POLARIS AIRCRAFT INCOME FUND IV, 10-K, 1997-03-31

POLARIS AIRCRAFT INCOME FUND IV
10-K, 1997-03-31
EQUIPMENT RENTAL & LEASING, NEC

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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

FORM 10-K

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

_X_ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (Fee Required)
For the fiscal year ended December 31, 1996

___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from ___ to ___

Commission File No. 33-15551

POLARIS AIRCRAFT INCOME FUND IV,
A California Limited Partnership
----------------------------------------------------
(Exact name of registrant as specified in its charter)

California 94-3039169
------------------------------- ----------------------
(State or other jurisdiction of (IRS Employer I.D. No.)
incorporation or organization)

201 Mission Street, 27th Floor, San Francisco, California 94105
--------------------------------------------------------- ---------
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (415) 284-7400

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

Securities registered pursuant to Section 12(g) of the Act:
Depository Units Representing Assignments of Limited Partnership Interests

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No___

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

No formal market exists for the units of limited partnership interest and
therefore there exists no aggregate market value at December 31, 1996.

Documents incorporated by reference: None

This document consists of 51 pages.

<PAGE>

PART I

Item 1. Business

The principal objectives of Polaris Aircraft Income Fund IV, A California
Limited Partnership (PAIF-IV or the Partnership), are to purchase and lease used
commercial jet aircraft in order to provide quarterly distributions of cash from
operations, to maximize the residual values of aircraft upon sale and to protect
Partnership capital through experienced management and diversification. PAIF-IV
was organized as a California limited partnership on June 27, 1984 and will
terminate no later than December 2020.

PAIF-IV has many competitors in the aircraft leasing market, including airlines,
aircraft leasing companies, other limited partnerships, banks and several other
types of financial institutions. This market is highly competitive and there is
no single competitor who has a significant influence on the industry. In
addition to other competitors, the general partner, Polaris Investment
Management Corporation (PIMC), and its affiliates, including GE Capital Aviation
Services, Inc. (GECAS), Polaris Aircraft Leasing Corporation (PALC), Polaris
Holding Company (PHC) and General Electric Capital Corporation (GE Capital),
acquire, lease, finance, sell and remarket aircraft for their own accounts and
for existing aircraft and aircraft leasing programs managed by them. Further,
GECAS provides a significant range of management services to GPA Group plc, a
public limited company organized in Ireland, together with its consolidated
subsidiaries (GPA), which acquires, leases and sells aircraft. Accordingly, in
seeking to re-lease and sell its aircraft, the Partnership may be in competition
with the general partner, its affiliates, and GPA.

A brief description of the aircraft owned by the Partnership is set forth in
Item 2. The following table describes certain material terms of the
Partnership's leases to American Trans Air, Inc. (ATA), Continental Airlines,
Inc. (Continental), Independent Aviation Group Limited (IAG) and TBG Airways
Limited (TBG Airways).
<TABLE>
<CAPTION>
Scheduled
Number of Lease
Lessee Aircraft Type Aircraft Expiration Renewal Options (5)
- ------ ------------- -------- ---------- -------------------
<S> <C> <C> <C> <C>
ATA Boeing 727-200 Advanced 1 2/00 (1) up to three one-year periods
Boeing 727-200 Advanced 1 3/00 (1) up to three one-year periods

Continental McDonnell Douglas DC-9-30 5 6/97 (2) up to four one-year periods

IAG Boeing 737-200 Advanced 2 10/97 (3) none

TBG Airways Boeing 737-200 Advanced 2 10/98 (4) none
</TABLE>
(1) These aircraft were formerly leased to USAir, Inc. (USAir) through
December 1992. The lease rate is approximately 45% of the prior lease
rate. The lease included an eleven month rent suspension period,
beginning on the delivery dates in February and March 1993. Under the
ATA lease, the Partnership incurred certain maintenance costs of
approximately $415,000 and may be required to finance up to two
aircraft hushkits at an estimated aggregate cost of approximately $5.2
million, which will be partially recovered with interest through
payments from ATA over an extended lease term. In addition, the
Partnership loaned $1,164,800 to ATA in 1993, which has been paid in
full, to finance the purchase by ATA of two spare engines. As part of
the lease transaction, ATA transferred unencumbered title to two of its
Boeing 727-100 aircraft to the Partnership in 1993. Both of these
aircraft were sold in 1994 as discussed in Item 7.

(2) The Continental leases were modified in 1991; the leases for the Boeing
727-200 aircraft were extended for ten months beyond the initial lease

<PAGE>

expiration date in June 1993 at approximately 55% of the original lease
rates. The Partnership sold these aircraft to Continental upon
expiration of the leases in April 1994 as discussed in Item 7. The
leases for the McDonnell Douglas DC-9-30 aircraft were extended for 36
months beyond the initial lease expiration date in June 1993 at
approximately 79% of the original lease rates. The Partnership also
agreed to pay for certain aircraft maintenance, modification and
refurbishment costs, expected not to exceed approximately $4.9 million,
a portion of which will be recovered with interest through payments
from Continental over the extended lease terms.

Continental renewed the leases for the five aircraft for a one-year
term commencing in July 1996 at approximately 51% of the original lease
rate. Continental has notified the Partnership of its intent to return
the aircraft in June 1997.

(3) These aircraft were formerly leased or sub-leased to Britannia Airways
Limited (Britannia) until June 1993. The leases were extended beyond
their initial termination dates for approximately four months through
the end of September 1993 at 85% of the original rates. The leases were
then again extended through various dates in October, November and
December 1993, at the modified rates, which coincided with the
commencement of maintenance work required of the lessee to meet return
conditions specified in the lease.

In February 1994, the Partnership leased the aircraft to IAG. Lease
payments for an interim lease term through March 1994 were at a
variable rate based on usage. Thereafter and through March 1996, the
lease rate is fixed at 50% of the original rate received from
Britannia. The rate is then adjusted through the end of the lease in
October 1996 to 57% of the original rate received from Britannia. In
1996, IAG exercised the option to extend the lease for one year until
October 1997 at the initial fixed rate. The lease stipulates that the
Partnership share in the cost of meeting certain Airworthiness
Directives (ADs), not to exceed the present value of the remaining rent
payable under the lease at the time the work is complete, which cannot
be estimated at this time.

(4) These aircraft were formerly leased or sub-leased to Britannia until
June 1993. The leases were extended beyond their initial termination
dates for approximately four months through the end of September 1993
at an aggregate of 75% of the original rates. The leases were then
again extended through various dates in October, November and December
1993, at the modified rates, which coincided with the commencement of
maintenance work required of the lessee to meet return conditions
specified in the lease.

In February 1994, the Partnership leased the aircraft to TBG Airways
Limited (TBG Airways). Lease payments for the interim lease term
through April 1994 were at a variable rate based on usage. Thereafter
and through the end of the lease in October 1998, the aggregate rate is
periodically increased from 41% to 60% of the original aggregate rate
received from Britannia. The lease stipulates that the Partnership
share in the cost of certain ADs, not to exceed the present value of
the remaining rent payable under the lease at the time the work is
complete, which cannot be estimated at this time. TBG Airways has the
option to terminate the lease early in April 1997 after paying a
termination fee of $250,000 per aircraft. TBG Airways also has the
option to purchase the aircraft at the end of the lease term for $8.0
million each.

(5) The rental rate during the renewal term remains the same as the current
rate unless otherwise noted.

The Partnership sold both of the Boeing 727-100 aircraft that were transferred
to the Partnership by ATA in 1994, as discussed above. In addition, the
Partnership sold fourteen Boeing 727-100 Freighter aircraft to Emery Aircraft
Leasing Corporation (Emery) in 1993.

<PAGE>

Industry-wide, approximately 280 commercial jet aircraft were available for sale
or lease at December 31, 1996, approximately 195 less than a year ago, and at
under 2.5% of the total available jet aircraft fleet, this is the lowest level
of availability since 1988. From 1991 to 1994, depressed demand for travel
limited airline expansion plans, with new aircraft orders and scheduled
deliveries being canceled or substantially deferred. As profitability declined,
many airlines took action to downsize or liquidate assets and some airlines were
forced to file for bankruptcy protection. Following three years of good traffic
growth accompanied by rising yields, this trend is reversing with many airlines
reporting record profits. As a result of this improving trend, just over 1200
new jet aircraft were ordered in 1996, making this the second highest ever order
year in the history of the industry. To date, this strong recovery has mainly
benefited Stage 3 narrow-bodies and younger Stage 2 narrow-bodies, many of which
are now being upgraded with hushkits, which, when installed on the aircraft,
bring Stage 2 aircraft into compliance with Federal Aviation Administration
(FAA) Stage 3 noise restrictions as discussed in the Industry Update section of
Item 7. Older Stage 2 narrow-bodies have shown only marginal signs of recovery
since the depressed 1991 to 1994 period. In 1996, several airline accidents have
also impacted the market for older Stage 2 aircraft. The Partnership has been
forced to adjust its estimates of the residual values realizable from its
aircraft, which resulted in an increase in depreciation expense, as discussed in
Items 7 and 8. A discussion of the current market condition for the type of
aircraft owned by the Partnership follows:

Boeing 727-200 Advanced - The Boeing 727 was the first tri-jet introduced into
commercial service. The Boeing 727 is a short- to medium-range jet used for
trips of up to 1,500 nautical miles. In 1972, Boeing introduced the Boeing
727-200 Advanced model, a higher gross weight version with increased fuel
capacity as compared with the non-advanced model. Hushkits which bring the
Boeing 727-200 Advanced into compliance with FAA Stage 3 noise restrictions, are
now available at an average cost of approximately $2.6 million per aircraft.
Hushkits may not be cost effective on all aircraft due to the age of some of the
aircraft and the time required to fully amortize the additional investment.
Certain ADs applicable to all models of the Boeing 727 have been issued to
prevent fatigue cracks and control corrosion as discussed in Item 7.

Boeing 737-200 and Boeing 737-200 Advanced - The Boeing 737-200 aircraft was
introduced in 1967 and 150 were delivered from 1967 through 1971. In 1971,
Boeing introduced the Boeing 737-200 Advanced model, a higher gross weight
aircraft with increased fuel capacity as compared to its predecessor, the
non-advanced model. This two-engine, two-pilot aircraft provides operators with
107 to 130 seats, meeting their requirements for economical lift up to the 1,100
nautical mile range for the non-advanced model and the 2,000 nautical mile range
for the advanced model. Hushkits which bring Boeing 737-200 aircraft into
compliance with FAA Stage 3 noise restrictions, are now available at a cost of
approximately $1.5 million per aircraft. Hushkits may not be cost effective on
all aircraft due to the age of some of the aircraft and the time required to
fully amortize the additional investment. Certain ADs applicable to all models
of the Boeing 737 have been issued to prevent fatigue cracks and control
corrosion as discussed in Item 7.

McDonnell Douglas DC-9-30 - The McDonnell Douglas DC-9-30 is a short- to
medium-range twin-engine jet that was introduced in 1967. Providing reliable,
inexpensive lift, these aircraft fill thin niche markets, mostly in the United
States. Hushkits are available to bring these aircraft into compliance with
Stage 3 noise restrictions at a cost of approximately $1.6 million per aircraft.
Hushkits may not be cost effective on all aircraft due to the age of some of the
aircraft and the time required to fully amortize the additional investment.
Certain ADs applicable to the McDonnell Douglas DC-9 have been issued to prevent
fatigue cracks and control corrosion as discussed in Item 7.

The general partner believes that, in addition to the factors cited above, the
deteriorated market for the Partnership's aircraft reflects the airline
industry's reaction to the significant expenditures potentially necessary to
bring these aircraft into compliance with certain ADs issued by the FAA relating
to aging aircraft, corrosion prevention and control, and structural inspection
and modification as discussed in the Industry Update section of Item 7.

<PAGE>

Item 2. Properties

At December 31, 1996, PAIF-IV owned five McDonnell Douglas DC-9-30 leased to
Continental, two Boeing 727-200 Advanced aircraft leased to ATA, two Boeing
737-200 Advanced aircraft leased to IAG, two Boeing 737-200 Advanced aircraft
leased to TBG Airways and two Boeing 737-200 aircraft formerly leased to
Viscount who returned the aircraft in September and October 1996. One Boeing
727-100 Freighter, formerly leased to Emery, was declared a casualty loss due to
an accident in 1991. Fourteen Boeing 727-100 Freighter aircraft were sold to
Emery in 1993, five Boeing 727-200 aircraft were sold to Continental in 1994,
and two Boeing 727-100 aircraft, that were transferred to the Partnership by
ATA, were sold during 1994. The Partnership's entire fleet consists of Stage 2
aircraft.

The following table describes the Partnership's aircraft portfolio at December
31, 1996 in greater detail:

Year of Cycles
Aircraft Type Serial Number Manufacture As of 10/31/96 (1)
- ------------- ------------- ----------- ------------------
Boeing 727-200 Advanced 22001 1980 26,225
Boeing 727-200 Advanced 22983 1982 22,747
Boeing 737-200 19711 1969 41,226
Boeing 737-200 20236 1969 42,111
Boeing 737-200 Advanced 20807 1974 33,230
Boeing 737-200 Advanced 21335 1977 28,956
Boeing 737-200 Advanced 21336 1977 28,487
Boeing 737-200 Advanced 21694 1978 26,865
McDonnell Douglas DC-9-30 45791 1968 65,783
McDonnell Douglas DC-9-30 47111 1967 68,339
McDonnell Douglas DC-9-30 47112 1967 68,711
McDonnell Douglas DC-9-30 47521 1971 55,153
McDonnell Douglas DC-9-30 47524 1971 54,755

(1) Cycle information as of 12/31/96 was not available.

Item 3. Legal Proceedings

Continental Airlines, Inc. (Continental) Bankruptcy - On December 3, 1990,
Continental Airlines Holdings, Inc. and its subsidiaries, including Continental,
filed a petition under Chapter 11 of the Federal Bankruptcy Code in the United
States Bankruptcy Court for the District of Delaware. Polaris Aircraft Income
Fund IV (the Partnership) filed an administrative claim for the fair rental
value of aircraft operated by Continental during the bankruptcy period and a
general unsecured claim for the rental value of aircraft that were not so
operated. The Bankruptcy Court approved a negotiated agreement between
Continental and the Partnership on August 23, 1991, and Continental emerged from
bankruptcy under a plan of reorganization approved by the Bankruptcy Court
effective April 28, 1993. The Bankruptcy Court retains jurisdiction over
Continental for the purpose of approving the terms of a stipulated settlement in
which Continental would continue to operate certain of the Partnership's
aircraft under lease.

Viscount Air Services, Inc. (Viscount) Bankruptcy - As previously reported in
the Partnership's 1995 Form 10-K, on January 24, 1996, Viscount filed a petition
for protection under Chapter 11 of the Federal Bankruptcy Code in the United

<PAGE>

States Bankruptcy Court for the District of Arizona. On April 12, 1996, GE
Capital Aviation Services, Inc. (GECAS), as agent for the Partnership, First
Security Bank, National Association (formerly known as First Security Bank of
Utah, National Association) (FSB), the owner/trustee under the Partnership's
leases with Viscount, certain guarantors of Viscount's indebtedness and others
executed that certain Compromise of Claims and Stipulation under Section 1110 of
the Bankruptcy Code (the Compromise and Stipulation). Among other things, the
Compromise and Stipulation, which was subsequently approved by the Bankruptcy
Court, provided that if Viscount failed to meet its monetary obligations, the
Partnership would be entitled to immediate possession of the aircraft for which
Viscount failed to perform, and Viscount would deliver to GECAS all records
related thereto, without further order of the Bankruptcy Court.

Viscount defaulted on and was unable to cure its September rent obligations.
However, Viscount took the position that it was entitled to certain offsets and
asserted defenses to the September rent obligations. On September 18, 1996,
GECAS (on behalf of the Partnership and other entities) and Viscount entered
into a Stipulation and Agreement by which Viscount agreed to voluntarily return
the Partnership's aircraft, turn over possession of the majority of its aircraft
parts inventory, and cooperate with GECAS in the transition of aircraft
equipment and maintenance, in exchange for which, upon Bankruptcy Court approval
of the Stipulation and Agreement, the Partnership would waive its right to pre-
and post-petition claims against Viscount for amounts due and unpaid. The
aircraft were returned to the Partnership in September and October 1996.

The Stipulation and Agreement also provides that the Partnership, certain other
Polaris entities, GECAS and FSB shall release any and all claims against
Viscount, Viscount's bankruptcy estate, and the property of Viscount's
bankruptcy estate, effective upon entry of a final non-appealable court order
approving the Stipulation and Agreement. The Bankruptcy Court entered such an
order approving the Stipulation and Agreement on October 23, 1996. As a result
of the Stipulation and Agreement, all disputes between the Partnership and
Viscount have been resolved and there is no further pending litigation with
Viscount. Viscount has ceased operations and is currently considered to be
administratively insolvent, meaning that it does not have sufficient funds to
fully pay costs and expenses incurred after the commencement of the bankruptcy
case, which costs and expenses have priority over general unsecured claims.

