<PAGE>

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

                                    FORM 10-Q



(Mark One)

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

For the quarterly period ended September 30, 1996

                                     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, 1996            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.)

98 NORTH WASHINGTON STREET, BOSTON, MA                     02114
(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



                                                             PAGE
                                                             -----
PART I.  FINANCIAL INFORMATION:

  Item 1.      Financial Statements

     Statement of Financial Position
       at September 30, 1996 and December 31, 1995                     3

     Statement of Operations
       for the three and nine months ended September 30, 
       1996 and 1995                                                   4

     Statement of Cash Flows
       for the nine months ended September 30, 1996 and 1995           5

     Notes to the Financial Statements                               6-9


  Item 2. Management's Discussion and Analysis of Financial
          Condition and Results of Operations                      10-14


PART II.  OTHER INFORMATION:

  Items 1 - 6                                                         15






                                     -2-


<PAGE>



                   AIRFUND II International Limited Partnership

                         STATEMENT OF FINANCIAL POSITION
                     September 30, 1996 and December 31, 1995

                                   (Unaudited)

<TABLE>
<CAPTION>
                                                         September 30,   December 31,
                                                              1996           1995
                                                         -------------  -------------
<S>                                                      <C>            <C>
ASSETS

Cash and cash equivalents
                                                          $  7,959,477   $  3,557,968
Contractual right for equipment
                                                                    --      1,317,392
Rents receivable
                                                                    --        169,906
Accounts receivable - affiliate
                                                               188,519        316,439
Equipment at cost, net of accumulated depreciation of
  $36,304,391 and $41,568,185 at September 30, 1996
  and December 31, 1995, respectively                       14,326,823     16,070,428
                                                           -----------    -----------
    Total assets                                           $22,474,819    $21,432,133
                                                           -----------    -----------
                                                           -----------    -----------

LIABILITIES AND PARTNERS' CAPITAL

Notes payable                                              $ 3,581,414    $ 1,432,396
Accrued interest                                                31,248         19,197
Accrued liabilities                                            497,210         93,140
Accrued liabilities - affiliate                                 46,364         58,152
Deferred rental income                                          76,445        477,506
Cash distributions payable to partners                       5,670,163        714,381
                                                           -----------    -----------
    Total liabilities                                        9,902,844      2,794,772
                                                           -----------    -----------
Partners' capital (deficit):
  General Partner                                           (2,366,857)    (2,106,228)
  Limited Partnership Interests
   (2,714,647 Units; initial purchase price of $25 each)    14,938,832     20,743,589
                                                           -----------    -----------
    Total partners' capital                                 12,571,975     18,637,361
                                                           -----------    -----------
    Total liabilities and partners' capital                $22,474,819    $21,432,133
                                                           -----------    -----------
                                                           -----------    -----------
</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, 1996 and 1995

                                   (Unaudited)

<TABLE>
<CAPTION>

                                                                 Three Months                 Nine Months
                                                              Ended September 30,          Ended September 30,
                                                              1996           1995          1996           1995
                                                           ----------     ----------     ---------      ----------
<S>                                                        <C>            <C>            <C>            <C>
Income:

  Lease revenue                                           $  1,398,078   $  1,678,986   $  4,019,900   $  4,982,689

  Interest income                                               86,749         41,113        220,877        126,331

Gain on sale of equipment                                      460,969             --        460,969             --

  Loss on exchange of equipment                                     --       (497,014)            --       (497,014)
                                                           -----------    -----------     ----------    ----------
    Total income                                             1,945,796      1,223,085      4,701,746      4,612,006
                                                           -----------    -----------     ----------    ----------

Expenses:

  Depreciation and amortization                                831,696      1,222,154      2,826,205      3,710,096

  Interest expense                                              79,835             --        198,239             --

  Equipment management fees - affiliate                         69,904         83,949        200,995        249,134

  Operating expenses - affiliate                               537,613         24,611      1,157,151        117,850
                                                           -----------    -----------     ----------    ----------
    Total expenses                                           1,519,048      1,330,714      4,382,590      4,077,080
                                                           -----------    -----------     ----------    ----------

