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, 1997                                                        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) 862-7444


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  purchased  by Presidio  Capital
Corp.  ("Presidio").  On August 28, 1997,  an  affiliate  of  NorthStar  Capital
Partners acquired all of the Class B shares of Presidio, the corporate parent of
the  General   Partner.   This   acquisition,   when  aggregated  with  previous
acquisitions,  caused NorthStar  Capital Partners to acquire indirect control of
the  General  Partner.  Presidio  was also party to an  Administrative  Services
Agreement with Wexford Management LLC ("Wexford")  pursuant to which Wexford was
responsible  for the day-to-day  management of Presidio and, among other things,
had authority to designate directors of the General Partner.

On November 2, 1997, the Administrative  Services Agreement between Presidio and
Wexford expired. Effective November 3, 1997, Wexford and Presidio entered into a
new Administrative Services Agreement (the "ASA"), which expires on May 3, 1998.
Under the terms of the ASA, Wexford will provide  consulting and  administrative
services to  Presidio  and its  affiliates,  including  the General  Partner and
Registrant.  Presidio also entered into a management  agreement  with  NorthStar
Presidio Management Company, LLC ("NorthStar Presidio").  Under the terms of the
management agreement,  NorthStar Presidio will provide the day-to-day management
of Presidio and its direct and indirect subsidiaries and affiliates.

Effective November 3, 1997, officers and employees of Wexford that had served as
officers and/or directors of the General Partner tendered their resignation.  On
the same date, the Board of Directors of Presidio  appointed new  individuals to
serve as officers and/or directors of the General Partner.

Description of business

Registrant is engaged in the business of owning and leasing aircraft. Commencing
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.
<PAGE>
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,
1997,  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,
1997,  Registrant had sold or disposed of seven aircraft with original  purchase
prices aggregating  approximately  $54,132,000 (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  business  developments,   the  acquisition  and
disposition of such aircraft.)

Of the 18 aircraft  originally  purchased by  Registrant,  at December 31, 1997,
Registrant  had an interest in 11 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  $115,616,000  (net carrying value of approximately  $20,012,000).
During  1998,  excluding  rents from  future  renewals,  Registrant  anticipates
receiving  rentals  of  approximately   $5,176,000  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.

All of Registrant's remaining Aircraft are currently on lease with the exception
of one aircraft returned by Southwest  Airlines,  Inc.  ("Southwest") in January
1998. One Boeing 737-200 Advanced  aircraft  previously leased to Aloha Airlines
Inc. ("Aloha"), came off lease on October 15, 1996, and was sold on May 22, 1997
to  an  unaffiliated  third  party  for  proceeds  of  approximately  $1,982,000
exclusive  of selling  expenses of  approximately  $60,000.  Of the 11 remaining
aircraft,   10  aircraft  will  generate  aggregate  gross  rental  revenues  of
approximately  $5,176,000 during 1998. Of Registrant's leases, six are currently
scheduled  to expire in 1998,  one is  scheduled to expire in 1999 and three are
scheduled to expire in 2000.

Recent Developments

A.    Aloha Airlines, Inc.

Aloha Airlines,  Inc.  ("Aloha") had leased a Boeing 737-297  Advanced  aircraft
(the  "Aloha  Aircraft")  whose  lease  was  originally  scheduled  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 two
years remaining on the TBT Lease, until May 21, 2000.

Prior to the  expiration of the Aloha lease on February 1, 1996,  Registrant and
Aloha agreed to a three month lease extension with rent based on $300 per flight
hour.  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 Registrant  and maintained at a storage
facility.
<PAGE>
On May 22, 1997, the Aloha Aircraft was sold to an unaffiliated  third party for
proceeds  of   approximately   $1,982,000   exclusive  of  selling  expenses  of
approximately  $60,000.  Associated with the aircraft was approximately $639,000
of net maintenance and return provision  reserves that Aloha had previously paid
Registrant  as provided  under the lease  agreement.  The  reserves on the Aloha
Aircraft will be restricted until certain contingent  liabilities related to the
aircraft are satisfied. At the time of the sale, the aircraft had a net carrying
value of approximately $1,290,000.

On November 15, 1997, the lease to Aloha of a Boeing 737-200  Advanced  aircraft
expired in  accordance  with the terms of the lease.  Aloha has  indicated  that
certain   modifications  to  the  aircraft  as  required  by  the  Airworthiness
Directives  issued  by the  Federal  Aviation  Administration  ("FAA")  are  not
applicable under the return conditions of the lease. On November 14, 1997, First
Security Bank, National Association,  acting not in its individual capacity, but
solely  as  trustee  under  a  trust  agreement  in  which   Registrant  is  the
beneficiary,  filed a complaint  for  declaratory  judgment in the United States
District  Court,   Southern  District  of  New  York.  The  complaint  requested
interpretation  of the language under the lease regarding return  conditions for
the  aircraft.  In December  1997,  the  foregoing  action was settled and Aloha
agreed to satisfy  certain  return  conditions  of the lease.  The  aircraft  is
scheduled  to  be  returned  by  April  30,  1998  and  Registrant  is  actively
remarketing such aircraft for sale or lease.

B.    Tax assessment

In September 1996,  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 Registrant with respect to rents
received from Aloha and Hawaiian  Airlines,  Inc.  ("Hawaiian") under the leases
between Registrant and each of the airlines.

The leases  with both Aloha and  Hawaiian  provide for full  indemnification  of
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 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,  Registrant
believes that the state's position on the  applicability of GET in this instance
is without  merit.  Registrant has not recorded any liability as a result of the
proposed notices of assessment.
<PAGE>
C.    American Trans Air, Inc.


In March 1998,  Registrant and American Trans Air, Inc.  ("ATA") agreed to amend
the leases  extending  the term through  December 31, 2000 at the current  lease
rental at which time ATA will have a purchase  obligation of approximately  $3.3
million  per  aircraft.  During the term of the amended  lease,  ATA may, at its
expense,  retrofit  the  aircraft  to comply  with the Stage III noise  emission
standards pursuant to FAR Part 36.

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, 1997, lease payments due from the following  lessees were the
source of 10% or more of Registrant's gross rental revenues:  Continental (30%),
Aloha (11%), ATA (24%), Ladeco S.A. ("Ladeco") (15%) and Continental  Micronesia
Inc. ("Air  Micronesia")  (12%). At December 31, 1997, the Continental  deferred
rents and modification  advances were fully repaid by Continental.  (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  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 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.
<PAGE>
As Registrant's aircraft come off-lease, Registrant may need to use a portion of
its operating  reserves and/or its cash flow, which would otherwise be available
for distribution,  to upgrade or enhance these aircraft if Registrant determines
that  such  expenditures  are in its best  interest  in order  to  maximize  the
remarketing  value.  Registrant is currently  evaluating  strategies,  including
potential engine upgrades for certain aircraft, to increase marketability and is
reviewing  its  ability  to pay  for  bridging  costs  in  order  to  facilitate
remarketing.  Upgrades to aircraft  may include  "Hush  Kits",  which reduce the
noise  levels  of  engines.  The  estimated  costs of the Hush Kits  range  from
approximately $1,200,000 for Boeing 737 aircraft to approximately $2,000,000 for
Boeing 727 aircraft. Furthermore,  because of market conditions,  Registrant may
be required  to bear some of the  related  costs of  compliance  with  mandatory
federal  regulations  covering  maintenance and upgrading of aging aircraft.  In
determining  what may be in its best  interests,  Registrant's  ability  to make
distributions may be impacted by its obligation to pay such costs.

Employees

Registrant does not have any employees.  NorthStar  Presidio  currently performs
accounting,  secretarial,  transfer and administrative  services for Registrant.
NorthStar  Presidio 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.