Kepford, et al. v. Prudential Securities, et al. - On April 13, 1994, an action
entitled Kepford, et al. v. Prudential Securities, Inc. was filed in the
District Court of Harris County, Texas. The complaint names Polaris Investment
Management Corporation, Polaris Securities Corporation, Polaris Holding Company,
Polaris Aircraft Leasing Corporation, the Partnership, Polaris Aircraft Income
Fund I, Polaris Aircraft Income Fund II, Polaris Aircraft Income Fund III,
Polaris Aircraft Income Fund V, Polaris Aircraft Income Fund VI, General
Electric Capital Corporation, Prudential Securities, Inc., Prudential Insurance
Company of America and James J. Darr, as defendants. Certain defendants were
served with a summons and original petition on or about May 2, 1994. Plaintiffs'
original petition alleges that defendants violated the Texas Securities Act, the
Texas Deceptive Trade Practices Act, sections 11 and 12 of the Securities Act of
1933 and committed common law fraud, fraud in the inducement, negligent
misrepresentation, negligence, breach of fiduciary duty and civil conspiracy by
misrepresenting and failing to disclose material facts in connection with the
sale of limited partnership units in the Partnership and the other Polaris
Aircraft Income Funds. Plaintiffs seek, among other things, an award of
compensatory damages in an unspecified amount plus interest thereon, and double
and treble damages under the Texas Deceptive Trade Practices Act.

Certain defendants, including Polaris Investment Management Corporation and the
Partnership, filed a general denial on June 29, 1994 and a motion for summary
judgment on June 17, 1994 on the basis that the statute of limitations has
expired. On June 29, 1994 and July 14, 1994, respectively, plaintiffs filed
their first amended original petition and second amended original petition, both
of which added plaintiffs. On July 18, 1994, plaintiffs filed their response and
opposition to defendants' motion for partial summary judgment and also moved for
a continuance on the motion for partial summary judgment. On August 11, 1994,
after plaintiffs again amended their petition to add numerous plaintiffs, the

<PAGE>

defendants withdrew their summary judgment motion and motion to stay discovery,
without prejudice to refiling these motions at a later date. On January 9, 1997,
the trial court issued a scheduling order setting a July 21, 1997 trial date.

Riskind, et al. v. Prudential Securities, Inc., et al. - An action entitled
Riskind, et al. v. Prudential Securities, Inc., et al. has been filed in the
District Court of the 165 Judicial District, Maverick County, Texas. This action
is on behalf of over 3,000 individual investors who purchased units in "various
Polaris Aircraft Income Funds," including the Partnership. The Partnership and
Polaris Investment Management Corporation received service of plaintiffs' second
amended original petition and, on June 13, 1994, filed an original answer
containing a general denial.

The second amended original petition names the Partnership, Polaris Investment
Management Corporation, Prudential Securities, Inc. and others as defendants and
alleges that these defendants violated the Texas Securities Act and the Texas
Deceptive Trade Practices Act and committed common law fraud, fraud in the
inducement, negligent misrepresentation, negligent breach of fiduciary duty and
civil conspiracy by misrepresenting and failing to disclose material facts in
connection with the sale of limited partnership units in the Partnership and the
other Polaris Aircraft Income Funds. Plaintiffs seek, among other things, an
award of compensatory damages in an unspecified amount plus interest thereon,
and double and treble damages under the Texas Deceptive Trade Practices Act.
Kidder, Peabody & Co. was added as an additional defendant by virtue of an
Intervenor's Amended Plea in Intervention filed on or about April 7, 1995.

Prudential Securities, Inc. reached a settlement with the plaintiffs. The trial
of the claims of one plaintiff, Robert W. Wilson, against Polaris Aircraft
Income Funds I-VI, Polaris Investment Management Corporation and various
affiliates of Polaris Investment Management Corporation, including General
Electric Capital Corporation, was commenced on July 10, 1995. On July 26, 1995,
the jury returned a verdict in favor of the defendants on all counts. Subsequent
to this verdict, all of the defendants (with the exception of Prudential
Securities, Inc., which had previously settled) entered into a settlement with
the plaintiffs. On February 26, 1997, the court issued an order notifying the
remaining plaintiffs, who did not accept the settlement with the non-Prudential
defendants, that the action would be dismissed on April 21, 1997 for want of
prosecution unless the plaintiffs showed cause why the action should not be
dismissed.

Howland, et al. v. Polaris Holding Company, et al. - On or about February 4,
1994, a purported class action entitled Howland, et al. v. Polaris Holding
Company, et al. was filed in the United States District Court for the District
of Arizona on behalf of investors in Polaris Aircraft Income Funds I-VI. The
complaint names each of Polaris Investment Management Corporation, Polaris
Securities Corporation, Polaris Holding Company, Polaris Aircraft Leasing
Corporation, the Partnership, Polaris Aircraft Income Fund I, Polaris Aircraft
Income Fund II, Polaris Aircraft Income Fund III, Polaris Aircraft Income Fund
V, Polaris Aircraft Income Fund VI, General Electric Capital Corporation,
Prudential Securities, Inc., Prudential Securities Group, Inc., Prudential
Insurance Company of America, George W. Ball, Robert J. Sherman, James J. Darr,
Paul J. Proscia, Frank W. Giordano, William A. Pittman, Joseph H. Quinn, Joe W.
Defur, James M. Kelso and Brian J. Martin, as defendants. The complaint alleges
that defendants violated federal RICO statutes, committed negligent
misrepresentations, and breached their fiduciary duties by misrepresenting and
failing to disclose material facts in connection with the sale of limited
partnership units in the Partnership and the other Polaris Aircraft Income
Funds. Plaintiffs seek, among other things, an accounting of all monies invested
by plaintiffs and the class and the uses made thereof by defendants, an award of
compensatory, punitive and treble damages in unspecified amounts plus interest
thereon, rescission, attorneys' fees and costs. On August 3, 1994, the action
was transferred to the multi-district litigation in the Southern District of New
York entitled In re Prudential Securities Limited Partnerships Litigation,
discussed in Part III, Item 10 below.

Adams, et al. v. Prudential Securities, Inc., et al. On or about February 13,
1995, an action entitled Adams, et al. v. Prudential Securities, Inc. et al. was

<PAGE>

filed in the Court of Common Pleas, Stark County, Ohio. The action names
Prudential Securities, Inc., Prudential Insurance Company of America, Polaris
Investment Management Corporation, Polaris Securities Corporation, Polaris
Aircraft Leasing Corporation, Polaris Holding Company, General Electric Capital
Corporation, the Partnership, Polaris Aircraft Income Fund I, Polaris Aircraft
Income Fund V and James Darr as defendants. The complaint alleges that
defendants committed common law fraud, fraud in the inducement, negligent
misrepresentation, negligence, breach of fiduciary duty and civil conspiracy by
misrepresenting and failing to disclose material facts in connection with the
sale of limited partnership units in the Partnership and the other Polaris
Aircraft Income Funds. Plaintiffs seek, among other things, rescission of their
investments in the Partnership and the other Polaris Aircraft Income Funds, an
award of compensatory damages in an unspecified amount plus interest thereon,
and punitive damages in an unspecified amount. On or about March 15, 1995, this
action was removed to the United States District Court for the Northern District
of Ohio, Eastern Division. Subsequently, the Judicial Panel transferred this
action to the Multi-District Litigation filed in the United States District
Court for the Southern District of New York, which is described in Item 10 of
Part III below.

Mary C. Scott v. Prudential Securities Inc. et al. - On or around August 15,
1995, a complaint entitled Mary C. Scott v. Prudential Securities Inc. et al.
was filed in the Court of Common Pleas, County of Summit, Ohio. The complaint
names as defendants Prudential Securities Inc., the Partnership, Polaris
Aircraft Income Fund II, Polaris Aircraft Income Fund III, Polaris Aircraft
Income Fund VI, P-Bache/A.G. Spanos Genesis Income Partners LP 1,
Prudential-Bache Properties, Inc., A.G. Spanos Residential Partners - 86,
Polaris Securities Corporation and Robert Bryan Fitzpatrick. Plaintiff alleges
claims of fraud and violation of Ohio securities law arising out of the public
offerings of the Partnership, Polaris Aircraft Income Fund II, Polaris Aircraft
Income Fund III, Polaris Aircraft Income Fund VI, and P-Bache/A.G. Spanos
Genesis Income Partners LP 1. Plaintiff seeks compensatory damages, general,
consequential and incidental damages, punitive damages, rescission, costs,
attorneys' fees and other and further relief as the Court deems just and proper.
On September 15, 1995, defendants removed this action to the United States
District Court, Eastern District of Ohio. On September 18, 1995, defendants
sought the transfer of this action to the Multi-District Litigation and sought a
stay of all proceedings by the district court, which stay was granted on
September 25, 1995. The Judicial Panel transferred this action to the
Multi-District Litigation on or about February 7, 1996.

Other Proceedings - Part III, Item 10 discusses certain other actions which have
been filed against the general partner in connection with certain public
offerings, including that of the Partnership. With the exception of Novak, et al
v. Polaris Holding Company, et al, (which has been dismissed, as discussed in
Item 10) where the Partnership was named as a defendant for procedural purposes,
the Partnership is not a party to these actions.

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

None.

<PAGE>

PART II

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

a) Polaris Aircraft Income Fund IV's (PAIF-IV or the Partnership) units
representing assignments of limited partnership interest (Units) are not
publicly traded. The Units are held by Polaris Depositary IV on behalf
of the Partnership's investors (Unit Holders). Currently there is no
market for PAIF-IV's Units and it is unlikely that any market will
develop.

b) Number of Security Holders:

Number of Record Holders
Title of Class as of December 31, 1996
------------------------------------ -----------------------

Depository Units Representing Assignments 16,733
of Limited Partnership Interests:

General Partnership Interest: 1

c) Dividends:

The Partnership distributed cash to Unit Holders on a quarterly basis
beginning December 1987. Cash distributions to Unit Holders during 1996
and 1995 totaled $12,499,100 per year, for both years. Cash
distributions per limited partnership unit were $25.00 per year in both
1996 and 1995.

<PAGE>

<TABLE>
Item 6. Selected Financial Data

<CAPTION>
For the years ended December 31,
--------------------------------

1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues $ 12,216,480 $14,356,346 $ 7,912,192 $ 22,349,368 $ 32,661,004

Net Income (Loss) (18,445,792) 3,036,575 (8,058,577) 4,226,843 13,817,873

Net Income (Loss)
allocated to Limited
Partners (19,511,119) 1,756,425 (9,352,755) 2,309,897 11,430,081

Net Income (Loss) per
Limited Partnership Unit (39.03) 3.51 (18.71) 4.62 22.86

Cash Distributions per
Limited Partnership
Unit 25.00 25.00 27.50 82.50 45.00

Amount of Cash
Distributions Included
Above Representing
a Return of Capital on
a Generally Accepted
Accounting Principle
Basis per Limited
Partnership Unit* 25.00 25.00 27.50 77.88 22.14

Total Assets 55,142,487 87,174,844 94,791,340 115,637,336 157,429,093

Partners' Capital 48,069,506 80,403,187 91,254,501 114,589,756 156,192,946

* The portion of such distributions which represents a return of capital on an economic basis
will depend in part on the residual sale value of the Partnership's aircraft and thus
will not be ultimately determinable until the Partnership disposes of its aircraft. However,
such portion may be significant and may equal, exceed or be smaller than the amount shown in the
above table.
</TABLE>

<PAGE>

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

At December 31, 1996, Polaris Aircraft Income Fund IV (the Partnership) owned a
portfolio of 13 used commercial jet aircraft out of its original portfolio of 33
aircraft. The portfolio includes five DC-9-30 aircraft leased to Continental
Airlines, Inc. (Continental); two Boeing 727-200 Advanced aircraft leased to
American Trans Air, Inc. (ATA); two Boeing 737-200 Advanced aircraft leased to
Independent Aviation Group Limited (IAG); two Boeing 737-200 Advanced aircraft
leased to TBG Airways Limited (TBG Airways); and two Boeing 737-200 aircraft
formerly leased to Viscount Air Services, Inc. (Viscount) who returned the
aircraft in September and October 1996. Out of an original portfolio of 33
aircraft, one Boeing 727-100 Freighter, formerly leased to Emery Aircraft
Leasing Corporation (Emery), was declared a casualty loss due to an accident in
1991, fourteen Boeing 727-100 Freighters were sold to Emery in 1993, and five
Boeing 727-200 aircraft were sold to Continental in May 1994. In 1993, ATA
transferred to the Partnership two Boeing 727-100 aircraft as part of the ATA
lease transaction. One of these Boeing 727- 100 aircraft was sold in February
1994 and the second Boeing 727-100 aircraft was sold in August 1994.

Remarketing Update

Continental Lease Extension - The leases of five McDonnell Douglas DC-9-30
aircraft with Continental were originally scheduled to expire in June 1996.
Continental exercised their right to extend the leases for the five aircraft for
a one-year term through June 1997 at the current market lease rate, which is
approximately 51% of the prior lease rate.

IAG Lease Extension - The lease of two Boeing 737-200 Advanced aircraft to IAG
were scheduled to expire in October 1996. IAG exercised their option, as
specified in the lease, to extend the lease for a period of one year through
October 1997 at approximately 97% of the prior average lease rate.

Proposed Sale of Aircraft - The Partnership has received, and the General
Partner (upon recommendation of its servicer) has determined that it would be in
the best interests of the Partnership to accept an offer to purchase all of the
Partnership's aircraft (the "Aircraft") and certain of its notes receivable by a
special purpose company (the "Purchaser"). The Purchaser is managed by Triton
Aviation Services, Ltd., a privately held aircraft leasing company (the
"Purchaser's Manager") which was formed in 1996. Each Aircraft is to be sold
subject to the existing leases, and as part of the transaction the Purchaser
assumes all obligations relating to maintenance reserves and security deposits,
if any, relating to such leases. At the same time cash balances related to
maintenance reserves and security deposits, if any, will be transferred to the
Purchaser.

The total proposed purchase price (the "Purchase Price") to be paid by the
Purchaser in the contemplated transaction would be $29,748,000 which would be
allocable to the Aircraft and to certain notes receivable by the Partnership.
The Purchaser proposes to pay $3,351,410 of the Purchase Price in cash at the
closing and the balance of $26,396,590 would be paid by delivery of a promissory
note ( the "Promissory Note") by the Purchaser. The Promissory Note would be
repaid in equal quarterly installments over a period of seven years bearing
interest at a rate of 12% per annum with a balloon principal payment at the end
of year seven. The Purchaser would have the right to voluntarily prepay the
Promissory Note in whole or in part at any time without penalty. In addition,
the Promissory Note would be subject to mandatory partial prepayment in certain
specified instances.

<PAGE>

them, without the consent of the Partnership, except that the Partnership's
consent would be required in the event that the proposed sale price is less than
the portion of the outstanding balance of the Promissory Note which is allocable
to the Aircraft in question and the Purchaser does not have sufficient funds to
make up the difference. The Purchaser would undertake to keep the Aircraft and
leases free of any lien, security interest or other encumbrance other than (I)
inchoate materialmen's liens and the like, and (ii) in the event that the
Purchaser elects to install hushkits on any Aircraft, secured debt to the extent
of the full cost of such hushkit. The Purchaser will be prohibited from
incurring indebtedness other than (I) the Promissory Note; (ii) deferred taxes
not yet due and payable; (iii) indebtedness incurred to hushkit Aircraft owned
by the Purchaser and, (iv) demand loans from another SPC (defined below) at a
market rate of interest.

It is also contemplated that each of Polaris Aircraft Income Fund II, Polaris
Aircraft Income Fund III, Polaris Aircraft Income Fund V and Polaris Aircraft
Income Fund VI would sell certain aircraft assets to separate special purpose
companies under common management with the Purchaser (collectively, together
with the Purchaser, the "SPC's") on terms similar to those set forth above.
Under the terms of the contemplated transaction, Purchaser's Manager would
undertake to make available a working capital line to the Purchaser of up to
approximately $2,598,000 to fund operating obligations of the Purchaser. This
working capital line is to be guaranteed by Triton Investments, Ltd., the parent
of the Purchaser's Manager and such guarantor will provide the Partnership with
a copy of its most recent balance sheet showing a consolidated net worth (net of
minority interests) of at least $150-million. Furthermore, each of the SPC's,
including the Purchaser, is to enter into a management agreement with
Purchaser's Manager pursuant to which Purchaser's Manager would provide all
normal and customary management services including remarketing, sales and
repossession, if necessary. Provided that the Purchaser is not in default in
making payments due under the Promissory Note to the Partnership, the Purchaser
would be permitted to dividend to its equity owners an amount not to exceed
approximately $70,000 per month. The Purchaser may distribute additional
dividends to the equity owners to the extent of the working capital advances
made by the Purchaser's Manager provided that the working capital line available
to the Purchaser will be deemed increased to the extent of such dividends.