Net income (loss)                                           $  426,748    $  (107,629)    $  319,156     $  534,926
                                                           -----------    -----------     ----------    ----------
                                                           -----------    -----------     ----------    ----------
Net income (loss) per limited partnership unit              $     0.15    $    (0.04)     $     0.11     $     0.19
                                                           -----------    -----------     ----------    ----------
                                                           -----------    -----------     ----------    ----------
Cash distributions declared per limited partnership unit    $     2.00    $     0.25      $     2.25     $     1.50
                                                           -----------    -----------     ----------    ----------
                                                           -----------    -----------     ----------    ----------
</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, 1996 and 1995

                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                  1996           1995
                                                               ---------      ---------
<S>                                                            <C>            <C>
Cash flows from (used in) operating activities:
Net income                                                    $  319,156     $  534,926
Adjustments to reconcile net income to net cash
  from operating activities:
    Depreciation and amortization                              2,826,205      3,710,096
    Gain on sale of equipment                                   (460,969)            --
    Loss on exchange of equipment                                     --        497,014

Changes in assets and liabilities
  Decrease (increase) in:
    rents receivable                                             169,906         (2,474)
    accounts receivable - affiliate                              127,920         58,932
  Increase (decrease) in:
    accrued interest                                              12,051             --
    accrued liabilities                                          404,070       (159,978)
    accrued liabilities - affiliate                              (11,788)       (12,177)
    deferred rental income                                      (401,061)       661,125
                                                             -----------     ----------
      Net cash from operating activities                       2,985,490      5,287,464
                                                             -----------     ----------
Cash flows from (used in) investing activities:
  Purchase of equipment                                          (72,550)            --
  Proceeds from equipment sales                                3,535,649             --
                                                             -----------     ----------
      Net cash from investing activities                       3,463,099             --
                                                             -----------     ----------
Cash flows used in financing activities:
  Principal payments - notes payable                            (618,320)            --
  Distributions paid                                          (1,428,760)    (5,357,856)
                                                             -----------     ----------
      Net cash used in financing activities                   (2,047,080)    (5,357,856)
                                                             -----------     ----------
Net increase (decrease) in cash and cash equivalents           4,401,509        (70,392)

Cash and cash equivalents at beginning of period               3,557,968      3,620,148
                                                             -----------     ----------
Cash and cash equivalents at end of period                    $7,959,477     $3,549,756
                                                             -----------     ----------
                                                             -----------     ----------
Supplemental disclosure of cash flow information:
  Cash paid during the period for interest                    $  186,188     $       --
                                                             -----------     ----------
                                                             -----------     ----------

Supplemental disclosure of non-cash investing activities:
     See Note 5 to the Financial Statements.
</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, 1996

                               (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 1995 Annual Report.  Except 
as disclosed herein, there has been no material change to the information 
presented in the footnotes to the 1995 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, 1996 and December 31, 1995 and results of 
operations for the three and nine month periods ended September 30, 1996 and 
1995 have been made and are reflected.



NOTE 2 - CASH

  At September 30, 1996, the Partnership had $7,855,000 invested in reverse 
repurchase agreements secured by U.S. Treasury Bills or interests in U.S. 
Government securities.

NOTE 3 - REVENUE RECOGNITION

  Rents are payable to the Partnership monthly or quarterly and no 
significant amounts are calculated on factors other than the passage of time. 
The leases are accounted for as operating leases and are noncancellable.  
Rents received prior to their due dates are deferred.  Future minimum rents 
of $5,173,403 are due as follows:


  For the year ending September 30, 1997        $2,239,534
                                    1998         1,907,534
                                    1999           900,479
                                    2000           125,856
                                                ----------
                                    Total       $5,173,403
                                                ==========

  In September 1995, the Partnership transferred its ownership interest in a 
Boeing 747-SP-21 commercial jet aircraft (the "United Aircraft") to the 
existing lessee, United Air Lines, Inc., pursuant to the rules for a 
like-kind exchange transaction for income tax reporting purposes (See Note 5 
herein).  In November 1995, the Partnership partially replaced the United 
Aircraft with a 13.11% interest in three Boeing 737-2H4 aircraft leased to 
Southwest Airlines, Inc. (the "Southwest Aircraft").  The Partnership will 
receive approximately $378,000 of rental revenue in each of the years in the 
period ending September 30, 1999, and approximately $126,000 in the year 
ending September 30, 2000, pursuant to the Southwest Aircraft lease agreement.


