<PAGE>



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

                                    FORM 10-Q

(Mark One)

[XX] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

For the quarterly period ended      SEPTEMBER 30, 1999
                                    ------------------
                                       OR

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

For the transition period from                          to
                              -------------------------    ---------------------



For Quarter Ended September 30, 1999              Commission File No. 0-19137


                  AIRFUND II International Limited Partnership
-------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)


Massachusetts                                                 04-3057290
-----------------------------------                          ------------------
(State or other jurisdiction of                              (IRS Employer
incorporation or organization)                              identification No.)



88 Broad Street, Boston, MA                                  02110
-----------------------------------                          ------------------
(Address of principal executive offices)                     (Zip Code)

Registrant's telephone number, including area code     (617) 854-5800
                                                       ---------------------

--------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)

     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
                                             -----        -----

                APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
                   PROCEEDINGS DURING THE PRECEDING FIVE YEARS

     Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court 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_____ No______



<PAGE>

                  AIRFUND II International Limited Partnership

                                    FORM 10-Q

                                      INDEX

<TABLE>
<CAPTION>
                                                                                Page
                                                                                ----
<S>                                                                            <C>
PART I.  FINANCIAL INFORMATION:

     Item 1.  Financial Statements

         Statement of Financial Position
              at September 30, 1999 and December 31, 1998                          3

         Statement of Operations
              for the three and nine months ended September 30, 1999 and 1998      4

         Statement of Cash Flows
              for the nine months ended September 30, 1999 and 1998                5

         Notes to the Financial Statements                                      6-12


     Item 2.  Management's Discussion and Analysis of Financial
              Condition and Results of Operations                              13-18


PART II. OTHER INFORMATION:

     Items 1 - 6                                                                  19

</TABLE>

                                       2

<PAGE>

                  AIRFUND II International Limited Partnership

                         STATEMENT OF FINANCIAL POSITION
                    September 30, 1999 and December 31, 1998

                                   (Unaudited)

<TABLE>
<CAPTION>

                                                         September 30,      December 31,
                                                             1999               1998
                                                          ------------    ------------
<S>                                                       <C>             <C>
ASSETS

Cash and cash equivalents                                 $  6,147,442    $  3,425,762

Rents receivable                                                62,928          39,933

Accounts receivable - affiliate                                     --          71,178

Other assets                                                    82,000         125,734

Equipment at cost, net of accumulated depreciation of
   $28,610,333 and $40,968,380 at September 30, 1999
   and December 31, 1998, respectively                       3,843,299       4,413,962
                                                          ------------    ------------

       Total assets                                       $ 10,135,669    $  8,076,569
                                                          ============    ============


LIABILITIES AND PARTNERS' CAPITAL

Notes payable                                             $  1,273,491    $  1,896,665
Accrued interest                                                16,106          25,126
Accrued liabilities                                            364,624         458,485
Accrued liabilities - affiliate                                136,237          16,254
Deferred rental income                                          51,380          47,997
                                                          ------------    ------------

       Total liabilities                                     1,841,838       2,444,527
                                                          ------------    ------------

Partners' capital (deficit):
  General Partner                                           (2,580,765)     (2,713,854)
  Limited Partnership Interests
  (2,714,647 Units; initial purchase price of $25 each)     10,874,596       8,345,896
                                                          ------------    ------------

       Total partners' capital                               8,293,831       5,632,042
                                                          ------------    ------------

       Total liabilities and partners' capital            $ 10,135,669    $  8,076,569
                                                          ============    ============

</TABLE>

                   The accompanying notes are an integral part
                         of these financial statements.


                                       3
<PAGE>

                  AIRFUND II International Limited Partnership

                             STATEMENT OF OPERATIONS
         for the three and nine months ended September 30, 1999 and 1998

                                   (Unaudited)

<TABLE>
<CAPTION>


                                                         Three Months              Nine Months
                                                      Ended September 30,       Ended September 30,
                                                   1999           1998          1999           1998
                                                -----------    -----------   -----------    -----------
<S>                                                    <C>            <C>            <C>           <C>
Income:

    Lease revenue                              $   393,846    $   737,647    $ 1,584,193   $ 2,457,641

    Interest income                                 87,871         49,992        185,945       117,967

    Gain on sale of equipment                           --             --      3,109,500       127,265
                                                  --------    -----------    -----------   -----------

        Total income                               481,717        787,639      4,879,638     2,702,873
                                                  --------    -----------    -----------   -----------


Expenses:

    Depreciation                                   155,639        768,387        570,663     2,377,409

    Interest expense                                27,061         47,996         98,394       157,233

    Equipment management fees - affiliate           19,693         36,882         79,210       122,882

    Operating expenses - affiliate                 421,553        617,389      1,469,582     1,413,879
                                                  --------    -----------    -----------   -----------

        Total expenses                             623,946      1,470,654      2,217,849     4,071,403
                                                  --------    -----------    -----------   -----------


Net income (loss)                               $ (142,229)    $ (683,015)   $ 2,661,789  $ (1,368,530)
                                                ==========     ==========    ===========  ============


Net income (loss)
   per limited partnership unit                     (0.05)   $     (0.24)  $      0.93    $     (0.48)
                                                ==========     ==========    ===========  ============

</TABLE>

                  The accompanying notes are an integral part
                         of these financial statements.


                                       4
<PAGE>





                  AIRFUND II International Limited Partnership

                             STATEMENT OF CASH FLOWS
              for the nine months ended September 30, 1999 and 1998

                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                           1999           1998
                                                                        -----------    -----------
<S>                                                                     <C>           <C>
Cash flows from (used in) operating activities:
Net income (loss)                                                       $ 2,661,789    $(1,368,530)

Adjustments to reconcile net income (loss) to net cash from operating
    activities:
        Depreciation                                                        570,663      2,377,409
        Gain on sale of equipment                                        (3,109,500)      (127,265)

Changes in assets and liabilities
    Decrease (increase) in:
        Rents receivable                                                    (22,995)       (21,479)
        Accounts receivable - affiliate                                      71,178        240,681
        Other assets                                                         43,734             --
    Increase (decrease) in:
        Accrued interest                                                     (9,020)        (2,049)
        Accrued liabilities                                                 (93,861)       395,750
        Accrued liabilities - affiliate                                     119,983         25,994
        Deferred rental income                                                3,383       (117,293)
                                                                        -----------    -----------

           Net cash from operating activities                               235,354      1,403,218
                                                                        -----------    -----------

Cash flows from investing activities:
    Proceeds from equipment sale                                          3,109,500        553,698
                                                                        -----------    -----------

           Net cash from investing activities                             3,109,500        553,698
                                                                        -----------    -----------

Cash flows used in financing activities:
    Principal payments - notes payable                                     (623,174)      (572,373)
                                                                        -----------    -----------

           Net cash used in financing activities                           (623,174)      (572,373)
                                                                        -----------    -----------

Net increase in cash and cash equivalents                                 2,721,680      1,384,543

Cash and cash equivalents at beginning of period                          3,425,762      2,102,494
                                                                        -----------    -----------

Cash and cash equivalents at end of period                              $ 6,147,442    $ 3,487,037
                                                                        ===========    ===========


Supplemental disclosure of cash flow information:
    Cash paid during the period for interest                            $   107,414    $   159,282
                                                                        ===========    ===========

</TABLE>

                  The accompanying notes are an integral part
                         of these financial statements.

