Form 11 of Lease Amendment No. 2 dated as of February 27, 1992
                  between  First  Security  Bank of Utah,  N.A.,  as trustee and
                  Braathens South-American and Far East Airtransport A/S.5

         10.15    Form of Lease  Agreement  No. 3 dated  as of  March  23,  1992
                  between  First  Security  Bank of Utah,  N.A.,  as trustee and
                  Braathens South-American and Far East Airtransport A/S.5

         10.16    Form of Purchase  Agreement  dated as of May 19, 1992  between
                  Alaska  Airlines,  Inc. and First Security Bank of Utah, N.A.,
                  as trustee and lessor.5

         10.17    Termination  Agreement  dated  July  28,  1992  by  and  among
                  Integrated  Aircraft Fund  Management  Corp.,  Registrant  and
                  Citicorp Aircraft Management, Inc.5

         10.18    Lease  Amendment  No. 2 dated as of July 7, 1992 between First
                  Security  Bank  of  Utah,   N.A.,  as  trustee  and  Braathens
                  South-American and Far East Airtransport A/S.5

         10.19    Remarketing   Agreement  between   Integrated   Aircraft  Fund
                  Management  Corp.  and Aviation  Capital  Group,  L.P.,  dated
                  August 1, 1992.6

         10.20    Amendment  No.  3 dated  as of  August  1,  1992 to the  Lease
                  Agreement  dated as of May 1, 1991 between First Security Bank
                  of Utah, N.A., as trustee and Southwest Airlines Co.6

         10.21    Amendment  No. 1 dated as of  November  1,  1992 to the  Lease
                  Agreement  dated as of December 1, 1988 between First Security
                  Bank of Utah, N.A., as trustee and USAir, Inc.6

         10.22    Amendment  No. 2 dated as of  December  1,  1992 to the  Lease
                  Agreement  dated as of December 1, 1988 between First Security
                  Bank of Utah, N.A., as trustee and USAir, Inc.6
<PAGE>
         10.23    Amendment  No. 1 dated as of  November  1,  1992 to the  Lease
                  Agreement  dated as of January 1, 1989 between First  Security
                  Bank of Utah, N.A., as trustee and USAir, Inc.6

         10.24    Lease  Agreement  dated January 5, 1993 between First Security
                  Bank of Utah,  N.A.,  as trustee,  and  Continental  Airlines,
                  Inc.6

         10.25    Participation  Agreement  dated  January 5, 1993 between First
                  Security  Bank of  Utah,  N.A.,  as  trustee,  Registrant  and
                  Continental Airlines, Inc.6

         10.26    Amendment  No. 2 dated as of  December  1,  1993 to the  Lease
                  Agreement  dated as of January 1, 1989 between First  Security
                  Bank of Utah, N.A., as trustee and USAir, Inc.7

         10.27    Amendment  No. 3 dated as of  December  1,  1993 to the  Lease
                  Agreement  dated as of December 1, 1988 between First Security
                  Bank of Utah, N.A., as trustee and USAir, Inc.7

         10.28    Amendment  dated as of December 1, 1993 to Lease  Agreement II
                  between  First  Security Bank of Utah,  N.A., as trustee,  and
                  Aloha Airlines, Inc.7

         10.29    Form of Lease  Agreement  between First Security Bank of Utah,
                  N.A., as trustee, Registrant, as lessor, and Ladeco S.A.7

                  Note: a substantially identical lease in all material respects
                  except for dates of term and rental  amounts covers the Second
                  Alaska Aircraft.  See "Business - Recent Developments,  Alaska
                  Airlines".

         10.30    Lease  Agreement  dated as of November 5, 1993  between  First
                  Security Bank of Utah,  N.A., as trustee,  and American  Trans
                  Air, Inc.7

         10.31    Lease  Agreement  dated as of November 1, 1994  between  First
                  Security Bank of Utah,  N.A., as trustee,  and American  Trans
                  Air, Inc.8

         10.32    Lease  Agreement  dated as of November 10, 1994 between  First
                  Security Bank of Utah,  N.A., as trustee,  and American  Trans
                  Air, Inc. 8

         10.33    Lease Amendment and Extension Agreement,  dated as of July 20,
                  1994,  between  First  Security Bank of Utah N.A., as trustee,
                  and Southwest Airlines Co. 8

         10.34    Second Lease  Extension  Agreement,  dated as of July 5, 1995,
                  between  First  Security Bank of Utah,  N.A., as trustee,  and
                  Southwest Airlines Co.

