<PAGE>   1

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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                      ------------------------------------

                                   FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED FEBRUARY 29, 2000

                                       OR

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

FOR THE TRANSITION PERIOD FROM             TO

                        COMMISSION FILE NUMBER 333-56575
                      ------------------------------------

                        MORGAN STANLEY AIRCRAFT FINANCE
            Exact Name of Registrant as specified in trust agreement

<TABLE>
<S>                                            <C>
                   DELAWARE                                      13-3521640
         (State or other jurisdiction                         I.R.S. Employer
      of incorporation or organization)                    Identification Number
</TABLE>

                          C/O WILMINGTON TRUST COMPANY
                           1100 NORTH MARKET STREET,
                              RODNEY SQUARE NORTH
                              WILMINGTON, DELAWARE
                                   19890-0001
                                 (302-651-1000)
             (Address and telephone number, including area code, of
                    Registrant's principal executive office)

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

     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 CORPORATE ISSUERS:

     Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
                                                                                     OUTSTANDING AT
ISSUER                                                              CLASS            APRIL 1, 2000
-------------------------------------------------------------------------------------------------------
<S>                                                          <C>                 <C>
Morgan Stanley Aircraft Finance............................  Beneficial Interest          One
-------------------------------------------------------------------------------------------------------
</TABLE>

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>   2

                        MORGAN STANLEY AIRCRAFT FINANCE

               FORM 10-Q FOR THE QUARTER ENDED FEBRUARY 29, 2000

                                     INDEX

<TABLE>
<CAPTION>
                                                              PAGE NO.
                                                              --------
<S>                                                           <C>
PART I. FINANCIAL INFORMATION...............................      2
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)....................      2
  -- Interim Condensed Consolidated Financial Statements
     (Unaudited)............................................      2
  -- Notes to the Interim Condensed Consolidated Financial
     Statements (Unaudited).................................      6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
        CONDITION AND RESULTS OF OPERATIONS.................     13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
        MARKET RISK.........................................     22
PART II. OTHER INFORMATION..................................     24
ITEM 1. NOT APPLICABLE
ITEM 2. NOT APPLICABLE
ITEM 3. NOT APPLICABLE
ITEM 4. NOT APPLICABLE
ITEM 5. NOT APPLICABLE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K....................     24
SIGNATURES..................................................     25
INDEX TO EXHIBITS...........................................     26
APPENDIX 1. CASH ANALYSIS OF FINANCIAL CONDITION AND RESULTS
            OF OPERATIONS...................................     27
</TABLE>

                                        1
<PAGE>   3

                         PART I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                MORGAN STANLEY AIRCRAFT FINANCE AND SUBSIDIARIES

                 INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                  FEB 29,       NOV 30,
                                                                   2000           1999
                                                                -----------    ----------
                                                                (UNAUDITED)
<S>                                                             <C>            <C>
                           ASSETS
Cash and cash equivalents...................................    $   39,391     $   35,119
Receivables:
  Lease income, net.........................................         2,041          1,908
  Investment income and other...............................           183            161
Aircraft under operating leases, net........................       874,286        886,051
Investment in capital lease, net............................        17,382         18,300
Underwriting and other issuance related costs, net of
  amortization..............................................        15,655         15,935
                                                                ----------     ----------
Total Assets................................................    $  948,938     $  957,474
                                                                ==========     ==========
    LIABILITIES AND BENEFICIAL INTERESTHOLDER'S DEFICIT
Payables:
  Interest payable to Noteholders...........................    $    2,397     $    2,481
Deferred rental income......................................         5,650          5,318
Liability for maintenance...................................        64,935         57,437
Other liabilities...........................................        11,033         11,376
Notes payable:
  Subclass A-1..............................................       400,000        400,000
  Subclass A-2..............................................       229,516        234,533
  Subclass B-1..............................................        90,044         91,023
  Subclass C-1..............................................        99,910         99,987
  Subclass D-1..............................................       110,000        110,000
                                                                ----------     ----------
                                                                 1,013,485      1,012,155
                                                                ----------     ----------
Commitments and contingencies
Beneficial Interestholder's Deficit:
  Beneficial Interest.......................................             1              1
  Deemed Distribution.......................................       (15,305)       (15,305)
  Accumulated Deficit.......................................       (49,243)       (39,377)
                                                                ----------     ----------
  Total Beneficial Interestholder's Deficit.................       (64,547)       (54,681)
                                                                ----------     ----------
Total Liabilities and Beneficial Interestholder's Deficit...    $  948,938     $  957,474
                                                                ==========     ==========
</TABLE>

     See Notes to Interim Condensed Consolidated Financial Statements
(Unaudited)

                                        2
<PAGE>   4

                MORGAN STANLEY AIRCRAFT FINANCE AND SUBSIDIARIES

            INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                          THREE MONTHS ENDED    THREE MONTHS ENDED
                                                          FEBRUARY 29, 2000     FEBRUARY 28, 1999
                                                          ------------------    ------------------
                                                                        (UNAUDITED)
<S>                                                       <C>                   <C>
Revenues:
  Lease income, net...................................        $  25,716             $  27,088
  Investment income on collection account.............              539                   431
                                                              ---------             ---------
  Total revenues......................................           26,255                27,519
                                                              ---------             ---------
Expenses:
  Interest expense....................................           15,245                16,349
  Depreciation expense................................           11,765                11,765
  Operating expenses:
     Service provider and other fees..................            1,682                 2,047
     Maintenance and other aircraft related costs.....            7,429                 1,072
                                                              ---------             ---------
  Total expenses......................................           36,121                31,233
                                                              ---------             ---------
Net loss..............................................        $  (9,866)            $  (3,714)
                                                              =========             =========
</TABLE>

     See Notes to Interim Condensed Consolidated Financial Statements
(Unaudited)

                                        3
<PAGE>   5

                MORGAN STANLEY AIRCRAFT FINANCE AND SUBSIDIARIES
            INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                          THREE MONTHS ENDED    THREE MONTHS ENDED
                                                          FEBRUARY 29, 2000     FEBRUARY 28, 1999
                                                          ------------------    ------------------
                                                                        (UNAUDITED)
<S>                                                       <C>                   <C>
Cash flows from operating activities
  Net loss............................................        $  (9,866)            $  (3,714)
  Adjustments to reconcile net loss to net cash
     provided by operating activities:
  Depreciation expense -- aircraft under operating
     leases...........................................           11,765                11,765
  Amortization of underwriting and other issuance
     related costs....................................              280                   280
  Provision for doubtful accounts.....................              920                 3,041
  Changes in assets and liabilities:
     Receivables:
       Investment income and other....................              (22)                   33
       Lease income...................................             (377)               (1,048)
     Investment in capital lease......................              242                   606
     Liability for maintenance........................            7,498                 1,819
     Interest payable to Noteholders..................              (84)                 (144)
     Deferred rental income...........................              332                  (638)
     Other liabilities................................             (343)               (1,279)
                                                              ---------             ---------
Net cash provided by operating activities.............           10,345                10,721
                                                              ---------             ---------
Cash flows from financing activities
  Repayments of Notes.................................           (6,073)              (10,149)
                                                              ---------             ---------
Net cash used for financing activities................           (6,073)              (10,149)
                                                              ---------             ---------
Net increase in cash and cash equivalents.............            4,272                   572
Cash and cash equivalents at beginning of period......           35,119                34,850
                                                              ---------             ---------
Cash and cash equivalents at end of period............        $  39,391             $  35,422
                                                              =========             =========
</TABLE>

     See Notes to Interim Condensed Consolidated Financial Statements
(Unaudited)

                                        4
<PAGE>   6

                MORGAN STANLEY AIRCRAFT FINANCE AND SUBSIDIARIES

             INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN
                      BENEFICIAL INTERESTHOLDER'S DEFICIT
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                              TOTAL
                                                                                            BENEFICIAL
                                               BENEFICIAL      DEEMED      ACCUMULATED   INTERESTHOLDER'S
                                                INTEREST    DISTRIBUTION     DEFICIT         DEFICIT
                                               ----------   ------------   -----------   ----------------
                                                                      (UNAUDITED)
<S>                                            <C>          <C>            <C>           <C>
Balance at November 30, 1998................    $      1      $(15,305)     $(31,445)        $(46,749)
Net loss....................................          --            --        (3,714)          (3,714)
                                                --------      --------      --------         --------
Balance at February 28, 1999................    $      1      $(15,305)     $(35,159)        $(50,463)
                                                ========      ========      ========         ========
</TABLE>

<TABLE>
<CAPTION>
                                                                                              TOTAL
                                                                                            BENEFICIAL
                                               BENEFICIAL      DEEMED      ACCUMULATED   INTERESTHOLDER'S
                                                INTEREST    DISTRIBUTION     DEFICIT         DEFICIT
                                               ----------   ------------   -----------   ----------------
                                                                      (UNAUDITED)
<S>                                            <C>          <C>            <C>           <C>
Balance at November 30, 1999................    $      1      $(15,305)     $(39,377)        $(54,681)
Net loss....................................          --            --        (9,866)          (9,866)
                                                --------      --------      --------         --------
Balance at February 29, 2000................    $      1      $(15,305)     $(49,243)        $(64,547)
                                                ========      ========      ========         ========
</TABLE>

     See Notes to Interim Condensed Consolidated Financial Statements
(Unaudited)

                                        5
<PAGE>   7

                MORGAN STANLEY AIRCRAFT FINANCE AND SUBSIDIARIES

  NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1 -- BASIS OF PRESENTATION

     Morgan Stanley Aircraft Finance ("MSAF") is a special purpose business
trust that was formed on October 30, 1997 under the laws of Delaware. MSAF and
its subsidiaries ("MSAF Group") were formed to conduct certain limited
activities, including acquiring, financing, re-financing, owning, leasing,
re-leasing, selling, maintaining and modifying commercial aircraft. At February
29, 2000, all of the beneficial interest of MSAF Group was owned by Morgan
Stanley Financing, Inc. ("MSF"), a wholly-owned subsidiary of Morgan Stanley
Dean Witter & Co. ("MSDW"). MSAF Group's obligations, including its financial
debt obligations, are not obligations of, or guaranteed by, MSDW, MSF or any
person other than MSAF Group.

     The interim condensed consolidated financial statements are prepared in
accordance with generally accepted accounting principles, which require
management to make estimates and assumptions that affect the financial
statements and related disclosures. Management believes that the estimates
utilized in the preparation of the interim condensed consolidated financial
statements are prudent and reasonable. Actual results could differ materially
from these estimates.

     All material intercompany transactions have been eliminated.

     The interim condensed consolidated financial statements should be read in
conjunction with MSAF Group's consolidated financial statements and notes
thereto as of and for the fiscal year ended November 30, 1999 ("Fiscal 1999").
The interim condensed consolidated financial statements reflect all adjustments
(consisting only of normal recurring adjustments) which are, in the opinion of
management, necessary for the fair statement of the results for the interim
period. The results of operations for interim periods are not necessarily
indicative of results for the entire year.

     Certain reclassifications have been made to prior year amounts to conform
to the current presentation.

     New Accounting Pronouncement

     In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133"), which establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. As issued,
SFAS No. 133 was effective for fiscal years beginning after June 15, 1999. In
June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments
and Hedging Activities -- Deferral of the Effective Date of FASB Statement No.
133". SFAS No. 137 deferred the effective date of SFAS No. 133 for one year to
fiscal years beginning after June 15, 2000. MSAF Group is in the process of
evaluating the impact of adopting SFAS No. 133.

NOTE 2 -- CONCENTRATIONS OF CREDIT RISK

     Credit risk with respect to operating lease receivables is generally
diversified due to the number of lessees comprising MSAF Group's customer base
and the different geographic areas in which they operate. At February 29, 2000
MSAF Group had leased aircraft to 27 lessees in 19 countries.

     Certain of MSAF Group's lessees are in a relatively weak financial position
because of the difficult economic conditions in the civil aviation industry as a
whole and because, in general, weakly capitalized airlines are more likely to
seek operating leases. In addition, at February 29, 2000, 11 of MSAF Group's
aircraft were leased to lessees domiciled in certain emerging market nations,
including those located in Eastern Europe, the Middle East, Latin America and
Asia. The exposure of MSAF Group's aircraft to particular countries and
customers is managed partly through concentration limits and partly through
obtaining security from lessees by way of deposits.

                                        6
<PAGE>   8
                MORGAN STANLEY AIRCRAFT FINANCE AND SUBSIDIARIES

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) --
                                  (CONTINUED)

NOTE 3 -- AIRCRAFT

<TABLE>
<CAPTION>
                                                                FEB 29, 2000    NOV 30, 1999
                                                                ------------    ------------
                                                                   (DOLLARS IN THOUSANDS)
<S>                                                             <C>             <C>
Stage 3 Aircraft and one engine:
Cost........................................................      $972,030        $972,030
Less: Accumulated depreciation..............................       (97,744)        (85,979)
                                                                  --------        --------
                                                                  $874,286        $886,051
                                                                  ========        ========
     Aircraft cost includes $38.7 million of maintenance liabilities that MSAF Group assumed
at the date of purchase.
FLEET ANALYSIS:
On lease for a further period of:
More than five years........................................             9               9
From one to five years......................................            21              20
Less than one year..........................................             2               3
                                                                  --------        --------
Total aircraft portfolio (including one engine) on lease....            32              32
                                                                  ========        ========
</TABLE>

     At February 29, 2000 there were four non-revenue earning aircraft in MSAF
Group's portfolio. Three of these were subject to lease agreements and one was
subject to a non-binding letter of intent for lease. At November 30, 1999 there
was one non-revenue earning aircraft in MSAF Group's portfolio.

NOTE 4 -- INVESTMENT IN CAPITAL LEASE

     One of MSAF Group's aircraft has been leased to a customer under a
sales-type capital lease. The components of MSAF Group's investment in this
lease are as follows:

<TABLE>
<CAPTION>
                                                                FEB 29, 2000    NOV 30, 1999
                                                                ------------    ------------
                                                                   (DOLLARS IN THOUSANDS)
<S>                                                             <C>             <C>
Minimum lease payments receivable...........................      $ 28,084        $ 28,733
Less: Allowance for doubtful accounts.......................          (676)             --
                                                                  --------        --------
Net minimum lease payments receivable.......................        27,408          28,733
Less: Unearned income.......................................       (10,026)        (10,433)
                                                                  --------        --------
Net investment in capital lease.............................      $ 17,382        $ 18,300
                                                                  ========        ========
</TABLE>

     At February 29, 2000, minimum lease payments for each of the five
succeeding fiscal years were $3.7 million.

     Unearned income is recognized over the term of the lease using the interest
method.

     The provision for doubtful accounts related to this lease of $0.7 million
for the three months ended February 29, 2000 is recorded as a reduction of lease
income revenues in the Interim Condensed Consolidated Statements of Operations.

     The lessee associated with this capital lease has been experiencing severe
financial difficulties and has been adversely affected by economic uncertainty
in Latin America and the devaluation of the Brazilian currency in January 1999.
As a result, in August 1999 MSAF Group and the lessee agreed to modify the terms
of the existing capital lease by increasing the total rental payments to be
received and by extending the lease term. The balances of the net minimum lease
payments receivable and unearned income have been adjusted to reflect the
amended terms of the capital lease.

                                        7
<PAGE>   9
                MORGAN STANLEY AIRCRAFT FINANCE AND SUBSIDIARIES

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) --
                                  (CONTINUED)

     Since February 29, 2000, International Lease Finance Corporation ("ILFC"),
the servicer of MSAF Group's aircraft portfolio, has advised MSAF Group that it
is in the process of repossessing this aircraft.

NOTE 5 -- LEASE INCOME RECEIVABLE

     Lease income receivable was as follows:

<TABLE>
<CAPTION>
                                                                FEB 29, 2000    NOV 30, 1999
                                                                ------------    -------------
                                                                   (DOLLARS IN THOUSANDS)
<S>                                                             <C>             <C>
Lease income receivable.....................................      $  2,648        $  2,271
Less: Allowance for doubtful accounts.......................          (607)           (363)
                                                                  --------        --------
Lease income receivable, net................................      $  2,041        $  1,908
                                                                  ========        ========
</TABLE>

     The provision for doubtful accounts of $0.2 million for the three months
ended February 29, 2000 is recorded as a reduction of lease income revenues in
the Interim Condensed Consolidated Statements of Operations.