                                       5
<PAGE>


                  AIRFUND II International Limited Partnership

                        Notes to the Financial Statements
                               September 30, 1999

                                   (Unaudited)

NOTE 1 - BASIS OF PRESENTATION

     The financial statements presented herein are prepared in conformity with
generally accepted accounting principles and the instructions for preparing Form
10-Q under Rule 10-01 of Regulation S-X of the Securities and Exchange
Commission and are unaudited. As such, these financial statements do not include
all information and footnote disclosures required under generally accepted
accounting principles for complete financial statements and, accordingly, the
accompanying financial statements should be read in conjunction with the
footnotes presented in the 1998 Annual Report. Except as disclosed herein, there
has been no material change to the information presented in the footnotes to the
1998 Annual Report.

     In the opinion of management, all adjustments (consisting of normal and
recurring adjustments) considered necessary to present fairly the financial
position at September 30, 1999 and December 31, 1998 and results of operations
for the three and nine month periods ended September 30, 1999 and 1998 have been
made and are reflected.


NOTE 2 - CASH AND CASH EQUIVALENTS

     At September 30, 1999, AIRFUND II International Limited Partnership (the
"Partnership") had $6,033,969 invested in federal agency discount notes,
repurchase agreements secured by U.S. Treasury Bills or interests in U.S.
Government securities, or other highly liquid overnight investments.


NOTE 3 - REVENUE RECOGNITION

     Rents are payable to the Partnership monthly and quarterly and no
significant amounts are calculated on factors other than the passage of time.
All leases are accounted for as operating leases and are noncancellable. Rents
received prior to their due dates are deferred. Future minimum rents of $682,627
are due as follows:

<TABLE>
<S>                                                     <C>
     For the year ending September 30, 2000             $    523,700
                                       2001                  158,927
                                                         -----------

                                      Total             $    682,627
                                                         ===========
</TABLE>


     In December 1998, the Partnership and certain affiliated leasing programs
owning interests in two McDonnell Douglas MD-82 aircraft entered into lease
extension agreements with Finnair OY. The lease extensions, effective upon the
expiration of the existing primary lease terms on April 28, 1999, extended the
leases for nine months and two years, respectively.


NOTE 4 - EQUIPMENT

     The following is a summary of equipment owned by the Partnership at
September 30, 1999. Remaining Lease Term (Months), as used below, represents the
number of months remaining from September 30, 1999 under contracted lease terms.
In the opinion of Equis Financial Group Limited Partnership ("EFG"), the
acquisition cost of the equipment did not exceed its fair market value.


                                       6
<PAGE>


                  AIRFUND II International Limited Partnership

                        Notes to the Financial Statements

                                   (Continued)

<TABLE>
<CAPTION>


                                                  Remaining
                                                    Lease
                                                     Term        Equipment
           Equipment Type                          (Months)       At Cost
-------------------------------------             --------     ------------
<S>                                               <C>          <C>
One Lockheed L-1011-100                                0       $ 16,644,138
One Boeing 727-251 ADV (Transmeridian)                 0          9,732,714
Two McDonnell-Douglas MD-82 (Finnair)               4-19          4,157,280
Three Boeing 737-2H4 (Southwest)                       3          1,919,500
                                                                 ----------

                                      Total equipment cost       32,453,632

                                  Accumulated depreciation      (28,610,333)
                                                                 ----------
                Equipment, net of accumulated depreciation     $  3,843,299
                                                                 ==========

</TABLE>


     The costs of the two McDonnell-Douglas MD-82 aircraft and the three Boeing
737-2H4 aircraft represent proportionate ownership interests. The remaining
interests are owned by other affiliated partnerships sponsored by EFG. All
partnerships individually report, in proportion to their respective ownership
interests, their respective shares of assets, liabilities, revenues, and
expenses associated with the aircraft.

     Certain of the equipment and related lease payment streams were used to
secure term loans with third-party lenders. The preceding summary includes
leveraged equipment having an original cost of $6,076,780 and a net book value
of $3,843,299 at September 30, 1999 (see Note 6).

     At September 30, 1999, the Partnership's Boeing 727-251 ADV jet aircraft
was held for sale. The Partnership's Lockheed L-1011-100 jet aircraft was being
detained in the United Kingdom as a result of a previous lessee's failure to pay
various airport ground fees. Each of these aircraft was fully depreciated at
September 30, 1999. See Note 7 for additional discussion regarding each
aircraft.


NOTE 5 - RELATED PARTY TRANSACTIONS

     All operating expenses incurred by the Partnership are paid by EFG on
behalf of the Partnership and EFG is reimbursed at its actual cost for such
expenditures. Fees and other costs incurred during each of the nine month
periods ended September 30, 1999 and 1998, which were paid or accrued by the
Partnership to EFG or its Affiliates, are as follows:


<TABLE>
<CAPTION>

                                           1999         1998
                                        ----------   ----------
<S>                                     <C>          <C>
Equipment management fees               $   79,210   $  122,882
Administrative charges                      59,108       40,257
Reimbursable operating expenses
    due to third parties                 1,410,474    1,373,622
                                        ----------   ----------

                          Total         $1,548,792   $1,536,761
                                        ==========   ==========
</TABLE>


     All rents and proceeds from the sale of equipment are paid directly to EFG
or to a lender. EFG temporarily deposits collected funds in a separate
interest-bearing escrow account prior to remittance to the Partnership.


                                       7
<PAGE>

                  AIRFUND II International Limited Partnership

                       Notes to the Financial Statements

                                  (Continued)


     Administrative charges represent amounts owed to EFG, pursuant to Section
10.4 of the Amended and Restated Agreement and Certificate of Limited
Partnership (the "Restated Agreement, as amended"), for persons employed by EFG
who are engaged in providing administrative services to the Partnership.
Administrative charges and reimbursable operating expenses for the nine months
ended September 30, 1999 include adjustments for 1998 actual costs of
approximately $13,000 and $10,000, respectively.


NOTE 6 - NOTES PAYABLE

     Notes payable at September 30, 1999 consisted of installment notes payable
to banks of $1,273,491. The installment notes are non-recourse, with interest
rates ranging between 8.09% and 8.65% and are collateralized by the equipment
and assignment of the related lease payments. All of the notes were originated
in connection with the Southwest Aircraft and the Finnair Aircraft. The
installment notes related to the Southwest Aircraft will be fully amortized by
noncancellable rents. The Partnership has balloon payment obligations at the
expiration of the renewal lease terms related to the aircraft on lease to
Finnair OY of $499,815 and $133,261. This indebtedness matures in January 2000
and April 2001, respectively. The carrying amount of notes payable approximates
fair value at September 30, 1999.