                                     -6-

<PAGE>


                AIRFUND II International Limited Partnership

                     Notes to the Financial Statements

                               (Continued)


  Additionally, in March 1996, the Partnership completed the replacement of 
the United Aircraft with a 14.58% interest in two McDonnell-Douglas MD-82 
Aircraft leased by Finnair OY (the "Finnair Aircraft").  The Partnership will 
receive approximately $640,000 of rental revenue in each of the years in the 
period ending September 30, 1998, and approximately $313,000 in the year 
ending September 30, 1999, pursuant to the Finnair Aircraft lease agreement.

  Effective September 1996, the Partnership re-leased a Boeing 727-251 ADV 
aircraft, formerly on a renewal rental agreement with Northwest Airlines, 
Inc., to Transmeridian Airlines.  The Partnership will receive approximately 
$968,000 of rental revenue in the year ended September 30, 1997, $890,000 in 
the year ended September 30, 1998, and $210,000 in the year ended September 
30, 1999. 


NOTE 4 - RELATED PARTY TRANSACTIONS

  All operating expenses incurred by the Partnership are paid by American 
Finance Group ("AFG") on behalf of the Partnership and AFG is reimbursed at 
its actual cost for such expenditures.  Fees and other costs incurred during 
each of the nine month periods ended September 30, 1996 and 1995, which were 
paid or accrued by the Partnership to AFG or its Affiliates, are as follows:

                                       1996        1995
                                     --------    ---------
  Equipment management fees        $  200,995     $249,134
  Administrative charges               15,750       15,750
  Reimbursable operating expenses
     due to third parties           1,141,401      102,100
                                   ----------     --------
                  Total            $1,358,146     $366,984
                                   ==========     ========


  All rents are paid by the lessees directly to AFG.  AFG temporarily 
deposits collected funds in a separate interest-bearing escrow account prior 
to remittance to the Partnership.  At September 30, 1996, the Partnership was 
owed $188,519 by AFG for such funds and the interest thereon.  These funds 
were remitted to the Partnership in October 1996.


NOTE 5 - EQUIPMENT

  The following is a summary of equipment owned by the Partnership at 
September 30, 1996.  In the opinion of AFG, the acquisition cost of the 
equipment did not exceed its fair market value.




                                     -7-


<PAGE>
                AIRFUND II International Limited Partnership

                     Notes to the Financial Statements

                               (Continued)

<TABLE>
<CAPTION>
                                                         Lease Term      Equipment
     Equipment Type                                       (Months)        at Cost
-------------------------------                          ----------     -------------
<S>                                                      <C>            <C>
One Lockheed L-1011-100 (Cathay)                               --       $  15,879,518
One Boeing 727-208 ADV (ATA)                                   36          12,928,710
One Boeing 727-251 ADV (Transmeridian)                         28           9,732,714
One Lockheed L-1011-50 (Cathay)                                --           6,013,492
Two McDonnell-Douglas MD-82 (Finnair)                          36           4,157,280
Three Boeing 737-2H4 (Southwest)                               49           1,919,500
                                                                         ------------

                                             Total equipment cost          50,631,214

                                         Accumulated depreciation         (36,304,391)
                                                                         ------------
                       Equipment, net of accumulated depreciation        $ 14,326,823
                                                                         ============
</TABLE>


  The costs of the Lockheed L-1011-50 aircraft, the three Boeing 737-2H4 
aircraft and the two McDonnell-Douglas MD-82 aircraft represent proportionate 
ownership interests.  The remaining interests are owned by other affiliated 
partnerships sponsored by AFG.  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 Partnership's portfolio includes a Boeing 727-251 ADV aircraft formerly 
on a renewal rental agreement with Northwest Airlines, Inc.  This aircraft  
was returned upon expiration of its lease term on November 30, 1995 and has 
undergone heavy maintenance, approximately $480,000 of which was incurred or 
accrued  during the nine months ended September 30, 1996.  During the three 
months ended September 30, 1996, the Partnership received $468,133 from the 
former lessee of this aircraft, representing a reimbursement of additional 
maintenance costs previously incurred.  The Partnership entered into a new 
28-month lease agreement with Transmeridian Airlines, to re-lease the 
aircraft effective September 1996.