     Activity in the allowance for doubtful accounts was as follows:

<TABLE>
<CAPTION>
                                                          THREE MONTHS ENDED    THREE MONTHS ENDED
                                                             FEB 29, 2000          FEB 28, 1999
                                                          ------------------    ------------------
                                                                   (DOLLARS IN THOUSANDS)
<S>                                                       <C>                   <C>
Balance, beginning of period..........................         $    363              $    553
Provision for doubtful accounts.......................              244                 1,647
                                                               --------              --------
Balance, end of period................................         $    607              $  2,200
                                                               ========              ========
</TABLE>

NOTE 6 -- LIABILITY FOR MAINTENANCE

     Activity in the liability for maintenance account was as follows:

<TABLE>
<CAPTION>
                                                          THREE MONTHS ENDED
                                                             FEB 29, 2000          FISCAL 1999
                                                          ------------------    ------------------
                                                                   (DOLLARS IN THOUSANDS)
<S>                                                       <C>                   <C>
Balance, beginning of period..........................         $ 57,437              $ 52,489
Collections from lessees..............................            2,689                17,709
Reimbursements to lessees.............................           (1,767)              (11,872)
Net accruals and transfers............................            6,576                  (889)
                                                               --------              --------
Balance, end of period................................         $ 64,935              $ 57,437
                                                               ========              ========
</TABLE>

NOTE 7 -- NOTES PAYABLE

     On March 3, 1998, MSAF Group completed an offering of $1,050 million of
securitized notes (the "Notes") on a basis exempt from registration under the
Securities Act of 1933, as amended. During fiscal 1999, MSAF Group filed a
registration statement with the Securities and Exchange Commission (the "SEC")
with respect to an exchange offer for exchange Notes with terms virtually
identical to the Notes which was declared effective on January 12, 1999. The
exchange offer was consummated on January 18, 1999. With the exception of MSAF
Group, the Notes are not obligations of, or guaranteed by, MSDW or any of its
subsidiaries, including MSF.

     Underwriting and other issuance related costs of $17.9 million which were
incurred in connection with the offering are being amortized over the expected
life of the Notes.

                                        8
<PAGE>   10
                MORGAN STANLEY AIRCRAFT FINANCE AND SUBSIDIARIES

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) --
                                  (CONTINUED)

     The repayment terms of each subclass of Notes are such that certain
principal amounts are expected to be repaid based on certain assumptions (the
"Expected Final Payment Date") or refinanced through the issuance of new Notes,
but in any event are ultimately due for repayment on specified final maturity
dates (the "Final Maturity Date"). The Expected Final Payment Dates, Final
Maturity Dates and interest rates applicable to each subclass of the Notes are
listed below:

<TABLE>
<CAPTION>
                                INITIAL
                               PRINCIPAL
                                 AMOUNT                         EXPECTED FINAL    FINAL MATURITY
SUBCLASS OF NOTE             (IN THOUSANDS)    INTEREST RATE     PAYMENT DATE          DATE
----------------             --------------    -------------    --------------    --------------
<S>                          <C>               <C>              <C>               <C>
Subclass A-1.............       $400,000        LIBOR+0.21%     March 15, 2000    March 15, 2023
Subclass A-2.............        340,000        LIBOR+0.35%     Sept. 15, 2005    March 15, 2023
Subclass B-1.............        100,000        LIBOR+0.65%     March 15, 2013    March 15, 2023
Subclass C-1.............        100,000              6.90%     March 15, 2013    March 15, 2023
Subclass D-1.............        110,000              8.70%     March 15, 2014    March 15, 2023
</TABLE>

     The dates on which principal repayments on the Notes will actually occur
will depend on the cash flows generated by the rental income from MSAF Group's
portfolio of aircraft. Amounts received by MSAF Group are available for
distribution and are paid in accordance with the priorities specified in the
Indenture relating to the Notes.

     Cash paid for interest on the Notes amounted to $15.5 million for both the
three month periods ended February 29, 2000 and February 28, 1999.

     The estimated fair value of the Notes outstanding was $897.6 million and
$902.9 million at February 29, 2000 and November 30, 1999, respectively.

NOTE 8 -- LIQUIDITY FACILITIES

     MSAF Group requires liquidity in order to finance many of its primary
business activities, including maintenance obligations, security deposit return
obligations, operating expenses and obligations under the Notes. MSAF Group's
primary sources of liquidity are cash bank deposits and letters of credit.

     MSAF Group's cash account (the "Collection Account") is primarily funded
through the receipt of rental payments from lessees.

     In connection with the issuance of the Notes, the Company entered into two
credit agreements. Under a Custody and Loan Agreement (the "ILFC Facility")
between ILFC and MSAF Group, ILFC will hold substantially all of the cash
security deposits paid by certain lessees with respect to MSAF Group's aircraft
portfolio and will retain the interest earnings on such security deposits. In
addition, ILFC has agreed to extend loans to MSAF Group in a maximum amount of
$10 million plus the aggregate amount of cash security deposits held by ILFC.
Under a Loan Agreement (the "MSDW Facility") between MSDW and MSAF Group, MSDW
has agreed to extend loans in a maximum amount of $10 million.

     As of February 29, 2000, the aggregate amount available under the ILFC
Facility and the MSDW Facility was approximately $39.6 million.

NOTE 9 -- DERIVATIVE FINANCIAL INSTRUMENTS

     The leasing revenues of MSAF Group are generated primarily from rental
payments. Rental payments are currently entirely fixed but may be either fixed
or floating with respect to leases entered into in the future. In general, an
interest rate exposure arises to the extent that MSAF Group's fixed and floating
interest
                                        9
<PAGE>   11
                MORGAN STANLEY AIRCRAFT FINANCE AND SUBSIDIARIES

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) --
                                  (CONTINUED)

obligations in respect of the Notes do not correlate to the mix of fixed and
floating rental payments for different rental periods. This interest rate
exposure can be managed through the use of interest rate swaps and other
derivative instruments. The Subclass A-1, A-2 and B-1 Notes bear floating rates
of interest and the Subclass C-1 and D-1 Notes bear fixed rates of interest.
MSAF Group is a party to seven interest rate swaps with Morgan Stanley Capital
Services Inc. ("MSCS"), a wholly-owned subsidiary of MSDW. In five of these
swaps, MSAF Group pays a fixed monthly coupon and receives one month LIBOR on a
total notional balance of $900 million and in two of these swaps, MSAF Group
pays one month LIBOR and receives a fixed monthly coupon on a total notional
balance of $200 million.

     Three of the swaps, having an aggregate notional principal amount of $700
million, are accounted for as hedges of the Notes. Under these swap
arrangements, MSAF Group pays fixed and receives floating amounts on a monthly
basis. The fair value of the liability assumed relating to those swaps which are
being accounted for as hedges is being deferred and recognized when the
offsetting gain or loss is recognized on the hedged transaction. This amount and
the differential payable or receivable on such interest rate swap contracts, to
the extent such swaps are deemed to be hedges, is recognized as an adjustment to
interest expense. Gains and losses resulting from the termination of such
interest rate swap contracts prior to their stated maturity are deferred and
recognized when the offsetting gain or loss is recognized on the hedged
transaction. The fair value of these interest rate swaps at February 29, 2000
was $12.0 million.

     The remaining four swaps have an aggregate gross notional principal amount
of $400 million. Under these swap arrangements, MSAF Group pays/receives fixed
and receives/pays floating amounts on a monthly basis. MSAF Group determined
that these swaps do not qualify for hedge accounting. The fair value of the
liability assumed related to these swaps is accounted for on a mark-to-market
basis with changes in fair value reflected in interest expense. At February 29,
2000, the fair value of these swaps was $(6.3) million.

     The gross notional amounts of these swaps are indicative of MSAF Group's
degree of use of such swaps but do not represent MSAF Group's exposure to credit
or market risk. Credit risk arises from the failure of the counterparty to
perform according to the terms of the swap contract. MSAF Group's exposure to
credit risk at any point in time is represented by the fair value of the swap
contracts reported as assets. MSAF Group does not currently require collateral
to support swap contracts with credit risk. The credit risk of these swap
contracts is monitored by MSAF Group's Trustees.

     MSAF Group does not utilize derivative financial instruments for trading
purposes.

NOTE 10 -- RELATED PARTY TRANSACTIONS

     Under service agreements with MSAF Group, Cabot Aircraft Services Limited
and Morgan Stanley & Co. Incorporated, both subsidiaries of MSDW, act as
Administrative Agent and Financial Advisor, respectively. During the three month
period ended February 29, 2000, Cabot Aircraft Services Limited received a fee
of $0.4 million for providing these services, which is calculated as a
percentage of the operating lease rentals received. Morgan Stanley & Co.
Incorporated received advisory fees of $0.01 million in this period.

     MSAF Group's counterparty to its interest rate swap agreements is MSCS, a
wholly-owned subsidiary of MSDW.

     At February 29, 2000, MSAF Group's management was comprised of six
trustees, including the Delaware trustee, as MSAF Group has no employees or
executive officers. Three of MSAF Group's six trustees were employees of MSDW.
The two remaining trustees and the Delaware trustee were unaffiliated with MSDW.

                                       10
<PAGE>   12
                MORGAN STANLEY AIRCRAFT FINANCE AND SUBSIDIARIES

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) --
                                  (CONTINUED)

NOTE 11 -- COMMITMENTS

     MSAF Group did not have any material contractual commitments for capital
expenditures at February 29, 2000.

     In accordance with the terms of a servicing agreement (the "Servicing
Agreement"), ILFC (the "Servicer") is performing certain aircraft related
activities with respect to MSAF Group's aircraft portfolio. Such activities
include marketing MSAF Group's aircraft for lease or sale and monitoring lessee
compliance with lease terms including terms relating to payment, maintenance and
insurance. In accordance with the Servicing Agreement, fees payable to ILFC by
MSAF Group are calculated as a percentage of the lease rentals contracted and
received, in addition to a base fee and certain incentive-based fees.

     The Servicing Agreement expires in 2023, although each party has the right
to terminate the Servicing Agreement under certain circumstances.

NOTE 12 -- SUBSEQUENT EVENTS

     AIRCRAFT PURCHASES AND SECURITIZED NOTE ISSUANCE

     On March 15, 2000, MSAF Group acquired a portfolio of 29 commercial
aircraft having an aggregate cost of approximately $1,025.3 million from a
subsidiary of MSDW. All but one of the 29 aircraft were delivered on March 15,
2000. The remaining aircraft, a B737-300 on lease to Lithuanian Airlines, is
subject to a financing that will terminate before April 30, 2000 and is
scheduled to deliver to MSAF Group at this time. These purchases were financed
by the net proceeds from MSAF Group's placement of securitized notes as
discussed below and by a capital contribution from MSF.

     On March 15, 2000, MSAF Group completed an offering of $1,310 million of
securitized notes (the "New Notes") on a basis exempt from registration under
the Securities Act of 1933, as amended. MSAF Group used the net proceeds from
the New Notes to finance in part the purchase of the 29 aircraft from a
subsidiary of MSDW and to redeem all $400 million of its Subclass A-1 Notes. The
New Notes will rank equally in right of payment of principal and interest with
the corresponding subclasses of MSAF Group's existing Notes.

     The initial principal amount, interest rate, Expected Final Payment Dates
and Final Maturity Dates applicable to each subclass of the New Notes are listed
below:

<TABLE>
<CAPTION>
                                      INITIAL
                                  PRINCIPAL AMOUNT                      EXPECTED FINAL         FINAL
SUBCLASS OF NOTE                   (IN THOUSANDS)     INTEREST RATE      PAYMENT DATE      MATURITY DATE
----------------                  ----------------    -------------    ----------------    --------------
<S>                               <C>                 <C>              <C>                 <C>
Subclass A-3..................      $    580,000      LIBOR + 0.52%      March 15, 2002    March 15, 2025
Subclass A-4..................           200,000      LIBOR + 0.54%      March 15, 2003    March 15, 2025
Subclass A-5..................           400,000      LIBOR + 0.58%      March 15, 2008    March 15, 2025
Subclass B-2..................            75,000      LIBOR + 1.05%      March 15, 2007    March 15, 2025
Subclass C-2..................            55,000              9.60%    October 15, 2016    March 15, 2025
</TABLE>

     If the Subclass A-3, A-4 or B-2 notes are not repaid on or before their
respective Expected Final Payment Dates, MSAF Group will pay additional interest
of 1.00% per annum on the Subclass A-3 and A-4 notes and 1.50% per annum on the
Subclass B-2 notes, until such notes are repaid in full.

     MSAF Group is obligated to use its best efforts to consummate an exchange
offer (the "Exchange Offer") pursuant to which the New Notes would be exchanged
for substantially similar securities issued pursuant to an effective
registration statement under the Securities Act of 1933. If the Exchange Offer
is not consummated or a registration statement is not declared effective on or
prior to December 10, 2000, thereafter

                                       11
<PAGE>   13
                MORGAN STANLEY AIRCRAFT FINANCE AND SUBSIDIARIES

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) --
                                  (CONTINUED)

an additional incremental interest amount will accrue on each subclass of the
New Notes, at an annual rate of 0.50%. Such additional incremental interest will
be payable until the date that the Exchange Offer is consummated or until such
time as MSAF Group causes a shelf registration statement with respect to resales
of the New Notes to become effective.

     In connection with the offering of the New Notes, on March 15, 2000, MSF
transferred the beneficial interest of MSAF Group to MSDW Aircraft Holdings, a
wholly-owned subsidiary of MSF, and the number of trustees of MSAF Group was
increased to seven, with the appointment of a fourth MSDW employee as the
additional trustee.

                                       12
<PAGE>   14

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

INTRODUCTION

     The MSAF Group entities were organized in late 1997 and since that time
their principal business activity has been the acquisition of aircraft and the
placement of such aircraft on operating lease. MSAF Group's future business is
expected to consist principally of aircraft operating lease activities,
acquisitions of additional aircraft and sales of aircraft. Cash flows generated
from such activities will be used to service interest and principal on the
Notes, any refinancing notes and any additional notes but only after various
expenses of MSAF Group have been paid for, including any taxes, obligations to
lessees including maintenance obligations, fees and expenses of ILFC and other
service providers and payments to MSAF Group's interest rate swap
counterparties.

     MSAF Group's ability to generate sufficient cash from its aircraft assets
to service the Notes will depend primarily on (i) the rental rates it can
achieve on leases and the lessees' ability to perform according to the terms of
those leases and (ii) the prices it can achieve on any aircraft sales. MSAF
Group's ability to service the Notes will also depend on the level of its
operating expenses, including maintenance obligations which will increase as the
aircraft age, and any unforeseen contingent liabilities arising.

     MSAF Group's cash receipts and disbursements are determined, in part, by
the overall economic condition of the operating leasing market. The operating
leasing market, in turn, is affected by various cyclical factors including the
level and volatility of interest rates, the availability of credit, fuel costs
and general and regional economic conditions affecting lessee operations and
trading; manufacturer production levels; passenger demand; retirement and
obsolescence of aircraft models; manufacturers exiting or entering the market or
ceasing to produce aircraft types; re-introduction into service of aircraft
previously in storage; governmental regulation; and air traffic control
infrastructure constraints such as limitations on the number of landing slots.

     MSAF Group's ability to compete against other lessors is determined, in
part, by (i) the composition of its fleet in terms of mix, relative age and
popularity of the aircraft types; (ii) operating restrictions imposed by the
Indenture, and (iii) the ability of other lessors, who may possess substantially
greater financial resources, to offer leases on more favorable terms than MSAF
Group.

     Any statements contained herein that are not historical facts, or that
might be considered an opinion or projection, whether expressed or implied, are
meant as, and should be considered, forward-looking statements as that term is
defined in the Private Securities Litigation Reform Act of 1995. Forward-looking
statements are based on assumptions and opinions concerning a variety of known
and unknown risks. If any assumptions or opinions prove incorrect, any
forward-looking statements made on that basis may also prove materially
incorrect.

RECENT DEVELOPMENTS

     ACQUISITION OF ADDITIONAL AIRCRAFT

     On March 15, 2000, MSAF Group acquired a portfolio of 29 commercial
aircraft from a subsidiary of MSDW. All but one of the 29 aircraft were
delivered on March 15, 2000. The remaining aircraft, a B737-300 on lease to
Lithuanian Airlines, is subject to a financing that will terminate before April
30, 2000 and is scheduled to deliver to MSAF Group at this time. These aircraft
were subject to lease contracts with 23 lessees in 16 countries. The acquisition
was financed by the issuance of additional securitized notes and by a capital
contribution from MSF.

     THE AIRCRAFT

     As of February 29, 2000, the total number of aircraft owned by MSAF Group
was 32 aircraft plus an engine. As of February 29, 2000, 31 aircraft and the
engine were subject to lease contracts (or in one case, a conditional sale
agreement) with 27 lessees in 19 countries. As of February 29, 2000, the
aircraft under two of the lease contracts had not been delivered to the
respective lessee. One was delivered on April 1, 2000 and the

                                       13
<PAGE>   15

other is scheduled for delivery on April 22, 2000. MSAF Group's one off-lease
aircraft is subject to a non-binding letter of intent for lease.

     LESSEE DIFFICULTIES

     As of April 1, 2000, four current lessees were in arrears. The total amount
outstanding and overdue for the four lessees in respect of rental payments,
maintenance reserves and other miscellaneous amounts due under the leases
(excluding restructured arrears) amounted to $3.3 million. MSAF Group holds
security deposits of $1.9 million against these arrears. The weighted average
number of days past due of such arrears was 77 days.