The annual maturities of the installment notes payable are as follows:

<TABLE>
<S>                                                      <C>
     For the year ending September 30, 2000               $  993,965
                                       2001                  279,526
                                                          ----------

                                      Total               $1,273,491
                                                          ==========
</TABLE>


NOTE 7 - LEGAL PROCEEDINGS

     In January 1998, certain plaintiffs (the "Plaintiffs") filed a class and
derivative action, captioned LEONARD ROSENBLUM, ET AL. V. EQUIS FINANCIAL GROUP
LIMITED PARTNERSHIP, ET AL., in the United States District Court for the
Southern District of Florida (the "Court") on behalf of a proposed class of
investors in 28 equipment leasing programs sponsored by EFG, including the
Partnership (collectively, the "Nominal Defendants"), against EFG and a number
of its affiliates, including the General Partner, as defendants (collectively,
the "Defendants"). Certain of the Plaintiffs, on or about June 24, 1997, had
filed an earlier derivative action, captioned LEONARD ROSENBLUM, ET AL. V. EQUIS
FINANCIAL GROUP LIMITED PARTNERSHIP, ET AL., in the Superior Court of the
Commonwealth of Massachusetts on behalf of the Nominal Defendants against the
Defendants. Both actions are referred to herein collectively as the "Class
Action Lawsuit".

     The Plaintiffs have asserted, among other things, claims against the
Defendants on behalf of the Nominal Defendants for violations of the Securities
Exchange Act of 1934, common law fraud, breach of contract, breach of fiduciary
duty, and violations of the partnership or trust agreements that govern each of
the Nominal Defendants. The Defendants have denied, and continue to deny, that
any of them have committed or threatened to commit any violations of law or
breached any fiduciary duties to the Plaintiffs or the Nominal Defendants.

     On July 16, 1998, counsel for the Defendants and the Plaintiffs executed a
Stipulation of Settlement setting forth terms pursuant to which a settlement of
the Class Action Lawsuit is intended to be achieved and which, among other
things, is expected to reduce the burdens and expenses attendant to continuing
litigation. The Stipulation of Settlement was preliminarily approved by the
Court on August 20, 1998 when the Court issued its "Order Preliminarily
Approving Settlement, Conditionally Certifying Settlement Class and Providing
for Notice of, and Hearing on, the Proposed Settlement" (the "August 20 Order".


                                       8
<PAGE>


                  AIRFUND II International Limited Partnership

                       Notes to the Financial Statements

                                  (Continued)


     On March 12, 1999, counsel for the Plaintiffs and the Defendants entered
into an amended stipulation of settlement (the "Amended Stipulation") which was
filed with the Court on March 12, 1999. The Amended Stipulation was
preliminarily approved by the Court by its "Modified Order Preliminarily
Approving Settlement, Conditionally Certifying Settlement Class and Providing
For Notice of, and Hearing On, the Proposed Settlement" dated March 22, 1999
(the "March 22 Order"). The Amended Stipulation, among other things, divided the
Class Action Lawsuit into two separate sub-classes that could be settled
individually. On May 26, 1999, the Court issued an Order and Final Judgment
approving settlement of one of the sub-classes. Settlement of the second
sub-class, involving the Partnership and 10 affiliated partnerships
(collectively referred to as the "Exchange Partnerships"), remains pending due,
in part, to the complexity of the proposed settlement pertaining to this class.
Prior to issuing a final order approving the settlement of the second sub-class
involving the Partnership, the Court will hold a fairness hearing that will be
open to all interested parties and permit any party to object to the settlement.
The investors of the Partnership and all other plaintiff sub-class members will
receive a Notice of Settlement and other information pertinent to the settlement
of their claims that will be mailed to them in advance of the fairness hearing.

     The settlement of the second sub-class is premised on the consolidation of
the Exchange Partnerships' net assets (the "Consolidation"), subject to certain
conditions, into a single successor company ("Newco"). Under the proposed
Consolidation, the partners of the Exchange Partnerships would receive both
common stock in Newco and a cash distribution; and thereupon the Exchange
Partnerships would be dissolved. In addition, EFG would contribute certain
management contracts, operations personnel, and business opportunities to Newco
and cancel its current management contracts with all of the Exchange
Partnerships. Newco would operate as a finance company specializing in the
acquisition, financing and servicing of equipment leases for its own account and
for the account of others on a contract basis. Newco also would use its best
efforts to list its shares on the NASDAQ National Market or another national
exchange or market as soon after the Consolidation as Newco deems that market
conditions and its business operations are suitable for listing its shares and
Newco has satisfied all necessary regulatory and listing requirements. The
potential benefits and risks of the Consolidation will be presented in a
Solicitation Statement that will be mailed to all of the partners of the
Exchange Partnerships as soon as the associated regulatory review process is
completed and at least 60 days prior to the fairness hearing. A preliminary
Solicitation Statement was filed with the Securities and Exchange Commission on
August 24, 1998 and remains pending. Class members will be notified of the
actual fairness hearing date when it is confirmed.

     One of the principal objectives of the Consolidation is to create a company
that would have the potential to generate more value for the benefit of existing
limited partners than other alternatives, including continuing the Partnership's
customary business operations until all of its assets are disposed in the
ordinary course of business. To facilitate the realization of this objective,
the Amended Stipulation provides, among other things, that commencing March 22,
1999, the Exchange Partnerships may collectively invest up to 40% of the total
aggregate net asset values of all of the Exchange Partnerships in any
investment, including additional equipment and other business activities that
the general partners of the Exchange Partnerships and EFG reasonably believe to
be consistent with the anticipated business interests and objectives of Newco,
subject to certain limitations, including that the Exchange Partnerships retain
sufficient cash balances to pay their respective shares of the cash distribution
that is part of the proposed settlement and Consolidation.

     In the absence of the Court's authorization to enter into such activities,
the Partnership's Restated Agreement, as amended, would not permit new
investment activities without the approval of limited partners owning a majority
of the Partnership's outstanding Units. Accordingly, to the extent that the
Partnership invests in new equipment, the Manager (being EFG) will (i) defer,
until the earlier of the effective date of the Consolidation or December 31,
1999, any acquisition fees resulting therefrom and (ii) limit its management
fees on all such assets to 2% of rental income. In the event that the
Consolidation is consummated, all such acquisition and management fees will be
paid to Newco. To the extent that the Partnership invests in other business
activities not consisting of equipment acquisitions, the Manager will forego any
acquisition fees and management fees related to such investments. In the event
that the Partnership has acquired new investments, but the Partnership does


                                       9
<PAGE>

                  AIRFUND II International Limited Partnership

                       Notes to the Financial Statements

                                  (Continued)

not participate in the Consolidation, Newco will acquire such new investments
for an amount equal to the Partnership's net equity investment plus an
annualized return thereon of 7.5%. Finally, in the event that the Partnership
has acquired new investments and the Consolidation is not effected, the General
Partner will use its best efforts to divest all such new investments in an
orderly and timely fashion and the Manager will cancel or return to the
Partnership any acquisition or management fees resulting from such new
investments. To date, the General Partner has not authorized new investment
activities involving the Partnership.