The Purchaser would be deemed to have purchased the Aircraft effective as of
April 1, 1997 notwithstanding the actual closing date. The Purchaser would have
the right to receive all income and proceeds, including rents and notes
receivables, from the Aircraft accruing from and after April 1, 1997, and the
Promissory Note would commence bearing interest as of April 1, 1997.

The Partnership has agreed to consult with Purchaser's Manager before taking any
significant action pertaining to the Aircraft after the effective date of the
purchase offer. The Purchaser also has the right to make all significant
decisions regarding the Aircraft from and after the date of completion of
definitive documentation legally binding the Purchaser and the Partnership to
the transaction, even if a delay occurs between the completion of such
documentation and the closing of the title transfer to the Purchaser.

In the event the Partnership receives and elects to accept an offer for all (but
not less than all) of the assets to be sold by it to the Purchaser on terms
which it deems more favorable, the Purchaser has the right to (i) match the
offer, or (ii) decline to match the offer and be entitled to compensation in an
amount equal to 1 1/2% of the Purchaser's proposed Purchase Price.

It should be noted that there can be no assurance that the contemplated sale
transaction will be consummated. The contemplated transaction remains subject to
execution of definitive documentation and various other contingencies.

<PAGE>

Partnership Operations

The Partnership recorded a net loss of $18,445,792, or $39.03 per limited
partnership unit for the year ended December 31, 1996, compared to net income of
$3,036,575, or $3.51 per limited partnership unit in 1995 and a net loss of
$8,058,577, or $18.71 per limited partnership unit in 1994. The net loss for
1994 resulted primarily from the loss of $6,707,562 recorded on the sale of five
Boeing 727-200 aircraft to Continental combined with a significant reduction in
rental revenue, increased operating expenses and adjustments to depreciation
expense. The improvement in operating results in 1995 as compared to 1994 was
primarily the result of a significant decrease in operating expense and
depreciation expense in 1995, partially offset by a provision for credit losses
recorded in 1995 for certain rent and loan receivables from Viscount. The net
loss in 1996 resulted primarily from adjustments to depreciation expense and a
decrease in rental revenue.

Rental revenues, net of related management fees, decreased significantly from
1995 to 1996. The leases of five McDonnell Douglas DC-9-30 aircraft with
Continental were extended in July 1996 at a lease rate approximately 51% of the
original rate. Two Boeing 737-200 aircraft on lease with Viscount were returned
in September and October 1996.

In 1994, the leases of five Boeing 727-200 aircraft to Continental expired in
April 1994 and the aircraft were subsequently sold to Continental in May 1994
for an aggregate sale price of $5,032,865. The Partnership recorded a note
receivable for the sale price and recognized a loss on sale of $6,707,562 in
1994. Partially offsetting the loss on sale in 1994 was a gain of $425,000
recognized on the sale of one Boeing 727-100 aircraft to Total Aerospace and a
net gain of $245,938 recognized on the sale of one Boeing 727-100 aircraft to
Sunrise Partners.

Interest revenue also decreased in 1996, as compared to 1995. The lower 1996
interest is primarily the result of reduced interest recognized on the
Continental deferred rents as the note receivable balance is fully amortized.

Further impacting the decline in operating results in 1994 were significantly
increased operating expenses as compared to the previous and subsequent years.
The 1994 operating results include maintenance and remarketing costs,
aggregating approximately $3.04 million, necessary to remarket the two Boeing
737-200 aircraft and four Boeing 737-200 Advanced aircraft, formerly on lease to
Britannia, IAG, TBG Airways and Viscount. Approximately $285,000 of these costs
were capitalized during 1994. Operating expenses recognized during 1996 and 1995
were minimal in comparison.

As discussed in the Industry Update section, if the projected net income for
each aircraft (projected rental revenue, net of management fees, less projected
maintenance costs, if any, plus the estimated residual value) is less than the
carrying value of the aircraft, the Partnership recognizes the deficiency
currently as increased depreciation expense. The Partnership recognized
approximately $21.0 million, $1.2 million and $2.6 million of these deficiencies
as increased depreciation expense in 1996, 1995 and 1994, respectively. The
deficiencies in 1994 and 1995 were generally the result of declining estimates
in residual values of the aircraft. In 1996, the impairment loss was the result
of several significant factors. As a result of industry and market changes, a
more extensive review of the Partnership's aircraft was completed in the fourth
quarter of 1996 which resulted in revised assumptions of future cash flows
including reassessment of projected re-lease terms and potential future
maintenance costs. As discussed in Note 9, the Partnership accepted an offer to
purchase all of the Partnership's remaining aircraft subject to each aircraft's
existing lease. This offer constitutes an event that required the Partnership to
review the aircraft carrying value pursuant to SFAS 121. In determining this
additional impairment loss, the Partnership estimated the fair value of the
aircraft based on the purchase price reflected in the offer, less the estimated
costs and expenses of the proposed sale. The Partnership is deemed to have an
impairment loss to the extent that the carrying value exceeded the fair value.
Management believes the assumptions related to fair value of impaired assets
represents the best estimates based on reasonable and supportable assumptions

<PAGE>

and projections. It should be noted that there can be no assurance that the
contemplated sale transaction will be consummated. The contemplated transaction
remains subject to execution of definitive documentation and various other
contingencies.

The increased depreciation expense reduces the aircraft's carrying value and
reduces the amount of future depreciation expense that the Partnership will
recognize over the projected remaining economic life of the aircraft. The
Partnership's earnings have been impacted by the net effect of the adjustments
to the aircraft carrying values recorded in 1996, 1995 and 1994 and the downward
adjustments to the estimated residual values recorded in 1995 and 1994 as
discussed later in the Industry Update section.

During 1996 and 1995, the Partnership recorded allowances for credit losses of
$589,029 and $710,809, respectively for outstanding receivables from Viscount.
The Stipulation and Agreement provides that, upon entry of a final
non-appealable court order approving it, the Partnership would waive its pre-
and post-petition claims against Viscount for all amounts due and unpaid. As a
result, the Partnership considers all receivables from Viscount to be
uncollectible and has written-off, during 1996, all notes, rents and interest
receivable balances from Viscount. Payments received by the Partnership from the
sale of the spare aircraft parts, if any, will be recorded as revenue when
received.

Liquidity and Cash Distributions

Liquidity - During 1996, the Partnership wrote off certain unsecured receivable
balances from Viscount aggregating approximately $1.3 million. Viscount's
failure to perform on its financial obligations with the Partnership has had an
adverse effect on the Partnership's financial position. As a result of
Viscount's defaults and Chapter 11 bankruptcy filing, the Partnership has
incurred substantial legal costs and may incur maintenance, remarketing and
transition costs related to the Partnership's aircraft.

As described in Note 5 to the financial statements, the Continental leases
provide for payment by the Partnership of the costs of certain maintenance work,
Airworthiness Directive (AD) compliance, aircraft modification and refurbishment
costs, which are not to exceed approximately $4.9 million, a portion of which
will be recovered with interest through payments from Continental over the lease
terms. The balance of the costs that the Partnership is currently obligated to
pay or finance is approximately $2.3 million.

The ATA lease specifies that the Partnership may finance up to two aircraft
hushkits at an aggregate cost of approximately $5.2 million, a portion of which
will be partially recovered with interest through payments from ATA over an
extended lease term.

The Partnership receives maintenance reserve payments from certain of its
lessees that may be reimbursed to the lessee or applied against certain costs
incurred by the Partnership for maintenance work performed on the Partnership's
aircraft, as specified in the leases. Maintenance reserve balances, if any,
remaining at the termination of the lease may be used by the Partnership to
offset future maintenance expenses, recognized as revenue, or reimbursed to the
lessee. The net maintenance reserve balances aggregate $5,409,620 as of December
31, 1996.

The Partnership is retaining cash reserves to finance a portion of the cost that
may be incurred under the leases with Continental and ATA, to cover the
potential costs that the Partnership may incur relating to the Viscount default
and bankruptcy, and to cover other potential cash requirements, including the
potential costs of remarketing the Partnership aircraft.

Cash Distributions - Cash distributions from operations to limited partners
totaled $12,499,100, $12,499,100 and $13,749,010, or $25.00, $25.00 and $27.50
per limited partnership unit in 1996, 1995 and 1994, respectively. The timing
and amount of future cash distributions to partners are not yet known and will
depend on the Partnership's future cash requirements, including the potential

<PAGE>

costs that may be incurred relating to the Viscount default and bankruptcy; the
receipt of modification financing payments from Continental; the receipt of
rental payments from Continental, ATA, IAG and TBG Airways, and the costs of
remarketing the Partnership aircraft returned by Viscount.

Viscount Restructuring Agreement and Default

On January 24, 1996, Viscount filed a petition for protection under Chapter 11
of the federal Bankruptcy Code in the United States Bankruptcy Court for the
District of Arizona. On April 12, 1996, GE Capital Aviation Services, Inc.
(GECAS), as agent for the Partnership, First Security Bank, National Association
(formerly known as First Security Bank of Utah, National Association) (FSB), the
owner/trustee under the Partnership's leases with Viscount, certain guarantors
of Viscount's indebtedness and others executed that certain Compromise of Claims
and Stipulation under Section 1110 of the Bankruptcy Code (the Compromise and
Stipulation). Among other things, the Compromise and Stipulation, which was
subsequently approved by the Bankruptcy Court, provided that if Viscount failed
to meet its monetary obligations, the Partnership would be entitled to immediate
possession of the aircraft for which Viscount failed to perform, and Viscount
would deliver to GECAS all records related thereto, without further order of the
Bankruptcy Court.

The Stipulation and Agreement also provides that the Polaris Entities, GECAS and
FSB would release any and all claims against Viscount, Viscount's bankruptcy
estate, and the property of Viscount's bankruptcy estate, effective upon entry
of a final non-appealable court order approving the Stipulation and Agreement.
The Bankruptcy Court entered such an order approving the Stipulation and
Agreement on October 23, 1996. As a result of the Stipulation and Agreement, all
disputes between the Partnership and Viscount have been resolved and there is no
further pending litigation with Viscount. Viscount has ceased operations and is
currently considered to be administratively insolvent, meaning that it does not
have sufficient funds to fully pay costs and expenses incurred after the
commencement of the bankruptcy case, which costs and expenses have priority over
general unsecured claims.

GECAS, on behalf of the Polaris Entities, is evaluating the spare parts
inventory to which Viscount relinquished possession in order to determine its
condition and value, the portion allocable to the Partnership, and the
Partnership's alternatives for the use and/or disposition of such parts. A
significant portion of the spare parts inventory is currently in the possession
of third party maintenance and repair facilities with whom GECAS anticipates
that it will need to negotiate for the repair and/or return of these parts.

<PAGE>

receivable balances from Viscount. Payments received by the Partnership from the
sale of the spare aircraft parts (as discussed above), if any, will be recorded
as revenue when received.

The Partnership evaluated the returned aircraft for potential re-lease or sale
and estimated that very substantial maintenance and refurbishment costs
aggregating approximately $2.15 million would be required if the Partnership
decided to re-lease these aircraft. Alternatively, if the Partnership decided to
sell rather than re-lease these aircraft, such sale would likely be made on an
"as is, where is" basis, without the Partnership incurring substantial
maintenance costs. As a result of this evaluation, the Partnership estimates it
is likely that a sale of these aircraft on an "as is, where is" basis would
maximize the economic return on the aircraft to the Partnership.

Viscount's failure to perform its financial obligations to the Partnership has
had a material adverse effect on the Partnership's financial position. As a
result of Viscount's defaults and Chapter 11 bankruptcy filing, the Partnership
has incurred legal costs of approximately $265,000, which are reflected in
operating expense in the Partnership's 1996 statement of operations.

Industry Update

Maintenance of Aging Aircraft - The process of aircraft maintenance begins at
the aircraft design stage. For aircraft operating under Federal Aviation
Administration (FAA) regulations, a review board consisting of representatives
of the manufacturer, FAA representatives and operating airline representatives
is responsible for specifying the aircraft's initial maintenance program. The
general partner understands that this program is constantly reviewed and
modified throughout the aircraft's operational life.

Since 1988, the FAA, working with the aircraft manufacturers and operators, has
issued a series of ADs which mandate that operators conduct more intensive
inspections, primarily of the aircraft fuselages. The results of these mandatory
inspections may result in the need for repairs or structural modifications that
may not have been required under pre-existing maintenance programs.

In addition, an AD adopted in 1990 requires replacement or modification of
certain structural items on a specific timetable. These structural items were
formerly subject to periodic inspection, with replacement when necessary. The
FAA estimates the cost of compliance with this AD to be approximately $1.0
million and $900,000 per Boeing 727 and Boeing 737 aircraft, respectively, if
none of the required work had been done previously. The FAA also issued several
ADs in 1993 updating inspection and modification requirements for Boeing 737
aircraft. The FAA estimates the cost of these requirements to be approximately
$90,000 per aircraft. In general, the new maintenance requirements must be
completed by the later of March 1994, or 75,000 and 60,000 cycles for each
Boeing 737 and 727 respectively. A similar AD was adopted on September 24, 1990,
applicable to McDonnell Douglas aircraft. The AD requires specific work to be
performed at various cycle thresholds between 50,000 and 100,000 cycles, and on
specific date or age thresholds. The estimated cost of compliance with all of
the components of this AD is approximately $850,000 per aircraft. The extent of
modifications required to an aircraft varies according to the level of
incorporation of design improvements at manufacture.

In December 1990, the FAA adopted another AD intended to mitigate corrosion of
structural components, which would require repeated inspections from 5 years of
age throughout the life of an aircraft, with replacement of corroded components
as needed. Integration of the new inspections into each aircraft operator's
maintenance program was required by December 31, 1991 on Boeing aircraft. A
similar directive was issued in late 1992 for McDonnell Douglas aircraft.

In 1996, the manufacturer proposed certain Boeing 737 rudder system product
improvements of which some will be mandated by the FAA. Airworthiness Directives

<PAGE>

issued in the last quarter of 1996 and the first quarter of 1997 on this subject
have not been of significant maintenance cost impact. The cost of compliance
with future FAA maintenance requirements not yet issued is not determinable at
this time.

The Partnership's existing leases require the lessees to maintain the
Partnership's aircraft in accordance with an FAA-approved maintenance program
during the lease term. The Partnership's leases to IAG and TBG Airways, which
operate in Great Britain, require the lessees to maintain the Partnership's
aircraft in accordance with Civil Aviation Authority (CAA) requirements during
the lease term. At the end of the leases, each lessee is generally required to
return the aircraft in airworthy condition, including compliance with all ADs
for which action is mandated by the FAA or CAA, whichever is applicable, during
the lease term. An aircraft returned to the Partnership as a result of a lease
default would most likely not be returned to the Partnership in compliance with
all return conditions required by the lease. The Partnership agreed to bear a
portion of certain maintenance and/or AD compliance costs, as discussed in Item
1, with respect to the aircraft leased to ATA, Continental, IAG and TBG Airways.
In negotiating subsequent leases, market conditions may require that the
Partnership bear some or all of the costs of compliance with future ADs or ADs
that have been issued, but which did not require action during the previous
lease term. The ultimate effect on the Partnership of compliance with the FAA
maintenance standards is not determinable at this time and will depend on a
variety of factors, including the state of the commercial aircraft industry, the
timing of the issuance of ADs, and the status of compliance therewith at the
expiration of the current leases.

Aircraft Noise - Another issue which has affected the airline industry is that
of aircraft noise levels. The FAA has categorized aircraft according to their
noise levels. Stage 1 aircraft, which have the highest noise level, are no
longer allowed to operate from civil airports in the United States. Stage 2
aircraft meet current FAA requirements, subject to the phase-out rules discussed
below. Stage 3 aircraft are the most quiet and Stage 3 is the standard for all
new aircraft.

On September 24, 1991, the FAA issued final rules on the phase-out of Stage 2
aircraft by the end of this decade. The key features of the rule include:

- Compliance can be accomplished through a gradual process of phase-in or
phase-out (see below) on each of three interim compliance dates:
December 31, 1994, 1996 and 1998. All Stage 2 aircraft must be phased
out of operations in the contiguous United States by December 31, 1999,
with waivers available in certain specific cases to December 31, 2003.