     REGIONAL ANALYSIS OF EXISTING ARREARS

     The categorization of countries into geographical regions, Developed
Markets, Emerging Markets and Other is determined using Morgan Stanley Capital
International, Inc. ("MSCI") designations.

     EUROPE AND MIDDLE EAST (EMERGING)

     One of the four current lessees in arrears, Air Alfa, is based in the
Europe and Middle East (Emerging) region. At April 1, 2000, the total rental and
maintenance arrears owed by this lessee was $1.8 million against which MSAF
Group holds a security deposit of $0.7 million. The obligations of Air Alfa
under the lease are guaranteed by its parent company, Kombassan Holdings, and
the Servicer has instituted legal steps in Turkey to draw down upon the
guarantee. A repossession notice was served on March 23, 2000 by Turkish
counsel.

     EUROPE (DEVELOPED)

     At April 1, 2000, none of the lessees in this region were in arrears.

     In January 2000, MSAF Group reached an agreement with TransAer to defer
$0.6 million of rental and maintenance obligations. Repayment of the rental
arrears plus interest is scheduled to be made over a five week period beginning
on June 16, 2000. Repayment of the maintenance reserve plus interest is
scheduled to be made in three monthly installments beginning on June 1, 2000.
MSAF Group holds security deposits of $0.6 million against TransAer's deferred
arrears.

     ASIA (EMERGING)

     At April 1, 2000 none of the lessees in this region were in arrears.

     LATIN AMERICA (EMERGING)

     Two of the four current lessees in arrears are based in Latin America, both
in Brazil.

     The rental arrears of a current Brazilian lessee, VASP, were restructured
in March 1999. Repayment of the arrears plus interest was scheduled to begin in
August 1999 and end in January 2000. On February 10, 2000 the lessee made a
payment of $1.3 million in full settlement of its current and deferred arrears
up to January 31, 2000. As of April 1, 2000, the amount of arrears owed by VASP
was $0.4 million, against which MSAF Group holds a security deposit of $0.7
million.

     The second current Brazilian lessee has been operating one A310-300 subject
to a capital lease. In August 1999, MSAF Group and the lessee agreed to modify
the terms of the existing capital lease by increasing the total rental payments
to be received and by extending the lease term. As of April 1, 2000, $1.0
million of current arrears, representing approximately 96 days of rental, were
due and unpaid. Since February 29, 2000, the Servicer has advised MSAF Group
that it is in the process of repossessing this aircraft.

     In July 1999, a former Brazilian lessee, VARIG, negotiated early
termination of a B747-300 lease that was scheduled to expire in April 2003. The
total amount of rental payments and maintenance reserves due under this lease
through July 1999, the date of the termination agreement, was $4.8 million,
against which MSAF Group drew down a security deposit of $1.1 million. The
former lessee, under the provisions of a
                                       14
<PAGE>   16

restructuring agreement, has agreed to repay arrears of $4.8 million and
approximately $6.0 million for certain maintenance and downtime costs over the
next eight years. Payments to MSAF Group will be made semi-annually beginning
October 15, 1999 with final payment due on October 15, 2007. The first payment
of $0.4 million under this agreement was due and paid in October 1999.
Maintenance work on this aircraft is completed and the aircraft was re-leased to
Air Atlanta Icelandic in March 2000. Recently, the re-leasing market for the
B747-300 aircraft has been severely affected by overcapacity in the widebody
market in general and for this aircraft type in particular. The new lease rate
for this aircraft is approximately 20% of the previous rental reflecting the
significant fall in demand for this aircraft type and the current level of
oversupply. Future lease rentals for this type of aircraft will, in part, depend
on the state of the Asian economies, where demand for these aircraft and other
widebodies has been strongest in the past.

     TAESA, a former Mexican lessee, defaulted on its obligations under its
lease of a B737-400 aircraft and the aircraft was repossessed in December 1999.
The lease was scheduled to expire in May 2001. The total amount of rental
payments and maintenance reserves due under the lease at the date of
repossession was $0.6 million. This amount was partially offset by a security
deposit of $0.5 million. On February 21, 2000, a court in Mexico declared TAESA
bankrupt. It is uncertain whether MSAF Group will be able to recover the $0.1
million outstanding from TAESA. The aircraft is currently the subject of a
non-binding letter of intent for lease with a carrier based in the Middle East.

     NORTH AMERICA (DEVELOPED)

     At April 1, 2000 none of the lessees in this region were in arrears.

     On February 2, 2000, Canadian Airlines announced a debt restructuring and
moratorium plan. The plan resulted in a suspension of payments of approximately
$135 million to lenders and aircraft lessors, including MSAF Group. In March
2000, MSAF Group reached an agreement with the lessee to restructure the lease
by slightly reducing the lease rate effective from February 2000 and extending
the lease term by four years to May 2010. The lessee's security deposit of $0.3
million was used to fund the February rental. In March 2000, the lessee resumed
rental payments and made a partial payment toward recouping the security deposit
balance. At the same time, the lease was assigned to a subsidiary of Air Canada,
Air Canada Capital Limited.

     OTHER

     One of the four current lessees in arrears is based in the Other region. At
April 1, 2000, maintenance reserves owed by IcelandAir were $0.1 million against
which MSAF Group holds a security deposit of $0.5 million.

     EARLY TERMINATION OPTION TO BE EXERCISED

     One lessee based in the Europe (Developed) region has notified MSAF Group
that it intends to exercise the early termination option in its lease. The
aircraft, a B737-500, is subject to a lease that commenced in April 1998 and was
scheduled to expire in April 2003. The lease will now terminate in April 2001. A
termination fee of one month's rental is payable to MSAF Group.

     NEW AIRCRAFT SAFETY STANDARDS

     The United States Federal Aviation Administration ("FAA") has issued two
pending Notices of Proposed Rule Making ("NPRM") relevant to MSAF Group's
portfolio. One NPRM, issued on August 11, 1999, relates to fire safety standards
in certain types of aircraft. As proposed, the resulting Airworthiness Directive
("AD"), which would apply to MSAF Group's MD-82 and MD-83 aircraft, would
require operators of those aircraft to replace the current fire insulation
blankets. The second NPRM, issued on October 28, 1999, relates to improving fuel
tank safety in certain types of aircraft. As proposed, the resulting AD, which
would apply to almost all of MSAF Group's aircraft, would require operators of
those aircraft to develop and implement an FAA approved maintenance and
inspection program for fuel tanks. It is not currently known whether these NPRMs
will result in ADs. Under the leases for the aircraft that would be affected,
all costs of compliance with ADs are the obligations of the lessees.
                                       15
<PAGE>   17

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED FEBRUARY 29, 2000,
AND THE THREE MONTHS ENDED FEBRUARY 28, 1999

     NET LOSS

     For the three month period ended February 29, 2000, MSAF Group incurred a
net loss of ($9.9) million, as compared to a net loss of ($3.7) million for the
three month period ended February 28, 1999. The increase in net loss reflects
lower rental revenues and higher maintenance and other aircraft related costs,
partially offset by a decrease in interest expense.

     MSAF Group is a Delaware business trust treated as a branch of MSF for U.S.
federal, state and local income tax purposes. As such, MSAF Group is not subject
to U.S. federal, state and local income taxes.

     LEASE INCOME

     Lease income for the three month period ended February 29, 2000 amounted to
$25.7 million as compared to $27.1 million for the three month period ended
February 28, 1999. The decrease in lease income is due to certain aircraft being
re-leased in less favorable market conditions, coupled with lost revenues
associated with four grounded aircraft. These decreases were partially offset by
a lower provision for doubtful accounts.

     MSAF Group's operating results for the three month period ended February
29, 2000 were adversely affected by provisions for doubtful accounts totaling
$0.9 million. Such provisions were recorded by MSAF Group due to financial
difficulties experienced by certain of MSAF Group's current lessees, as well as
to reserve against amounts owed to MSAF Group by certain of its former lessees
whose aircraft have already been repossessed (see "LESSEE DIFFICULTIES").
Provisions for doubtful accounts were $3.0 million in the three month period
ended February 28, 1999. Lease income may decline in future periods due to
potential lessee defaults and arrears including those discussed above.

     MSAF Group records the cash prepayments made by lessees for maintenance as
a component of the liability for maintenance account which appears on the
Interim Condensed Consolidated Balance Sheets. When the lessee incurs
maintenance expenditures, MSAF Group must return a corresponding amount of the
prepayment to the lessee. At this time, MSAF Group will forward cash to the
lessee, with a corresponding decrease to the liability for maintenance account.
MSAF Group will only reimburse the lessee for the cost of maintenance
expenditures to the extent that sufficient prepayments have been made by the
lessee. At the time an aircraft is re-leased to a new lessee, an assessment is
made of the expected maintenance reserve requirements; any excess reserve is
then released to lease income. No maintenance reserves were released to lease
income in the three month periods ended February 29, 2000 and February 28, 1999.

     INVESTMENT INCOME

     Investment income for the three month period ended February 29, 2000
amounted to $0.5 million as compared to $0.4 million in the three month period
ended February 28, 1999. Investment income represents interest income on MSAF
Group's cash and cash equivalents.

     INTEREST EXPENSE

     Interest expense, net of swap income of $0.3 million, amounted to $15.2
million for the three month period ended February 29, 2000. Interest expense,
including swap costs of $0.8 million, amounted to $16.3 million for the three
month period ended February 28, 1999. Interest expense relates to the interest
paid on the Notes which were issued on March 3, 1998. The decline in interest
expense is due to lower average principal balances of the Notes during the three
month period ended February 29, 2000 as compared to the prior year period. The
weighted average interest rate on the Subclass A-1 to D-1 Notes during the three
month period ended February 29, 2000 was 6.56% as compared to 6.28% during the
three month period ended February 28, 1999. The average debt in respect of the
Subclass A-1 to D-1 Notes during the three month period ended February 29, 2000
was $931.9 million as compared to $973.8 million during the three month period
ended February 28, 1999.
                                       16
<PAGE>   18

     MSAF Group is a party to seven interest rate swaps with Morgan Stanley
Capital Services Inc. ("MSCS"), a wholly-owned subsidiary of MSDW. In five of
these swaps, MSAF Group pays a fixed monthly coupon and receives one month LIBOR
on a notional balance of $900 million and in two of these swaps, MSAF Group pays
one month LIBOR and receives a fixed monthly coupon on a notional balance of
$200 million.

     Three of the swaps, having an aggregate notional principal amount of $700
million, are accounted for as hedges of the Notes. Under these swap
arrangements, MSAF Group pays fixed and receives floating amounts on a monthly
basis. The fair value of the liability assumed relating to those swaps which are
being accounted for as hedges is being deferred and recognized when the
offsetting gain or loss is recognized on the hedged transaction. This amount and
the differential payable or receivable on such interest rate swap contracts, to
the extent such swaps are deemed to be effective hedges for accounting purposes,
are recognized as an adjustment to interest expense.

     The remaining four swaps have an aggregate gross notional principal amount
of $400 million. Under these swap arrangements, MSAF Group pays/receives fixed
and receives/pays floating amounts on a monthly basis. MSAF Group determined
that these swaps do not qualify for hedge accounting. The fair value of the
liability assumed related to these swaps is accounted for on a mark-to-market
basis with changes in fair value reflected in interest expense.

     See "Interest Rate Risk Management" below for more information regarding
MSAF Group's swaps positions and hedging policy.

     DEPRECIATION

     Depreciation expense amounted to $11.8 million for both the three month
periods ended February 29, 2000 and February 28, 1999.

     OPERATING EXPENSES

     Service Provider and Other Fees.  Service provider and other fees for the
three month period ended February 29, 2000 were $1.7 million as compared to $2.0
million in the three month period ended February 28, 1999. The most significant
element in both periods was the aircraft servicing fee paid to ILFC, which
amounted to $1.0 million in the three month period ended February 29, 2000 and
$1.3 million in the three month period ended February 28, 1999. A significant
portion of the fees paid to ILFC are calculated as a percentage of contracted
rentals. Accordingly, the lower fees paid to ILFC in the three month period
ended February 29, 2000 reflected the lower level of contracted rental revenues
during the period. MSAF Group's service provider expenses also included $0.4
million in respect of administrative agency and cash management fees in both the
three month periods ended February 29, 2000 and February 28, 1999.

     Maintenance and Other Aircraft Related Costs.  Maintenance and other
aircraft related costs for the three month period ended February 29, 2000 were
$7.4 million as compared to $1.1 million for the three month period ended
February 28, 1999. The increase was primarily attributable to certain
maintenance and redelivery costs to be incurred by MSAF Group associated with
two aircraft previously leased to Oman Air and one aircraft previously leased to
TAESA. Such costs are necessary to prepare the aircraft for new lessees (see
"LESSEE DIFFICULTIES").

     Included within maintenance and other aircraft related costs were
insurance, re-leasing and other costs incurred in the three month period ended
February 29, 2000, which amounted to $0.4 million, as compared to $0.6 million
for the three month period ended February 28, 1999. It is expected that
re-leasing costs will increase over the next several months due to costs
relating to reconfiguring aircraft for new lessees upon redelivery.

FINANCIAL RESOURCES AND LIQUIDITY

     Refer to Appendix 1 for additional information regarding the cash
performance of MSAF Group for the period from November 16, 1999 to February 15,
2000.
                                       17
<PAGE>   19

     LIQUIDITY

     MSAF Group's cash and cash equivalents at February 29, 2000 were $39.4
million. Of this amount, $25 million represents the cash portion of the
Liquidity Reserve Amount (as defined below) and $14.4 million represents rental
and maintenance receipts and cash held for accrued expenses.

     In addition to the $25 million cash portion at February 29, 2000, the
Liquidity Reserve Amount also contained $39.6 million of undrawn credit and
liquidity facilities from MSDW and ILFC.

     CASH FLOWS FROM OPERATING ACTIVITIES

     Operating cash flows depend on many factors including the performance of
lessees and MSAF Group's ability to re-lease aircraft, the average interest
rates of the Notes, the effectiveness of MSAF Group's interest rate hedging
policies and whether MSAF Group will be able to refinance certain subclasses of
Notes that may not be repaid with lease cash flows.

     Net cash provided by operating activities for the three month period ended
February 29, 2000 amounted to $10.3 million, principally reflecting non-cash
depreciation expense of $11.8 million, a net loss of ($9.9) million and an
increase in the liability for maintenance account of $7.5 million.

     Net cash provided by operating activities for the three month period ended
February 28, 1999 amounted to $10.7 million, principally reflecting non-cash
depreciation expense of $11.8 million, a net loss of ($3.7) million and an
increase in the provision for doubtful accounts of $3.0 million.

     CASH FLOWS FROM INVESTING AND FINANCING ACTIVITIES

     In both the three month periods ended February 29, 2000 and February 28,
1999, MSAF Group did not utilize any cash for investing activities.

     Cash flows used for financing activities were $6.1 million in the three
month period ended February 29, 2000 and $10.1 million in the three month period
ended February 28, 1999. In both periods, net cash used for financing activities
reflected repayments of principal on the Notes.

     INDEBTEDNESS

     MSAF Group's indebtedness primarily consisted of the Subclass A-1 to D-1
Notes in the amount of $929.5 million at February 29, 2000.

     LIQUIDITY RESERVE AMOUNT

     The "LIQUIDITY RESERVE AMOUNT" is intended to serve as a source of
liquidity for MSAF Group's maintenance obligations, security deposit return
obligations, operating expenses, contingent liabilities and Note obligations.
The Liquidity Reserve Amount may be funded with cash and letters of credit,
guarantees or other credit support instruments ("ELIGIBLE CREDIT FACILITIES")
provided by, or supported with further Eligible Credit Facilities provided by, a
person (an "ELIGIBLE PROVIDER") whose short-term unsecured debt is rated P-1 by
Moody's Investors Service, A-1+ by Standard & Poor's, or D-1+ by Duff & Phelps
or is otherwise designated as an Eligible Provider by the Controlling Trustees.
Both the ILFC facility discussed below under "-- ILFC Facility" and the MSDW
facility discussed below under "-- MSDW Facility" are Eligible Credit Facilities
and comprise part of the Liquidity Reserve Amount. There are currently no other
Eligible Credit Facilities in place.

     The Liquidity Reserve Amount was approximately $64.6 million on February
29, 2000. The "MINIMUM LIQUIDITY RESERVE AMOUNT" may be funded with cash and
with Eligible Credit Facilities and was approximately $15 million on February
29, 2000. The Liquidity Reserve Amount and the Minimum Liquidity Reserve Amount
may be increased or decreased from time to time for any reason (including upon
acquisitions of additional aircraft) by an action of the Controlling Trustees in
light of changes in, inter alia, the condition of the Aircraft, the terms and
conditions of the leases, the financial condition of the lessees, sales of
aircraft and prevailing industry conditions; provided that MSAF Group will
obtain confirmation in advance in
                                       18
<PAGE>   20

writing from the rating agencies that any proposed reduction in the Liquidity
Reserve Amount or the Minimum Liquidity Reserve Amount will not result in a
lowering or withdrawal by any of the rating agencies of their respective ratings
of any Notes.