     The Amended Stipulation and previous Stipulation of Settlement prescribe
certain conditions necessary to effecting a final settlement, including
providing the partners of the Exchange Partnerships with the opportunity to
object to the participation of their partnership in the Consolidation. Assuming
the proposed settlement is effected according to present terms, the
Partnership's share of legal fees and expenses related to the Class Action
Lawsuit is estimated to be approximately $76,000 all of which was accrued and
expensed by the Partnership in 1998. In addition, the Partnership's share of
fees and expenses related to the proposed Consolidation is estimated to be
approximately $256,000, all of which also was accrued and expensed by the
Partnership in 1998.

     While the Court's August 20 Order enjoined certain class members, including
all of the partners of the Partnership, from transferring, selling, assigning,
giving, pledging, hypothecating, or otherwise disposing of any Units pending the
Court's final determination of whether the settlement should be approved, the
March 22 Order permits the partners to transfer Units to family members or as a
result of the divorce, disability or death of the partner. No other transfers
are permitted pending the Court's final determination of whether the settlement
should be approved. The provision of the August 20 Order which enjoined the
General Partners of the Exchange Partnerships from, among other things,
recording any transfers not in accordance with the Court's order remains
effective.

     There can be no assurance that settlement of the sub-class involving the
Exchange Partnerships will receive final Court approval and be effected. There
also can be no assurance that all or any of the Exchange Partnerships will
participate in the Consolidation because if limited partners owning more than
one-third of the outstanding Units of a partnership object to the Consolidation,
then that partnership will be excluded from the Consolidation. The General
Partner and its affiliates, in consultation with counsel, concur that there is a
reasonable basis to believe that a final settlement of the sub-class involving
the Exchange Partnerships will be achieved. However, in the absence of a final
settlement approved by the Court, the Defendants intend to defend vigorously
against the claims asserted in the Class Action Lawsuit. Neither the General
Partner nor its affiliates can predict with any degree of certainty the cost of
continuing litigation to the Partnership or the ultimate outcome.

     In addition to the foregoing, the Partnership is a party to other lawsuits
that have arisen out of the conduct of its business, principally involving
disputes or disagreements with lessees over lease terms and conditions. Refer to
the Partnership's Annual Report on Form 10-K for the year ended December 31,
1998 for a description of these matters. The following are updates to the
Partnership's prior disclosures on Form 10-K for 1998:

FIRST ACTION INVOLVING TRANSMERIDIAN AIRLINES

     On October 11, 1996, Prime Air Inc. d/b/a Transmeridian Airlines (the
"Plaintiff") filed an action in the 61st Judicial District Court of Harris
County, Texas (the "Court") entitled PRIME AIR, INC. D/B/A TRANSMERIDIAN
AIRLINES V. INVESTORS ASSET HOLDING CORP. ("IAHC"), AS TRUSTEE FOR AIRFUND II
INTERNATIONAL LIMITED PARTNERSHIP, PLM INTERNATIONAL ("PLM"), AND NAVCOM
AVIATION, INC. (collectively, the "Defendants"). In that action, the Plaintiff
claimed damages of more than $3 million for alleged breach of contract, fraud,
civil conspiracy, tortious interference of business relations, negligent
misrepresentation, negligence and gross negligence, and punitive damages against
the Defendants in connection with Transmeridian's lease of a Boeing 727-251 ADV
jet aircraft from the Partnership. On November 7, 1996, PLM removed the action
to United States District Court for the Southern District of Texas. On February
14, 1997, the Defendants answered the Plaintiff's Complaint denying the
allegations made therein and asserting various defenses.


                                       10
<PAGE>



                  AIRFUND II International Limited Partnership

                       Notes to the Financial Statements

                                  (Continued)


     On July 31, 1998, the Court granted IAHC's motion to strike Plaintiff's
fraud and negligent misrepresentation claims due to failure to plead with
particularity. Extensive discovery was conducted on the merits of Plaintiff's
claims. The Plaintiff, at one point, provided an expert report seeking
approximately $30 million in damages. The Plaintiff later provided a revised
expert report claiming actual damages of approximately $8.5 million and
Plaintiff continued to seek punitive damages and both pre-judgment and
post-judgment interest. On March 18, 1999, the Court entered summary judgment in
favor of IAHC and PLM on all remaining claims. The Plaintiff subsequently filed
a motion to alter or amend the judgment, or in the alternative, to certify the
Court's Order for Interlocutory Appeal. On April 30, 1999, the Court declined to
alter or amend its judgment and entered final judgment in favor of IAHC and PLM
on all remaining claims. The Plaintiff appealed to the United States Court of
Appeals for the 5th Circuit. (Response briefs by IAHC and PLM were filed on
October 29, 1999.) The General Partner believes that the Plaintiff's claims are
without merit and will continue to defend this action vigorously. While there is
no certainty as to the outcome of this litigation, the General Partner, in
consultation with counsel, believes that there is a reasonable basis to believe
that the summary judgments already granted will be upheld under appeal.
Therefore, the General Partner does not believe that the outcome of this
litigation will adversely affect the Partnership's financial position.

SECOND ACTION INVOLVING TRANSMERIDIAN AIRLINES

     On November 9, 1998, Investors Asset Holding Corp., as Trustee for the
Partnership (the "Plaintiff"), filed an action in Superior Court of the
Commonwealth of Massachusetts in Suffolk County against Prime Air, Inc. d/b/a
Transmeridian Airlines ("Transmeridian"), Atkinson & Mullen Travel, Inc., and
Apple Vacations, West, Inc., both d/b/a Apple Vacations, asserting various
causes of action for declaratory judgment and breach of contract. The action
subsequently was removed to United States District Court for the District of
Massachusetts. The Plaintiff has filed an Amended Complaint asserting claims for
breaches of contract and covenant of good faith and fair dealing against
Transmeridian and breach of guaranty against Apple Vacations.

     In October 1998, an aircraft leased by Transmeridian (being the same
aircraft in the above-referenced "First action involving Transmeridian
Airlines") was damaged in an on-ground accident at the Caracas, Venezuela
airport. The aircraft currently is being stored at a repair facility in
Louisiana. The cost to repair the aircraft is estimated to be at least $350,000.
In addition, the Partnership has had to lease two substitute engines at a cost
of $82,000 per month. During the nine months ended September 30, 1999, the
Partnership incurred total engine lease costs of $738,000. This was partially
offset by lease rents paid by Transmeridian of $560,000 during the same period.
However, as of September 11, 1999, Transmeridian ceased paying rent on this
aircraft. The Plaintiff alleges that Transmeridian, among other things, has
impeded the Partnership's ability to terminate the two engine lease contracts
between the Partnership and a third party. The Plaintiff intends to pursue
insurance coverage and also to enforce written guarantees issued by Apple
Vacations that absolutely and unconditionally guarantee Transmeridian's
performance under the lease and is seeking recovery of all costs, lost revenue
and monetary damages in connection with this matter. Discovery is ongoing and a
trial date has been tentatively scheduled for April 17, 2000. The General
Partner plans to vigorously pursue this action; however, it is too early to
predict the Plaintiff's likelihood of success.