         10.35    Form of  Purchase  Agreement,  dated April 15,  1996,  between
                  Southwest Airlines Co.  ("Purchaser"),  First Security Bank of
                  Utah  N.A.  ("Trustee")  and  Aircraft  Income  Partners  L.P.
                  ("Beneficiary")*
<PAGE>
         10.36    Lease Amendment, dated January 1, 1997, between First Security
                  Bank of Utah N.A., as Trustee, and Hawaiian Airlines, Inc.*

         10.37    Lease Amendment and Extension Agreement,  dated June 24, 1996,
                  between  First  Security  Bank of Utah N.A.,  as Trustee,  and
                  American Trans Air, Inc.*

         10.38    Lease Amendment and Extension Agreement,  dated July 29, 1996,
                  between  First  Security  Bank of Utah N.A.,  as Trustee,  and
                  Aloha Airlines, Inc.*

         28       Prospectus   of  Registrant   dated   February  29,  1988,  as
                  supplemented  by  Supplements  dated May 20, 1988,  August 16,
                  1988,  November 4, 1988, January 6, 1989 and February 28, 1989
                  filed pursuant to Rules 424(b) and 424(c) under the Securities
                  Act of 1933.1

(b)    Current reports on Form 8-K filed during the last quarter of Registrant's
       fiscal year

         None.
-------------------------

         1        Filed as an exhibit to Registrant's  Registration Statement on
                  Form S-1 (33-18891), and incorporated herein by reference.

         2        Filed as an exhibit to Registrant's Annual Report on Form 10-K
                  for the fiscal year ended December 31, 1988, and  incorporated
                  herein by reference.

         3        Filed as an exhibit to Registrant's Annual Report on Form 10-K
                  for the fiscal year ended December 31, 1989, and  incorporated
                  herein by reference.

         4        Filed as an exhibit to Registrant's Annual Report on Form 10-K
                  for the fiscal year ended December 31, 1990, and  incorporated
                  herein by reference.

         5        Filed as an exhibit to Registrant's Annual Report on Form 10-K
                  for the fiscal year ended  December 31, 1991 and  incorporated
                  herein by reference.

         6        Filed as an exhibit to Registrant's Annual Report on Form 10-K
                  for the fiscal year ended  December 31, 1992 and  incorporated
                  herein by reference.

         7        Filed as an exhibit to Registrant's Annual Report on Form 10-K
                  for the fiscal year ended  December 31, 1993 and  incorporated
                  herein by reference.

         8        Filed as an exhibit to Registrant's Annual Report on Form 10-K
                  for the fiscal year ended  December 31, 1994 and  incorporated
                  herein by reference.

         *        Filed herewith.

<PAGE>



                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  Registrant  has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized, on the 29th day of March, 1997.

AIRCRAFT INCOME PARTNERS L.P.

By:      INTEGRATED AIRCRAFT FUND MANAGEMENT CORP.
         General Partner
                                                                      Date
                                                                      ----
By:      /s/Douglas J. Lambert                                    March 29, 1997
         ---------------------
         Douglas J. Lambert
         President


Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of  Registrant  and in
their capacities (as to the General Partner) and on the dates indicated. Each of
such persons is an officer and/or director.

   Signature                    Title                              Date
   ---------                    -----                              ----

/s/Robert Holtz              Director and                      March 29, 1997
---------------              Vice President
Robert Holtz                 

/s/Mark Plaumann             Director and                      March 29, 1997 
----------------             Vice President
Mark Plaumann                

/s/Douglas J. Lambert        President, Secretary,             March 29, 1997
---------------------        Treasurer and Chief
Douglas J. Lambert           Financial Officer
                                              


<PAGE>
                                  EXHIBIT INDEX


Exhibits          
--------   

3        Certificate of Limited Partnership.1

4        Limited Partnership Agreement.1

10.1     Agreement  between  Registrant and Integrated  Aircraft Fund Management
         Corp.1

10.2     Form of Trust  Agreement  between  Integrated  Aircraft Fund Management
         Corp.,  as  beneficiary,  and First  Security  Bank of Utah,  N.A.,  as
         trustee.1

10.3     Form of Aircraft Purchase  Agreement between  Integrated  Aircraft Fund
         Management Corp. and Continental Airlines, Inc.1