- All operators have the option of achieving compliance through a gradual
phase-out of Stage 2 aircraft (i.e., eliminate 25% of its Stage 2 fleet
on each of the compliance dates noted above), or a gradual phase-in of
Stage 3 aircraft (i.e., 55%, 65% and 75% of an operator's fleet must
consist of Stage 3 aircraft by the respective interim compliance dates
noted above).

The federal rule does not prohibit local airports from issuing more stringent
phase-out rules. In fact, several local airports have adopted more stringent
noise requirements which restrict the operation of Stage 2 and certain Stage 3
aircraft.

Other countries have also adopted noise policies. The European Union (EU)
adopted a non-addition rule in 1989, which directed each member country to pass
the necessary legislation to prohibit airlines from adding Stage 2 aircraft to
their fleets after November 1, 1990, with all Stage 2 aircraft phased-out by the
year 2002. The International Civil Aviation Organization has also endorsed the
phase-out of Stage 2 aircraft on a world-wide basis by the year 2002.

The Partnership's entire fleet consists of Stage 2 aircraft. Hushkit
modifications, which allow Stage 2 aircraft to meet Stage 3 requirements, are
currently available for the Partnership's aircraft. However, while technically
feasible, hushkits may not be cost effective on all models due to the age of

<PAGE>

some of the aircraft and the time required to fully amortize the additional
investment. The general partner will evaluate, as appropriate, the potential
benefits of installing hushkits on some or all of the Partnership's aircraft. It
is unlikely, however, that the Partnership would incur such costs unless they
can be substantially recovered through a lease. Under the Partnership's leases
with ATA, the Partnership may finance the installation of hushkits on such
aircraft.

Implementation of the Stage 3 standards has adversely affected the value of
Stage 2 aircraft, as these aircraft will require eventual modification to be
operated in the U.S. or other countries with Stage 3 standards after the
applicable dates.

Demand for Aircraft - Industry-wide, approximately 280 commercial jet aircraft
were available for sale or lease at December 31, 1996, approximately 195 less
than a year ago, and at under 2.5% of the total available jet aircraft fleet,
this is the lowest level of availability since 1988. From 1991 to 1994,
depressed demand for travel limited airline expansion plans, with new aircraft
orders and scheduled deliveries being canceled or substantially deferred. As
profitability declined, many airlines took action to downsize or liquidate
assets and some airlines were forced to file for bankruptcy protection.
Following three years of good traffic growth accompanied by rising yields, this
trend is reversing with many airlines reporting record profits. As a result of
this improving trend, just over 1200 new jet aircraft were ordered in 1996,
making this the second highest ever order year in the history of the industry.
To date, this strong recovery has mainly benefited Stage 3 narrow-bodies and
younger Stage 2 narrow-bodies, many of which are now being upgraded with
hushkits, whereas older Stage 2 narrow-bodies have shown only marginal signs of
recovery since the depressed 1991 to 1994 period.

The general partner believes that, in addition to the factors cited above, the
deteriorated market for the Partnership's aircraft reflects the airline
industry's reaction to the significant expenditures potentially necessary to
bring these aircraft into compliance with certain ADs issued by the FAA relating
to aging aircraft, corrosion prevention and control and structural inspection
and modification as previously discussed.

Effects on the Partnership's Aircraft - The Partnership periodically reviews the
estimated realizability of the residual values at the projected end of each
aircraft's economic life based on estimated residual values obtained from
independent parties which provide current and future estimated aircraft values
by aircraft type. The Partnership made downward adjustments to the estimated
residual value of certain of its on-lease aircraft as of December 31, 1995 and
1994. For any downward adjustment in estimated residual value or decrease in the
projected remaining economic life, the depreciation expense over the projected
remaining economic life of the aircraft is increased.

If the projected net cash flow for each aircraft (projected rental revenue, net
of management fees, less projected maintenance costs, if any, plus the estimated
residual value) is less than the carrying value of the aircraft, the Partnership
recognizes the deficiency currently as increased depreciation expense. The
Partnership recognized approximately $21.0 million, $1.2 million and $2.6
million, or $41.95, $2.41 and $5.09 per limited Partnership unit, of this
deficiency as increased depreciation expense in 1996, 1995 and 1994,
respectively. The deficiencies in 1995 and 1994 were generally the result of
declining estimates in the residual values of the aircraft. The increased
depreciation expense reduces the aircraft's carrying value and reduces the
amount of future depreciation expense that the Partnership will recognize over
the projected remaining economic life of the aircraft. In 1996, the impairment
loss was the result of several significant factors. As a result of industry and
market changes, a more extensive review of the Partnership's aircraft was
completed in the fourth quarter of 1996 which resulted in revised assumptions of
future cash flows including reassessment of projected re-lease terms and
potential future maintenance costs. As discussed in Note 9, the Partnership
accepted an offer to purchase all of the Partnership's remaining aircraft
subject to each aircraft's existing lease. This offer constitutes an event that
required the Partnership to review the aircraft carrying value pursuant to SFAS

<PAGE>

121. In determining this additional impairment loss, the Partnership estimated
the fair value of the aircraft based on the proposed purchase price reflected in
the offer, less the estimated costs and expenses of the proposed sale. The
Partnership recorded an impairment loss to the extent that the carrying value
exceeded the fair value. Management believes the assumptions related to fair
value of impaired assets represents the best estimates based on reasonable and
supportable assumptions and projections. It should be noted that there can be no
assurance that the contemplated sale transaction will be consummated. The
contemplated transaction remains subject to execution of definitive
documentation and various other contingencies.

The Partnership's future earnings are impacted by the net effect of the
adjustments to the carrying values of the aircraft recorded in 1996, 1995 and
1994 (which has the effect of decreasing future depreciation expense) and the
downward adjustments to the estimated residual values recorded in 1995 and 1994
(which has the effect of increasing future depreciation expense). The net effect
of the 1994 adjustments to the estimated residual values and the adjustments to
the carrying values of the aircraft recorded in 1994 is to cause the Partnership
to recognize increased depreciation expense of approximately $1.09 million per
year in 1995 and 1996. The net effect of the 1995 adjustments to the estimated
residual values and the adjustments to the carrying values of the aircraft
recorded in 1995 is to cause the Partnership to recognize increased depreciation
expense of approximately $0.7 million in 1996.

Effective January 1, 1996, the Partnership adopted SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of." This statement requires that long-lived assets be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. In performing the review for recoverability,
the statement provides that the Partnership should estimate the future
undiscounted cash flows expected to result from the use of the asset and its
eventual disposition. If the projected net undiscounted cash flow for each
aircraft (projected rental revenue, net of management fees, less projected
maintenance costs, if any, plus the estimated residual value) is less than the
carrying value of the aircraft, an impairment loss is recognized. Pursuant to
the statement, measurement of an impairment loss for long-lived assets will be
based on the "fair value" of the asset as defined in the statement.

SFAS No. 121 states that the fair value of an asset is the amount at which the
asset could be bought or sold in a current transaction between willing parties,
i.e., other than in a forced or liquidation sale. Quoted market prices in active
markets are the best evidence of fair value and will be used as the basis for
the measurement, if available. If quoted market prices are not available, the
estimate of fair value will be based on the best information available in the
circumstances. Pursuant to the statement, the estimate of fair value will
consider prices for similar assets and the results of valuation techniques to
the extent available in the circumstances. Examples of valuation techniques
include the present value of estimated expected future cash flows using a
discount rate commensurate with the risks involved, option-pricing models,
matrix pricing, option-adjusted spread models, and fundamental analysis.

The Partnership periodically reviews its aircraft for impairment in accordance
with SFAS No. 121. Using an estimate of the fair value of the Partnership's
aircraft to measure impairment may result in greater write-downs than would be
recognized under the accounting method previously applied by the Partnership.
The Partnership uses information obtained from third party valuation services in
arriving at its estimate of fair value for purposes of determining residual
values. The Partnership will use similar information, plus available information
and estimates related to the Partnership's aircraft, to determine an estimate of
fair value to measure impairment as required by the statement. The estimates of
fair value can vary dramatically depending on the condition of the specific
aircraft and the actual marketplace conditions at the time of the actual
disposition of the asset. If assets are deemed impaired, there could be
substantial write-downs in the future.

<PAGE>

The Partnership's leases expire between June 1997 and March 2000. To the extent
that the Partnership's non-advanced Boeing and McDonnell Douglas aircraft
continue to be significantly affected by industry events, the Partnership will
evaluate each aircraft as it comes off lease to determine whether a re-lease or
a sale at the then-current market rates would be most beneficial for unit
holders.

<PAGE>

Item 8. Financial Statements and Supplementary Data

POLARIS AIRCRAFT INCOME FUND IV,
A California Limited Partnership

FINANCIAL STATEMENTS AS OF DECEMBER 31, 1996 AND 1995

TOGETHER WITH

AUDITORS' REPORT

<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Partners of Polaris Aircraft Income Fund IV, A California Limited
Partnership:

We have audited the accompanying balance sheets of Polaris Aircraft Income Fund
IV, A California Limited Partnership as of December 31, 1996 and 1995, and the
related statements of operations, changes in partners' capital (deficit) and
cash flows for each of the three years in the period ended December 31, 1996.
These financial statements are the responsibility of the general partner. Our
responsibility is to express an opinion on these financial statements 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 the
general partner, 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 Polaris Aircraft Income Fund
IV, A California Limited Partnership as of December 31, 1996 and 1995, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted accounting
principles.

ARTHUR ANDERSEN LLP

San Francisco, California,
March 3, 1997

<PAGE>

POLARIS AIRCRAFT INCOME FUND IV,
A California Limited Partnership

BALANCE SHEETS

DECEMBER 31, 1996 AND 1995

1996 1995
---- ----
ASSETS:

CASH AND CASH EQUIVALENTS $ 23,989,285 $ 23,456,031

RENT AND OTHER RECEIVABLES, net of allowance
for credit losses of $0 in 1996 and $710,809 in 1995 943,708 1,513,176

NOTES RECEIVABLE, net of allowance for credit
losses of $167,722 in 1996 and $1,466,456 in 1995 -- 3,010,224

AIRCRAFT, net of accumulated depreciation of
$88,490,049 in 1996 and $59,542,596 in 1995 30,187,395 59,134,848

OTHER ASSETS, net of accumulated amortization of
$2,188,151 in 1996 and $2,149,685 in 1995 22,099 60,565
------------ ------------

$ 55,142,487 $ 87,174,844
============ ============

LIABILITIES AND PARTNERS' CAPITAL (DEFICIT):

PAYABLE TO AFFILIATES $ 216,319 $ 145,908

ACCOUNTS PAYABLE AND ACCRUED
LIABILITIES 322,513 107,574

LESSEE SECURITY DEPOSITS 1,124,529 1,124,458

MAINTENANCE RESERVES 5,409,620 5,011,217

DEFERRED RENTAL INCOME -- 382,500
------------ ------------

Total Liabilities 7,072,981 6,771,657
------------ ------------

PARTNERS' CAPITAL (DEFICIT):
General Partner (3,975,366) (3,651,904)
Limited Partners, 499,964 units
issued and outstanding 52,044,872 84,055,091
------------ ------------

Total Partners' Capital 48,069,506 80,403,187
------------ ------------

$ 55,142,487 $ 87,174,844
============ ============

The accompanying notes are an integral part of these statements.

<PAGE>

POLARIS AIRCRAFT INCOME FUND IV,
A California Limited Partnership

STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

1996 1995 1994
---- ---- ----

REVENUES:
Rent from operating leases $ 10,796,685 $12,383,100 $ 12,132,058
Interest 1,388,557 1,973,246 1,816,759
Net loss on sale of aircraft 31,238 -- (6,036,625)
------------ ----------- ------------

Total Revenues 12,216,480 14,356,346 7,912,192
------------ ----------- ------------

EXPENSES:
Depreciation and amortization 28,985,919 9,639,278 12,107,372
Management fees to general partner 524,835 583,865 606,603
Provision for credit losses 589,029 710,809 --
Operating 275,042 49,465 2,963,776
Administration and other 287,447 336,354 293,018
------------ ----------- ------------

Total Expenses 30,662,272 11,319,771 15,970,769
------------ ----------- ------------

NET INCOME (LOSS) $(18,445,792) $ 3,036,575 $ (8,058,577)
============ =========== ============

NET INCOME ALLOCATED TO
THE GENERAL PARTNER $ 1,065,327 $ 1,280,150 $ 1,294,178
============ =========== ============

NET INCOME (LOSS) ALLOCATED
TO LIMITED PARTNERS $(19,511,119) $ 1,756,425 $ (9,352,755)
============ =========== ============

NET INCOME (LOSS) PER LIMITED
PARTNERSHIP UNIT $ (39.03) $ 3.51 $ (18.71)
============ =========== ============

The accompanying notes are an integral part of these statements.

<PAGE>

POLARIS AIRCRAFT INCOME FUND IV,
A California Limited Partnership

STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)

FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

General Limited
Partner Partners Total
------- -------- -----

Balance, December 31, 1993 $(3,309,775) $ 117,899,531 $ 114,589,756

Net income (loss) 1,294,178 (9,352,755) (8,058,577)

Cash distributions to partners (1,527,668) (13,749,010) (15,276,678)
----------- ------------- -------------

Balance, December 31, 1994 (3,543,265) 94,797,766 91,254,501

Net income 1,280,150 1,756,425 3,036,575

Cash distributions to partners (1,388,789) (12,499,100) (13,887,889)
----------- ------------- -------------

Balance, December 31, 1995 (3,651,904) 84,055,091 80,403,187

Net income (loss) 1,065,327 (19,511,119) (18,445,792)

Cash distributions to partners (1,388,789) (12,499,100) (13,887,889)
----------- ------------- -------------

Balance, December 31, 1996 $(3,975,366) $ 52,044,872 $ 48,069,506
=========== ============= =============

The accompanying notes are an integral part of these statements.

<PAGE>

<TABLE>
POLARIS AIRCRAFT INCOME FUND IV,
A California Limited Partnership

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $(18,445,792) $ 3,036,575 $ (8,058,577)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 28,985,919 9,639,278 12,107,372
Loss on sale of aircraft -- -- 6,036,625
Provision for credit losses 589,029 710,809 --
Changes in operating assets and liabilities:
Decrease (increase) in rent and other
receivables 250,559 (282,417) (593,162)
Increase in other assets -- -- (104,884)
Increase (decrease) in payable to affiliates 70,411 (28,952) (368,720)
Increase in accounts payable
and accrued liabilities 214,939 74,579 18,995
Increase in lessee security deposits 71 52,391 582,067
Increase in maintenance reserves 398,403 2,864,300 2,146,917
Increase (decrease) in deferred income (382,500) 272,500 110,000
------------ ------------ ------------

Net cash provided by operating activities 11,681,039 16,339,063 11,876,633
------------ ------------ ------------

INVESTING ACTIVITIES:
Net proceeds from sale of aircraft -- -- 670,937
Increase in notes receivable -- -- (1,039,308)
Principal payments received on notes receivable 2,740,104 2,851,982 1,732,268
Increase in aircraft capitalized costs -- -- (285,171)
------------ ------------ ------------

Net cash provided by investing activities 2,740,104 2,851,982 1,078,726
------------ ------------ ------------

FINANCING ACTIVITIES:
Cash distributions to partners (13,887,889) (13,887,889) (15,276,678)
------------ ------------ ------------

Net cash used in financing activities (13,887,889) (13,887,889) (15,276,678)
------------ ------------ ------------

CHANGES IN CASH AND CASH
EQUIVALENTS 533,254 5,303,156 (2,321,319)
------------ ------------ ------------

CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 23,456,031 18,152,875 20,474,194
------------ ------------ ------------

CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 23,989,285 $ 23,456,031 $ 18,152,875
============ ============ ============

The accompanying notes are an integral part of these statements.
</TABLE>
26

<PAGE>

POLARIS AIRCRAFT INCOME FUND IV,
A California Limited Partnership

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1996

1. Accounting Principles and Policies

Accounting Method - Polaris Aircraft Income Fund IV, A California Limited
Partnership (PAIF-IV or the Partnership), maintains its accounting records,
prepares its financial statements and files its tax returns on the accrual basis
of accounting. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The most
significant estimates with regard to these financial statements are related to
the projected cash flows analysis in determining the fair value of assets.

Cash and Cash Equivalents - This includes deposits at banks and investments in
money market funds. Cash and cash equivalents is stated at cost, which
approximates fair value.

Aircraft and Depreciation - The aircraft are recorded at cost, which includes
acquisition costs. Depreciation to an estimated residual value is computed using
the straight-line method over the estimated economic life of the aircraft which
was originally estimated to be 30 years from the date of manufacture.
Depreciation in the year of acquisition was calculated based upon the number of
days that the aircraft were in service.