     If the balance of cash on deposit, together with the amount available for
drawing under any Eligible Credit Facilities, should fall below the Liquidity
Reserve Amount at any time (including as a result of MSAF Group's determination
that the Liquidity Reserve Amount should be increased, as required by the rating
agencies or otherwise), MSAF Group may continue to make all payments, and any
credit or liquidity enhancement facilities may be drawn to fund such payments,
including required payments on the Notes, which rank prior to, or equally with,
payments of the minimum principal payment amount on the class D Notes under the
Indenture and any Permitted Accruals other than in respect of Modification
Payments, provided that the balance of cash on deposit, together with the amount
available for drawing under any Eligible Credit Facilities, does not fall below
the Minimum Liquidity Reserve Amount at its then current level. "MODIFICATION
PAYMENTS" are any capital expenditures for the purpose of effecting any optional
improvement or modification of any aircraft, or for the optional conversion of
any aircraft from a passenger aircraft to a freighter or mixed-use aircraft, for
the purpose of purchasing or otherwise acquiring any engines or parts outside of
the ordinary course of business. "PERMITTED ACCRUALS" are amounts in respect of
expenses and costs that are not regular, monthly recurring expenses, including
Modification Payments and refinancing expenses, if any, anticipated to become
due and payable in any future interest accrual period. However, the balance of
cash on deposit, together with the amount available for drawing under any
Eligible Credit Facilities, may fall below the Minimum Liquidity Reserve Amount
at its then current level and MSAF Group may continue to make payments of, and
any credit or liquidity enhancement facilities may be drawn to fund such
payments, all accrued and unpaid interest on any subclass of the most senior
class of Notes then outstanding to avoid an event of default, with respect to
the Notes and, on the final maturity date of any subclass thereof, principal of,
any subclass of the most senior class of Notes then outstanding to avoid an
event of default with respect to the Notes.

     Amounts drawn under any Eligible Credit Facility will either be repayable
at the third level in the priority of payments, as set forth in the Indenture
before the First Collection Account Top-Up (any such facility, a "PRIMARY
ELIGIBLE CREDIT FACILITY") or at the 11th level in the priority of payments,
before the Second Collection Account Top-Up (any such facility, a "SECONDARY
ELIGIBLE CREDIT FACILITY"). The "FIRST COLLECTION ACCOUNT TOP-UP" is the amount,
if positive, equal to (A) the Minimum Liquidity Reserve Amount less (B) amounts
available for drawing under any Primary Eligible Credit Facilities. The "SECOND
COLLECTION ACCOUNT TOP-UP" is the amount, if positive, equal to (A) the
Liquidity Reserve Amount less (B) an amount equal to cash amounts reserved at
the third level in the priority of payments plus amounts available for drawing
under any Eligible Credit Facilities.

     The Liquidity Reserve Amount and the Minimum Liquidity Reserve Amount have
been determined largely based on an analysis of historical experience,
assumptions regarding MSAF Group's future experience and the frequency and cost
of certain contingencies in respect of the aircraft currently owned by MSAF
Group, and are intended to provide liquidity for meeting the cost of maintenance
obligations and non-maintenance, aircraft-related contingencies such as removing
regulatory liens, complying with airworthiness directives (AD's), repossessing
and re-leasing aircraft. In analyzing the future impact of these costs,
assumptions have been made regarding their frequency and amount based upon
historical experience. There can be no assurance, however, that historical
experience will prove to be relevant in the future or that actual cash received
by MSAF Group in the future will not be significantly less than that assumed.
Any significant variation may materially adversely affect the ability of MSAF
Group to make payments of interest and principal on the Notes.

     ILFC FACILITY

     Under the ILFC facility, ILFC will hold certain security deposits with
respect to the aircraft currently owned by MSAF Group as custodian for the
benefit of the MSAF Group. ILFC will hold all cash security deposits paid with
respect to the aircraft in MSAF Group's initial portfolio other than, (i)
amounts determined in good faith by ILFC to be no longer held on behalf of a
lessee, whether upon expiry of or default
                                       19
<PAGE>   21

under the applicable lease or otherwise, and (ii) any cash security deposits in
an amount exceeding three months' rent with respect to a single aircraft and
paid by a single lessee. Any interest accruing on amounts of aircraft security
deposits that are being held by ILFC will generally accrue for the benefit of
ILFC.

     In addition, under the ILFC facility, ILFC will make loans to MSAF Group
which MSAF Group may use for the same purposes as those for which the Liquidity
Reserve Amount may be applied as discussed above under "-- Liquidity Reserve
Amount," including to pay interest and minimum principal payment amounts payable
under the Indenture on the Notes. ILFC's obligation to make such amounts
available shall be limited to the ILFC facility commitment which was
approximately $29.6 million on February 29, 2000. The ILFC facility commitment
shall be equal to, (i) at any time before an early termination of the Servicing
Agreement for a reason other than a sale of all the aircraft in MSAF Group's
current portfolio or the repayment or defeasance of MSAF Group's debt (a
"FACILITY REDUCTION EVENT"), the sum of, (A) $10 million plus, (B) total
security deposits held by ILFC for the benefit of MSAF Group at such time minus,
(C) all drawings previously made by MSAF Group under the ILFC facility and
required to be repaid to ILFC but not repaid at such time, and (ii) at any time
from and after a Facility Reduction Event, $10 million minus all ILFC facility
drawn amounts required to be repaid to ILFC but not repaid at such time.

     The ILFC facility is a Secondary Eligible Credit Facility and, accordingly,
on the Note payment date following any drawing on the ILFC facility, MSAF Group
will be obligated, to the extent there are available collections remaining after
payment of the minimum principal payment amount on the class D Notes under the
Indenture, to repay ILFC facility drawn amounts to ILFC, together with interest
accrued thereon at 3% per annum, calculated on the basis of a 360-day year
consisting of twelve 30-day months and compounded daily.

     ILFC's agreement to provide the ILFC facility will expire on the earliest
of (i) May 26, 2023, (ii) a sale of all the aircraft, and (iii) the repayment or
defeasance of all MSAF Group's debt.

     At any time and for so long as ILFC is not an Eligible Provider, ILFC's
obligations under the ILFC facility will be supported by an Eligible Credit
Facility satisfactory to MSAF Group provided by an Eligible Provider at ILFC's
expense (a "BACK-UP FACILITY").

     MSAF Group may borrow under the ILFC facility, (i) in order to pay interest
and minimum principal payment amounts on the Notes, (ii) upon a downgrade in the
short-term unsecured debt rating of the provider of the Back-Up Facility such
that it is no longer an Eligible Provider, and (iii) upon failure by the
provider of the Back-Up Facility to renew the Back-Up Facility (the events
described in clause (ii) and (iii), each, a "SUSPENSION EVENT"). If for any
reason ILFC fails to make any loan requested when due, MSAF Group may draw on
the Back-Up Facility.

     In the event of a loan by ILFC, or a drawing on the Back-Up Facility, in a
Suspension Event (a "SUSPENSION DRAWING"), MSAF Group will hold the drawing
proceeds and such proceeds will comprise part of the cash portion of the
Liquidity Reserve Amount. In the event of any drawing, the obligation to
reimburse the provider of the Back-Up Facility shall be solely ILFC's obligation
and the provider of the Back-Up Facility shall have no recourse to MSAF Group
for any such amounts that are not reimbursed by ILFC.

     Immediately following and after giving effect to any Suspension Drawing,
ILFC shall set off and apply the security deposits held by it on the date of
such Suspension Drawing on MSAF Group's behalf against the principal amount of
any ILFC facility drawn amounts then outstanding, which shall be deemed repaid
in the amount of such set-off and application. After giving effect to such
set-off and application, MSAF Group shall be obliged to repay only up to $10
million of any outstanding ILFC facility drawn amounts unless and until ILFC has
procured, at its expense, a replacement Back-Up Facility acceptable to MSAF
Group. MSAF Group shall be obliged to pay interest on the proceeds of a
Suspension Drawing at 3% per annum, calculated on the basis of a 360-day year
consisting of twelve 30-day months and compounded daily.

     On March 15, 2000, in connection with MSAF Group's acquisition of a
portfolio of 29 commercial aircraft and issuance of the New Notes, the ILFC
facility commitment increased by $10 million.

                                       20
<PAGE>   22

     MSDW FACILITY

     Under the MSDW facility, MSDW will make loans to MSAF Group which MSAF
Group may use for the same purposes as those for which the Liquidity Reserve
Amount may be applied as discussed above under "-- Liquidity Reserve Amount,"
including to pay interest and minimum principal payment amounts on the Notes.
MSDW's obligation to make such amounts available shall be limited to the MSDW
facility commitment. The MSDW facility commitment, at any time, shall be equal
to the sum of, (A) $10 million minus, (B) all drawings previously made by MSAF
Group under the MSDW facility and not repaid at such time.

     The MSDW facility is a Secondary Eligible Credit Facility and, accordingly,
on the Note payment date following any drawing on the MSDW facility, MSAF Group
will be obligated, to the extent that there are Available Collections remaining
after payment of the minimum principal payment amount on the class D Notes, to
repay MSDW facility drawn amounts to MSDW, together with interest accrued
thereon at 3% per annum, calculated on the basis of a 360-day year consisting of
twelve 30-day months and compounded daily.

     MSDW's agreement to provide the MSDW facility will expire on the earlier of
(i) a sale of all the aircraft, and (ii) the repayment or defeasance of all MSAF
Group's debt. MSDW has been designated by the Controlling Trustees as an
Eligible Provider. MSDW's long-term unsecured debt is currently rated Aa3 by
Moody's, A+ by Standard & Poor's and AA by Duff & Phelps.

     On March 15, 2000, in connection with MSAF Group's acquisition of a
portfolio of 29 commercial aircraft and issuance of the New Notes, the MSDW
facility commitment increased by $20 million.

     OTHER FACILITIES

     There are currently no Primary Eligible Credit Facilities in place. MSAF
Group may put in place other Eligible Credit Facilities from time to time, each
of which shall be designated by the Controlling Trustees as a Primary Eligible
Credit Facility or a Secondary Eligible Credit Facility. In addition, MSAF Group
may from time to time put in place other credit or liquidity enhancement
facilities which are not Eligible Credit Facilities. Amounts drawn under any
such other facilities are repayable at the 11th level in the order of
priorities, before the Second Collection Account Top-Up.

                                       21
<PAGE>   23

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

INTEREST RATE SENSITIVITY

     MSAF Group's principal market risk exposure is to changes in interest
rates. This exposure arises from its Notes and the derivative instruments used
to manage interest rate risk.

     The terms of each subclass of the Notes, including the outstanding
principal amount and estimated fair value as of February 29, 2000 were as
follows:

<TABLE>
<CAPTION>
                         OUTSTANDING                                                                ESTIMATED FAIR
                       PRINCIPAL AMOUNT        ANNUAL                                                    VALUE
                       AT FEBRUARY 29,      INTEREST RATE       EXPECTED FINAL     FINAL MATURITY   AT FEBRUARY 29,
SUBCLASS OF NOTE             2000         (PAYABLE MONTHLY)      PAYMENT DATE           DATE             2000
----------------       ----------------   -----------------   ------------------   --------------   ---------------
                           ($000'S)                                                                    ($000'S)
<S>                    <C>                <C>                 <C>                  <C>              <C>
Subclass A-1.........      $400,000         LIBOR + 0.21%         March 15, 2000   March 15, 2023      $400,000
Subclass A-2.........       229,516         LIBOR + 0.35%     September 15, 2005   March 15, 2023       229,085
Subclass B-1.........        90,044         LIBOR + 0.65%         March 15, 2013   March 15, 2023        87,610
Subclass C-1.........        99,910                 6.90%         March 15, 2013   March 15, 2023        85,236
Subclass D-1.........       110,000                 8.70%         March 15, 2014   March 15, 2023        95,700
</TABLE>

INTEREST RATE RISK MANAGEMENT

     The leasing revenues of MSAF Group are generated primarily from rental
payments. Rental payments are currently entirely fixed but may be either fixed
or floating with respect to future leases. In general, an interest rate exposure
arises to the extent that MSAF Group's fixed and floating interest obligations
in respect of the Notes do not correlate to the mix of fixed and floating rental
payments for different rental periods. This interest rate exposure can be
managed through the use of interest rate swaps and other derivative instruments.
The subclass A-1, A-2 and B-1 Notes bear floating rates of interest and the
subclass C-1 and D-1 Notes bear fixed rates of interest.

     As of February 29, 2000, MSAF Group was a party to seven interest rate
swaps with MSCS. In five of these swaps MSAF Group paid a fixed monthly coupon
and received one month LIBOR and in two of these swaps MSAF Group paid one month
LIBOR and received a fixed monthly coupon on the notional balances as set out
below:

<TABLE>
<CAPTION>
                                                                                        ESTIMATED FAIR
                                                                                             VALUE
NOTIONAL                                              FIXED MONTHLY    FIXED MONTHLY    AT FEBRUARY 29,
BALANCE      EFFECTIVE DATE        MATURITY DATE        PAY RATE       RECEIVE RATE          2000
--------    -----------------    -----------------    -------------    -------------    ---------------
($000'S)                                                   (%)              (%)            ($000'S)
<S>         <C>                  <C>                  <C>              <C>              <C>
 300,000    November 12, 1997    November 15, 2000       6.1325               --           $    602
 200,000    November 12, 1997    November 15, 2002       6.2150               --              4,078
 200,000    November 12, 1997    November 15, 2004       6.2650               --              7,366
 150,000    November 12, 1997    November 15, 2007       6.3600               --              8,036
  50,000    November 12, 1997    November 15, 2009       6.4250               --              3,060
 150,000    February 19, 1998    November 15, 2007           --            5.860            (12,496)
  50,000    February 19, 1998    November 15, 2009           --            5.905             (4,881)
</TABLE>

     MSAF Group regularly reviews its hedging requirements. In the future MSAF
Group expects to seek to enter into additional swaps or sell at market value or
unwind part or all of the initial and any future swaps in order to rebalance the
fixed and floating mix of interest obligations (including those arising as a
result of previous interest rate swaps entered into) and the fixed and floating
mix of rental payments.

     Through the use of interest rate swaps, and other interest rate hedging
products, it is MSAF Group's policy not to be adversely exposed to material
movements in interest rates. MSAF Group's interest rate management strategy will
need to be rebalanced with any acquisition of additional aircraft to reflect the
adjusted mix of fixed and floating rate rental payments arising from any such
acquisition. There can be no
                                       22
<PAGE>   24

assurance, however, that MSAF Group's interest rate risk management strategies
will be effective in this regard. Any change to MSAF Group's policy with regard
to its dealing in interest rate hedging products will be subject to periodic
review by the rating agencies.

     The Controlling Trustees are responsible for reviewing and approving the
overall interest rate management policies and transaction authority limits.
Counterparty risk will be monitored on an ongoing basis. Counterparties will be
subject to the prior approval of the Controlling Trustees. MSAF Group's current
counterparty is an affiliate of MSDW. Future counterparties will consist
primarily of the affiliates of major United States and European financial
institutions (including special-purpose derivative vehicles) which have credit
ratings, or which provide collateralization arrangements, consistent with
maintaining the ratings of the Notes.

     The change in the fair value of the seven interest rate swaps between
November 30, 1999 and February 29, 2000 was entirely due to changes in market
interest rates.

                                       23
<PAGE>   25

                          PART II.  OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

     (a)  Exhibits

        27.1 Financial Data Schedule.

     (b)  Reports on Form 8-K: During the three-month period to which this
          report relates, MSAF filed the following Reports on Form 8-K, on the
          dates indicated:

        (i)   February 11, 2000 (superseded by an Amended Current Report on Form
             8-K/A filed on February 28, 2000), January 13, 2000 and December
             13, 1999 (each containing a monthly report to holders of the
             Notes);

        (ii)  February 14, 2000 (containing a cash analysis of financial
             condition and results of operations for the twelve-month period
             from December 1, 1998 through November 30, 1999); and

        (iii) February 15, 2000 (containing indicative information relating to
             the effect of the issuance of the New Notes on certain
             characteristics of the Notes, under a preliminary structure for the
             New Notes).