10.4     Form of Lease Agreement  between First Security Bank of Utah,  N.A., as
         trustee,  Integrated  Aircraft Fund  Management  Corp. and  Continental
         Airlines, Inc.1

         Note:  substantially  identical leases in all material  respects except
         for the dates of term and rental amounts cover the equipment  described
         under  "Properties"  as purchased  on April 20, 1988 and the  McDonnell
         Douglas DC-9-32 aircraft purchased on May 13, 1988.1

10.5     Form of Lease Agreement  between First Security Bank of Utah,  N.A., as
         trustee and Midway Airlines, Inc.1

10.6     Form of Lease Agreement  between First Security Bank of Utah,  N.A., as
         trustee, and Braathens South-American and Far East Airtransport A/S.2

10.7     Form of Lease Agreement  between First Security Bank of Utah,  N.A., as
         trustee, and U.S. Air, Inc.2

         Note:  substantially  identical leases in all material  respects except
         for dates of term and rental  amounts cover the equipment  described in
         "Properties"  as  purchased  on December  15,  1988 and in  "Business -
         General" as purchased on January 18, 1989.

10.8     Form of Lease Agreement  between First Security Bank of Utah,  N.A., as
         trustee, and Southwest Airlines Co.2

10.9     Form of Lease Agreement  between First Security Bank of Utah,  N.A., as
         trustee, and Alaska Airlines.3

10.10    Form of Lease Agreement I between First Security Bank of Utah, N.A., as
         trustee, and Aloha Airlines, Inc.3

10.11    Form of Lease  Agreement II between First Security Bank of Utah,  N.A.,
         as trustee, and Aloha Airlines, Inc.3

10.12    Form of Lease Agreement  between First Security Bank of Utah,  N.A., as
         trustee, and Hawaiian Airlines, Inc.4
<PAGE>
10.13    Form of Lease Agreement dated as of May 1, 1991, between First Security
         Bank of Utah,  N.A.,  as  trustee,  and  Southwest  Airlines  Co. to be
         supplemented by Lease Agreement No. 1 dated June 14, 1991 and Amendment
         No. 2 to Lease Agreement dated as of May 1, 1991.5

10.14    Form 11 of Lease  Amendment No. 2 dated as of February 27, 1992 between
         First   Security   Bank  of  Utah,   N.A.,  as  trustee  and  Braathens
         South-American and Far East Airtransport A/S.5

10.15    Form of Lease  Agreement No. 3 dated as of March 23, 1992 between First
         Security Bank of Utah,  N.A.,  as trustee and Braathens  South-American
         and Far East Airtransport A/S.5

10.16    Form of  Purchase  Agreement  dated as of May 19, 1992  between  Alaska
         Airlines,  Inc. and First  Security Bank of Utah,  N.A., as trustee and
         lessor.5

10.17    Termination  Agreement  dated  July 28,  1992 by and  among  Integrated
         Aircraft  Fund  Management  Corp.,  Registrant  and  Citicorp  Aircraft
         Management, Inc.5

10.18    Lease  Amendment No. 2 dated as of July 7, 1992 between First  Security
         Bank of Utah,  N.A.,  as trustee and Braathens  South-American  and Far
         East Airtransport A/S.5

10.19    Remarketing Agreement between Integrated Aircraft Fund Management Corp.
         and Aviation Capital Group, L.P., dated August 1, 1992.6

10.20    Amendment No. 3 dated as of August 1, 1992 to the Lease Agreement dated
         as of May 1, 1991 between First Security Bank of Utah, N.A., as trustee
         and Southwest Airlines Co.6

10.21    Amendment  No. 1 dated as of  November  1, 1992 to the Lease  Agreement
         dated as of December 1, 1988 between First Security Bank of Utah, N.A.,
         as trustee and USAir, Inc.6

10.22    Amendment  No. 2 dated as of  December  1, 1992 to the Lease  Agreement
         dated as of December 1, 1988 between First Security Bank of Utah, N.A.,
         as trustee and USAir, Inc.6

10.23    Amendment  No. 1 dated as of  November  1, 1992 to the Lease  Agreement
         dated as of January 1, 1989 between First Security Bank of Utah,  N.A.,
         as trustee and USAir, Inc.6

10.24    Lease  Agreement  dated January 5, 1993 between First  Security Bank of
         Utah, N.A., as trustee, and Continental Airlines, Inc.6

10.25    Participation  Agreement  dated January 5, 1993 between First  Security
         Bank of Utah,  N.A., as trustee,  Registrant and Continental  Airlines,
         Inc.6

