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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
--------------------------

(MARK ONE)

/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]

FOR THE FISCAL YEAR ENDED NOVEMBER 30, 2000
OR

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

FOR THE TRANSITION PERIOD FROM ________________ TO ________________

COMMISSION FILE NUMBER 333-56575
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MORGAN STANLEY AIRCRAFT FINANCE
(EXACT NAME OF REGISTRANT AS SPECIFIED IN TRUST AGREEMENT)

7359 DELAWARE 13-3375162
(SIC CODE) (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION
INCORPORATION OR ORGANIZATION) NO.)

MORGAN STANLEY AIRCRAFT FINANCE
C/O WILMINGTON TRUST COMPANY
1100 NORTH MARKET STREET
RODNEY SQUARE NORTH
WILMINGTON, DELAWARE 19890-0001
ATTENTION: CORPORATE TRUST ADMINISTRATION
(302-651-1000)
(ADDRESSES AND TELEPHONE NUMBERS, INCLUDING AREA CODES, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
--------------------------

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT

TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------

None None

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT
None
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(TITLE OF CLASS)
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(TITLE OF CLASS)

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /

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

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

OUTSTANDING AT
ISSUER CLASS FEBRUARY 15, 2001
- ------ ------------------- ------------------

Morgan Stanley Aircraft Finance Beneficial interest One

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MORGAN STANLEY AIRCRAFT FINANCE

FORM 10-K ANNUAL REPORT
FOR THE FISCAL YEAR ENDED NOVEMBER 30, 2000

TABLE OF CONTENTS

PAGE
--------

PART I

Item 1. Business............................................................................ 3

Item 2. Properties.......................................................................... 30

Item 3. Legal Proceedings................................................................... 30

Item 4. Submission of Matters to a Vote of Security-Holders................................. 30

PART II

Item 5. Market for Registrants' Common Equity and Related Stockholder Matters............... 31

Item 6. Selected Consolidated Financial Data................................................ 31

Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations.......................................................................... 32

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.......................... 42

Item 8. Financial Statements and Supplementary Data......................................... 43

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.......................................................................... 43

PART III

Item 10. Directors and Executive Officers of the Registrant.................................. 44

Item 11. Executive Compensation.............................................................. 50

Item 12. Security Ownership of Certain Beneficial Owners and Management...................... 50

Item 13. Certain Relationships and Related Transactions...................................... 50

PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 52

Appendix 1. Cash Analysis of Financial Condition and Results of Operations...................... A-1

PART I

ITEM 1. BUSINESS

INTRODUCTION

Morgan Stanley Aircraft Finance ("MSAF", and together with its subsidiaries,
"MSAF GROUP") is a special-purpose statutory business trust formed on
October 30, 1997 under the laws of Delaware for an unlimited duration for
certain limited purposes. These limited purposes include (1) owning all of the
equity interest in various aircraft-owning subsidiaries and (2) acquiring,
financing, re-financing, owning, leasing, re-leasing, selling, maintaining and
modifying the aircraft and any additional aircraft that MSAF acquires in the
future. MSAF group may also enter into certain hedging contracts as described
under "Interest Rate Risk Management" and establish and provide loans or
guarantees to, or in respect of, its subsidiaries and any entities that may be
established or acquired in the future in connection with acquisitions of
additional aircraft.

MSAF group's portfolio of aircraft assets consists of 61 aircraft and one
engine. The aggregate appraised value of this portfolio was $1,911.2 million as
of September 30, 2000. Based on the appraised values as of September 30, 2000,
no one aircraft accounts for more than 5% of our portfolio. As of February 15,
2001, we had 60 lease contracts in effect with 42 lessees based in 27 countries,
and two aircraft off-lease. As of February 15, 2001, the weighted average
remaining contracted lease term of the portfolio (weighted by appraised values
as of September 30, 2000 and without giving effect to existing non-binding
letters of intent, purchase options or extension options) was 34.1 months. The
longest lease is scheduled to expire in September 2013. Therefore, MSAF group
will be required to re-lease each of the aircraft one or more times prior to the
final maturity date for its notes.

International Lease Finance Corporation ("ILFC") acts as servicer to all of
the aircraft in MSAF's portfolio. Among other things, ILFC markets the portfolio
for lease or sale and monitors lessee compliance with lease payment, maintenance
and insurance terms. MSAF acquired all but two of the aircraft in the portfolio
from ILFC. MSAF acquired the remaining two from an affiliate of GE Capital
Corporation.

MSAF has funded the acquisition of its aircraft by the issuance and sale of
securitized notes, which it issued pursuant to an indenture between MSAF and
Bankers Trust Company, as trustee, dated March 3, 1998.

On March 3, 1998 MSAF issued $1,050 million of notes due March 15, 2023 in
five subclasses: subclass A-1, subclass A-2, subclass B-1, subclass C-1 and
subclass D-1 (collectively, the "1998 Notes"). On March 15, 2000, MSAF issued
$1,310 million of notes due March 15, 2025 in five subclasses: subclass A-3,
subclass A-4, subclass A-5, subclass B-2 and subclass C-2 (collectively, the
"2000 Notes"). MSAF used the proceeds from the issuance and sale of the 2000
Notes in part to redeem $400 million, the entire amount, of its subclass A-1
notes. The 2000 Notes rank equally in right of payment of principal and interest
with the corresponding subclasses of 1998 Notes.

The offerings of the 1998 Notes and the 2000 Notes were initially each on a
basis exempt from registration under the Securities Act of 1933. During 1998,
MSAF filed a registration statement with the Securities and Exchange Commission
with respect to an exchange offer of registered 1998 Notes with terms virtually
identical to those of the previously restricted 1998 Notes. This registration
statement was declared effective on January 12, 1999 and the exchange offer was
consummated on January 18, 1999. During 2000, MSAF filed a registration
statement with the Securities and Exchange Commission with respect to an
exchange offer of registered 2000 Notes with terms virtually identical to those
of the previously restricted 2000 Notes. This registration statement was
declared effective on October 31, 2000 and the exchange offer was consummated on
December 4, 2000.

There are seven trustees of MSAF: a Delaware trustee, two independent
trustees and four controlling trustees. The controlling trustees manage MSAF.
The controlling or independent trustees or directors, as applicable, of each
aircraft-owning subsidiary are the same persons as the controlling trustees and
the independent trustees of MSAF, unless any provisions of local law mandating a
particular citizenship for trustees or directors require otherwise. The initial
controlling trustees and independent trustees were appointed by a subsidiary of
MSDW. Any succeeding or additional controlling trustees and independent trustees
will be appointed by a majority of the then standing controlling trustees.
Transactions or proceedings involving certain insolvency proceedings of MSAF may
only be approved by a unanimous vote of all controlling trustees and all
independent trustees.

MSAF Holdings, an indirect wholly owned subsidiary of Morgan Stanley Dean
Witter & Co. ("MSDW"), holds 100% of the beneficial interest in MSAF group. MSAF
Holdings may transfer all or a portion of its beneficial interest in MSAF group
to a third party in the future.

MSAF group's registered office is located at 1100 North Market Street,
Rodney Square North, Wilmington, Delaware 19890-0001 care of Wilmington Trust
Company, attention: Corporate Trust Administration and its telephone number is
302-651-1000.

RISK FACTORS

THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE NOT THE ONLY ONES FACING
MSAF OR THE NOTES. ADDITIONAL RISKS AND UNCERTAINTIES THAT WE ARE NOT AWARE OF
AT PRESENT, OR THAT WE BELIEVE TODAY ARE IMMATERIAL, MAY ALSO IMPAIR OUR
BUSINESS OPERATIONS OR THE NOTES.

IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, WE MAY NOT BE ABLE TO MAKE THE
REQUIRED PAYMENTS ON THE NOTES. IN ADDITION, IT IS POSSIBLE THAT THE RENTAL
PAYMENTS UNDER THE LEASES MAY NOT BE ADEQUATE TO MAKE THE REQUIRED PAYMENTS ON
THE NOTES.

THIS INFORMATION ALSO CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS
AND UNCERTAINTIES. IN MOST CASES, YOU CAN IDENTIFY FORWARD-LOOKING STATEMENTS BY
TERMINOLOGY SUCH AS "MAY," "SHOULD," "EXPECTS," "PLANS," "ANTICIPATES,"
"BELIEVES," "ESTIMATES," "PREDICTS," "POTENTIAL" OR "CONTINUE" OR THE NEGATIVE
OF SUCH TERMS OR SIMILAR TERMINOLOGY. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS. IN EVALUATING THESE
STATEMENTS, YOU SHOULD SPECIFICALLY CONSIDER VARIOUS FACTORS, INCLUDING THE
RISKS OUTLINED BELOW.

NO SECURITY INTEREST IN AIRCRAFT

Neither the trustee, the security trustee acting on behalf of the holders of
the notes and each other secured creditor nor any noteholder has any security
interest, mortgage, charge or other similar interest in the aircraft. If there
is an event of default, they will not be able to sell the aircraft to repay the
notes or exercise similar remedies which they would have if they had a security
interest in the aircraft.

NO EXECUTIVE MANAGEMENT--RELIANCE ON THIRD PARTIES TO MANAGE OUR BUSINESS

We have no executive management resources of our own. We therefore rely on
several service providers for the leasing and re-leasing of the portfolio and
all other executive and administrative responsibilities. If these service
providers do not perform their contractual obligations to us, our operations may
suffer and we may not be able to repay the notes. We can give no assurance that
we will continue our arrangements with these service providers or that the
service providers will continue their relationship with us until the notes are
paid in full. If a service provider resigns or we terminate its appointment, we
may be unable to find suitable replacement service providers that we can engage
on suitable terms. Additionally, our appointment of replacement service
providers may cause a lowering or withdrawal of the ratings on the notes. You
should refer to "The Servicer" under Item 10, and "Corporate Management" under
Item 10, for detailed information on the responsibilities delegated to service
providers.

CONFLICTS OF INTEREST OF ILFC

ILFC acts as servicer for our portfolio and as such performs certain
services including marketing our current portfolio for lease or sale and
monitoring lessee compliance with lease terms. ILFC, however, manages a large
aircraft portfolio for itself and others and for that reason, it may face
conflicts of interest in managing and marketing our portfolio for re-lease or
sale. The aircraft it manages for others may compete with our portfolio when
they are being marketed for re-lease or sale. ILFC also arranges aircraft
financings and lease transactions and advises many airlines (including some
lessees and potential lessees). If ILFC cannot resolve a conflict of interest,
the conflict could have an adverse effect on our ability to manage, re-lease or
sell the portfolio. In that case, we may be unable to make the required payments
on the notes.

For a description of ILFC's aircraft management and advisory business, you
should refer to "The Servicer" under Item 10.

LIMITATION ON ILFC'S LIABILITY

Our servicing agreement with ILFC contains limitations on its liability for
losses caused by its services. There is a risk that we may be unable to recover
from ILFC the amount of any losses they cause in performing the services.
Additionally, ILFC will not be liable to noteholders for any losses caused by
its services.

We describe the liability and other provisions of the servicing agreement
under "The Servicer" under Item 10.

CYCLICALITY OF SUPPLY OF AND DEMAND FOR AIRCRAFT AND DEPRESSION OF AIRCRAFT
VALUES

The market for commercial jet aircraft is very cyclical and can produce
sharp increases and decreases in aircraft values and lease rates. Decreases in
aircraft values or lease rates may cause a decrease in our cash flows. Depending
on market conditions, we may be unable to sell or re-lease aircraft on terms
that allow us to make payments on the notes.

Aircraft values and lease rates depend on various factors that are outside
our control. Such factors include, but are not limited to:

- manufacturer production levels and prices for new aircraft;

- general economic conditions affecting lessee operations;

- used aircraft supply;

- passenger demand;

- retirement and obsolescence of aircraft models;

- manufacturers merging or leaving the aircraft industry;

- interest rates and credit availability;

- fuel and other operating costs;

- re-introduction into service of aircraft previously in storage;

- governmental regulations; and

- lack of capacity in the air traffic control system.

In addition to values for aircraft generally, the value of specific aircraft
may increase or decrease sharply depending on factors that are not within our
control. Such factors include, but are not limited to:

- manufacturer production levels and prices for new aircraft;

- manufacturers merging or leaving the aircraft industry;

- maintenance and operating history of the aircraft;

- number of operators using a type of aircraft;

- legal or regulatory requirements that prevent an aircraft from being
re-leased or sold in the condition that it is in; and

- the discovery of manufacturing defects in an aircraft model.

The value of specific aircraft and the cost of after-market support may also
depend on the condition of the manufacturer. Current competition between The
Boeing Company and Airbus Industrie G.I.E. is also a threat to aircraft values.
Boeing and Airbus have increased production to an amount substantially above the
long-term requirement implied by industry forecasts. If production is maintained
at this level, the

increased supply of new aircraft may depress used aircraft values and lease
rates. This development could cause a decrease in our cash flows and adversely
affect our ability to make payments on the notes.

ACTUAL MARKET VALUE MAY BE LESS THAN APPRAISED VALUE

Appraised values for aircraft do not necessarily reflect the market value we
could obtain for aircraft at a specific time. Appraised values are based on the
assumption that there is an "open, unrestricted stable market environment with a
reasonable balance of supply and demand". As we describe above, the aircraft
market is not always stable and there may be supply and demand imbalances at any
one time, especially for specific aircraft types. At the high point in a cycle,
the current market value of some aircraft may be at or above their appraised
value while the current market value of others may be significantly less than
their appraised values. At a low point in the industry cycle, the current market
value of most aircraft types is likely to be less (and in many cases, much less)
than appraised base values. For these reasons, noteholders should not rely only
on appraised values as an indication of the price that we could obtain if we
sold an aircraft.

TECHNOLOGICAL RISKS

The availability of newer, more technologically advanced aircraft or the
introduction of increasingly stringent noise or emissions regulations may make
it more difficult for us to re-lease or sell aircraft. This risk is particularly
significant for us given our need to repay principal and interest on the notes
over a relatively long period. This will require that many of the aircraft are
leased or sold close to the end of their useful economic life. We expect that
the extent to which we are able to manage these technological risks through
modifications to aircraft and sale of aircraft will be limited.

RISKS RELATING TO ACQUISITION OF ADDITIONAL AIRCRAFT

We may acquire additional aircraft in the future. The cash flows derived
from such additional aircraft, together with the cash flows generated by the
aircraft in our portfolio, are expected to be the primary source of payment of
interest, principal and premium, if any, on the notes. ILFC is not obligated to
act as servicer with respect to any additional aircraft we may acquire. We may
need to procure additional servicing arrangements with respect to any additional
aircraft we acquire, and we cannot assure that any additional servicing
arrangements will be with ILFC or on similar terms to the servicing agreement
with ILFC.

OPERATIONAL RESTRICTIONS MAY HARM OUR ABILITY TO COMPETE

The indenture and our governing corporate documents impose restrictions on
how we operate our business. These restrictions limit our ability to compete
effectively in the aircraft leasing market. For example, we cannot grant
privileged rental rates to airlines in return for equity investments in such
airlines. There are also restrictions on persons to whom we may lease aircraft
to and limits on leasing to lessees in specific geographical regions. Most
competing aircraft lessors do not operate under similar restrictions.

LESSEE PURCHASE OPTIONS MAY BE EXERCISED AT PRICES BELOW NOTE TARGET PRICE FOR
SUCH AIRCRAFT

As of February 15, 2001, eight lessees had outstanding options to purchase a
total of ten aircraft, representing 26.7% of the portfolio by appraised value as
of September 30, 2000. If these options were exercised on their earliest
exercise date, in only one case the purchase option strike price would be below
the note target price that we have assumed for the applicable aircraft on the
exercise date, by 2.5%. We have assumed in our Base Case that none of the
purchase options are exercised. However, there is a risk that lessees could
exercise these options and, in particular, at a time when the exercise prices
are below the note target price for the aircraft being purchased. Any exercise
of such options will affect the amount and timing of principal payments on the
notes.

RISKS RELATING TO AIRCRAFT LIENS

Liens may attach to the aircraft in the course of their operation. These
liens may impair our ability to repossess, re-lease or sell the aircraft. Liens
which secure the payment of airport taxes, customs duties, air navigation
charges (including charges imposed by agencies regulating access to air space,
such as Eurocontrol), landing charges, crew wages, repairer's charges or salvage
attach to the aircraft in the normal course of operation. The amounts which the
liens secure may be substantial and may exceed the value of the aircraft against
which the lien is asserted. In some jurisdictions, a holder of aircraft liens
may have the right to detain, sell or cause the forfeiture of the aircraft. The
lessees may not comply with their obligations under the leases to discharge
liens arising during the terms of the leases.

FAILURE TO MAINTAIN REGISTRATION OF AIRCRAFT

All of the aircraft which are or will be operated must be registered with an
appropriate aviation authority. If an aircraft is operated without a valid
registration, the lessee operator or, in some cases, the owner or lessor, may be
subject to penalties which may result in a lien being placed on the aircraft.
Loss of registration could have other adverse effects, including grounding of
the aircraft and loss of insurance, which may have an adverse effect on our
ability to make payments on the notes.

INCREASED REGULATION OF AIRCRAFT

The aircraft industry is heavily regulated and aviation authorities may
adopt additional regulations in jurisdictions where our aircraft are registered
or operated. Any additional regulations (especially relating to aircraft noise
and emissions) may cause us to incur significant costs, depress the value of the
aircraft and impair our ability to re-lease the aircraft.

LEASING RISKS

WE MAY NOT BE ABLE TO RE-LEASE AIRCRAFT

We may not be able to re-lease aircraft upon expiration of the leases
without incurring significant downtime or without adverse effect on the rental
rates that we are able to obtain, especially during any period of downturn in
demand for aircraft on operating lease. If we cannot re-lease aircraft we may
not have enough cash to make payments on the notes. Even if we can re-lease
aircraft we may be unable to receive favorable rental rates, especially if there
is reduced demand for aircraft on operating lease. Our ability to re-lease
aircraft and obtain acceptable lease payments and terms may suffer because of:

- economic conditions affecting the airline industry;

- the supply of competing aircraft and demand for particular types;

- lessor competition; and

- restrictions on our re-leasing flexibility under the indenture.

The number and types of aircraft that, as of February 15, 2001, we had to
place with lessees because of lease expirations through November 30, 2005 are
presented in the table below, which shows the years in which the leases are
contracted to expire, assuming that (1) no lease terminates prematurely and
(2) there are no sales of aircraft or purchases of additional aircraft. See
"--Risks Relating to Acquisition of Additional Aircraft" above and "--Lease
Termination and Aircraft Repossession" below. We will need to re-lease more
aircraft if any aircraft become available through premature terminations of
leases.

MSAF GROUP LEASE PLACEMENT REQUIREMENT AS OF FEBRUARY 15, 2001

YEAR ENDING NOVEMBER 30,
----------------------------------------------------
AIRCRAFT TYPE 2001 2002 2003 2004 2005
- ------------- -------- -------- -------- -------- --------

A300........................................................ 1
A310........................................................ 2
A320........................................................ 2(-)* 2 1
A321........................................................ 2
A330........................................................ 1
A340........................................................ 1
B737........................................................ 4(-) 4* 5 4 2
B747........................................................ 1 1
B757........................................................ 2 4
B767........................................................ 1 2 1 1
F-50........................................................ 2
F-70........................................................ 3
MD-82....................................................... 1
MD-83....................................................... 1 1 1
Engine...................................................... 1
-- -- -- -- --
Total....................................................... 7 10 18 11 8
== == == == ==

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

* As of February 15, 2001, two aircraft were subject to non-binding letters of
intent. An A320-200 aircraft due to be available for lease in October 2001
was subject to a non-binding letter of intent with a Canadian lessee.
Assuming that this letter of intent resulted in a binding lease agreement in
accordance with its terms, we would not be required to re-lease this
aircraft until October 2008. A B737-300 aircraft due to be available for
lease in January 2002 was subject to a non-binding letter of intent for
extended terms with the existing lessee. Assuming that this letter of intent
resulted in a binding lease agreement in accordance with its terms, we would
not be required to re-lease this aircraft until January 2009.

(-) Includes aircraft currently off-lease.

As illustrated by the table above, over the next five years we will be
required to re-lease 53 aircraft and 1 engine, representing 85.0% of the
portfolio by appraised value as of September 30, 2000.

LESSEES MAY NOT PERFORM REQUIRED MAINTENANCE

The standards of maintenance observed by our lessees and the condition of
the aircraft at the time of sale or lease may affect future values and rental
rates from our aircraft. Under the leases, the lessee has the main
responsibility to maintain the aircraft and to comply with all applicable
governmental requirements. Some lessees may experience periodic difficulties in
meeting their maintenance obligations resulting from adverse environmental
conditions or financial and labor difficulties. If a lessee fails to perform
required or recommended maintenance on an aircraft, the aircraft may be grounded
and we may incur substantial costs to restore the aircraft to an acceptable
maintenance condition before sale or re-lease. If our lessees do not perform
their obligation to maintain the aircraft, we may have to fund maintenance work
on the aircraft. Because our maintenance costs are expenses that rank senior to
payments on the notes, we may be unable to make payments on the notes if our
maintenance costs were to become sufficiently large. In other cases, we may have
an obligation to reimburse the lessee or pay some or all of the cost of aircraft
maintenance. Our cash resources may not be sufficient both to fund maintenance
requirements and make payments on the notes, especially as the aircraft age.