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 Registrant. Substantially all costs associated with the retention of
Fieldstone are paid by the General  Partner.  The agreement with  Fieldstone was
scheduled  to expire on  November  3, 1997.  The  General  Partner  and  certain
affiliates  are  currently  negotiating a possible  extension of the  agreement.
Fieldstone has indicated that it will continue to perform  services with respect
to  Registrant  pending  the  conclusion  of  such  negotiation.  (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,  a  Chilean  airline,  and are  operated
primarily in South  America.  A third  aircraft is leased to Air  Micronesia,  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 - Notes 9 and 10".)
<PAGE>
Item 2.           Properties

The aircraft owned by Registrant as of March 1, 1998 (see "General" under Item 1
"Business" hereof) consists 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

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

One Boeing 727-200                          June 15, 1988                          Full ownership, not subject
Advanced aircraft (1)                                                              to any lien.

One Boeing 737-200                          August 23, 1988                        Full ownership, not subject
Advanced aircraft (1)                                                              to any lien.

One Boeing 737-200                          November 4, 1988                       Full ownership, not subject
Advanced aircraft (1)                                                              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.

One Boeing 727-200                          May 31, 1989                           Full ownership of a
Advanced aircraft (2)                                                              47.92231% undivided
                                                                                   interest.
</TABLE>

(1)      Such  aircraft  are  operated  in  foreign   countries.   See  Item  1,
         "Business";  and Notes 9 and 10 to  Registrant's  Financial  Statements
         included in Item 8, "Financial  Statements and  Supplementary  Data" to
         this report, for further discussion.

(2)      The remaining interest is owned by an affiliate of the General Partner.

Item 3.           Legal Proceedings

None


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

None
<PAGE>
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, 1998,  there were  approximately  15,000 record holders of Units,
owning an aggregate of 385,805 Units.

During the years  ended  December  31,  1997 and 1996,  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 (1)
   -------------                          -----------------------------------
                                              1997                  1996
                                              ----                  ----
<S>                                          <C>                   <C>
   March 31                                  $6.00                 $7.00
   June 30                                   $10.00                $21.50
   September 30                              $4.50                 $6.50
   December 31                               $   -                 $5.50

</TABLE>
 (1)     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.)

<PAGE>
Item 6.           Selected Financial Data
<TABLE>
<CAPTION>
                                                            Year ended December 31,
                         ------------------------------------------------------------------------------------
                               1997              1996              1995             1994              1993
                         -------------     -------------     -------------    -------------     -------------
<S>                      <C>               <C>               <C>              <C>               <C>
Revenues (1)             $   8,154,952     $  10,284,238     $  12,372,475    $  13,755,528     $  16,227,532
Net Income (Loss)(2)     $   1,706,235     $   5,988,174     $   1,496,774    $     564,907     $ (10,306,115)

Net income (Loss)
Per  Unit (2)            $     3.98        $    13.97        $     3.49       $     1.32        $   (24.04)
Distribution Per Unit    $    20.50        $    40.50        $    32.00       $    31.00        $    34.50

Total Assets             $  30,567,247     $  40,045,819     $  52,365,622    $  63,596,742     $  76,239,996
Total Partners' Equity   $  27,580,239     $  34,661,785     $  46,034,837    $  58,255,574     $  70,979,506
</TABLE>


(1)  Included in this  amount is  $659,851,  $582,674,  $443,904,  $259,805  and
     $195,071 of interest  income for the years ended  December 31, 1997,  1996,
     1995,  1994  and  1993,   respectively.   Additionally,   revenues  include
     $(76,999),  $(32,767),  $108,487,  $184,033 and $968,541 of other income or
     loss for the years ended  December 31,  1997,  1996,  1995,  1994 and 1993,
     respectively.

(2)  Registrant  provided  allowances  for equipment  impairment of $848,000 and
     $13,460,000  (including  $20,000  provided in respect to a 727-100 aircraft
     sold in August  1993),  for the years  ended  December  31,  1994 and 1993,
     respectively,  to  recognize  the  loss in value of  certain  aircraft.  No
     allowance was  considered  necessary for the years ended December 31, 1997,
     1996 and 1995.

     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).


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

Liquidity and Capital Resources


Registrant  did not make a cash  distribution  with respect to the quarter ended
December  31,  1997 as  compared  to $5.50 per Unit with  respect to the quarter
ended  December  31,  1996.   For  the  year  ended  December  31,  1997,   cash
distributions aggregated $20.50 per Unit (a 4.1% annualized rate) as compared to
$40.50 per Unit (a 8.1% annualized rate) with respect to the year ended December
31, 1996.

During  1997,   Registrant  generated  cash  from  operations  of  approximately
$8,892,000 (before rent credits),  or approximately $20.74 per Unit, as compared
to approximately  $10,550,000 (before rent credits), or approximately $24.62 per
Unit, during 1996. Additionally, during 1997, Registrant collected proceeds from
the sale of one  Boeing  737-200  aircraft  leased  to  Aloha  of  approximately
$1,922,000.
<PAGE>
During 1997,  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  $1,989,000 (as discussed
below),  from  approximately  $4,397,000  at December 31, 1996 to  approximately
$6,386,000 at December 31, 1997.  The aggregate  cash reserves were comprised of
approximately  $2,328,000,  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   $2,129,000  of  collected
maintenance reserves.

Such  increase  in  aggregate  cash  reserves  was the result of an  increase of
approximately $2,027,000 of cash from operations in excess of cash distributions
during  1997  offset  by  a  decrease  of  approximately  $38,000  of  collected
maintenance reserves.

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 Boeing 727 aircraft leased to ATA.

In December 1997,  Registrant and  Continental  Airlines,  Inc.  ("Continental")
agreed to amend the leases  for three  McDonnell  Douglas  DC-9-32  aircraft  to
extend the term of the leases to September 10, 1998 with respect to two aircraft
and  December 1, 1998 with  respect to one  aircraft  for rentals of $52,500 per
month per aircraft.

As  Registrant's  aircraft  come  off-lease  (six of which are scheduled to come
off-lease  in 1998,  one in 1999 and three in  2000),  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  will be impacted by its
obligation to pay such costs.

Registrant has encountered 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 1998 will
be less than its gross cash flow  generated  during 1997  (approximately  46% of
1997 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 1998 and the foreseeable future will be
sufficient to pay its operating expenses.
<PAGE>
During 1997,  lease  payments due from the following  lessees were the source of
10% or more of Registrant's  gross rental  revenues:  Continental  (30%),  Aloha
(11%), ATA (24%), Ladeco (15%) and Air Micronesia (12%).

Of the 18 aircraft  originally  purchased by  Registrant,  at December 31, 1997,
Registrant  had an interest in 11 of the  aircraft  (inclusive  of an  undivided
47.92231% joint venture  interest in one aircraft) which had an original cost of
approximately  $115,616,000  (net book value of approximately  $20,012,000).  In
1998,   excluding  rents  from  renewals,   Registrant   anticipates   receiving
approximately  $5,176,000  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  aggregate  rentals  are not  sufficient  to  maintain
previous distribution levels.

Aloha had leased a Boeing 737-200 Advance Aircraft (the "Aloha  Aircraft") whose
lease was scheduled 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 two years remaining on the TBT Lease,  through
May 21, 2000.

On May 22, 1997, the Aloha Aircraft was sold to an unaffiliated  third party for
proceeds  of   approximately   $1,982,000   exclusive  of  selling  expenses  of
approximately  $60,000.  Associated with the aircraft was approximately $639,000
of net maintenance and return provision  reserves that Aloha had previously paid
Registrant  as provided  under the lease  agreement.  The  reserves on the Aloha
Aircraft will be restricted until certain contingent  liabilities related to the
aircraft  are  satisfied.  At the time of sale,  the aircraft had a net carrying
value of approximately $1,290,000.

On November 15, 1997, the lease of a Boeing 737-200 Advanced  aircraft leased to
Aloha  expired in  accordance  with the terms of the lease.  Aloha has indicated
that  certain  modifications  to the  aircraft as required by the  Airworthiness
Directives  issued by the FAA are not applicable under the return  conditions of
the lease.