10.26    Amendment  No. 2 dated as of  December  1, 1993 to the Lease  Agreement
         dated as of January 1, 1989 between First Security Bank of Utah,  N.A.,
         as trustee and USAir, Inc.7

10.27    Amendment  No. 3 dated as of  December  1, 1993 to the Lease  Agreement
         dated as of December 1, 1988 between First Security Bank of Utah, N.A.,
         as trustee and USAir, Inc.7
<PAGE>
10.28    Amendment  dated as of December 1, 1993 to Lease  Agreement  II between
         First  Security  Bank of Utah,  N.A., as trustee,  and Aloha  Airlines,
         Inc.7

10.29    Form of Lease Agreement  between First Security Bank of Utah,  N.A., as
         trustee, Registrant, as lessor, and Ladeco S.A.7

         Note: a substantially  identical lease in all material  respects except
         for dates of term and rental amounts covers the Second Alaska Aircraft.
         See "Business - Recent Developments, Alaska Airlines".

10.30    Lease  Agreement  dated as of November 5, 1993 between  First  Security
         Bank of Utah, N.A., as trustee, and American Trans Air, Inc.7

10.31    Lease  Agreement  dated as of November 1, 1994 between  First  Security
         Bank of Utah, N.A., as trustee, and American Trans Air, Inc.8

10.32    Lease  Agreement  dated as of November 10, 1994 between First  Security
         Bank of Utah, N.A., as trustee, and American Trans Air, Inc. 8

10.33    Lease  Amendment  and Extension  Agreement,  dated as of July 20, 1994,
         between First  Security  Bank of Utah N.A.,  as trustee,  and Southwest
         Airlines Co. 8

10.34    Second Lease  Extension  Agreement,  dated as of July 5, 1995,  between
         First Security Bank of Utah, N.A., as trustee,  and Southwest  Airlines
         Co.

10.35    Form of Purchase  Agreement,  dated April 15, 1996,  between  Southwest
         Airlines  Co.   ("Purchaser"),   First   Security  Bank  of  Utah  N.A.
         ("Trustee") and Aircraft Income Partners L.P. ("Beneficiary")*

10.36    Lease Amendment,  dated January 1, 1997, between First Security Bank of
         Utah N.A., as Trustee, and Hawaiian Airlines, Inc.*

10.37    Lease Amendment and Extension  Agreement,  dated June 24, 1996, between
         First  Security Bank of Utah N.A., as Trustee,  and American Trans Air,
         Inc.*

10.38    Lease Amendment and Extension  Agreement,  dated July 29, 1996, between
         First Security Bank of Utah N.A., as Trustee, and Aloha Airlines, Inc.*

28       Prospectus of Registrant  dated February 29, 1988, as  supplemented  by
         Supplements  dated May 20,  1988,  August 16,  1988,  November 4, 1988,
         January 6, 1989 and  February  28, 1989 filed  pursuant to Rules 424(b)
         and 424(c) under the Securities Act of 1933.1
-------------------------

1        Filed as an exhibit to Registrant's  Registration Statement on Form S-1
         (33-18891), and incorporated herein by reference.
<PAGE>
2        Filed as an exhibit to Registrant's  Annual Report on Form 10-K for the
         fiscal  year  ended  December  31,  1988,  and  incorporated  herein by
         reference.

3        Filed as an exhibit to Registrant's  Annual Report on Form 10-K for the
         fiscal  year  ended  December  31,  1989,  and  incorporated  herein by
         reference.

4        Filed as an exhibit to Registrant's  Annual Report on Form 10-K for the
         fiscal  year  ended  December  31,  1990,  and  incorporated  herein by
         reference.

5        Filed as an exhibit to Registrant's  Annual Report on Form 10-K for the
         fiscal  year  ended  December  31,  1991  and  incorporated  herein  by
         reference.

6        Filed as an exhibit to Registrant's  Annual Report on Form 10-K for the
         fiscal  year  ended  December  31,  1992  and  incorporated  herein  by
         reference.

7        Filed as an exhibit to Registrant's  Annual Report on Form 10-K for the
         fiscal  year  ended  December  31,  1993  and  incorporated  herein  by
         reference.

8        Filed as an exhibit to Registrant's  Annual Report on Form 10-K for the
         fiscal  year  ended  December  31,  1994  and  incorporated  herein  by
         reference.

         * Filed herewith.