AIRCRAFT INSURANCE MAY NOT BE ADEQUATE

Our lessees have an obligation under the leases to maintain property and
liability insurance covering their operation of the aircraft. We can give no
assurance that this insurance will be adequate to cover any losses or
liabilities that we may incur in our business. For example, the loss or
liability from an aviation accident or other catastrophic event may exceed the
coverage limits in the policy. Other losses may not be covered by the insurance.
There is also a risk that our lessees will not perform their insurance
obligations to us, which may mean that insurance will not be available to us. In
either case, we may be unable to make payments on the notes if insurance
proceeds do not cover losses or liabilities we may incur.

WE MAY BE UNABLE TO OBTAIN REQUIRED LICENSES AND APPROVALS

If we cannot obtain required government licenses and approvals, we may be
unable to re-lease or sell aircraft. In that case, our cash flows may be
insufficient to make payments on the notes. Several leases require specific
licenses, consents or approvals. These include consents from governmental or
regulatory authorities to certain lease payments and to the import, re-export or
de-registration of the aircraft. There is a significant risk that subsequent
legal and administrative changes will increase such requirements or that a
consent, once given, will be withdrawn. We may not receive consents needed in
connection with future re-leasing or sale of an aircraft

RISK OF LESSEES IN WEAK FINANCIAL CONDITION

There is a significant risk that the lessees may default on their
obligations under the leases. If lessees do not make rent and maintenance
payments or are significantly in arrears, we will be unable to make payments on
the notes. The ability of each lessee to perform its obligations under its lease
will depend primarily on its financial condition. A lessee's financial condition
may be affected by various factors beyond its control, including competition,
fare levels, passenger demand, operating costs, the cost and availability of
finance, economic conditions in the countries where the lessees operate and
environmental and other governmental regulation of the air transportation
business. As a general matter, weakly capitalized airlines are more likely than
well capitalized airlines to seek operating leases and at any point in time,
noteholders should expect varying numbers of lessees to be experiencing payment
difficulties. Many of our lessees are in a weak financial position. Noteholders
should expect this to be the case with future lessees. As a result, a large
proportion of lessees may consistently be significantly in arrears in their
rental payments or maintenance payments.

As of February 15, 2001, seven lessees were in arrears. The ten aircraft on
lease to these lessees represented 14.6% of the portfolio by appraised value as
of September 30, 2000. The total amount of rental payments and maintenance
reserves that were in arrears with respect to these seven lessees was
$6.9 million, of which $5.1 million related to rental payments and $1.8 million
related to maintenance reserves. MSAF group held security deposits of $5.3
million against these arrears. The arrears amount represented 2.9% of our total
annual contracted lease rental payments. The weighted average number of days
past due of such arrears was 65 days.

The current level of defaults and lessee arrears should not be seen as
representative of future defaults and arrears, particularly if economic
conditions deteriorate. Defaults and amounts in arrears may increase as the
market for aircraft on operating lease experiences further cyclical downturns,
particularly in emerging markets.

LESSEE BANKRUPTCIES

In certain cases, our lessees' financial difficulties may result in
bankruptcy. Recently, three of our lessees have filed for bankruptcy.

In January 2000, TransAer, a lessee based in Ireland, restructured rental
and maintenance arrears for two A320-200 aircraft into a note payable of
$1.4 million. The terms of the restructuring agreement were that amounts
totaling $1.4 million would be repaid during June, July and August 2000. None of
these restructured arrears were paid. On October 20, 2000, TransAer filed for
bankruptcy, with total arrears outstanding of $1.6 million at that date. MSAF
group drew down security deposits of $1.0 million against these arrears.

The leases with respect to the two A320-200 aircraft with TransAer were
terminated on October 18, 2000. TransAer had been operating one of these
aircraft on wet lease to Libyan Arab Airlines, which has detained the aircraft.
MSAF group believes that Libyan Arab Airlines has no right to keep possession of
the aircraft. ILFC has submitted an insurance claim for the loss of the
aircraft, which is currently pending. ILFC also continues to explore recovery
options consistent with compliance with U.S. law. MSAF group may incur
significant costs and time in resolving this matter. This aircraft represented
1.7% of the portfolio by appraised value as of September 30, 2000. The second
A320-200 aircraft was delivered to a new lessee based in Cyprus on February 17,
2001. This aircraft represented 1.5% of the portfolio by appraised value as of
September 30, 2000.

On December 6, 2000, National announced that it had voluntarily filed
petitions in the U.S. District Court in Wilmington, Delaware for relief under
Chapter 11 of the U.S. Bankruptcy Code. MSAF group currently leases one
B757-200ER to National, representing 1.6% of the portfolio by appraised value as
of September 30, 2000. As of February 15, 2001, National owed rental arrears of
$1.1 million against which MSAF group held a security deposit of $0.6 million.
It is not yet clear whether National will raise the necessary financing to
continue operations.

On January 10, 2001, TWA announced that it and certain of its subsidiaries
had voluntarily filed petitions in the U.S. District Court in Wilmington,
Delaware for relief under Chapter 11 of the U.S. Bankruptcy Code. TWA also
announced that it had reached agreement with American Airlines, in which
American Airlines would acquire substantially all the assets of TWA. This
agreement is subject to certain regulatory approvals, including that of the
bankruptcy court. MSAF group currently has four aircraft on lease to TWA,
representing approximately 5.1% of the portfolio by appraised value as of
September 30, 2000. The four aircraft are: one Boeing 757-200ER, two MD-83s and
one MD-82. As of February 15, 2001, TWA owed rental arrears of $1.3 million
against which MSAF group held security deposits of $2.0 million. MSAF group does
not yet know whether TWA intends to affirm or reject some or all of these leases
in its bankruptcy proceedings or how the agreement between American Airlines and
TWA may impact these leases.

LEASE RESTRUCTURINGS

In certain cases, we may respond to the needs of lessees in financial
difficulty including, in certain instances, restructuring the applicable leases.
Such restructurings may involve reduced rental payments for a specified period
(which may be several months). In addition, certain restructurings may involve
the voluntary termination of a lease prior to its expiration and the arrangement
of subleases from the lessee to another aircraft operator.

In August 1999 we agreed to restructure the arrears of a Brazilian lessee,
Passaredo. The restructured amount of $3.7 million was capitalized as a note
payable and added to the lessee's conditional sale agreement loan balance, with
an extension of the term of the loan. The aircraft on lease to this lessee was
an A310-300 and represented 1.4% of the portfolio by appraised value as of
September 30, 2000. 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. B.R.A., however, defaulted on its
obligations under this lease and the aircraft was repossessed in April, 2000.
The lease had been scheduled to expire in July 2007. The total amount of rental
payments in arrears at the date of the repossession was

$1.3 million. There was no security deposit held by MSAF group to offset against
the arrears balance. The aircraft was delivered to a new lessee based in the
Pacific region on December 18, 2000.

In February 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 group. In
March 2000, we reached an agreement with the lessee to restructure the lease by
slightly reducing the lease rate effective from February 2000 and extending the
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. The lessee has also now fully paid its security deposit. At the same
time, the lease was assigned to Air Canada. This aircraft, an A320-200,
represented 1.5% of the portfolio by appraised value as of September 30, 2000.

VASP, a former Brazilian lessee, defaulted on its obligations under its
lease of a B737-300 aircraft and the aircraft was repossessed in May 2000,
following legal proceedings against VASP. The aircraft could not be re-leased
until it had been deregistered from the Brazilian aircraft registry.
Deregistration was completed on February 22, 2001 following protracted legal
proceedings against VASP. The lease was scheduled to expire in March 2003. The
total amount of rental payments in arrears at the date of the repossession was
$0.5 million, against which MSAF group drew down a security deposit of
$0.7 million. The aircraft represented 1.0% of the portfolio by appraised value
as of September 30, 2000. ILFC is currently remarketing the aircraft.

In July 1999, another former Brazilian lessee, VARIG, negotiated early
termination of its lease of a B747-300 aircraft 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. Under the terms of the termination agreement, VARIG is scheduled
to repay $10.8 million over eight years to off-set arrears of $4.8 million and
approximately $6.0 million for certain 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 payable. As of February 15, 2001, VARIG had made all payments due
under the note payable. This aircraft represented 2.2% of the portfolio by
appraised value as of September 30, 2000.

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 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 we will be able to recover the $0.1 million outstanding
from TAESA. This aircraft, which represented 1.1% of the portfolio by appraised
value as of September 30, 2000, is currently on lease to Travel Service, a
carrier based in the Czech Republic.

EMERGING MARKET RISKS

"Emerging markets" are countries that have poorly developed economies that
are vulnerable to economic and political problems, such as significant
fluctuations in GDP, interest rates and currency exchange rates and civil
disturbances, governmental instability, nationalization and expropriation of
private assets and the imposition of taxes or other charges by governments. The
resulting instability may affect the ability of lessees that operate in these
emerging markets to meet their lease obligations and they may be more likely to
default than lessees that operate in developed economies. As of February 15,
2001, eleven lessees, representing 28.55% of the portfolio by appraised value as
of September 30, 2000, operated in "emerging markets" according to the Morgan
Stanley Capital International ("MSCI") designations that we follow under our
indenture. In addition, eight lessees representing 17.17% of the portfolio by
appraised

value as of September 30, 2000 operated in markets which may be considered to be
emerging markets but are categorized as "Other" by the MSCI classification: Air
Atlanta Icelandic, Air Macau, Air Malta, Air Mauritius, Air Pacific (Fiji),
Cyprus Airways, Icelandair and Lithuanian. In total we lease 45.72% of our
portfolio to 19 lessees operating in emerging markets.

As of February 15, 2001, three of the seven lessees in arrears, representing
4.4% of the portfolio by appraised value as of September 30, 2000, were based in
emerging markets. The total amount of rental payments and maintenance reserves
that were in arrears with respect to these three lessees was $2.8 million, of
which $2 million related to rental payments and $0.8 million related to
maintenance reserves. MSAF group held security deposits of $1.7 million against
these arrears. The weighted average number of days past due for such arrears was
39 days.

In addition, seven of our former lessees whose leases terminated early due
to defaults were based in what we consider to be emerging markets. In each case,
ILFC was able to repossess the aircraft without recourse to legal action. These
seven lessees were based in Brazil, Mexico, Turkey, Guyana and Russia.

RISK OF REGIONAL ECONOMIC DOWNTURNS AFFECTING LESSEES' FINANCIAL CONDITION

There is a significant risk that the economic conditions in the regions
where our lessees operate will affect their ability to meet their lease
obligations. The commercial aviation industry is very sensitive to general
economic conditions. Since air travel is largely discretionary, the industry
tends to suffer severe financial difficulties during slow economic periods.
Below is a discussion of the regional concentrations of our lessees and the
economic characteristics of the various regions that may impact the lessees'
financial condition. The regions discussed below are based on designations
published by Morgan Stanley Capital International.

EUROPE (DEVELOPED)

MSAF group currently leases 23.1% of the portfolio by appraised value as of
September 30, 2000 in the Europe (Developed) region. One of the seven lessees in
arrears as of February 15, 2001 is based in this region.

As of February 15, 2001, Air Europa, a lessee based in Spain, owed rental
and maintenance arrears of $0.4 million against which MSAF group held a security
deposit of $0.5 million. This aircraft represented 1.2% of the portfolio by
appraised value as of September 30, 2000.

NORTH AMERICA (DEVELOPED)

MSAF group currently leases 15.4% of the portfolio by appraised value as of
September 30, 2000 in the North America (Developed) region. Two of the seven
lessees in arrears as of February 15, 2001 are based in the North America
region.

As of February 15, 2001, TWA, a lessee based in the United States, owed
rental arrears of $1.3 million against which MSAF group held security deposits
of $2.0 million. On January 10, 2001, TWA announced that it and certain of its
subsidiaries had voluntarily filed petitions in the U.S. District Court in
Wilmington, Delaware for relief under Chapter 11 of the U.S. Bankruptcy Code.
TWA also announced that it had reached agreement with American Airlines in which
American Airlines would acquire substantially all the assets of TWA. This
agreement is subject to certain regulatory approvals, including that of the
bankruptcy court. MSAF group currently has four aircraft on lease to TWA,
representing approximately 5.1% of the portfolio by appraised value as of
September 30, 2000. The four aircraft are: one Boeing 757-200ER, two MD-83s and
one MD-82. MSAF group does not yet know whether TWA intends to affirm or reject
some or all of these leases in its bankruptcy proceeding or how the agreement
between American Airlines and TWA may impact these leases.

As of February 15, 2001, National, a lessee based in the United States, owed
rental arrears of $1.1 million against which MSAF group held a security deposit
of $0.6 million. MSAF group currently leases one B757-200ER to National,
representing 1.6% of the portfolio by appraised value as of September 30, 2000.
On December 6, 2000, National announced that it had voluntarily filed petitions
in the U.S. District Court in Wilmington, Delaware for relief under Chapter 11
of the U.S. Bankruptcy Code. It is not yet clear whether National will raise the
necessary financing to continue operations.

PACIFIC (DEVELOPED)

MSAF group currently leases 13.1% of the portfolio by appraised value as of
September 30, 2000 in the Pacific (Developed) region. As of February 15, 2001,
none of the lessees in this region were in arrears.

EUROPE AND MIDDLE EAST (EMERGING)

MSAF group currently leases 7.7% of the portfolio by appraised value as of
September 30, 2000 in the Europe and Middle East (Emerging) region. Three of the
seven lessees in arrears as of February 15, 2001 are based in this region.

As of February 15, 2001, Air Alfa, a lessee based in Turkey, owed total
arrears of $2.7 million, of which $2.0 million related to rental payments and
$0.7 million related to maintenance reserves. MSAF group held a security deposit
of $0.7 million against these arrears. The lessee is unable to cure its payment
defaults and as a result in February 2001 ILFC commenced repossession
proceedings. This aircraft, an A321-100, represented 2.0% of the portfolio by
appraised value as of September 30, 2000.

As of February 15, 2001, Travel Service, a lessee based in the Czech
Republic, owed rental arrears of $0.03 million, against which MSAF group held a
security deposit of $0.5 million. This aircraft, a B737-400, represented 1.1% of
the portfolio by appraised value as of September 30, 2000.

As of February 15, 2001, Olympic, a lessee based in Greece, owed maintenance
arrears of $0.1 million, against which MSAF group held a security deposit of
$0.5 million. This aircraft, a B737-400, represents 1.3% of the portfolio by
appraised value as of September 30, 2000.

ASIA (EMERGING)

MSAF group currently leases 15.9% of the portfolio by appraised value as of
September 30, 2000 in the Asia (Emerging) region. As of February 15, 2001, none
of the lessees in this region were in arrears.

LATIN AMERICA (EMERGING)

MSAF group currently leases 5.0% of the portfolio in Latin America (all in
Mexico) by appraised value as of September 30, 2000. As of February 15, 2001,
none of the lessees in this region were in arrears.

OTHER

MSAF group currently leases 17.2% of the portfolio by appraised value as of
September 30, 2000 in the Other region. One of the seven lessees in arrears as
of February 15, 2001 is based in this region.

As of February 15, 2001, Air Atlanta Icelandic, a lessee based in Iceland,
owed total arrears of $1.3 million, of which $0.5 million related to rental
payment and $0.8 million related to maintenance reserves. MSAF group held a
security deposit of $0.5 million against these arrears. The aircraft, a
B747-300B, represented 2.2% of the portfolio by appraised value as of
September 30, 2000.

LEASE TERMINATION AND AIRCRAFT REPOSSESSION

If a lessee defaults, we have the right to terminate the lease and repossess
the aircraft under the terms of each lease. However, it may be difficult,
expensive and time-consuming to enforce our rights if the lessee

contests such termination or is bankrupt or under court protection. ILFC may
incur significant costs on our behalf in trying to repossess an aircraft and in
performing maintenance work necessary to make the aircraft available for
re-lease or sale. Further, our efforts to repossess an aircraft may be limited
by the laws of the local jurisdiction which may delay or prevent us from
repossessing an aircraft following a lessee's default.

RISKS RELATING TO PAYMENTS ON THE NOTES

ACTUAL EXPERIENCE MAY NOT MATCH OUR ASSUMPTIONS

We have determined the expected final payment dates for the notes based on
assumptions about our future cash flows and interest and operating costs and
possible future economic conditions. The purpose of these assumptions is to
illustrate the payment provisions of the notes. Many of these assumptions relate
to future political, economic and market conditions (for example, lease rates)
that are outside our control and are difficult or impossible to predict. Other
assumptions relate to future events (for example, maintenance payments) that
depend on the actions of lessees or others with whom we conduct business. For
this reason, it is highly unlikely that our experience in the future will be
consistent with these assumptions. As a result, we are highly likely to be
unable to make payments on the notes at the times and in the amounts that the
assumptions indicate.

SUBORDINATION PROVISIONS

Expenses and certain other payments are senior in priority of payment to the
notes and are paid out before any payments are made on the notes. Under certain
circumstances, the rights of the noteholders, as holders of each subclass of
notes, to receive payments of principal in respect of such subclass of notes and
to exercise remedies upon default will be subordinated to the rights of the
noteholders with respect to the most senior subclass of notes then outstanding.
If an event of default with respect to any subclass of notes occurs under the
indenture, the security trustee has the exclusive right to exercise and enforce
any and all remedies with respect to the collateral held by MSAF group.
Therefore, if an event of default occurs, the holders of each subclass of notes
will not be permitted to enforce certain rights until all amounts owing under
any more senior notes outstanding and certain other amounts have been paid in
full.

CAPITAL MARKETS RISKS

TRADING MARKET FOR THE NOTES

Morgan Stanley & Co. Incorporated currently makes a market in the notes.
However, it is not obligated to do so, and any such market making may be
discontinued at any time without notice, in its sole discretion. Therefore, we
can give no assurance as to the liquidity of, or the trading market for, the
notes.

WE MAY BE UNABLE TO REFINANCE THE SUBCLASS A-3, A-4 OR B-2 NOTES

We intend to refinance the subclass A-3, A-4 and B-2 notes on their expected
final payment dates. Our ability to do so will depend on many factors outside
our control, including general conditions in the capital markets and market
perceptions of the commercial aviation industry, the aircraft leasing business
generally and our own performance. If we are unable to refinance the subclass
A-3, A-4 or B-2 notes on their expected final payment dates, they will remain
outstanding until they are refinanced or otherwise paid off in accordance with
their terms. Depending on the factors referred to above and how quickly we are
subsequently able to refinance the notes, these subclasses of notes may remain
outstanding for a significant period.

BANKRUPTCY RISKS

We have taken steps to structure MSAF to ensure that our assets are not
consolidated with MSDW's or any of its affiliates' assets or otherwise become
available to MSDW's or any of its affiliates' creditors in any bankruptcy or
insolvency proceeding involving MSDW.

If MSDW or any of its affiliates becomes bankrupt or insolvent, there is a
legal risk that a court or other authority could decide that these steps were
not effective to insulate our assets from MSDW's assets. As a result, the
aircraft and our other assets could become available to repay both MSDW's
creditors and our creditors, including noteholders. We could also lose all of
our rights in the aircraft and our other assets. In either case, it may be
impossible to repay amounts outstanding under the notes.

TAX RISKS

Neither the trustee nor MSAF will make any additional payments to
noteholders in respect of any withholding or deduction required to be made by
applicable law with respect to payments made on the notes. In the event that
MSAF is or will be required to make a withholding or deduction, it will use
reasonable efforts to avoid the application of such withholding taxes and may in
certain circumstances redeem the notes in the event such withholding taxes
cannot be avoided. In the event any withholding taxes are imposed with respect
to the notes and MSAF does not redeem the notes, the net amount of interest
received by noteholders will be reduced by the amount of the withholding or
deduction.

MSAF believes that it will not become subject to any material taxes in any
of the jurisdictions in which any of the lessees are organized or operate under
the present tax laws of such jurisdictions. However, there can be no assurance
that other leases to which MSAF group may become a party as a result of the
re-leasing of the aircraft or acquisition of additional aircraft will not result
in the imposition of withholding or other taxes.

THE PORTFOLIO

All of our assets consist of 100% of the equity in the aircraft-owning
subsidiaries and certain leasing subsidiaries and certain loans made to the
aircraft-owning subsidiaries. We indirectly own (1) the portfolio, (2) the
rights under the related leases, and (3) cash and cash equivalents on deposit.

APPRAISALS

As of September 30, 2000, our portfolio had an aggregate appraised value of
$1,911.2 million. Under our indenture, we are required, at least once each year
and in any case no later than October 31 of each year, to deliver to the trustee
appraisals of the base value of each of the aircraft in our portfolio from at
least three independent appraisers that are members of the International Society
of Transport Aircraft Trading or any similar organization. The annual appraisals
for 2000 were submitted to the trustee and filed with the Securities and
Exchange Commission on Form 8-K on October 31, 2000.

Three appraisers, Aircraft Information Services, Inc., BK Associates, Inc.
and Airclaims Limited, have provided appraisals of the value of each of our
aircraft at normal utilization rates in an open, unrestricted and stable market,
without taking into account the value of related leases, maintenance reserves or
security deposits as of September 30, 2000, adjusted to account for the reported
maintenance standard of the aircraft. The appraisals were not based on a
physical inspection of the aircraft.