The Partnership periodically reviews the estimated realizability of the residual
values at the projected end of each aircraft's economic life based on estimated
residual values obtained from independent parties which provide current and
future estimated aircraft values by aircraft type. For any downward adjustment
in estimated residual value or decrease in the projected remaining economic
life, the depreciation expense over the projected remaining economic life of the
aircraft is increased.

If the projected net cash flow for each aircraft (projected rental revenue, net
of management fees, less projected maintenance costs, if any, plus the estimated
residual value) is less than the carrying value of the aircraft, an impairment
loss is recognized. Pursuant to Statement of Financial Accounting Standards
(SFAS) No. 121, as discussed in Note 3, measurement of an impairment loss will
be based on the "fair value" of the asset as defined in the statement.

Capitalized Costs - Aircraft modification and maintenance costs which are
determined to increase the value or extend the useful life of the aircraft are
capitalized and amortized using the straight-line method over the estimated
useful life of the improvement. These costs are also subject to periodic
evaluation as discussed above.

Other Assets - Lease acquisition costs are capitalized as other assets and
amortized using the straight-line method over the term of the lease.

Maintenance Reserves - The Partnership receives maintenance reserve payments
from certain of its lessees that may be reimbursed to the lessee or applied
against certain costs incurred by the Partnership or lessee for maintenance work
performed on the Partnership's aircraft or engines, as specified in the leases.
Maintenance reserve payments are recognized when received and balances remaining

<PAGE>

at the termination of the lease, if any, may be used by the Partnership to
offset future maintenance expenses or recognized as revenue.

Operating Leases - The aircraft leases are accounted for as operating leases.
Lease revenues are recognized in equal installments over the terms of the
leases.

Operating Expenses - Operating expenses include costs incurred to maintain,
insure, lease and sell the Partnership's aircraft.

Net Income (Loss) Per Limited Partnership Unit - Net income (loss) per limited
partnership unit is based on the limited partners' share of net income (loss)
and the number of units outstanding for the years ended December 31, 1996, 1995,
and 1994.

Income Taxes - The Partnership files federal and state information income tax
returns only. Taxable income or loss is reportable by the individual partners.

Receivables - The Partnership had recorded an allowance for credit losses for
certain impaired notes and rents receivable as a result of uncertainties
regarding their collection as discussed in Notes 4 and 5. The Partnership
recognizes revenue on impaired notes only as payments are received.

1996 1995
---- ----
Allowance for credit losses,
beginning of year $(2,177,265) $(3,263,108)
Provision for credit losses (589,029) (710,809)
Write-downs 1,299,838 --
Collections 1,298,734 1,796,652
----------- -----------
Allowance for credit losses,
end of year $ (167,722) $(2,177,265)
=========== ===========

The fair value of the notes receivable is estimated by discounting future
estimated cash flows using current interest rates at which similar loans would
be made to borrowers with similar credit ratings and remaining maturities.

2. Organization and the Partnership

The Partnership was formed on June 27, 1984 for the purpose of acquiring and
leasing aircraft. The Partnership will terminate no later than December 2020.
Upon organization, both the general partner and the depositary contributed $500.
The Partnership recognized no profits or losses during the periods ended
December 31, 1984, 1985 and 1986. The offering of depositary units (Units),
representing assignments of limited partnership interest, terminated on
September 15, 1988, at which time the Partnership had sold 500,000 units of
$500, representing $250,000,000. All unit holders were admitted to the
Partnership on or before September 15, 1988. During November 1988, 36 units were
returned to the Partnership by an investor who did not meet the Investor
Suitability Standards described in the Prospectus.

Polaris Investment Management Corporation (PIMC), the sole general partner of
the Partnership, supervises the day-to-day operations of the Partnership. PIMC
is a wholly-owned subsidiary of Polaris Aircraft Leasing Corporation (PALC).
Polaris Holding Company (PHC) is the parent company of PALC. General Electric
Capital Corporation (GE Capital), an affiliate of General Electric Company, owns
100% of PHC's outstanding common stock. PIMC has entered into a services
agreement dated as of July 1, 1994 with GE Capital Aviation Services, Inc.
(GECAS). Allocations to related parties are described in Note 6.

<PAGE>

3. Aircraft

At December 31, 1996, the Partnership owned 13 aircraft from its original
portfolio of 33 used commercial jet aircraft which were acquired and leased or
sold as discussed below. All aircraft acquired from an affiliate were purchased
within one year of the affiliate's acquisition at the affiliate's original price
paid. Two aircraft were transferred from a lessee as discussed below. The
aircraft leases are net operating leases, requiring the lessees to pay all
operating expenses associated with the aircraft during the lease term. While the
leases require the lessees to comply with Airworthiness Directives (ADs) which
have been or may be issued by the Federal Aviation Administration (FAA) and
require compliance during the lease term, in certain of the leases the
Partnership has agreed to share in the cost of compliance with ADs. In addition
to basic rent, certain lessees are required to pay supplemental amounts based on
flight hours or cycles into a maintenance reserve account, to be used for heavy
maintenance of the engines or airframe. The leases generally state a minimum
acceptable return condition for which the lessee is liable under the terms of
the lease agreement. In the event of a lessee default, these return conditions
are not likely to be met.

The following table describes the Partnership's aircraft portfolio at December
31, 1996 in greater detail:

Year of
Aircraft Type Serial Number Manufacture
- ------------- ------------- -----------
Boeing 727-200 Advanced 22001 1980
Boeing 727-200 Advanced 22983 1982
Boeing 737-200 19711 1969
Boeing 737-200 20236 1969
Boeing 737-200 Advanced 20807 1974
Boeing 737-200 Advanced 21335 1977
Boeing 737-200 Advanced 21336 1977
Boeing 737-200 Advanced 21694 1978
McDonnell Douglas DC-9-30 45791 1968
McDonnell Douglas DC-9-30 47111 1967
McDonnell Douglas DC-9-30 47112 1967
McDonnell Douglas DC-9-30 47521 1971
McDonnell Douglas DC-9-30 47524 1971

Two Boeing 727-100s - These aircraft were transferred from American Trans Air,
Inc. (ATA) to the Partnership in April and May 1993 as part of the ATA lease
transaction. In February 1994, the Partnership sold one of these Boeing 727-100
aircraft to Total Aerospace Services, Inc. for $425,000. The Partnership
recorded a gain on sale of $425,000 in 1994. In August 1994, the Partnership
sold the remaining Boeing 727-100 aircraft to Sunrise Partners, Inc. for
$250,000. The Partnership paid excise taxes on the transfer of ownership of the
aircraft in the amount of $4,063 and recorded a net gain on sale of $245,937 in
1994.

Fifteen Boeing 727-100 Freighters - These aircraft were acquired for $64,610,000
in 1988 and leased to Emery Aircraft Leasing Corporation (Emery) until August
1993, except for one aircraft which was retired in May 1991 due to a casualty
incident. This aircraft was damaged as a result of a fire while it was on the
ground. Emery paid to the Partnership the casualty value specified in the lease
of $4,310,000, which was equal to the Partnership's cost of the aircraft. In
January 1993, Emery purchased one of the aircraft for $1.5 million, in
accordance with the purchase option in the lease. The Partnership recorded a
loss on sale of this aircraft of $555,676 in 1993. The Partnership subsequently
recognized approximately $3.5 million of increased depreciation expense as a
result of adjustments to the aircraft carrying values of the remaining 13
aircraft on lease to Emery. In April 1993, Emery exercised its option to

<PAGE>

purchase the remaining 13 Boeing 727-100 Freighter aircraft for $2.0 million
each. The Partnership reported an aggregate gain of $63,357 on these aircraft
sales.

Two Boeing 737-200s and Four 737-200 Advanced - These aircraft were acquired for
$55,000,000 in 1988 and leased or subleased to Britannia Airways Limited
(Britannia) until June 1993. The leases were extended beyond their initial
termination dates for approximately four months through the end of September
1993 at lease rates ranging from 53% to 85% of the original rates. The leases
were then again extended through various dates in October, November and December
1993, at the modified rates, which coincided with the commencement of
maintenance work required of the lessee to meet return conditions specified in
the lease. Subsequent to the return of these aircraft by Britannia, the
Partnership incurred approximately $3.14 million of maintenance costs required
to re-market the aircraft to new lessees as discussed below. During 1994,
approximately $285,000 of these costs were capitalized and reflected as aircraft
in the accompanying 1994 balance sheet. The Partnership recognized the remainder
of these expenses of approximately $2.76 million and approximately $94,000 in
operating expense in the 1994 and 1993 statements of operations, respectively.

In February 1994, the Partnership leased two of the Boeing 737-200 Advanced
aircraft to Independent Aviation Group Limited (IAG). Lease payments for an
interim lease term through March 1994 were at a variable rate based on usage.
Thereafter and through March 1996, the lease rate is fixed at 50% of the
original rate received from Britannia. The rate is then adjusted through the end
of the lease in October 1996 to 57% of the original rate received from
Britannia. IAG exercised their option to extend the lease for one year at the
initial fixed rate. The lease of two Boeing 737-200 Advanced aircraft to IAG
were scheduled to expire in October 1996. IAG exercised their option, as
specified in the lease, to extend the lease for a period of one year through
October 1997 at approximately 97% of the prior average lease rate. The lease
stipulates that the Partnership share in the cost of meeting certain ADs, not to
exceed the present value of the remaining rent payable under the lease at the
time the work is complete, which cannot be estimated at this time. The
Partnership incurred legal costs related to the lease acquisition totaling
$84,519. These costs, which were capitalized and reflected as other assets in
the 1994 balance sheet, are being amortized over the lease term.

In February 1994, the Partnership leased the remaining two Boeing 737-200
Advanced aircraft to TBG Airways Limited (TBG Airways). Lease payments for the
interim lease term through April 1994 were at a variable rate based on usage.
Thereafter and through the end of the lease in October 1998, the aggregate rate
is periodically increased from 41% to 60% of the original aggregate rate
received from Britannia. The lease stipulates that the Partnership share in the
cost of certain ADs, not to exceed the present value of the remaining rent
payable under the lease at the time the work is complete, which cannot be
estimated at this time. TBG Airways has the option to terminate the lease early
in April 1997 after paying a termination fee of $250,000 per aircraft. TBG
Airways also has the option to purchase the aircraft at the end of the lease
term for $8.0 million each. The Partnership incurred legal costs related to the
lease acquisition totaling $56,252. These costs, which were capitalized and
reflected as other assets in the 1994 balance sheet, are being amortized over
the lease term.

The Partnership leased the two Boeing 737-200 aircraft to Viscount Air Services,
Inc. (Viscount) for five years beginning in July 1994 and September 1994,
respectively. The lease rates were the same as the prior rates received from
Britannia during the lease extension period. Viscount defaulted on the leases
and returned the aircraft to the Partnership as discussed in Note 4.

Five Boeing 727-200s and Five McDonnell Douglas DC-9-30s - These aircraft were
acquired for $64,875,000 in 1988 and leased to Continental Airlines, Inc.
(Continental) for terms of 60 months. Continental filed for Chapter 11
bankruptcy protection in December 1990. In 1991, the Partnership and Continental
entered into an agreement for Continental's continued lease of the Partnership's
aircraft. Note 5 contains a detailed discussion of the Continental lease
modifications.

<PAGE>

The leases of five McDonnell Douglas DC-9-30 aircraft with Continental expired
in June 1996. Continental exercised their right to extend the leases for the
five aircraft for a one-year term through June 1997 at the current market lease
rate, which is approximately 65% of the prior lease rate. In accordance with
SFAS No. 121, as discussed below, the Partnership reviewed these aircraft for
impairment based on the projected cash flows from a sale of the aircraft
subsequent to the lease expiration in June 1997. Previous estimates of cash flow
for these aircraft were based on the continued lease of the aircraft. As a
result, the Partnership recognized impairment losses for the five aircraft
aggregating approximately $6.0 million during 1996.

The leases of the five Boeing 727-200 aircraft to Continental expired on April
30, 1994. In May 1994, the Partnership sold these aircraft to Continental for an
aggregate sales price of $5,032,865. The Partnership recorded a note receivable
for the sale price and agreed to accept payment of the sales price in 29 monthly
installments of $192,500, with interest at a rate of 9.5% per annum. A loss on
sale of $6,707,562 was recognized in 1994. The note receivable balance at
December 31, 1995 was $1,664,763. The Partnership received all scheduled
payments due under the note which was paid in full by Continental during the
third quarter of 1996.

Two Boeing 727-200 Advanced - These aircraft were acquired for $27,000,000 in
1988 and leased to USAir, Inc. (USAir) until late 1992. USAir paid rent through
December 1992 although the aircraft were returned prior to that time. In
December 1992, the Partnership negotiated a seven- year lease with ATA for the
aircraft at approximately 45% of the prior rate. The leases began in February
and March 1993. ATA was not required to begin making cash rental payments until
January and February 1994, although recognition of rental income will be spread
evenly over the entire lease term. The leases are renewable for up to three
one-year periods. ATA transferred to the Partnership two unencumbered Boeing
727-100 aircraft as part of the lease transaction as previously discussed.

Under the ATA lease, the Partnership incurred certain maintenance costs of
approximately $415,000 and may be required to finance aircraft hushkits for use
on the aircraft at an estimated aggregate cost of approximately $5.2 million,
which will be partially recovered with interest through payments from ATA over
the lease terms. The Partnership loaned $1,164,800 to ATA in 1993 to finance the
purchase by ATA of two spare engines. This loan is reflected in notes receivable
in the accompanying balance sheets. The balance of the note at December 31, 1995
was $799,712. The Partnership has received all scheduled payments due under the
note which was paid in full in March 1996.

The following is a schedule by year of future minimum rental revenue under all
of the existing leases, including the deferred rental payments specified in the
Continental lease modification (Note 5):

Continental
Deferred
Year Amount (1) Rental Payments Total
- ---- ---------- --------------- ---------
1997 $ 166,689 $4,683,816 $4,850,505
1998 -- 2,912,704 2,912,704
1999 -- 1,557,144 1,557,144
2000 -- 233,572 233,572
2001 and thereafter -- -- --
---------- ---------- ----------

$ 166,689 $9,387,236 $9,553,925
========== ========== ==========

(1) Rental payments for the period from November 1992 through January 1993
are payable with interest commencing in October 1993 through March 1997
according to the Continental lease modification.

<PAGE>

As discussed in Note 1, the Partnership periodically reviews the estimated
realizability of the residual values at the projected end of each aircraft's
economic life based on estimated residual values obtained from independent
parties which provide current and future estimated aircraft values by aircraft
type. As a result, the Partnership made downward adjustments to the estimated
residual value of certain of its aircraft as of December 31, 1995 and 1994. The
Partnership's future earnings are impacted by the net effect of the adjustments
to the carrying values of the aircraft (which has the effect of decreasing
future depreciation expense) and the downward adjustments to the estimated
residual values (which has the effect of increasing future depreciation
expense).

As discussed above, the Partnership uses information obtained from third party
valuation services in arriving at its estimate of fair value for purposes of
determining residual values. The Partnership will use similar information, plus
available information and estimates related to the Partnership's aircraft, to
determine an estimate of fair value to measure impairment as required by the
statement. The estimates of fair value can vary dramatically depending on the
condition of the specific aircraft and the actual marketplace conditions at the
time of the actual disposition of the asset. If assets are deemed impaired,
there could be substantial write-downs in the future.

The Partnership recognized impairment losses on aircraft to be held and used by
the Partnership aggregating approximately $21.0 million, $1.2 million and $2.6
million, or $41.95, $2.41 and $5.09 per limited Partnership unit, as increased
depreciation expense in 1996, 1995 and 1994, respectively. The impairment losses
in 1994 and 1995 were generally the result of declining estimates in residual
values of the aircraft. In 1996, the impairment loss was the result of several
significant factors. As a result of industry and market changes, a more
extensive review of the Partnership's aircraft was completed in the fourth
quarter of 1996 which resulted in revised assumptions of future cash flows
including reassessment of projected re-lease terms and potential future
maintenance costs. As discussed in Note 9, the Partnership accepted an offer to
purchase all of the Partnership's remaining aircraft subject to each aircraft's
existing lease. This offer constitutes an event that required the Partnership to
review the aircraft carrying value pursuant to SFAS 121. In determining this
additional impairment loss, the Partnership estimated the fair value of the
aircraft based on the purchase price reflected in the offer, less the estimated
costs and expenses of the proposed sale. The Partnership is deemed to have an
impairment loss to the extent that the carrying value exceeded the fair value.

<PAGE>

Management believes the assumptions related to fair value of impaired assets
represents the best estimates based on reasonable and supportable assumptions
and projections. It should be noted that there can be no assurance that the
contemplated sale transaction will be consummated. The contemplated transaction
remains subject to execution of definitive documentation and various other
contingencies.