On November 14, 1997, First Security Bank, National  Association,  acting not in
its individual capacity,  but solely as trustee under a trust agreement in which
Registrant is the beneficiary, filed a complaint for declaratory judgment in the
United  States  District  Court,  Southern  District of New York.  The complaint
requested  interpretation  of the  language  under  the lease  regarding  return
conditions for the aircraft.  In December 1997, the foregoing action was settled
and Aloha agreed to satisfy certain return conditions of the lease. The aircraft
is  scheduled  to be  returned  by April 30,  1998 and  Registrant  is  actively
remarketing the aircraft for sale or lease.

In September 1996,  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 Registrant  with respect to rents received
from Aloha and Hawaiian  Airlines,  Inc. under the leases between Registrant and
each of the airlines.
<PAGE>
The leases  with both Aloha and  Hawaiian  provide for full  indemnification  of
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  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 Registrant,  have separately engaged tax
counsel and both airlines are cooperating with 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,  Registrant
believes that the state's position on the  applicability of GET in this instance
is without  merit.  Registrant has not recorded any liability as a result of the
proposed notices of assessment.

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 and
$13,460,000  for the years ended  December 31, 1994 and 1993 . No allowance  was
considered necessary subsequent to December 31, 1994.  Additionally,  because of
the financial  troubles of certain  airlines  which are lessees of  Registrant's
aircraft, cash flow and, therefore, distributions have been reduced.

Year 2000

Costs  associated  with the Year 2000  conversion  are not  expected to have any
impact on Registrant's operations.

Results of Operations - 1997 as Compared to 1996

Registrant's  rental revenues  decreased by approximately 22% for the year ended
December 31, 1997 as compared to the year ended  December 31, 1996. The decrease
was principally due to the following:

i)    a 100%  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  24% of Registrant's 1997
      rental revenue reduction as compared to the corresponding  rental revenues
      recognized during 1996;

ii)   a 100% reduction in rental revenue on a Boeing  737-200  advance  aircraft
      sold to  Southwest  on April 15, 1996.  The  reduction in rental  revenues
      represented approximately 7% of Registrant's 1997 rental revenue reduction
      as compared to the corresponding  rental revenues  recognized  during1996;
      and

<PAGE>
iii)  a 57%  reduction  in rental  revenue  on the two Boeing  737-200  Advanced
      Aircraft  leased  to  Aloha.  One of the  Aloha  Aircraft  was  originally
      scheduled  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 was sold on May 22,  1997.  The  other  Aloha
      aircraft lease was originally  scheduled to expire on August 15, 1996, and
      was renewed at 50% of its prior lease rate through  November 15, 1997. The
      reduction in rental  revenues  recognized  under these leases  represented
      approximately  53%  of  Registrant's  1997  rental  revenue  reduction  as
      compared to the corresponding rental revenues recognized during 1996.

Investment  interest income decreased by approximately 21% for 1997, as compared
to 1996, primarily because of lower balances available for investment in 1997.

In 1997,  there was interest on  installment  sale of the  Hawaiian  aircraft of
approximately $284,000 as compared to approximately $106,000 in 1996.

Other income/loss  decreased for 1997, as compared to 1996, 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  28% for 1997, as compared to
1996,  primarily due to the Hawaiian  Aircraft and the Southwest  Aircraft being
sold  during 1996 and  reduction  on the Ladeco  aircraft  which has reached its
salvage value during or prior to 1996.

Operating  expenses  increased in 1997,  as compared to 1996,  primarily  due to
increased costs associated with certain aircraft that came off lease.

Management fees decreased  approximately  37% for 1997, as compared to 1996, due
to lower rental income in 1997 on which such fees are based, due to the aircraft
sale in 1997, and lower renewal rates in 1997.

General and  administrative  expenses  increased  approximately  35% in 1997, as
compared to 1996.

Gain from the sale of aircraft was approximately $632,000 in 1997 represented by
the sale of the Aloha Aircraft compared to a gain of approximately $5,223,000 in
1996 represented by the sale of the Southwest and Hawaiian Aircraft.

Registrant's  net income for 1997 was  $1,706,235  as  compared to net income of
$5,988,174  recognized  in  1996.  The  principal  reasons  for  the  change  in
Registrant's 1997 net income compared to 1996 are:

i)    Gain on sale of aircraft in 1997 of approximately $632,000 compared with a
      gain on sale of aircraft in 1996 of approximately $5,223,000; and

ii)   reduction of  depreciation  expense,  approximately  $6,227,000 in 1997 as
      compared to approximately $8,608,000 in 1996; and

iii)  reduction of management fee, $265,000 in 1997 as compared with $422,000 in
      1996; and

iv)   increase in operating expenses, approximately $136,000 in 1997 as compared
      with $85,000 in 1996; offset by

v)    reduction of rental  revenue,  approximately  $7,572,000  in 1997 compared
      with approximately $9,734,000 in 1996; and

vi)   increase  in other loss of  approximately  $77,000 in 1997  compared  with
      approximately $33,000 in 1996.
<PAGE>
Results of Operations - 1996 as Compared to 1995

Registrant's  rental revenues  decreased by approximately 18% for the year ended
December 31, 1996 as compared to the year ended  December 31, 1995. The decrease
was principally attributable to the following:

i)    a 59% reduction in rental revenues on a McDonnell Douglas DC-9-51 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  Registrant's  1996  rental  revenue  reduction  as
      compared to the corresponding rental revenues recognized for 1995;

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  Registrant's  1996  rental  revenue  reduction  as
      compared to the corresponding rental revenues recognized for 1995; and

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
      scheduled  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  remained  off lease at December  31, 1996.  The
      other Aloha aircraft  lease was  originally  scheduled 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  Registrant's  1996  rental  revenue  reduction  as compared to the
      corresponding rental revenues recognized for 1995.

Investment  interest income  increased by approximately 7% for 1996, as compared
to 1995,  primarily  because of higher market interest rates during 1996 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 1995.

Other income/loss  decreased for 1996, as compared to 1995, 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 1996, as compared to
1995,  primarily due to the Hawaiian  Aircraft and the Southwest  Aircraft being
sold  during 1996 and  reduction  on the Ladeco  Aircraft  which had reached its
salvage value during or prior to 1996 .

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

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

General and  administrative  expenses  increased  approximately  2% in 1996,  as
compared to 1995 .
<PAGE>
Gain from the sale of aircraft  was  approximately  $5,223,000  in 1996 from the
sale of the Southwest and Hawaiian Aircraft. No sales took place in 1995.

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

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

i)    Gain on sale of aircraft in 1996 of approximately $5,223,000 compared with
      no such gain in 1995; and

ii)   reduction of  depreciation  expense,  approximately  $8,608,000 in 1996 as
      compared to approximately $10,794,000 in 1995; and

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

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

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

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

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

Item 8.           Financial Statements and Supplementary Data

                          AIRCRAFT INCOME PARTNERS L.P.

                              FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

                                      INDEX



Independent Auditor's Report

Financial statements - years ended
  December 31, 1997, 1996 and 1995

      Balance sheets
      Statements of income
      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,  1997 and 1996,  and the  related
statements  of  income,  partners'  equity  and cash flows for each of the three
years in the period  ended  December  31,  1997.  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, 1997 and 1996, and the results of its operations and its cash
flows for each of the three  years in the  period  ended  December  31,  1997 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.




/s/Hays & Company
-----------------
Hays & Company


February 13, 1998
New York, New York
<PAGE>
<TABLE>
<CAPTION>
                                   AIRCRAFT INCOME PARTNERS L.P.