The average appraised value of each aircraft as of September 30, 2000, used
in calculating the "Adjusted Portfolio Value" under the indenture, is calculated
by taking the average of the most recent appraised values obtained from the
three appraisers. Under the indenture, if on any payment date 105% of the
Adjusted Portfolio Value is not greater than the assumed Portfolio Value on that
payment date, MSAF's excess cash flows, after paying the interest and Minimum
Principal Payment Amount due on its outstanding notes on that date, are
redirected to be repaid as the Scheduled Principal Payment Amount of the Class A
notes. The Adjusted Portfolio Values resulting from the receipt of these
appraisals do not cause such a redirection. MSAF is required to obtain its next
annual appraisals no later than 30 days prior to October 31, 2001.

The appraisals for the portfolio as of September 30, 2000 are set out below.

APPRAISAL OF
----------------------------------------- APPRAISED
AIRCRAFT VALUE AS OF
ENGINE SERIAL DATE OF BK INFORMATION SEPTEMBER 30,
AIRCRAFT TYPE CONFIGURATION NUMBER MANUFACTURE ASSOCIATES SERVICES AIRCLAIMS 2000
- ------------- ------------------ -------- ------------ ----------- ------------- ----------- --------------

A300-600R............ PW 4158 555 Mar-90 $45,234,468 $42,890,000 $41,870,000 $43,331,489
A300-600R............ PW4158 625 Mar-92 50,617,354 48,160,000 41,970,000 46,915,785
A310-300............. PW JT9D-7R4E1 409 Nov-85 27,773,140 21,780,000 16,850,000 22,134,380
A310-300............. PW JT9D-7R4E1 410 Nov-85 28,659,090 21,870,000 19,540,000 23,356,363
A310-300............. PW JT9D-7R4E1 437 Jan-87 32,299,653 26,420,000 22,790,000 27,169,884
A320-200............. CFM56-5A3 279 Feb-92 29,063,201 28,110,000 27,050,000 28,074,400
A320-200............. IAE V2500-A1 393 Feb-93 29,520,000 28,450,000 29,540,000 29,170,000
A320-200............. CFM-5A3 397 Mar-93 30,835,425 29,790,000 27,990,000 29,538,475
A320-200............. IAE V2500-A1 414 May-93 29,828,189 28,220,000 29,770,000 29,272,730
A320-200............. V2500-A1 428 May-94 32,919,757 30,730,000 31,970,000 31,873,252
A320-200............. CFM56-5A3 446 Oct-93 33,070,776 29,830,000 30,700,000 31,200,259
A321-100............. V2530-A5 557 Dec-95 43,462,682 38,410,000 33,670,000 38,514,227
A321-100............. IAE V2530-A5 597 May-96 41,194,891 40,490,000 35,500,000 39,061,630
A330-300............. CF6-80E1 54 Apr-94 79,462,637 78,530,000 73,960,000 77,317,546
A340-300............. CFM56-5C3G 94 Mar-95 87,999,758 99,790,000 85,510,000 91,099,919
B737-300............. CFM45-3B1 23255 Jun-85 13,837,910 17,120,000 13,300,000 14,752,637
B737-300............. CFM45-3B1 23256 Jul-85 14,131,220 17,680,000 14,310,000 15,373,740
B737-300............. CFM56-3B2 24299 Nov-88 18,965,944 19,900,000 18,230,000 19,031,981
B737-300............. CFM56-3B2 24449 Apr-90 20,348,154 21,030,000 18,540,000 19,972,718
B737-300............. CFM56-3B2 25161 Feb-92 24,299,007 23,930,000 22,040,000 23,423,002

B737-300............. CFM56-3C1 26295 Dec-93 27,110,000 24,470,000 21,440,000 24,340,000
B737-300............. CFM56-3B1 26309 Dec-94 28,367,748 25,120,000 23,220,000 25,569,249
B737-300............. CFM56-3C1 27635 May-95 28,561,650 28,630,000 25,320,000 27,503,883
B737-300F............ CFM56-3B2 23811 Sep-87 18,758,576 20,640,000 19,140,000 19,512,859
B737-300QC........... CFM56-3B2 23788 May-87 18,659,861 20,320,000 19,610,000 19,529,954
B737-400............. CFM56-3B2 24234 Oct-88 19,857,422 21,680,000 19,750,000 20,429,141
B737-400............. CFM56-3C1 24707 Jun-91 25,239,976 24,760,000 19,790,000 23,263,325
B737-400............. CFM56-3C 25104 May-93 28,083,032 27,980,000 22,750,000 26,271,011
B737-400............. CFM56-3C1 25105 Jul-93 28,392,833 27,340,000 22,700,000 26,144,278
B737-400............. CFM56-3C 25371 Jan-92 26,005,550 25,520,000 21,840,000 24,455,183
B737-400............. CFM45-3C1 26279 Feb-92 26,268,948 26,890,000 24,290,000 25,816,316
B737-400............. CFM45-3C1 26291 Aug-93 27,928,568 27,040,000 23,850,000 26,272,856
B737-400............. CFM45-3C1 26308 Nov-94 29,266,255 27,940,000 22,000,000 26,402,085
B737-500............. CFM56-3B1 25165 Apr-93 19,018,480 19,200,000 18,330,000 18,849,493
B737-500............. CFM45-3C1 26304 Sep-94 21,220,598 21,370,000 18,800,000 20,463,533
B747-300B............ CF6-80C2 24106 Apr-88 44,142,576 40,290,000 44,090,000 42,840,859
B747-400............. RB211-524 24955 Sep-91 102,614,483 96,210,000 72,010,000 90,278,161
B757-200ER........... RB211-535-E4 23767 Apr-87 28,135,572 29,330,000 24,710,000 27,391,857
B757-200ER........... RR RB211-535E4 24260 Dec-88 31,417,380 32,890,000 28,630,000 30,979,127
B757-200ER........... RR RB211-535E4 24367 Feb-89 30,670,874 34,080,000 27,390,000 30,713,625
B757-200ER........... PW2040 24965 Mar-92 40,446,116 41,480,000 32,710,000 38,212,039
B757-200ER........... PW2040 25044 May-91 38,685,380 39,400,000 27,490,000 35,191,793
B757-200ER........... RB211 26266 Jan-93 41,680,452 42,840,000 33,950,000 39,490,151
B757-200ER........... PW 2037 26272 Mar-94 43,045,784 43,280,000 32,430,000 39,585,261
B757-200ER........... PW2037 28160 Jul-96 47,953,656 46,710,000 37,310,000 43,991,219
B767-200ER........... CF6-80A 23807 Aug-87 37,392,640 33,300,000 22,930,000 31,207,547
B767-300ER........... CF6-80C2B2F 24798 Oct-90 41,956,039 51,440,000 38,070,000 43,822,013
B767-300ER........... GE CF6-80C-2B6 24875 Jun-91 57,003,920 59,700,000 53,020,000 56,574,640
B767-300ER........... GE CF6-80C2-BF6 25132 Feb-92 56,920,636 62,320,000 51,740,000 56,993,545
B767-300ER........... CF6-80C2B6F 26256 Apr-93 63,609,808 65,380,000 58,510,000 62,499,936
B767-300ER........... CF6-80C2B6 26260 Sep-94 65,104,623 67,660,000 57,540,000 63,434,874
Engine............... CF6-80C2B6F 704279 Jul-95 5,910,000 5,250,000 6,520,000 5,893,333
F-50................. PW125B 20232 Aug-92 7,326,350 5,500,000 4,320,000 5,715,450
F-50................. PW125B 20233 Jan-92 7,122,810 5,490,000 4,520,000 5,710,937
F-70................. RR TAY MK620-15 11564 Dec-95 13,827,216 10,840,000 10,980,000 11,882,405
F-70................. RR TAY MK620-15 11565 Feb-96 13,973,620 12,330,000 11,650,000 12,651,207
F-70................. RR TAY MK620-15 11569 Mar-96 13,973,620 12,330,000 11,660,000 12,654,540
MD-82................ PW JT8D-219 49825 Mar-89 19,827,514 18,740,000 15,340,000 17,969,171
MD-83................ JT8D-219 49657 Feb-88 18,752,054 18,250,000 14,890,000 17,297,351
MD-83................ PW JT8D-219 49822 Dec-88 18,560,300 17,950,000 13,610,000 16,706,767
MD-83................ PW JT8D-219 49824 Mar-89 20,784,125 19,510,000 15,190,000 18,494,708
MD-83................ JT8D-219 53050 May-90 19,740,377 19,110,000 14,050,000 17,633,459
--------------
Total................ $1,911,223,559
==============

PORTFOLIO INFORMATION

THE AIRCRAFT

All of the aircraft hold or are capable of holding a noise certificate
issued under Chapter 3 of Volume 1, Part II of Annex 16 of the Chicago
Convention or have been shown to comply with the Stage 3 noise levels set out in
Section 36.5 of Appendix C of Part 36 of the United States Federal Aviation
Regulations.

The following table sets forth the exposure as of February 15, 2001 of our
portfolio by type of aircraft calculated by reference to the number of aircraft
and their appraised value as of September 30, 2000.

% OF CURRENT
PORTFOLIO BY
APPRAISED
VALUE AS OF
NUMBER OF ENGINE SEPTEMBER 30,
MANUFACTURER TYPE OF AIRCRAFT AIRCRAFT BODY TYPE STAGE 2000
- ------------ ---------------- ------------ --------------- -------- --------------

Boeing (61.77%)............ 737-300 8 Narrowbody 3 8.89%
737-300F 1 Other/Freighter 3 1.02
737-400 8 Narrowbody 3 10.42
737-500 2 Narrowbody 3 2.06
747-300B 1 Widebody 3 2.24
747-400 1 Widebody 3 4.72
757-200ER 8 Narrowbody 3 14.94
737-300QC 1 Other/Freighter 3 1.02
767-200ER 1 Widebody 3 1.63
767-300ER 5 Widebody 3 14.82

Airbus (30.77%)............ A300-600R 2 Widebody 3 4.72
A310-300 3 Widebody 3 3.80
A320-200 6 Narrowbody 3 9.37
A321-100 2 Narrowbody 3 4.06
A330-300 1 Widebody 3 4.05
A340-300 1 Widebody 3 4.77
McDonnell Douglas
Corporation (4.61%)...... MD-82 1 Narrowbody 3 0.94
MD-83 4 Narrowbody 3 3.67

Fokker N.V.(2.54%)......... F-50 2 Other/Freighter 3 0.60
F-70 3 Narrowbody 3 1.95
General Electric Company
(0.31%).................. CF6-80C2B6F engine -- 3 0.31
------------ ------
Total...................... 61 + engine 100.00%
============ ======

The following table sets forth the exposure as of February 15, 2001 of our
portfolio to the lessees calculated by reference to the appraised value as of
September 30, 2000 of the aircraft.

% OF CURRENT
PORTFOLIO BY
APPRAISED VALUE AS
NUMBER OF OF
LESSEE(1) AIRCRAFT SEPTEMBER 30, 2000
- --------- ------------------- --------------------

Asiana Airlines, Inc. ("ASIANA")............................ 4 8.03%
Trans World Airlines, Inc. ("TWA").......................... 4 5.11
Air Mauritius Limited ("AIR MAURITIUS")..................... 1 4.77
Cathay Pacific Airways Limited ("CATHAY PACIFIC")........... 1 4.72
China Airlines, Limited ("CHINA AIRLINES").................. 2 4.72
Air 2000 Limited ("AIR 2000")............................... 2 4.70
Aer Lingus Limited ("AER LINGUS")........................... 1 4.05
Region Air Alpha (BVI) Limited ("REGION AIR")............... 3 3.80
Air Pacific Limited ("AIR PACIFIC")......................... 1 3.32
JMC Airlines Limited ("JMC AIRLINES")....................... 2 3.13
Aerovias De Mexico, S.A. De C.V. ("AEROMEXICO")............. 2 2.99
Air New Zealand Limited ("AIR NEW ZEALAND")................. 1 2.96
Alaska Airlines, Inc. ("ALASKA AIRLINES")................... 2 2.74
Flugfelagid Atlanta H.F. ("AIR ATLANTA ICELANDIC").......... 1 2.24
Britannia Airways Limited ("BRITANNIA")..................... 1 2.07
Braathens Sverige AB ("BRAATHENS").......................... 2 2.06
Air Alfa Airlines, S.A. ("AIR ALFA")........................ 1 2.04
Companhia De Transportes Aereos Air Macau, SARL ("AIR
MACAU")................................................... 1 2.02
Compania Mexicana de Aviacion, S.A. De C.V. ("MEXICANA").... 1 2.00
Malev Hungarian Airlines, PLC ("MALEV")..................... 3 1.95
Far Eastern Air Transport Corporation ("F.E.A.T.").......... 1 1.84
Ansett Australia Limited ("ANSETT")......................... 1 1.63
Monarch Airlines Limited ("MONARCH")........................ 1 1.63
National Airlines ("NATIONAL").............................. 1 1.62
Southwest Airlines Co ("SOUTHWEST")......................... 2 1.58
Canada 3000 Airlines Limited ("CANADA 3000")................ 1 1.55
Cyprus Airways Limited ("CYPRUS AIRWAYS")(2)................ 1 1.53
Air Canada Capital Limited ("AIR CANADA")................... 1 1.47
Transavia Airlines C.V. ("TRANSAVIA")....................... 1 1.44
Pegasus Hava Tasimaciligi, A.S. ("PEGASUS")................. 1 1.35
Continental Airlines Inc ("CONTINENTAL").................... 1 1.34
Olympic Airways ("OLYMPIC")................................. 1 1.28
China Hainan Airlines ("CHINA HAINAN")...................... 1 1.27
Air Malta ("AIR MALTA")..................................... 1 1.23
Air Europe Lineas Aereas S.A. ("AIR EUROPA")................ 1 1.22
Travel Service Airlines ("TRAVEL SERVICE").................. 1 1.07
Lithuanian Airlines ("LITHUANIAN").......................... 1 1.05
Societe D'Exploitation Aeropostale S.A. ("L'AEROPOSTALE")... 1 1.02
Flugleidir H.F. ("ICELANDAIR").............................. 1 1.02
Air Liberte, S.A. ("AIR LIBERTE")........................... 1 0.87
KLM Cityhopper B.V. ("KLM CITYHOPPER")...................... 2 0.60
Koninklijke Luchtvaart Maatschappij N.V. ("KLM")............ engine 0.31
Off-lease................................................... 2 2.66
------------------- ----
Total....................................................... 61 + engine 100%
=================== ====

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

(1) Total number of lessees = 42.

(2) Although this A320 was subject to a lease as of February 15, 2001, it was
not delivered to the lessee until February 17, 2001.

The following table sets forth the exposure as of February 15, 2001 of our
portfolio to countries in which the lessees are domiciled calculated by
reference to the appraised value as of September 30, 2000 of the aircraft.

% OF CURRENT
PORTFOLIO BY
APPRAISED VALUE AS
NUMBER OF OF
COUNTRY(1) AIRCRAFT SEPTEMBER 30, 2000
- ---------- ------------------- --------------------

United States............................................... 10 12.39%
U.K......................................................... 6 11.54
South Korea................................................. 4 8.03
Taiwan...................................................... 3 6.56
Mexico...................................................... 3 4.99
Mauritius................................................... 1 4.77
Hong Kong................................................... 1 4.72
Ireland..................................................... 1 4.05
Singapore................................................... 3 3.80
Turkey...................................................... 2 3.39
Fiji........................................................ 1 3.32
Iceland..................................................... 2 3.26
Canada...................................................... 2 3.01
New Zealand................................................. 1 2.96
The Netherlands............................................. 3 + engine 2.35
Norway...................................................... 2 2.06
Macau....................................................... 1 2.02
Hungary..................................................... 3 1.95
France...................................................... 2 1.90
Australia................................................... 1 1.63
Cyprus(2)................................................... 1 1.53
Greece...................................................... 1 1.28
China....................................................... 1 1.27
Malta....................................................... 1 1.23
Spain....................................................... 1 1.22
Czech Republic.............................................. 1 1.07
Lithuania................................................... 1 1.05
Off-lease................................................... 2 2.66
------------------- -----
61 + engine 100%
=================== =====

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

(1) Total number of countries = 27.

(2) Although this A320 was subject to a lease as of February 15, 2001, it was
not delivered to the lessee until February 17, 2001.

The following table sets forth the exposure as of February 15, 2001 of our
portfolio by regions in which the lessees are domiciled calculated by reference
to number of aircraft and their appraised value as of September 30, 2000.

% OF CURRENT
PORTFOLIO BY
APPRAISED VALUE AS
NUMBER OF OF
REGION(1) AIRCRAFT SEPTEMBER 30, 2000
- --------- ------------------- --------------------

Developed Markets
Europe.................................................... 15 + engine 23.10%
North America............................................. 12 15.41
Pacific................................................... 6 13.12

Emerging Markets
Europe and Middle East.................................... 7 7.69
Latin America............................................. 3 4.99
Asia...................................................... 8 15.87

Other(2).................................................... 8 17.17
Off-lease................................................... 2 2.66
------------------- ------
Total..................................................... 61 + engine 100.00%
=================== ======

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

(1) Regions are defined according to MSCI designations.

(2) Although one A320 was subject to a lease as of February 15, 2001, it was not
delivered to the lessee until February 17, 2001.

The following table sets forth the exposure as of February 15, 2001 of our
portfolio by year of aircraft manufacture calculated by reference to the
appraised value as of September 30, 2000 of the aircraft. The weighted average
age of the fleet as of September 30, 2000 was approximately 9 years.

% OF CURRENT
PORTFOLIO BY
APPRAISED VALUE AS
NUMBER OF OF
YEAR OF MANUFACTURE AIRCRAFT SEPTEMBER 30, 2000
- ------------------- ------------------- --------------------

1985........................................................ 4 3.96%
1987........................................................ 5 6.53
1988........................................................ 6 7.71
1989........................................................ 3 3.51
1990........................................................ 4 6.53
1991........................................................ 4 10.74
1992........................................................ 9 13.36
1993........................................................ 11 17.95
1994........................................................ 7 14.89
1995........................................................ 4 + engine 9.15
1996........................................................ 4 5.67
------------------- ------
Total....................................................... 61 + engine 100.00%
=================== ======

The following table sets forth the exposure as of February 15, 2001 of our
portfolio by seat category calculated by reference to the appraised value of our
aircraft as of September 30, 2000.

% OF CURRENT
PORTFOLIO BY
APPRAISED VALUE AS
NUMBER OF OF
SEAT CATEGORY AIRCRAFT TYPES AIRCRAFT SEPTEMBER 30, 2000
- ------------- ----------------------------------------- ----------- --------------------

< 50.................... F-50 2 0.62%
51-120.................. B737-500, F-70 5 4.18%
121-170................. MD-83, A320-200, B737-300, B737-400,
MD-82 28 34.02%
171-240................. A300-600R, A310-300, A321-100,
B757-200ER, B767-200ER, B767-300ER 21 44.01%
241-350................. A330-300, A340-300 2 8.58%
351+.................... B747-300B, B747-400 2 7.32%
Other................... B737-300F (freighter), Engine 1 + engine 1.27%
----------- ------
Total................... 61 + engine 100.00%
=========== ======

MSAF GROUP PORTFOLIO ANALYSIS

The following table sets forth additional information on our portfolio as of
February 15, 2001 (except for appraised values, which are as of September 30,
2000).