  In September 1995, the Partnership transferred its 23.19% ownership 
interest in the United Aircraft, pursuant to the rules for a like-kind 
exchange for income tax reporting purposes (See Note 3 herein).  In November 
1995, the Partnership partially replaced the United Aircraft with a 13.11% 
ownership interest in the Southwest Aircraft, at an aggregate cost to the 
Partnership of $1,919,500.  To acquire the interest in the Southwest 
Aircraft, the Partnership obtained financing of $1,432,396 from a third-party 
lender and utilized $487,104 of the cash consideration received from the 
transfer of the United Aircraft. The remaining ownership interest of 86.89% 
in the Southwest Aircraft is held by affiliated equipment leasing programs 
sponsored by AFG.

  Additionally, in March 1996, the Partnership completed the replacement of 
the United Aircraft with a 14.85% ownership interest in the Finnair Aircraft 
at a total cost to the Partnership of $4,157,280.  To acquire the ownership 
interest in the Finnair Aircraft, the Partnership paid $1,389,942 in cash and 
obtained financing of $2,767,338 from a third-party lender.  The remaining 
ownership interest of 85.15% in the Finnair Aircraft is held by affiliated 
equipment leasing programs sponsored by AFG.

  On June 30, 1996, the Lockheed L-1011-50 aircraft, in which the Partnership
has a proportionate ownership interest, was returned by the lessee.  The General
Partner is actively seeking the re-lease of this aircraft.  The Partnership's
Lockheed L-1011-100 was returned to the Partnership upon the expiration of its
renewal lease term, in September 1996 and is currently undergoing heavy
maintenance expected to cost the Partnership

                                     -8-
<PAGE>



                AIRFUND II International Limited Partnership

                     Notes to the Financial Statements

                               (Continued)


approximately $430,000, all of which was incurred or accrued  during the nine 
months ended September 30, 1996. The General Partner is negotiating the 
re-lease of this aircraft.


NOTE 6 - NOTES PAYABLE

  Notes payable at September 30, 1996 consisted of installment notes payable 
to banks of $3,581,414.  The installment notes are non-recourse, with 
interest rates ranging between 8.65% and 8.76% 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 a balloon 
payment obligation at the expiration of the primary lease term related to the 
Finnair Aircraft.  The carrying amount of notes payable approximates fair 
value at September 30, 1996.

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

  For the year ending September 30, 1997        $  707,598
                                    1998           795,950
                                    1999         1,984,730
                                    2000            93,136
                                                ----------
                                    Total       $3,581,414
                                                ==========


NOTE 7 - REMARKETING ACTIVITIES

  During July 1996, the Partnership sold a Boeing 727-200 ADV aircraft having 
a net book value of $3,074,680 to the lessee, Northwest Airlines, Inc.  The 
Partnership received sale proceeds of $3,535,649 and recognized a net gain of 
$460,969 from this transaction.  In addition, the Partnership received lease 
termination rents of $429,351 as the aircraft was sold prior to the 
expiration of the related lease term.  The aircraft represented approximately 
18% of the Partnership's aircraft portfolio and was acquired by the 
Partnership in May 1990 at an aggregate cost of $11,164,679.






                                     -9-

<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.