                                          BALANCE SHEETS


                                                                               December 31,
                                                                      ---------------------------
                                                                          1997            1996
                                                                      -----------     -----------
<S>                                                                   <C>             <C>
ASSETS

     Leased aircraft - net ......................................     $20,012,212     $27,529,419
     Cash and cash equivalents ..................................       6,432,713       6,279,937
     Note receivable - installment sale .........................       2,911,906       3,887,665
     Restricted cash - security deposits ........................         506,120         481,677
     Accounts receivable ........................................         505,730         769,547
     Deferred costs .............................................          95,505         223,866
     Other receivables ..........................................          89,891         523,915
     Prepaid expenses ...........................................          13,170          95,361
     Deferred rents and modification advances receivable ........            --           254,432
                                                                      -----------     -----------

                                                                      $30,567,247     $40,045,819
                                                                      ===========     ===========


LIABILITIES AND PARTNERS' EQUITY

Liabilities
     Maintenance reserves .......................................     $ 2,129,110     $ 2,167,329
     Security deposits payable ..................................         506,120         481,677
     Accounts payable and accrued expenses ......................         168,561         103,765
     Deferred income ............................................         133,217         131,550
     Deferred costs payable .....................................          50,000          48,016
     Distributions payable ......................................            --         2,357,697
     Management fee payable .....................................            --            94,000
                                                                      -----------     -----------

            Total liabilities ...................................       2,987,008       5,384,034
                                                                      -----------     -----------

Commitments and contingencies (Notes 3, 4, 5, 6, 9 and 11)

Partners' equity
     Limited partners' equity (as restated) (385,805 units issued      24,813,260      31,186,652
        and outstanding)
     General partner's equity (as restated) .....................       2,766,979       3,475,133
                                                                      -----------     -----------

            Total partners' equity ..............................      27,580,239      34,661,785
                                                                      -----------     -----------

                                                                      $30,567,247     $40,045,819
                                                                      ===========     ===========
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
                                     AIRCRAFT INCOME PARTNERS L.P.

                                         STATEMENTS OF INCOME


                                                                    Year ended December 31,
                                                     ------------------------------------------------
                                                          1997               1996            1995
                                                     ------------      ------------      ------------
<S>                                                  <C>               <C>               <C>
Revenues
     Rental ....................................     $  7,572,100      $  9,734,331      $ 11,820,084
     Interest ..................................          375,609           476,659           443,904
     Interest - installment note ...............          284,242           106,015              --
     Other .....................................          (76,999)          (32,767)          108,487
                                                     ------------      ------------      ------------

                                                        8,154,952        10,284,238        12,372,475
                                                     ------------      ------------      ------------

Costs and expenses
     Depreciation ..............................        6,227,309         8,608,539        10,794,471
     General and administrative ................          452,956           336,248           328,439
     Management fee ............................          265,161           422,000           548,000
     Operating .................................          135,658            84,522           192,553
     Provision for bad debts ...................             --              66,133              --
     Interest ..................................             --               1,570            13,969
                                                     ------------      ------------      ------------

                                                        7,081,084         9,519,012        11,877,432
                                                     ------------      ------------      ------------

                                                        1,073,868           765,226           495,043

Gain on disposition of aircraft - net ..........          632,367         5,222,948              --

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

Net income .....................................     $  1,706,235      $  5,988,174      $  1,496,774
                                                     ============      ============      ============


Net income attributable to
     Limited partners ..........................     $  1,535,611      $  5,389,357      $  1,347,097
     General partner ...........................          170,624           598,817           149,677
                                                     ------------      ------------      ------------

                                                     $  1,706,235      $  5,988,174      $  1,496,774
                                                     ============      ============      ============


Net income per unit of limited partnership
     interest (385,805 units outstanding) ......     $       3.98      $      13.97      $       3.49
                                                     ============      ============      ============

</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>

                                   AIRCRAFT INCOME PARTNERS L.P.

                                   STATEMENT OF PARTNERS' EQUITY

                            YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997



                                                     Limited            General            Total
                                                     Partners'         Partner's          Partners'
                                                      Equity            Equity             Equity
                                                  ------------      ------------      ------------
<S>                                               <C>               <C>               <C>

Balance, January 1, 1995 ....................     $ 71,711,311      $(13,455,737)     $ 58,255,574

Reallocation of partners' equity (Note 7) ...      (19,290,250)       19,290,250              --
                                                  ------------      ------------      ------------

Balance, January 1, 1995 (as restated) ......       52,421,061         5,834,513        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 (as restated) ....       41,422,398         4,612,439        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 (as restated) ....       31,186,652         3,475,133        34,661,785

Net income - 1997 ...........................        1,535,611           170,624         1,706,235

Distributions to partners ($20.50 per limited
     partnership unit) ......................       (7,909,003)         (878,778)       (8,787,781)
                                                  ------------      ------------      ------------

Balance, December 31, 1997 ..................     $ 24,813,260      $  2,766,979      $ 27,580,239
                                                  ============      ============      ============

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

                                            STATEMENTS OF CASH FLOWS


                                                                             Year ended December 31,
                                                               ------------------------------------------------
                                                                    1997              1996             1995
                                                               ------------      ------------      ------------
<S>                                                            <C>               <C>               <C>
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS

Cash flows from operating activities
    Net income ...........................................     $  1,706,235      $  5,988,174      $  1,496,774
    Adjustments to reconcile net income to net
       cash provided by operating activities
          Depreciation ...................................        6,227,309         8,608,539        10,794,471
          Realized gain from sale of marketable securities             --                --          (1,001,731)
          Provision for bad debts ........................             --              66,133              --
          Gain on disposition of aircraft - net ..........         (632,367)       (5,222,948)             --
    Changes in assets and liabilities
       Restricted cash  - security deposits ..............          (24,443)          (22,994)          (20,996)
       Accounts receivable ...............................          263,817           552,346           281,186
       Deferred costs ....................................          128,361           128,360           128,360
       Other receivables .................................          434,024          (406,963)           63,698
       Prepaid expenses ..................................           82,191            (4,733)           29,466
       Deferred rents and modification advances receivable          254,432           387,313         1,009,001
       Security deposits payable .........................           24,443            22,994            20,996
       Accounts payable and accrued expenses .............           64,796            21,665          (112,900)
       Deferred income ...................................            1,667           (47,666)             --
       Maintenance reserves ..............................          (38,219)          362,698           803,338
       Management fee payable ............................          (94,000)          (43,000)           17,000
                                                               ------------      ------------      ------------

             Net cash provided by operating activities ...        8,398,246        10,389,918        13,508,663
                                                               ------------      ------------      ------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                         AIRCRAFT INCOME PARTNERS L.P.

                                            STATEMENTS OF CASH FLOWS


                                                                             Year ended December 31,
                                                               ------------------------------------------------
                                                                    1997              1996             1995
                                                               ------------      ------------      ------------
<S>                                                            <C>               <C>               <C>
Cash flows from investing activities
    Proceeds from sale of aircraft - net .................        1,922,265         6,784,400              --
    Proceeds from installment sale note receivable .......          975,759           163,985              --
    Additions and modifications to leased aircraft - net .            1,984           (73,914)         (167,487)
    Proceeds from sale of marketable securities ..........             --                --           1,045,941
                                                               ------------      ------------      ------------

             Net cash provided by investing activities ...        2,900,008         6,874,471           878,454
                                                               ------------      ------------      ------------

Cash flows from financing activities
    Distributions to partners ............................      (11,145,478)      (18,432,907)      (13,288,839)
                                                               ------------      ------------      ------------

Net increase (decrease) in cash and cash equivalents .....          152,776        (1,168,518)        1,098,278

Cash and cash equivalents, beginning of year .............        6,279,937         7,448,455         6,350,177
                                                               ------------      ------------      ------------

Cash and cash equivalents, end of year ...................     $  6,432,713      $  6,279,937      $  7,448,455
                                                               ============      ============      ============

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

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

                          NOTES TO FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

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.

         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.
<PAGE>
                          AIRCRAFT INCOME PARTNERS L.P.

                          NOTES TO FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

2         SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

         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.

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

                          NOTES TO FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

2         SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

         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, 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.