COUNTRY OF AIRCRAFT ENGINE SERIAL DATE OF
REGION(1) CURRENT LESSEE CURRENT LESSEE TYPE CONFIGURATION NUMBER MANUFACTURE
- --------- -------------- --------------------- ------------ ---------------- -------- ------------

1 Europe............. France Air Liberte MD-83 PW 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 Netherlands KLM Engine CF6-80C2-B6F 704279 Jul-95
5 Netherlands KLM Cityhopper F-50 PW100-125B 20232 Aug-92
6 Netherlands KLM Cityhopper F-50 PW100-125B 20233 Jan-92
7 Netherlands Transavia B737-300 CFM 56-3C1 27635 May-95
8 Norway Braathens B737-500 CFM 56-3B1 25165 Apr-93
9 Norway Braathens B737-500 CFM 56-3C1 26304 Sep-94
10 Spain Air Europa B737-400 CFM 56-3C1 24707 Jun-91
11 UK Air 2000 B757-200ER RB211-535E4 23767 Apr-87
12 UK Air 2000 B767-300ER CF6-80C2-B6F 26256 Apr-93
13 UK Britannia B757-200ER RB211-535E4-37 26266 Jan-93
14 UK JMC Airlines A320-200 V2500-A1 393 Feb-93
15 UK JMC Airlines B757-200ER RB211-535E4-37 24367 Feb-89
16 UK Monarch A320-200 CFM 56-5A3 446 Oct-93
17 North America..... Canada Air Canada A320-200 CFM 56-5A3 279 Feb-92
18 (Developed)....... Canada Canada 3000 A320-200 CFM 56-5A3 397 May-93
19 United States Alaska Airlines B737-400 CFM 56-3C1 25104 May-93
20 United States Alaska Airlines B737-400 CFM 56-3C1 25105 Jul-93
21 United States Continental B737-300 CFM 56-3B1 26309 Dec-94
22 United States National B757-200ER RB211-535E4 24260 Dec-88
23 United States Southwest B737-300 CFM 56-3B1 23255 Jun-85
24 United States Southwest B737-300 CFM 56-3B2 23256 Jul-85
25 United States TWA B757-200ER PW 2037 28160 Jul-96
26 United States TWA MD-83 PW JT8D-219 49657 Feb-88
27 United States TWA MD-83 PW JT8D-219 49824 Mar-89
28 United States TWA MD-82 PW JT8D-217C 49825 Mar-89

% OF CURRENT
APPRAISED PORTFOLIO BY
VALUE AS OF APPRAISED
SEPTEMBER 30, VALUE AS OF
2000 SEPTEMBER 30,
REGION(1) ($'000'S) 2000
- --------- -------------- --------------

1 Europe............. $16,707 0.87%
2 (Developed)........ 19,530 1.02
3 77,318 4.05
4 5,893 0.31
5 5,715 0.30
6 5,711 0.30
7 27,504 1.44
8 18,849 0.99
9 20,464 1.07
10 23,263 1.22
11 27,392 1.43
12 62,500 3.27
13 39,490 2.07
14 29,170 1.53
15 30,714 1.61
16 31,200 1.63
17 North America..... 28,074 1.47
18 (Developed)....... 29,538 1.55
19 26,271 1.37
20 26,144 1.37
21 25,569 1.34
22 30,979 1.62
23 14,753 0.77
24 15,374 0.80
25 43,991 2.30
26 17,297 0.91
27 18,495 0.97
28 17,969 0.94

29 Pacific........... Australia Ansett B767-200ER CF6-80A 23807 Aug-87
30 (Developed)....... Hong Kong Cathay Pacific B747-400 RB211-525H2-19 24955 Sep-91
31 New Zealand Air New Zealand B767-300ER CF6-80C2-B6 24875 Jun-91
32 Singapore Region Air A310-300 PW JT9D-7R4E1 409 Nov-85
33 Singapore Region Air A310-300 PW JT9D-7R4E1 410 Nov-85
34 Singapore Region Air A310-300 PW JT9D-7R4E1 437 Jan-87
35 Europe and Middle
East............... Czech Republic Travel Service B737-400 CFM 56-3B2 24234 Oct-88
36 (Emerging)........ Greece Olympic B737-400 CFM 56-3C1 25371 Jan-92
37 Hungary Malev F-70 TAY MK620-15 11564 Dec-95
38 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 CFM 56-3C1 26279 Feb-92
42 Asia.............. China China Hainan B737-300 CFM 56-3C1 26295 Dec-93
43 (Emerging)........ South Korea Asiana B767-300ER CF6-80C2-B6F 24798 Oct-90
44 South Korea Asiana B767-300ER CF6-80C2-B6F 25132 Feb-92
45 South Korea Asiana B737-400 CFM 56-3C1 26291 Aug-93
46 South Korea Asiana B737-400 CFM 56-3C1 26308 Nov-94
47 Taiwan China Airlines A300-600R PW 4158 555 Mar-90
48 Taiwan China Airlines A300-600R PW 4158 625 Mar-92
49 Taiwan F.E.A.T. B757-200ER PW 2037 25044 May-91
50 Latin America..... Mexico AeroMexico B757-200ER PW 2037 26272 Mar-94
51 (Emerging)........ Mexico AeroMexico MD-83 PW JT8D-219 53050 May-90
52 Mexico Mexicana B757-200ER PW 2040 24965 Mar-92
53 Other............. Cyprus Cyprus Airways A320-200 V2500-A1 414(2) May-93
54 Fiji Air Pacific B767-300ER CF6-80C2-B6 26260 Sep-94
55 Iceland Air Atlanta Icelandic B747-300B CF6-80C2 24106 Apr-88
56 Iceland Icelandair B737-300F CFM 56-3B2 23811 Sep-87
57 Lithuania Lithuanian B737-300 CFM 56-3B2 24449 Apr-90
58 Macau Air Macau A321-100 V2530-A5 557 Dec-95
59 Malta Air Malta B737-300 CFM 56-3B2 25161 Feb-92
60 Mauritius Air Mauritius A340-300 CFM 56-5C3G 94 Mar-95
61 Off-lease......... -- -- B737-300 CFM 56-3B2 24299 Nov-88
62 -- -- A320-200 V2500-A1 428 May-94
Total................

% OF CURRENT
APPRAISED PORTFOLIO BY
VALUE AS OF APPRAISED
SEPTEMBER 30, VALUE AS OF
2000 SEPTEMBER 30,
REGION(1) ($'000'S) 2000
- --------- -------------- --------------

29 Pacific........... $31,208 1.63%
30 (Developed)....... 90,278 4.72
31 56,575 2.96
32 22,134 1.16
33 23,356 1.22
34 27,170 1.42
35 Europe and Middle
East............... 20,429 1.07
36 (Emerging)........ 24,455 1.28
37 11,882 0.62
38 12,651 0.66
39 12,655 0.66
40 39,062 2.04
41 25,816 1.35
42 Asia.............. 24,340 1.27
43 (Emerging)........ 43,822 2.29
44 56,994 2.98
45 26,273 1.37
46 26,402 1.38
47 43,331 2.27
48 46,916 2.45
49 35,192 1.84
50 Latin America..... 39,585 2.07
51 (Emerging)........ 17,633 0.92
52 38,212 2.00
53 Other............. 29,273 1.53
54 63,435 3.32
55 42,841 2.24
56 19,513 1.02
57 19,973 1.05
58 38,514 2.02
59 23,423 1.23
60 91,100 4.77
61 Off-lease......... 19,032 1.00
62 31,873 1.67
---------- ------
Total................ $1,911,224 100.00%
========== ======

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

(1) Regions are defined according to MSCI designations.

(2) Although this A320 was subject to a lease as of February 15, 2001, it was
not delivered to the lessee until February 17, 2001.

DESCRIPTION OF THE AIRCRAFT

The following table sets forth certain available information with respect to
the body type, number of seats, engine manufacturer, production years, current
fleet, number of aircraft on order and number of operators of each aircraft type
in our portfolio as of February 15, 2001.

ENGINE PRODUCTION CURRENT ON NUMBER OF
TYPE & VARIANT BODY SEATS MANUFACTURER(1) YEARS FLEET ORDER OPERATORS(2)
- -------------- ---------- -------- --------------- ----------------- -------- -------- ------------

Airbus A300-600R........... Wide 220 2XGE 1987- 77 0 13
2XPW 1988- 95 81 14
Airbus A310-300............ Wide 180 2XGE 1985- 79 0 22
2XPW 1985- 66 5 20
Airbus A320-200............ Narrow 150 2XCFM 1988- 532 159 50
2XIAE 1988- 356 217 46
2XTBA 0 100 0
Airbus A321-100............ Narrow 185 2XCFM 1993- 43 3 4
2XIAE 1993- 44 21 8
2XTBA 1993- 0 2 0
Airbus A330-300............ Wide 295 2XGE 1993- 16 8 4
2XPW 1994- 50 49 9
2XRR 1992- 33 16 6
2XTBA 0 3 0
Airbus A340-300............ Wide 295 4XCFM 1992- 168 43 26
Boeing 737-300............. Narrow 130 2XCFM 1984-1999 1065 0 104
Boeing 737-300F............ Freight 0 2XCFM (all conversions) 3 0 2
Boeing 737-300QC........... Narrow 130 2XCFM (all conversions) 29 0 6
Boeing 737-400............. Narrow 150 2XCFM 1988-1999 479 0 69
Boeing 737-500............. Narrow 110 2XCFM 1989-1999 384 0 38
Boeing 747-300............. Wide 400 4XGE 1982-1990 16 0 6
4XPW 1982-1988 40 0 12
4XRR 1984-1988 22 0 4
Boeing 747-400............. Wide 412 4XGE 1988- 227 42 27
4XPW 1988- 192 22 12
4XRR 1988- 114 4 6
TBA 0 9 0
Boeing 757-200............. Narrow 200 2XPW 1984- 391 12 18
2XRR 1982- 523 31 46
Boeing 767-200ER........... Wide 180 2XGE 1985- 63 5 15
2XPW 1984- 48 0 12
Boeing 767-300ER........... Wide 220 2XGE 1986- 272 32 43
2XPW 1987- 161 8 29
2XRR 1989- 31 0 3
2XTBA 0 3 0
Fokker 50.................. Turbo-prop 50 2XPW 1987-1997 188 0 33
Fokker 70.................. Narrow 70 2XRR 1994-1997 43 0 8
MDC MD-82.................. Narrow 140 2XPW 1981-1997 583 0 32
MDC MD-83.................. Narrow 140 2XPW 1984-1999 276 0 27

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

Source: Airclaims Limited.

(1) The above table identifies engine manufacturers by the following
abbreviations:

GE = General Electric

PW = Pratt & Whitney

CFM = CFM International

IAE = International Aero Engines

RR = Rolls Royce

TBA = To be announced.

(2) The number of operators does not include lessors.

ACQUISITION OF ADDITIONAL AIRCRAFT

MSAF may acquire additional commercial passenger or freight aircraft from
various sellers. Cash flows derived from any additional aircraft and the related
leases will be available to satisfy MSAF's payment obligations, including
payments of interest, principal and premium, if any, on the notes and any
additional notes. There is no limit on the aggregate value of additional
aircraft that may be acquired or on the period in which such additional aircraft
must be acquired. Any acquisition of additional aircraft and related issuance of
additional notes will be subject to certain conditions under the indenture.

THE LEASES

As of February 15, 2001, we had 60 leases in effect, covering our whole
portfolio except two aircraft which were off-lease. Although the lease
documentation is fairly standardized in many respects, significant variations do
exist as a result of negotiation with each lessee. The following is a summary of
the principal characteristics of the leases as of February 15, 2001 (with
appraised values as of September 30, 2000).

CONTRACTED LEASE EXPIRES..................... The weighted average remaining contracted lease term
of the portfolio (weighted by appraised values as of
September 30, 2000 and without giving effect to
existing non-binding letters of intent, purchase
options or extension options) was 34.1 months. The
longest lease was scheduled to expire in
September 2013. Over the next five years we will be
required to re-lease 53 of the aircraft and 1 engine,
representing 85.0% of the portfolio by appraised
value as of September 30, 2000.

EXTENSION OPTIONS............................ Thirty-one of the leases included outstanding options
for the lessee to extend the term of the lease.
Assuming that all these options were exercised to
extend the leases to the latest possible dates, the
weighted average remaining lease term of the
portfolio would be 51.4 months and the weighted
average extended rent payable over the extended
period would be 102.5% of the current contracted
rental payments.

EARLY TERMINATION OPTIONS.................... Two of the leases allowed the lessee to terminate its
lease before the scheduled expiration date, provided
certain conditions are met. Assuming that both
options were exercised for the earliest possible
termination, the weighted average remaining lease
term of the portfolio would be 33.6 months.

PURCHASE OPTIONS............................. Eight lessees had outstanding options to purchase a
total of 10 aircraft, representing 26.7% of the
portfolio by appraised value as of September 30,
2000. The latest date on which a purchase option
could be exercised was June 8, 2008, for a purchase
on March 8, 2009. If these options were exercised on
their earliest exercise date, in only one case the
purchase option strike price would be below the note
target price that we have assumed for the applicable
aircraft on the exercise date, by 2.5%.

SECURITY DEPOSITS............................ Under 57 of the lease contracts the lessees had
provided security for their obligations, in either
cash or letters of credit. Our total security
deposits were $40.0 million in cash and
$80.8 million in letters of credit. Together these
security deposits were equivalent to 2.0 months of
contracted lease rental payments. For a discussion of
cash security deposits that ILFC holds on our behalf,
you should refer to "Indebtedness--ILFC Facility".

GUARANTEES................................... In various leases, we have received guarantees or
comfort letters from a lessee's parent company or
shareholders relating to the lessee's payment and
performance obligations under the lease. In the case
of one lessee we have received a bank guarantee of
its lease obligations in the amount of $38 million.

THIRD PARTY LIABILITY INSURANCE.............. The minimum third party liability limits under the
leases range from $250 million to $2,000 million. We
also have in place our own contingent liability
coverage to cover any liability in excess of the
lessee's coverage or where a lessee's coverage lapses
for any reason.

AIRCRAFT PROPERTY INSURANCE.................. The total insured value for all risks, aircraft hull
and hull war risks insurance for the portfolio is
$2,535.3 million. In all cases, the sum of the
stipulated lease value and our own additional
coverage in place is at least equal to the appraised
value of the aircraft and on average is approximately
133% of the appraised value of the aircraft.
Permitted deductibles, which generally apply only in
the case of a partial loss, range from $100,000 to
$1,000,000.

SUBLEASES AND WET LEASES..................... Under certain of the leases, the lessee may sublease
the aircraft without our consent, provided certain
conditions are met. Under all of our leases, the
lessee may wet lease the aircraft without our
consent, provided that the lessee does not part with
operational control of the aircraft (although in two
of the leases it may only wet lease without our
consent if the wet lease is for a term of not more
than twelve months). Where there is a sublease or a
wet lease, the lessee remains fully liable to us for
all its payment and performance obligations under the
lease and we have no contractual relationship with
the sublessee or the wet lessee. The following
lessees sublease their aircraft: Region Air (to P.T.
Awair Indonesia), Monarch (airframe to Sky Service,
based in Canada, and engines to Canada 3000), Cyprus
Airways (to its subsidiary Eurocypria, also based in
Cyprus), and Air Atlanta Icelandic (scheduled to
commence a sub-lease of its aircraft to Iberia, based
in Spain, in early March 2001). To our knowledge, one
lessee, Pegasus, wet leases its aircraft (to Khalifa
Airways, based in Algeria). Our consent was not
required for this wet lease. See "Management's
Discussion and Analysis of Financial Condition and
Results of Operations--Recent Developments--Europe
(Developed).

OPERATING LEASES

INTRODUCTION

Operating leasing has grown steadily over the last decade:

- to facilitate the matching of excess aircraft supply and demand in
different geographical regions;

- to provide short-to-medium term capacity (i.e. for less than the useful
life of an aircraft); and

- to bridge the financing gap for under-capitalized airlines, typically
where financing is not otherwise available.

The following discussion highlights the principal features of an operating
lease. All of our leases generally conform to this description.

LEASE PAYMENTS AND SECURITY

Operating leases require the lessees to pay periodic rentals during the
lease term. Lessees must make payments to the lessor without set-off or
counterclaim, and leases generally include an obligation of the lessee to
gross-up payments under the lease where payments are subject to certain
withholding and other taxes. Leases also contain an indemnification of the
lessor for certain taxation liabilities (including, in some leases, value added
tax and stamp duties, but generally excluding net income tax or its equivalent
imposed on the lessor) and taxation of indemnity payments. Lessees are also
obliged to pay default interest on any overdue amounts. In some cases, the
lessee may exercise certain remedies if the lessor breaches its covenant of
quiet enjoyment.

Lessees generally indemnify the lessor for operating expenses accrued or
payable during the term of the lease, which normally include maintenance,
operating, overhaul, airport and navigation charges, certain taxes, licenses,
consents and approvals, aircraft registration and hull all risks and public
liability insurance premiums. Lessees are obliged to remove liens on the
aircraft other than certain liens permitted under the leases.

OPERATION OF THE AIRCRAFT

Operating leases require the lessees to operate the aircraft in compliance
with all laws and regulations applicable to the aircraft. The aircraft generally
must remain in the possession of the lessees, and any subleases of the aircraft
generally must be approved by the lessor. Under many leases, the lessees may
enter into charter or "WET LEASE" arrangements in respect of the aircraft (i.e.,
a lease with crew and services provided by the lessee) without the lessor's
consent, provided that the lessee does not part with operational control of the
aircraft. Under certain leases, the lessee is permitted to enter into subleases
to specified operators without the lessor's consent, provided that certain
conditions are met.

Leases generally permit lessees to subject the engines, and other equipment
or components in certain cases, to removal or replacement and, in certain cases,
to pooling arrangements (temporary borrowing of equipment), in some cases with
permitted entities (which may include certain manufacturers, suppliers, other
airlines or aircraft operators) without the lessor's consent but subject to
conditions set out in the lease. Lessees may generally deliver possession of the
aircraft, engines and other equipment or components to the manufacturer for
testing or similar purposes, or to a third party for service, maintenance,
repair or other work required or permitted under the lease. The lessor's ability
to repossess the aircraft or engines, equipment or components from a sublessee,
transferee, manufacturer, or other person may be restricted by liens or similar
rights of detention and by applicable bankruptcy and insolvency laws.

MAINTENANCE AND MAINTENANCE RESERVES

Operating leases generally contain detailed provisions specifying
maintenance standards and the required condition of the aircraft upon
redelivery. In some leases, depending upon the specific maintenance condition of
the aircraft or specified items (airframe, engines, certain components,
auxiliary power unit or landing gear) at redelivery, the lessee may be required
to make certain adjustment payments to the lessor. During the term of a lease,
the lessee is required to ensure that the aircraft is maintained in accordance
with an agreed maintenance program designed to ensure that the aircraft meets
applicable airworthiness and other regulatory requirements in the jurisdiction
in which the aircraft is registered. The agreed maintenance program is generally
performed by the lessee.

In some leases, the lessee is required to provide monthly maintenance
reserves, which are used to reimburse the lessee for significant maintenance
charges, including major airframe and engine overhauls. In leases where there is
no provision for the payment of maintenance reserves, the lessor must rely on
the credit of the lessee or, if available, any credit support, and the ability
of the lessee to return the aircraft in the condition required by the lease upon
termination, to make any required payments based on the aircraft's return
condition upon termination of the related lease and to perform scheduled
maintenance throughout the lease term.

Lessees are generally required under the leases to comply with "ADS", or
airworthiness directives, of the applicable aviation authorities specified in
the leases and with manufacturer's service bulletins, and lessees primarily bear
the cost of compliance. However, the lessor may be required by the lease to
contribute to the cost of certain ADs or manufacturer's service bulletins or to
the cost above a specified threshold.

INDEMNIFICATION AND INSURANCE OF AIRCRAFT

LIABILITY INSURANCE

In addition to operational indemnities under the lease, operating leases
require lessees to carry insurance for any liabilities arising out of the
operation of the aircraft, including liabilities for death or injury to persons
and damage to property that ordinarily would attach to the operator of the
aircraft. Liability insurance coverage typically includes third party legal
liability, passenger legal liability, baggage legal liability, cargo legal
liability, mail and aviation general third party (including products) legal
liability. Liability insurance coverage is generally subject to customary
industry exclusions.

In some jurisdictions liabilities for risks that lessees insure against may
also attach to the owner of the aircraft whether or not the owner is in any way
responsible for the related loss. In addition, claimants may assert claims
against the aircraft owner on the basis of alleged responsibility for a loss.
Operating leases generally require that lessees indemnify owners against third
party claims, including the costs of defending against such claims. Indemnified
losses include both aircraft operating costs as well as losses to persons and
property resulting from the operation of the aircraft. The latter types of
losses are generally covered by the lessee's liability insurance.

AIRCRAFT PROPERTY INSURANCE

Operating leases also require that lessees carry various types of aircraft
property insurance that are customary in the air transportation industry. The
aircraft property insurance typically includes all risks, aircraft hull and hull
war risks insurance (in each case at a stipulated lease value, subject to
adjustment in certain circumstances) and aircraft spares insurance (on a
replacement cost basis). The lessor is permitted, in most cases, to increase the
insured value above the stipulated lease value consistent with industry practice
with the lessee responsible for any increase in the premium. In addition to the
stipulated lease value coverage obtained by the lessee, the lessor may purchase
"total loss only" coverage for certain aircraft. Aircraft property insurance is
also subject to customary industry deductions.

Operating leases generally include provisions defining an event of loss or a
casualty occurrence so that where a total loss of the airframe occurs, with or
without loss of the engines installed on the airframe, the agreed value is
payable by the lessee. This payment is generally funded with insurance proceeds.
However, the industry practice is to treat only a loss of greater than 75% of
the value of the aircraft, including the engines, as a total loss. In the case
of a total loss of 75% or less of the value of the aircraft, the lessee is
generally responsible for the payment of the difference between the insurance
proceeds and the stipulated lease value. Where insurance proceeds do cover a
total loss, most operating leases require that the lessor pay the balance of any
insurance proceeds received under hull all risks or war risks policies to the
lessee, after deducting any amounts payable by the lessee under the lease.

Insurance certificates generally contain a breach of warranty endorsement.
This endorsement ensures that additional insureds continue to be protected even
if the lessee violates one or more of the terms, conditions or warranties of the
insurance policies, provided that the additional insured has not caused,
contributed to or knowingly condoned such breach.

Operating leases may also require that lessees maintain, as part of their
hull war and allied perils insurance, coverage for confiscation or requisition
of the aircraft. This includes confiscation or requisition by the relevant state
of registration. However, in certain countries (including France and China) such
insurance may not be obtainable.

CONTINGENT LIABILITY COVERAGE

Lessors of aircraft under operating leases may obtain additional contingent
liability coverage. This operates both to cover any liability in excess of the
coverage provided by a lessee's policy and where a lessee's policy lapses for
any reason, including an early termination of a lease and repossession of an
aircraft. The amount of the contingent liability policies may not be the same as
required under the relevant lease and is generally subject to certain
limitations imposed by the air transportation insurance industry.