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THE THREE AND NINE
MONTHS ENDED SEPTEMBER 30, 1995:

OVERVIEW 

  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.  In 1995, the Partnership transferred its 
proportionate ownership interest in one aircraft to the existing lessee, 
United Airlines, Inc., in exchange for proportionate interests in three 
aircraft leased to Southwest Airlines, Inc., pursuant to lease agreements 
which expire in 1999.  During the first quarter of 1996, the Partnership 
completed the replacement of the United Aircraft with proportionate interests 
in two aircraft leased to Finnair OY, pursuant to lease agreements which also 
expire in 1999.  One of the four commercial aircraft held in the 
Partnership's original portfolio was returned to the Partnership in 1995, 
upon the expiration of its lease term, (see "Results in Operations") and in 
September 1996, upon completion of refurbishments, was re-leased to 
Transmeridian Airlines.  The Partnership is actively seeking to re-lease the 
other original aircraft in which it holds a proportionate interest and which 
was returned by the lessee, upon completion of its renewal lease term, in 
June 1996.  In July 1996, the Partnership sold one of its original aircraft 
to the lessee, Northwest Airline, Inc.  At September 30, 1996, the 
Partnership also owned a complete interest in two other aircraft, one of 
which is being leased pursuant to a re-lease agreement which will expire in 
1997, and the second for which a re-lease is being negotiated.  The second 
aircraft was returned by the lessee, upon completion of its renewal lease 
term, in September 1996.  Upon expiration of the primary and renewal lease 
agreements, each aircraft will be re-leased or sold depending on prevailing 
market conditions and the assessment of such conditions by AFG to obtain the 
most advantageous economic benefit. Ultimately, all aircraft will be sold and 
the net proceeds will be distributed to the Partners, after all liabilities 
and obligations of the Partnership have been satisfied.


RESULTS OF OPERATIONS

  For the three and nine months ended September 30, 1996, the Partnership 
recognized lease revenue of $1,398,078 and $4,019,900, respectively, compared 
to $1,678,986 and $4,982,689 for the same periods in 1995.  The decrease in 
lease revenue from 1995 to 1996 was due primarily to lease term expirations 
related to the Partnership's Lockheed L-1011-100 and Boeing 727-251 ADV 
aircraft, and its proportionate interest in a Lockheed L-1011-50.  The 
decrease was partially offset by the effects of the Partnership's aircraft 
exchange (discussed below) which was concluded late in the first quarter of 
1996.  As a result of the exchange, the Partnership replaced its ownership 
interest in a Boeing 747-SP aircraft, having aggregate quarterly lease 
revenues of $149,640, with interests in five other aircraft (three Boeing 737 
aircraft leased by Southwest Airlines, Inc. and two McDonnell Douglas MD-82 
aircraft leased by Finnair OY) having aggregate quarterly lease revenues of 
$254,384.  The Finnair Aircraft was exchanged into the Partnership on March 
25, 1996.  Accordingly, revenue for the nine months ended September 30, 1996 
did not fully reflect the rents ultimately anticipated from the like-kind 
exchange.

  The Partnership's Boeing 727-251 ADV aircraft, formerly on a renewal rental 
agreement with Northwest Airlines, Inc. ("Northwest") was returned upon 
expiration of its lease term on November 30, 1995.  This aircraft has 
undergone heavy maintenance, approximately $480,000 of which was incurred or 
accrued during the nine months ended September 30, 1996.  During the three 
months ended September 30, 1996, the Partnership received

                                     -10-
<PAGE>


                AIRFUND II International Limited Partnership

                                  FORM 10-Q
 
                        PART I.  FINANCIAL INFORMATION


$468,133 from the former lessee of this aircraft, representing a 
reimbursement of additional heavy maintenance costs previously incurred.  In 
September, 1996, the Partnership entered into a new 28-month lease agreement 
with Transmeridian Airlines, to re-lease this aircraft for aggregate rents 
over the lease term of approximately $2,068,000.  