         Recently issued accounting pronouncements

         The Financial  Accounting  Standards  Board has recently issued several
         new accounting pronouncements.  Statement No. 128, "Earnings Per Share"
         established  standards for computing and presenting earnings per share,
         and became  effective  for  financial  statements  for both interim and
         annual  periods  ending after  December 15,  1997.  Statement  No. 129,
         "Disclosure  of  Information  about  Capital   Structure"   established
         standards  for  disclosing   information   about  an  entity's  capital
         structure,  and became  effective for financial  statements for periods
         ending  after  December  15,  1997.   Statement  No.  130,   "Reporting
         Comprehensive  Income" establishes  standards for reporting and display
         of comprehensive income and its components, and is effective for fiscal
         years   beginning   after   December  15,  1997.   Statement  No.  131,
         "Disclosures  about Segments of an Enterprise and Related  Information"
         establishes  standards  for the way that  public  business  enterprises
         report   information  about  operating  segments  in  annual  financial
         statements  and  requires  that  those   enterprises   report  selected
         information  about  operating  segments  in interim  financial  reports
         issued to  shareholders.  It also  establishes  standards  for  related
         disclosures  about products and services,  geographic  areas, and major
         customers,  and is  effective  for  financial  statements  for  periods
         beginning after December 15, 1997.
<PAGE>
                          AIRCRAFT INCOME PARTNERS L.P.

                          NOTES TO FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

2         SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

         Management of the Partnership does not believe that these new standards
         have,  or will have a  material  effect on the  Partnership's  reported
         operating results, per unit amounts, financial position or cash flows.

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.

         Subject  to the  rights  of the  Limited  Partners  under  the  Limited
         Partnership  Agreement,  Presidio will control the Partnership  through
         its  direct or  indirect  ownership  of all of the  shares of IAFM.  On
         August 28, 1997, an affiliate of NorthStar  Capital  Partners  acquired
         all of the Class B shares of Presidio,  the  corporate  parent of IAFM.
         This acquisition,  when aggregated with previous  acquisitions,  caused
         NorthStar  Capital  Partners  to  acquire  indirect  control  of  IAFM.
         Presidio was also a party to an Administrative  Services Agreement with
         Wexford  Management  LLC  ("Wexford")  pursuant  to which  Wexford  was
         responsible for the day-to-day  management of Presidio and, among other
         things, had authority to designate directors of IAFM.

         On November 2, 1997,  the  Administrative  Services  Agreement  between
         Presidio and Wexford expired.  Effective  November 3, 1997, Wexford and
         Presidio  entered into a new  Administrative  Services  Agreement  (the
         "ASA"),  which  expires  on May 3,  1998.  Under  the terms of the ASA,
         Wexford will provide consulting and administrative services to Presidio
         and its affiliates  including IAFM and the  Partnership.  Presidio also
         entered into a management  agreement with NorthStar Presidio Management
         Company, LLC ("NorthStar Presidio").  Under the terms of the management
         agreement, NorthStar Presidio will provide the day-to-day management of
         Presidio  and its  direct and  indirect  subsidiaries  and  affiliates.
         Reimbursable  expenses to Wexford under the terms of the Administrative
         Services  Agreement amounted to $29,898 and $34,184 for the years ended
         December 31, 1997 and 1996, respectively.

         Effective  November 3, 1997, the officers and employees of Wexford that
         had  served  as  officers  and/or  directors  of  IAFM  tendered  their
         resignation.  On the same  date,  the Board of  Directors  of  Presidio
         appointed  new  individuals  to serve as officers  and/or  directors of
         IAFM.
<PAGE>
                          AIRCRAFT INCOME PARTNERS L.P.

                          NOTES TO FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

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

         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,   1997,   1996  and  1995,   IAFM   received  or  accrued
         distributions   approximating  $879,000,   $1,736,000  and  $1,372,000,
         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,
         L.P.  ("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) are 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
         $265,161, $422,000 and $548,000, for the years ended December 31, 1997,
         1996 and 1995, respectively.

         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.
<PAGE>
                         AIRCRAFT INCOME PARTNERS L.P.

                          NOTES TO FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

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

         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  are paid by IAFM.  The
         agreement with  Fieldstone was scheduled to expire on November 3, 1997.
         IAFM and  certain  affiliates  are  currently  negotiating  a  possible
         extension  of the  agreement.  Fieldstone  has  indicated  that it will
         continue to perform services in respect of the Partnership  pending the
         conclusion of such negotiation.

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,
                                                                 1997         1996
                                                              --------     --------
<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

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

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

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

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

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

                          NOTES TO FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

5         LEASED AIRCRAFT - NET

         Leased aircraft and related equipment is summarized as follows:
<TABLE>
<CAPTION>
                                                                                               December 31,
                                                                                 -----------------------------------
                                                                                        1997                1996
                                                                                 ---------------     ---------------
<S>                                                                               <C>                <C>
     Four(five at December 31, 1996) Boeing 737-200  Advanced  aircraft
         (net  of   accumulated   depreciation   of   $27,738,015   and
         $33,689,105  and an  allowance  for  equipment  impairment  of
         $13,068,000 and $16,468,000 at December 31, 1997 and 1996)               $    6,530,485     $     9,240,270


     Four Boeing   727-200   Advanced   aircraft  (net  of   accumulated
         depreciation  of $31,325,119  and $27,805,929 and an allowance
         for equipment impairment of $9,414,000 at December 31, 1997
         and 1996)                                                                      6,069,871           9,589,060

     Three McDonnell  Douglas  DC9-32  aircraft  (net  of  accumulated
         depreciation  of $12,440,706  and $11,152,473 and an allowance
         for equipment impairment of $1,618,000 at December 31,
         1997 and 1996)                                                                 7,411,856           8,700,089
                                                                                  ---------------     ---------------

                                                                                  $    20,012,212     $    27,529,419
                                                                                  ===============     ===============
</TABLE>
         Minimum  future  rentals  receivable  on  noncancelable  leases  as  of
December 31, 1997 are as follows:


              Year ending December 31,

                  1998                               $ 4,043,000
                  1999                                    95,000
                                                     -----------

                                                     $ 4,138,000
                                                     ===========

         The  amounts  included in the above table do not reflect the results of
         the lease  extension  to America  Trans Air,  Inc. as discussed in Note
         11e.


<PAGE>
                         AIRCRAFT INCOME PARTNERS L.P.

                          NOTES TO FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995


5         LEASED AIRCRAFT - NET (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, 1997,
         1996 and 1995 was $1,963, $1,963 and $163,772, respectively.


6         DISTRIBUTIONS PAYABLE

         Distributions  payable to partners  represent  distributable  cash from
         operations,  as defined in the Limited Partnership  Agreement,  for the
         fourth quarter of 1996.  Distributions payable to limited partners were
         $5.50 per limited  partnership unit and  distributions  payable to IAFM
         aggregated  $235,770 at December 31, 1996.  There were no distributions
         declared during the fourth quarter of 1997

7         PARTNERS' EQUITY

         The General Partner holds a 10% equity interest in the Partnership.  At
         the inception of the Partnership,  the General Partner's equity account
         was credited with only the actual capital  contributed in cash, $9,950.
         The Partnership's  management  determined that this accounting does not
         appropriately  reflect the limited  partners' and the General Partner's
         relative  participations in the Partnership's net assets, since it does
         not  reflect  the  General   Partner's  10%  equity   interest  in  the
         Partnership.   Thus,  the   Partnership   has  restated  its  financial
         statements to reallocate  $19,290,250 (10% of the gross proceeds raised
         at the Partnership's  formation) of the partners' equity to the General
         Partner's  equity  account.  This  reallocation  was  made  as  of  the
         inception of the Partnership and all periods presented in the financial
         statements  have  been  restated  to  reflect  this  reallocation.  The
         reallocation  has no impact on the  Partnership's  financial  position,
         results of operations,  cash flows,  distributions to partners,  or the
         partners' tax basis capital accounts.

8         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 lease,  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:
<PAGE>
                         AIRCRAFT INCOME PARTNERS L.P.