ITEM 2. PROPERTIES

MSAF group has no ownership or leasehold interest in any real property.

MSAF group's registered and principal office is located at 1100 North Market
Street, Rodney Square North, Wilmington, Delaware 19890-0001 and its telephone
number is 302-651-1000.

For a description of MSAF group's interest in other property, see "The
Portfolio" and "Operating Leases" under Item 1.

ITEM 3. LEGAL PROCEEDINGS

Neither MSAF group nor any of its subsidiaries is involved in or subject to
any legal or arbitration proceedings relating to claims or amounts which are
material nor is MSAF group aware that any such proceedings are pending or
threatened.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS

None.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

As of the date of this Report on Form 10-K, all of the beneficial interest
in MSAF group is owned by MSAF Holdings, a wholly owned subsidiary of MSDW
Aircraft Holdings, which in turn is a wholly owned subsidiary of MS Financing
Inc. ("MSF"), which in turn is a wholly owned subsidiary of MSDW. No equity
securities of MSAF group are listed on any national exchange or traded in any
established market.

At the time of the issuance of the 1998 Notes, MSAF group paid a beneficial
interest distribution of approximately $976 million to MSF.

Simultaneous with the issuance of the 2000 Notes and the acquisition of
certain net assets from MSF, MSAF group received a non-cash capital contribution
of $78.0 million from MSF.

For additional information regarding the corporate governance of MSAF group,
see Item 10.

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data in the following table have been
derived from, and should be read in conjunction with, MSAF group's consolidated
financial statements as of and for the fiscal years ended November 30, 2000,
1999, 1998 and for the period from October 30, 1997 (date of formation) to
November 30, 1997, including the notes thereto (the "FINANCIAL STATEMENTS").
MSAF group's Financial Statements have been audited by Deloitte & Touche LLP,
independent auditors.

PERIOD FROM
OCTOBER 30, 1997
(DATE OF
FISCAL YEAR FISCAL YEAR FISCAL YEAR FORMATION)
ENDED ENDED ENDED TO NOVEMBER 30,
NOVEMBER 30, 2000 NOVEMBER 30, 1999 NOVEMBER 30, 1998 1997
------------------ ------------------ ------------------ -----------------
(DOLLARS IN THOUSANDS)

INCOME STATEMENT DATA:
Revenues:
Lease income, net.......... $219,819 $114,651 $120,005 $ 4,747
Investment income on
collection account....... 3,712 1,845 2,156 --
-------- -------- -------- --------
Total revenues............. 223,531 116,496 122,161 4,747
-------- -------- -------- --------
Expenses:
Interest expense........... 112,205 63,584 50,533 --
Depreciation expense....... 85,528 47,060 38,876 43
Operating expenses:
Service provider and
other fees............. 13,996 8,568 9,534 --
Maintenance and other
aircraft related
costs.................. 19,925 5,216 2,969 --
-------- -------- -------- --------
Total expenses............. 231,654 124,428 101,912 43
-------- -------- -------- --------
Net (loss)/income............ $ (8,123) $ (7,932) $ 20,249 $ 4,704
======== ======== ======== ========
STATEMENT OF CASH FLOWS DATA:
Net cash provided by
operating activities....... $ 87,695 $ 43,607 $ 83,941 $ --
Net cash used for investing
activities................. (876,793) -- (887,315) (66,370)
Net cash provided by/(used
for) financing
activities................. 824,405 (43,338) 838,224 66,370

NOVEMBER 30, 2000 NOVEMBER 30, 1999 NOVEMBER 30, 1998 NOVEMBER 30, 1997
------------------ ------------------ ------------------ ------------------
(DOLLARS IN THOUSANDS)

BALANCE SHEET DATA:
Cash and cash equivalents.... $ 70,426 $ 35,119 $ 34,850 $ --
Total Assets................. 1,939,564 957,474 1,010,492 71,074
Total Liabilities............ 1,924,357 1,012,155 1,057,241 66,369
Total Beneficial
Interestholder's
Equity/(Deficit)........... 15,207 (54,681) (46,749) 4,705

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

INTRODUCTION

The initial 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 its
outstanding notes payable, 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 outstanding notes payable depends primarily on (1) the rental rates
it can achieve on leases and the lessees' ability to perform according to the
terms of those leases and (2) the prices it can achieve on any aircraft sales.
MSAF group's ability to service the outstanding notes payable also depends on
the level of its operating expenses, including maintenance obligations which
will increase as the aircraft age, and on any unforeseen contingent liabilities
arising.

MSAF group's portfolio of aircraft assets consists of 61 aircraft and one
engine. The aggregate appraised value of this portfolio was $1,911.2 million as
of September 30, 2000. Based on the appraised values as of September 30, 2000,
no one aircraft accounts for more than 5% of MSAF group's portfolio. As of
February 15, 2001, MSAF group had 60 lease contracts in effect with 42 lessees
based in 27 countries, and two aircraft off-lease. As of February 15, 2001, the
weighted average remaining contracted lease term of the portfolio (weighted by
appraised values as of September 30, 2000 and without giving effect to existing
non-binding letters of intent, purchase options or extension options) was 34.1
months. The longest lease is scheduled to expire in September 2013. Therefore,
MSAF group will be required to re-lease each of the aircraft one or more times
prior to the final maturity date for its notes.

RECENT DEVELOPMENTS

LESSEE DIFFICULTIES

As of February 15, 2001, seven current lessees were in arrears. The total
amount outstanding and overdue for the seven lessees in respect of rental
payments and maintenance reserves due under the leases amounted to
$6.9 million. MSAF group held security deposits of $5.3 million against these
arrears. The weighted average number of days past due of such arrears was
65 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)

Three of the seven current lessees in arrears as of February 15, 2001, are
based in the Europe and Middle East (Emerging) region.

As of February 15, 2001, one of the lessees, Air Alfa, owed rental and
maintenance arrears of $2.7 million against which MSAF group held a security
deposit of $0.7 million. The lessee is unable to cure its payment defaults and
as a result in February 2001, ILFC commenced repossession proceedings.

As of February 15, 2001, a second lessee, Travel Service, owed rental
arrears of $0.03 million, against which MSAF group held a security deposit of
$0.5 million.

As of February 15, 2001, a third lessee, Olympic, owed maintenance arrears
of $0.1 million, against which MSAF group held a security deposit of
$0.5 million.

EUROPE (DEVELOPED)

One of the seven current lessees in arrears as of February 15, 2001, Air
Europa, is based in the Europe (Developed) region. As of February 15, 2001, Air
Europa owed rental and maintenance arrears of $0.4 million against which MSAF
group held a security deposit of $0.5 million.

In January 2000, TransAer, a lessee based in Ireland, restructured rental
and maintenance arrears for two A320-200 aircraft into a note payable of $1.4
million. The terms of the restructuring agreement were that amounts totaling
$1.4 million would be repaid during June, July and August 2000. None of these
restructured arrears were paid. On October 20, 2000, TransAer filed for
bankruptcy, with total arrears outstanding of $1.6 million at that date. MSAF
group drew down security deposits of $1.0 million against these arrears.

The lease with respect to one of the A320-200 aircraft with TransAer was
terminated in October 2000. TransAer had been operating this aircraft on wet
lease to Libyan Arab Airlines, which has detained the aircraft. MSAF group
believes that Libyan Arab Airlines has no right to keep possession of the
aircraft. ILFC has submitted an insurance claim for the loss of the aircraft,
which is currently pending. ILFC also continues to explore recovery options
consistent with compliance with U.S. law. MSAF group may incur significant costs
and time in resolving this matter.

The second A320-200 aircraft was delivered to a new lessee based in Cyprus
on February 17, 2001.

ASIA (EMERGING)

As of February 15, 2001, none of the lessees in this region were in arrears.

LATIN AMERICA (EMERGING)

As of February 15, 2001, none of the current lessees in this region were in
arrears. Three aircraft repossessed during fiscal 2000 had been on lease to
lessees based in Latin America, two in Brazil, and one in Mexico.

A former Brazilian lessee, B.R.A., which had been operating one A310-300
subject to a capital lease, defaulted on its obligations under its lease and the
aircraft was repossessed in April 2000. The lease had been scheduled to expire
in July 2007. The total amount of rental payments in arrears at the date of the
repossession was $1.3 million. There was no security deposit held by MSAF group
to offset against the arrears balance. The aircraft was delivered to a new
lessee based in the Pacific region on December 18, 2000.

A second former Brazilian lessee, VASP, defaulted on its obligations under
its lease of a B737-300 aircraft and the aircraft was repossessed in May 2000,
following legal proceedings against VASP. The aircraft could not be re-leased
until it had been deregistered from the Brazilian aircraft registry.

Deregistration was completed on February 22, 2001 following protracted legal
proceedings against VASP. ILFC is currently remarketing the aircraft. The lease
had been scheduled to expire in March 2003. The total amount of rental payments
due under the lease at the date of the repossession was $0.5 million against
which MSAF group drew down a security deposit of $0.7 million.

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 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. This aircraft is currently on lease to Travel Service, a
carrier based in the Czech Republic.

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. Under the terms
of the termination agreement, VARIG 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 on October 15, 1999 with final payment due on October 15, 2007. As of
February 15, 2001 VARIG had made all payments due under the restructuring
agreement. MSAF group is recognizing this income on a cash basis as received.

NORTH AMERICA (DEVELOPED)

Two of the seven current lessees in arrears as of February 15, 2001, are
based in the North America (Developed) region.

On December 6, 2000, National announced that it had voluntarily filed
petitions in the U.S. District Court in Wilmington, Delaware for relief under
Chapter 11 of the U.S. Bankruptcy Code. MSAF group has one aircraft, a
B757-200ER on lease to National. As of February 15, 2001, rental arrears were
$1.1 million against which MSAF group held a security deposit of $0.6 million.
It is not yet clear whether National will raise the necessary financing to
continue operations.

On January 10, 2001, TWA announced that it and certain of its subsidiaries
had voluntarily filed petitions in the U.S. District Court in Wilmington,
Delaware for relief under Chapter 11 of the U.S. Bankruptcy Code. TWA also
announced that it had reached agreement with American Airlines in which American
Airlines would acquire substantially all the assets of TWA. This agreement is
subject to certain regulatory approvals, including that of the bankruptcy court.
MSAF group has four aircraft on lease to TWA, a B757-200ER, two MD-83's and one
MD-82. At February 15, 2001, rental arrears were $1.3 million against which MSAF
group held security deposits of $2.0 million. MSAF group does not yet know
whether TWA intends to affirm or reject some or all of these leases in its
bankruptcy proceeding or how the agreement between American Airlines and TWA may
impact these leases.

PACIFIC (DEVELOPED)

As of February 15, 2001 none of the lessees in this region were in arrears.

OTHER

One of the seven current lessees in arrears as of February 15, 2001, is
based in the Other region. As of February 15, 2001, rental and maintenance
arrears owed by Air Atlanta Icelandic were $1.3 million, against which MSAF
group held a security deposit of $0.5 million.

AIRWORTHINESS DIRECTIVE

On September 14, 2000 the United States Federal Aviation Administration
("FAA") announced a proposal for the long-term redesign of the Boeing 737 rudder
system and several short-term initiatives designed to enhance rudder safety on
all Boeing 737 models. It may be some time before the FAA issues a formal
Airworthiness Directive ("AD"). There are currently twenty B737 aircraft in MSAF
group's portfolio. One of these B737 aircraft is currently off-lease, but under
the remaining nineteen leases all costs of compliance with ADs are the
obligation of the lessees.

The FAA issued two ADs (one in July and one in August 2000) requiring
special detailed inspections to detect cracking of the main deck cargo door
frames of Pemco-converted Boeing 737-200 and 737-300 freighters. The FAA is now
considering a further AD to supersede the first two, the result of which may be
a requirement to replace the main deck cargo door frames. There are two aircraft
in MSAF group's portfolio which may be subject to the findings of the FAA. Under
the lease of the first aircraft, all costs of compliance with ADs are the
obligation of the lessee. Under the lease of the second aircraft, the costs of
compliance with this possible future AD are to be shared by MSAF group and the
lessee. The lessee of the second aircraft has completed all required changes in
respect of this possible future AD at a cost of less than $0.05 million.

RESULTS OF OPERATIONS--YEAR ENDED NOVEMBER 30, 2000

MSAF group's results of operations for the year ended November 30, 2000
("FISCAL 2000") are not directly comparable to those of the year ended
November 30, 1999 ("FISCAL 1999") due to MSAF group's acquisition of a portfolio
of 29 commercial aircraft from MSF on March 15, 2000.

NET (LOSS)/INCOME

MSAF group incurred a net loss of $8.1 million in fiscal 2000 as compared to
a net loss of $7.9 million in fiscal 1999. The decrease in net income primarily
reflects a higher level of expenses partially offset by an increase in lease
income.

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

LEASE INCOME

Lease income for fiscal 2000 amounted to $219.8 million as compared to
$114.7 million in fiscal 1999. The increase in lease income is primarily due to
MSAF group's acquisition of 29 commercial aircraft, coupled with a release of
excess maintenance reserves associated with certain of MSAF group's former
lessees, partially offset by a reduction in lease revenue associated with
aircraft on ground.

MSAF group's operating results for fiscal 2000 included provisions for
doubtful accounts totaling $1.5 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 $6.4 million in
fiscal 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
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. MSAF group
released $25.6 million of excess maintenance reserves to lease income in fiscal
2000 as compared to $1.6 million in fiscal 1999.

INVESTMENT INCOME

Investment income for fiscal 2000 amounted to $3.7 million as compared to
$1.8 million in fiscal 1999. Investment income represents interest income on
MSAF group's cash and cash equivalents. Investment income has increased due to a
higher level of cash and cash equivalents in connection with MSAF group's
acquisition of 29 commercial aircraft. Such cash balances primarily consist of
security deposits and advance rental payments made by certain lessees.

INTEREST EXPENSE

Interest expense, including swap costs of $0.3 million, amounted to
$112.2 million in fiscal 2000. Interest expense, including swap costs of
$5.3 million, amounted to $63.6 million in fiscal 1999. Interest expense
primarily consists of interest paid on the 1998 Notes and the 2000 Notes. The
increase in interest expense is primarily due to the 2000 Notes, which were
issued on March 15, 2000, coupled with a higher average interest rate on the
1998 Notes. The weighted average interest rate on MSAF group's notes payable
during fiscal 2000 was 6.98% as compared to 6.03% during fiscal 1999, reflecting
a higher interest rate environment. The average principal balance in respect of
MSAF group's notes payable during fiscal 2000 was $1,628.7 million as compared
to $956.0 million during fiscal 1999.

MSAF group is a party to twelve interest rate swaps with Morgan Stanley
Capital Services Inc. ("MSCS"), a wholly owned subsidiary of MSDW. In ten of
these swaps, MSAF group paid a fixed monthly coupon and received one month LIBOR
on a notional balance of $1,300 million and in two of these swaps, MSAF group
paid one month LIBOR and received a fixed monthly coupon on a notional balance
of $200 million.

MSAF group was a party to one additional interest rate swap with MSCS with a
notional balance of $300 million that matured on November 15, 2000. In that swap
MSAF group paid a fixed monthly coupon and received one month LIBOR.

Eight of the swaps, having an aggregate notional principal amount of
$1,100 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 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 has 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 Item 7A "Quantitative and Qualitative Disclosures About Market Risk"
below for more information regarding MSAF group's swaps positions and hedging
policy.

DEPRECIATION

Depreciation expense for fiscal 2000 amounted to $85.5 million as compared
to $47.1 million in fiscal 1999. The increase is attributable to MSAF group's
acquisition of 29 commercial aircraft.

OPERATING EXPENSES

SERVICE PROVIDER AND OTHER FEES. Service provider and other fees for fiscal
2000 were $14.0 million as compared to $8.6 million for fiscal 1999. The
increase in fiscal 2000 reflects certain fees and expenses incurred in
connection with MSAF group's acquisition of 29 commercial aircraft from MSF. The
increase also reflects a higher aircraft servicing fee paid to ILFC, which
amounted to $7.0 million in fiscal 2000 and $5.2 million in fiscal 1999. The
higher fees paid to ILFC in fiscal 2000 reflected the increased fleet size as a
result of the acquisition of 29 commercial aircraft, partially offset by a
reduction in fees due to the lower rental revenues generated by the remainder of
the fleet as a result of aircraft on the ground during the period.

MAINTENANCE AND OTHER AIRCRAFT RELATED COSTS. Maintenance and other
aircraft related costs for fiscal 2000 were $19.9 million as compared to
$5.2 million for fiscal 1999. The increase was primarily attributable to certain
maintenance and redelivery costs incurred by MSAF group associated with two
aircraft previously leased to Oman Air, one aircraft previously leased to TAESA,
one aircraft previously subject to a sales-type capital lease with B.R.A. and
provisions for certain maintenance and redelivery costs associated with the
aircraft previously leased to TransAer and VASP (see "Lessee Difficulties").
This was partially offset by the receipt of $4.0 million in settlement of an
insurance claim under MSAF group's Technical Records Policy relating to the
aircraft previously leased to Guyana Airways.

Included within maintenance and other aircraft related costs were insurance,
re-leasing and other costs which amounted to $1.2 million in fiscal 2000, as
compared to $2.5 million in fiscal 1999.

RESULTS OF OPERATIONS--YEAR ENDED NOVEMBER 30, 1999

MSAF group's results of operations for the year ended November 30, 1999
("FISCAL 1999") are not directly comparable to those of the year ended
November 30, 1998 ("FISCAL 1998") as MSAF group did not own its original
aircraft portfolio throughout fiscal 1998. In addition, the 1998 Notes were
issued on March 3, 1998 and accordingly, MSAF group did not incur any interest
expense for the first three months of fiscal 1998.

NET (LOSS)/INCOME

MSAF group incurred a net loss of $7.9 million in fiscal 1999 as compared to
net income of $20.2 million in fiscal 1998. The decrease in net income primarily
reflects higher levels of interest expense, depreciation expense and maintenance
and other aircraft related costs in fiscal 1999.

LEASE INCOME

Lease income for fiscal 1999 amounted to $114.7 million as compared to
$120.0 million in fiscal 1998. MSAF group's lease income for fiscal 1999 were
adversely affected by provisions for doubtful accounts aggregating
$6.4 million. Such provisions were recorded by MSAF group due to financial
difficulties experienced by certain of its existing 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 amounted to $0.7 million for fiscal 1998. The
increase in provisions for doubtful accounts were partially offset by an
increase in lease revenues, as MSAF group did not own all of its original
aircraft portfolio throughout fiscal 1998.

INVESTMENT INCOME

MSAF group earned investment income of $1.8 million in fiscal 1999 as
compared to $2.2 million in fiscal 1998. Investment income declined as the
excess cash held in March 1998 was utilized to acquire an additional aircraft
during fiscal 1998, as well as the return of excess cash to investors in respect
of an undelivered aircraft.

INTEREST EXPENSE

Interest expense, including swap costs of $5.3 million as compared to
$2.2 million in fiscal 1998, amounted to $63.6 million in fiscal 1999 as
compared to $50.5 million in fiscal 1998. Interest expense primarily consists of
interest paid on the 1998 Notes which were issued on March 3, 1998. The weighted
average interest rate on the 1998 Notes during fiscal 1999 was 6.03% as compared
to 6.33% in fiscal 1998. The average debt in respect of the 1998 Notes
outstanding during fiscal 1999 was $956.0 million as compared to
$1,012.2 million in fiscal 1998. Interest expense is higher in fiscal 1999
because the 1998 Notes were issued on March 3, 1998 and accordingly, MSAF group
did not incur any interest expense for the first three months of fiscal 1998.

See Item 7A "Interest Rate Risk Management" below for more information
regarding MSAF group's swaps positions and hedging policy.

DEPRECIATION

Depreciation expense for fiscal 1999 amounted to $47.1 million as compared
to $38.9 million in fiscal 1998. The increase in fiscal 1999 reflects that MSAF
group did not own all of the original aircraft portfolio throughout the entire
fiscal 1998 period.

OPERATING EXPENSES

SERVICE PROVIDER AND OTHER FEES. Service provider and other fees for fiscal
1999 were $8.6 million as compared to $9.5 million in fiscal 1998. The most
significant element in both periods was the aircraft servicing fee paid to ILFC,
which amounted to $5.2 million in fiscal 1999 and $6.0 million in fiscal 1998.
The fee paid in fiscal 1998 included an initial upfront fee of $2.0 million paid
to ILFC at the inception of the Servicing Agreement. MSAF group's service
provider expenses also included $1.6 million in respect of administrative agency
and cash management fees in fiscal 1999 as compared to $1.3 million in fiscal
1998. These fees were lower in fiscal 1998 as MSAF group did not own all of the
original aircraft portfolio throughout that period.

MAINTENANCE AND OTHER AIRCRAFT RELATED COSTS. Maintenance and other
aircraft related costs in fiscal 1999 amounted to $5.2 million as compared to
$3.0 million in fiscal 1998. The increase in fiscal 1999 primarily reflected
additional maintenance and redelivery costs incurred by MSAF group associated
with an aircraft previously leased to Guyana Airways. Such costs were necessary
to prepare the aircraft for a new lessee.

Included within maintenance and other aircraft related costs were insurance,
re-leasing and other costs which amounted to $2.5 million in fiscal 1999 as
compared to $1.0 million in fiscal 1998. The increase reflects a higher level of
re-leasing events during fiscal 1999.