  The Partnership owns a whole and a partial interest in two Lockheed L-1011 
aircraft with former leases to Cathay Pacific Airways Limited ("Cathay").  
The Partnership's original lease agreements with Cathay provided for 
semi-annual rent adjustments based on the six month London Inter-Bank Offered 
Rate ("LIBOR").  Accordingly, rents generated from these leases fluctuated in 
relation to the prevailing LIBOR rate on a semi-annual basis. The 
Partnership's renewal lease agreements with Cathay (having adjusted 
semi-annual rents aggregating $1,353,599) expired on February 14, 1996 and 
were extended until April 11, 1996.  Subsequent to this extension, Cathay 
again extended the lease on one of the aircraft until June 30, 1996 and on 
the other until September 30, 1996, both at fixed rates.  Cathay subsequently 
returned both aircraft to the Partnership upon the expiration of the 
extensions.  Currently, the demand for L-1011 aircraft is weak, limited 
principally to air cargo carriers and operators of passenger charters.  
Several major airlines have reduced their commitment to the L-1011 and, 
currently, a large domestic air carrier is expected to retire eleven L-1011 
aircraft from its fleet.  Such circumstances have inhibited  the remarketing 
of the Partnership's L-1011 aircraft and requires the Partnership to upgrade 
or refurbish the aircraft to meet the needs of a potential successor lessee.  
The Partnership's Lockheed L-1011-100 is currently undergoing heavy 
maintenance expected to cost the Partnership approximately $430,000, all of 
which was incurred or accrued during the nine months ended September 30, 
1996. Accordingly,  until the Partnership's L-1011 aircraft are remarketed, 
the General Partner will continue to reserve a portion of the Partnership's 
cash for such purposes. 

  The Partnership's Boeing 727-208 ADV aircraft is under a three year 
re-lease agreement with American Trans Air, Inc.  The re-lease agreement, 
scheduled to expire in January 1997, provides revenue of $63,500 per month to 
the Partnership.

  The Partnership holds a proportionate ownership interest in the Cathay, 
Southwest and Finnair Aircraft discussed above.  The remaining interests are 
owned by other affiliated partnerships sponsored by AFG.  All partnerships 
individually report, in proportion to their respective ownership interests, 
their respective shares of assets, liabilities, revenues and expenses 
associated with the aircraft.  (See Notes 3 and 5 to the financial 
statements.)

  The Partnership typically earns interest income from temporary investments 
of rental receipts in short-term instruments.  For the three and nine months 
ended September 30, 1996 the Partnership earned interest income of $86,749 
and $220,877, respectively, compared to $41,113 and $126,331 for the same 
periods in 1995.  The increase in interest income in 1996 compared to 1995 is 
a result of interest of $39,346 earned on cash held in a special-purpose 
escrow account in connection with the like-kind exchange transactions 
discussed below and interest earned on sale proceeds associated with the 
Boeing 727-200 ADV aircraft prior to the time such sale proceeds were 
distributed to the Recognized Owners.

  During July 1996, the Partnership sold a Boeing 727-200 ADV jet aircraft 
with an original cost and net book value of $11,164,679 and $3,074,680, 
respectively, to the existing lessee.  In connection with this sale, the 
Partnership realized sale proceeds of $3,535,649, which resulted in a net 
gain, for financial statement purposes, of $460,969.  The Partnership also 
realized lease termination rents of $429,351 in connection with this sale as 
the aircraft was sold prior to the expiration of the related lease term.



                                     -11-


<PAGE>


                AIRFUND II International Limited Partnership

                                  FORM 10-Q
 
                        PART I.  FINANCIAL INFORMATION

  In September 1995, the Partnership transferred its entire ownership 
interest (23.19%) in a Boeing 747-SP aircraft (the "United Aircraft") to its 
lessee, United Air Lines, Inc.  The transaction was structured as a like-kind 
exchange for income tax reporting purposes.  The Partnership received 
aggregate cash consideration of $1,910,907, including $106,411 for rent 
accrued through the transfer date. The net cash consideration of $1,804,496 
was deposited into a special-purpose escrow account through a third-party 
exchange agent pending the completion of the aircraft exchange.  The 
Partnership's interest in the United Aircraft had a net book value of 
$2,301,510 at the date of transfer and resulted in a net loss for financial 
reporting purposes of $497,014.

  In November 1995, the Partnership partially replaced the United Aircraft 
with a 13.11% ownership interest in the Southwest Aircraft, at an aggregate 
cost of $1,919,500.  To acquire the interest in the Southwest Aircraft, the 
Partnership obtained financing of $1,432,396 from a third-party lender and 
utilized $487,104 of the cash consideration received from the transfer of the 
United Aircraft.  The remaining ownership interest of 86.89% in the Southwest 
Aircraft is held by affiliated equipment leasing programs sponsored by AFG.