                          NOTES TO FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

8         RECONCILIATION OF NET INCOME AND NET ASSETS PER FINANCIAL STATEMENTS
          TO TAX BASIS (continued)
<TABLE>
<CAPTION>
                                                                           Year ended December 31,
                                                            ------------------------------------------------
                                                                  1997             1996              1995
                                                            ------------      ------------      ------------
<S>                                                         <C>               <C>               <C>
Net income per financial statements ...................     $  1,706,235      $  5,988,174      $  1,496,774

Difference between financial statements and tax
  basis depreciation ..................................          241,038           869,343           (15,767)

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 ...................................          (53,457)          362,698           803,338

Difference  between tax basis and financial statement
  treatment of aircraft subject to Temporary Regulation
  Section5c.168(f)(8)-2(a)(5) of the Internal Revenue
  Code ................................................       (6,183,974)       (1,189,364)       (1,006,685)

Financial statement recognition of advance rental
  payments recognized in prior periods for tax
  purposes ............................................            1,668           (47,666)             --
                                                            ------------      ------------      ------------

Net (loss) income per tax basis .......................     $ (4,288,490)     $ 10,249,832      $  1,277,660
                                                            ============      ============      ============
</TABLE>
<PAGE>
                         AIRCRAFT INCOME PARTNERS L.P.

                          NOTES TO FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995


8         RECONCILIATION OF NET INCOME AND NET ASSETS PER FINANCIAL STATEMENTS
          TO TAX BASIS (continued)

         The  differences  between the  Partnership's  net assets per  financial
         statements and tax basis of accounting are as follows:
<TABLE>
<CAPTION>
                                                          December 31,
                                                      1997              1996
                                                 ------------      ------------
<S>                                              <C>               <C>
Net assets per financial statements ........     $ 27,580,239      $ 34,661,785

Net carrying value of aircraft .............      (10,390,421)      (10,631,459)
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

Receipt of:
     - advanced rental payment .............          133,218           131,550
     - maintenance reserves ................        2,129,110         2,167,329
Other ......................................           50,000            65,238
                                                 ------------      ------------

Net assets per tax basis ...................     $ 42,167,896      $ 55,244,167
                                                 ============      ============
</TABLE>
<PAGE>
                         AIRCRAFT INCOME PARTNERS L.P.

                          NOTES TO FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

9         MAJOR LESSEES

         Revenues from aircraft  leased by individual  lessees,  which generated
         10% or more of rental revenues, are as follows:
<TABLE>
<CAPTION>
                                              Year ended December 31,
                                     ------------------------------------------
                                        1997            1996            1995
                                     ----------      ----------      ----------
<S>                                  <C>             <C>             <C>
Continental Airlines, Inc. .....     $2,286,000      $2,322,000      $2,322,000
% of revenues ..................             30%             24%             20%

American Trans Air, Inc. .......     $1,781,168      $1,781,168      $1,781,168
% of revenues ..................             24%             18%             15%

Ladeco S.A .....................     $1,140,000      $1,140,000      $1,140,000
% of revenues ..................             15%             12%             10%

Air Micronesia, Inc.............     $  895,056      $     --        $     --
% of revenues ..................             12%             -%              -%

Aloha Airlines, Inc. ...........     $  869,872      $2,023,650      $3,095,216
% of revenues ..................             11%             21%             26%

Southwest Airlines, Co. ........     $     --        $1,087,667      $1,817,000
% of revenues ..................             -%              11%             15%
</TABLE>
10        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, 1997
                               -------------------------------------------------------
                                      United             Western
                                      States            Pacific              Chile
                               ----------------    ---------------     ---------------
<S>                            <C>                 <C>                 <C>
   Rental revenues             $      5,537,044    $       895,056     $     1,140,000
   Net income (loss)           $        874,923    $      (213,558)    $     1,044,870
   Leased aircraft - net       $     14,997,468    $     2,572,094     $     2,442,650
<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, 1997, 1996 AND 1995

10        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
</TABLE>
11        COMMITMENTS AND CONTINGENCIES

             a  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.

         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 on 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, 1997, 1996 AND 1995

11        COMMITMENTS AND CONTINGENCIES (continued)

         b      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.

         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 income  and the
         related  receivable  is  included in  deferred  rents and  modification
         advances receivable on the accompanying balance sheets.

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

         Continental was 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 accompanying balance sheets.

         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% per annum,  were to be
         repaid over a 42 month period commencing October 1, 1993.
<PAGE>
                         AIRCRAFT INCOME PARTNERS L.P.

                          NOTES TO FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

11        COMMITMENTS AND CONTINGENCIES (continued)

         b      Continental Airlines, Inc. (continued)

         During 1997,  the leases of the three  McDonnell  Douglas  Model DC9-32
         aircraft to  Continental  were extended to September  1998 (2 aircraft)
         and December  1998 (1  aircraft) at a rental of $52,500 per month,  per
         aircraft.

         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  Partnership  has  recorded
         $445,000 as accounts receivable with respect to such claims.

         c      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, 1997, the Partnership  had provided  financing of
         approximately  $755,000.  Such  amounts,  net of  amounts  repaid,  are
         included  in  deferred  costs on the  accompanying  balance  sheets  at
         December 31, 1997 and 1996.

         d      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
<PAGE>
                         AIRCRAFT INCOME PARTNERS L.P.

                          NOTES TO FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

11        COMMITMENTS AND CONTINGENCIES (continued)

         d      Ladeco S.A. (continued)

         31,  1997,   such   maintenance   reserves   aggregated   approximately
         $1,490,000. 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. The Ladeco  aircraft  leases,
         originally  scheduled  to expire in October  1997 and March 1998,  were
         each renewed for a one year period at the same lease rate  beginning at
         the expiration of the original leases.

         e      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
         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.

         In addition,  ATA leases two Boeing 727-200 Advanced aircraft (the "ATA
         Aircraft"), since November and December 1994, each with an initial term
         of approximately  39 months ("Basic Term"),  which 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 March  1998,  the  Partnership  and ATA  agreed to amend the  leases
         extending  the term  through  December  31, 2000 at the  current  lease
         rental  at  which  time  ATA  will  have  a  purchase   obligation   of
         approximately $3.3 million per aircraft. During the term of the amended
         lease,  ATA may, at its  expense,  retrofit the aircraft to comply with
         the Stage III noise emission standards pursuant to FAR Part 36.
<PAGE>
                         AIRCRAFT INCOME PARTNERS L.P.

                          NOTES TO FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

11        COMMITMENTS AND CONTINGENCIES (continued)

         f    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.

         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  two 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  and
         is now maintained at a storage facility.

         On May 22, 1997, the Aloha Aircraft was sold to an  unaffiliated  third
         party for  proceeds of  approximately  $1,982,000  exclusive of selling
         expenses of  approximately  $60,000.  Associated  with the aircraft was
         approximately $639,000 of net maintenance and return provision reserves
         that Aloha had  previously  paid the  Partnership as provided under the
         lease agreement.  The reserves on the Aloha Aircraft will be restricted
         until  certain  contingent  liabilities  relating to the  aircraft  are
         satisfied.  At the time of sale,  the aircraft had a net carrying value
         of approximately $1,290,000.

         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 and the  aircraft  was
         scheduled to be returned  following the  expiration of the term and the
         completion of certain  repairs and maintenance to bring the aircraft in
         compliance with the lease return provisions.  On November 15, 1997, the
         lease expired in accordance  with its terms.  Aloha has indicated  that
         certain  modifications to the aircraft as required by the Airworthiness
         Directives  issued  by the FAA  are not  applicable  under  the  return
         conditions of the lease.

         On November 14, 1997, First Security Bank, National Association, acting
         not in its  individual  capacity,  but solely as trustee  under a trust
         agreement in which the  Partnership is  beneficiary,  filed a complaint
         for declaratory judgment in the United States District Court,  Southern
<PAGE>
                         AIRCRAFT INCOME PARTNERS L.P.