                                       24
<PAGE>   26

                                   SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

Date: April 14, 2000
                                          MORGAN STANLEY AIRCRAFT FINANCE

                                          By:      /s/ ALEXANDER FRANK
                                            ------------------------------------
                                                      Alexander Frank
                                                     Signatory Trustee

                                       25
<PAGE>   27

                        MORGAN STANLEY AIRCRAFT FINANCE

                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C>        <S>
 27.1      Financial Data Schedule
</TABLE>

                                       26
<PAGE>   28

                                   APPENDIX I

                        MORGAN STANLEY AIRCRAFT FINANCE

         CASH ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
             THREE MONTH PERIOD FROM DECEMBER 1999 TO FEBRUARY 2000

                                       27
<PAGE>   29

                                    CONTENTS

<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
I   Background and General Information......................  29
II  Comparison of Actual Cash Flows versus the 1998 Base      31
      Case for the First Quarter 2000.......................
III Other Financial Data....................................  37
IV  Recent Developments.....................................  38
     Appendices.............................................  43
</TABLE>

                                       28
<PAGE>   30

                     I  BACKGROUND AND GENERAL INFORMATION

     Morgan Stanley Aircraft Finance ("MSAF"), a Delaware business trust, is a
special purpose vehicle which owns aircraft subject to operating leases. Under
the terms of its Indenture MSAF may acquire additional aircraft and sell
aircraft from the Fleet. Any acquisition of additional aircraft will be subject
to certain confirmations with respect to the Notes from rating agencies and
compliance with certain operating covenants of MSAF set out in the Indenture.

INITIAL PORTFOLIO

     On March 3, 1998, MSAF, issued $1,050 million of Notes in connection with
its acquisition of 33 aircraft plus an engine with a total appraised value at
September 30, 1997 of $1,115.5 million from International Lease Finance
Corporation ("ILFC"). All but one of the 33 aircraft was acquired by MSAF.

NEW ISSUANCE

     On March 15, 2000, MSAF refinanced the A-1 subclass Notes of $400 million
as part of a total issuance of $1,310 million of New Notes in five subclasses
(A-3, A-4, A-5, B-2 and C-2). In addition to the refinancing of the A-1
subclass, these Notes were issued in association with MSAF's acquisition of 29
aircraft with a total appraised value of $1,047.8 million as of November 30,
1999 from a subsidiary of Morgan Stanley Dean Witter & Co. ("MSDW"). MSAF
acquired all but one of the 29 aircraft on March 15, 2000. The remaining
aircraft, a B737-300 on lease to Lithuanian Airlines, is subject to a financing
that will terminate before April 30, 2000 and is scheduled to deliver to MSAF at
this time. MSDW acquired two aircraft from an affiliate of GE Capital
Corporation on March 19, 1999 and 27 aircraft from ILFC on August 6, 1999.

COMBINED FLEET

     As a result, the overall size of the combined aircraft fleet is now 61
aircraft plus an engine with a total appraised value of $2,000.9 million as of
November 30, 1999. As of April 1, 2000, MSAF had 61 lease contracts in effect
with 42 lessees based in 25 countries and one aircraft was off-lease as shown in
Appendix A attached.

     The discussion and analysis that follows in Section II is based on the
results of MSAF and its subsidiaries as a single entity (collectively the "MSAF
GROUP") for the reporting periods from December 1999 to February 2000. This
relates to the Initial Portfolio and the 1998 Base Case against which the actual
performance is compared. This period was prior to the New Issuance and the
aircraft acquisition on March 15, 2000 and therefore relates to the Initial
Portfolio of 32 aircraft only. The discussion and analysis in Section IV --
"Recent Developments" relates to the combined fleet of 61 aircraft plus an
engine.

     MSAF Group's cash receipts and disbursements are determined, in part, by
the overall economic condition of the operating leasing market. The operating
leasing market, in turn, is affected by various cyclical factors. These include
the level and volatility of interest rates, the availability of credit, fuel
costs and both general and regional economic conditions affecting lessee
operations and trading. Other factors to consider are manufacturer production
levels, passenger demand, retirement and obsolescence of aircraft models,
manufacturers exiting or entering the market or ceasing to produce aircraft
types or re-introduction into service of aircraft previously in storage. In
addition, state regulations and air traffic control infrastructure constraints,
such as limitations on the number of landing slots, can also impact the
operating leasing market.

     MSAF Group's ability to compete against other lessors is determined, in
part, by the composition of its fleet in terms of mix, relative age and
popularity of aircraft type. In addition, operating restrictions imposed by the
Indenture, and the ability of other lessors, who may possess substantially
greater financial resources, to offer leases on more favorable terms than MSAF
Group, may also impact MSAF Group's ability to compete against other lessors.

     For the purposes of this report, the "FIRST QUARTER 2000", referred to in
Section II -- "Comparison of Actual Cash Flows versus the 1998 Base Case for the
First Quarter 2000" shall comprise information from the monthly cash reports
dated December 15, 1999 through to February 15, 2000. The financial data in
these
                                       29
<PAGE>   31

reports includes cash receipts from November 9, 1999 (first day of the
Collection Period for the December 1999 Report) up to February 9, 2000 (last day
of the Collection Period for the February 2000 Report). It also includes
payments made by MSAF Group between November 16, 1999 and up to February 15,
2000 (the Note Payment Date for the February 2000 Report).

                                       30
<PAGE>   32

  II  COMPARISON OF ACTUAL CASH FLOWS VERSUS THE 1998 BASE CASE FOR THE FIRST
                                  QUARTER 2000

     The February 20, 1998 Offering Memorandum (the "OFFERING MEMORANDUM") and
the November 4, 1998 Prospectus (the "PROSPECTUS") for the Notes contain
assumptions in respect of MSAF Group's future cash flows and cash expenses (the
"1998 BASE CASE"). For the purpose of this report, "NET CASH COLLECTIONS" is
defined as Total Cash Collections less Total Cash Expenses, Interest Payments
and Swap Payments. A discussion of the quarterly Cash Collections, Cash
Expenses, Interest Payments and Principal Payments is given below and should be
read in conjunction with the analysis in Appendix B.

CASH COLLECTIONS

     "Total Cash Collections" include Net Lease Rentals (Contracted Lease
Rentals less Net Stress-related Costs), Movement in Current Arrears Balance,
Interest Earned and Net Maintenance.

<TABLE>
<CAPTION>
TOTAL CASH COLLECTIONS                                         ACTUAL   BASE CASE    VARIANCE
----------------------                                         ------   ---------    --------
                                                                 $M        $M           $M
<S>                                                            <C>      <C>          <C>
Lease Rentals...............................................    32.0       32.0          --
  -- Renegotiated Leases....................................    (0.3)        --        (0.3)
  -- Rental Resets..........................................    (0.6)        --        (0.6)
                                                               -----      -----       -----
Contracted Lease Rentals....................................    31.1       32.0        (0.9)
Movement in Current Arrears Balance.........................    (0.3)        --        (0.3)
Net Stress Related Costs                                        (3.1)      (1.4)       (1.7)
                                                               -----      -----       -----
Net Lease Rentals...........................................    27.7       30.6        (2.9)
Interest Earned.............................................     0.5        0.4         0.1
Net Maintenance.............................................    (4.1)        --        (4.1)
                                                               -----      -----       -----
Total Cash Collections......................................    24.1       31.0        (6.9)
                                                               =====      =====       =====
</TABLE>

     In the First Quarter 2000, MSAF Group generated approximately $24.1 million
in Total Cash Collections, $6.9 million less than assumed in the 1998 Base Case.
This difference is due to a combination of the factors set out below (the
numbers in brackets refer to the line item number shown in Appendix B).

[2]  RENEGOTIATED LEASES

     Renegotiated Leases refers to the loss in rental revenue caused by a lessee
negotiating a reduction in the lease rental. Typically, this can be a permanent
reduction over the remaining lease term in exchange for other contractual
concessions. In the First Quarter 2000, the amount of revenue loss attributed to
Renegotiated Leases was $0.3 million and relates to three renegotiated leases.
The loss is primarily due to a 14% reduction from the 1998 Base Case rental on a
B767-300ER on lease to Air Pacific. The new rental was reset at the then
prevailing market rate for B767-300ERs in exchange for a lease extension.

[3]  RENTAL RESETS

     Rental Resets is a measure of the loss in rental revenue when new lease
rates are lower than those assumed in the 1998 Base Case. In the First Quarter
2000, no new leases were written, however, lost revenue attributable to previous
lease resets in previous quarters amounted to $0.6 million. See Section IV --
"Recent Developments" for a discussion of current re-leasing events.

[4]  CONTRACTED LEASE RENTALS

     Contracted Lease Rentals represents the current contracted lease rental
rollout which equates to the 1998 Base Case Lease Rentals less adjustments for
Renegotiated Leases and Rental Resets. For the First Quarter 2000, Contracted
Lease Rentals were $31.1 million, $0.9 million less than assumed in the 1998
Base Case. The difference is due to losses from renegotiated leases and rental
resets as discussed above.

                                       31
<PAGE>   33

[5]  MOVEMENT IN CURRENT ARREARS BALANCE

     Current Arrears is the total contracted lease rentals outstanding from
current lessees at a given date and excludes any amounts classified as Bad
Debts. The current arrears balance at the start of the First Quarter 2000 was
$3.1 million versus $3.4 million at the end of the First Quarter 2000, an
increase in arrears of $0.3 million.

<TABLE>
<CAPTION>
                                                                               CURRENT      MOVEMENT
                                                            CURRENT ARREARS    ARREARS     IN CURRENT
AIRCRAFT TYPE                                     COUNTRY       11/15/99       2/15/00      ARREARS
-------------                                     -------   ----------------   --------    ----------
                                                                   $M             $M           $M
<S>                                               <C>       <C>                <C>         <C>
A310-300........................................  Brazil          0.6            0.4           0.2
A321-100........................................  Turkey          0.6            0.9          (0.3)
B737-300........................................  Brazil          1.0            1.6          (0.6)
B737-400........................................  Mexico          0.5*                         0.5
A310-300........................................  Oman            0.1                          0.1
A320-200........................................  Canada                         0.2          (0.2)
A320-200........................................  Ireland         0.3            0.3           0.0
                                                                  ---            ---          ----
Total...........................................                  3.1            3.4          (0.3)
                                                                  ===            ===          ====
</TABLE>

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

* Re-classified as Bad Debts during the First Quarter 2000

     As at November 15, 1999, six lessees were in arrears, owing $3.1 million,
against which MSAF Group held security deposits of $2.9 million. One of the six
lessees TAESA, based in Mexico, defaulted in the First Quarter 2000 and the
aircraft was repossessed. Arrears amounting to $0.5 million associated with this
lessee at the time of the repossession were deemed irrecoverable and
re-classified from Current Arrears to Bad Debts. See the discussion on Bad Debts
below.

     At February 15, 2000, five lessees in arrears owed $3.4 million, against
which MSAF Group held security deposits of $2.2 million. See Section IV --
"Recent Developments" for information on the current level of arrears as of
April 1, 2000.

     NET STRESS-RELATED COSTS

     Net Stress-related Costs is a combination of all the factors which can
cause actual lease rentals received to differ from the Contracted Lease Rentals.
The 1998 Base Case assumed net stress-related costs equal to 4.5% of the 1998
Base Case Lease Rentals.

<TABLE>
<CAPTION>
NET STRESS RELATED COSTS                                       ACTUAL   BASE CASE    VARIANCE
------------------------                                       ------   ---------    --------
                                                                 $M        $M           $M
<S>                                                            <C>      <C>          <C>
Bad Debts...................................................    (0.5)
Security Deposits Drawndown.................................     0.5
Capitalised Arrears.........................................      --
AOG.........................................................    (4.2)
Other Leasing Income........................................     1.0
Repossession Costs                                               0.1
                                                                ----      ----         ----
Net Stress Related Costs....................................    (3.1)     (1.4)        (1.7)
                                                                ====      ====         ====
</TABLE>

     For the First Quarter 2000, net stress-related costs amounted to $3.1
million (9.7% of 1998 Base Case Lease Rentals) compared to $1.4 million assumed
in the 1998 Base Case, a variance of $1.7 million that is due to the following
six factors described in items [6] to [11] below.

                                       32
<PAGE>   34

[6]  BAD DEBTS AND [7] SECURITY DEPOSITS DRAWN DOWN

     Bad Debts are rental arrears owed by lessees who have defaulted and which
are deemed irrecoverable. These arrears are partially offset by the draw down of
security deposits held and amounts subsequently recovered from the defaulted
lessee.

<TABLE>
<CAPTION>
                                                               BAD        BAD      SECURITY
                                                              DEBTS      DEBTS     DEPOSITS
AIRCRAFT TYPE                              LESSEE   COUNTRY   RENTAL   RECOVERED    DRAWN     TOTAL
-------------                              ------   -------   ------   ---------   --------   -----
                                                                $M        $M          $M       $M
<S>                                        <C>      <C>       <C>      <C>         <C>        <C>
1  B737-400..............................  TAESA    Mexico     (0.5)      0.0        0.5       0.0
                                                               ----       ---        ---       ---
   Total.................................                      (0.5)      0.0        0.5       0.0
                                                               ====       ===        ===       ===
</TABLE>

     In the First Quarter 2000, $0.5 million was written off in respect of lease
rentals due from a former lessee, TAESA, against which MSAF Group drew down
security deposits totalling $0.5 million. See Section IV -- "Recent
Developments" for information on the current level of Bad Debts as of April 1,
2000.

[8]  CAPITALIZED ARREARS

     Capitalized arrears refer to current arrears that have been capitalized and
restructured into a note payable. No arrears were capitalized in the First
Quarter 2000.

[9]  AIRCRAFT ON GROUND ("AOG")

     AOG is defined as the Base Case lease rental lost when an aircraft is
off-lease and non-revenue earning.

     AOG ANALYSIS FOR FIRST QUARTER 2000

<TABLE>
<CAPTION>
AIRCRAFT TYPE                                            OLD LESSEE   NEW LESSEE   LOST RENTAL
-------------                                            ----------   ----------   ------------
                                                                                        $M
<S>                                                      <C>          <C>          <C>
1  B747-300............................................  VARIG        Air              2.4
                                                                      Atlanta
                                                                      Icelandic
2  A310-300............................................  Oman         Region Air       0.7
3  A310-300............................................  Oman         Region Air       0.6
4  B737-400............................................  TAESA        LOI              0.5
                                                                                       ---
   Total...............................................                                4.2
                                                                                       ===
</TABLE>

     The impact of AOG downtime amounted to $4.2 million during the First
Quarter 2000. This was in respect of four aircraft; one B747-300 previously on
lease to VARIG and terminated early, two A310-300s previously on lease to Oman
Air and terminated as scheduled and one B737-400 previously on lease to TAESA
and terminated early. See Section IV -- "Recent Developments" below for
information on the current level of AOG costs as of April 1, 2000.

[10]  OTHER LEASING INCOME

     Other leasing income consists of miscellaneous income received in
connection with a lease other than contracted rentals, maintenance receipts and
security deposits, such as early termination payments or default interest. In
the First Quarter 2000, other leasing income amounted to $1.0 million.

[11]  REPOSSESSION COSTS

     Repossession costs cover legal and aircraft technical costs incurred as a
result of repossessing an aircraft. In the First Quarter 2000, repossession
costs amounted to $0.1 million, which consists of consultancy fees incurred
during the repossession of the B747-300 previously on lease to VARIG.

                                       33
<PAGE>   35

[13]  NET LEASE RENTALS

     Net Lease Rentals is Contracted Lease Rentals less any movement in Current
Arrears Balance and Net Stress-related Costs. In the First Quarter 2000, net
lease rentals amounted to $27.7 million, $2.9 million less than assumed in the
1998 Base Case. The variance was attributable to the combined effect of lower
contracted lease rentals, the increase in current arrears and net stress-related
costs discussed above.

[14]  INTEREST EARNED

     Interest earned relates to interest received on cash balances held in the
Collection and Expense Accounts. Cash held in the Collection Account in the
First Quarter 2000 consisted of the cash liquidity reserve amount of $25.0
million plus the intra-month cash balances for all the rentals and maintenance
payments collected prior to the monthly payment date. The Expense Account
contains cash set aside to pay for expenses which are expected to be payable
over the next three months. The average mutual funds 30-day effective rate for
the period was 5.73%, slightly less than the 5.75% assumed in the 1998 Base
Case. In the First Quarter 2000, interest earned amounted to $0.5 million, $0.1
million more than assumed in the 1998 Base Case. The difference is due primarily
to interest earned on the intra-month cash balances in the Collection Account
and Expense Account, albeit at a slightly lower than assumed interest rate. The
1998 Base Case made no assumption as to interest earned on these balances.

[15]  NET MAINTENANCE

     Net maintenance refers to maintenance reserve revenue received less any
maintenance reimbursements paid to lessees. In the First Quarter 2000, actual
maintenance reserve revenue received amounted to $2.8 million and maintenance
expenditure amounted to $6.9 million, generating negative net maintenance
revenue of $4.1 million. Maintenance expenditure included costs incurred in the
overhaul of a B757-200ER repossessed from Guyana Airways ($4.0 million), the
reimbursement from the airframe reserves of $0.5 million in respect of a
B767-300ER in accordance with a lease restructuring and the reimbursement from
the engine reserves in respect of a B737-400, previously on lease to TAESA ($1.4
million). The 1998 Base Case makes no assumptions for net maintenance as it
assumes that, over time, maintenance revenue will equal maintenance expenditure.
However, it is unlikely that in any particular Note Payment Period, maintenance
revenue will exactly equal maintenance expenditure.

