<PAGE>   1
 
================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
 
                            ------------------------
 
                                   FORM 10-K
                                 ANNUAL REPORT
                            ------------------------
 
(MARK ONE)
      [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
          SECURITIES EXCHANGE ACT OF 1934
 
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
 
                                       OR
 
      [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
          SECURITIES EXCHANGE ACT OF 1934
 
FOR THE TRANSITION PERIOD FROM ______________________ TO ______________________
                         COMMISSION FILE NUMBER 0-11350
 
                    INTERNATIONAL LEASE FINANCE CORPORATION
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
<TABLE>
<S>                                            <C>
                  CALIFORNIA                                     22-3059110
       (STATE OR OTHER JURISDICTION OF                        (I.R.S. EMPLOYER
        INCORPORATION OR ORGANIZATION)                      IDENTIFICATION NO.)
 
    1999 AVENUE OF THE STARS, LOS ANGELES,                         90067
                  CALIFORNIA
   (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                      (ZIP CODE)
</TABLE>
 
       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (310) 788-1999
 
          SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
                                      NONE
 
          SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
                                      NONE
                                (TITLE OF CLASS)
 
     INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES [X]  NO [ ]
 
     INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K (SEC. 229.405 OF THIS CHAPTER) IS NOT CONTAINED HEREIN,
AND WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE
PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS
FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. [X]
 
     AS OF MARCH 15, 1999, THERE WERE 35,818,122 SHARES OF COMMON STOCK, NO PAR
VALUE, OUTSTANDING.
 
     REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION J(1)(a)
AND (b) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT.
 
================================================================================
<PAGE>   2
 
                    INTERNATIONAL LEASE FINANCE CORPORATION
 
                          1998 FORM 10-K ANNUAL REPORT
 
                            ------------------------
 
                               TABLE OF CONTENTS
 
                                     PART I
 
<TABLE>
<CAPTION>
                                                                          PAGE
                                                                          ----
<S>         <C>                                                           <C>
Item  1.    Business....................................................    1
Item  2.    Properties..................................................    6
Item  3.    Legal Proceedings...........................................    7
 
                                   PART II
Item  5.    Market for Registrant's Common Equity and Related
              Stockholder Matters.......................................    8
Item  6.    Selected Financial Data.....................................    8
Item  7.    Management's Discussion and Analysis of Financial Condition
              and Results of Operations.................................    9
Item  7A.   Quantitive and Qualitative Disclosures About Market Risk....   13
Item  8.    Financial Statements and Supplementary Data.................   13
Item  9.    Changes in and Disagreements with Accountants on Accounting
              and Financial Disclosure..................................   13
 
                                   PART IV
Item 14.    Exhibits, Financial Statement Schedules and Reports on Form
              8-K.......................................................   13
</TABLE>
<PAGE>   3
 
                                     PART I
 
ITEM 1. BUSINESS
 
GENERAL
 
     International Lease Finance Corporation (the "Company") is primarily
engaged in the acquisition of new and used commercial jet aircraft and the
leasing and sale of such aircraft to domestic and foreign airlines. The Company,
in terms of the number and value of transactions concluded, is a major
owner-lessor of commercial jet aircraft. In addition, the Company is engaged in
the remarketing of commercial jets for its own account, for airlines and for
financial institutions. As well, the Company provides fleet management services
for third party operating lessors.
 
     As of December 31, 1998, the Company's lease portfolio consisted of 349
aircraft under operating
lease and three aircraft under finance lease. Additionally, the Company managed
60 aircraft. See "Item 2. Properties -- Flight Equipment." At December 31, 1998,
the Company had committed to purchase 303 aircraft deliverable through 2006 at
an estimated aggregate purchase price of $17.4 billion. See "Item 2.
Properties -- Commitments."
 
     The Company maintains the mix of flight equipment to meet its customers'
needs by purchasing those models of new and used aircraft which it believes will
have the greatest airline demand and operational longevity and minimize the time
that its aircraft are not leased to customers.
 
     The Company purchases, and finances the purchase of, aircraft on terms
intended to permit the Company to lease or resell such aircraft at a profit. The
Company typically finances the purchase of aircraft with borrowed funds and
internally generated cash flow. The Company accesses the capital markets for
such funds at times and on terms and conditions it considers appropriate. The
Company may, but does not necessarily, engage in financing transactions for
specific aircraft. The Company relies significantly on short- and medium-term
financing, and thereby attempts to manage interest rate exposure. To date, the
Company has been able to purchase aircraft on terms which have permitted it to
lease the aircraft at a profit and has not experienced any difficulty in
obtaining financing.
 
     The Company's aircraft are usually leased on terms under which the Company
does not fully recover the acquisition cost of such aircraft. Thus, at the
termination of a lease, the Company bears the risk of selling or re-leasing the
aircraft on terms which will cover its remaining cost.
 
     The airline industry is cyclical, economically sensitive and highly
competitive. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations." The Company's revenue and income may be
affected by political or economic instability abroad, changes in national
policy, competitive pressures on certain air carriers, fuel shortages, labor
stoppages, recessions, and other political or economic events adversely
affecting world or regional trading markets or impacting a particular customer.
The Company's continued success is partly dependent on management's ability in
the future to develop customer relationships for leasing, sales, remarketing and
management services with those airlines and other customers best able to
maintain their economic viability and survive in a deregulated environment.
 
     The Company is incorporated in the State of California and its principal
executive offices are located at 1999 Avenue of the Stars, Los Angeles,
California 90067. The Company's telephone, telecopier and telex numbers are
(310) 788-1999, (310) 788-1990 and 69-1400, respectively. The Company is an
indirect wholly owned subsidiary of American International Group, Inc. ("AIG").
AIG is a holding company which through its subsidiaries is primarily engaged in
a broad range of insurance and insurance-related activities and financial
services in the United States and abroad. The Common Stock of AIG is listed on,
among others, the New York Stock Exchange.
 
AIRCRAFT LEASING
 
     The initial term of the Company's current leases range in length from one
year to 15 years. See "Item 2. Properties -- Flight Equipment" for information
regarding scheduled lease terminations. Most of the Company's leases are
operating leases under which the Company does not fully recover its aircraft
cost and retains the benefit and assumes the risk of the residual value of the
aircraft. The Company on occasion also
                                        1
<PAGE>   4
 
enters into finance and sales-type leases where the full cost of the aircraft is
substantially recovered over the term of the lease. At December 31, 1998, three
of the Company's leases were accounted for as finance leases. The aircraft under
operating leases are included as assets on the Company's balance sheet and
depreciation is charged to income over the estimated useful lives of the
aircraft. In accordance with generally accepted accounting principles, rentals
are reported ratably as revenue over the lease term as they become due and are
earned. The Company attempts to maintain a mix of short- and medium-term leases
to balance the benefits and risks associated with different lease terms. Varying
lease terms mitigate the effects of changes in prevailing market conditions at
the time aircraft become eligible for re-lease or sale and the uncertainty
associated with estimating residual value of the aircraft at the termination of
the lease.
 
     All leases are on a "net" basis with the lessee responsible for all
operating expenses, which customarily include fuel, crews, airport and
navigation charges, taxes, licenses, registration and insurance. Normal
maintenance and repairs; airframe and engine overhauls; and compliance with
return conditions of flight equipment on lease are provided by and paid for by
the lessee. Under the provisions of most leases, for certain airframe and engine
overhauls, the lessee is reimbursed by the Company for costs incurred up to but
not exceeding related contingent rentals paid to the Company by the lessee. Such
rentals are included in the caption Rental of flight equipment. The Company
provides a charge to operations for such reimbursements based on the estimated
reimbursements expected during the life of the lease, which amount is included
in overhaul reserves. The lessee is responsible for compliance with all
applicable laws and regulations with respect to the aircraft. The Company
requires its lessees to comply with the most restrictive standards of either the
Federal Aviation Administration (the "FAA") or its foreign equivalent. The
Company makes periodic inspections of the condition of its leased aircraft.
Generally, the Company requires a deposit which is security for the condition of
aircraft upon return to the Company, the rental payments by the lessee and the
performance of other obligations by the lessee under the lease. In addition, the
leases contain extensive provisions regarding the remedies and rights of the
Company in the event of a default thereunder by the lessee and specific
provisions regarding the condition of the aircraft upon redelivery to the
Company. The lessee is required to continue lease payments under all
circumstances, including periods during which the aircraft is not in operation
for maintenance, grounding or any other reason whatsoever.
 
     The Company obtains and reviews relevant business materials from all
prospective lessees and purchasers before entering into a lease or extending
credit. Under certain circumstances, the Company may require the lessee to
obtain guarantees or other financial support from an acceptable financial
institution or other third party.
 
FLIGHT EQUIPMENT MARKETING
 
     The Company also regularly disposes of its leased aircraft at or before the
expiration of their leases. The buyers include the aircraft's lessee, another
airline or a third party lessor. Any gain or loss on disposition of leased
aircraft is reflected as revenues from flight equipment marketing.
 
     From time to time, the Company also engages in transactions to buy aircraft
for resale. In some cases, the Company assists its customers in acquiring or
disposing of aircraft through consulting services and procurement of financing
from third parties.
 
     In addition to its leasing and sales operations, the Company is engaged,
from time to time, as an agent for airlines in the disposition of their surplus
aircraft. The Company generally acts as an agent under an exclusive remarketing
contract whereby it agrees to sell aircraft on a "best efforts" basis within a
fixed time period. These activities generally augment the Company's primary
activities and also serve to promote relationships with prospective sellers and
buyers of aircraft.
 
     The Company plans to continue its remarketing services on a selective basis
involving specific situations where these activities will not conflict or
compete with, but rather will be complementary to, its leasing and selling
activities.
 
     The Company has guaranteed certain obligations for entities in which it has
an investment, which aggregate approximately $57,088,000. Additionally, the
Company guaranteed a customer's $3,300,000 loan, collateralized by flight
equipment. See Note K of Notes to Consolidated Financial Statements.
                                        2
<PAGE>   5
 
FLEET MANAGEMENT SERVICES
 
     The Company provides fleet management services to third party operating
lessors who are unable or unwilling to perform this service as part of their own
operation. The Company typically provides the same services that it performs for
its own fleet. Specifically, the Company provides leasing, re-leasing and sales
services on behalf of the lessor for which the Company receives a fee.
 
FINANCING/SOURCE OF FUNDS
 
     The Company purchases new aircraft directly from manufacturers and used
aircraft from airlines for lease or sale to other airlines. The Company finances
the purchase price of flight equipment from internally generated funds, secured
and unsecured commercial bank financings and the issuance of commercial paper,
public and private debt and preferred stock. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations."
 
CUSTOMERS
 
     At December 31, 1998, lessees of the Company included: (domestic) Alaska
Airlines, American Trans Air, Continental Airlines, Frontier Airlines, North
American Airlines, Southwest Airlines, Trans World Airlines (TWA) and World
Airways; (foreign) Aer Lingus, Aeroflot, Aero Lloyd Flugreisen, Aeromexico,
Aeroperu, Air 2000, Air Afrique, Air Alfa, Air Canada, Air Europa (Air Espana
SPA), Air Europe SpA, Air France, Air Jamaica, Air Macau, Air Madagascar, Air
Mauritius, Air New Zealand, Air Seychelles, Air Transat, Air Vanuatu, Air World,
Alitalia, Ansett, Asiana Airlines, Avianca, Braathens S.A.F.E., Britannia
Airways, British Airways, British Midland Airways, Caledonian, Canada 3000,
Canadian Airlines, Cathay Pacific, China Airlines, China Hainan Airlines, China
Southern Airlines, China Southwest Airlines, China Xinjiang, Color Air,
Constellation, El Al Israel Airlines, Emirates, Estonian Air, Far Eastern Air
Transport, Finnair, Flying Colours, Garuda Indonesia, GB Airways, Hapag-Lloyd
Flug, Hong Kong Dragon Airlines (Dragonair), Icelandair, Kenya Airways, KLM
Royal Dutch Airlines, L'Aeropostale, LACSA, Lineas Aereas Privadas Argentinas,
S.A. (LAPA), Lithuanian, Lloyd Aero Boliviano (LAB), LAN Chile, Lotus Air, LTU
Luftransport-Unternehmen, Lufthansa, Malaysian Airline System, Martinair
Holland, Mexicana, Middle East Airlines Airliban, Monarch Airlines, Olympic
Airways, ONUR Air, Passaredo, Pegasus, Polynesian Airlines, QANTAS Airways, Rio
Sul, Royal Jordanian, Sabre Airways, SAETA, Sahara India Airlines, Shanghai,
Sichuan Airlines, Skymark, Skyservice Airlines, Sterling European, Surinam,
Swissair, TACV Cabo Verde, TAP Air Portugal, TEA Basel, Turk Hava Yollari (THY),
TransAer, Transaero Airlines, Transavia, Transbrasil, Varig, Virgin Atlantic
Airways, VIVA Airways, Wuhan Airlines and Xiamen Airlines. No single customer
accounted for more than 10% of total revenues in any of the last three years.
 