                          NOTES TO FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

11        COMMITMENTS AND CONTINGENCIES (continued)

         f    Aloha Airlines, Inc. (continued)

         District of New York.  The complaint  requested  interpretation  of the
         language under the lease regarding return  conditions for the aircraft.
         In December 1997, the foregoing  action was settled and Aloha agreed to
         satisfy  certain  return  conditions  of the  lease.  The  aircraft  is
         scheduled  to be  returned  by April 30,  1998 and the  Partnership  is
         actively remarketing the aircraft for sale or lease.

         g    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
         and Hawaiian 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 provision or liability as a result of the proposed
         notices of assessments.

12        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
<PAGE>
                         AIRCRAFT INCOME PARTNERS L.P.

                          NOTES TO FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

12        AIRCRAFT SALES (continued)

         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).
<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, 1997

Leased aircraft - valuation
     allowance for equipment
     impairment

     Four Boeing 737-200 Advanced
        aircraft ..................     $16,468,000     $  --      $      --        $ (3,400,000)(A)     $13,068,000

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

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

                                        $27,500,000     $  --      $      --        $ (3,400,000)        $24,100,000
                                        ===========     =====     ===========      =================     ===========

</TABLE>
 (A)Represents valuation allowances for equipment impairment relating to certain
    equipment sold during 1997.


                                                                     (continued)
<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, 1996

Leased aircraft - valuation
     allowance for equipment
     impairment

     Five 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)          --
                                        -----------     -----------     -----------     -----------      -----------

                                        $32,225,000     $      --       $      --       $(4,725,000)     $27,500,000
                                        ===========     ===========     ===========     ===========      ===========
</TABLE>
(A) Represents valuation allowances for equipment impairment relating to certain
    equipment sold during 1996.
<PAGE>
<TABLE>
<CAPTION>
                                                                                                               Schedule II
           SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (continued)
                          AIRCRAFT INCOME PARTNERS L.P.


                                                                   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
                                         ===========        ======      ===========      ===============     ===========
</TABLE>
 (B) Represents allowance for uncollectable accounts written-off during 1995.

<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   Registrant's   affairs   and  has   general
responsibility and ultimate authority in all matters affecting its business. The
names and positions  held by the officers and  directors of the General  Partner
are described below.
<TABLE>
<CAPTION>
                                                                               Has served as a
                                                                                Director and/or
                                                                                Officer of the
                                                                               General Partner
     Name                    Age       Position Held                                since
     ----                    ---       -------------                                -----
<S>                           <C>      <C>                                      <C>
W. Edward Scheetz             33       Director                                 November 1997
David Hamamoto                38       Director                                 November 1997
Richard Sabella               42       President, Director                      November 1997
David King                    35       Executive VP, Director, Assistant        November 1997
                                       Treasurer
Lawrence R. Schachter         41       Senior VP, Chief Financial Officer       January 1998
Kevin Reardon                 39       VP, Secretary, Treasurer, Director       November 1997
Allan B. Rothschild           36       Executive VP                             December 1997
Marc Gordon                   33       VP                                       November 1997
Charles Humber                24       VP                                       November 1997
Adam Anhang                   24       VP                                       November 1997
Gregory Peck                  23       Assistant Secretary                      November 1997
</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.

There are no family  relationships  between or among any of the directors and/or
executive officers of the General Partner.

W. Edward Scheetz  co-founded  NorthStar Capital Partners with David Hamamoto in
July 1997,  having previously been a partner at Apollo Real Estate Advisors L.P.
since 1993.  From 1988 to 1993,  Mr.  Scheetz was a principal with Trammell Crow
Ventures.

David Hamamoto  co-founded  NorthStar Capital Partners with W. Edward Scheetz in
July 1997,  having  previously  been a partner  and a co-head of the Real Estate
Principal Investment Area at Goldman, Sachs & Co., where he initiated the effort
to build a real estate principal  investment business in 1988 under the auspices
of the Whitehall Funds.

Richard  Sabella joined  NorthStar  Capital  Partners in November  1997,  having
previously been the head of real estate and a partner at the law firm of Cahill,
Gordon & Reindel since 1989. Mr. Sabella has also been  associated  with the law
firms of Milgrim, Thomajian, Jacobs & Lee, P.C. and Cravath, Swaine & Moore.

David King joined NorthStar Capital Partners in November 1997, having previously
been a Senior Vice President of Finance at Olympia & York Companies (USA). Prior
to joining Olympia & York in 1990, Mr. King worked for Bankers Trust in its real
estate finance group.
<PAGE>
Lawrence  R.  Schachter  joined  NorthStar  Presidio  in  January  1998,  having
previously held the position as Controller at CB Commercial/Hampshire,  LLC from
1996 to 1997. Prior to joining CB, Mr. Schachter held the position of Controller
at Goodrich Associates in 1996 and at Greenthal/Harlan  Realty Services Co. from
1992 to 1995. Mr.  Schachter,  who holds a CPA,  graduated from Miami University
(Ohio).

Kevin  Reardon  joined  NorthStar  Capital  Partners  in  October  1997,  having
previously  held the  position  of  Controller  at  Lazard  Freres  Real  Estate
Investors from 1996 to 1997. Prior to joining Lazard Freres, Mr. Reardon was the
Director  of Finance in charge of  European  expansion  at the law firm of Dewey
Ballantine  from  1993 to 1996.  Prior to 1993,  Mr.  Reardon  held a  financial
position at Hearst - ABC - Viacom Entertainment Services. Mr. Reardon, who holds
a CPA, graduated from Fordham University with a B.S. in Accounting.

Allan  B.  Rothschild  joined  NorthStar   Presidio  in  December  1997,  having
previously been the Senior Vice President and General Counsel of Newkirk Limited
Partnership where he managed a large portfolio of net-leased real estate assets.
Prior to joining Newkirk in September  1995, Mr.  Rothschild was associated with
the law firm of Proskauer, Rose LLP in its real estate group.

Marc Gordon joined NorthStar Capital Partners in October 1997, having previously
been a Vice  President in the Real Estate  Investment  Banking  Group at Merrill
Lynch where he executed corporate finance and strategic  transactions for public
and private  real  estate  ownership  companies,  including  REITs,  real estate
service  companies,  and real estate  intensive  operating  companies.  Prior to
joining  Merrill  Lynch in 1993,  Mr.  Gordon was in the Real Estate and Banking
Group at the law firm of Irell & Manella.  Mr. Gordon  graduated  from Dartmouth
College with an A.B. in economics  and also holds a J.D. from the UCLA School of
Law.

Charles  Humber joined  NorthStar  Capital  Partners in September  1997,  having
previously worked for Merrill Lynch's Real Estate Investment  Banking Group from
1996 to  1997.  Mr.  Humber  graduated  from  Brown  University  with a B.A.  in
international  relations and  organizational  behavior and  management  which is
where he was prior to 1996.

Adam Anhang joined NorthStar  Capital Partners in August 1997, having previously
worked for The Athena  Group's Russia and Former Soviet Union  development  team
from  1996 to  1997.  Mr.  Anhang  graduated  from  the  Wharton  School  of the
University  of  Pennsylvania  with a B.S. in economics  with  concentrations  in
finance and real estate, which is where he was prior to 1996.

Gregory Peck joined NorthStar  Capital Partners in July 1997,  having previously
worked for the Morgan  Stanley  Realty  Real  Estate  Funds  (MSREF)  and Morgan
Stanley's  Real  Estate  Investment  Banking  Group from 1996 to 1997.  Prior to
joining Morgan Stanley,  Mr. Peck worked for Lazard Freres & Co. LLC in the Real
Estate  Investment  Banking  Group from 1994 to 1996.  Mr. Peck  graduated  from
Columbia College with an A.B. in mathematics and an A.B. in economics.