CASH EXPENSES

     "Total Cash Expenses" include Aircraft Operating Expenses and Selling,
General and Administrative ("SG&A") Expenses. In the First Quarter 2000, total
cash expenses were $1.9 million, $1.4 million lower than the 1998 Base Case,
which assumed total cash expenses of $3.3 million.

<TABLE>
<CAPTION>
TOTAL CASH EXPENSES                                            ACTUAL   BASE CASE   VARIANCE
-------------------                                            ------   ---------   --------
                                                                 $M        $M          $M
<S>                                                            <C>      <C>         <C>
Aircraft Operating Expenses.................................    (0.3)     (1.1)        0.8
SG&A Expenses...............................................    (1.6)     (2.2)        0.6
                                                                ----      ----        ----
Total Cash Expenses.........................................    (1.9)     (3.3)        1.4
                                                                ====      ====        ====
</TABLE>

     The difference is due to a combination of lower Aircraft Operating Expenses
and SG&A Expenses as discussed below.

     AIRCRAFT OPERATING EXPENSES include all operational costs related to the
leasing of an aircraft including costs of insurance, re-leasing and other
overhead costs. In the First Quarter 2000, Aircraft Operating Expenses amounted
to $0.3 million compared to $1.1 million per the 1998 Base Case, which assumes
these costs to be 3.5% of the 1998 Base Case Lease Rentals.

[17]  INSURANCE

     No insurance costs were incurred in the First Quarter 2000.
                                       34
<PAGE>   36

[18]  RE-LEASING AND OTHER OVERHEAD COSTS

     Re-leasing and other overhead costs consist of miscellaneous re-delivery
and leasing costs associated with re-leasing events. In the First Quarter 2000
these costs amounted to $0.3 million.

     SG&A EXPENSES relate to fees paid to the Aircraft Servicer and to other
service providers. In the First Quarter 2000, SG&A Expenses were $1.6 million or
$0.6 million lower than assumed in the 1998 Base Case. The variance is explained
below.

[20]  AIRCRAFT SERVICER FEES

     The Aircraft Servicer Fees are defined as amounts paid to the Aircraft
Servicer, ILFC, in accordance with the terms of the Servicing Agreement. In the
First Quarter 2000, the total Aircraft Servicer fee paid was $1.1 million, $0.3
million lower than assumed in the 1998 Base Case, reflecting lower actual
rentals achieved relative to 1998 Base Case Lease Rentals.

     Aircraft Servicer Fees consist of:

<TABLE>
<CAPTION>
                                                                $MM
                                                                ----
<S>                                                             <C>
Base Fee....................................................     0.5
Rent Collected Fee..........................................     0.3
Rent Contracted Fee.........................................     0.3
Incentive Fee 1998/99*......................................     0.0
                                                                ----
Total Servicer Fee..........................................     1.1
                                                                ====
</TABLE>

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

     * For financial year ended November 30, 1999

     The Base Fee is a fixed amount per month per aircraft and changes only as
aircraft are acquired or sold. The Rent Contracted Fee is equal to 1% of all
rentals contracted. The Rent Collected Fee is 1% of all rentals received. The
Incentive fee is 10% of all cash flow received above a targeted amount set at
the beginning of each financial year. No incentive fee was paid to ILFC for the
financial year ended November 1999.

[22]  OTHER SERVICER FEES

     Other Servicer Fees relate to fees and expenses paid to other service
providers including the Administrative Agent, Financial Advisor, legal advisors,
accountants and Independent Trustees. In the First Quarter 2000, Other Servicer
Fees amounted to $0.5 million as compared to an assumed expense of $0.8 million
in the 1998 Base Case, a positive variance of $0.3 million. The variance is due
primarily to lower than expected Administrative Agent fees and other overhead
costs. The Administrative Agent fee is equal to 1.5% of rentals collected and
declined in line with the reduced rentals actually received.

[27]  INTEREST PAYMENTS AND [28] SWAP PAYMENTS

     In the First Quarter 2000, interest payments to Noteholders amounted to
$15.6 million. This is $0.1 million higher than the 1998 Base Case, which
assumed interest costs for the First Quarter 2000 to be $15.5 million. While the
total debt balance outstanding during the quarter was lower than expected in the
1998 Base Case, interest payments rose due to an increase in the Libor rate at
year-end in 1999. The average Libor rate for the First Quarter 2000 was 5.88%
versus an assumed Libor rate of 5.75%. The higher interest costs were offset by
a reduction in the amount of swap payments. MSAF paid $0.5 million in swap
costs, $0.3 million less than assumed in the 1998 Base Case.

[29]  EXCEPTIONAL ITEM

     Exceptional items refer to cash flows that occur infrequently and are
outside the normal business activities of MSAF. There were no exceptional cash
flows in the First Quarter 2000.

                                       35
<PAGE>   37

[31]  PRINCIPAL PAYMENTS

     In the First Quarter 2000, total principal payments to Noteholders amounted
to $6.1 million, $5.3 million less than assumed in the 1998 Base Case,
reflecting the lower Net Cash Collections available during this period, mainly
as a result of the lower than expected lease revenue performance, partially
offset by lower expenses.

                                       36
<PAGE>   38

                            III OTHER FINANCIAL DATA

     An analysis of MSAF's Performance to Date as of February 15, 2000 versus
the 1998 Base Case and details of interest and debt coverage ratios and
Loan-to-Value ratios (LTVs) as of February 15, 2000 are shown in Appendix C.

CASH

     Cash held at February 15, 2000 was $31.1 million. This includes $25.0
million that represents the cash portion of the Liquidity Reserve Amount at that
time. This is a source of liquidity for, among other things, maintenance
obligations, security deposit return obligations, and cash operating expenses
and contingent liabilities. The remainder of $6.1 million represents accrued
expenses held in the Expense Account in respect of future maintenance
obligations ($5.8 million) and other costs ($0.3 million).

     In addition to the $31.1 million cash balance held at February 15, 2000,
the Liquidity Reserve Amount also contained credit and liquidity facilities
provided by MSDW and ILFC aggregating to $39.0 million. Neither of these
facilities was drawn upon in the First Quarter 2000.

AIRCRAFT VALUES

     Under the terms of the Notes, MSAF Group is required to obtain new
appraisals of the Base Value of each aircraft from a minimum of three
independent appraisers each year. The annual appraisal must be delivered to the
Trustee no later than October 31 of each year. The annual appraisal for 1999 was
as of June 30, 1999. In connection with the Note Issuance on March 15, 2000, an
additional appraisal as of November 30, 1999 was delivered. Details of the most
recent appraisal are shown in Appendix A. The next appraisal is due to deliver
to the Trustee no later than October 31, 2000.

A-D NOTE BALANCE

     As of February 15, 2000, the aggregate amount of Class A-D Notes
outstanding was $929.5 million, approximately $7.3 million lower than assumed in
the 1998 Base Case due to higher than assumed principal repayments with respect
to the Class A-2 Notes.

                                       37
<PAGE>   39

                             IV RECENT DEVELOPMENTS

MARCH 15, 2000 -- SECURITISATION OF 29 AIRCRAFT

     On March 15, 2000, MSAF issued additional subclasses of Notes, amounting to
$1,310 million, in association with the refinancing of the subclass A-1 Note of
$400 million and the acquisition, from a subsidiary of MSDW, of a portfolio of
29 commercial aircraft with an appraised value of $1,047.8 million as of
November 30, 1999. All but one of the 29 aircraft was delivered on March 15,
2000. The remaining aircraft, a B737-300 on lease to Lithuanian Airlines, is
subject to a financing that will terminate before April 30, 2000. The following
discussion refers to the enlarged portfolio of 62 aircraft assets, which was
owned by MSAF as of April 1, 2000.

RE-MARKETING TASK FOR PORTFOLIO OF 62 AIRCRAFT ASSETS

     As of April 1, 2000, one aircraft from a portfolio of 62 aircraft assets
was off-lease. The aircraft, a B737-400 previously on lease to TAESA is
currently the subject of a non-binding letter of intent.

     SUMMARY

<TABLE>
<CAPTION>
                                                              # AIRCRAFT
                                                              ----------
<S>                                                           <C>
# Aircraft subject to Lease Agreements......................      61
# Aircraft off-lease........................................       1
                                                                 ---
Total aircraft..............................................      62
                                                                 ===
# Aircraft scheduled to expire before Dec 31, 2000..........       2
# Aircraft scheduled to expire in the year to Dec 31,
  2001......................................................      12
                                                                 ---
Equals Total Near-term re-marketing task....................      15
Of which LOI signed.........................................      (1)
                                                                 ---
Equals Near-term re-marketing task..........................      14
                                                                 ===
</TABLE>

     FIVE-YEAR RE-MARKETING TASK: # AIRCRAFT

<TABLE>
<CAPTION>
                                                                        YEAR ENDING
                                                            ------------------------------------
                                                            2000    2001    2002    2003    2004
                                                            ----    ----    ----    ----    ----
<S>                                                         <C>     <C>     <C>     <C>     <C>
A300....................................................                                      1
A310....................................................                              2
A320....................................................              1       1       3
A321....................................................                      1       1
A330....................................................              1
A340....................................................                              1
B737....................................................      1       7*      1       6**     3
B757....................................................              2       1
MD82....................................................                                      1
MD83....................................................              1               1
F70.....................................................                              1       2
B747....................................................                      1       1
B767....................................................      1               1       1       1
F50.....................................................                              2
Engine..................................................                      1
                                                            ---     ---     ---     ---     ---
Total...................................................      2      12       7      19       8
                                                            ===     ===     ===     ===     ===
</TABLE>

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

*   Includes one aircraft on which a lease termination option was recently
    exercised.

**  Includes one aircraft currently subject to a non-binding letter of intent

                                       38
<PAGE>   40

     FIVE-YEAR RE-MARKETING TASK: BY APPRAISED VALUE*

<TABLE>
<CAPTION>
                                                               YEAR ENDING
                                              ----------------------------------------------
                                               2000      2001      2002      2003      2004
                                              ------    ------    ------    ------    ------
<S>                                           <C>       <C>       <C>       <C>       <C>
A300......................................                                             2.55%
A310......................................                                   2.25%
A320......................................               1.52%     1.61%     4.59%
A321......................................                         1.94%     1.98%
A330......................................               4.00%
A340......................................                                   4.58%
B737......................................     1.27%     7.96%     1.26%     7.22%     3.84%
B757......................................               3.93%     1.48%
MD82......................................                                             0.89%
MD83......................................               0.95%               0.99%
F70.......................................                                   0.68%     1.45%
B747......................................                         4.86%     2.45%
B767......................................     1.47%               2.85%     2.66%     3.01%
F50.......................................                                   0.62%
Engine....................................                         0.28%
                                              ------    ------    ------    ------    ------
Total.....................................     2.74%    18.36%    14.28%    28.02%    11.74%
                                              ======    ======    ======    ======    ======
</TABLE>

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

* Appraised Value as at November, 1999

     As of April 1, 2000 48 leases, representing 75.14% of the appraised value
at November 30, 1999 are scheduled to expire before December 31, 2004. The
average remaining term to lease expiry date, weighted by appraised value at
November 30, 1999 is 41 months at April 1, 2000.

NEAR-TERM RE-MARKETING TASK

     Two leases, representing 2.74% of the appraised value at November 30, 1999
are scheduled to expire before December 31, 2000. Both aircraft, a B767-200ER
and a B737-300, are likely to stay with their current operators and the Servicer
is currently negotiating extended lease terms.

AIRCRAFT ON GROUND (AOG)

     As of April 1, 2000, there are two aircraft on the ground. One of the two
aircraft is subject to a signed lease agreement. The second aircraft is the
subject of a non-binding letter of intent.

     One B747-300 aircraft, previously on lease to VARIG, has been AOG and
undergoing maintenance overhaul work since July 1999. At that time, the lessee
entered into a payment plan to restructure its debts with MSAF -- see "Bad
Debts" below for more details. In December 1999, a new lease was executed with
an operator, Air Atlanta Icelandic, based in Iceland. The aircraft was delivered
to the new lessee on March 17, 2000 and is expected to commence operations early
in April 2000.

     Two A310-300 aircraft, previously on lease to Oman Air, have been AOG and
undergoing overhaul work since December 1999, the scheduled expiry date of the
previous leases. In February 2000, a three-year lease was executed for each
aircraft with Region Air, a Singapore-based operator. On April 1, 2000, one of
the A310's was successfully delivered to the new lessee, as scheduled. The other
aircraft is scheduled to deliver on April 22, 2000, as soon as engine overhauls
have been completed.

     One B737-400 aircraft was repossessed from TAESA in December 1999 and is
currently the subject of a non-binding letter of intent.

                                       39
<PAGE>   41

     AOG ANALYSIS APRIL 1, 2000

<TABLE>
<CAPTION>
                                                                                     EXPECTED
AIRCRAFT TYPE                       OLD LESSEE    NEW LESSEE     STATUS              RE-LEASE DATE
-------------                       ----------    ----------     ------              -------------
<S>                                 <C>           <C>            <C>                 <C>
A310-300..........................  Oman Air      Region Air     Subject to Lease    April 22, 2000
B737-400..........................  TAESA         TBA*           Subject to LOI      TBA*
</TABLE>

---------------
*To be announced

LESSEE DIFFICULTIES

CURRENT AND RESTRUCTURED ARREARS

     As of April 1, 2000, four lessees were in arrears. The four aircraft on
lease to these lessees represented 5.4% of the portfolio by appraised value at
November 30, 1999. The total amount of rental payments and maintenance reserves
that was in arrears with respect to these four lessees was $3.3 million. MSAF
holds security deposits of $1.9 million against these arrears. This amount
represents 1.42% of annual contracted lease rental payments. The weighted
average number of days past due of such arrears was 77 days. In addition to
current arrears, in January 2000, one lessee of two A320-200 aircraft agreed to
restructure rental and maintenance arrears amounting to $1.3 million. These
arrears are scheduled to be repaid in June 2000.

REGIONAL ANALYSIS OF CURRENT ARREARS

     The categorization of countries into geographical regions, Developed
Markets, Emerging Markets and Other is determined using Morgan Stanley Capital
International, Inc. ("MSCI") designations. A regional analysis of current
arrears as of April 1, 2000 is shown below.

<TABLE>
<CAPTION>
                                              %
                                          APPRAISED       #          #          #      CURRENT   SECURITY
            REGION                          VALUE     COUNTRIES   AIRCRAFT   LESSEES   ARREARS   DEPOSIT
            ------                        ---------   ---------   --------   -------   -------   --------
                                                                                        $M        $M
<S>         <C>                           <C>         <C>         <C>        <C>       <C>       <C>
Developed   Europe.....................                    0          0          0       0.0       0.0
            North America..............                    0          0          0       0.0       0.0
Emerging    Europe and Middle East.....     2.0%           1          1          1       1.8       0.7
            Asia.......................                    0          0          0       0.0       0.0
            Latin America..............     2.4%           1          2          2       1.4       0.7
Other       Other......................     1.0%           1          1          1       0.1       0.5
                                            ----         ---        ---        ---       ---       ---
            Total Arrears..............     5.4%           3          4          4       3.3       1.9
                                            ====         ===        ===        ===       ===       ===
</TABLE>

EUROPE AND MIDDLE EAST (EMERGING)

     MSAF Group currently leases 6.7% of the portfolio by appraised value at
November 30, 1999 in the Europe and Middle East (Emerging) region. One of the
four lessees in arrears is based in this region. As of April 1, 2000, Air Alfa
owed rental and maintenance arrears of $1.8 million, against which MSAF Group
holds a security deposit of $0.7 million. The Servicer has instituted legal
steps in Turkey to draw down upon the guarantee and repossess the aircraft from
Air Alfa. This aircraft, an A321-100, represented 2.0% of the portfolio by
appraised value at November 30, 1999.

LATIN AMERICA (EMERGING)

     MSAF Group currently leases 7.4% of the portfolio in Latin America (5.0% in
Mexico and 2.4% in Brazil) by appraised value at November 30, 1999. Two of the
four lessees currently in arrears are based in Latin America.

     In March 1999, MSAF reached an agreement with VASP to defer $0.5 million of
arrears owed at that time. Repayment of the arrears plus interest was scheduled
to begin in August 1999 and end in January 2000. On February 10, 2000, VASP made
a payment of $1.3 million to MSAF Group in full settlement of their
                                       40
<PAGE>   42

deferred and current arrears up to January 31, 2000. Since then, they have made
one month's rental payment and are in arrears by $0.5 million as of April 1,
2000. This aircraft is a B737-300 and represented 1.0% of the portfolio by
appraised value at November 30, 1999.