     Revenues include rentals of flight equipment to foreign airlines of
$1,623,891,000 (1998), $1,472,075,000 (1997) and $1,202,651,000 (1996)
comprising 87.6%, 85.0% and 83.3%, respectively, of total rentals of flight
equipment. See Note J of Notes to Consolidated Financial Statements.
 
     The following table sets forth the dollar amount and percentage of total
rental revenues attributable to the indicated geographic areas for the years
indicated:
 
<TABLE>
<CAPTION>
                                            1998                  1997                  1996
                                     ------------------    ------------------    ------------------
                                       AMOUNT       %        AMOUNT       %        AMOUNT       %
                                     ----------   -----    ----------   -----    ----------   -----
                                                         (DOLLARS IN THOUSANDS)
<S>                                  <C>          <C>      <C>          <C>      <C>          <C>
Europe.............................  $  798,773    43.1%   $  705,128    40.7%   $  551,703    38.2%
Asia/Pacific.......................     410,600    22.1       358,687    20.7       332,159    23.0
United States and Canada...........     333,472    18.0       345,143    19.9       304,801    21.1
Central, South America and
  Mexico...........................     190,572    10.3       211,152    12.2       165,819    11.5
Africa and the Middle East.........     120,566     6.5       112,557     6.5        89,957     6.2
                                     ----------   -----    ----------   -----    ----------   -----
                                     $1,853,983   100.0%   $1,732,667   100.0%   $1,444,439   100.0%
                                     ==========   =====    ==========   =====    ==========   =====
</TABLE>
 
                                        3
<PAGE>   6
 
     Many foreign countries have currency and exchange laws regulating the
international transfer of currencies. The Company attempts to minimize its
currency and exchange risks by negotiating substantially all of its aircraft
lease and sales transactions in U.S. dollars and all guarantees obtained to
support various lease agreements are denominated for payment in U.S. dollars.
The Company requires, as a condition to any foreign transaction, that the lessee
or purchaser in a foreign country first obtain, if required, written approval of
the appropriate government agency, finance ministry or central bank for the
remittance of all funds contractually owed to the Company in U.S. dollars. As a
result, foreign currency risk is immaterial to the Company.
 
     The Company has restructured leases with both foreign and domestic lessees.
Such restructurings have involved the voluntary termination of leases prior to
lease expiration, the replacement of leased aircraft with smaller, less
expensive leased aircraft, the arrangement of subleases from the primary lessee
to another airline and the rescheduling of lease payments. In 1996, the Company
repossessed one aircraft that was promptly re-leased. In addition, the Company
terminated early the leases of four aircraft. In this case, two of the aircraft
were sold and two were promptly re-leased. No aircraft were repossessed in 1997.
In 1998, the Company repossessed three owned and two managed aircraft, all from
one airline, subsequent to the airline's bankruptcy proceeding. All of the
aircraft were promptly re-leased.
 
     In some situations where the Company repossesses an aircraft, it may decide
to export the aircraft from the lessee's jurisdiction. To date, the Company has
been able to export all repossessed aircraft which it desired to export. In
addition, in connection with the repossession of an aircraft, the Company may be
required to pay outstanding mechanic's, airport and other operating liens on the
repossessed aircraft, which could include charges relating to other aircraft
operated by the lessee.
 
     The Company's revenues and income may be affected by political or economic
instability abroad, changes in national policy, competitive pressures on certain
air carriers, fuel shortages, labor stoppages, recessions and other political or
economic events adversely affecting world or regional trading markets or
impacting a particular customer.
 
COMPETITION
 
     The leasing and sale of jet aircraft is highly competitive. Aircraft
manufacturers and the airlines sell new and used jet aircraft. Furthermore, the
Company faces competition in leasing aircraft from aircraft manufacturers,
banks, other financial institutions and leasing companies. There is also
competition with respect to its remarketing activities from many sources,
including, but not limited to, aircraft brokers.
 
GOVERNMENT REGULATION
 
     The FAA and the U.S. Departments of Transportation and State exercise
regulatory authority over the air transportation in the United States.
 
     The U.S. Departments of Transportation and State, in general, have
jurisdiction over the economic regulation of air transportation, including the
negotiation with foreign governments of the rights of U.S. carriers to fly to
other countries and the rights of foreign carriers to fly to and within the
United States.
 
     The FAA has regulatory jurisdiction over the maintenance and operation of
U.S. air carriers, the operation of aircraft in the United States by foreign
carriers and the registration of aircraft in the United States. The FAA can
suspend or revoke the authority of U.S. air carriers or their licensed personnel
and can similarly revoke the authority of foreign air carriers to operate within
the United States for failure to comply with FAA regulations. The FAA can also
ground aircraft if their airworthiness is in question.
 
     In every foreign country, similar government agencies regulate such
country's air carriers, the operations of foreign airlines in such country and
the registration of aircraft. Like the FAA, the civil aviation authority in a
foreign country can suspend or revoke the operating authority of an airline and
ground aircraft for safety reasons.
 
                                        4
<PAGE>   7
 
     Since the Company does not itself operate its aircraft for public
transportation of passengers and property, the Company is not directly subject
to the regulatory jurisdiction of the U.S. Departments of Transportation and
State or their counterpart organizations in foreign countries.
 
     The Company's interface with the FAA consists of the registration with the
FAA of those aircraft which are leased by the Company to U.S. carriers and to a
number of foreign carriers where, by agreement, the aircraft are to be
registered in the United States. In limited circumstances, the Company also
obtains from the FAA or its designated representatives a U.S. Certificate of
Airworthiness for a particular aircraft or a ferry flight permit.
 
     The Company's involvement with the civil aviation authorities of foreign
jurisdictions consists largely of requests to register and deregister Company
aircraft on lease to carriers in those countries.
 
     The Company also works with U.S. Customs with respect to the import and
export of Company aircraft into and from the United States for maintenance or
lease.
 
EMPLOYEES
 
     The Company is in a capital intensive rather than a labor intensive
business. As of December 31, 1998, the Company had 92 full-time employees, which
it considered adequate for its business operations. The Company will expand its
management and administrative personnel, as necessary, to meet future growth.
None of the Company's employees is covered by a collective bargaining agreement
and the Company believes that it has maintained excellent employee relations.
The Company provides certain employee benefits, including retirement plans and
health, life, disability and accident insurance.
 
INSURANCE
 
     The Company requires its lessees to carry those types of insurance which
are customary in the air transportation industry, including comprehensive
liability insurance and aircraft hull insurance. In general, the Company is an
additional insured on liability policies carried by the lessees. All policies
contain a breach of warranty endorsement so that the interests of the Company
are not prejudiced by any act or omission of the operator-lessee.
 
     Insurance premiums are prepaid by the lessee, with payment acknowledged by
the insurance carrier. The territorial coverage is, in each case, suitable for
the lessee's area of operations and the policies contain, among other
provisions, a "no co-insurance" clause and a provision prohibiting cancellation
or material change without at least 30 days advance written notice to the
Company. Furthermore, the insurance is primary and not contributory and all
insurance carriers are required to waive rights of subrogation against the
Company.
 
     The stipulated loss value schedule under aircraft hull insurance policies
is on an agreed value basis acceptable to the Company, which usually exceeds the
book value of the aircraft. In cases where the Company believes that the agreed
value stated in the lease is not sufficient, the Company purchases additional
Total Loss Only coverage for the deficiency. Additionally, all aircraft in the
Company's fleet are covered by Contingent Liability insurance. Aircraft hull
policies contain standard clauses covering aircraft engines with deductibles
required to be paid by the lessee. Furthermore, the aircraft hull policies
contain full war risk endorsements, including, but not limited to, confiscation,
seizure, hijacking and similar forms of retention or terrorist acts. All losses
under such policies are payable in U.S. dollars.
 
     The comprehensive liability insurance policies include provisions for
bodily injury, property damage, passenger liability, cargo liability and such
other provisions reasonably necessary in commercial passenger and cargo airline
operations with minimal deductibles. Such policies generally have combined
comprehensive single liability limits of not less than $250 million and all
losses are payable in U.S. dollars, U.K. pounds or German marks.
 
     The Company also maintains other insurance covering the specific needs of
its business operations. Insurance policies are generally placed or reinsured
through AIG subsidiaries, with costs allocated back to the Company. The Company
believes that its insurance is adequate both as to coverage and amount.
 
                                        5
<PAGE>   8
 
RECENT EVENTS
 
     Due to the economic problems in Brazil, ILFC has initiated discussions with
its Brazilian lessees to restructure lease agreements. Discussions with these
lessees continue, and the impact of possible restructurings cannot be determined
at this time. Lease revenues from Brazilian lessees were $55.4 million in 1998.
 
ITEM 2. PROPERTIES
 
FLIGHT EQUIPMENT
 
     The Company's management frequently reviews opportunities to acquire
suitable commercial jet aircraft based not only on market demand and customer
airline requirements, but also on the Company's fleet portfolio mix criteria and
planning strategies for leasing. Before committing to purchase specific
aircraft, the Company takes into consideration factors such as estimates of
future values, potential for remarketing, trends in supply and demand for the
particular type, make and model of aircraft and engines and anticipated
obsolescence. As a result, certain types and vintages of aircraft do not
necessarily fit the profile for inclusion in the Company's portfolio of aircraft
owned and used in its leasing operations.
 
     At December 31, 1998, all of the Company's fleet was Stage III compliant,
meaning that the aircraft hold or are capable of holding a noise certificate
issued under Chapter 3 of Volume 1, Part II of Annex 16 of the Chicago
Convention or have been shown to comply with the Stage III noise levels set out
in Section 36.5 of Appendix C of Part 36 of the Federal Aviation Regulations of
the United States. At December 31, 1998, the average age of the Company's
aircraft was 3.78 years.
 
     The following table shows the scheduled lease terminations (for the minimum
noncancelable period) by aircraft type for the Company's lease portfolio at
December 31, 1998:
 
<TABLE>
<CAPTION>
        AIRCRAFT TYPE          1999   2000   2001   2002   2003   2004   2005   2006   2007   2008   2010   TOTAL
        -------------          ----   ----   ----   ----   ----   ----   ----   ----   ----   ----   ----   -----
<S>                            <C>    <C>    <C>    <C>    <C>    <C>    <C>    <C>    <C>    <C>    <C>    <C>
737-300/400/500..............    7     22     18     18     25      8      4     1      1                    104
737-600/700/800..............                                              4     4      2             1       11
757-200......................    3     11      6      3      3      2      9     9      7      1              54
767-200......................           1      2                                                               3
767-300......................    2      4      6      7      7      5      2     2      1      2              38
777-200......................                                              2     3                             5
747-300......................                                2                                                 2
747-400......................           3             4      2             1                                  10
MD-83........................    2      1                                                                      3
MD-87........................                  1                                                               1
MD-11........................                                       3      3                                   6
A300-600R....................           2      1      1      1      1      1                                   7
A310-300.....................    4             2             1                                                 7
A319.........................                         2                          4                             6
A320.........................    2      7      3      5     16      5      1     4                            43
A321.........................           4      4      5      3             2            1      2              21
A330-200.....................                                                    2             1               3
A330-300.....................    6      1      3             1                                                11
A340.........................    1      7      2      1                                                       11
                                --     --     --     --     --     --     --     --     --     --     --     ---
Total........................   27     63     48     46     61     24     29    29     12      6      1      346
</TABLE>
 
---------------
 
     This schedule does not include three Boeing 737-500 aircraft committed for
sale in 1999. This schedule includes 20 aircraft leased by the Company and
subleased to others.
 
                                        6
<PAGE>   9
 
COMMITMENTS
 
     At December 31, 1998, the Company had committed to purchase the following
aircraft at an estimated aggregate purchase price (including adjustment for
anticipated inflation) of approximately $17.4 billion for delivery as shown:
 
<TABLE>
<CAPTION>
           AIRCRAFT TYPE              1999   2000   2001   2002   2003   2004   2005   2006   TOTAL
           -------------              ----   ----   ----   ----   ----   ----   ----   ----   -----
<S>                                   <C>    <C>    <C>    <C>    <C>    <C>    <C>    <C>    <C>
737-600/700/800(a)..................    8      9     12     11     13     13     10      9      85
757-200.............................    7      4      3      2      1                           17
767-300.............................    4      4      2      1      1      1                    13
767-400.............................                  1      2      1                            4
777-200.............................    4      3      4      4      4      4      3      3      29
747-400.............................    2                                                        2
A319................................    5      9      5      6      6      6      6             43
A320-200............................    6      5      6      4      3      5      4      2      35
A321-200............................    9      5      3      3      2      2      2             26
A330-200............................   10      4      4      4      4      4      1             31
A340/300/500/600(a).................    1      1      2      5      3      2      2      2      18
                                       --     --     --     --     --     --     --     --     ---
          Total.....................   56     44     42     42     38     37     28     16     303
</TABLE>
 
---------------
 
(a) The Company has the right to designate the size of the aircraft within the
    specific model type at specific dates prior to contractual delivery.
 