4. Viscount Restructuring Agreement and Default

The Stipulation and Agreement also provides that the Polaris Entities, GECAS and
FSB shall release any and all claims against Viscount, Viscount's bankruptcy
estate, and the property of Viscount's bankruptcy estate, effective upon entry
of a final non-appealable court order approving the Stipulation and Agreement.
The Bankruptcy Court approved the Stipulation and Agreement on October 23, 1996.
As a result of the Stipulation and Agreement, all disputes between the
Partnership and Viscount have been resolved and there is no further pending
litigation with Viscount. Viscount has ceased operations and is currently
considered to be administratively insolvent, meaning that it does not have
sufficient funds to fully pay costs and expenses incurred after the commencement
of the bankruptcy case, which costs and expenses have priority over general
unsecured claims.

During 1996 and 1995, the Partnership recorded allowances for credit losses of
$589,029 and $710,809, respectively for outstanding receivables from Viscount.
The Stipulation and Agreement provides that, upon entry of a final
non-appealable court order approving it, the Partnership would waive its pre-
and post-petition claims against Viscount for all amounts due and unpaid. As a
result, the Partnership considers all receivables from Viscount to be
uncollectible and has written-off, during 1996, all notes, rents and interest
receivable balances from Viscount. Payments received by the Partnership from the
sale of the spare aircraft parts (as discussed above), if any, will be recorded
as revenue when received.

<PAGE>

The Partnership has evaluated the returned aircraft for potential re-lease or
sale and estimated that very substantial maintenance and refurbishment costs
aggregating approximately $2.15 million would be required if the Partnership
decided to re-lease rather than sell these aircraft. Alternatively, if the
Partnership decided to sell rather than re-lease these aircraft, such sale would
likely be made on an "as is, where is" basis, without the Partnership incurring
substantial maintenance costs. As a result of this evaluation, the Partnership
estimates it is likely that a sale of these aircraft on an "as is, where is"
basis would maximize the economic return on the aircraft to the Partnership.

5. Continental Lease Modification

The aircraft leases with Continental were modified after Continental filed for
Chapter 11 bankruptcy protection in December 1990. The modified agreement
stipulates that the Partnership pay certain aircraft maintenance, modification
and refurbishment costs, not to exceed approximately $4.9 million, a portion of
which will be recovered with interest through payments from Continental over the
extended lease terms. The Partnership's share of such costs may be capitalized
and depreciated over the remaining lease terms, subject to the capitalized cost
policy as described in Note 1. The Partnership's balance sheet reflects the net
reimbursable costs incurred of $275,629 as of December 31, 1995 as a note
receivable.

The agreement with Continental included an extended deferral of the dates when
Continental would remit its rental payments for the period from December 3, 1990
through September 30, 1991 and for a period of three months, beginning in
November 1992, aggregating $8,385,000 (the Deferred Amount). The Partnership
recorded a note receivable and an allowance for credit losses equal to the total
of the deferred rents and prior accrued interest, the net of which is reflected
in the accompanying balance sheets. The note receivable and corresponding
allowance for credit losses are reduced by the principal portion of payments
received. In addition, the Partnership recognizes rental revenue and interest
revenue in the period the deferred rental payments are received.

The allowances for credit losses on the principal and interest portions due were
$167,722 and $1,466,456 as of December 31, 1996 and 1995, respectively. The
unrecognized Deferred Amounts as of December 31, 1996 and 1995 were $166,689 and
$1,434,402, respectively. As of December 31, 1996, the aggregate fair value of
the Continental deferred rent notes receivable approximated its carrying value.
In accordance with the aforementioned agreement, Continental began making
supplemental payments for the Deferred Amount plus interest on July 1, 1992.
During 1996, 1995 and 1994, the Partnership received supplemental payments of
$1,365,423, $2,050,566 and $2,656,020, of which $1,267,713, $1,675,095 and
$1,981,818 was recognized as rental revenue in 1996, 1995 and 1994,
respectively.

Continental continues to pay all other amounts due under the prior agreement. As
of December 31, 1996, Continental is current on all payments due the
Partnership. The Partnership's right to receive payments under the agreements
fall into various categories of priority under the Bankruptcy Code. In general,
the Partnership's claims are administrative claims. If Continental's
reorganization is not successful, it is likely that a portion of the
Partnership's claims will not be paid in full.

<PAGE>

6. Related Parties

Under the Partnership Agreement, the Partnership paid or agreed to pay the
following amounts to PIMC and/or its affiliates in connection with services
rendered:

a. An aircraft management fee equal to 5% of gross rental revenues
with respect to operating leases or 2% of gross rental revenues
with respect to full payout leases of the Partnership, payable
upon receipt of the rent, subordinated to receipt by unit holders
of distributions equaling an 8% cumulative, non-compounded return
on capital contributions, as defined in the Partnership Agreement.
In 1996, 1995 and 1994, the Partnership paid management fees to
PIMC of $544,886, $603,965 and $577,742, respectively. Management
fees payable to PIMC at December 31, 1996 and 1995 were $54,673
and $74,724, respectively.

b. Reimbursement of certain out-of-pocket expenses incurred in
connection with the management of the Partnership and its assets.
In 1996, 1995, and 1994, the Partnership reimbursed PIMC for
services rendered or payments made on behalf of the Partnership of
$447,837, $319,695 and $4,060,985, respectively. Reimbursements
totaling $161,646 and $71,184 were payable to PIMC at December 31,
1996 and 1995, respectively.

c. A 10% interest to PIMC in all cash distributions from operations
and sales proceeds, gross income in an amount equal to 9.09% of
distributed cash available from operations and 1% of net income or
loss and taxable income or loss, as such terms are defined in the
Partnership Agreement.

d. A subordinated sales commission to PIMC of 3% of the gross sales
price of each aircraft for services performed upon disposition and
reimbursement of out-of-pocket and other disposition expenses.
Subordinated sales commissions will be paid only after unit
holders have received distributions in an aggregate amount equal
to their capital contributions plus a cumulative non-compounded 8%
per annum return on their adjusted capital contributions, as
defined in the Partnership Agreement. The Partnership did not pay
or accrue a sales commission on any aircraft sales to date as the
above subordination threshold has not been met.

7. Income Taxes

Federal and state income tax regulations provide that taxes on the income or
loss of the Partnership are reportable by the partners in their individual
income tax returns. Accordingly, no provision for such taxes has been made in
the accompanying financial statements.

The net differences between the tax basis and the reported amounts of the
Partnership's assets and liabilities at December 31, 1996 and 1995 are as
follows:

Reported Amounts Tax Basis Net Difference
---------------- --------- --------------

1996: Assets $55,142,487 $41,913,204 $13,229,283
Liabilities 7,072,981 1,635,910 5,437,071

1995: Assets $87,174,844 $50,153,068 $37,021,776
Liabilities 6,771,657 1,420,858 5,350,799

<PAGE>

8. Reconciliation of Book Net Income (Loss) to Taxable Net Income (Loss)

The following is a reconciliation between net income (loss) per limited
partnership unit reflected in the financial statements and the information
provided to limited partners for federal income tax purposes:
<TABLE>
<CAPTION>
For the years ended December 31,
--------------------------------

1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Book net income (loss) per limited partnership unit $(39.03) $ 3.51 $ (18.71)
Adjustments for tax purposes represent differences
between book and tax revenue and expenses:
Rental and maintenance reserve revenue recognition 3.23 3.98 0.69
Management fee expense 0.14 0.11 0.31
Depreciation 47.24 (1.02) (3.30)
Gain or loss on sale of aircraft -- -- (7.84)
Capitalized costs 1.83 0.02 1.02
Other revenue and expense items (5.15) (0.24) (0.44)
------ ----- ------

Taxable net income (loss) per limited partnership unit $ 8.26 $ 6.36 $(28.27)
====== ===== ======
</TABLE>
The differences between net income and loss for book purposes and net income and
loss for tax purposes result from the temporary differences of certain revenue
and deductions.

For book purposes, rental revenue is generally recorded as it is earned. For tax
purposes, certain temporary differences exist in the recognition of revenue. For
tax purposes, management fee expense is accrued in the same year as the tax
basis rental revenue. Increases in the Partnership's book maintenance reserve
liability were recognized as rental revenue for tax purposes. Disbursements from
the Partnership's book maintenance reserves are capitalized or expensed for tax
purposes, as appropriate.

The Partnership computes depreciation using the straight-line method for
financial reporting purposes and generally an accelerated method for tax
purposes. The Partnership also periodically evaluates the ultimate
recoverability of the carrying values and the economic lives of its aircraft for
book purposes and accordingly recognized adjustments which increased book
depreciation expense. As a result, the net current year book depreciation
expense is greater than the tax depreciation expense. These differences in
depreciation methods result in book to tax differences on the sale of aircraft.
In addition, certain costs were capitalized for tax purposes and expensed for
book purposes.

9. Subsequent Event

<PAGE>

closing and the balance of $26,396,590 would be paid by delivery of a promissory
note ( the "Promissory Note") by the Purchaser. The Promissory Note would be
repaid in equal quarterly installments over a period of seven years bearing
interest at a rate of 12% per annum with a balloon principal payment at the end
of year seven. The Purchaser would have the right to voluntarily prepay the
Promissory Note in whole or in part at any time without penalty. In addition,
the Promissory Note would be subject to mandatory partial prepayment in certain
specified instances.

Under the terms of the contemplated transaction, the Aircraft, including any
income or proceeds therefrom and any reserves or deposits with respect thereto,
constitute the sole source of payments under the Promissory Note. No security
interest over the Aircraft or the leases would be granted in favor of the
Partnership, but the equity interests in the Purchaser would be pledged to the
Partnership. The Purchaser would have the right to sell the Aircraft, or any of
them, without the consent of the Partnership, except that the Partnership's
consent would be required in the event that the proposed sale price is less than
the portion of the outstanding balance of the Promissory Note which is allocable
to the Aircraft in question and the Purchaser does not have sufficient funds to
make up the difference. The Purchaser would undertake to keep the Aircraft and
leases free of any lien, security interest or other encumbrance other than (i)
inchoate materialmen's liens and the like, and (ii) in the event that the
Purchaser elects to install hushkits on any Aircraft, secured debt to the extent
of the full cost of such hushkit. The Purchaser will be prohibited from
incurring indebtedness other than (i) the Promissory Note; (ii) deferred taxes
not yet due and payable; (iii) indebtedness incurred to hushkit Aircraft owned
by the Purchaser and, (iv) demand loans from another SPC (defined below) at a
market rate of interest.

The Partnership has agreed to consult with Purchaser's Manager before taking any
significant action pertaining to the Aircraft after the effective date of the
purchase offer. The Purchaser also has the right to make all significant
decisions regarding the Aircraft from and after the date of completion of
definitive documentation legally binding the Purchaser and the Partnership to
the transaction,, even if a delay occurs between the completion of such
documentation and the closing of the title transfer to the Purchaser.

<PAGE>

The Partnership adopted, effective January 1, 1996, SFAS No. 121 "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of." That statement requires that long-lived assets be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. The purchase offer constitutes a change in
circumstances which, pursuant to SFAS No. 121, requires the Partnership to
review the Aircraft for impairment. As previously discussed in Note 3, the
Partnership has determined that an impairment loss must be recognized. In
determining the amount of the impairment loss, the Partnership estimated the
"fair value" of the Aircraft based on the proposed Purchase Price reflected in
the contemplated transaction , less the estimated costs and expenses of the
proposed sale. The Partnership is deemed to have an impairment loss to the
extent that the carrying value exceeded the fair value. Management believes the
assumptions related to the fair value of impaired assets represent the best
estimates based on reasonable and supportable assumptions and projections.

<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 the Registrant

Polaris Aircraft Income Fund IV, A California Limited Partnership, (PAIF-IV or
the Partnership) has no directors or officers. Polaris Holding Company (PHC) and
its subsidiaries, including Polaris Aircraft Leasing Corporation (PALC) and
Polaris Investment Management Corporation (PIMC), the general partner of the
Partnership (collectively Polaris), restructured their operations and businesses
(the Polaris Restructuring) in 1994. In connection therewith, PIMC entered into
a services agreement dated as of July 1, 1994 (the Services Agreement) with GE
Capital Aviation Services, Inc. (the Servicer or GECAS), a Delaware corporation
which is a wholly owned subsidiary of General Electric Capital Corporation, a
New York corporation (GE Capital). GE Capital has been PHC's parent company
since 1986. As subsidiaries of GE Capital, the Servicer and PIMC are affiliates.

The officers and directors of PIMC are:

Name PIMC Title
---- ----------

Eric M. Dull President; Director
Marc A. Meiches Vice President; Chief Financial Officer
Richard J. Adams Vice President; Director
Norman C. T. Liu Vice President; Director
Edward Sun Vice President
Richard L. Blume Vice President; Secretary
Robert W. Dillon Vice President; Assistant Secretary

Substantially all of these management personnel will devote only such portion of
their time to the business and affairs of PIMC as deemed necessary or
appropriate.

Mr. Dull, 36, assumed the position of President and Director of PIMC effective
January 1, 1997. Mr. Dull previously was a Director of PIMC from March 31, 1995
to July 31, 1995. Mr. Dull holds the position of Executive Vice President -
Portfolio Management of GECAS, having previously held the position of Senior
Vice President - Underwriting Risk Management of GECAS. Prior to joining GECAS,
Mr. Dull held various positions with Transportation and Industrial Funding
Corporation (TIFC).

Mr. Meiches, 44, assumed the position of Vice President and Chief Financial
Officer of PIMC effective October 9, 1995. Mr. Meiches presently holds the
positions of Executive Vice President and Chief Financial Officer of GECAS.
Prior to joining GECAS, Mr. Meiches has been with General Electric Company (GE)
and its subsidiaries since 1978. Since 1992, Mr. Meiches held the position of
Vice President of the General Electric Capital Corporation Audit Staff. Between
1987 and 1992, Mr. Meiches held Manager of Finance positions for GE Re-entry
Systems, GE Government Communications Systems and the GE Astro-Space Division.

Mr. Adams, 63, assumed the position of Senior Vice President - Aircraft Sales
and Leasing of PIMC and PALC effective August 1992, having previously served as
Vice President - Aircraft Sales & Leasing - Vice President, North America, and
Vice President - Corporate Aircraft since he joined PALC in August 1986. Mr.
Adams presently holds the position of Senior Vice President - Aircraft
Marketing, North America, of GECAS. Effective July 1, 1994, Mr. Adams held the
positions of Vice President and Director of PIMC.

Mr. Liu, 39, assumed the position of Vice President of PIMC effective May 1,
1995 and has assumed the position of Director of PIMC effective July 31, 1995.
Mr. Liu presently holds the position of Executive Vice President - Marketing and

<PAGE>

Structured Finance of GECAS, having previously held the position of Executive
Vice President - Capital Funding and Portfolio Management of GECAS. Prior to
joining GECAS, Mr. Liu was with General Electric Capital Corporation for nine
years. He has held management positions in corporate Business Development and in
Syndications and Leasing for TIFC. Mr. Liu previously held the position of
managing director of Kidder, Peabody & Co., Incorporated.

Mr. Sun, 47, assumed the position of Vice President of PIMC effective May 1,
1995. Mr. Sun presently holds the position of Senior Vice President - Structured
Finance of GECAS. Prior to joining GECAS, Mr. Sun held various positions with
TIFC since 1990.

Mr. Blume, 55, assumed the position of Secretary of PIMC effective May 1, 1995
and Vice President of PIMC effective October 9, 1995. Mr. Blume presently holds
the position of Executive Vice President and General Counsel of GECAS. Prior to
joining GECAS, Mr. Blume was counsel at GE Aircraft Engines since 1987.

Mr. Dillon, 55, assumed the position of Vice President - Aviation Legal and
Insurance Affairs, effective April 1989. Previously, he served as General
Counsel of PIMC and PALC effective January 1986. Effective July 1, 1994, Mr.
Dillon held the positions of Vice President and Assistant Secretary of PIMC. Mr.
Dillon presently holds the position of Senior Vice President and Managing
Counsel of GECAS.

Certain Legal Proceedings:

On October 27, 1992, a class action complaint entitled Weisl, Jr. et al. v.
Polaris Holding Company, et al. was filed in the Supreme Court of the State of
New York for the County of New York. The complaint sets forth various causes of
action which include allegations against certain or all of the defendants (i)
for alleged fraud in connection with certain public offerings, including that of
the Partnership, on the basis of alleged misrepresentation and alleged omissions
contained in the written offering materials and all presentations allegedly made
to investors; (ii) for alleged negligent misrepresentation in connection with
such offerings; (iii) for alleged breach of fiduciary duties; (iv) for alleged
breach of third party beneficiary contracts; (v) for alleged violations of the
NASD Rules of Fair Practice by certain registered broker dealers; and (vi) for
alleged breach of implied covenants in the customer agreements by certain
registered brokers. The complaint seeks an award of compensatory and other
damages and remedies. On January 19, 1993, plaintiffs filed a motion for class
certification. On March 1, 1993, defendants filed motions to dismiss the
complaint on numerous grounds, including failure to state a cause of action and
statute of limitations. On July 20, 1994, the court entered an order dismissing
almost all of the claims in the complaint and amended complaint. Certain claims,
however, remain pending. Plaintiffs filed a notice of appeal on September 2,
1994. On April 25, 1996, the Appellate Division for the First Department
affirmed the trial court's order which had dismissed most of plaintiff's claims.
The Partnership is not named as a defendant in this action.