ACTION INVOLVING NORTHWEST AIRLINES, INC.

     On September 22, 1995, Investors Asset Holding Corp. and First Security
Bank, N.A., trustees of the Partnership and certain affiliated investment
programs (collectively, the "Plaintiffs"), filed an action in United States
District Court for the District of Massachusetts against a lessee of the
Partnership, Northwest Airlines, Inc. ("Northwest"). The Complaint alleges that
Northwest did not fulfill its maintenance obligations under its Lease Agreements
with the Plaintiffs and seeks declaratory judgment concerning Northwest's
obligations and monetary damages. Northwest filed an Answer to the Plaintiffs'
Complaint and a motion to transfer the venue of this proceeding to Minnesota.
The Court denied Northwest's motion. On June 29, 1998, a United States
Magistrate Judge recommended entry of partial summary judgment in favor of the
Plaintiffs. Northwest appealed this


                                       11
<PAGE>


                  AIRFUND II International Limited Partnership

                       Notes to the Financial Statements

                                  (Continued)


decision. On April 15, 1999, the United States District Court Judge adopted the
Magistrate Judge's recommendation and entered partial summary judgment in favor
of the Plaintiffs on their claims for declaratory judgment. The Plaintiffs
intend to make a demand upon Northwest for settlement. If no settlement is
reached, the Plaintiffs will proceed to trial for an assessment of damages. No
date has been set by the Court. The General Partner believes that the
Plaintiff's claims ultimately will prevail and that the Partnership's financial
position will not be adversely affected by the outcome of this action.

ACTION INVOLVING CLASSIC AIRWAYS LIMITED

     In August 1998, a lessee of the Partnership, Classic Airways Limited
("Classic"), ceased paying rent to the Partnership with respect to a Lockheed
L-1011-100 Aircraft (the "Aircraft") and the Partnership terminated the lease.
Classic then filed for receivership in the United Kingdom ("UK") and was placed
in liquidation. Prior to its liquidation, Classic had incurred and failed to pay
significant airport ground fees to BAA plc, Eurocontrol, and CAA (collectively,
the "Airport Authorities"). Classic's failure to pay such charges resulted in
detention of the Aircraft by BAA plc. The total of ground fees and expenses
asserted by the Airport Authorities, which continued to accrue after the
detention, exceeds $1,500,000 as of September 30, 1999 and appears to exceed the
market value of the Aircraft. BAA plc has obtained a judgment from a UK Court
entitling it to sell the aircraft to satisfy the unpaid charges. The Partnership
continues to hold the aircraft's records, which may have some value independent
of the value of the Aircraft. That has not yet been determined. At this time,
the General Partner does not believe that it is in the Partnership's best
economic interest either to pay the accumulated ground fees to the Airport
Authorities or to attempt to purchase the Aircraft directly from BAA plc. Based
on prior negotiations, the Partnership had accrued an expense of approximately
$167,000 to cover the cost of settling the airport charges, all of which were
recorded in the fourth quarter of 1998. At the date of Classic's liquidation,
the Partnership had accrued $160,000 of rental income which had not been
collected from Classic and all of which was written off as uncollectible in the
third quarter of 1998. The Aircraft was fully depreciated at September 30, 1999.
The General Partner does not expect that any funds are likely to be recovered
from Classic in connection with this matter. See Note 8 below.


NOTE 8 - SUBSEQUENT EVENT

     In October 1999, BAA plc sought bids from interested parties for the
purpose of purchasing the Partnership's Lockheed L-1011-100 aircraft (see Note
7). BAA plc has requested that final offers be submitted to them by November 27,
1999.


                                       12
<PAGE>


                  AIRFUND II International Limited Partnership

                                    FORM 10-Q

                          PART I. FINANCIAL INFORMATION


Item 2.  Management's discussion and analysis of financial condition and results
of operations.

     Certain statements in this quarterly report of AIRFUND II International
Limited Partnership (the "Partnership") that are not historical fact constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 and are subject to a variety of risks and
uncertainties. There are a number of factors that could cause actual results to
differ materially from those expressed in any forward-looking statements made
herein. These factors include, but are not limited to, the outcome of the Class
Action Lawsuit described in Note 7 to the accompanying financial statements and
the remarketing of the Partnership's equipment.

YEAR 2000 ISSUE

     The Year 2000 Issue generally refers to the capacity of computer
programming logic to correctly identify the calendar year. Many companies
utilize computer programs or hardware with date sensitive software or embedded
chips that could interpret dates ending in "00" as the year 1900 rather than the
year 2000. In certain cases, such errors could result in system failures or
miscalculations that disrupt the operations of the affected businesses. The
Partnership uses information systems provided by Equis Financial Group Limited
Partnership (formerly American Finance Group) ("EFG") and has no information
systems of its own. EFG has adopted a plan to address the Year 2000 Issue that
consists of four phases: assessment, remediation, testing, and implementation
and has elected to utilize principally internal resources to perform all phases.
EFG has completed its Year 2000 project at an aggregate cost of less than
$50,000 and at a di minimus cost to the Partnership. All costs incurred in
connection with EFG's Year 2000 project have been expensed as incurred.

     EFG's primary information software was coded by a third party at the point
of original design to use a four-digit field to identify calendar year. All of
the Partnership's lease billings, cash receipts and equipment remarketing
processes are performed using this proprietary software. In addition, EFG has
gathered information about the Year 2000 readiness of significant vendors and
third party servicers and continues to monitor developments in this area. All of
EFG's peripheral computer technologies, such as its network operating system and
third-party software applications, including payroll, depreciation processing,
and electronic banking, have been evaluated for potential programming changes
and have required only minor modifications to function properly with respect to
dates in the year 2000 and thereafter. EFG understands that each of its and the
Partnership's significant vendors and third-party servicers are in the process,
or have completed the process, of making their systems Year 2000 compliant.
Substantially all parties queried indicated that their systems would be Year
2000 compliant by the end of 1998.

     Presently, EFG is not aware of any outside customer with a Year 2000 Issue
that would have a material effect on the Partnership's results of operations,
liquidity, or financial position. The Partnership's equipment leases were
structured as triple net leases, meaning that the lessees are responsible for,
among other things, (i) maintaining and servicing all equipment during the lease
term, (ii) ensuring that all equipment functions properly and is returned in
good condition, normal wear and tear excepted, and (iii) insuring the assets
against casualty and other events of loss. Non-compliance with lease terms on
the part of a lessee, including failure to address Year 2000 Issues could result
in lost revenues and impairment of residual values of the Partnership's
equipment assets under a worst-case scenario.

     EFG believes that its Year 2000 compliance plan will be effective in
resolving all material Year 2000 risks in a timely manner and that the Year 2000
Issue will not pose significant operational problems with respect to its
computer systems or result in a system failure or disruption of its or the
Partnership's business operations. However, EFG has no means of ensuring that
all customers, vendors and third-party servicers will conform ultimately to Year
2000 standards. The effect of this risk to the Partnership is not determinable.