     Management anticipates that a significant portion of such aggregate
purchase price will be funded by incurring additional debt. The exact amount of
the indebtedness to be incurred will depend upon the actual purchase price of
the aircraft, which can vary due to a number of factors, including inflation,
and the percentage of the purchase price of the aircraft which must be financed.
 
     The aircraft listed above are being purchased pursuant to master agreements
with each of The Boeing Company ("Boeing") and AVSA, S.A.R.L., the sales
subsidiary of Airbus Industrie ("Airbus"). These agreements establish the
pricing formulas (which include certain price adjustments based upon inflation
and other factors) and various other terms with respect to the purchase of
aircraft. Under certain circumstances, the Company has the right to alter the
mix of aircraft type ultimately acquired. As of December 31, 1998, the Company
had made non-refundable deposits (exclusive of capitalized interest) with
respect to the aircraft which the Company has committed to purchase of
approximately $440,254,000 and $388,387,000 with Boeing and Airbus,
respectively.
 
     As of March 15, 1999, the Company had entered into contracts for the lease
of all of the 56 aircraft to be delivered in 1999, 35 of the 44 aircraft to be
delivered in 2000, 19 of the 42 aircraft to be delivered in 2001, 3 of the 42
aircraft to be delivered in 2002 and none of the 119 aircraft to be delivered
subsequent to 2002. The Company will need to find customers for aircraft
presently on order and any new aircraft ordered and arrange financing for
portions of the purchase price of such equipment. Although the Company has been
successful to date in placing its new aircraft on lease or sales contracts, and
has obtained adequate financing in the past, there can be no assurance as to the
future continued availability of lessees or purchasers, or of sufficient amounts
of financing on terms acceptable to the Company.
 
FACILITIES
 
     The Company's principal offices are located at 1999 Avenue of the Stars,
Los Angeles, California. The Company occupies space under leases which expire in
2000. The leases cover approximately 30,000 square feet of office space, provide
for annual rentals of approximately $1,597,000, and the rental payments
thereunder are subject to certain indexed escalation provisions.
 
ITEM 3. LEGAL PROCEEDINGS
 
     The Company is not a party to any significant legal proceedings.
 
                                        7
<PAGE>   10
 
                                    PART II
 
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
     The Company is indirectly wholly owned by AIG and the Company's Common
Stock is not listed on any national exchange or traded in any established
market. During the years ended December 31, 1998, 1997 and 1996, the Company
paid cash dividends to its parent company of $25,200,000, $19,700,000 and
$20,600,000, respectively. It is the intent of the Company to pay its parent
company an annual dividend of at least 7% of net income subject to the dividend
preference of any preferred stock outstanding. Under the most restrictive
provisions of the Company's borrowing arrangements, consolidated retained
earnings at December 31, 1998 in the amount of $582,174,000 were unrestricted as
to the payment of dividends.
 
ITEM 6. SELECTED FINANCIAL DATA
 
     The following table summarizes selected consolidated financial data and
certain operating information of the Company. The selected consolidated
financial data should be read in conjunction with the Consolidated Financial
Statements and notes thereto and "Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations" included elsewhere in this
Form 10-K.
 
<TABLE>
<CAPTION>
                                                       YEARS ENDED DECEMBER 31,
                                  -------------------------------------------------------------------
                                     1994          1995          1996          1997          1998
                                  -----------   -----------   -----------   -----------   -----------
                                                     (DOLLAR AMOUNTS IN THOUSANDS)
<S>                               <C>           <C>           <C>           <C>           <C>
OPERATING DATA:
Rentals of flight equipment.....  $   993,596   $ 1,254,020   $ 1,444,439   $ 1,732,667   $ 1,853,983
Flight equipment marketing......       76,193       119,078       136,099       176,005       117,194
Interest and other income.......       40,267        49,390        51,976        49,335        74,489
Total revenues..................    1,110,056     1,422,488     1,632,514     1,958,007     2,045,666
Expenses........................      798,049     1,084,142     1,237,575     1,431,848     1,483,392
Income before income taxes......      312,007       338,346       394,939       526,159       562,274
Net income......................      201,943       196,437       251,774       338,684       369,352
RATIO OF EARNINGS TO FIXED
  CHARGES AND PREFERRED STOCK
  DIVIDENDS(1):                         1.59x         1.43x         1.47x         1.58x         1.60x
BALANCE SHEET DATA:
Flight equipment under operating
  leases (net of accumulated
  depreciation).................  $ 8,851,079   $10,762,870   $12,182,774   $12,792,531   $14,872,430
Net investment in finance and
  sales-type leases.............       92,233        86,237       103,629        98,026        89,904
Total assets....................   10,386,256    12,329,182    13,725,596    14,551,954    16,379,632
Total debt......................    7,583,006     8,892,634     9,794,260     9,954,362    11,184,010
Shareholders' equity............    1,640,772     2,000,107     2,214,552     2,517,188     2,844,375
OTHER DATA:
Aircraft owned at period
  end(2)........................          270           278           296           299           329
Aircraft sold or remarketed
  during the period.............           24            41            37            57            31
</TABLE>
 
---------------
 
(1) See Exhibit 12.
 
(2) See "Item 2. Properties -- Flight Equipment."
 
                                        8
<PAGE>   11
 
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
 
INDUSTRY CONDITION
 
     From time to time, certain of the Company's customers have experienced
economic difficulties resulting in the Company's participation in customer
restructurings. Such restructurings have involved the voluntary early
termination of leases and the rescheduling of payments. In addition, in certain
circumstances, the Company has been required to repossess aircraft. Three
aircraft owned by the Company were repossessed in 1998 and promptly re-leased.
See "Item 1. Business -- Customers."
 
FINANCIAL CONDITION
 
     The Company borrows funds to purchase flight equipment, including funds for
progress payments during the construction phase, principally on an unsecured
basis from various sources. At December 31, 1998, 1997 and 1996, the Company's
debt financing and capital lease obligations were comprised of the following:
 
<TABLE>
<CAPTION>
                                           1998           1997          1996
                                        -----------    ----------    ----------
                                                (DOLLARS IN THOUSANDS)
<S>                                     <C>            <C>           <C>
Public term debt with single
  maturities..........................  $ 3,825,000    $3,950,000    $3,500,000
Public medium-term notes with varying
  maturities..........................    3,348,350     2,896,865     2,563,720
Capital lease obligations.............      810,768       903,320       995,872
Bank and other term debt..............           --            --            --
                                        -----------    ----------    ----------
          Total term debt and
            capital lease
            obligations...............    7,984,118     7,750,185     7,059,592
Commercial paper......................    3,214,744     2,212,601     2,757,417
Less: Deferred debt discount..........      (14,852)       (8,424)      (22,749)
                                        -----------    ----------    ----------
          Debt financing and capital
            lease obligations.........  $11,184,010    $9,954,362    $9,794,260
                                        ===========    ==========    ==========
Composite interest rate...............        6.03%         6.44%         6.23%
Percentage of total debt at fixed
  rate................................       64.20%        76.49%        68.95%
Composite interest rate on fixed
  debt................................        6.41%         6.63%         6.58%
Bank prime rate.......................        7.75%         8.50%         8.25%
</TABLE>
 
     The interest on substantially all of the public debt (exclusive of the
commercial paper) is fixed for the term of the note. As of December 31, 1998,
the Company had committed revolving loans and lines of credit with 51 commercial
banks aggregating $2.75 billion and uncommitted lines of credit with one bank
for varying amounts. Bank debt principally provides for interest rates that vary
according to the pricing option in effect at the time of borrowing and range
from prime to .20% over LIBOR at the Company's option. Bank financings are
subject to facility fees of up to .08% of amounts available. Bank financing is
used primarily as backup for the Company's Commercial Paper program.
 
     In January 1999, the Company replaced $1.35 billion of the committed
revolving loans with a new, expanded facility for $1.50 billion. The facility is
a 364 day commitment with an 8 basis point annual facility fee. The pricing
options available are prime and .22% over LIBOR to .32% over LIBOR, based upon
utilization.
 
     As of December 31, 1998, the Company had an effective shelf registration
statement with respect to $2.13 billion of debt securities, under which $525
million of notes were sold through 1998. Additionally, a $1.25 billion
Medium-Term Note program was implemented under the shelf registration statement,
under which $1.04 billion was sold through 1998. Through March 15, 1999, the
Company increased the size of the Medium-Term Note program to $1.605 billion and
sold an additional $465 million of Medium-Term Notes.
 
     In March 1999, a new registration statement of the Company with respect to
$2.0 billion of debt securities was declared effective.
 
                                        9
<PAGE>   12
 
     The Company has Export Credit Lease financings which provide ten year,
amortizing loans in the form of capital lease obligations. The interest rate on
62.5% of the original financing available is 6.55% and the interest rate on
22.5% of the original financing available varies between 6.18% and 6.89%. These
two tranches are guaranteed by various European Export Credit Agencies. The
remaining 15% of the original financing available provides for LIBOR based
pricing.
 
     In January 1999, the Company entered into a new Export Credit Facility, up
to a maximum of $4.3 billion, for approximately 75 aircraft to be delivered from
1999 through 2001. The Company has the right, but is not required, to use the
facility to fund 85% of each aircraft's purchase price. This facility is
guaranteed by various European Expert Credit Agencies. The interest rate varies
from 5.753% to 5.898% on the first 75 aircraft depending on the delivery date of
the aircraft. Through March 15, 1999, the Company borrowed $403.7 million under
this facility.
 
     In 1995, 1996 and 1997, the Company, through unrestricted subsidiaries,
entered into sale-leaseback transactions providing proceeds to the Company in
the amounts of $413.0 million, $507.6 million and $601.9 million, respectively,
each relating to seven aircraft. The transactions resulted in the sale and
leaseback of these aircraft for one year operating leases, each with six one
year extension options for a total of seven years for each aircraft. The Company
has the option to either buy back the aircraft or redeliver the aircraft for a
fee to the lessor at the end of any lease period. The lease rates equate to
fixed principal amortization and floating interest payments based on LIBOR or
commercial paper pricing. As of December 31, 1998, the Company had repurchased
one aircraft which was sold to a third party in January, 1998.
 
     The Company believes that the combination of internally generated funds and
debt financing currently available to the Company will allow the Company to meet
its capital requirements for at least the next 12 months.
 
     In the normal course of business, the Company employs a variety of
off-balance sheet financial instruments and other derivative products to manage
its exposure to interest rates and the resulting impact of changes in interest
rates on earnings, with the objective to lower its overall borrowing cost and to
maintain its optimal mix of variable and fixed rate interest obligations. The
Company only enters into derivative transactions to hedge interest rate risk and
not to speculate on interest rates. These derivative products include interest
rate swap agreements, interest rate spreadlocks, interest rate swaptions and
interest rate floors.
 
     The counterparties to the Company's derivative instruments are all
recognized U.S. derivative dealers. The counterparties to the majority of the
notional amounts of the Company's derivative instruments are "AAA" rated and all
have at least an "A" credit rating. The derivatives are subject to a bilateral
security agreement which, in certain circumstances, may allow one party to the
agreement to require the second party to the agreement to establish a cash
collateral account. Any failure of the instruments or counterparties to perform
under the derivative contracts would have an immaterial impact on the Company's
earnings.
 
     Measuring potential losses in fair values has recently become the focus of
risk management efforts by many companies. Such measurements are performed
through the application of various statistical techniques. One such technique is
Value at Risk (VaR), a summary statistical measure that uses historical interest
rates and estimates the volatility and correlation of these rates to calculate
the maximum loss that could occur over a defined period of time given a certain
probability.
 
     ILFC believes that statistical models alone do not provide a reliable
method of monitoring and controlling market risk. While VaR models are
relatively sophisticated, the quantitative market risk information generated is
limited by the assumptions and parameters established in creating the related
models. Therefore, such models are tools and do not substitute for the
experience or judgment of senior management.
 
     ILFC is exposed to market risk and the risk of loss of fair value resulting
from adverse fluctuations in interest rates. As of December 31, 1998, ILFC
statistically measured the loss of fair value through the application of a VaR
model. In this analysis the net fair value of ILFC was determined using the
financial instrument assets, which included the tax adjusted future flight
equipment lease revenue, and the financial instrument liabilities, which
included the future servicing of the current debt. The estimated impact of the
current derivative positions was also taken into account.
                                       10
<PAGE>   13
 
     ILFC calculated the VaR with respect to the net fair value using the
variance-covariance (delta-normal) methodology. This calculation also used daily
historical interest rates for the two years ending December 31, 1998. The VaR
model estimated the volatility of each of these interest rates and the
correlation among them. The yield curve was constructed using eleven key points
on the curve to model possible curve movements. Thus, the VaR measured the
sensitivity of the assets and liabilities to the calculated interest rate
exposures. These sensitivities were then applied to a database, which contained
the historical ranges of movements in interest rates and the correlation among
them. The results were aggregated to provide a single amount that depicts the
maximum potential loss in fair value of a confidence level of 95 percent for a
time period of one month. As December 31, 1998, the VaR of ILFC with respect to
its aforementioned net fair value was $9 million.
 