  Additionally, in March 1996, the Partnership completed the replacement of 
the United Aircraft with a 14.85% ownership interest in two Finnair Aircraft 
at a total cost to the Partnership of $4,157,280.  To acquire the ownership 
interest in the Finnair Aircraft, the Partnership paid $1,389,942 in cash and 
obtained financing of $2,767,338 from a third-party lender.  The remaining 
ownership interest of 85.15% of the Finnair Aircraft is held by affiliated 
equipment leasing programs sponsored by AFG.  The like-kind exchange, 
involving the United, Southwest and Finnair Aircraft, was undertaken, in 
part, to mitigate the Partnership's economic risk resulting from the United 
Aircraft being returned to the Partnership upon its lease expiration in April 
1996 and remaining off-lease for an extended period.  The exchange enabled 
the Partnership to replace a specialized aircraft with other aircraft which 
are used more widely in the industry and also to significantly extend its 
rental stream with two creditworthy lessees.

  During the three and nine months ended September 30, 1996, the Partnership 
incurred interest expense of $79,835 and $198,239, respectively.  Interest 
expense resulted from financing obtained from third-party lenders in 
connection with the Southwest Aircraft and the Finnair Aircraft, described 
above.  Interest expense in future periods will decline as the principal 
balance of notes payable is reduced through the application of rent receipts 
to outstanding debt.

  Management fees were 5% of lease revenue during each of the periods ended 
September 30, 1996 and 1995 and will not change as a percentage of lease 
revenue in future periods.

  Operating expenses consist principally of administrative charges, 
professional service costs, such as audit and legal fees, as well as 
insurance, printing, distribution and remarketing expenses  The increase in 
operating expenses during 1996 compared to 1995 is due primarily to heavy 
maintenance costs incurred in connection with the Boeing 727-251 ADV aircraft 
and the Lockheed L-1011-100 aircraft, discussed above.  During the three 
months ended September 30, 1996, the Partnership received $468,133 from the 
former lessee of the Boeing 727-251 ADV aircraft, representing a 
reimbursement of additional heavy maintenance costs previously incurred.  The 
amount of future operating expenses cannot be predicted with certainty; 
however, such expenses are usually higher during the acquisition and 
liquidation phases of a partnership.  Other fluctuations will occur in 
relation to the volume and timing of aircraft remarketing activities.  
Depreciation and amortization expense was $831,696 and $2,826,205 for the 
three and nine months ended September 30, 1996, respectively, compared to 
$1,222,154 and $3,710,096 for the same periods in 1995.

  The ultimate realization of residual value for any aircraft will be 
dependent upon many factors, including AFG's ability to sell and re-lease the 
aircraft.  Changes in market conditions, industry trends, technological 
advances, and


                                     -12-


<PAGE>


                AIRFUND II International Limited Partnership

                                  FORM 10-Q
 
                        PART I.  FINANCIAL INFORMATION


other events could converge to enhance or detract from asset values at any 
given time.  Accordingly, AFG will attempt to monitor changes in 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 upon final disposition of 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 under re-lease or renewal lease 
agreements. Consequently, the amount of any future gain or loss reported in 
the financial statements may not necessarily be indicative of the total 
residual value the Partnership achieved from leasing the aircraft.


LIQUIDITY AND CAPITAL RESOURCES AND DISCUSSION OF CASH FLOWS

  The Partnership by its nature is a limited life entity which was 
established for specific purposes described in the preceding "Overview".  As 
an 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 
$2,985,490  and $5,287,464 during the nine months ended September 30, 1996 
and 1995, respectively.  The expiration of the Partnership's lease agreements 
related to both its Lockheed L-1011-100 and its proportionate interest in the 
Lockheed L-1011-50 and the sale of a Boeing 727-200 Advanced aircraft will 
cause a decline in the Partnership's future lease revenue and corresponding 
sources of operating cash.  This will be partially offset by rents generated 
in connection with the Southwest Aircraft and the Finnair Aircraft.  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.  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 expended for equipment acquisitions and cash realized form asset 
disposal transactions are reported under investing activities on the 
accompanying Statement of Cash Flows.  During the nine months ended September 
30, 1996, the Partnership expended $72,550 in cash in connection with the 
like-kind exchange transactions referred to above.  There were no equipment 
acquisitions during the same period in 1995.  During the nine months ended 
September 30, 1996, the Partnership realized $3,535,649 in proceeds from the 
sale of a Boeing 727-200 ADV aircraft. There were no equipment sales during 
the same period in 1995.  Future inflows of cash from asset 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 
equipment's condition and age, and future market conditions.