                                       13
<PAGE>


                  AIRFUND II International Limited Partnership

                                   FORM 10-Q

                         PART I. FINANCIAL IONFORMATION


THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE THREE AND NINE
MONTHS ENDED SEPTEMBER 30, 1998:

     As an equipment leasing partnership, the Partnership was organized to
acquire and lease a portfolio of commercial jet aircraft subject to lease
agreements with third parties. During 1990 and 1991, the Partnership purchased
four commercial jet aircraft and a proportionate interest in two additional
aircraft which were leased by major carriers engaged in passenger
transportation. Initially, each aircraft generated rental revenue pursuant to
primary-term lease agreements. Subsequently, all of the aircraft in the
Partnership's original portfolio have been re-leased, renewed, exchanged for
other aircraft, or sold. At September 30, 1999, the Partnership owned two
aircraft and proportionate interests in five additional aircraft. Upon
expiration of the current lease agreements, the aircraft will be re-leased or
sold depending on prevailing market conditions and EFG's assessment of such
conditions to obtain the most advantageous economic benefit. See below for
discussion related to the detention of one of the Partnership's aircraft in the
United Kingdom. In addition, the Partnership is a Nominal Defendant in a Class
Action Lawsuit, the outcome of which could significantly alter the nature of the
Partnership's organization and its future business operations. See Note 7 to the
accompanying financial statements. Pursuant to the Restated Agreement, as
amended, the Partnership is scheduled to be dissolved by December 31, 2005.

RESULTS OF OPERATIONS

     For the three and nine months ended September 30, 1999, the Partnership
recognized lease revenue of $393,846 and $1,584,193, respectively, compared to
$737,647 and $2,457,641 for the same periods in 1998. The decrease in lease
revenue from 1998 to 1999 was due primarily to the non-payment of rents by the
lessee of the Partnership's Lockheed L-1011-100 aircraft and that lessee's
subsequent liquidation (see discussion below), the sale of the Partnership's
Boeing 727-208 ADV aircraft in April 1999, and the sale of the Partnership's
interest in a Lockheed L-1011-50 aircraft in April 1998. In the future, the
Partnership's aggregate lease revenue is scheduled to decline due to the
expiration of the lease terms related to the Partnership's remaining aircraft
and the ultimate sale of those aircraft.

     In April 1999, the Partnership sold its Boeing 727-208 ADV aircraft,
previously leased to American Trans Air, Inc. ("ATA"), to the lessee for net
proceeds of $3,109,500. The aircraft was fully depreciated at the time of sale,
resulting in a net gain, for financial statement purposes, of $3,109,500. The
Partnership recognized lease revenue of approximately $246,000 and $572,000
related to this aircraft for the nine months ended September 30, 1999 and 1998,
respectively.

     In August 1998, Classic Airways Limited ("Classic") ceased paying rent with
respect to the Partnership's Lockheed L-1011-100 jet aircraft. In October 1998,
Classic filed for receivership in the United Kingdom ("UK") and was placed in
liquidation (see further discussion below). The Partnership earned lease revenue
in the amount of approximately $320,000 related to this aircraft during the nine
months ended September 30, 1998.

     In April 1998, the Partnership sold its proportionate interest in a
Lockheed L-1011-50 aircraft to Aer Lease Limited ("Aer Lease") for net proceeds
of $553,699. The Partnership's interest in the aircraft had a net book value of
$426,434 at the time of disposal, resulting in a net gain for financial
statement purposes, of $127,265. The Partnership recognized aggregate lease
revenue of approximately $162,000 related to this aircraft during the nine
months ended September 30, 1998.

     The three Boeing 737-2H4 aircraft in which the Partnership holds a
proportionate ownership interest are currently on lease to Southwest Airlines,
Inc. (the "Southwest Aircraft"). These leases are scheduled to expire in
December 1999 and collectively provide lease revenue of $94,392 per quarter to
the Partnership. Additionally, the two McDonnell-Douglas MD-82 aircraft in which
the Partnership holds a proportionate interest are currently on lease to Finnair
OY (the "Finnair Aircraft"). These leases, which were renewed upon the
expiration of the primary


                                       14
<PAGE>


                  AIRFUND II International Limited Partnership

                                   FORM 10-Q

                         PART I. FINANCIAL IONFORMATION

lease terms in April 1999, are now scheduled to expire in January 2000 and April
2001 and generate lease revenue of $79,990 and $79,464 per quarter to the
 Partnership, respectively.

     The Partnership's Boeing 727-251 ADV aircraft was damaged in an on-ground
accident in October 1998 (see below) and is being leased on a month-to-month
basis by Transmeridian Airlines, Inc. ("Transmeridian"). This lease had been
generating lease revenue of $70,000 per month to the Partnership. In September
1999, Transmeridian ceased paying rent with respect to this aircraft (see
discussion below).

     At September 30, 1999, the Partnership held proportionate ownership
interests in the Southwest Aircraft and the Finnair Aircraft (see Note 4 to the
financial statements). The remaining interests are owned by other affiliated
partnerships sponsored by EFG. All partnerships individually report, in
proportion to their respective ownership interests, their respective shares of
assets, liabilities, revenues and expenses associated with the aircraft.

     The ultimate realization of residual value for any aircraft will be
dependent upon many factors, including EFG's ability to sell and re-lease the
aircraft. Changes in market conditions, industry trends, technological advances,
and other events could converge to enhance or detract from asset values at any
given time. EFG attempts to monitor these changes and the airline industry in
order to identify opportunities which may be advantageous to the Partnership and
which will maximize total cash returns for each aircraft.

     The total economic value realized for each aircraft is comprised of all
primary lease term revenue generated from that aircraft, together with its
residual value. The latter consists of cash proceeds realized upon the
aircraft's sale in addition to all other cash receipts obtained from renting the
aircraft on a re-lease, renewal or month-to-month basis. Consequently, the
amount of gain or loss reported in the financial statements is not necessarily
indicative of the total residual value the Partnership achieved from leasing the
aircraft.

     Interest income for the three and nine months ended September 30, 1999 was
$87,871 and $185,945, respectively, compared to $49,992 and $117,967 for the
same periods in 1998. Interest income is typically generated from temporary
investments of rental receipts and equipment sale proceeds in short-term
instruments.

     For the three and nine months ended September 30, 1999, the Partnership
incurred interest expense of $27,061 and $98,394, respectively, compared to
$47,996 and $157,233 for the same periods in 1998. Interest expense resulted
from financing obtained from third-party lenders in connection with the
acquisition of the Southwest Aircraft and the Finnair Aircraft. Interest expense
in future periods will continue to decline as the principal balance of notes
payable is reduced through the application of rent receipts to outstanding debt.