     In August 1999, MSAF agreed to restructure the arrears of the second
Brazilian lessee, Passaredo. The total rental payments, maintenance reserves and
default interest owed amounted to $3.7 million. The restructured amounts were
capitalized as a note payable and added to the lessee's Conditional Sale
Agreement loan balance, with an extension to the term of the loan. In
conjunction with this restructuring, the obligations under this lease were
transferred to a new Brazilian entity, B.R.A Transportes Aereos, which replaced
Passaredo as lessee. As of April 1, 2000, $0.9 million of current arrears under
the new agreement, which represents approximately 96 days of rental, were due
and unpaid. No rental has been received since January 2000. Since April 1, 2000,
the Servicer has advised us that they are in the process of repossessing this
asset. This aircraft is an A310-300 and represented 1.4% of the portfolio by
appraised value at November 30, 1999.

OTHER

     MSAF Group currently leases 15.6% of the portfolio by appraised value at
November 30, 1999 in the Other region. One of the four lessees currently in
arrears is based in the Other region. At April 1, 2000, maintenance reserves
owed by Icelandair were less than $0.1 million. This aircraft is a B737-300 and
represented 1.0% of the portfolio by appraised value at November 30, 1999.

ASIA (EMERGING)

     MSAF Group currently leases 16.5% of the portfolio by appraised value at
November 30, 1999 in the Asia (Emerging) Region. As of April 1, 2000, none of
these lessees were in arrears.

PACIFIC (DEVELOPED)

     MSAF Group currently leases 10.0% of the portfolio by appraised value at
November 30, 1999 in the Pacific (Developed) region. As of April 1, 2000, none
of these lessees were in arrears.

EUROPE (DEVELOPED)

     MSAF Group currently leases 27.4% of the portfolio by appraised value at
November 30, 1999 in the Europe (Developed) region. In January 2000, one lessee
of two aircraft, based in this region agreed to restructure its maintenance
reserves and part of its rental obligations for the period from August 1998 to
February 2000. Repayment of the rental arrears plus interest is scheduled to be
made over a five-week period beginning on June 16, 2000. Repayment of the
maintenance reserves plus interest is scheduled to be made in three monthly
installments beginning on June 1, 2000. We hold security deposits of $1.0
million against the deferred arrears. These aircraft, both A320-200s,
represented 3.1% of the portfolio by appraised value at November 30, 1999.

NORTH AMERICA (DEVELOPED)

     MSAF Group currently leases 15.4% of the portfolio by appraised value at
November 30, 1999 in the North America (Developed) region. As of April 1, 2000,
none of these lessees were in arrears. On February 2, 2000, Canadian Airlines
announced a debt restructuring and moratorium plan. The plan resulted in the
suspension of payments of about $135 million to lenders and aircraft lessors,
including MSAF. In March 2000, the lease was restructured by slightly reducing
the lease rate effective from February 2000 and the term was extended by four
years to May 2010. The security of $0.3 million was used to fund the February
rental. In March 2000, the lessee resumed rental payments and also made part
payment toward refunding the security deposit balance. At the same time, the
lease was assigned to a subsidiary of Air Canada, Air Canada Capital Limited.
This aircraft, an A320-200 and represented 1.5% of the portfolio by appraised
value at November 30, 1999.

                                       41
<PAGE>   43

BAD DEBTS

     In addition to the current arrears of $3.3 million and restructured arrears
of $1.3 million, as of April 1, 2000, $3.8 million of rental and maintenance
payments due to MSAF remain unpaid from four of its former lessees. This is net
of total amounts recovered under repayment plans of $1.8 million and security
deposits drawn down of $2.9 million. One Brazilian lessee owes $3.3 million of
the total $3.8 million outstanding. Three of the four aircraft have since been
re-leased to other carriers and the fourth aircraft is off-lease but subject to
a non-binding letter of intent.

     ANALYSIS OF BAD DEBTS BALANCE AS OF APRIL 1, 2000

<TABLE>
<CAPTION>
                            AIRCRAFT    FORMER               BAD DEBTS   BAD DEBTS   SECURITY
REPOSSESSION DATE             TYPE      LESSEE     COUNTRY     TOTAL     RECOVERED   DEPOSITS   TOTAL
-----------------           --------   ---------   -------   ---------   ---------   --------   -----
                                                                $M          $M          $M       $M
<S>                         <C>        <C>         <C>       <C>         <C>         <C>        <C>
1  October 1998...........  B757-200   Transaero   Russia      (1.0)        0.2        0.6      (0.2)
2  March 1999.............  A321-100   Onur Air    Turkey      (2.1)        1.2        0.7      (0.2)
3  July 1999..............  B747-300   VARIG       Brazil      (4.8)        0.4        1.1      (3.3)
4  December 1999..........  B737-400   TAESA       Mexico      (0.6)                   0.5      (0.1)
                                                               ----         ---        ---      ----
   Total..................                                     (8.5)        1.8        2.9      (3.8)
                                                               ====         ===        ===      ====
</TABLE>

     A former Brazilian lessee, VARIG, negotiated an early termination of its
lease of a B747-300 aircraft in July 1999. The lease was scheduled to expire in
April 2003. The total amount of rental payments and maintenance reserves due
under this lease to July 1999, the date of the termination agreement, was $4.8
million against which we drew down a security deposit of $1.1 million. Under the
terms of the termination agreement, VARIG is scheduled to repay $10.8 million
over eight years to offset arrears of $4.8 million and approximately $6.0
million for maintenance and downtime costs. Provided no default has occurred by
October 2005 under this note payable, the total remaining payments will be
reduced by approximately $1.1 million on a pro-rata basis between October 2005
and October 2007, the scheduled final payment date under the note. The aircraft
was recently delivered to its new lessee and operation is scheduled to commence
on April 6, 2000. This aircraft represents approximately 2.5% of the portfolio
by appraised value at November 30, 1999.

     A former Mexican lessee, TAESA, defaulted on its obligations under its
lease of a B737-400 aircraft and the aircraft was repossessed in December 1999.
The lease was scheduled to expire in May 2001. The total amount of rental
payments and maintenance reserves due under the lease at the date of the
repossession was $0.6 million. This amount was offset by a security deposit of
$0.5 million. In February 2000, TAESA was declared bankrupt with debts of over
$400 million. The aircraft is currently the subject of a non-binding letter of
intent with a Dubai-based carrier. This aircraft represents approximately 1.1%
of the portfolio by appraised value at November 30, 1999.

EARLY TERMINATION OPTION TO BE EXERCISED

     Braathens, a lessee based in Norway, recently notified the Servicer that it
intends to exercise the early termination option in its lease. The aircraft, a
B737-500, is subject to a lease that commenced in April 1998 and was scheduled
to expire in April 2003. The lease will now terminate in April 2001. A
termination fee of one month's rental is payable to MSAF. This aircraft, a
B737-500, represented 1.0% of the portfolio by appraised value at November 30,
1999.

                                       42
<PAGE>   44

                               PORTFOLIO DETAILS                      APPENDIX A

                                 APRIL 1, 2000

         All amounts in thousands of US dollars unless otherwise stated
<TABLE>
<CAPTION>

                                       COUNTRY OF                                 AIRCRAFT        ENGINE       SERIAL     DATE OF
                REGION(1)            CURRENT LESSEE        CURRENT LESSEE           TYPE      CONFIGURATION    NUMBER   MANUFACTURE
                ---------            --------------  --------------------------  ----------  ----------------  ------   -----------
<S>        <C>  <C>                  <C>             <C>                         <C>         <C>               <C>      <C>
             1  Europe               France          Air Liberte                 MD-83       JT8D-219          49822        Dec-88
             2  (Developed)          France          l'Aeropostale               B737-300QC  CFM 56-3C1        23788        May-87
             3                       Ireland         Aer Lingus                  A330-300    CF6-80E1             54        Apr-94
             4                       Ireland         TransAer                    A320-200    V2500-A1            414        May-93
             5                       Ireland         TransAer                    A320-200    V2500-A1            428      4-May-94
             6                       Netherlands     KLM                         engine      CF6-80C2B6F       704279       Jun-95
             7                       Netherlands     KLM Cityhopper              F50         PW100-125B        20232      1-Oct-91
             8                       Netherlands     KLM Cityhopper              F50         PW100-125B        20233      1-Oct-91
             9                       Netherlands     Transavia                   B737-300    CFM 56-3C1        27635        May-95
            10                       Norway          Braathens                   B737-500    CFM 56-3B1        25165        Apr-93
            11                       Norway          Braathens                   B737-500    CFM56-3C-1        26304     15-Sep-94
            12                       Spain           Air Europa                  B737-400    CFM56-3-C1        24707      1-Jun-91
            13                       UK              Air 2000                    B767-300ER  CF6-80C2B6F       26256        Apr-93
            14                       UK              Air 2000                    B757-200ER  RB211-535-E4      23767      1-Apr-87
            15                       UK              Britannia                   B767-200ER  CF6-80A           23807        Aug-87
            16                       UK              Britannia                   B757-200ER  RB211-535-E4-37   26266     13-Jan-93
            17                       UK              Flying Colours              A320-200    V2500-A1            393        Feb-93
            18                       UK              Flying Colours              B757-200ER  RB211-535-E4-37   24367        Feb-89
            19                       UK              Monarch Airlines            A320-200    CFM56-5A3           446     28-Oct-93
Sub-total
            20  North America        Canada          Air Canada Capital Limited  A320-200    CFM56-5A3           279        Feb-92
            21  (Developed)          Canada          Canada 3000                 A320-200    CFM56-5A3           397     24-Mar-93
            22                       USA             Alaska Airlines             B737-400    CFM 56-3C1        25104        May-93
            23                       USA             Alaska Airlines             B737-400    CFM 56-3C1        25105     27-Jul-93
            24                       USA             Continental Airlines        B737-300    CFM56-3-B1        26309      5-Dec-94
            25                       USA             National Airlines           B757-200ER  RB211-535-E4      24260        Dec-88
            26                       USA             Southwest Airlines          B737-300    CFM56-3-B1        23255     26-Jun-85
            27                       USA             Southwest Airlines          B737-300    CFM56-3-B1        23256     11-Jul-85
            28                       USA             TWA                         B757-200ER  PW 2037           28160     22-Jul-96
            29                       USA             TWA                         MD-83       JT8D-219          49824        Mar-89
            30                       USA             TWA                         MD-82       JT8D-217C         49825        Mar-89
            31                       USA             TWA                         MD-83       JT8D-219          49657      1-Apr-88
Sub-total
            32  Pacific              Hong Kong       Cathay Pacific              B747-400    RB211-252H2/19    24955     25-Sep-91
            33  (Developed)          New Zealand     Air New Zealand             B767-300ER  CF6-80C-2B6       24875     14-Jun-91
            34                       Singapore       Region Air                  A310-300    JT9D-7R4E1          409        Nov-85
            35                       Singapore       Region Air                  A310-300    JT9D-7R4E1          410        Nov-85
Sub-total
            36  Europe               Greece          Olympic                     B737-400    CFM 56-3C1        25371        Jan-92
            37  and Middle East      Hungary         Malev                       F-70        TAY MK620-15      11564        Dec-95
            38  (Emerging)           Hungary         Malev                       F-70        TAY MK620-15      11565        Feb-96
            39                       Hungary         Malev                       F-70        TAY MK620-15      11569        Mar-96
            40                       Turkey          Air Alfa                    A321-100    V2530-A5            597        May-96
            41                       Turkey          Pegasus                     B737-400    CFM56-3C1         26279        Jun-92
Sub-total
            42  Asia                 China           China Hainan                B737-300    CFM 56-3C1        26295        Dec-93
            43  (Emerging)           South Korea     Asiana                      B767-300ER  CF6-80C2B6F       24798        Oct-90
            44                       South Korea     Asiana                      B737-400    CFM56-3C1         26291      9-Aug-93
            45                       South Korea     Asiana                      B737-400    CFM56-3C-1        26308     31-Oct-94
            46                       South Korea     Asiana                      B767-300ER  CF6-80C2-B6F      25132     24-Feb-92
            47                       Taiwan          China Airlines              A300-600R   PW 4158             555        Mar-90
            48                       Taiwan          China Airlines              A300-600R   PW 4158             625     31-Mar-92
            49                       Taiwan          F.E.A.T                     B757-200ER  PW 2037           25044     28-May-91
Sub-total
            50  Latin America        Brazil          B.R.A                       A310-300    JT9D-7R4E1          437        Nov-86
            51  (Emerging)           Brazil          VASP                        B737-300    CFM 56-3B2        24299        Nov-88
            52                       Mexico          Aeromexico                  B757-200ER  PW 2037           26272        Mar-94
            53                       Mexico          Aeromexico                  MD-83       JT8D-219          53050      1-May-90
            54                       Mexico          Mexicana                    B757-200ER  PW 2040           24965     24-Mar-92
Sub-total
            55  Other                Fiji            Air Pacific                 B767-300ER  CF6-80C2B4        26260        Sep-94
            56                       Iceland         Icelandair                  B737-300F   CFM 56-3B2        23811        Oct-87
            57                       Iceland         Air Atlanta Icelandic       B747-300B   CF6-80C2          24106        Apr-88
            58                       Lithuania       Lithuanian                  B737-300    CFM56-3B2         24449      1-Apr-90
            59                       Macau           Air Macau                   A321-100    V2530-A5            557      4-Dec-95
            60                       Malta           Air Malta                   B737-300    CFM 56-3B2        25161        Feb-92
            61                       Mauritius       Air Mauritius               A340-300    CFM56-5C3G           94     31-Mar-95
Sub-total
            62  Off-lease (2)                                                    B737-400    CFM 56-3B2        24234        Oct-88
                Total

<CAPTION>
           30-NOV-99
           APPRAISED    % OF     % OF
             VALUE     TOTAL    REGION
           ---------   ------   ------
<S>        <C>         <C>      <C>
             19,101      1.0%
             19,213      1.0%
             79,975      4.0%
             30,581      1.5%
             32,133      1.6%
              5,504      0.3%
              6,257      0.3%
              6,161      0.3%
             27,292      1.4%
             19,713      1.0%
             21,159      1.1%
             24,669      1.2%
             63,821      3.2%
             29,686      1.5%
             29,486      1.5%
             41,161      2.1%
             30,430      1.5%
             31,676      1.6%
             30,501      1.5%    27.4%
Sub-total
             29,872      1.5%
             30,819      1.5%
             26,561      1.3%
             26,571      1.3%
             26,317      1.3%
             33,482      1.7%
             14,378      0.7%
             15,286      0.8%
             47,785      2.4%
             20,374      1.0%
             17,782      0.9%
             19,611      1.0%    15.4%
Sub-total
             97,417      4.9%
             56,959      2.8%
             22,330      1.1%
             22,653      1.1%    10.0%
Sub-total
             25,146      1.3%
             13,653      0.7%
             14,330      0.7%
             14,679      0.7%
             39,699      2.0%
             25,690      1.3%     6.7%
Sub-total
             25,469      1.3%
             53,146      2.7%
             27,649      1.4%
             27,905      1.4%
             60,142      3.0%
             46,302      2.3%
             51,059      2.6%
             37,502      1.9%    16.5%
Sub-total
             27,627      1.4%
             19,847      1.0%
             41,433      2.1%
             19,738      1.0%
             39,126      2.0%     7.4%
Sub-total
             66,560      3.3%
             19,805      1.0%
             49,035      2.5%
             21,702      1.1%
             38,933      1.9%
             24,565      1.2%
             91,551      4.6%    15.6%
Sub-total
             21,885      1.1%     1.1%
           ---------   ------   ------
           2,000,891   100.0%   100.0%
           =========   ======   ======
</TABLE>

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

   Number of Countries = 25   Number of Lessees = 42   Number of aircraft
subject to lease = 61   Number of aircraft off-lease = l
   Number of aircraft = 61   Number of Engines = 1
(1) Regions are defined according to MSCI designations.
(2) Currently AOG but subject to a Letter of Intent.