FINANCIAL RESOURCES AND LIQUIDITY

See Appendix 1 for more information regarding the cash performance of MSAF
group for the year ended November 30, 2000.

LIQUIDITY

MSAF group's cash and cash equivalents balances at November 30, 2000 were
$70.4 million. Of this amount, $30 million represents the cash portion of the
Liquidity Reserve Amount (as defined below) and $40.4 million represents rental
and maintenance receipts and cash held for accrued expenses.

In addition to the $30 million cash portion at November 30, 2000, the
Liquidity Reserve Amount also contained $70.4 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 1998 Notes and the 2000 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 in fiscal 2000 amounted to
$87.7 million, principally reflecting non-cash depreciation expense of
$85.5 million, a net loss of ($8.1) million and an increase in other liabilities
of $9.5 million.

Net cash provided by operating activities in fiscal 1999 amounted to
$43.6 million, principally reflecting non-cash depreciation expense of
$47.1 million, a net loss of ($7.9) million, and the provision for doubtful
accounts of $6.4 million.

CASH FLOWS FROM INVESTING AND FINANCING ACTIVITIES

Net cash used for investing activities in fiscal 2000 amounted to
$876.8 million, which was used to purchase a portfolio of 29 commercial
aircraft, as well as certain other assets and liabilities related to these
aircraft, from MSF. MSAF group did not utilize any cash for investing activities
in fiscal 1999.

Net cash provided by financing activities in fiscal 2000 amounted to
$824.4 million, reflecting the proceeds from the offering of the 2000 Notes less
the repayment of the subclass A-1 notes and other repayments of principal on the
1998 Notes and the 2000 Notes. In fiscal 1999, the $43.3 million of cash used
for financing activities reflected repayments of principal on the 1998 Notes.

INDEBTEDNESS

MSAF group's indebtedness primarily consisted of the 1998 Notes and the 2000
Notes in the amount of $1,772.4 million at November 30, 2000. See Item 7A
"Quantitative and Qualitative Disclosures About Market Risk" below for a
presentation of the outstanding principal amounts and estimated fair values of
each subclass of notes as of November 30, 2000.

The "LIQUIDITY RESERVE AMOUNT" is intended to serve as a source of liquidity
for MSAF group's maintenance reimbursement 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, A-1+ by Standard & Poor's, or F1+ by Fitch (as successor to DCR) 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 $140.8 million on
November 30, 2000. The "MINIMUM LIQUIDITY RESERVE AMOUNT" may be funded with
cash and with eligible credit facilities and was approximately $30 million in
cash on November 30, 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, among other things, 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 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 class of 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 1998 Notes and the 2000 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" refers to 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" refers to 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 1998 Notes and the
2000 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 1998 Notes and the 2000 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 and 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 that we receive in the
future will not be significantly less than that assumed. Any significant
variation may materially adversely affect our ability to make payments of
interest and principal on the 1998 Notes and the 2000 Notes.

If at any time the aggregate outstanding principal balance of the 1998 Notes
and the 2000 Notes is less than or equal to the liquidity reserve amount, the
balance of funds, if any, in the collection account will be distributed in
accordance with the priority of payments.

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 our portfolio except (1) amounts that ILFC determines
in good faith to be no longer held on behalf of a lessee, whether upon expiry of
or default under the applicable lease or otherwise, (2) any cash security
deposits in an amount exceeding three months' rent with respect to a single
aircraft and paid by a single lessee and (3) certain security deposits that ILFC
has transferred to MSAF group. ILFC will retain any interest accruing on amounts
of aircraft security deposits that it holds.

In addition 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 1998
Notes and the 2000 Notes. ILFC's obligation to make such amounts available shall
be limited to the ILFC facility commitment, which was approximately
$40.4 million on November 30, 2000. The ILFC facility commitment was equal to
(1) 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 portfolio or the
repayment or defeasance of MSAF group's debt, the sum of (A) $20 million plus
(B) total security deposits held by ILFC for our benefit at the time minus
(C) all drawings that MSAF group have previously made under the ILFC facility
that are required to be repaid to ILFC but not repaid at the time and (2) after
either of those events, $20 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, so on the 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 amounts drawn under the ILFC facility to ILFC, together with accrued
interest 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
(1) May 1, 2025, (2) a sale of all the aircraft in MSAF group's portfolio and
(3) the repayment or defeasance of all MSAF group's debt.

ILFC's short-term unsecured debt is currently rated P-1 by Moody's, A-1+ by
Standard & Poor's and F1+ by Fitch (as successor to DCR), so it is an eligible
provider. 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.

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, including to pay interest and minimum principal payment amounts
on the 1998 Notes and the 2000 Notes. MSDW's obligation to make such loans shall
be limited to the MSDW facility commitment, which on November 30, 2000, was
equal to the sum of (1) $30 million minus (2) all drawings that MSAF group have
previously made and not repaid under the MSDW facility.

The MSDW facility is a secondary eligible credit facility, so on the 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 amounts
drawn under the MSDW facility to MSDW, together with interest accrued 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
(1) a sale of all the aircraft and (2) the repayment or defeasance of all MSAF
group's debt. MSDW has been designated by the controlling trustees as an
eligible provider. MSDW's short-term unsecured debt is currently rated P-1 by
Moody's, A-1+ by Standard & Poor's and F1+ by Fitch.

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 payable at the 11th level in the order of priorities,
before the second collection account top-up.

ITEM 7A. 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 payable and the derivative instruments used
to manage interest rate risk.

The terms of each subclass of the 1998 Notes and the 2000 Notes, including
the outstanding principal amount and estimated fair value as of November 30,
2000 were as follows:

OUTSTANDING ESTIMATED FAIR
PRINCIPAL AMOUNT ANNUAL VALUE AT
AT NOVEMBER 30, INTEREST RATE EXPECTED FINAL PAYMENT FINAL MATURITY NOVEMBER 30,
SUBCLASS OF NOTE 2000 (PAYABLE MONTHLY) DATE DATE 2000
- --------------------- ---------------- ----------------- ---------------------- -------------- --------------
($000'S) ($000'S)

Subclass A-2......... $210,523 LIBOR + 0.35% September 15, 2005 March 15, 2023 $210,063
Subclass A-3......... 580,000 LIBOR + 0.52% March 15, 2002 March 15, 2025 580,027
Subclass A-4......... 200,000 LIBOR + 0.54% March 15, 2003 March 15, 2025 200,038
Subclass A-5......... 357,386 LIBOR + 0.58% June 15, 2008 March 15, 2025 357,777
Subclass B-1......... 85,194 LIBOR + 0.65% March 15, 2013 March 15, 2023 83,511
Subclass B-2......... 74,985 LIBOR + 1.05% March 15, 2007 March 15, 2025 74,996
Subclass C-1......... 99,310 6.90% March 15, 2013 March 15, 2023 90,372
Subclass C-2......... 55,000 9.60% October 15, 2016 March 15, 2025 56,117
Subclass D-1......... 110,000 8.70% March 15, 2014 March 15, 2023 80,300

INTEREST RATE RISK MANAGEMENT

MSAF group's policy is not to be adversely exposed to material movements in
interest rates. MSAF group's leasing revenues are generated primarily from
rental payments, which 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 interest obligations in respect of its
notes payable do not correlate with rental payments for different rental
periods, including rental payments attributable to existing and future leases.
Future leases are relevant because the duration of MSAF group's obligations
under its floating rate notes is significantly longer than the duration of lease
income under its fixed rate leases. MSAF group currently manages this exposure
by entering into interest rate swaps. In the future MSAF group may also use
other derivative instruments. Currently, MSAF group's aim is to manage the
exposure created by its floating interest rate obligations given that future
lease rates on new leases may not be repriced at levels which fully reflect
changes in market interest rates in the previous lease period. Accordingly, MSAF
group's current interest rate swap portfolio tries to minimize the risk created
by its longer-term floating interest rate obligations and measures that risk by
reference to the duration of those obligations and the expected sensitivity of
future lease rates to future market interest rates.

The controlling trustees are responsible for reviewing and approving the
overall interest rate management policies and transaction authority limits. MSAF
group's financial advisor, Morgan Stanley & Co. Incorporated, assists MSAF group
in developing and implementing its interest rate risk management policies.

CURRENT SWAP PORTFOLIO

As of November 30, 2000, MSAF group was a party to twelve interest rate
swaps with MSCS. In ten 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:

ESTIMATED FAIR
VALUE AT
NOTIONAL MATURITY FIXED MONTHLY FIXED MONTHLY NOVEMBER 30,
BALANCE EFFECTIVE DATE DATE PAY RATE RECEIVE RATE 2000
- --------------------- ----------------- ----------------- ------------- ------------- --------------
($000'S) (%) (%) ($000'S)

200,000 November 12, 1997 November 15, 2002 6.2150 -- $ 336
200,000 November 12, 1997 November 15, 2004 6.2650 -- 778
150,000 November 12, 1997 November 15, 2007 6.3600 -- 1,264
50,000 November 12, 1997 November 15, 2009 6.4250 -- 478
150,000 February 19, 1998 November 15, 2007 -- 5.860 (5,493)
50,000 February 19, 1998 November 15, 2009 -- 5.905 (2,253)
100,000 January 24, 2000 November 15, 2006 7.3365 -- (4,307)
100,000 January 24, 2000 November 15, 2009 7.4450 -- (6,012)
100,000 January 24, 2000 November 15, 2011 7.4600 -- (6,701)
100,000 January 24, 2000 November 15, 2014 7.3550 -- (6,360)
100,000 January 24, 2000 November 15, 2019 7.3690 -- (7,267)
200,000 February 25, 2000 February 15, 2002 7.1200 -- (1,777)

During fiscal 2000, MSAF group was a party to one additional interest rate
swap with MSCS with a notional balance of $300 million that matured on
November 15, 2000. In that swap MSAF group paid a fixed monthly coupon and
received one month LIBOR.

POLICY REVIEW

MSAF group regularly reviews its hedging requirements. In the future MSAF
group expects to seek to enter into further swaps or unwind part or all of the
existing and any future swaps. In addition, if MSAF group acquires additional
aircraft, it will need to rebalance its position.

COUNTERPARTIES

MSAF group will monitor counterparty risk on an ongoing basis.
Counterparties will be subject to the prior approval of the controlling
trustees. MSAF group's counterparties are currently all affiliates of MSDW.
Future counterparties may consist of the affiliates of major U.S. and European
financial institutions (including special-purpose derivative vehicles) which
have credit ratings, or which provide collateralization arrangements, consistent
with maintaining the ratings of MSAF group's notes payable.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The response to this item is submitted as a separate section of this report.
See "Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K."

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

CONTROLLING AND INDEPENDENT TRUSTEES

The controlling trustees and independent trustees of MSAF, their respective
ages and principal activities are as follows:

NAME AGE TITLE
- ---- -------- -----------------------------

Karl Essig................................. 49 Controlling Trustee

Alexander C. Frank......................... 43 Controlling Trustee

A. Maurice Mason........................... 37 Controlling Trustee

C. Scott Peterson.......................... 40 Controlling Trustee

Juan C. O'Callahan......................... 67 Independent Trustee

Alexander C. Bancroft...................... 63 Independent Trustee

KARL ESSIG is a Managing Director and the co-head of the Global Securitized
Products Group at MSDW. Mr. Essig joined MSDW in August of 1980 and has worked
in the London, New York and Tokyo offices on corporate finance, capital markets,
derivatives and securitization transactions. In 1986 he founded Morgan Stanley's
Asset-Backed Finance Group which he headed for five years. In 1992, Mr. Essig
established the International Securitisation Group, focusing on transactions in
Europe and Asia, and during 1999 was appointed co-head of the worldwide
business. Mr. Essig is a graduate of Stanford University and the Yale School of
Management.

ALEXANDER C. FRANK is a Managing Director in the Corporate Treasury
Department, and the Treasurer of MSDW. Mr. Frank joined MSDW in 1985 and has
worked in the New York and London offices, in the firm's Corporate Treasury and
Corporate Tax Departments. In 1990 he established Morgan Stanley Treasury's
European Capital and Financing activity in London. In 1993 Mr. Frank assumed
responsibility for the firm's Global Capital and Finance function and became the
Treasurer for North and South American activities. In 1998, Mr. Frank was
appointed Treasurer of MSDW. Mr. Frank is a graduate of Dartmouth College and
the University of Michigan School of Business Administration.

A. MAURICE MASON is a Managing Director in the Aircraft Group at Morgan
Stanley & Co. International Limited. He joined MSDW's Investment Banking
Division in 1994 where he was responsible for MSDW's corporate finance
activities in the European transportation sector. Prior to joining MSDW, he
spent over six years in the capital markets group at GPA Group plc. Mr. Mason
received a BA, BAI degree from Trinity College, Dublin.

C. SCOTT PETERSON is a Managing Director in the Aircraft Group at Morgan
Stanley & Co. International Limited. Mr. Peterson joined MSDW in 1988 in the
Fixed Income Division. In 1989 he established the Equipment Finance Group to
focus on transactions backed by aircraft and other capital equipment and led
both the Equipment Finance and Liability Management Groups until his transfer to
London in 1996. Mr. Peterson is a graduate of Oregon State University and The
Wharton School.

JUAN C. O'CALLAHAN is principal of JOCR, an aviation consultancy based in
Connecticut. He joined The Boeing Company in 1961 after a career as a fighter
pilot with the United States Marine Corps and has since worked at Pacific Air
Lines, World Airways and GPA Group plc (having founded TAI, a forecasting and
valuation consultancy that was acquired by GPA in 1982). He has served on the
boards of America West Inc., Avitas Inc., Pembroke Capital Limited and
WorldCorp Inc. Mr. O'Callahan is a graduate of the University of Pittsburgh,
where he obtained a BSc in Aeronautical Engineering.

ALEXANDER C. BANCROFT is a partner of the law firm of Shearman & Sterling.
He specializes in the legal aspects of the financing of aircraft and other
transportation equipment. He joined Shearman & Sterling in

1964 after military service and became a partner in 1973. Mr. Bancroft is a
graduate of Harvard College and Harvard Law School.

The independent trustees are entitled to participate in all meetings of the
controlling trustees but are only entitled to vote on any action (1) to cause
MSAF or any subsidiary of MSAF to institute any proceeding seeking liquidation
or insolvency or similar proceeding, (2) to consent to any liquidation,
insolvency or similar proceeding instituted against MSAF or any subsidiary of
MSAF, (3) to take certain other actions related to insolvency matters, and
(4) to sell, transfer, or otherwise dispose of, directly or indirectly, any
aircraft where the proceeds received from such sale or transfer are less than
certain targets set forth in the indenture. The unanimous consent of all the
controlling trustees and the independent trustees shall be required to take any
action specified in clauses (1), (2) or (3) above.

As is common with many other special purpose companies, MSAF does not have
any employees or executive officers. Accordingly, the controlling trustees rely
upon ILFC and the other service providers, including affiliates of MSDW, for all
asset servicing, executive and administrative functions pursuant to the
respective service provider agreements. See "Business--Risk Factors--No
Executive Management--Reliance on Third Parties to Manage Our Business" under
Item 1. Certain individuals other than the controlling trustees and the
independent trustees listed above may serve as controlling or independent
trustees or directors of various subsidiaries of MSAF group where provisions of
local law mandate a particular citizenship for trustees or directors.

THE SERVICER

ILFC AND ITS AFFILIATES CANNOT BE HELD RESPONSIBLE FOR ANY LIABILITIES OF
MSAF OR ITS AFFILIATES, INCLUDING ANY PAYMENTS DUE TO NOTEHOLDERS ON THE NOTES.

ILFC is engaged in the leasing and management of commercial jet aircraft
under operating leases for its own portfolio as well as for third party lessors.
As of December 31, 2000, the portfolio of aircraft managed by ILFC comprised 494
aircraft, of which ILFC and its affiliates owned 402, valued at greater than
$20 billion. ILFC has commitments and options to purchase a total of 539
aircraft from manufacturers, deliverable through 2009. In addition, ILFC is
engaged in the remarketing of commercial jets for its own account, for airlines
and for third party lessors.

ILFC is headquartered in Los Angeles, California, from where its staff of
approximately 104 employees handles all of the leasing, management and
remarketing relationships. ILFC's management services include collecting rental
payments, arranging and monitoring aircraft maintenance performed by others,
technical inspection of aircraft, arranging and monitoring insurance, arranging
for aircraft valuations, registration and deregistration of aircraft, monitoring
compliance with lease agreements and enforcement of lease provisions against
lessees and facilitating delivery and redelivery of aircraft. ILFC may also
arrange the sale of its customers' aircraft to third parties.

ILFC provides services with respect to all of the aircraft in our portfolio
(except where a substitute servicer may perform the services as described below)
under an amended and restated servicing agreement which, among other things,
provides that ILFC will act in accordance with applicable law and with
directions given by MSAF group from time to time in accordance with the
servicing agreement. In addition ILFC agrees to perform its services in
accordance with the ILFC Services Standard and the ILFC Conflicts Standard, as
described below.

Pursuant to the servicing agreement, ILFC will not be liable to MSAF group
for any losses arising (1) as a result of an aircraft or engine sold, leased or
purchased on less favorable terms than might have been achieved at any time,
provided such transactions were entered into on the basis of a commercial
decision of ILFC or (2) in respect of ILFC's obligation to apply the ILFC
Conflicts Standard in respect of its performance of the services, except, in
either situation, in the case of wilful misconduct or fraud on the part of ILFC.

AIRCRAFT SERVICES

ILFC has agreed to:

- engage and maintain the necessary staff and supporting resources required
to perform its services;

- grant MSAF group and its agent, access to its information, programs,
records and personnel to enable MSAF group to monitor its compliance with
the servicing agreement and for general MSAF group business; and

- separate its own funds from the funds of any person within MSAF group.

ILFC provides a wide range of services to MSAF group, including:

- lease marketing, such as remarketing, lease drafting, negotiation and
execution;

- aircraft asset management, such as rent collection, aircraft maintenance,
insurance, contract compliance and enforcement against current lessees,
and accepting delivery and redelivery of aircraft;

- current aircraft sales;

- arranging valuations and monitoring and advising MSAF group on regulatory
developments;

- assisting MSAF group to stay in compliance with certain covenants under
the indenture;

- providing MSAF group with data and information relating to our aircraft
and the commercial aviation industry;

- assistance with any public or private offering and sale of refinancing
notes or additional notes of MSAF;

- legal and other professional services relating to the lease, sale or
financing of our aircraft, amendment modification or enforcement of our
aircraft lease; and

- periodic reporting of operational, financial and other information on our
aircraft and leases.

OPERATING GUIDELINES

ILFC does not have any fiduciary or other implied duties to the noteholders
or MSAF group, and its obligations are limited to the express terms of the
servicing agreement. In accordance with the express terms of the servicing
agreement, ILFC will act in accordance with applicable law and with MSAF group's
directions.

ILFC may exercise such authority as is necessary to give it a practicable
and working autonomy in performing the services and must also comply with the
following two principal contractual standards in performing its services.

(1) ILFC must perform its services with reasonable care and diligence as if it
were the owner of the aircraft consistent with the customary commercial
practice of a prudent international aircraft lessor in the management
servicing and marketing of commercial jet aircraft and related assets. This
is referred to as the "ILFC SERVICES STANDARD".

(2) If a conflict of interest arises regarding ILFC's management, servicing or
marketing of: (a) any two aircraft in our portfolio or (b) any aircraft in
our portfolio and any other assets owned, managed, serviced or marketed by
ILFC, ILFC is required to notify MSAF and perform the services in good
faith. If the two aircraft and other assets owned, managed, serviced or
marketed by ILFC are substantially similar in terms of objectively
identifiable characteristics that are relevant for the particular services
to be performed, ILFC will not discriminate among the aircraft or between
any of

the aircraft in our portfolio and any other aircraft then owned, managed,
serviced or marketed by ILFC on an unreasonable basis. This is referred to
as the "ILFC CONFLICTS STANDARD".

All transactions to be entered into by ILFC on behalf of MSAF group (other
than with other persons within MSAF group) must be at arm's length and on fair
market value terms unless otherwise agreed or directed by MSAF group. Certain
transactions or matters require the specific approval of MSAF group, including:

- sales of (or commitments or agreements to sell) aircraft, other than as
required by a lease;

- the entering into of any new leases (including renewals or extensions,
unless any such lease had originally been approved) if the lease does not
comply with any applicable operating covenants set forth in the indenture.

- terminating any lease or leases to any single lessee with respect to
aircraft then having a value in excess of $100 million;

- unless provided for in the applicable budget, entering into any contract
for the modification or maintenance of aircraft where the costs to be
incurred (A) exceed the greater of (i) the estimated aggregate cost of a
heavy maintenance or structural check for similar aircraft and
(ii) available maintenance reserves or other collateral under the related
lease or (B) are outside the ordinary course of MSAF group's business;

- entering into any capital commitment or confirming any order or commitment
to acquire or acquiring aircraft or engines on behalf of MSAF group,
except, with respect to a replacement engine or a spare part for an
aircraft, (A) if provided for in the applicable budget or (B) at such
times and on such terms and conditions as ILFC deems reasonably necessary
or appropriate and in no greater quantity than that which is required to
enable the aircraft to be leased;

- issuing any guarantee on behalf of, or otherwise pledging the credit for
borrowed money of, any person within MSAF group;

- unless otherwise permitted, entering into any agreement for services to be
provided in respect of aircraft by third parties at MSAF group's cost
outside the ordinary course of ILFC's business, except to the extent
provided for in the applicable budget; and

- incurring or causing to be incurred on behalf of any person within MSAF
group any liability (actual or contingent), unless contemplated in the
applicable budget, pursuant to a transaction of a type for which MSAF
group's specific approval is otherwise required, or incurred in the
ordinary course of MSAF group's business.