RESULTS OF OPERATIONS
 
     The increase in revenues from rentals of flight equipment from $1,444.4
million in 1996 to $1,732.7 million in 1997 to $1,854.0 million in 1998 is due
to the increase in the number of aircraft available for operating lease from 306
in 1996, to 319 in 1997 to 349 in 1998. The increase is also attributable to the
increase in the cost of the leased fleet, which includes aircraft subject to
sale-leaseback transactions from which rental income is earned, from $14.4
billion in 1996 to $15.9 billion in 1997 and $18.3 billion in 1998.
Additionally, the percentage of widebodies, for which higher lease payments are
typically received, has increased from 25% to 28% to 30% of the fleet in 1996,
1997 and 1998, respectively.
 
     In addition to its leasing operations, the Company engages in the marketing
of flight equipment at the end of, or during, the lease term, as well as the
sales of flight equipment on a principal and commission basis. Revenue from such
flight equipment marketing increased from $136.1 million in 1996 to $176.0
million in 1997, and decreased to $117.2 million in 1998 as a result of the type
and the number of the flight equipment marketed in each period which fluctuated
from 36 aircraft in 1996 to 57 aircraft in 1997 and to 31 aircraft in 1998.
 
     In addition, the Company sold seven engines (1996), 11 engines (1997) and
15 engines (1998).
 
     Interest expense fluctuated from $573.6 million in 1996 to $642.3 million
in 1997, to $640.0 million in 1998, as a result of an increase in debt
outstanding, excluding the effect of debt discount, from $9.817 billion in 1996
to $9.963 billion in 1997 to $11.200 billion in 1998, to finance aircraft
acquisitions, offset in part by lower composite borrowing rates in 1998. The
Company's composite borrowing rate fluctuated as follows:
 
<TABLE>
<S>                                                           <C>
December 31, 1995...........................................  6.47%
March 31, 1996..............................................  6.31
June 30, 1996...............................................  6.22
September 30, 1996..........................................  6.28
December 31, 1996...........................................  6.23
March 31, 1997..............................................  6.20
June 30, 1997...............................................  6.32
September 30, 1997..........................................  6.34
December 31, 1997...........................................  6.44
March 31, 1998..............................................  6.29
June 30, 1998...............................................  6.22
September 30, 1998..........................................  6.18
December 31, 1998...........................................  6.03
</TABLE>
 
     Depreciation of flight equipment increased from $485.1 million in 1996 to
$546.2 million in 1997 to $556.1 million in 1998 due to the addition of
aircraft. The cost of flight equipment during the same periods increased from
$13.7 billion at December 31, 1996 to $14.4 billion at December 31, 1997 to
$16.9 billion at December 31, 1998. The increase in depreciation expense due to
increased flight equipment cost was partially offset by increasing depreciation
taken in 1996 and 1997 on older aircraft, which were acquired used, that were
either sold or fully depreciated prior to the end of 1997.
 
                                       11
<PAGE>   14
 
     Provisions for overhauls also increased from $85.1 million in 1996 to $99.5
million in 1997 to $102.5 million in 1998 due to an increase in the number of
aircraft on which the Company collects overhaul reserves resulting in an
increase in the aggregate number of hours flown for which overhaul reserves are
provided.
 
     Rent expense increased from $51.8 million in 1996 to $103.9 million in 1997
to $138.4 million in 1998 due to the increase in the number of sale-leaseback
transactions from 14 aircraft in 1996 to 20 in 1997 and 1998.
 
     The effective tax rate decreased from 36.2% in 1996 to 35.7% in 1997 to
34.3% in 1998.
 
IMPACT OF THE YEAR 2000 ISSUE
 
     The Year 2000 issue is the result of computer programs being written using
two digits rather than four digits to define the applicable year. This could
result in a failure of the information technology systems (IT systems) and other
equipment containing imbedded technology (non-IT systems) in the year 2000,
causing disruption of operation of the Company, its lessees, vendors, or
business partners.
 
     The Company has developed a plan to address the Year 2000 issue as it
affects the Company's internal IT and non-IT systems, and to assess Year 2000
issues relating to third parties on which the Company has critical dependencies.
A Steering Committee made up of executives of member companies of American
International Group, Inc. ("AIG"), the Company's parent, has had oversight of
the plan's development and execution.
 
     The plan for addressing internal systems includes: an assessment of
internal IT and non-IT systems and equipment affected by the Year 2000 issue;
definition of strategies to address affected systems and equipment; remediation
of identified affected systems and equipment; and review and approval by AIG
that each internal system is Year 2000 compliant. The Company has completed this
project and testing results have been reviewed and approved by AIG staff.
 
     The plan for addressing third party critical dependencies includes:
identification of third party critical dependencies including lessees, vendors
and financial institutions; circulation to all applicable third parties of a
written request for their plans and progress in addressing the Year 2000 issue;
evaluation of responses; and development of contingency plans to address risks
of non-compliance by third parties. The Company has completed the identification
of critical dependencies and the circulation of requests for Year 2000
compliance status. The Company has received responses from 80% of the third
parties identified. Based upon these responses, the Company has concluded that
65% of critical dependencies are or will be Year 2000 compliant before December
31, 1999. Follow up with non-compliant third parties and those who have not
responded is ongoing.
 
     The costs associated with addressing the Year 2000 issue, including
developing and implementing the above stated plan and remediating affected
systems and equipment, have been nominal and were expensed as incurred. Such
costs do not include normal system upgrades and replacements. The Company does
not expect to incur any significant future costs relating to internal IT and
non-IT systems as a result of the Year 2000 issue.
 
     While the Company expects to have no interruption of operations as a result
of internal IT and non-IT systems, significant uncertainties remain about the
effect of third party critical dependencies who are not Year 2000 compliant. The
Company is developing contingency plans for critical vendors.
 
     The Company is not aware of any significant Year 2000 system issues with
respect to the airworthiness of aircraft; however, should such an issue result
in Airworthiness Directives or other manufacturer recommended maintenance, the
implementation and the majority of the cost of such implementation would be the
responsibility of the aircraft lessee. The Company has notified the lessees of
this responsibility. Any resulting costs to the Company cannot be estimated at
this time.
 
     Non-compliance on the part of a lessee could result in inadequate insurance
coverage, lost revenue, and an inability to make lease payments to the Company.
Non-compliance by the lessee's financial institution could also affect the
ability to process lease payments. The Company has attempted to mitigate such
risks by
 
                                       12
<PAGE>   15
 
inquiring of each lessee about its Year 2000 plans, including whether they have
addressed the issue with their financial institution.
 
     Non-compliant manufacturing systems at the Company's primary vendors of
aircraft and engines may affect their ability to deliver products on a timely
basis. As there is no alternative source of supply, such an occurrence would
limit the Company's future growth opportunities.
 
     A possible scenario would be that a large number of lessees will be unable
to operate and generate revenues and as a result be unable to make lease
payments. The Company is unable to estimate the likelihood or the magnitude of
the resulting lost revenue at this time. Should this occur, the Company would
attempt to repossess aircraft from non-compliant lessees and place the aircraft
with compliant lessees. No assurances can be given that the Company would be
able to re-lease such aircraft at favorable terms or at all. If a significant
number of aircraft could not be re-leased at favorable terms or at all, or their
re-lease is delayed, the Company's business, financial condition and results of
operations would be adversely affected.
 
     Certain of the statements in this discussion, as well as other
forward-looking statements within this document, contain estimates and
projections of cash flows and debt financing to support future capital
requirements. While these forward-looking statements are made in good faith,
future operating, market, competitive, economic and other conditions and events
could cause actual results to differ materially from those in the
forward-looking statements.
 
NEW ACCOUNTING PRONOUNCEMENTS, ISSUED BUT NOT YET EFFECTIVE
 
     On June 15, 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities (FAS 133). FAS 133 is effective for all
fiscal quarters of all fiscal years beginning after June 15, 1999 (January 1,
2000 for the Company). FAS 133 requires that all derivative instruments be
recorded on the balance sheet at their fair value. Changes in the fair value of
derivatives are recorded each period in current earnings or other comprehensive
income, depending on whether a derivative is designated as part of a hedge
transaction and, if it is, the type of hedge transaction. The Company had not
yet determined the impact that the adoption of FAS 133 will have on its earnings
or statement of financial position.
 
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
     See Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Financial Condition
 
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
     The response to this Item is submitted as a separate section of this
report.
 
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE
 
     None.
 
                                    PART IV
 
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
 
     (a)(1) and (2): Financial Statements and Financial Statement Schedule: The
response to this portion of Item 14 is submitted as a separate section of this
report beginning on page 14.
 
     (a)(3) and (c): Exhibits: The response to this portion of Item 14 is
submitted as a separate section on this report beginning on page 14.
 
     (b) Reports on Form 8-K: None.
 
                                       13
<PAGE>   16
 
            INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
 
                                   FORM 10-K
                           ITEMS 8, 14(a), AND 14(c)
 
            INDEX OF CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
 
     The following consolidated financial statements of the Company and its
subsidiaries required to be included in Item 8 are listed below:
 
<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Reports of Independent Auditors.............................  16-17
Consolidated Financial Statements:
  Balance Sheets at December 31, 1997 and 1998..............     18
  Statements of Income for the years ended December 31,
     1996, 1997 and 1998....................................     19
  Statements of Shareholders' Equity for the years ended
     December 31, 1996, 1997 and 1998.......................     20
  Statements of Cash Flows for the years ended December 31,
     1996, 1997 and 1998....................................  21-22
  Notes to Consolidated Financial Statements................     23
</TABLE>
 
     The following financial statement schedule of the Company and its
subsidiaries is included in Item 14(a)(2):
 
<TABLE>
<CAPTION>
SCHEDULE NUMBER                           DESCRIPTION                           PAGE
---------------                           -----------                           ----
<C>               <S>                                                           <C>
      II          Valuation and Qualifying Accounts...........................   36
</TABLE>
 
     All other financial statements and schedules not listed have been omitted
since the required information is included in the consolidated financial
statements or the notes thereto, or is not applicable or required.
 
     The following exhibits of the Company and its subsidiaries are included in
Item 14(c):
 
<TABLE>
<CAPTION>
EXHIBIT
NUMBER                             DESCRIPTION
-------                            -----------
<C>        <S>
  3.1      Restated Articles of Incorporation of the Company, as
           amended through December 9, 1992, filed November 3, 1993
           (filed as an exhibit to Registration Statement No. 33-50913
           and incorporated herein by reference).
  3.2      Certificate of Determination of Preferences of Series C
           Market Auction Preferred Stock (filed as an exhibit to Form
           10-K for the year ended December 31, 1994 and incorporated
           herein by reference).
  3.3      Certificate of Determination of Preferences of Series D
           Market Auction Preferred Stock (filed as an exhibit to Form
           10-K for the year ended December 31, 1994 and incorporated
           herein by reference).
  3.4      Certificate of Determination of Preferences of Series E
           Market Auction Preferred Stock (filed as an exhibit to Form
           10-K for the year ended December 31, 1994 and incorporated
           herein by reference).
  3.5      Certificate of Determination of Preferences of Series F
           Market Auction Preferred Stock (filed as an exhibit to Form
           10-K for the year ended December 31, 1994 and incorporated
           herein by reference).
  3.6      Certificate of Determination of Preferences of Series G
           Market Auction Preferred Stock (filed as an exhibit to Form
           10-K for the year ended December 31, 1995 and incorporated
           herein by reference).
  3.7      Certificate of Determination of Preferences of Series H
           Market Auction Preferred Stock (filed as an exhibit to Form
           10-K for the year ended December 31, 1995 and incorporated
           herein by reference).
  3.8      By-Laws of the Company, including amendment thereto dated
           August 31, 1990 (filed as an exhibit to Registration
           Statement No. 33-37600 and incorporated herein by
           reference).
</TABLE>
 