On or around February 17, 1993, a civil action entitled Einhorn, et al. v.
Polaris Public Income Funds, et al. was filed in the Circuit Court of the 11th
Judicial Circuit in and for Dade County, Florida against, among others, Polaris
Investment Management Corporation and Polaris Depositary Company. Plaintiffs
seek class action certification on behalf of a class of investors in the
Partnership, Polaris Aircraft Income Fund V and Polaris Aircraft Income Fund VI
who purchased their interests while residing in Florida. Plaintiffs allege the
violation of Section 517.301, Florida Statutes, in connection with the offering
and sale of units in such Polaris Aircraft Income Funds. Among other things,
plaintiffs assert that the defendants sold interests in such Polaris Aircraft
Income Funds while "omitting and failing to disclose the material facts
questioning the economic efficacy of" such Polaris Aircraft Income Funds.
Plaintiffs seek rescission or damages, in addition to interest, costs, and
attorneys' fees. On April 5, 1993, defendants filed a motion to stay this action
pending the final determination of a prior filed action in the Supreme Court for
the State of New York entitled Weisl v. Polaris Holding Company. On that date,
defendants also filed a motion to dismiss the complaint on the grounds of
failure to attach necessary documents, failure to plead fraud with particularity
and failure to plead reasonable reliance. On April 13, 1993, the court denied
the defendants' motion to stay.

<PAGE>

On May 7, 1993, the court stayed the action pending an appeal of the denial of
the motion to stay. Defendants subsequently filed with the Third District Court
of Appeal a petition for writ of certiorari to review the lower court's order
denying the motion to stay. On October 19, 1993, the Court of Appeal granted the
writ of certiorari, quashed the order, and remanded the action with instruction
to grant the stay.
The Partnership is not named as a defendant in this action.

On or around May 14, 1993, a purported class action entitled Moross, et al. v.
Polaris Holding Company, et al. was filed in the United States District Court
for the District of Arizona. This purported class action was filed on behalf of
investors in Polaris Aircraft Income Funds I - VI by nine investors in such
Polaris Aircraft Income Funds. The complaint alleges that defendants violated
Arizona state securities statues and committed negligent misrepresentation and
breach of fiduciary duty by misrepresenting and failing to disclose material
facts in connection with the sale of limited partnership units in the
above-named funds. An amended complaint was filed on September 17, 1993, but has
not been served upon defendants. On or around October 4, 1993, defendants filed
a notice of removal to the United States District Court for the District of
Arizona. Defendants also filed a motion to stay the action pending the final
determination of a prior filed action in the Supreme Court for the State of New
York entitled Weisl v. Polaris Holding Company ("Weisl") and to defendants' time
to respond to the complaint until 20 days after disposition of the motion to
action pending resolution of the motions for class certification and motions to
dismiss pending in Weisl. On January 20, 1994, the court stayed the action and
required defendants to file status reports every sixty days setting forth the
status of the motions in Weisl. On April 18, 1995, this action was transferred
to the Multi-District Litigation described below. The Partnership is not named
as a defendant in this action.

On September 21, 1993, a purported derivative action entitled Novak, et al. v.
Polaris Holding Company, et al. was filed in the Supreme Court of the State of
New York, County of New York. This action was brought on behalf of the
Partnership, Polaris Aircraft Income Fund I and Polaris Aircraft Income Fund II.
The complaint names as defendants Polaris Holding Company, its affiliates and
others. Each of the Partnership, Polaris Aircraft Income Fund I and Polaris
Aircraft Income Fund II is named as a nominal defendant. The complaint alleges,
among other things, that defendants mismanaged the Partnership and the other
Polaris Aircraft Income Funds, engaged in self-dealing transactions that were
detrimental to the Partnership and the other Polaris Aircraft Income Funds and
failed to make required disclosure in connection with the sale of the units in
the Partnership and the other Polaris Aircraft Income Funds. The complaint
alleges claims of breach of fiduciary duty and constructive fraud and seeks,
among other things an award of compensatory and punitive damages in an
unspecified amount, re-judgment interest, and attorneys' fees and costs. On
January 13, 1994, certain of the defendants, including Polaris Holding Company,
filed motions to dismiss the complaint on the grounds of, among others, failure
to state a cause of action and failure to plead the alleged wrong in detail. On
August 11, 1994, the court denied in part and granted in part defendants'
motions to dismiss. Specifically, the court denied the motions as to the claims
for breach of fiduciary duty, but dismissed plaintiffs' claim for constructive
fraud with leave to replead. On October 7, 1994, defendants filed a notice of
appeal. On November 15, 1994, defendants submitted an answer to the remaining
causes of action. On July 7, 1995, defendants filed briefs in support of their
appeal from that portion of the trial court's order denying the motion to
dismiss. On March 14, 1996, the appellate court reversed the trial court's order
denying the motion to dismiss, and dismissed the complaint.

On June 8, 1994, a consolidated complaint captioned In re Prudential Securities
Inc. Limited Partnerships Litigation was filed in the United States District
Court for the Southern District of New York, purportedly consolidating cases
that had been transferred from other federal courts by the Judicial Panel on
Multi- District Litigation. The consolidated complaint names as defendants
Prudential entities and various other sponsors of limited partnerships sold by
Prudential, including Polaris Holding Company, one of its former officers,
Polaris Aircraft Leasing Corporation, Polaris Investment Management Corporation
and Polaris Securities Corporation. The complaint alleges that the Prudential
defendants created a scheme for the sale of approximately $8-billion of limited

<PAGE>

partnership interests in 700 assertedly high-risk limited partnerships,
including the Partnership, to approximately 350,000 investors by means of false
and misleading offering materials; that the sponsoring organizations (including
the Polaris entities) participated with the Prudential defendants with respect
to, among other things, the partnerships that each sponsored; and that all of
the defendants conspired to engage in a nationwide pattern of fraudulent conduct
in the marketing of all limited partnerships sold by Prudential. The complaint
alleges violations of the federal Racketeer Influenced and Corrupt Organizations
Act and the New Jersey counterpart thereof, fraud, negligent misrepresentation,
breach of fiduciary duty and breach of contract. The complaint seeks rescission,
unspecified compensatory damages, treble damages, disgorgement of profits
derived from the alleged acts, costs and attorneys fees. On October 31, 1994,
Polaris Investment Management Corporation and other Polaris entities filed a
motion to dismiss the consolidated complaint on the grounds of, inter alia,
statute of limitations and failure to state a claim. The Partnership is not
named as a defendant in this action. Prudential Securities, Inc., on behalf of
itself and its affiliates has made an Offer of Settlement. A class has been
certified for purposes of the Prudential Settlement and notice to the class has
been sent. Any questions concerning Prudential's Offer of Settlement should be
directed to 1-800-327-3664, or write to the Claims Administrator at:

Prudential Securities Limited Partnerships
Litigation Claims Administrator
P.O. Box 9388
Garden City, New York 11530-9388

On June 5, 1996, the Court certified a class with respect to claims against
Polaris Holding Company, one of its former officers, Polaris Aircraft Leasing
Corporation, Polaris Investment Management Corporation, and Polaris Securities
Corporation. The class is comprised of all investors who purchased securities in
any of Polaris Aircraft Income Funds I through VI during the period from January
1985 until January 29, 1991, regardless of which brokerage firm the investor
purchased from. Excepted from the class are those investors who settled in the
SEC/Prudential settlement or otherwise opted for arbitration pursuant to the
settlement and any investor who has previously released the Polaris defendants
through any other settlement. On June 10, 1996, the Court issued an opinion
denying summary judgment to Polaris on plaintiffs' Section 1964(c) and (d)RICO
claims and state causes of action, and granting summary judgment to Polaris on
plaintiffs' 1964(a) RICO claims and the New Jersey State RICO claims. On August
5, 1996, the Court signed an order providing for notice to be given to the class
members. The trial, which was scheduled for November 11, 1996, has not
proceeded, and no new trial date has been set.

A further litigation captioned Romano v. Ball et. al, an action by Prudential
Insurance Company policyholders against many of the same defendants (including
Polaris Investment Management Corporation and Polaris Aircraft Leasing
Corporation), has also been commenced by policy holders of the Prudential
Insurance Company as a purported derivative action on behalf of the Prudential
Insurance Company. The complaint alleges claims under the federal Racketeer
Influenced and Corrupt Organizations Act, as well as claims for waste,
mismanagement and intentional and negligent misrepresentation, and seeks
unspecified compensatory, treble and punitive damages. The case, which was being
coordinated with In re Prudential, has been settled and the action dismissed
pursuant to a court order dated December 18, 1996.

On or about January 12, 1995, a class action complaint entitled Cohen, et al. v.
Kidder Peabody & Company, Inc., et al. was filed in the Circuit Court of the
Fifteenth Judicial Circuit in and for Palm Beach County, Florida, and on March
31, 1995 the case was removed to the United States District Court for the
Southern District of Florida. An amended class action complaint (the "amended
complaint"), which renamed this action Bashein, et al. v. Kidder, Peabody &
Company Inc., et al., was filed on June 13, 1995. The amended complaint names
Kidder Peabody & Company, Inc., General Electric Capital Corporation, General
Electric Financial Services, Inc., and General Electric Company as defendants.
The action purports to be on behalf of "approximately 20,000 persons throughout
the United States" who purchased units in Polaris Aircraft Income Funds III
through VI. The amended complaint sets forth various causes of action
purportedly arising in connection with the public offerings of the Partnership,

<PAGE>

Polaris Aircraft Income Fund III, Polaris Aircraft Income Fund V, and Polaris
Aircraft Income Fund VI. Specifically, plaintiffs assert claims for violation of
Sections 12(2) and 15 of the Securities Act of 1933, fraud, negligent
misrepresentation, breach of fiduciary duty, breach of third party beneficiary
contract, violation of NASD Rules of Fair Practice, breach of implied covenant,
and breach of contract. Plaintiffs seek compensatory damages, interest, punitive
damages, costs and attorneys' fees, as well as any other relief the court deems
just and proper. Defendants moved to dismiss the amended complaint on June 26,
1995. On October 2, 1995, the court denied the defendants' motion to dismiss.
While the motion to dismiss was pending, plaintiffs filed a motion for leave to
file a second amended complaint, which was granted on October 3, 1995.
Defendants thereafter filed a motion to dismiss the second amended complaint,
and defendants' motion was denied by Court Order dated December 26, 1995. On
February 12, 1996, defendants answered. This case was reassigned (from Hurley,
J. To Lenard, J.) on February 18, 1996, and on March 18, 1996, plaintiffs moved
for class certification. On the eve of class discovery, April 26, 1996,
plaintiffs moved for a voluntary dismissal of Counts I and II (claims brought
pursuant to the Securities Act of 1933) of the Second Amended Complaint and
simultaneously filed a motion to remand this action to state court for lack of
federal jurisdiction. Plaintiff's motion for voluntary dismissal of the federal
securities law claims and motion for remand were granted on July 10, 1996. The
Partnership is not named as a defendant in this action.

On or around April 13, 1995, a class action complaint entitled B & L Industries,
Inc., et al. v. Polaris Holding Company, et al. was filed in the Supreme Court
of the State of New York. The complaint names as defendants Polaris Holding
Company, Polaris Aircraft Leasing Corporation, Polaris Investment Management
Corporation, Polaris Securities Corporation, Peter G. Pfendler, Marc P.
Desautels, General Electric Capital Corporation, General Electric Financial
Services, Inc., General Electric Company, Prudential Securities Inc., and Kidder
Peabody & Company Incorporated. The complaint sets forth various causes of
action purportedly arising out of the public offerings of the Partnership and
Polaris Aircraft Income Fund III. Plaintiffs allege claims of fraud, negligent
misrepresentation, breach of fiduciary duty, knowingly inducing or participating
in breach of fiduciary duty, breach of third party beneficiary contract,
violation of NASD Rules of Fair Practice, breach of implied covenant, and unjust
enrichment. Plaintiffs seek compensatory damages, interest, general,
consequential and incidental damages, exemplary and punitive damages,
disgorgement, rescission, costs, attorneys' fees, accountants' and experts'
fees, and other legal and equitable relief as the court deems just and proper.
On October 2, 1995, defendants moved to dismiss the complaint. On August 16,
1996, defendants filed a motion to dismiss plaintiffs' amended complaint. The
motion is returnable on July 17, 1997. The Partnership is not named as a
defendant in this action.

On or around September 27, 1995, a complaint entitled Martha J. Harrison v.
General Electric Company, et al. was filed in the Civil District Court for the
Parish of Orleans, State of Louisiana. The complaint names as defendants General
Electric Company and Prudential Securities Incorporated. Plaintiff alleges
claims of tort, breach of fiduciary duty in tort, contract and quasi-contract,
violation of sections of the Louisiana Blue Sky Law and violation of the
Louisiana Civil Code concerning the inducement and solicitation of purchases
arising out of the public offering of the Partnership. Plaintiff seeks
compensatory damages, attorney's fees, interest, costs and general relief. The
Partnership is not named as a defendant in this action.

On or around December 8, 1995, a complaint entitled Overby, et al. v. General
Electric Company, et al. was filed in the Civil District Court for the Parish of
Orleans, State of Louisiana. The complaint names as defendants General Electric
Company and General Electric Capital Corporation. Plaintiffs allege claim of
tort, breach of fiduciary duty, in tort, contract and quasi-contract, violation
of sections of the Louisiana Blue Sky Law and violation of the Louisiana Civil
Code in connection with the public offering of the Partnership and Polaris
Aircraft Income Fund III. Plaintiffs seek compensatory damages, attorneys' fees,
interest, costs and general relief. The Partnership is not named as a defendant
in this action.

<PAGE>

In or around November 1994, a complaint entitled Lucy R. Neeb, et al. v.
Prudential Securities Incorporated et al. was filed in the Civil District Court
for the Parish of Orleans, State of Louisiana. The complaint named as defendants
Prudential Securities, Incorporated and Stephen Derby Gisclair. On or about
December 20, 1995, plaintiffs filed a First Supplemental and Amending Petition
adding as additional defendants General Electric Company, General Electric
Capital Corporation and Smith Barney, Inc. Plaintiffs allege claims of tort,
breach of fiduciary duty, in tort, contract and quasi-contract, violation of
sections of the Louisiana Blue Sky Law and violation of the Louisiana Civil Code
in connection with the public offering of the Partnership and Polaris Aircraft
Income Fund III. Plaintiffs seek compensatory damages, attorneys' fees,
interest, costs and general relief. The Partnership is not named as a defendant
in this action.

In or about January of 1995, a complaint entitled Albert B. Murphy, Jr. v.
Prudential Securities, Incorporated et al. was filed in the Civil District Court
for the Parish of Orleans, State of Louisiana. The complaint named as defendants
Prudential Securities Incorporated and Stephen Derby Gisclair. On or about
January 18, 1996, plaintiff filed a First Supplemental and Amending Petition
adding defendants General Electric Company and General Electric Capital
Corporation. Plaintiff alleges claims of tort, breach of fiduciary duty in tort,
contract and quasi-contract, violation of sections of the Louisiana Blue Sky Law
and violation of the Louisiana Civil Code in connection with the public offering
of the Partnership and Polaris Aircraft Income Fund III. Plaintiffs seek
compensatory damages, attorneys' fees, interest, costs and general relief. The
Partnership is not named as a defendant in this action.

On or about January 22, 1996, a complaint entitled Mrs. Rita Chambers, et al. v.
General Electric Co., et al. was filed in the Civil District Court for the
Parish of Orleans, State of Louisiana. The complaint names as defendants General
Electric Company and General Electric Capital Corporation. Plaintiffs allege
claims of tort, breach of fiduciary duty in tort, contract and quasi-contract,
violation of sections of the Louisiana Blue Sky Law and violation of the
Louisiana Civil Code in connection with the public offering of the Partnership.
Plaintiffs seek compensatory damages, attorneys' fees, interest, costs and
general relief. The Partnership is not named as a defendant in this action.