BUDGETS

MSAF group will adopt an annual and a three-year budget each year for all
aircraft. ILFC has agreed to use its best efforts to achieve the annual budget
for each year.

MANAGEMENT FEES AND SERVICER EXPENSES

ILFC receives the following fees:

- a monthly retainer fee equal to approximately $250,000;

- a monthly fee equal to 1% of the aggregate rent due for any month (or
portion of a month); and

- a monthly fee equal to approximately 1.25% of the aggregate rent actually
paid for the month.

In addition, ILFC receives certain incentive fees based on MSAF group
results and aircraft sales. For the fiscal year ended November 30, 1998 ILFC
received $0.5 million in result-based incentive fees. For the

fiscal years ended November 30, 1999 and November 30, 2000, no result-based
incentive fees were paid to ILFC. There were no sales-based incentive fees for
any of the above periods.

ILFC also will be reimbursed for certain expenses incurred in connection
with its performance of the services.

TERM AND TERMINATION

For the 32 aircraft and one engine that we acquired in 1997 and 1998, the
servicing agreement will expire on May 26, 2023. For the 29 aircraft that we
acquired in 2000, the servicing agreement will expire on May 1, 2025.

ILFC may terminate the servicing agreement if:

- MSAF does not pay any amount payable by MSAF within five days of a
delinquency notice;

- MSAF or any of its subsidiaries shall materially breach any of their
obligations under the servicing agreement other than payment obligations;

- all of the public debt of the MSAF group is repaid or defeased in full in
accordance with the terms of any indenture;

- all of the aircraft in our portfolio are sold;

- an involuntary proceeding under applicable bankruptcy, insolvency,
receivership or similar law against MSAF, any of its subsidiaries or a
substantial part of the property or assets of any person within MSAF
group, continues undismissed for 120 days or any such person shall go into
liquidation, suffer a receiver or mortgagee to take possession of all or
substantially all of its assets or have an examiner appointed over it, or
a petition or proceeding is presented for any of the foregoing and not
discharged within 120 days; or

- a voluntary proceeding is commenced under bankruptcy, insolvency,
receivership or similar law by MSAF or any of its subsidiaries or MSAF or
any of its subsidiaries, consents to the institution of, or fails within
120 days to contest the filing of, any petition described above, or files
an answer admitting the material allegations of any such petition, or
makes a general assignment for the benefit of its creditors.

MSAF may terminate the servicing agreement if:

- ILFC materially breaches any of its obligations under the servicing
agreement;

- ILFC fails, within a reasonable period of time, to re-lease an aircraft
upon the termination of any lease or to sell an aircraft upon commercially
reasonable written direction from MSAF;

- all of the public debt of the MSAF group is repaid or defeased in full in
accordance with the terms of any indenture;

- all of the aircraft in MSAF group's portfolio are sold;

- a rating decline occurs as a result of a change of control of ILFC;

- an involuntary proceeding under applicable bankruptcy, insolvency,
receivership or similar law against ILFC or any of its subsidiaries
continues undismissed for 120 days or ILFC goes into liquidation, suffers
a receiver or mortgagee to take possession of all or substantially all of
its assets or has an examiner appointed over it or if a petition or
proceeding is presented for any of the foregoing and not discharged within
120 days; or

- a voluntary proceeding is commenced by ILFC under bankruptcy, insolvency,
receivership or similar law or ILFC consents to the institution of, or
fails within 120 days to contest the filing of, any petition described
above, or files an answer admitting the material allegations of any such
petition, or ILFC makes a general assignment for the benefit of its
creditors.

Except where ILFC terminates the servicing agreement because MSAF does not
pay ILFC, the servicing agreement may not be terminated unless a replacement
servicer has been appointed and accepts such appointment. In the event that a
replacement servicer has not been appointed within 90 days after any termination
of the servicing agreement or resignation by ILFC, ILFC may petition any court
of competent jurisdiction for the appointment of a replacement servicer.

ASSIGNMENT OF SERVICING AGREEMENT

ILFC and MSAF may not assign their rights and obligations under the
servicing agreement without each other's prior consent.

PRIORITY OF PAYMENT OF SERVICING FEES AND REIMBURSABLE EXPENDITURES

ILFC's fees and expenses rank senior in priority of payment to all payments
on the notes.

CORPORATE MANAGEMENT

ADMINISTRATIVE AGENT

Cabot Aircraft Services Limited acts as the administrative agent of MSAF
group. Cabot is an indirect wholly owned subsidiary of MSDW.

Cabot is responsible for providing administrative, accounting, bank account
management and calculation and other services to MSAF. Cabot's duties include:

- monitoring the performance of ILFC (including ILFC's compliance with the
servicing agreement) and reporting on such performance to MSAF;

- preparing annual budgets and presenting them to MSAF group for approval;

- preparing and coordinating reports to investors and to the Securities and
Exchange Commission, including preparing press releases and managing
investor relations with the assistance of outside counsel and auditors, if
appropriate;

- providing the trustee with information required by the trustee to provide
its reports to the noteholders; and

- providing additional services upon the request of MSAF group upon terms to
be agreed at the time of any such request.

Cabot may delegate one or more of the above administrative services to a
third party.

Cabot receives a monthly fee equal to 0.5% of the rental payments made by
the lessees under the leases for such month from MSAF group in respect of its
services to MSAF group subject to an annual minimum of $500,000. Cabot is
entitled to indemnification by MSAF group for, and will be held harmless
against, any loss or liability incurred by Cabot arising out of or in connection
with its provision of administrative services to MSAF group (other than through
its own deceit, fraud, gross negligence or wilful misconduct or that of its
officers, directors, agents and employees). MSAF group may remove Cabot at any
time on 120 days' written notice. Cabot may resign on 120 days' written notice
in certain circumstances.

CASH MANAGER

Bankers Trust Company acts as the cash manager. Subject to certain
limitations and at the direction of MSAF group, Bankers Trust is authorized to
invest the funds held by MSAF group in the accounts in certain prescribed
investments (the "PERMITTED ACCOUNT INVESTMENTS") on permitted terms.

Bankers Trust devotes the same amount of time and attention to and is
required to exercise the same level of skill, care and diligence in the
performance of its services as a prudent business person would in administering
such services on its own behalf. Bankers Trust's annual fees are not expected to
exceed

$50,000 per annum. Bankers Trust is entitled to indemnification by MSAF group
for, and will be held harmless against, any loss or liability incurred by
Bankers Trust (other than through its own gross negligence (or simple negligence
in the handling of funds), deceit, fraud or wilful misconduct or that of its
officers, directors, agents and employees).

MSAF may remove Bankers Trust at any time on 90 days' written notice as long
as MSAF group has engaged another person or entity to perform the services that
were being provided by Bankers Trust. Bankers Trust may resign on 90 days'
written notice as long as MSAF group has engaged another person or entity to
perform the services that were being provided by Bankers Trust.

FINANCIAL ADVISOR

Morgan Stanley & Co. Incorporated acts as the financial advisor. Morgan
Stanley & Co. Incorporated is a wholly owned subsidiary of MSDW.

The financial advisor is responsible for assisting MSAF group in developing
and implementing its interest rate risk management policies and developing
models for the purposes of analyzing the financial impact of aircraft lease,
sale and capital investment decisions. The financial advisor receives a fee of
$50,000 per annum, payable monthly in arrears in equal installments, from MSAF
group in respect of its services to MSAF group. MSAF or the financial advisor
may terminate the financial advisory agreement on 30 days' written notice.

DELAWARE TRUSTEE

Wilmington Trust Company acts as agent for service of process in Delaware
and signs certain filings with the Delaware Secretary of State on behalf of MSAF
group, other than Aircraft SPC-5, Inc. and the leasing subsidiaries. Wilmington
Trust maintains MSAF group's principal place of business in Delaware.

ITEM 11. EXECUTIVE COMPENSATION

All trustees are compensated for travel and other expenses incurred by them
in the performance of their duties. MSAF group pays each independent trustee
$50,000 per annum for their services in such capacity. The controlling trustees
appointed by MSF as the depositor of MSAF group do not receive remuneration from
MSAF group for their services.

The controlling trustees have not received any additional cash or non-cash
compensation as salary or bonus for their services as controlling trustees. In
the future, however, controlling trustees may receive an interest in the
beneficial interest in MSAF. None of the trustees of MSAF group currently has an
employment contract with MSAF group.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Not applicable.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

MSAF group has had and currently maintains various relationships with MSDW.
First, MSDW acted as a promoter in establishing the entities that comprise MSAF
group. Second, in fiscal 1998 MSAF group received approximately $920 million in
non-interest bearing loans from MSF, a wholly owned subsidiary of MSDW, which
were utilized to purchase 31 aircraft and an engine. Third, MSF held all of the
beneficial interest in MSAF group and at the time of the issuance of the 1998
Notes in fiscal 1998, MSF received a beneficial interest distribution of
approximately $976 million. Fourth, in fiscal 2000 MSAF group issued the 2000
Notes and received a non-cash capital contribution of approximately $78 million
from MSF, which were utilized to purchase a portfolio of 29 commercial aircraft,
as well as certain other assets and liabilities related to these aircraft, from
MSF. Fifth, on March 15, 2000, MSF transferred the beneficial interest in MSAF
group to MSDWAH, a wholly owned subsidiary of MSF. Sixth, on October 12, 2000,
MSDWAH

transferred the beneficial interest in MSAF group to MSAF Holdings, a wholly
owned subsidiary of MSDWAH. Seventh, Cabot, an indirect wholly owned subsidiary
of MSDW, acts as the Administrative Agent for MSAF group. Eighth, the
controlling trustees of MSAF group are four individuals appointed by MSF. Ninth,
Morgan Stanley & Co. Incorporated is acting as financial advisor to MSAF group.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)(1) and (2). Financial Statements: the response to this portion of Item
14 is submitted as a separate section of this report beginning on
page F-1.

(a)(3) and (c). Exhibits:

3.1 Certificate of Trust of MSAF*

3.2 Fourth Amended and Restated Trust Agreement of MSAF dated as
of March 15, 2000**

4.1 Indenture dated as of March 3, 1998 by and among MSAF and
Bankers Trust Company, as Trustee with respect to the Notes*

4.2 Indenture Supplement No. 1 dated as of March 15, 2000 among
MSAF and Bankers Trust Company**

4.3 Form of Global Note (included in Exhibit 4.1)

4.4 Registration Rights Agreement dated March 15, 2000 by and
between MSAF and Morgan Stanley & Co. International
Limited**

10.1 Amended and Restated Administrative Agency Agreement among
MSAF, MSA I, MSA II, MSA III, MSA IV, MSA V, MSA VII,
Redfly, Greenfly, SPC-5, the Security Trustee and the
Administrative Agent, dated as of March 15, 2000**

10.2 Cash Management Agreement dated as of March 3, 1998 among
MSAF, Bankers Trust Company, as Security Trustee and as Cash
Manager and each subsidiary of MSAF*

10.3 Accession Agreement to Cash Management Agreement among the
Cash Manager, the Security Trustee, MSA II, MSA III,
MSA IV, MSA V, MSA VI, MSA VII, and ILFC, dated as of
March 15, 2000**

10.4 Financial Advisory Agreement dated as of March 3, 1998
between MSAF and Morgan Stanley & Co. Incorporated, as
Financial Advisor*

10.5 Amended and Restated Custody and Loan Agreement dated as of
August 6, 1999 among MSAF, International Lease Finance
Corporation and each subsidiary of MSAF**

10.6 Amended and Restated Loan Agreement dated as of March 15,
2000 between MSAF and Morgan Stanley Dean Witter & Co.**

10.7 Security Trust Agreement dated as of March 3, 1998 among
MSAF, Bankers Trust Company, as Security Trustee, as Cash
Manager and as Trustee, Cabot Aircraft Services Limited, as
Administrative Agent and each subsidiary of MSAF*

10.8 Security Trust Agreement Supplement for MSA II dated as of
March 15, 2000**

10.9 Security Trust Agreement Supplement for MSA III dated as of
March 15, 2000**

10.10 Security Trust Agreement Supplement for MSA IV dated as of
March 15, 2000**

10.11 Security Trust Agreement Supplement for MSA V dated as of
March 15, 2000**

10.12 Security Trust Agreement Supplement for MSA VI dated as of
March 15, 2000**

10.13 Security Trust Agreement Supplement for MSA VII dated as of
March 15, 2000**

10.14 Reference Agency Agreement dated as of March 3, 1998 among
MSAF, Bankers Trust Company, as Reference Agent and as
Trustee and Cabot Aircraft Services Limited, as
Administrative Agent*

10.15 Second Amended and Restated Servicing Agreement dated as of
March 15, 2000 among MSAF, International Lease Finance
Corporation, Cabot Aircraft Services Limited, as
Administrative Agent and each subsidiary of MSAF**

10.16 Asset Purchase Agreement dated as of November 10, 1997
between MSAF and International Lease Finance Corporation*

10.17 Asset Purchase Agreement dated as of March 19, 1999 between
MSA II and GE Capital Mietfinanz GmBH & Co. KG**

10.18 Asset Purchase Agreement dated as of August 6, 1999 among
MSA IV, MSA V and International Lease Finance Corporation**

10.19 Purchase Agreement dated as of March 15, 2000 between MSAF
and MS Financing Inc.**

10.20 Accession Agreement dated March 15, 2000 to Amended and
Restated Custody and Loan Agreement among MSAF,
International Lease Finance Corporation and each subsidiary
of MSAF**

21.1 Subsidiaries of MSAF**

23.1 Consent of Aircraft Information Services, Inc.***

23.2 Consent of BK Associates, Inc.***

23.3 Consent of Airclaims Limited***

24.1 Trustee's Power of Attorney (including in signature pages)**

99.1 Appraisal as of September 30, 2000 of Aircraft Information
Services, Inc. relating to the Aircraft***

99.2 Appraisal as of September 30, 2000 of BK Associates, Inc.
relating to the Aircraft***

99.3 Appraisal as of September 30, 2000 of Airclaims Limited
relating to the Aircraft***

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

* Previously filed on Registration Statement on Form S-4 (File No. 333-56575)
with the Securities and Exchange Commission.

** Previously filed on Registration Statement on Form S-1 (File No. 333-56575)
with the Securities and Exchange Commission.

*** Filed herewith

(b). Reports on Form 8-K: filed for event dates September 13, 2000,
October 13, 2000, November 14, 2000 and November 22, 2000 (each relating
to the monthly report to holders of the notes), October 31, 2000
(relating to the annual appraisal of the aircraft) and October 31, 2000
(relating to revision of information in Report on Form 8-K dated
March 16, 2000).

(d). Not applicable.

SIGNATURES

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

Dated: February 28, 2001
MORGAN STANLEY AIRCRAFT FINANCE

By: /s/ C. SCOTT PETERSON
-----------------------------------------
C. Scott Peterson
Controlling Trustee

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities indicated on February 28, 2001.

SIGNATURE TITLE
--------- -----

/s/ KARL ESSIG Controlling Trustee (principal executive officer)
------------------------------------
Karl Essig

/s/ ALEXANDER C. FRANK Controlling Trustee (principal financial and
------------------------------------ accounting officer)
Alexander C. Frank

/s/ A. MAURICE MASON Controlling Trustee
------------------------------------
A. Maurice Mason

/s/ JUAN C. O'CALLAHAN Independent Trustee
------------------------------------
Juan C. O'Callahan

/s/ ALEXANDER C. BANCROFT Independent Trustee
------------------------------------
Alexander C. Bancroft

MORGAN STANLEY AIRCRAFT FINANCE AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

PAGE
--------

Report of Independent Auditors'............................. F-2

Consolidated Balance Sheets................................. F-3

Consolidated Statements of Operations....................... F-4

Consolidated Statements of Cash Flows....................... F-5

Consolidated Statements of Changes in Beneficial
Interestholder's Equity / (Deficit)....................... F-6

Notes to the Consolidated Financial Statements.............. F-7

F-1

REPORT OF INDEPENDENT AUDITORS'

To the Trustees of
Morgan Stanley Aircraft Finance and Subsidiaries

We have audited the accompanying consolidated balance sheets of Morgan
Stanley Aircraft Finance and Subsidiaries (the "group") as of November 30, 2000
and 1999, and the related consolidated statements of operations, cash flows and
changes in beneficial interestholder's equity / (deficit) for the fiscal years
ended November 30, 2000, 1999, and 1998. These consolidated financial statements
are the responsibility of the group's trustees. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by the trustees, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in
all material respects, the consolidated financial position of the group at
November 30, 2000 and 1999, and the consolidated results of its operations and
its cash flows for each of the fiscal years ended November 30, 2000, 1999, and
1998, in conformity with accounting principles generally accepted in the United
States of America.

/s/ Deloitte & Touche LLP

New York, New York
January 12, 2001

F-2

MORGAN STANLEY AIRCRAFT FINANCE AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(DOLLARS IN THOUSANDS)

NOVEMBER 30, NOVEMBER 30,
2000 1999
------------ ------------

ASSETS
Cash and cash equivalents................................... $ 70,426 $ 35,119
Receivables:
Lease income, net......................................... 2,321 1,908
Investment income and other............................... 381 161
Aircraft under operating leases, net........................ 1,842,818 886,051
Investment in capital lease, net............................ -- 18,300
Underwriting and other issuance related costs, net of
amortization.............................................. 23,618 15,935
---------- ----------
Total Assets................................................ $1,939,564 $ 957,474
========== ==========

LIABILITIES AND BENEFICIAL INTERESTHOLDER'S EQUITY / (DEFICIT)
Payables:
Interest payable to Noteholders........................... $ 5,491 $ 2,481
Deferred rental income...................................... 12,097 5,318
Liability for maintenance................................... 102,436 57,437
Other liabilities........................................... 31,935 11,376
Notes payable:
Subclass A-1.............................................. -- 400,000
Subclass A-2.............................................. 210,523 234,533
Subclass A-3.............................................. 580,000 --
Subclass A-4.............................................. 200,000 --
Subclass A-5.............................................. 357,386 --
Subclass B-1.............................................. 85,194 91,023
Subclass B-2.............................................. 74,985 --
Subclass C-1.............................................. 99,310 99,987
Subclass C-2.............................................. 55,000 --
Subclass D-1.............................................. 110,000 110,000
---------- ----------
1,924,357 1,012,155
---------- ----------
Commitments and contingencies

Beneficial Interestholder's Equity / (Deficit):
Beneficial Interest....................................... 1 1
Deemed Contribution / (Distribution)...................... 62,706 (15,305)
Accumulated Deficit....................................... (47,500) (39,377)
---------- ----------
Total Beneficial Interestholder's Equity / (Deficit)...... 15,207 (54,681)
---------- ----------
Total Liabilities and Beneficial Interestholder's Equity /
(Deficit)................................................. $1,939,564 $ 957,474
========== ==========

See Notes to Consolidated Financial Statements

F-3

MORGAN STANLEY AIRCRAFT FINANCE AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(DOLLARS IN THOUSANDS)

FISCAL FISCAL FISCAL
YEAR ENDED YEAR ENDED YEAR ENDED
NOVEMBER 30, 2000 NOVEMBER 30, 1999 NOVEMBER 30, 1998
----------------- ----------------- -----------------

Revenues:
Lease income, net.......................... $219,819 $114,651 $120,005
Investment income on collection account.... 3,712 1,845 2,156
-------- -------- --------
Total revenues............................. 223,531 116,496 122,161
-------- -------- --------
Expenses:
Interest expense........................... 112,205 63,584 50,533
Depreciation expense....................... 85,528 47,060 38,876
Operating expenses:
Service provider and other fees.......... 13,996 8,568 9,534
Maintenance and other aircraft related
costs.................................. 19,925 5,216 2,969
-------- -------- --------
Total expenses............................. 231,654 124,428 101,912
-------- -------- --------
Net (loss)/income............................ $ (8,123) $ (7,932) $ 20,249
======== ======== ========

See Notes to Consolidated Financial Statements

F-4

MORGAN STANLEY AIRCRAFT FINANCE AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(DOLLARS IN THOUSANDS)

FISCAL FISCAL FISCAL
YEAR ENDED YEAR ENDED YEAR ENDED
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
2000 1999 1998
------------ ------------ ------------