                                       14
<PAGE>   17
 
<TABLE>
<CAPTION>
EXHIBIT
NUMBER                             DESCRIPTION
-------                            -----------
<C>        <S>
  4.1      Indenture dated as of November 1, 1991, between the Company
           and U.S. Bank Trust National Association (successor to
           Continental Bank, National Association), as Trustee (filed
           as an exhibit to Registration Statement No. 33-43698 and
           incorporated herein by reference).
  4.2      The Company agrees to furnish to the Commission upon request
           a copy of each instrument with respect to issues of
           long-term debt of the Company and its subsidiaries, the
           authorized principal amount of which does not exceed 10% of
           the consolidated assets of the Company and its subsidiaries.
 10.1      Revolving Credit Agreement, dated as of January 17, 1997,
           among the Company, Union Bank of Switzerland, New York
           Branch, and the other banks listed therein providing up to
           $1,250,000,000 (five year facility) (filed as an exhibit to
           Form 10-K for the year ended March 31, 1996 and incorporated
           herein by reference).
 10.2      Revolving Credit Agreement, dated as of January 15, 1999,
           among the Company, Citicorp USA, Inc., and the other banks
           listed therein providing up to $1,500,000,000 (364 day
           facility).
 10.3      Aircraft Facility Agreement, dated as of January 19, 1999,
           among the Company, Halifax PLC and the other banks listed
           therein providing up to $4,327,260,000 for the financing of
           approximately seventy-five Airbus aircraft.
  12.      Computation of Ratio of Earnings to Fixed Charges and
           Preferred Stock Dividends.
 23.1      Consent of PricewaterhouseCoopers LLP.
 23.2      Consent of Ernst and Young LLP.
  27.      Financial Data Schedule.
</TABLE>
 
                                       15
<PAGE>   18
 
                         REPORT OF INDEPENDENT AUDITORS
 
Shareholders and Board of Directors
International Lease Finance Corporation
Los Angeles, California
 
     In our opinion, the consolidated financial statements listed in the index
appearing under Items 14(a)(1) and (2) on page 14 present fairly, in all
material respects, the financial position of International Lease Finance
Corporation and its subsidiaries (the "Company") at December 31, 1998 and 1997,
and the results of their operations and their cash flows for each of the two
years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
 
PricewaterhouseCoopers LLP
February 9, 1999
 
                                       16
<PAGE>   19
 
                         REPORT OF INDEPENDENT AUDITORS
 
Shareholders And Board of Directors
International Lease Finance Corporation
Los Angeles, California
 
     We have audited the accompanying consolidated statements of income,
shareholders' equity, and cash flows of International Lease Finance Corporation
and subsidiaries for the year ended December 31, 1996. Our audit also included
the financial statement schedule listed in the Index at Item 14(a). These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audit.
 
     We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
 
     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated results of operations
and cash flows of International Lease Finance Corporation and subsidiaries for
the year ended December 31, 1996, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
 
                                          ERNST & YOUNG LLP
 
Century City,
Los Angeles, California
February 19, 1997
 
                                       17
<PAGE>   20
 
            INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
 
                          CONSOLIDATED BALANCE SHEETS
           (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
 
                                     ASSETS
 
<TABLE>
<CAPTION>
                                                                       DECEMBER 31,
                                                                --------------------------
                                                                   1998           1997
                                                                -----------    -----------
<S>                                                             <C>            <C>
Cash, including interest bearing accounts of
  $33,716 (1998) and $35,113 (1997).........................    $    52,723    $    63,754
Current income taxes........................................         16,007             --
Notes receivable............................................        340,344        467,688
Net investment in finance and sales-type leases.............         89,904         98,026
Flight equipment under operating leases.....................     16,860,789     14,425,091
  Less accumulated depreciation.............................      1,988,359      1,632,560
                                                                -----------    -----------
                                                                 14,872,430     12,792,531
Deposits on flight equipment purchases......................        906,197      1,017,628
Accrued interest, other receivables and other assets........         60,754         60,416
Investments.................................................         11,771         18,731
Deferred debt issue costs -- less accumulated amortization
  of
  $62,115 (1998) and $52,444 (1997).........................         29,502         33,180
                                                                -----------    -----------
                                                                $16,379,632    $14,551,954
                                                                ===========    ===========
 
                           LIABILITIES AND SHAREHOLDERS' EQUITY
 
Accrued interest and other payables.........................    $   235,046    $   214,106
Current income taxes........................................             --         64,891
Debt financing, net of deferred debt discount of
  $14,852 (1998) and $8,424 (1997)..........................     10,373,242      9,051,042
Capital lease obligations...................................        810,768        903,320
Security and other deposits on flight equipment.............        863,832        744,800
Rentals received in advance.................................        119,682        129,586
Deferred income taxes.......................................      1,132,687        927,021
Commitments and contingencies -- Note K
 
SHAREHOLDERS' EQUITY
  Preferred stock -- no par value; 20,000,000 authorized
     shares
  Market Auction Preferred Stock, $100,000 per share
     liquidation value; Series A, B, C, D, E, F, G and H
     (1998 and 1997), each having
     500 shares issued and outstanding......................        400,000        400,000
  Common stock -- no par value; 100,000,000 authorized
     shares, 35,818,122 shares (1998 and 1997) issued and
     outstanding............................................          3,582          3,582
  Paid-in capital...........................................        579,955        579,955
  Retained earnings.........................................      1,860,838      1,533,651
                                                                -----------    -----------
                                                                  2,844,375      2,517,188
                                                                -----------    -----------
                                                                $16,379,632    $14,551,954
                                                                ===========    ===========
</TABLE>
 
                            See accompanying notes.
                                       18
<PAGE>   21
 
            INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
 
                       CONSOLIDATED STATEMENTS OF INCOME
                             (DOLLARS IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                   YEARS ENDED DECEMBER 31,
                                                             ------------------------------------
                                                                1998         1997         1996
                                                             ----------   ----------   ----------
<S>                                                          <C>          <C>          <C>
Revenues:
  Rental of flight equipment...............................  $1,853,983   $1,732,667   $1,444,439
  Flight equipment marketing...............................     117,194      176,005      136,099
  Interest and other.......................................      74,489       49,335       51,976
                                                             ----------   ----------   ----------
                                                              2,045,666    1,958,007    1,632,514
Expenses:
  Interest.................................................     639,964      642,321      573,599
  Depreciation of flight equipment.........................     556,082      546,226      485,102
  Provision for overhaul...................................     102,508       99,458       85,083
  Flight equipment rent expense............................     138,392      103,883       51,809
  Selling, general and administrative......................      46,446       39,960       41,982
                                                             ----------   ----------   ----------
                                                              1,483,392    1,431,848    1,237,575
                                                             ----------   ----------   ----------
     INCOME BEFORE INCOME TAXES............................     562,274      526,159      394,939
Provision for income taxes.................................     192,922      187,475      143,165
                                                             ----------   ----------   ----------
     NET INCOME............................................  $  369,352   $  338,684   $  251,774
                                                             ==========   ==========   ==========
</TABLE>
 
                            See accompanying notes.
                                       19
<PAGE>   22
 
            INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
 
                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                  (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
 
<TABLE>
<CAPTION>
                                         MARKET AUCTION
                                         PREFERRED STOCK           COMMON STOCK
                                      ---------------------    --------------------
                                      NUMBER OF                NUMBER OF               PAID-IN      RETAINED
                                       SHARES       AMOUNT       SHARES      AMOUNT    CAPITAL      EARNINGS       TOTAL
                                      ---------    --------    ----------    ------    --------    ----------    ----------
<S>                                   <C>          <C>         <C>           <C>       <C>         <C>           <C>
Balance at December 31, 1995........    4,000      $400,000    35,818,122    $3,582    $580,085    $1,016,440    $2,000,107
  Sale of MAPS preferred............                                                       (130)                       (130)
  Dividend to AIG...................                                                                  (20,600)      (20,600)
  Preferred stock dividends.........                                                                  (16,599)      (16,599)
  Net income........................                                                                  251,774       251,774
                                        -----      --------    ----------    ------    --------    ----------    ----------
Balance at December 31, 1996........    4,000      $400,000    35,818,122    $3,582    $579,955    $1,231,015    $2,214,552
  Dividends to AIG..................                                                                  (19,700)      (19,700)
  Preferred stock dividends.........                                                                  (16,348)      (16,348)
  Net income........................                                                                  338,684       338,684
                                        -----      --------    ----------    ------    --------    ----------    ----------
Balance at December 31, 1997........    4,000      $400,000    35,818,122    $3,582    $579,955    $1,533,651    $2,517,188
  Dividends to AIG..................                                                                  (25,200)      (25,200)
  Preferred stock dividends.........                                                                  (16,965)      (16,965)
  Net income........................                                                                  369,352       369,352
                                        -----      --------    ----------    ------    --------    ----------    ----------
Balance at December 31, 1998........    4,000      $400,000    35,818,122    $3,582    $579,955    $1,860,838    $2,844,375
                                        =====      ========    ==========    ======    ========    ==========    ==========
</TABLE>
 
                            See accompanying notes.
                                       20
<PAGE>   23
 
            INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (DOLLARS IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                     YEARS ENDED DECEMBER 31,
                                                              ---------------------------------------
                                                                 1998          1997          1996
                                                              -----------   -----------   -----------
<S>                                                           <C>           <C>           <C>
OPERATING ACTIVITIES:
  Net income................................................  $   369,352   $   338,684   $   251,774
  Adjustments to reconcile net income to net cash provided
    by operating activities:
    Depreciation of flight equipment........................      556,082       546,226       485,102
    Deferred income taxes...................................      205,666       117,727       148,356
    Amortization of deferred debt issue costs...............       10,242         9,505         8,841
    Gain on sale of flight equipment included in amount
      financed..............................................      (10,747)      (30,369)      (16,063)
    Increase in notes receivable............................      (18,591)         (712)      (66,721)
    Equity in net (income) loss of affiliates...............       (1,159)         (632)         (788)
    Change in unamortized debt discount.....................       (6,428)       14,325        (7,057)
  Changes in operating assets and liabilities:
    (Increase) decrease in accrued interest, other
      receivables and other assets..........................         (338)       (9,521)       37,096
    Increase (decrease) in accrued interest and other
      payables..............................................       20,940        (5,005)       22,435
    (Increase) decrease in current income taxes
      receivable............................................      (80,898)       81,311        14,383
    (Decrease) increase in rentals received in advance......       (9,904)       52,479        (3,704)
                                                              -----------   -----------   -----------
Net cash provided by operating activities...................    1,034,217     1,114,018       873,654
                                                              -----------   -----------   -----------
INVESTING ACTIVITIES:
  Acquisition of flight equipment for operating leases......   (3,274,247)   (3,289,744)   (3,210,986)
  Decrease (increase) in deposits and progress payments.....      111,431      (156,273)      (55,785)
  Proceeds from disposal of flight equipment -- net of
    gain....................................................      587,882     2,038,390     1,194,946
  Advances on notes receivable..............................       (7,000)           --            --
  Collections on notes receivable...........................      214,067        82,464       163,298
  Collections on finance and sales-type leases..............        8,122        11,049         7,781
  Purchase of investments...................................           (6)           --            --
  Dividend from unconsolidated subsidiary...................        8,125            --            --
                                                              -----------   -----------   -----------
Net cash used in investing activities.......................   (2,351,626)   (1,314,114)   (1,900,746)
                                                              -----------   -----------   -----------
FINANCING ACTIVITIES:
  Proceeds from debt financing and capital lease
    obligations.............................................    5,772,791     6,084,081     5,042,064
  Payments in reduction of debt financing and capital lease
    obligations.............................................   (4,536,715)   (5,938,304)   (4,133,381)
  Proceeds from sale of MAPS preferred stock (net of issue
    costs)..................................................           --            --          (130)
  Debt issue costs..........................................       (6,565)      (15,966)       (8,057)
  Payment of common and preferred dividends.................      (42,165)      (36,048)      (37,199)
  Increase in customer deposits.............................      119,032       133,529       113,256
                                                              -----------   -----------   -----------
Net cash provided by financing activities...................    1,306,378       227,292       976,553
                                                              -----------   -----------   -----------
Net increase (decrease) in cash.............................      (11,031)       27,196       (50,539)
Cash at beginning of year...................................       63,754        36,558        87,097
                                                              -----------   -----------   -----------
    Cash at end of year.....................................  $    52,723   $    63,754   $    36,558
                                                              ===========   ===========   ===========
(Table continued on next page)
</TABLE>
 
                                       21
<PAGE>   24
            INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
 
               CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
                             (DOLLARS IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                     YEARS ENDED DECEMBER 31,
                                                              ---------------------------------------
                                                                 1998          1997          1996
                                                              -----------   -----------   -----------
<S>                                                           <C>           <C>           <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
  Cash paid (received) during the year for:
    Interest (net of amount capitalized $54,297 (1998),
      $48,818 (1997)
      and $50,368 (1996))...................................  $   628,819   $   619,274   $   559,437
    Income taxes (net of amounts paid)......................       68,154       (11,563)      (19,574)
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
  ACTIVITIES:
  1998
    Notes and finance and sales-type leases in the amount of $107,155 were
     received as partial payment in exchange for flight equipment sold with a
     book value of $96,407.
    Flight equipment was received in exchange for notes receivable in the amount
     of $46,023. 
  1997
    Notes and finance and sales-type leases in the amount of $125,741 were
     received as partial payment in exchange for flight equipment sold with a
     book value of $95,372.
  1996
    Notes and finance and sale-type leases in the amount of $173,404 were
     received as partial payment in exchange for flight equipment sold with a
     book value of $157,340.
    Flight equipment was received in exchange for notes receivable in the amount
     of $46,307.
 