  As described in Results of Operations, the Partnership obtained long-term 
financing in connection with the like-kind exchange transactions involving 
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, a portion or all of 
the rental payment will be used to repay principal and interest.  The 
Partnership has a balloon payment obligation at the expiration of the primary 
lease term related to the Finnair Aircraft.

  Cash distributions to the General Partner and Recognized Owners are 
declared and generally paid within fifteen days following the end of each 
calendar quarter.  The payment of such distributions is presented as a 



                                     -13-


<PAGE>

                AIRFUND II International Limited Partnership

                                  FORM 10-Q
 
                        PART I.  FINANCIAL INFORMATION





component of financing activities.  For the nine months ended September 30, 
1996, the Partnership declared total cash distributions of Distributable Cash 
From Operations and Distributable Cash From Sales and Refinancings of 
$6,384,542.  Of the total distributions, $6,107,955 was allocated to the 
Recognized Owners and $276,587 was allocated to the General Partner.  The 
third quarter 1996 cash distribution was paid on October 15, 1996.

  Cash distributions paid to the Recognized Owners consist of both a return 
of and a return on capital.  To the extent that cash distributions consist of 
Cash From Sales or Refinancings, substantially all of such cash distributions 
should be viewed as a return of capital.  Cash distributions do not represent 
and are not indicative of yield on investment.  Actual yield on investment 
cannot be determined with any certainty until conclusion of the Partnership 
and will be dependent upon the collection of all future contracted rents, the 
generation of renewal and/or re-lease rents, and the residual value realized 
for each aircraft at its disposal date. Future market conditions, 
technological changes, the ability of AFG to manage and remarket the 
aircraft, and many other events and circumstances, could enhance or detract 
from individual asset yields and the collective performance of the 
Partnership's aircraft portfolio.

  Overall, the future liquidity of the Partnership will be greatly dependent 
upon the collection of contractual rents and the outcome of residual 
activities.  The General Partner anticipates that cash proceeds resulting 
from these sources will satisfy the Partnership's future expense obligations. 
 However, the amount of cash available for distribution in future periods is 
expected to fluctuate widely as the General Partner attempts to remarket the 
Partnership's aircraft and possibly upgrade certain aircraft to meet the 
standards of potential successor lessees.

  In June and September 1996, Cathay returned two aircraft, one in which the 
Partnership holds a proportionate interest and a second aircraft owned 
entirely by the Partnership.  These events are expected to present demands on 
the Partnership's cash position, depending upon the extent of upgrades or 
refurbishments necessary to remarket these aircraft.  Accordingly, until 
these aircraft are remarketed, the General Partner will continue to reserve a 
portion of the Partnership's cash for such purposes.  The cash distribution 
for the third quarter of 1996 resulted from proceeds realized from the sale 
of the Partnership's Boeing 727-200 ADV aircraft and a reduction in the 
Partnership's estimated cash reserve requirements.  The General Partner 
anticipates that future cash distributions will be contingent primarily upon 
the realization of sale proceeds from remarketing the Partnership's remaining 
aircraft and the extent of the Partnership's cash reserve requirements.  
Accordingly, the General Partner expects to suspend the declaration of 
quarterly cash distributions between the periods corresponding to major 
remarketing events.





                                     -14-


<PAGE>

                 AIRFUND II International Limited Partnership

                                   FORM 10-Q

                           PART II.  OTHER INFORMATION



     Item 1.            Legal Proceedings
                        Response:  None

     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












                                     -15-



<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 14, 1996
                              ---------------------------------------------




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


                        Date: November 14, 1996
                              ---------------------------------------------




                                     -16-