     Operating expenses were $421,553 and $1,469,582 for the three and nine
months ended September 30, 1999, respectively, compared to $617,389 and
$1,413,879 for the same periods in 1998. Operating expenses in the nine months
ended September 30, 1999 include engine leasing costs of $738,000 incurred
related to the aircraft leased to Transmeridian and legal costs related to the
Partnership's ongoing litigation (refer to Note 7 to the financial statements).
In the nine months ended September 30, 1999, operating expenses also include an
adjustment for 1998 actual administrative charges and third party costs of
approximately $23,000. During 1998, the Partnership incurred or accrued $334,000
for certain legal and Consolidation expenses related to the Class Action Lawsuit
described in Note 7 to the financial statements. Expenses in 1998 also include
legal costs incurred in connection with legal proceedings related to Northwest
Airlines, Inc. and Transmeridian Airlines, Inc. (refer to Note 7 to the
financial statements). Other operating expenses consist principally of
professional service costs, such as audit and other legal fees, as well as
insurance, printing, distribution and other remarketing expenses. Depreciation
expense was $155,639 and $570,663 for the three and nine months ended September
30, 1999 compared to $768,387 and $2,377,409 for the same periods in 1998.
Management fees were 5% of lease revenue during each of the three and nine month
periods ended September 30, 1999 and 1998.


                                       15
<PAGE>


                  AIRFUND II International Limited Partnership

                                   FORM 10-Q

                         PART I. FINANCIAL IONFORMATION


LIQUIDITY AND CAPITAL RESOURCES AND DISCUSSION OF CASH FLOWS

     The Partnership by its nature is a limited life entity. As an aircraft
equipment leasing program, the Partnership's principal operating activities
derive from aircraft rental transactions. Accordingly, the Partnership's
principal source of cash from operations is provided by the collection of
periodic rents. These cash inflows are used to satisfy debt service obligations
associated with leveraged leases, and to pay management fees and operating
costs. Operating activities generated net cash inflows of $235,354 and
$1,403,218 for the nine months ended September 30, 1999 and 1998, respectively.
Future renewal, re-lease and aircraft sales activities will continue to cause a
decline in the Partnership's lease revenues and corresponding sources of
operating cash. Overall, expenses associated with rental activities, such as
management fees, and net cash flow from operating activities will decline as the
Partnership remarkets its aircraft. The Partnership, however, may incur
increased costs to facilitate the successful remarketing of its aircraft in the
future. Ultimately, the Partnership will dispose of all aircraft under lease.
This will occur principally through sale transactions whereby each aircraft will
be sold to the existing lessee or to a third party. Generally, this will occur
upon expiration of each aircraft's primary or renewal/re-lease term.

     Cash realized from aircraft disposal transactions is reported under
investing activities on the accompanying Statement of Cash Flows. In 1999, the
Partnership received sales proceeds of $3,109,500 related to its Boeing 727-208
ADV aircraft formerly leased to ATA. For the nine months ended September 30,
1998, the Partnership realized net cash proceeds of $553,698 from the sale of
its interest in a Lockheed L-1011-50 aircraft. Future inflows of cash from
aircraft disposals will vary in timing and amount and will be influenced by many
factors including, but not limited to, the frequency and timing of lease
expirations, the type of aircraft being sold, their condition and age, and
future market conditions.

     At September 30, 1999, the Partnership was due aggregate future minimum
lease payments of $682,627 from contractual lease agreements (see Note 3 to the
financial statements), a portion of which will be used to amortize the principal
balance of notes payable of $1,273,491 (see Note 6 to the financial statements).
At the expiration of the individual lease terms underlying the Partnership's
future minimum lease payments, the Partnership will sell its aircraft or enter
re-lease or renewal agreements when considered advantageous by the General
Partner and EFG. Such future remarketing activities will result in the
realization of additional cash inflows in the form of aircraft sale proceeds or
rents from renewals and re-leases, the timing and extent of which cannot be
predicted with certainty. This is because the timing and extent of remarketing
events often is dependent upon the needs and interests of the existing lessees.
Some lessees may choose to renew their lease contracts, while others may elect
to return the aircraft. In the latter instances, the aircraft could be re-leased
to another lessee or sold to a third party. Accordingly, as the terms of the
currently existing contractual lease agreements expire, the cash flows of the
Partnership will become less predictable. In addition, the Partnership will need
cash outflows to satisfy interest on indebtedness and to pay management fees and
operating expenses.

     The Partnership's ability to remarket its Boeing 727-251 ADV aircraft
leased by Transmeridian has been impeded by damage caused to the airframe of
this aircraft as the result of an on-ground accident at the airport in Caracas,
Venezuela in October 1998. In September 1999, Transmeridian ceased paying rent
on this aircraft. See Note 7 to the financial statements for details regarding
legal action undertaken by the Partnership related to this situation.

     In August 1998, a lessee of the Partnership, Classic, ceased paying rent to
the Partnership with respect to a Lockheed L-1011-100 Aircraft (the "Aircraft")
and the Partnership terminated the lease. Classic then filed for receivership in
the United Kingdom ("UK") and was placed in liquidation. Prior to its
liquidation, Classic had incurred and failed to pay significant airport ground
fees to BAA plc, Eurocontrol, and CAA (collectively, the "Airport Authorities").
Classic's failure to pay such charges resulted in detention of the Aircraft by
BAA plc. The total of ground fees and expenses asserted by the Airport
Authorities, which continued to accrue after the detention, exceeds $1,500,000
as of September 30, 1999 and appears to exceed the market value of the Aircraft



                                       16
<PAGE>


                  AIRFUND II International Limited Partnership

                                   FORM 10-Q

                         PART I. FINANCIAL IONFORMATION

 .
BAA plc has obtained a judgment from a UK Court entitling it to sell the
aircraft to satisfy the unpaid charges and in October 1999 initiated this
process (See Note 8 to the financial statements). The Partnership continues to
hold the aircraft's records, which may have some value independent of the value
of the Aircraft. That has not yet been determined. At this time, the General
Partner does not believe that it is in the Partnership's best economic interest
either to pay the accumulated ground fees to the Airport Authorities or to
attempt to purchase the Aircraft directly from BAA plc. Based on prior
negotiations, the Partnership had accrued an expense of approximately $167,000
to cover the cost of settling the airport charges, all of which were recorded in
the fourth quarter of 1998. At the date of Classic's liquidation, the
Partnership had accrued $160,000 of rental income which had not been collected
from Classic and all of which was written off as uncollectible in the third
quarter of 1998. The Aircraft was fully depreciated at September 30, 1999. The
General Partner does not expect that any funds are likely to be recovered from
Classic in connection with this matter.

     The Partnership obtained long-term financing in connection with the
Southwest Aircraft and the Finnair Aircraft. The corresponding note agreements
are recourse only to the specific equipment financed and to the minimum rental
payments contracted to be received during the debt amortization period. As
rental payments are collected, they are used to repay principal and interest.

     In December 1998, the Partnership and certain affiliated investment
programs owning interests in two McDonnell Douglas MD-82 aircraft (collectively,
the "Programs") entered into lease extension agreements with Finnair OY. The
lease extensions, effective upon the expiration of the existing primary lease
terms on April 28, 1999, extended the leases for nine months and two years,
respectively. In aggregate, these lease extensions will provide additional lease
revenue of approximately $876,000 to the Partnership over the terms of the
leases.