                            See accompanying notes.
                                       22
<PAGE>   25
 
            INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (DOLLARS IN THOUSANDS)
 
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
     Organization: The Company is primarily engaged in the acquisition of new
and used commercial jet aircraft and the leasing and sale of such aircraft to
charter and scheduled airlines throughout the world. In addition, the Company is
engaged in the remarketing of commercial jets for its own account, for airlines
and for financial institutions.
 
     Parent Company: International Lease Finance Corporation (the "Company") is
an indirect wholly owned subsidiary of American International Group, Inc.
("AIG"). AIG is a holding company which through its subsidiaries is primarily
engaged in a broad range of insurance and insurance-related activities and
financial services in the United States and abroad.
 
     Principles of Consolidation: The accompanying consolidated financial
statements include the accounts of the Company and its wholly owned
subsidiaries. Investments of less than 20% in other entities are carried at
cost. Investments of between 20% and 50% in other entities are carried under the
equity method. All significant intercompany balances and transactions have been
eliminated in consolidation.
 
     Intercompany Allocations: The Company is party to cost sharing agreements
with AIG. Generally, these agreements provide for the allocation of costs upon
either a specific identification basis or a proportional cost allocation basis.
The charges aggregated $3,828 (1998), $4,526 (1997) and $5,595 (1996).
 
     Rentals: The Company, as lessor, leases flight equipment principally under
operating leases. Accordingly, income is reported over the life of the lease as
rentals become receivable under the provisions of the lease or, in the case of
leases with varying payments, under the straight-line method over the
noncancelable term of the lease. In certain cases, leases provide for additional
rentals based on usage.
 
     Flight Equipment Marketing: The Company is a marketer of flight equipment.
Marketing revenues include all revenues from such operations consisting of net
gains on sales of flight equipment and commissions.
 
     Flight Equipment: Flight equipment is stated at cost. Major additions and
modifications are capitalized. Normal maintenance and repairs; airframe and
engine overhauls; and compliance with return conditions of flight equipment on
lease are provided by and paid for by the lessee. Under the provisions of most
leases, for certain airframe and engine overhauls, the lessee is reimbursed for
costs incurred up to but not exceeding related contingent rentals paid to the
Company by the lessee. Such rentals are included in the caption Rental of flight
equipment. The Company provides a charge to operations for such reimbursements
based on the estimated reimbursements expected during the life of the lease,
which amount is included in overhaul reserves.
 
     Generally, all aircraft, including aircraft acquired under capital leases,
are depreciated using the straight-line method over a 25 year life from the date
of manufacture to a 15% residual value.
 
     At the time assets are retired or otherwise disposed of, the cost and
accumulated depreciation are removed from the related accounts and the
difference, net of proceeds, is recorded as a gain or loss.
 
     The Company regularly reviews its flight equipment to determine that its
carrying value is not impaired.
 
     Capitalized Interest: The Company borrows certain funds to finance progress
payments for the construction of flight equipment ordered. The interest incurred
on such borrowings is capitalized and included in the cost of the equipment.
 
     Deferred Debt Issue Costs: Deferred debt issue costs incurred in connection
with debt financing are amortized over the life of the debt using the interest
rate method and are charged to interest expense.
 
     Financial Instruments: The Company has granted certain parties the right
but not the obligation to effectively convert certain of the Company's fixed
rate obligations to floating rate obligations based on an established notional
amount. The proceeds of such option agreements are initially recorded as a
liability.
                                       23
<PAGE>   26
            INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                             (DOLLARS IN THOUSANDS)
 
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
     When swap agreements are effective in modifying the terms of actual debt
agreements, such swaps are accounted for by the accrual method. Periodic
payments as well as the amortization (by a level yield method) of the initial
value are treated as adjustments to interest expense of the related debt.
 
     Income Taxes: The Company and its U.S. subsidiaries are included in the
consolidated federal income tax return and the combined California unitary tax
return of AIG. The provision for income taxes is calculated on a separate return
basis. Income tax payments are made pursuant to a tax payment allocation
agreement whereby AIG credits or charges the Company for the corresponding
increase or decrease (not to exceed the separate return basis calculation) in
AIG's current taxes resulting from the inclusion of the Company in AIG's
consolidated tax return. Intercompany payments are made when such taxes are due
or tax benefits are realized by AIG.
 
     The deferred tax liability is determined based on the difference between
the financial statement and tax basis of assets and liabilities and is measured
at the enacted tax rates that will be in effect when these differences reverse.
Deferred tax expense is determined by the change in the liability for deferred
taxes ("Liability Method").
 
     Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
 
     Reclassifications: Certain amounts have been reclassified in the 1997 and
1996 financial statements to conform to the Company's 1998 presentation.
 
NOTE B -- NOTES RECEIVABLE
 
     Notes receivable are primarily from the sale of flight equipment and are
summarized as follows:
 
<TABLE>
<CAPTION>
                                                         1998          1997
                                                       --------      --------
<S>                                                    <C>           <C>
Fixed rate notes receivable due in varying
  installments to 2008:
  Less than 6%.....................................    $  3,504      $  3,691
  6% to 7.99%......................................     219,493       306,053
  8% to 9.99%......................................      83,711        94,788
  10% to 13%.......................................      11,199         6,126
LIBOR plus 1.1% to LIBOR plus 1.5% notes receivable
  in varying installments to 2002..................      22,437        57,030
                                                       --------      --------
                                                       $340,344      $467,688
                                                       ========      ========
</TABLE>
 
     Included above, the Company had notes receivable of $10,328 (1998) and
$4,374 (1997) representing restructured lease payments.
 
                                       24
<PAGE>   27
            INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                             (DOLLARS IN THOUSANDS)
 
NOTE B -- NOTES RECEIVABLE (CONTINUED)
     At December 31, 1998, the minimum future notes receivable payments to be
received are as follows:
 
<TABLE>
<S>                                                      <C>         <C>
1999...................................................  $ 54,856
2000...................................................    30,905
2001...................................................    41,163
2002...................................................    33,136
2003...................................................    29,362
Thereafter.............................................   150,922
                                                         --------
                                                         $340,344
                                                         ========
</TABLE>
 
     The Company sold notes receivable with certain limited recourse provisions
to a related party of the Company. The notes were sold at face value including
accrued interest and aggregated $68,694 in 1998 and $116,235 in 1996. The
Company continues to collect payments on the notes, transfers the payments to
the related party and receives a servicing fee. The Company recorded no gain or
loss on the sale. The Company recorded servicing fee income of $1 (1998), $112
(1997) and $16 (1996) related to the notes sold. The Company's maximum exposure
under recourse provisions was $13,739 at December 31, 1998 and $0 at December
31, 1997. During 1997 the Company repurchased one note sold in 1996. The note
was not repurchased under the recourse provisions.
 
NOTE C -- NET INVESTMENT IN FINANCE AND SALES-TYPE LEASES
 
     The following lists the components of the net investment in finance and
sales-type leases:
 
<TABLE>
<CAPTION>
                                                           1998        1997
                                                         --------    --------
<S>                                                      <C>         <C>
Total minimum lease payments to be received............  $ 93,832    $109,615
Estimated residual values of leased flight equipment...    19,949      19,993
Less: Unearned income..................................   (23,877)    (31,582)
                                                         --------    --------
Net investment in finance and sales-type leases........  $ 89,904    $ 98,026
                                                         ========    ========
</TABLE>
 
     Minimum future lease payments to be received for flight equipment on
finance and sales-type leases at December 31, 1998 are as follows:
 
<TABLE>
<S>                                                       <C>        <C>
1999....................................................  $14,681
2000....................................................   16,095
2001....................................................   16,095
2002....................................................   16,035
2003....................................................   15,843
Thereafter..............................................   15,083
                                                          -------
Total minimum lease payments to be received.............  $93,832
                                                          =======
</TABLE>
 
                                       25
<PAGE>   28
            INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                             (DOLLARS IN THOUSANDS)
 
NOTE D -- INVESTMENTS
 
     Investments consist of the following:
 
<TABLE>
<CAPTION>
                                               1998                  1997
                                        ------------------    ------------------
                                        PERCENT               PERCENT
                                         OWNED     AMOUNT      OWNED     AMOUNT
                                        -------    -------    -------    -------
<S>                                     <C>        <C>        <C>        <C>
Cost method:
  Air Liberte.........................    (A)      $ 4,792      (A)      $ 4,792
  Others..............................               1,158                 1,150
Equity method:
  Pacific Ocean Leasing Ltd...........   50.0%       5,219     50.0%       5,995
  Pacific Asia Leasing Ltd............   25.0%         602     25.0%       6,794
                                                   -------               -------
                                                   $11,771               $18,731
                                                   =======               =======
</TABLE>
 
---------------
 
(A) During 1997, Air Liberte was acquired by British Airways. As a result of the
    acquisition, ILFC's percentage ownership will be reduced. Until the
    acquisition is complete, ILFC's percentage ownership is not determinable.
 
     The Company has a 50% interest in Pacific Ocean Leasing Ltd. ("POL"), a
Bermuda corporation. POL owns one Boeing 767-200 aircraft and one spare engine,
both of which were on lease to an airline. POL also owns an inventory of spare
parts. The aircraft and spare engine were sold in January 1999. Additionally,
the Company had guaranteed the bank loan to POL (see Note K).
 
     The Company has a 25% interest in Pacific Asia Leasing Ltd. ("PAL"), a
Bermuda corporation. PAL owned one Boeing 767-300ER aircraft on lease to an
airline. The aircraft was sold in 1998. The Company had a demand note, which
bore interest at Libor+1 5/8%, with PAL of $26,751 (1997). The note was paid in
full as of December 31, 1998. The Company received a dividend of $8,125 in 1998.
 
                                       26
<PAGE>   29
            INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                             (DOLLARS IN THOUSANDS)
 
NOTE E -- DEBT FINANCING AND CAPITAL LEASE OBLIGATIONS
 
     Debt financing and capital lease obligations are comprised of the
following:
 
<TABLE>
<CAPTION>
                                                        1998           1997
                                                     -----------    ----------
<S>                                                  <C>            <C>
Commercial Paper (weighted average interest rate at
  December 31, 5.30% (1998) and 5.89% (1997))......  $ 3,214,744    $2,212,601
Term Notes.........................................    3,825,000     3,950,000
Medium-Term Notes..................................    3,348,350     2,896,865
Capital Lease Obligations..........................      810,768       903,320
Less: Deferred debt discount.......................      (14,852)       (8,424)
                                                     -----------    ----------
                                                     $11,184,010    $9,954,362
                                                     ===========    ==========
</TABLE>
 
  Bank Financing:
 
     The interest on substantially all of the public debt (exclusive of the
commercial paper) is fixed for the term of the note. As of December 31, 1998,
the Company had committed revolving loans and lines of credit with 51 commercial
banks aggregating $2.75 billion and uncommitted lines of credit with one bank
for varying amounts. Bank debt principally provides for interest rates that vary
according to the pricing option in effect at the time of borrowing and range
from prime to .20% over LIBOR at the Company's option. Bank financings are
subject to facility fees of up to .08% of amounts available. Bank financing is
used primarily as backup for the Company's Commercial Paper program.
 