                                       43
<PAGE>   45

                                                                      APPENDIX B
                        MORGAN STANLEY AIRCRAFT FINANCE

                        COMPARISON OF ACTUAL CASH FLOWS
                           VERSUS THE 1998 BASE CASE
                           FOR THE FIRST QUARTER 2000

<TABLE>
<CAPTION>
                                                                                                  DOLLAR AMOUNTS EXPRESSED
                                                       ALL DOLLAR AMOUNTS IN MILLIONS OF              AS A PERCENTAGE
                                                       US DOLLARS UNLESS OTHERWISE STATED       1998 BASE CASE LEASE RENTALS
                                                       ----------------------------------    ----------------------------------
                                                       ACTUAL     BASE CASE     VARIANCE     ACTUAL*    BASE CASE**    VARIANCE
                                                       -------    ----------    ---------    -------    -----------    --------
<S>   <C>             <C>                              <C>        <C>           <C>          <C>        <C>            <C>
                      CASH COLLECTIONS
[1]                   Lease Rentals..................    32.0         32.0          --       100.0%       100.0%          0.0%
[2]                   -- Renegotiated Leases.........    (0.3)          --        (0.3)       -0.9%         0.0%         -0.9%
[3]                   -- Rental Resets...............    (0.6)          --        (0.6)       -1.9%         0.0%         -1.9%
                                                       ------       ------        ----       ------       ------        ------
[4]   (LOGO)[1]...[3] CONTRACTED LEASE RENTALS.......    31.1         32.0        (0.9)       97.2%       100.0%         -2.8%
[5]                   Movement in Current Arrears
                      Balance........................    (0.3)          --        (0.3)       -0.9%                      -0.9%
                      less Net Stress-related Costs
[6]                   -- Bad debts...................    (0.5)          --                    -1.7%
[7]                   -- Security deposits drawn
                      down...........................     0.5           --                     1.5%
[8]                   -- Capitalised arrears.........      --                                  0.0%
[9]                   -- AOG.........................    (4.2)          --                   -13.2%
[10]                  -- Other Leasing Income........     1.0           --                     3.1%
[11]                  -- Repossession................     0.1                                  0.3%
                                                       ------       ------        ----       ------       ------        ------
[12]  (LOGO)[6]...[11] sub-total......................   (3.1)        (1.4)       (1.7)       -9.7%        -4.5%         -5.2%
[13]  [4]+[5]+[12]    NET LEASE RENTALS..............    27.7         30.6        (2.9)       86.6%        95.5%         -8.9%
[14]                  Interest Earned................     0.5          0.4         0.1         1.6%         1.1%          0.5%
[15]                  Net Maintenance................    (4.1)          --        (4.1)      -12.8%         0.0%        -12.8%
                                                       ------       ------        ----       ------       ------        ------
[16]  (LOGO)[13]...[15] TOTAL CASH COLLECTIONS.........   24.1        31.0        (6.9)       75.4%        96.6%        -21.2%
                                                       ======       ======        ====       ======       ======        ======
                      CASH EXPENSES
                      Aircraft Operating Expenses
[17]                  -- Insurance                         --
[18]                  -- Re-leasing and other
                      overheads......................    (0.3)        (1.1)        0.8        -0.8%        -3.5%          2.5%
                                                       ------       ------        ----       ------       ------        ------
[19]  [17]+[18]       subtotal.......................    (0.3)        (1.1)        0.8        -0.8%        -3.5%          2.7%
                      SG&A Expenses
[20]                  Aircraft Servicer Fees
                      -- Base Fee....................    (0.5)
                      -- Rent Collected Fee..........    (0.3)
                      -- Rent Contracted Fee.........    (0.3)
                      -- Incentive Fee...............      --
                                                       ------       ------        ----       ------       ------        ------
[21]  [20]            sub-total......................    (1.1)        (1.4)        0.3        -3.4%        -4.3%          0.8%
[22]                  Other Servicer Fees............    (0.5)        (0.8)        0.3        -1.5%        -2.5%          1.0%
                                                       ------       ------        ----       ------       ------        ------
[23]  [21]+[22]       subtotal.......................    (1.6)        (2.2)        0.6        -4.9%        -6.8%          1.9%
                                                       ------       ------        ----       ------       ------        ------
[24]  [19]+[23]       TOTAL CASH EXPENSES............    (1.9)        (3.3)        1.4        -5.7%       -10.3%          4.6%
                                                       ======       ======        ====       ======       ======        ======
                      NET CASH COLLECTIONS
[25]  [16]            Total Cash Collections.........    24.1         31.0        (6.9)       75.4%        96.6%        -21.2%
[26]  [24]            Total Cash Expenses............    (1.9)        (3.3)        1.4        -5.7%       -10.3%          4.6%
[27]                  Interest Payments..............   (15.6)       (15.5)       (0.1)      -49.1%       -48.5%         -0.6%
[28]                  Swap Payments..................    (0.5)        (0.8)        0.3        -1.6%        -2.4%          0.8%
[29]                  Exceptional Item...............      --                       --         0.0%         0.0%          0.0%
                                                       ------       ------        ----       ------       ------        ------
[30]  (LOGO)[25]...[29] TOTAL..........................    6.1        11.4        (5.3)       19.0%        35.4%        -16.4%
                                                       ======       ======        ====       ======       ======        ======
[31]                  PRINCIPAL PAYMENTS
                      subclass A1....................      --           --
                      subclass A2                         5.0         10.3        (5.3)       15.7%        32.1%        -16.5%
                      subclass B1....................     1.0          1.0          --         3.1%         3.1%          0.0%
                      subclass C1....................     0.1          0.1         0.0         0.2%         0.2%          0.0%
                      subclass D1....................      --           --
                                                       ------       ------        ----       ------       ------        ------
                      Total..........................     6.1         11.4        (5.3)       19.0%        35.4%        -16.4%
                                                       ======       ======        ====       ======       ======        ======
</TABLE>

                                       44
<PAGE>   46

                                                                      APPENDIX C

                        MORGAN STANLEY AIRCRAFT FINANCE
                           PERFORMANCE TO DATE VERSUS
                                 1998 BASE CASE
                       MARCH 3, 1998 -- FEBRUARY 15, 2000

<TABLE>
<CAPTION>
                                                                                                  DOLLAR AMOUNTS EXPRESSED
                                                       ALL DOLLAR AMOUNTS IN MILLIONS OF              AS A PERCENTAGE
                                                      US DOLLARS UNLESS OTHERWISE STATED        1998 BASE CASE LEASE RENTALS
                                                      -----------------------------------    ----------------------------------
                                                       ACTUAL     BASE CASE     VARIANCE     ACTUAL*    BASE CASE**    VARIANCE
                                                      --------    ----------    ---------    -------    -----------    --------
<S>   <C>             <C>                             <C>         <C>           <C>          <C>        <C>            <C>
                      CASH COLLECTIONS
[1]                   Lease Rentals.................    252.9        252.9          --       100.0%       100.0%          0.0%
[2]                   -- Renegotiated Leases........     (1.6)          --        (1.6)       -0.7%         0.0%         -0.7%
[3]                   -- Rental Resets..............     (2.5)          --        (2.7)       -1.0%         0.0%         -1.0%
                                                      -------      -------        ----       ------       ------        ------
[4]   (LOGO)[1]...[3] CONTRACTED LEASE RENTALS......    248.8        252.9        (4.3)       98.4%       100.0%         -1.7%
[5]                   Movement in Current Arrears        (3.4)          --        (3.4)       -1.3%                      -1.3%
                      Balance.......................
                      less Net Stress-related Costs
[6]                   -- Bad debts..................     (6.2)          --                    -2.4%
[7]                   -- Security deposits drawn          4.5           --                     1.8%
                      down..........................
[8]                   -- Capitalised arrears........     (3.5)                                -1.4%
[9]                   -- AOG........................     (9.9)          --                    -3.9%
[10]                  -- Other Leasing Income.......      3.8           --                     1.5%
[11]                  -- Repossession...............     (2.2)                                -1.0%
                                                      -------      -------        ----       ------       ------        ------
[12]  (LOGO)[6]...[11] sub-total.....................   (13.5)       (11.4)       (2.1)       -5.4%        -4.5%         -0.9%
[13]  [4]+[5]+[12]    NET LEASE RENTALS.............    231.9        241.6        (9.6)       91.7%        95.5%         -3.8%
                                                      -------      -------        ----       ------       ------        ------
[14]                  Interest Earned...............      4.3          2.7         1.6         1.7%         1.1%          0.6%
[15]                  Net Maintenance...............      5.7           --         5.5         2.3%         0.0%          2.3%
                                                      -------      -------        ----       ------       ------        ------
[16]  (LOGO)[13]...[15] TOTAL CASH COLLECTIONS........   242.0       244.3        (2.3)       95.7%        96.6%         -0.9%
                                                      =======      =======        ====       ======       ======        ======
                      CASH EXPENSES
                      Aircraft Operating Expenses
[17]                  -- Insurance..................     (0.7)                                -0.3%
[18]                  -- Re-leasing and other            (1.1)                                -0.4%
                      overheads.....................
                                                      -------      -------        ----       ------       ------        ------
[19]  [17]+[18]       subtotal......................     (1.8)        (8.9)        7.1        -0.7%        -3.5%          2.8%
                      SG&A Expenses
[20]                  Aircraft Servicer Fees
                      -- Base Fee...................     (4.1)
                      -- Rent Collected Fee.........     (2.3)
                      -- Rent Contracted Fee........     (2.4)
                      -- Incentive Fee..............     (0.5)
                                                      -------      -------        ----       ------       ------        ------
[21]  [20]            sub-total.....................     (9.3)       (11.0)        1.7        -3.7%        -4.4%          0.7%
[22]                  Other Servicer Fees...........     (5.2)        (6.3)        1.1        -2.1%        -2.5%          0.4%
                                                      -------      -------        ----       ------       ------        ------
[23]  [21]+[22]       subtotal......................    (14.5)       (17.4)        2.8        -5.8%        -6.9%          1.1%
                                                      -------      -------        ----       ------       ------        ------
[24]  [19]+[23]       TOTAL CASH EXPENSES...........    (16.3)       (26.2)        9.9        -6.5%       -10.4%          3.9%
                                                      =======      =======        ====       ======       ======        ======
                      NET CASH COLLECTIONS
[25]  [16]            Total Cash Collections........    242.0        244.3        (2.3)       95.7%        96.6%         -0.9%
[26]  [24]            Total Cash Expenses...........    (16.3)       (26.2)        9.9        -6.5%       -10.4%          3.9%
[27]                  Interest Payments.............   (119.8)      (124.9)        5.1       -47.4%       -49.4%          2.0%
[28]                  Swap Payments.................    (12.4)        (7.0)       (5.4)       -4.9%        -2.8%         -2.1%
[29]                  Exceptional Item..............     27.1         27.1          --        10.7%        10.7%          0.0%
                                                      -------      -------        ----       ------       ------        ------
[30]  (LOGO)[25]...[29] TOTAL.........................   120.6       113.3         7.3        47.6%        44.7%          2.9%
                                                      =======      =======        ====       ======       ======        ======
[31]                  PRINCIPAL PAYMENTS
                      subclass A1...................       --           --
                      subclass A2...................    110.5        103.2         7.3        43.7%        40.8%          2.9%
                      subclass B1...................     10.0         10.0        (0.0)        3.9%         3.9%          0.0%
                      subclass C1...................      0.1          0.1        (0.0)        0.0%         0.0%          0.0%
                      subclass D1...................       --           --
                                                      -------      -------        ----       ------       ------        ------
                      TOTAL.........................    120.6        113.3         7.3        47.6%        44.7%          2.9%
                                                      =======      =======        ====       ======       ======        ======
                      DEBT BALANCES
                      subclass A1...................    400.0        400.0
                      subclass A2...................    229.5        236.8
                      subclass B1...................     90.0         90.0
                      subclass C1...................     99.9         99.9
                      subclass D1...................    110.0        110.0
                                                      -------      -------
                                                        929.4        936.7
                                                      =======      =======
</TABLE>

                                       45
<PAGE>   47

                                                                      APPENDIX C

                        MORGAN STANLEY AIRCRAFT FINANCE
                           PERFORMANCE TO DATE VERSUS
                                 1998 BASE CASE
                        MAR 3, 1998 -- FEBRUARY 15, 2000

COVERAGE RATIOS
<TABLE>
<CAPTION>
                                                                                            1998
                                           CLOSING                 ACTUAL                 BASE CASE
                                        -------------           -------------           -------------
<C>  <S>                                <C>             <C>     <C>             <C>     <C>
     NET CASH COLLECTIONS.............                                  120.6                   113.2
     Add Back Interest and Swap
     Payments.........................                                  132.2                   132.0
     Add Back Permitted Accruals......                                    1.6
  a  Net Cash Collections.............                                  254.4                   245.2
  b  Swaps............................                                   12.4                     7.0
  c  Class A Interest.................                                   76.2                    80.9
  d  Class A Minimum..................                                   15.2                    22.2
  e  Class B Interest.................                                   11.4                    11.9
  f  Class B Minimum..................                                   10.0                    10.0
  g  Class C Interest.................                                   13.5                    13.5
  h  Class C Minimum..................                                    0.0                     0.0
  i  Class D Interest.................                                   18.7                    18.7
  j  Class D Minimum..................                                     --                      --
  k  Class A Scheduled................                                     --                      --
  l  Class B Scheduled................                                     --                      --
  m  Class C Scheduled................                                    0.1                     0.1
  n  Class D Scheduled................                                    0.0                      --
  o  Permitted Aircraft                                                   1.6                      --
     Modifications....................
  p  Class A Supplemental.............                                   95.3                    81.0
                                                                -------------           -------------
     TOTAL............................                                  254.4                   245.2
                                                                -------------           -------------
[1]  INTEREST COVERAGE RATIO
     Class A..........................                                   2.87                    2.79
     Class B..........................                                   2.21                    2.01
     Class C..........................                                   1.83                    1.69
     Class D..........................                                   1.62                    1.49
[2]  DEBT COVERAGE RATIO
     Class A..........................                                   1.62                    1.49
     Class B..........................                                   1.62                    1.49
     Class C..........................                                   1.62                    1.49
     Class D..........................                                   1.62                    1.49
     LOAN-TO-VALUE RATIOS (IN US DOLLARS)
[3]  Assumed Portfolio Value..........  1,115,510,000                                   1,004,954,911
[4]  Adjusted Portfolio Value.........                            952,467,605
     Liquidity Reserve Amount
     Of which -- Cash.................     25,000,000              25,000,000              25,000,000
     -- Accrued Expenses..............                              6,089,203
     -- Letters of Credit held........     40,000,000              39,638,351              39,638,351
                                        -------------           -------------           -------------
     Subtotal.........................     65,000,000              70,727,554              64,638,351
     Less Lessee Security Deposits....    (20,000,000)            (19,038,351)            (19,038,351)
     Subtotal.........................     45,000,000              51,689,203              45,600,000
[5]  Total Asset Value................  1,160,510,000           1,004,156,807           1,050,554,911
     NOTE BALANCES AS AT FEBRUARY 15, 2000
     Class A..........................    740,000,000   63.8%     629,515,610   62.7%     636,816,388
     Class B..........................    100,000,000   72.4%      90,043,960   71.7%      90,043,960
     Class C..........................    100,000,000   81.0%      99,910,000   81.6%      99,914,956
     Class D..........................    110,000,000   90.5%     110,000,000   92.6%     110,000,000
                                        -------------           -------------           -------------
     Total............................  1,050,000,000             929,469,570             936,775,304

<CAPTION>

<C>  <C>
  a
  b
  c
  d
  e
  f
  g
  h
  i
  j
  k
  l
  m
  n
  o
  p
[1]
     = a/(b+c)
     = a/(b+c+d+e)
     = a/(b+c+d+e+f+g)
     = a/(b+c+d+e+f+g+h+i)
[2]
     = a/(b+c+d+e+f+g+h+i+j+k)
     = a/(b+c+d+e+f+g+h+i+j+k+l)
     = a/(b+c+d+e+f+g+h+i+j+k+l+m)
     = a/(b+c+d+e+f+g+h+i+j+k+l+m+n)
[3]
[4]
[5]
     60.6%
     69.2%
     78.7%
     89.2%
</TABLE>

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

* 1998 Base Case Cash Collections and Cash Expenses have been adjusted for
  non-delivery of an aircraft.

([1]) Interest Coverage Ratio is equal to Net Cash Collections(excl. interest
      and swap payments) expressed as a ratio of the interest payable on each
      subclass of Notes plus the interest and minimum principal payments payable
      on each subclass of Notes that rank senior in priority of payment to the
      relevant subclass of Notes.
                                       46
<PAGE>   48

([2]) Debt Service Ratio is equal to Net Cash Collections (excl. interest and
      swap payments) expressed as a ratio of the interest and minimum and
      scheduled principal payments payable on each subclass of Notes plus the
      interest and minimum and scheduled principal payments payable on each
      subclass of Notes that ranks equally with or senior to the relevant
      subclass of Notes in the priority of payments.

([3]) Assumed Portfolio Value represents the Initial Appraised Value of each
      aircraft in the Portfolio multiplied by the Depreciation Factor at
      Calculation date divided by the Depreciation Factor at Closing date.

([4]) Adjusted Portfolio Value represents the Base Value of each aircraft in the
      Portfolio as determined by the most recent Appraisal multiplied by the
      Depreciation Factor at Calculation date divided by the Depreciation Factor
      at Closing date.

    The lower of the Assumed Portfolio Value or 105% of the Adjusted Portfolio
    Value is used to calculate the principal repayment amounts to Noteholders

([5]) Total Asset Value is equal to Total Assumed Portfolio Value plus Liquidity
      Reserve Amount minus Lessee Security Deposits.

                                       47