In or around December 1994, a complaint entitled John J. Jones, Jr. v.
Prudential Securities Incorporated et al. was filed in the Civil District Court
for the Parish of Orleans, State of Louisiana. The complaint named as defendants
Prudential Securities, Incorporated and Stephen Derby Gisclair. On or about
March 29, 1996, plaintiffs filed a First Supplemental and Amending Petition
adding as additional defendants General Electric Company and General Electric
Capital Corporation. Plaintiff alleges claims of tort, breach of fiduciary duty
in tort, contract and quasi-contract, violation of sections of the Louisiana
Blue Sky Law and violation of the Louisiana Civil Code concerning the inducement
and solicitation of purchases arising out of the public offering of Polaris
Aircraft Income Fund III. Plaintiff seeks compensatory damages, attorneys' fees,
interest, costs and general relief. The Partnership is not named as a defendant
in this action.

On or around February 16, 1996, a complaint entitled Henry Arwe, et al. v.
General Electric Company, et al. was filed in the Civil District Court for the
Parish of Orleans, State of Louisiana. The complaint named as defendants General
Electric Company and General Electric Capital Corporation. Plaintiffs allege
claims of tort, breach of fiduciary duty in tort, contract and quasi-contract,
violation of sections of the Louisiana Blue Sky Law and violation of the
Louisiana Civil Code concerning the inducement and solicitation of purchases
arising out of the public offering of Polaris Aircraft Income Funds III and IV.
Plaintiffs seek compensatory damages, attorneys' fees, interest, costs and
general relief. The Partnership is not named as a defendant in this action.

On or about April 9, 1996, a summons and First Amended Complaint entitled Sara
J. Bishop, et al. v. Kidder Peabody & Co., et al. was filed in the Superior
Court of the State of California, County of Sacramento, by over one hundred
individual plaintiffs who purchased limited partnership units in Polaris
Aircraft Income Funds III, IV, V and VI and other limited partnerships sold by

<PAGE>

Kidder Peabody. The complaint names Kidder, Peabody & Co. Incorporated, KP
Realty Advisors, Inc., Polaris Holding Company, Polaris Aircraft Leasing
Corporation, Polaris Investment Management Corporation, Polaris Securities
Corporation, Polaris Jet Leasing, Inc., Polaris Technical Services, Inc.,
General Electric Company, General Electric Financial Services, Inc., General
Electric Capital Corporation, General Electric Credit Corporation and DOES 1-100
as defendants. The complaint alleges violations of state common law, including
fraud, negligent misrepresentation, breach of fiduciary duty, and violations of
the rules of the National Association of Securities Dealers. The complaint seeks
to recover compensatory damages and punitive damages in an unspecified amount,
interest, and rescission with respect to the Polaris Aircraft Income Funds
III-VI and all other limited partnerships alleged to have been sold by Kidder
Peabody to the plaintiffs. On June 18, 1996, defendants filed a motion to
transfer venue from Sacramento to San Francisco County. The Court subsequently
denied the motion. The Partnership is not named as a defendant in this action.
Defendants filed an answer in the action on August 30, 1996.

On October 1, 1996, a complaint entitled Wilson et al. v. Polaris Holding
Company et al. was filed in the Superior Court of the State of California for
the County of Sacramento by over 500 individual plaintiffs who purchased limited
partnership units in one or more of Polaris Aircraft Income Funds I through VI.
The complaint names Polaris Holding Company, Polaris Aircraft Leasing
Corporation, Polaris Investment Management Corporation, Polaris Securities
Corporation, Polaris Jet Leasing, Inc., Polaris Technical Services, Inc.,
General Electric Company, General Electric Capital Services, Inc., General
Electric Capital Corporation, GE Capital Aviation Services, Inc. and DOES 1-100
as defendants. The Partnership has not been named as a defendant. The complaint
alleges violations of state common law, including fraud, negligent
misrepresentation, negligence, breach of contract, and breach of fiduciary duty.
The complaint seeks to recover compensatory damages and punitive damages in an
unspecified amount, interest and rescission with respect to the Polaris Aircraft
Income Funds sold to plaintiffs. Defendants have filed an answer.

On or about May 7, 1996, a petition entitled Charles Rich, et al. v. General
Electric Company and General Electric Capital Corporation was filed in the Civil
District Court for the Parish of Orleans, State of Louisiana. The complaint
names as defendants General Electric Company and General Electric Capital
Corporation. Plaintiffs allege claims of tort concerning the inducement and
solicitation of purchases arising out of the public offering of Polaris Aircraft
Income Funds III and IV. Plaintiffs seek compensatory damages, attorneys' fees,
interest, costs and general relief. The Partnership is not named as a defendant
in this action.

On or about March 4, 1996, a petition entitled Richard J. McGiven v. General
Electric Company and General Electric Capital Corporation was filed in the Civil
District Court for the Parish of Orleans, State of Louisiana. The complaint
names as defendants General Electric Company and General Electric Capital
Corporation. Plaintiff alleges claims of tort concerning the inducement and
solicitation of purchases arising out of the public offering of Polaris Aircraft
Income Fund V. Plaintiff seeks compensatory damages, attorneys' fees, interest,
costs and general relief. The Partnership is not named as a defendant in this
action.

On or about March 4, 1996, a petition entitled Alex M. Wade v. General Electric
Company and General Electric Capital Corporation was filed in the Civil District
Court for the Parish of Orleans, State of Louisiana. The complaint names as
defendants General Electric Company and General Electric Capital Corporation.
Plaintiff alleges claims of tort concerning the inducement and solicitation of
purchases arising out of the public offering of Polaris Aircraft Income Fund V.
Plaintiff seeks compensatory damages, attorneys' fees, interest, costs and
general relief. The Partnership is not named as a defendant in this action.

On or about October 15, 1996, a complaint entitled Joyce H. McDevitt, et al. v.
Polaris Holding Company, et al. was filed in the Superior Court of the State of
California, County of Sacramento, by individual plaintiffs who purchased limited
partnership units in Polaris Aircraft Income Funds I-VI. The complaint names
Polaris Holding Company, Polaris Aircraft Leasing Corporation, Polaris

<PAGE>

Investment Management Corporation, Polaris Securities Corporation, Polaris Jet
Leasing, Inc., Polaris Technical Services, Inc., General Electric Company,
General Electric Financial Services, Inc., General Electric Capital Corporation,
General Electric Credit Corporation and DOES 1-100 as defendants. The complaint
alleges violations of state common law, including fraud, negligent
misrepresentation, breach of fiduciary duty, and violations of the rules of the
National Association of Securities Dealers. The complaint seeks to recover
compensatory damages and punitive damages in an unspecified amount, interest,
and recission with respect to Polaris Aircraft Income Funds I-VI. The
Partnership is not named as a defendant in this action.

On or about October 16, 1996, a complaint entitled Mary Grant Tarrer, et al.
v.Kidder Peabody & Co.,et al. was filed in the Superior Court of the State of
California, County of Sacramento, by individual plaintiffs who purchased limited
partnership units in Polaris Aircraft Income Funds I-VI and other limited
partnerships allegedly sold by Kidder Peabody. The complaint names Kidder,
Peabody & Co. Incorporated, KP Realty Advisors, Inc., Polaris Holding Company,
Polaris Aircraft Leasing Corporation, Polaris Investment Management Corporation,
Polaris Securities Corporation, Polaris Jet Leasing, Inc., Polaris Technical
Services, Inc., General Electric Company, General Electric Financial Services,
Inc., General Electric Capital Corporation, General Electric Credit Corporation
and DOES 1-100 as defendants. The complaint alleges violations of state common
law, including fraud, negligent misrepresentation, breach of fiduciary duty, and
violations of the rules of the National Association of Securities Dealers. The
complaint seeks to recover compensatory damages and punitive damages in an
unspecified amount, interest, and recission with respect to Polaris Aircraft
Income Funds I-VI and all other limited partnerships alleged to have been sold
by Kidder Peabody to the plaintiffs. The Partnership is not named as a defendant
in this action.

On or about November 6, 1996, a complaint entitled Janet K. Johnson, et al. v.
Polaris Holding Company, et al. was filed in the Superior Court of the State of
California, County of Sacramento, by individual plaintiffs who purchased limited
partnership units in Polaris Aircraft Income Funds I-VI. The complaint names
Polaris Holding Company, Polaris Aircraft Leasing Corporation, Polaris
Investment Management Corporation, Polaris Securities Corporation, Polaris Jet
Leasing, Inc., Polaris Technical Services, Inc., General Electric Company,
General Electric Financial Services, Inc., General Electric Capital Corporation,
General Electric Credit Corporation and DOES 1-100 as defendants. The complaint
alleges violations of state common law, including fraud, negligent
misrepresentation, breach of fiduciary duty, and violations of the rules of the
National Association of Securities Dealers. The complaint seeks to recover
compensatory damages and punitive damages in an unspecified amount, interest,
and recission with respect to Polaris Aircraft Income Funds I-VI. The
Partnership is not named as a defendant in this action.

On or about November 13, 1996, a complaint entitled Wayne W. Kuntz, et al. v.
Polaris Holding Company, et al. was filed in the Superior Court of the State of
California, County of Sacramento, by individual plaintiffs who purchased limited
partnership units in Polaris Aircraft Income Funds I-VI. The complaint names
Polaris Holding Company, Polaris Aircraft Leasing Corporation, Polaris
Investment Management Corporation, Polaris Securities Corporation, Polaris Jet
Leasing, Inc., Polaris Technical Services, Inc., General Electric Company,
General Electric Financial Services, Inc., General Electric Capital Corporation,
General Electric Credit Corporation and DOES 1-100 as defendants. The complaint
alleges violations of state common law, including fraud, negligent
misrepresentation, breach of fiduciary duty, and violations of the rules of the
National Association of Securities Dealers. The complaint seeks to recover
compensatory damages and punitive damages in an unspecified amount, interest,
and recission with respect to Polaris Aircraft Income Funds I-VI. The
Partnership is not named as a defendant in this action.

On or about November 26, 1996, a complaint entitled Thelma Abrams, et al. v.
Polaris Holding Company, et al. was filed in the Superior Court of the State of
California, County of Sacramento, by individual plaintiffs who purchased limited
partnership units in Polaris Aircraft Income Funds I-VI. The complaint names
Polaris Holding Company, Polaris Aircraft Leasing Corporation, Polaris
Investment Management Corporation, Polaris Securities Corporation, Polaris Jet

<PAGE>

Leasing, Inc., Polaris Technical Services, Inc., General Electric Company,
General Electric Financial Services, Inc., General Electric Capital Corporation,
General Electric Credit Corporation and DOES 1-100 as defendants. The complaint
alleges violations of state common law, including fraud, negligent
misrepresentation, breach of fiduciary duty, and violations of the rules of the
National Association of Securities Dealers. The complaint seeks to recover
compensatory damages and punitive damages in an unspecified amount, interest,
and recission with respect to Polaris Aircraft Income Funds I-VI. The
Partnership is not named as a defendant in this action.

On or about January 16, 1997, a complaint entitled Enita Elphick, et al. v.
Kidder Peabody & Co.,et al. was filed in the Superior Court of the State of
California, County of Sacramento, by individual plaintiffs who purchased limited
partnership units in Polaris Aircraft Income Funds I-VI and other limited
partnerships allegedly sold by Kidder Peabody. The complaint names Kidder,
Peabody & Co. Incorporated, KP Realty Advisors, Inc., Polaris Holding Company,
Polaris Aircraft Leasing Corporation, Polaris Investment Management Corporation,
Polaris Securities Corporation, Polaris Jet Leasing, Inc., Polaris Technical
Services, Inc., General Electric Company, General Electric Financial Services,
Inc., General Electric Capital Corporation, General Electric Credit Corporation
and DOES 1-100 as defendants. The complaint alleges violations of state common
law, including fraud, negligent misrepresentation, breach of fiduciary duty, and
violations of the rules of the National Association of Securities Dealers. The
complaint seeks to recover compensatory damages and punitive damages in an
unspecified amount, interest, and recission with respect to Polaris Aircraft
Income Funds I-VI and all other limited partnerships alleged to have been sold
by Kidder Peabody to the plaintiffs. The Partnership is not named as a defendant
in this action.

On or about February 14, 1997, a complaint entitled George Zicos, et al. v.
Polaris Holding Company, et al. was filed in the Superior Court of the State of
California, County of Sacramento, by individual plaintiffs who purchased limited
partnership units in Polaris Aircraft Income Funds I-VI. The complaint names
Polaris Holding Company, Polaris Aircraft Leasing Corporation, Polaris
Investment Management Corporation, Polaris Securities Corporation, Polaris Jet
Leasing, Inc., Polaris Technical Services, Inc., General Electric Company,
General Electric Financial Services, Inc., General Electric Capital Corporation,
General Electric Credit Corporation and DOES 1-100 as defendants. The complaint
alleges violations of state common law, including fraud, negligent
misrepresentation, breach of fiduciary duty, and violations of the rules of the
National Association of Securities Dealers. The complaint seeks to recover
compensatory damages and punitive damages in an unspecified amount, interest,
and recission with respect to Polaris Aircraft Income Funds I-VI. The
Partnership is not named as a defendant in this action.

Other Proceedings - Part I, Item 3 discusses certain other actions arising out
of certain public offerings, including that of the Partnership, to which both
the Partnership and its general partner are parties.

Disclosure pursuant to Section 16, Item 405 of Regulation S-K:

Based solely on its review of the copies of such forms received or written
representations from certain reporting persons that no Forms 3, 4, or 5 were
required for those persons, the Partnership believes that, during 1995 all
filing requirements applicable to its officers, directors and greater than ten
percent beneficial owners were met.

<PAGE>

Item 11. Management Remuneration and Transactions

PAIF-IV has no directors or officers. PAIF-IV is managed by PIMC, the General
Partner. In connection with management services provided, management and
advisory fees of $544,886 were paid to PIMC in 1996 in addition to a 10%
interest in all cash distributions as described in Note 6 to the financial
statements (Item 8).

Item 12. Security Ownership of Certain Beneficial Owners and Management

a) No person owns of record, or is known by PAIF-IV to own beneficially
more than five percent of any class of voting securities of PAIF-IV.

b) The General Partner of PAIF-IV owns the equity securities of PAIF-IV as
set forth in the following table:

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

General Polaris Investment Represents a 10.0% interest of all cash 100%
Partner Management distributions, gross income in an
Interest Corporation amount equal to 9.09% of distributed
cash available from operations, and a
1% interest in net income or loss

c) There are no arrangements known to PAIF-IV, including any pledge by any
person of securities of PAIF-IV, the operation of which may at a
subsequent date result in a change in control of PAIF-IV.

Item 13. Certain Relationships and Related Transactions

None.

<PAGE>

PART IV

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

1. Financial Statements.

The following are included in Part II of this report:
Page No.
--------

Report of Independent Public Accountants 22
Balance Sheets 23
Statements of Operations 24
Statements of Changes in Partners' Capital (Deficit) 25
Statements of Cash Flows 26
Notes to Financial Statements 27

2. Reports on Form 8-K.

None.

3. Exhibits required to be filed by Item 601 of Regulation S-K.

27. Financial Data Schedule.

4. Financial Statement Schedules.

All financial statement schedules are omitted because they are not
applicable, not required or because the required information is
included in the financial statements or notes thereto.

<PAGE>

SIGNATURES

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

POLARIS AIRCRAFT INCOME FUND IV,
A California Limited Partnership
(REGISTRANT)
By: Polaris Investment
Management Corporation
General Partner

March 28, 1997 By: /S/ Eric M. Dull
- --------------------- -----------------------
Date Eric M. Dull, 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 the registrant and
in the capacities and on the dates indicated.

Signature Title Date

/S/Eric M. Dull President and Director of Polaris Investment March 28, 1997
- ------------------- Management Corporation, General Partner --------------
(Eric M. Dull) of the Registrant

/S/Marc A. Meiches Chief Financial Officer of Polaris Investment March 28, 1997
- ------------------- Management Corporation, General Partner --------------
(Marc A. Meiches) of the Registrant

/S/Richard J. Adams Vice President and Director of Polaris March 28, 1997
- ------------------- Investment Management Corporation, --------------
(Richard J. Adams) General Partner of the Registrant

<ARTICLE>5

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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 23989285
<SECURITIES> 0
<RECEIVABLES> 1111430
<ALLOWANCES> 167722
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 118677444
<DEPRECIATION> 88490049
<TOTAL-ASSETS> 55142487
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0
0
<COMMON> 0
<OTHER-SE> 48069506
<TOTAL-LIABILITY-AND-EQUITY> 55142487
<SALES> 0
<TOTAL-REVENUES> 12216480
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 30073243
<LOSS-PROVISION> 589029
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (18445792)
<INCOME-TAX> 0
<INCOME-CONTINUING> (18445792)
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<NET-INCOME> (18445792)
<EPS-PRIMARY> (39.03)
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</TABLE>