                                       27
<PAGE>   30
            INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                             (DOLLARS IN THOUSANDS)
 
NOTE E -- DEBT FINANCING AND CAPITAL LEASE OBLIGATIONS (CONTINUED)
  Term Notes:
 
     The Company has issued the following Notes which provide for a single
principal payment at maturity and cannot be redeemed prior to maturity:
 
<TABLE>
<CAPTION>
                                                             INITIAL
                                                               TERM        1998         1997
                                                             --------   ----------   ----------
<S>                                                          <C>        <C>          <C>
8 1/8% Notes due January 15, 1998...........................  3 years   $            $  150,000
5 5/8% Notes due March 1, 1998..............................  4 years                   100,000
5 3/4% Notes due March 15, 1998.............................  5 years                   100,000
7% Notes due June 1, 1998...................................  4 years                   100,000
6 1/4% Notes due June 15, 1998..............................  3 years                   100,000
Floating Rate Notes due June 19, 1998 (swapped to 6.50%)....  2 years                   100,000
5 3/4% Notes due July 1, 1998...............................  5 years                   100,000
8.35% Notes due October 1, 1998.............................  7 years                   100,000
Floating Rate Notes due November 2, 1998 (swapped to
  6.0725%)..................................................  2 years                   100,000
5 3/4% Notes due January 15, 1999...........................  5 years      150,000      150,000
5 1/2% Notes due January 15, 1999...........................  3 years      150,000      150,000
7 1/2% Notes due March 1, 1999..............................  4 years      100,000      100,000
6 5/8% Notes due April 1, 1999..............................  5 years      100,000      100,000
6.70% Notes due April 30, 1999..............................  2 years      100,000      100,000
Floating Rate Notes due June 2, 1999 (swapped to 6.64%).....  4 years      100,000      100,000
Floating Rate Notes due July 15, 1999 (swapped to 6.235%)...  4 years      100,000      100,000
6 1/2% Notes due August 15, 1999............................  7 years      100,000      100,000
6 1/8% Notes due November 1, 1999...........................  4 years      100,000      100,000
5 3/4% Notes due December 15, 1999..........................  4 years      150,000      150,000
8 1/4% Notes due January 15, 2000...........................  5 years      100,000      100,000
6 3/8% Notes due January 18, 2000...........................  3 years      200,000      200,000
6.65% Notes due April 1, 2000...............................  3 years      100,000      100,000
6.20% Notes due May 1, 2000.................................  7 years      100,000      100,000
7% Notes due May 15, 2000...................................  5 years      100,000      100,000
6 5/8% Notes due June 1, 2000...............................  3 years      100,000      100,000
6 5/8% Notes due August 15, 2000............................  4 years      100,000      100,000
6 1/4% Notes due October 15, 2000...........................  5 years      100,000      100,000
Floating Rate Notes due February 1, 2001 (swapped to
  6.53%)....................................................  4 years      100,000      100,000
8 7/8% Notes due April 15, 2001............................. 10 years      150,000      150,000
5.875% Notes due January 15, 2001...........................  3 years      200,000
6 7/8% Notes due May 1, 2001................................  4 years      100,000      100,000
5.95% Notes due June 1, 2001................................  3 years      100,000
6 1/2% Notes due July 1, 2001...............................  4 years      100,000      100,000
5 7/8% Notes due July 1, 2001...............................  3 years      125,000
6 3/8% Notes due August 1, 2001.............................  4 years      100,000      100,000
6 1/2% Notes due October 15, 2001...........................  5 years      100,000      100,000
6 3/8% Notes due February 15, 2002..........................  5 years      100,000      100,000
5.90% Notes due April 15, 2002..............................  4 years      100,000
6.00% Notes due May 15, 2002................................  4 years      100,000
6 3/8% Notes due August 1, 2002.............................  5 years      100,000      100,000
5 3/4% Notes due January 15, 2003...........................  5 years      100,000
6.00% Notes due June 15, 2003...............................  5 years      100,000
8 3/8% Notes due December 15, 2004.......................... 10 years      100,000      100,000
                                                                        ----------   ----------
                                                                        $3,825,000   $3,950,000
                                                                        ==========   ==========
</TABLE>
 
---------------
See Note L -- Financial Instruments.
 
                                       28
<PAGE>   31
            INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                             (DOLLARS IN THOUSANDS)
 
NOTE E -- DEBT FINANCING AND CAPITAL LEASE OBLIGATIONS (CONTINUED)
  Medium-Term Notes:
 
     The Company's Medium-Term Notes have an average notional amount of $14
million, bear interest at rates varying between 4.85% and 8.55%, inclusive, with
maturities from 1999 through 2005. The Medium-Term Notes provide for a single
principal payment at the maturity of the respective note. They cannot be
redeemed by the Company prior to maturity.
 
  Capital Lease Obligations:
 
     The Company's Capital Lease Obligations provide 10 year, fully amortizing
debt in three interest rate tranches. The first 62.5% of the original debt is at
a fixed rate of 6.55%. The second 22.5% of the original debt is at fixed rates
varying between 6.18% and 6.89%. These two tranches are guaranteed by various
European Export Credit Agencies. The final 15% of the original debt is at a
floating LIBOR based rate. The debt matures through 2005. The flight equipment
associated with the obligations, and included in flight equipment under
operating leases in the balance sheet, had a net book value of $1,104,413 (1998)
and $1,147,514 (1997).
 
     The following is a schedule by years of future minimum lease payments under
capitalized leases together with the present value of the net minimum lease
payments as of December 31, 1998:
 
<TABLE>
<S>                                                        <C>
1999.....................................................  $  144,238
2000.....................................................     138,113
2001.....................................................     131,816
2002.....................................................     125,636
2003.....................................................     119,326
Thereafter...............................................     373,301
                                                           ----------
Total minimum lease payments.............................   1,032,430
Less amount representing interest........................     221,662
                                                           ----------
Present value of net minimum lease payments..............  $  810,768
                                                           ==========
</TABLE>
 
     Maturities of debt financing and capital lease obligations (excluding
commercial paper and deferred debt discount) at December 31, 1998 are as
follows:
 
<TABLE>
<S>                                                        <C>
1999.....................................................  $1,975,802
2000.....................................................   1,998,052
2001.....................................................   2,034,552
2002.....................................................     870,652
2003.....................................................     552,052
Thereafter...............................................     553,008
                                                           ----------
                                                           $7,984,118
                                                           ==========
</TABLE>
 
     Under the most restrictive provisions of the related borrowings,
consolidated retained earnings at December 31, 1998, in the amount of $582,174,
are unrestricted as to payment of dividends based on consolidated tangible net
worth requirements.
 
     The Company has entered into various debt and derivative transactions with
an affiliate acting as a broker-dealer. These transactions were either awarded
on a competitive bid basis or have terms that are no less favorable to the
Company than could be obtained from other broker-dealers.
 
                                       29
<PAGE>   32
            INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                             (DOLLARS IN THOUSANDS)
 
NOTE F -- SHAREHOLDERS' EQUITY
 
  Preferred Stock:
 
     Issuance costs of $130 for Series G and H Market Auction Preferred Stock
("MAPS"), issued in November 1995, were incurred in 1996. The MAPS have a
liquidation value of $100 per share and are not convertible. The dividend rate,
other than the initial rate, for each dividend period for each series is reset
approximately every 7 weeks (49 days) on the basis of orders placed in an
auction. At December 31, 1998, the dividend rates for Series A through H ranged
from 4.090% to 4.440%.
 
  Stock Appreciation Rights:
 
     Stock Appreciation Rights ("SARs") were granted to certain employees of the
Company during 1990. The SARs granted generally vest over a nine year period
from the effective date and are exercisable immediately upon vesting. SARs
initially have no value but can gain a cash value based upon the difference
between a Benchmark Price and a Formula Price (based on adjusted pre-tax cash
flow of the Company), but not in excess of an aggregate of $150,000, to be
accrued and paid over the period of the plan. The SAR plan became effective on
January 1, 1991. No value has been earned or accrued under the SAR plan as of
December 31, 1998.
 
NOTE G -- RENTAL INCOME
 
     Minimum future rentals on noncancelable operating leases and subleases of
flight equipment which have been delivered at December 31, 1998 are as follows:
 
<TABLE>
<CAPTION>
                       YEAR ENDED
                       ----------
<S>                                                        <C>
1999.....................................................  $1,588,664
2000.....................................................   1,391,190
2001.....................................................   1,237,333
2002.....................................................   1,055,109
2003.....................................................     802,372
Thereafter...............................................   1,173,187
                                                           ----------
                                                           $7,247,855
                                                           ==========
</TABLE>
 
     Additional rentals earned by the Company based on the lessees' usage
aggregated $202,425 (1998), $219,380 (1997) and $194,741 (1996). Flight
equipment is leased, under operating leases, with remaining terms ranging from
one to 12 years.
 
NOTE H -- RENTAL EXPENSE
 
     During 1995, 1996 and 1997, the Company entered into sale-leaseback
transactions providing proceeds to the Company in the amounts of $412,626,
$507,600 and $601,860, respectively, relating to seven aircraft for each
transaction. The transactions resulted in the sale and leaseback of these
aircraft under one year operating leases, each with six one year extension
options, maturing on December 22, 1999, September 20, 1999 and September 13,
1999, respectively. During 1997 one aircraft was repurchased. The lease rates
equate to fixed principal amortization and floating interest payments based on
LIBOR or commercial paper pricing.
 
     Minimum future rental expense for 1999 is $43,977 at December 31, 1998.
 
                                       30
<PAGE>   33
            INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                             (DOLLARS IN THOUSANDS)
 
NOTE I -- INCOME TAXES
 
     The provision (benefit) for income taxes is comprised of the following:
 
<TABLE>
<CAPTION>
                                                           1998       1997       1996
                                                         --------   --------   --------
<S>                                                      <C>        <C>        <C>
Current:
  Federal(1)...........................................  $(10,033)  $ 60,003   $(16,700)
  State................................................    (2,938)     8,280      1,957
  Foreign..............................................       227      1,465      9,381
                                                         --------   --------   --------
                                                          (12,744)    69,748     (5,362)
Deferred:
  Federal..............................................   191,633    111,120    138,750
  State................................................    14,033      6,607      9,777
                                                         --------   --------   --------
                                                          205,666    117,727    148,527
                                                         --------   --------   --------
                                                         $192,922   $187,475   $143,165
                                                         ========   ========   ========
</TABLE>
 
---------------
 
(1) Including U.S. tax on foreign income
 
     The provision for deferred income taxes is comprised of the following
temporary differences:
 
<TABLE>
<CAPTION>
                                                           1998       1997       1996
                                                         --------   --------   --------
<S>                                                      <C>        <C>        <C>
Accelerated depreciation on flight equipment...........  $194,352   $123,486   $132,101
Excess of state income taxes not currently deductible
  for Federal income tax purposes......................    (4,912)    (2,312)    (3,422)
Tax versus book lease differences......................    23,341     18,568     35,933
Provision for overhauls................................   (15,616)    (2,873)    (7,726)
Rentals received in advance............................     3,464    (18,270)    (5,855)
Straight line rents....................................       829        778     (3,020)
Other..................................................     4,208     (1,650)       516
                                                         --------   --------   --------
                                                         $205,666   $117,727   $148,527
                                                         ========   ========   ========
</TABLE>
 
     The deferred tax liability consists of the following:
 
<TABLE>
<CAPTION>
                                                         1998        1997
                                                      ----------   --------
<S>                                                   <C>          <C>        
Accelerated depreciation on flight equipment........  $1,137,213   $942,861
Excess of state income taxes not currently
  deductible
  for Federal income tax purposes...................     (24,695)   (19,783)
Tax versus book lease differences...................     109,806     86,465
Provision for overhauls.............................     (57,262)   (41,646)
Rentals received in advance.........................     (51,283)   (54,747)
Straight line rents.................................      16,015     15,186
Other...............................................       2,893     (1,315)
                                                      ----------   --------
                                                      $1,132,687   $927,021
                                                      ==========   ========
</TABLE>
 
                                       31
<PAGE>   34
            INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                             (DOLLARS IN THOUSANDS)
 
NOTE I -- INCOME TAXES (CONTINUED)

     A reconciliation of computed expected total provision for income taxes to
the amount recorded is as follows:
 
<TABLE>
<CAPTION>
                                                           1998       1997       1996
                                                         --------   --------   --------
<S>                                                      <C>        <C>        <C>
Computed expected provision based upon a federal rate
  of 35%...............................................  $196,796   $184,156   $138,229
State income taxes, net of Federal income taxes........     7,211      9,676      7,628
Foreign sales corporation benefit......................    (8,719)    (6,920)    (6,160)
Foreign taxes..........................................    (3,194)        --      5,286
Other..................................................       828        563     (1,818)
                                                         --------   --------   --------
                                                         $192,922   $187,475   $143,165
                                                         ========   ========   ========
</TABLE>
 
NOTE J -- OTHER INFORMATION
 
  Concentration of Credit Risk
 
     The Company leases and sells aircraft to airlines. All of the lease
receivables and the majority of notes receivable are from airlines located
throughout the world. The Company generally obtains deposits on leases and
obtains collateral in flight equipment on notes receivable. The Company has no
single customer which accounts for 10% or more of revenues.
 
  Segment Information
 
     The Company operates within one industry; the leasing, sales and management
of flight equipment.
 
     Revenues include rentals of flight equipment to foreign airlines of
$1,623,891 (1998), $1,472,075 (1997) and $1,202,651 (1996).
 