Messrs. Scheetz, Hamamoto,  Sabella, King and Reardon 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: American
Leasing Investors VIII-B,  L.P.,  National Lease Income Fund 6, L.P.,  Resources
Pension Shares 5, L.P., Vista Properties,  Resources Accrued Mortgage  Investors
2, L.P.,  Resources  Accrued  Mortgage  Investors - Series 86, L.P.,  Integrated
Resources High Equity Partners - Series 85, L.P., High Equity  Partners,  L.P. -
Series 86, and High Equity  Partners,  L.P. - Series 88.  Each of the  foregoing
general partners is affiliated with the General Partner.
<PAGE>
Registrant believes,  based on written representations  received by it, that for
1997 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  Partner and the officers and  directors of such General  Partner,  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.

Certain officers and directors of the General Partner receive  compensation from
affiliates  of the  General  Partner  (but not  from  Registrant)  for  services
performed for various affiliated entities,  which may include services performed
for  Registrant;  however,  the General Partner  believes that any  compensation
attributable to such services  performed for Registrant is immaterial.  See Item
13 "Certain Relationships and Related Transactions".

Item 12. Security Ownership of Certain Beneficial Owners and Management

As of March 1, 1998, 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, 1998,  neither the General Partner nor its officers and directors
were 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  as of March 11,  1998
(based on 37 Class A Shares  outstanding  on such date) by: (i) each  person who
beneficially owns 5% or more of the Class A Shares,  (ii) the executive officers
of Presidio,  (iii) each of  Presidio's  directors,  and (iv) all  directors and
executive officers as a group:
<PAGE>
<TABLE>
<CAPTION>

                                                 Amount and nature                      Percentage
   Name of Beneficial Owner                  Of Beneficial Ownership                   Outstanding
   ------------------------                  -----------------------                   -----------

<S>                                                    <C>                                <C>
W. Edward Scheetz                                         27(1)                             72.97%
David Hamamot

Presidio Holding Company LLC
c/o Presidio Capital Corp.
411 West Putnam Avenue, Suite 270
Greenwich, CT 06830

John M. Angelo                                            5(2)                             13.51%
Michael L. Gordon
AG Presidio Investors, LLC
c/o Angelo, Gordon & Co., LP
245 Park Avenue, 26th Floor
New York, NY 10167

M.H. Davidson & Co.                                       3(3)                             8.11%
DK Presidio Investors, LLC
c/o M.H. Davidson & Company
885 Third Avenue
New York, NY 10022

John A. Motulsky                                          2(4)                             5.41%
c/o Stonehill Partners, LP
Stonehill Offshore Partners Limited
Stonehill Institutional Partners, LP
110 East 59th Street
New York, NY 10022

Richard Sabella                                          --(1)
Presidio Holding Company, LLC
c/o Presidio Capital Corp.
411 West Putnam Avenue, Suite 270
Greenwich, CT 06830

David King                                               --(1)
Presidio Holding Company, LLC
c/o Presidio Capital Corp.
411 West Putnam Avenue, Suite 270
Greenwich, CT 06830

Kevin Reardon                                            -- (1)
Presidio Holding Company, LLC
c/o Presidio Capital Corp.
411 West Putnam Avenue, Suite 270
Greenwich, CT 06830
</TABLE>
<PAGE>
Directors and executive officers as a group (5 persons)

(1)      As the managing  member of Presidio  Capital  Investment  Company,  LLC
         ("PCIC"),  Presidio Holding  Company,  LLC ("PHC") may be deemed to own
         beneficially  for  purposes of Rule 13d-3 of the Exchange  Act,  shares
         held by PCIC. In addition,  as  controlling  parties of PHC,  NorthStar
         Capital  Partners  ("NCP")  and  NorthStar  Capital  Holdingss  I,  LLC
         ("NCHI") may be deemed to own  beneficially  for purposes of Rule 13d-3
         of the  Exchange  Act shares  held by PCIC.  Each of PHC,  NCP and NCHI
         disclaims any beneficial ownership of such shares.

         Pursuant to that  certain  Amended  and  Restated  Pledge and  Security
         Agreement (the "Pledge  Agreement")  dated March 5, 1998 made by PHC in
         favor of Credit Suisse First Boston Mortgage Capital LLC ("CSFB"),  PHC
         pledged all of its membership interests in PCIC to CSFB as security for
         loans issued under the Loan Agreement  dated as of February 20, 1998 by
         and among PHC and CSFB and the First  amendment thereto  dated March 5,
         1998 (together,  the "Loan  Agreement").  The Pledge Agreement and Loan
         Agreement  contain  standard  default  and event of default  provisions
         which may at a subsequent date result in a change of control of PCIC.

(2)      John M. Angelo and Michael L. Gordon,  members of AG Presidio Investors
         LLC, may be deemed to be the  beneficial  owners under Section 13d-3 of
         the Exchange Act of the securities held by PCIC.

(3)      M.H.  Davidson  &  Company,  as  the  managing  member  of DK  Presidio
         Investors, LLC, may be deemed to be the beneficial owners under Section
         13d-3 of the Exchange Act of the securities held by PCIC.

(4)      John A. Motulsky is a managing  general partner of Stonehill  Partners,
         L.P., a general partner of Stonehill Institutional Partners, L.P. and a
         managing member of Stonehill Advisers LLC, a New York limited liability
         company that is the investment  advisor to Stonehill Offshore Partners.
         Stonehill  Partners,  L.P.,  Stonehill  Offshore  Partners,   Stonehill
         Institutional  Partners  L.P. and Motulsky are  sometimes  collectively
         referred to herein as "Stonehill." The principal  business of Stonehill
         is investing.



Item 13. Certain Relationships and Related Transactions


The  General  Partner  received   $878,778  from  Registrant  as  its  share  of
distributions  for the year ended  December 31, 1997.  No director or officer of
the General Partner received any direct  remuneration from Registrant during the
year ended December 31, 1997.

The  General  Partner  also  received  a  management  fee of  $265,161  for  the
performance of management services.


The General Partner's share of Registrant's tax loss for the year ended December
31, 1997 amounted to $430,440.

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

         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
<PAGE>
         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") 10

         10.36    Lease Amendment, dated January 1, 1997, between First Security
                  Bank of Utah N.A., as Trustee, and Hawaiian Airlines, Inc. 10
<PAGE>
         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

         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. 10

         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.

         9        Filed as an exhibit to Registrant's Annual Report on Form 10-K
                  for the fiscal year ended  December 31, 1995 and  incorporated
                  herein by reference.

         10       Filed as an exhibit to Registrant's Annual Report on Form 10-K
                  for the fiscal year ended  December 31, 1996 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 27th day of March 1998.

AIRCRAFT INCOME PARTNERS L.P.

By:      INTEGRATED AIRCRAFT FUND MANAGEMENT CORP.
         General Partner
                                                                    Date

By:      /s/ Richard Sabella                                   March 27, 1998
         -------------------
         Richard Sabella
         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 in their
capacities as directors  and/or officers (as to the Managing General Partner) on
the date indicated below.


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


/s/ Lawrence Schachter        Senior Vice President and         March 27, 1998
------------------------
Lawrence Schachter            Chief Financial Officer

/s/ Richard Sabella           Director and President            March 27, 1998
------------------------
Richard Sabella

/s/ David King                Director and Executive            March 27, 1998
------------------------
David King                    Vice President

/s/ Kevin Reardon             Director and Vice President,      March 27, 1998
------------------------
Kevin Reardon                 Treasurer and Secretary

<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. 8

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

10.36    Lease Amendment,  dated January 1, 1997, between First Security Bank of
         Utah N.A., as Trustee, and Hawaiian Airlines, Inc. 10

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

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.
         10

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.

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.
<PAGE>
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.

9        Filed as an exhibit to Registrant's  Annual Report on Form 10-K for the
         fiscal  year  ended  December  31,  1995  and  incorporated  herein  by
         reference.

10       Filed as an exhibit to Registrant's  Annual Report on Form 10-K for the
         fiscal  year  ended  December  31,  1996  and  incorporated  herein  by
         reference


         * Filed herewith.