     On April 29, 1999, the Programs entered into agreements with a third-party
lender to extend the maturity dates of the Programs' indebtedness related to the
Finnair Aircraft. Consistent with the extension terms of the lease agreements
related to the Finnair Aircraft discussed above, the maturity dates of the
indebtedness were extended to January 2000 and April 2001, respectively. The
Partnership has balloon payment obligations of $499,815 and $133,261 related to
this indebtedness that is due on the respective maturity dates.

     There are no formal restrictions under the Restated Agreement, as amended,
that materially limit the Partnership's ability to pay cash distributions,
except that the General Partner may suspend or limit cash distributions to
ensure that the Partnership maintains sufficient working capital reserves to
cover, among other things, operating costs and potential expenditures, such as
refurbishment costs to remarket equipment upon lease expiration. Liquidity is
especially important as the Partnership matures and sells equipment, because the
remaining equipment base consists of fewer revenue-producing assets that are
available to cover prospective cash disbursements. Insufficient liquidity could
inhibit the Partnership's ability to sustain its operations or maximize the
realization of proceeds from remarketing its remaining aircraft. The management
and remarketing of aircraft can involve, among other things, significant costs
and lengthy remarketing initiatives.

     Although the Partnership's lessees are required to maintain the aircraft
during the period of lease contract, repair, maintenance, and/or refurbishment
costs at lease expiration can be substantial. For example, an aircraft that is
returned to the Partnership meeting minimum airworthiness standards, such as
flight hours or engine cycles, nonetheless may require heavy maintenance in
order to bring its engines, airframe and other hardware up to standards that
will permit its prospective use in commercial air transportation. Individually,
these repairs can cost in excess of $1 million and, collectively, they could
require the disbursement of several million dollars, depending upon the extent
of refurbishment. In addition, the Partnership's equipment portfolio includes
one Stage 2 aircraft as well as proportionate ownership interests in three other
Stage 2 aircraft having scheduled lease expiration dates of December 31, 1999.
The lessee has given the Partnership notice of its intention to return the
aircraft at the expiration of the lease terms. These aircraft are prohibited
from operating in the United States after December 31, 1999 unless they are
retro-fitted with hush-kits to meet Stage 3 noise regulations promulgated by the
Federal Aviation Administration. The cost to hush-kit an aircraft, such as the
Partnership's Boeing 727s and Boeing 737s, can approach $2 million. Although the
Partnership is not required to retro-fit its


                                       17
<PAGE>

                  AIRFUND II International Limited Partnership

                                   FORM 10-Q

                         PART I. FINANCIAL IONFORMATION


aircraft with hush-kits,insufficient liquidity could jeopardize the remarketing
of these aircraft. Collectively, the aggregation of the Partnership's potential
liquidity needs related to aircraft and other working capital requirements could
be significant. Accordingly, the General Partner has maintained significant cash
reserves within the Partnership in order to minimize the risk of a liquidity
shortage.

     Finally, the Partnership is a Nominal Defendant in a Class Action Lawsuit
described in Note 7 to the accompanying financial statements. A preliminary
court order has allowed the Partnership to invest in new equipment or other
activities, subject to certain limitations, effective March 22, 1999. To the
extent that the Partnership continues to own aircraft investments that could
require capital reserves, the General Partner does not anticipate that the
Partnership will invest in new assets, regardless of its authority to do so. No
distributions were declared for either of the nine months ended September 30,
1999 or 1998. Until the Class Action Lawsuit is adjudicated, the General Partner
does not expect to reinstate distributions to the Partners. In addition, the
proposed settlement, if effected, will materially change the future
organizational structure and business interests of the Partnership, as well as
its cash distribution policies. See Note 7 to the accompanying financial
statements.

     The Partnership's capital account balances for federal income tax and for
financial reporting purposes are different primarily due to differing treatments
of income and expense items for income tax purposes in comparison to financial
reporting purposes (generally referred to as permanent or timing differences;
see Note 6 to the financial statements presented in the Partnership's 1998
Annual Report). For instance, selling commissions and organization and offering
costs pertaining to syndication of the Partnership's limited partnership units
are not deductible for federal income tax purposes, but are recorded as a
reduction of partners' capital for financial reporting purposes. Therefore, such
differences are permanent differences between capital accounts for financial
reporting and federal income tax purposes. Other differences between the bases
of capital accounts for federal income tax and financial reporting purposes
occur due to timing differences consisting of the cumulative difference between
income or loss for tax purposes and financial statement income or loss. The
principal component of the cumulative difference between financial statement
income or loss and tax income or loss results from different depreciation
policies for book and tax purposes.

     For financial reporting purposes, the General Partner has accumulated a
capital deficit at September 30, 1999. This is the result of aggregate cash
distributions to the General Partner being in excess of its capital contribution
of $1,000 and its allocation of financial statement net income or loss.
Ultimately, the existence of a capital deficit for the General Partner for
financial reporting purposes is not indicative of any further capital
obligations to the Partnership by the General Partner. The Restated Agreement,
as amended, requires that upon the dissolution of the Partnership, the General
Partner will be required to contribute to the Partnership an amount equal to any
negative balance which may exist in the General Partner's tax capital account.
At December 31, 1998, the General Partner had a negative tax capital account
balance of approximately $828,000.

     The future liquidity of the Partnership will be influenced by, among other
factors, prospective market conditions, aircraft refurbishment requirements, the
ability of EFG to manage and remarket the Partnership's aircraft, and many other
events and circumstances, that could enhance or detract from individual aircraft
yields and the collective performance of the Partnership's aircraft portfolio.
However, the outcome of the Class Action Lawsuit described in Note 7 to the
accompanying financial statements will be the principal factor in determining
the future of the Partnership's operations.

                                       18
<PAGE>


                  AIRFUND II International Limited Partnership

                                    FORM 10-Q

                           PART II. OTHER INFORMATION


Item 1.                    Legal Proceedings
                           Response:

                           Refer to Note 7 to the financial statements herein.

Item 2.                    Changes in Securities
                           Response:  None

Item 3.                    Defaults upon Senior Securities
                           Response:  None

Item 4.                    Submission of Matters to a Vote of Security Holders
                           Response:  None

Item 5.                    Other Information
                           Response:  None

Item 6(a).                 Exhibits
                           Response:  None

Item 6(b).                 Reports on Form 8-K
                           Response:  None



                                       19
<PAGE>




                                 SIGNATURE PAGE



     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on behalf of the registrant and in the capacity and
on the date indicated.



                AIRFUND II International Limited Partnership


        By:      AFG Aircraft Management Corporation, a
                 Massachusetts corporation and the
                 General Partner of the Registrant.


        By:      /s/  Michael J. Butterfield
                 ------------------------------------------------
                 Michael J. Butterfield
                 Treasurer of AFG Aircraft Management Corporation
                 (Duly Authorized Officer and
                 Principal Accounting Officer)


        Date:    November 12, 1999
                 ------------------------------------------------


        By:      /s/  Gary Romano
                 ------------------------------------------------
                 Gary M. Romano
                 Clerk of AFG Aircraft Management Corporation
                 (Duly Authorized Officer and
                 Principal Financial Officer)


        Date:    November 12, 1999
                 ------------------------------------------------








                                       20