     The following table sets forth the dollar amount and percentage of total
rental revenues attributable to the indicated geographic areas for the years
indicated:
 
<TABLE>
<CAPTION>
                                            1998                  1997                  1996
                                     ------------------    ------------------    ------------------
                                       AMOUNT       %        AMOUNT       %        AMOUNT       %
                                     ----------   -----    ----------   -----    ----------   -----
                                                         (DOLLARS IN THOUSANDS)
<S>                                  <C>          <C>      <C>          <C>      <C>          <C>
Europe.............................  $  798,773    43.1%   $  705,128    40.7%   $  551,703    38.2%
Asia/Pacific.......................     410,600    22.1       358,687    20.7       332,159    23.0
United States and Canada...........     333,472    18.0       345,143    19.9       304,801    21.2
Central, South America and
  Mexico...........................     190,572    10.3       211,152    12.2       165,819    11.5
Africa and the Middle East.........     120,566     6.5       112,557     6.5        89,957     6.2
                                     ----------   -----    ----------   -----    ----------   -----
                                     $1,853,983   100.0%   $1,732,667   100.0%   $1,444,439   100.0%
                                     ==========   =====    ==========   =====    ==========   =====
</TABLE>
 
  Employee Benefit Plans
 
     The Company's employees participate in various benefit plans sponsored by
AIG, including a noncontributory qualified defined benefit retirement plan,
various stock option and purchase plans and a voluntary savings plan (401(k)
plan).
 
     AIG's U.S. plans do not separately identify projected benefit obligations
and plan assets attributable to employees of participating affiliates. AIG's
projected benefit obligations exceeded the plan assets at December 31, 1998 by
$49,448.
 
                                       32
<PAGE>   35
            INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                             (DOLLARS IN THOUSANDS)
 
NOTE K -- COMMITMENTS AND CONTINGENCIES
 
  Aircraft orders
 
     At December 31, 1998, the Company had committed to purchase 303 aircraft
deliverable from 1999 through 2006 at an estimated aggregate purchase price
(including adjustment for anticipated inflation) of approximately $17.4 billion.
 
     Most of these purchase commitments and options are based upon master
arrangements with each of The Boeing Company ("Boeing") and AVSA, S.A.R.L., the
sales subsidiary of Airbus Industrie ("Airbus").
 
     The Boeing aircraft (models 737, 747, 757, 767 and 777), and the Airbus
aircraft (models A319, A320, A321, A330 and A340) are being purchased pursuant
to agreements executed by the Company and Boeing or Airbus. These agreements
establish the pricing formulas (which include certain price adjustments based
upon inflation and other factors) and various other terms with respect to the
purchase of aircraft. Under certain circumstances, the Company has the right to
alter the mix of aircraft type ultimately acquired. As of December 31, 1998, the
Company had made non-refundable deposits (exclusive of capitalized interest)
with respect to the aircraft which the Company has committed to purchase of
approximately $440,254 and $388,387 with Boeing and Airbus, respectively.
 
     Management anticipates that a significant portion of such aggregate
purchase price will be funded by incurring additional debt. The exact amount of
the indebtedness to be incurred will depend upon the actual purchase price of
the aircraft, which can vary due to a number of factors, including inflation,
and the percentage of the purchase price of the aircraft which must be financed.
 
  Asset Value Guarantees
 
     The Company has guaranteed a portion of the residual value of 37 aircraft
to financial institutions expiring at various dates through 2006. The guarantees
generally provide for the Company to pay the difference between the fair market
value of the aircraft and the guaranteed value up to certain specified amounts,
or, at the option of the Company, purchase the aircraft for the guaranteed
value. At December 31, 1998 and 1997, the maximum exposure if the Company were
to pay under such guarantees was $155,656 and $145,733 respectively.
 
  Other Guarantees
 
     The Company has guaranteed certain obligations for entities in which it has
an investment. At December 31, 1998 and 1997, the Company guaranteed nine loans
collateralized by aircraft aggregating $57,088 and $62,256 respectively.
 
     The Company guaranteed a customer loan, collateralized by flight equipment,
with a December 31, 1998 balance of $3,300. At December 31, 1997, the Company
guaranteed three customer loans, collateralized by flight equipment, with an
aggregate balance of $12,850.
 
NOTE L -- FINANCIAL INSTRUMENTS
 
     In the normal course of business, the Company employs a variety of
off-balance sheet derivative transactions with the objective to lower its
overall borrowing cost and to maintain its optimal mix of variable and fixed
rate interest obligations. These derivative products include interest rate swap
agreements, swaptions and interest rate floors (off-balance sheet derivative
transactions).
 
     The Company accounts for its off-balance sheet derivative transactions on
an accrual basis. As such, accrued future payments or receipts are reflected in
operating income in the period incurred or earned. Credit risk exposure arises
from the potential that the counterparty may not perform under these agreements
with
 
                                       33
<PAGE>   36
            INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                             (DOLLARS IN THOUSANDS)
 
NOTE L -- FINANCIAL INSTRUMENTS (CONTINUED)
respect to the off-balance sheet derivative transactions. The Company minimizes
such exposure through transacting with recognized U.S. derivative dealers
assigned at least an "A" rating by a recognized statistical rating organization.
The counterparties to the majority of the off-balance sheet derivative
transactions are assigned an "AAA" rating. One of the counterparties is a
related party of the Company. The Company monitors each counterparty's assigned
credit rating throughout the life of the off-balance sheet derivative
transaction. The Company currently does not require, nor is it required by, its
counterparties to provide security for its positions with the Company although
it can in certain circumstances.
 
     The following table provides the notional amounts of the Company's
off-balance sheet derivative transactions at December 31, 1998. The notional
amounts used to express the extent of the Company's involvement in swap
transactions represent a standard measurement of the volume of the Company's
swap transactions. Notional amount is not a quantification of market risk or
credit risk and is not recorded on the balance sheet. Notional amounts represent
those amounts used to calculate contractual cash flows to be exchanged and are
not paid or received. The timing and the amount of cash flows relating to
swaption and other interest rate option contracts are determined by each of the
respective contractual agreements.
 
     It is management's belief that any failure of a counterparty to perform
under the agreement with respect to these off-balance sheet transactions would
have an immaterial effect on the Company's results of operations, financial
condition and liquidity.
 
     The following table presents the notional amounts of the Company's interest
rate swap agreements, swaptions and interest rate floors by maturity at December
31, 1998.
 
<TABLE>
<CAPTION>
                                           REMAINING LIFE
                                ------------------------------------
                                              TWO TO      AFTER FIVE      TOTAL         TOTAL
             TYPE               ONE YEAR    FIVE YEARS      YEARS          1998          1997
             ----               --------    ----------    ----------    ----------    ----------
<S>                             <C>         <C>           <C>           <C>           <C>
Interest Rate:
Swaps.........................  $472,742    $1,435,793    $2,277,410    $4,185,945    $1,287,527
Swaptions(1)..................                 100,000                     100,000       100,000
Floors........................    33,410       797,245                     830,655       867,065
                                --------    ----------    ----------    ----------    ----------
Total.........................  $506,152    $2,333,038    $2,277,410    $5,116,600    $2,254,592
                                ========    ==========    ==========    ==========    ==========
</TABLE>
 
---------------
(1) Swaptions obligate the Company to convert certain fixed rate obligations to
    floating rate obligations if the option purchaser chooses to exercise. These
    amounts do not represent credit exposure.
 
     The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
 
          Cash and cash equivalents: The carrying value reported in the balance
     sheet for cash and cash equivalents approximates its fair value.
 
          Notes receivable: The fair values for notes receivable are estimated
     using discounted cash flow analyses, using interest rates currently being
     offered for similar loans to borrowers with similar credit ratings.
 
          Investments: It was not practicable to estimate the fair value of most
     of the Company's investments in the common and preferred stocks of other
     companies because of the lack of a quoted market price and the inability to
     estimate fair value without incurring excessive costs due to their short
     maturities. The carrying amount of these investments at December 31, 1998
     represents the original cost or original cost plus the Company's share of
     earnings of the investment. For investments held by the Company that had a
 
                                       34
<PAGE>   37
            INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                             (DOLLARS IN THOUSANDS)
 
NOTE L -- FINANCIAL INSTRUMENTS (CONTINUED)
     quoted market price at December 31, 1998, the Company used such quoted
     market price in estimating the fair value of such investments.
 
          Debt financing: The carrying value of the Company's commercial paper
     and term debt maturing within one year approximates its fair value. The
     fair value of the Company's long-term debt is estimated using discounted
     cash flow analyses, based on the Company's spread to U.S. Treasury bonds
     for similar debt at year-end.
 
          Off-balance-sheet instruments: Fair values for the Company's
     off-balance-sheet instruments are based on pricing models or formulas using
     current assumptions (swaps, swaptions and interest rate floors) and the
     amount of the guarantee which would not be covered by the fair value of the
     underlying collateral (loan guarantees and asset value guarantees).
 
     The carrying amounts and fair values of the Company's financial instruments
at December 31, 1998 and 1997 are as follows:
 
<TABLE>
<CAPTION>
                                                       1998                                    1997
                                       -------------------------------------   -------------------------------------
                                           CARRYING                                CARRYING
                                           AMOUNT OF         FAIR VALUE OF         AMOUNT OF         FAIR VALUE OF
                                       ASSET (LIABILITY)   ASSET (LIABILITY)   ASSET (LIABILITY)   ASSET (LIABILITY)
                                       -----------------   -----------------   -----------------   -----------------
<S>                                    <C>                 <C>                 <C>                 <C>
Cash and cash equivalents............    $     52,723        $     52,723         $    63,754         $    63,754
Notes receivable.....................         340,344             334,452             467,688             456,592
Investments..........................          11,771              11,879              18,731              19,056
Debt financing.......................     (10,373,242)        (10,607,696)         (9,051,042)         (9,211,790)
Off-balance-sheet financial
  instruments:
     Swaps...........................         (36,260)            (36,384)             (6,030)              4,386
     Swaptions.......................          (2,501)                 --              (2,936)               (294)
     Interest rate floors............          (1,568)            (10,824)             (1,927)             (2,122)
</TABLE>
 
                                       35
<PAGE>   38
 
            INTERNATIONAL LEASE FINANCE CORPORATION AND SUBSIDIARIES
 
                SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
 
<TABLE>
<CAPTION>
              COL. A                   COL. B                 COL. C                  COL. D         COL. E
              ------                ------------   -----------------------------   ------------   -------------
                                                             ADDITIONS
                                     BALANCE AT    CHARGED TO      CHARGED TO
                                    BEGINNING OF   COSTS AND    OTHER ACCOUNTS--   DEDUCTIONS--    BALANCE AT
           DESCRIPTION                 PERIOD       EXPENSES        DESCRIBE       DESCRIBE(1)    END OF PERIOD
           -----------              ------------   ----------   ----------------   ------------   -------------
                                                              (DOLLARS IN THOUSANDS)
<S>                                 <C>            <C>          <C>                <C>            <C>
Reserve for overhaul:
Year ended December 31, 1998......    $110,822      $102,508                         $60,566        $152,764
Year ended December 31, 1997......    $102,492      $ 99,458                         $91,128        $110,822
Year ended December 31, 1996......      83,857        85,083            783(2)        67,231         102,492
</TABLE>
 
---------------
 
(1) Reimbursements to lessees for overhauls performed and amounts transferred to
    buyers for aircraft sold.
 
(2) Payments received from lessees in lieu of compliance with return conditions.
 
                                       36
<PAGE>   39
 
                                   SIGNATURES
 
     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
 
Dated: March 19, 1999
 
                                          INTERNATIONAL LEASE FINANCE
                                          CORPORATION
 
                                          By       /s/ LESLIE L. GONDA
                                            ------------------------------------
                                                      Leslie L. Gonda
                                                   Chairman of the Board
 
     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
 
<TABLE>
<CAPTION>
                   SIGNATURE                                     TITLE                      DATE
                   ---------                                     -----                      ----
<C>                                                 <S>                                <C>
 
              /s/ LESLIE L. GONDA                   Director                           March 19, 1999
------------------------------------------------
                Leslie L. Gonda
 
            /s/ STEVEN F. UDVAR-HAZY                Chief Executive Officer and        March 19, 1999
------------------------------------------------      Director
              Steven F. Udvar-Hazy
 
               /s/ LOUIS L. GONDA                   Director                           March 19, 1999
------------------------------------------------
                 Louis L. Gonda
 
              /s/ M. R. GREENBERG                   Director                           March 19, 1999
------------------------------------------------
                M. R. Greenberg
 
             /s/ EDWARD E. MATTHEWS                 Director                           March 19, 1999
------------------------------------------------
               Edward E. Matthews
 
             /s/ WILLIAM N. DOOLEY                  Director                           March 19, 1999
------------------------------------------------
               William N. Dooley
 
              /s/ HOWARD I. SMITH                   Director                           March 19, 1999
------------------------------------------------
                Howard I. Smith
 
                /s/ ALAN H. LUND                    Chief Financial Officer and        March 19, 1999
------------------------------------------------      Chief Accounting Officer
                  Alan H. Lund
</TABLE>
 
                                       37
<PAGE>   40
 
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT.
 
     Since the Registrant is an indirect wholly owned subsidiary of AIG, no
annual report to security holders for the year ended December 31, 1998 or proxy
statement, form of proxy or other proxy soliciting materials have been sent to
securities holders since January 1, 1990.
 
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