Cash flows from operating activities
Net (loss)/income....................................... $ (8,123) $ (7,932) $ 20,249
Adjustments to reconcile net (loss)/income to net cash
provided by operating activities:
Depreciation expense--equipment under operating
leases.............................................. 85,528 47,060 38,876
Amortization of underwriting and other issuance
related costs....................................... 4,767 1,118 837
Provision for doubtful accounts....................... 1,460 6,361 689
Changes in assets and liabilities:
Receivables:
Investment income and other....................... (220) (8) (153)
Lease income, net................................. 404 (1,224) (5,520)
Investment in capital lease......................... (58) (20) 4,643
Liability for maintenance........................... (6,731) 4,948 13,204
Interest payable to Noteholders..................... 3,010 (174) 2,655
Deferred rental income.............................. (1,859) (2,033) 7,351
Other liabilities................................... 9,517 (4,489) 1,110
---------- -------- ----------
Net cash provided by operating activities............... 87,695 43,607 83,941
---------- -------- ----------
Cash flows from investing activities
Purchase of aircraft.................................. -- -- (887,315)
Purchase of net assets from MS Financing Inc, net of
cash acquired....................................... (876,793) -- --
---------- -------- ----------
Net cash used for investing activities.................. (876,793) -- (887,315)
---------- -------- ----------
Cash flows from financing activities
Proceeds from issuance of notes payable, net of
issuance costs...................................... 1,297,550 -- 1,032,110
Proceeds from borrowings from MS Financing Inc........ -- -- 853,490
Beneficial Interest Distribution...................... -- -- (976,257)
Repayment of subclass A-1 notes....................... (400,000) -- --
Repayments of notes payable........................... (73,145) (43,338) (71,119)
---------- -------- ----------
Net cash provided by / (used for) financing
activities............................................ 824,405 (43,338) 838,224
---------- -------- ----------
Net increase in cash and cash equivalents............... 35,307 269 34,850
Cash and cash equivalents at beginning of period........ 35,119 34,850 --
---------- -------- ----------
Cash and cash equivalents at end of period.............. $ 70,426 $ 35,119 $ 34,850
========== ======== ==========

See Notes to Consolidated Financial Statements

F-5

MORGAN STANLEY AIRCRAFT FINANCE AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN
BENEFICIAL INTERESTHOLDER'S EQUITY / (DEFICIT)

(DOLLARS IN THOUSANDS)

RETAINED TOTAL
DEEMED EARNINGS BENEFICIAL
BENEFICIAL (DISTRIBUTION)/ (ACCUMULATED INTEREST
INTEREST CONTRIBUTION DEFICIT) (DEFICIT)
---------- --------------- ------------ ----------

Balance at November 30, 1997.................. $ 1 $ -- $ 4,704 $ 4,705
Net income.................................... -- -- 20,249 20,249
Deemed Distribution........................... -- (15,305) -- (15,305)
Borrowings from MS Financing Inc. converted
into Beneficial Interest.................... 919,859 -- -- 919,859
Payment of Beneficial Interest Distribution to
MS Financing Inc............................ (919,859) -- (56,398) (976,257)
--------- -------- -------- ---------
Balance at November 30, 1998.................. 1 (15,305) (31,445) (46,749)
Net (loss).................................... -- -- (7,932) (7,932)
--------- -------- -------- ---------
Balance at November 30, 1999.................. 1 (15,305) (39,377) (54,681)
--------- -------- -------- ---------
Net (loss).................................... -- -- (8,123) (8,123)
Capital Contribution from MS Financing Inc.... -- 78,011 -- 78,011
--------- -------- -------- ---------
Balance at November 30, 2000.................. $ 1 $ 62,706 $(47,500) $ 15,207
========= ======== ======== =========

See Notes to Consolidated Financial Statements

F-6

MORGAN STANLEY AIRCRAFT FINANCE AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1--BASIS OF PRESENTATION

Morgan Stanley Aircraft Finance ("MSAF") is a special-purpose statutory
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. All of the
beneficial interest of MSAF group is owned by MSAF Holdings, a wholly owned
subsidiary of MSDW Aircraft Holdings ("MSDWAH"), which in turn is a wholly-owned
subsidiary of MS Financing Inc. ("MSF"), which in turn is 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, MSDWAH, MSAF Holdings, MSF or any person other than MSAF
group.

The consolidated financial statements for the 12 months ended November 30,
2000 ("fiscal 2000"), November 30, 1999 ("fiscal 1999") and November 30, 1998
("fiscal 1998") are prepared in accordance with accounting principles generally
accepted in the United States of America, 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 consolidated financial statements are prudent and reasonable. Actual
results could differ materially from these estimates.

All material intercompany transactions have been eliminated.

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

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist of cash and highly liquid investments with
a maturity of three months or less.

REVENUE RECOGNITION

Revenue from aircraft on operating leases is recognized on a straight-line
basis.

Certain lease contracts may require the lessee to make separate payments for
flight hours flown and revenue sector passenger miles flown. In such instances,
MSAF group recognizes rental revenues as they are earned in accordance with the
terms of the lease contract.

AIRCRAFT

Aircraft, including engines, are stated at cost less accumulated
depreciation. Cost is comprised of the cash purchase price paid plus any
maintenance liabilities that MSAF group assumed from the seller at the date of
purchase. Depreciation is calculated on a straight line basis. The estimates of
useful lives and residual values are reviewed periodically. The current
estimates for residual values are generally 10% of cost and useful lives are
generally 25 years from the date of manufacture.

In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of" ("SFAS 121"), the recognition of an impairment loss for an asset
held for use is required when the estimate of undiscounted future cash flows
expected to be generated by the asset is less than its carrying amount.
Measurement of impairment loss is to be recognized based on the fair value of
the asset. Fair value reflects the underlying

F-7

MORGAN STANLEY AIRCRAFT FINANCE AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
economic value of the aircraft, including engines, in normal market conditions
(where supply and demand are in reasonable equilibrium) and assumes adequate
time for a sale and a willing buyer and seller. Short-term fluctuations in the
market place are disregarded and it is assumed that there is no necessity either
to dispose of a significant number of aircraft simultaneously or to dispose of
aircraft quickly. The fair value of the assets is based on independent
valuations of the aircraft in the fleet and estimates of discounted future cash
flows. SFAS 121 also requires that long-lived assets to be disposed of be
reported at the lower of the carrying amount or fair value less estimated
disposal costs. At November 30, 2000 and November 30, 1999, no impairment losses
had been recognized.

LIABILITY FOR MAINTENANCE

In most lease contracts the lessee has the obligation for maintenance costs
on airframes and engines. In many lease contracts the lessee makes a full or
partial prepayment to the lessor, calculated at an hourly rate, which is used to
reimburse the lessee for significant maintenance charges, including major
airframe and engine overhauls. Such prepayments are generally non-refundable.
MSAF group records the cash prepayments made by lessees for maintenance as a
component of the liability for maintenance account which appears on the
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.

MSAF group also estimates the amount of maintenance expenditures for which
it will have primary responsibility. Such expenditures typically are required
when an aircraft must be prepared prior to the commencement of a new lease. MSAF
group also makes estimates of the amounts that, in certain circumstances
(including lessees defaulting on payment obligations), could result in MSAF
group incurring maintenance costs which are the lessee's primary responsibility.
When MSAF group determines that it will be primarily responsible for certain
maintenance expenditures, the amount of such expenditure is charged directly to
earnings and is included as a component of the liability for maintenance account
appearing on the Consolidated Balance Sheets.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

Allowances are made for doubtful accounts where it is considered that there
is a significant risk of non-recovery. The assessment of risk of non-recovery is
primarily based on the extent to which amounts outstanding exceed the expected
value of security deposits held (if any), together with an assessment of the
financial strength and condition of a lessee and the economic conditions
existing in the lessee's operating environment. At November 30, 2000, MSAF group
had recorded allowances for doubtful accounts against lease income receivables
totalling $0.3 million. The allowance for doubtful accounts at November 30, 1999
totalled $0.4 million.

INCOME TAXES

MSAF is a Delaware business trust treated as a branch of MSF for U.S.
Federal, State and local income tax purposes. Accordingly, MSAF is not subject
to U.S. Federal, State and local income taxes.

F-8

MORGAN STANLEY AIRCRAFT FINANCE AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
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 November 30, 2000
MSAF group had leased 57 aircraft and one engine to 41 lessees in 26 countries.
The geographic concentrations of MSAF group's leasing revenues is set forth in
Note 6.

Many 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 November 30, 2000, 18 of MSAF group's
aircraft are being leased to lessees domiciled in certain emerging markets
nations, including those located in Eastern Europe, Latin America and Asia. The
exposure of MSAF group's aircraft to particular countries and customers is
managed partly through concentration limits and through obtaining security from
lessees by way of deposits. MSAF group will continue to manage its exposure to
particular countries, regions and lessees through concentration limits.

NEW ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities", which establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. 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", which deferred the effective date of SFAS No. 133 for one year to
fiscal years beginning after June 15, 2000. In June 2000, the FASB issued SFAS
No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities--an amendment of FASB Statement No. 133". MSAF group adopted SFAS
No. 133, as amended by SFAS No. 138, effective December 1, 2000.

MSAF group estimates that it will record an increase to other liabilities
(reflecting the fair value of its outstanding swaps) and a corresponding charge
to other comprehensive income (a component of beneficial interestholder's
equity) of $31 million from the cumulative effect of the adoption of
SFAS No. 133, as amended. MSAF group's adoption of SFAS No. 133, as amended,
will primarily affect the accounting for, among other things, MSAF group's
derivatives used in connection with its interest rate risk management policies.

In fiscal 1999, MSAF group adopted SFAS No. 130, "Reporting Comprehensive
Income", which establishes the standards for the reporting and presentation of
comprehensive income. MSAF group does not have any items affecting comprehensive
income. Accordingly, MSAF group's comprehensive (loss) income was equal to its
net (loss) income for all periods presented. In fiscal 2001 MSAF group will have
additional items in other comprehensive income due to the adoption of SFAS No.
133, as amended.

F-9

MORGAN STANLEY AIRCRAFT FINANCE AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

NOTE 3--AIRCRAFT

NOVEMBER 30, NOVEMBER 30,
2000 1999
------------ ------------
(DOLLARS IN THOUSANDS)

Stage 3 Aircraft and one engine:
Cost........................................................ $2,014,324 $972,030
Less Accumulated depreciation............................... (171,506) (85,979)
---------- --------
$1,842,818 $886,051
========== ========

During fiscal 2000, MSAF group acquired a portfolio of 29 commercial
aircraft from MSF (see Note 13). In addition, during fiscal 2000, an aircraft
that was previously subject to a sales-type capital lease was repossessed and
the related lease was terminated (see Note 4). This aircraft has been included
as a component of aircraft cost as of the date of repossession.

FLEET ANALYSIS:

NOVEMBER 30, NOVEMBER 30,
2000 1999
------------ ------------

On lease for a further period of:
More than five years........................................ 5 9
From one to five years...................................... 44 20
Less than one year.......................................... 9 3
---------- --------
Total aircraft portfolio (including one engine) on lease.... 58 32
========== ========

At November 30, 2000 there were 4 non-revenue earning aircraft in MSAF
group's portfolio. One of these was subject to a lease agreement and the other 3
were undergoing maintenance work. At November 30, 1999 there was 1 non-revenue
earning aircraft in MSAF group's portfolio.

NOTE 4--INVESTMENT IN CAPITAL LEASE

NOVEMBER 30, NOVEMBER 30,
2000 1999
------------ ------------
(DOLLARS IN THOUSANDS)

Minimum lease payments receivable........................... $ -- $ 28,733
Less: Unearned income....................................... -- (10,433)
-------- --------
Net investment in capital lease............................. $ -- $ 18,300
======== ========

The lessee associated with this capital lease had been experiencing severe
financial difficulties during fiscal 1999, due to the economic uncertainty in
Latin America and the devaluation of the Brazilian currency in January, 1999. In
August 1999, MSAF group and the lessee agreed to modify the terms of the capital
lease by increasing the total rental payments to be received and by extending
the lease term.

The lessee's financial difficulties continued in fiscal 2000. As a result,
in April 2000, International Lease Finance Corporation ("ILFC"), the servicer of
MSAF group's aircraft portfolio, repossessed the aircraft from the lessee and
terminated the capital lease contract. Accordingly, MSAF group's net investment
in the capital lease as of the date of termination of $17.0 million has been
reclassified to "Aircraft under operating leases, net" (see Note 3).

F-10

MORGAN STANLEY AIRCRAFT FINANCE AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

NOTE 5--LEASE INCOME RECEIVABLE

Lease income receivable was as follows:

NOVEMBER 30, NOVEMBER 30,
2000 1999
------------ ------------
(DOLLARS IN THOUSANDS)

Lease income receivable..................................... $2,666 $2,271
Less: Allowance for doubtful accounts....................... (345) (363)
------ ------
Lease income receivable, net................................ $2,321 $1,908
====== ======

Activity in the allowance for doubtful accounts was as follows:

FISCAL 2000 FISCAL 1999
----------- -----------
(DOLLARS IN THOUSANDS)

Balance, beginning of period................................ $ 363 $ 553
Provision for doubtful accounts............................. 1,460 3,060
Amounts written-off......................................... (1,478) (3,250)
------- -------
Balance, end of period...................................... $ 345 $ 363
======= =======

The provision for doubtful accounts of $1.5 million and $3.1 million in
fiscal 2000 and fiscal 1999, respectively, are recorded as a reduction of lease
income revenues in the Consolidated Statements of Operations.

NOTE 6--REVENUES

The distribution of lease revenues by geographic area is as follows:

FISCAL 2000 FISCAL 1999 FISCAL 1998
----------- ----------- -----------
(DOLLARS IN THOUSANDS)

North America............................................... $ 33,670 $ 14,117 $ 8,743
Asia........................................................ 34,022 15,227 13,814
Europe...................................................... 63,360 38,241 51,409
Middle East................................................. 16,617 14,457 10,950
Latin America............................................... 13,439 11,860 20,084
Pacific & Other............................................. 58,711 20,749 15,005
-------- -------- --------
Total....................................................... $219,819 $114,651 $120,005
======== ======== ========

F-11

MORGAN STANLEY AIRCRAFT FINANCE AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

NOTE 6--REVENUES - (CONTINUED)
At November 30, 2000, MSAF group had contracted to receive the following
minimum rentals under operating leases (Dollars in millions):

FISCAL YEAR ENDING NOVEMBER 30,
- -------------------------------

2001........................................................ $207
2002........................................................ 176
2003........................................................ 130
2004........................................................ 92
2005........................................................ 49
Thereafter.................................................. 37

NOTE 7--LIABILITY FOR MAINTENANCE

Activity in the liability for maintenance account was as follows:

FISCAL 2000 FISCAL 1999
----------- -----------
(DOLLARS IN THOUSANDS)

Balance, beginning of period................................ $ 57,437 $ 52,489
Liabilities assumed from MSF................................ 51,730 --
Collections from lessees.................................... 23,787 17,709
Reimbursements to lessees................................... (12,107) (11,872)
Net accruals and transfers.................................. (18,411) (889)
-------- --------
Balance, end of period...................................... $102,436 $ 57,437
======== ========

NOTE 8--NOTES PAYABLE

On March 3, 1998, MSAF group completed an offering of $1,050 million of
securitized notes (the "1998 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 1998 Notes which was declared effective on January 12, 1999.
The exchange offer was consummated on January 18, 1999.

On March 15, 2000, MSAF group completed an offering of $1,310 million of
securitized notes (the "2000 Notes") on a basis exempt from registration under
the Securities Act of 1933, as amended. MSAF group used the net proceeds from
the 2000 Notes to finance in part the acquisition of the 29 commercial aircraft
from MSF, to fund an increase of $5 million in cash and cash equivalents used
for liquidity purposes (see "Financial Resources and Liquidity--Liquidity
Reserve Amount") and to redeem all $400 million of its subclass A-1 notes. The
2000 Notes rank equally in right of payment of principal and interest with the
corresponding subclasses of MSAF group's existing 1998 Notes. During fiscal
2000, MSAF group filed a registration statement with the SEC with respect to an
exchange offer for exchange notes with terms virtually identical to the 2000
Notes which was declared effective on October 31, 2000. The exchange offer was
consummated on December 4, 2000.

F-12

MORGAN STANLEY AIRCRAFT FINANCE AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

NOTE 8--NOTES PAYABLE - (CONTINUED)

With the exception of MSAF group, the 1998 Notes and the 2000 Notes
(collectively, the "Notes") are not obligations of, or guaranteed by, MSDW,
MSDWAH, MSAF Holdings, MSF or any person other than MSAF group.

Underwriting and financing costs which were incurred in connection with the
Notes are being amortized over the expected life of the borrowings to which they
relate.

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 refinancing
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:

INITIAL
PRINCIPAL EXPECTED FINAL FINAL
SUBCLASS OF NOTE AMOUNT INTEREST RATE PAYMENT DATE MATURITY DATE
- ----------------------------- --------- ---------------- ------------------ --------------
(DOLLARS IN THOUSANDS)

Subclass A-2................. 340,000 LIBOR + 0.35% September 15, 2005 March 15, 2023
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% June 15, 2008 March 15, 2025
Subclass B-1................. 100,000 LIBOR + 0.65% March 15, 2013 March 15, 2023
Subclass B-2................. 75,000 LIBOR + 1.05% March 15, 2007 March 15, 2025
Subclass C-1................. 100,000 6.90% March 15, 2013 March 15, 2023
Subclass C-2................. 55,000 9.60% October 15, 2016 March 15, 2025
Subclass D-1................. 110,000 8.70% March 15, 2014 March 15, 2023

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.

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 $108.7 million for the
fiscal year ended November 30, 2000, as compared to $58.5 million for the fiscal
year ended November 30, 1999. The interest expense for fiscal 2000 is not
comparable to fiscal 1999 as the 2000 Notes were issued on March 15, 2000.

The estimated fair value of MSAF group's outstanding Notes was
$1,733.2 million and $902.9 million at November 30, 2000 and November 30, 1999,
respectively.

NOTE 9--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.

F-13

MORGAN STANLEY AIRCRAFT FINANCE AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

NOTE 9--LIQUIDITY FACILITIES - (CONTINUED)
MSAF group's cash account (the "Collection Account") is primarily funded
through the receipt of rental payments from lessees.

MSAF group has 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 $20 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 $30 million.

As of November 30, 2000, the aggregate amount available under the ILFC
Facility and the MSDW Facility was approximately $70.4 million.

NOTE 10--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 with respect to the Notes payable 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 with respect to the Notes
payable can be managed through the use of interest rate swaps and other
derivative instruments. The subclass A-2, A-3, A-4, A-5, B-1 and B-2 notes bear
floating rates of interest and the subclass C-1, C-2 and D-1 notes bear fixed
rates of interest. MSAF group is a party to twelve interest rate swaps with
Morgan Stanley Capital Services Inc. ("MSCS"), a wholly-owned subsidiary of
MSDW. In ten of these swaps, MSAF group pays a fixed monthly coupon and receives
one month LIBOR on a total notional balance of $1,300 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. During fiscal 2000, MSAF group was
a party to one additional interest rate swap with MSCS with a notional balance
of $300 million that matured on November 15, 2000. In this swap MSAF group paid
a fixed monthly coupon and received one month LIBOR.

Eight of the swaps, having an aggregate notional principal amount of
$1,100 million, are accounted for as hedges of the Notes. Under these swap
arrangements, MSAF group pays fixed amounts (based upon annual interest rates
ranging from 6.22% to 7.46%) and receives floating amounts (based upon one month
LIBOR) 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,
are recognized as adjustments 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 maturity dates of these swap positions
range from November, 2002 to November, 2019. The fair value of these interest
rate swaps at November 30, 2000 was ($31.3) million.

F-14

MORGAN STANLEY AIRCRAFT FINANCE AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

NOTE 10--DERIVATIVE FINANCIAL INSTRUMENTS - (CONTINUED)
changes in fair value reflected in interest expense. At November 30, 2000, the
fair value of these swaps was $(6.0) million.

The change in fair value of the twelve interest rate swaps between
November 30, 1999 and November 30, 2000 was due to changes in market interest
rates and payments being made under the swaps when they became due.

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 11--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 Fiscal 2000,
Cabot Aircraft Services Limited received a fee of $1.3 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
$0.05 million in this period.

Simultaneous with the issuance of the 2000 Notes and the acquisition of
certain net assets from MSF, MSAF Group received a non-cash capital contribution
of $78.0 million from MSF.

In connection with the issuance of the 2000 Notes, MSAF group paid
$5.9 million in subscription discounts and commissions to subsidiaries of MSDW.

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

In connection with the offering of the 2000 Notes, on March 15, 2000, MSF
transferred the beneficial interest of MSAF group to MSDWAH, a wholly-owned
subsidiary of MSF, and the number of trustees of MSAF group was increased to
seven.

On October 12, 2000, MSDWAH transferred the beneficial interest in MSAF
group to MSAF Holdings, a wholly owned subsidiary of MSDWAH, which is in turn a
wholly owned subsidiary of MSF.

At November 30, 2000, MSAF group's management was comprised of seven
trustees, including the Delaware trustee, as MSAF group has no employees or
executive officers. Four of MSAF group's seven trustees were employees of MSDW.
The two remaining trustees and the Delaware trustee were unaffiliated with MSDW.

NOTE 12--COMMITMENTS AND CONTINGENCIES

MSAF group did not have any material contractual commitments for capital
expenditures at November 30, 2000.

F-15

MORGAN STANLEY AIRCRAFT FINANCE AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

NOTE 12--COMMITMENTS AND CONTINGENCIES - (CONTINUED)
In accordance with the terms of a second amended and restated servicing
agreement (the "Servicing Agreement"), ILFC 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.

For the initial 32 aircraft and one engine, the Servicing Agreement will
expire in May 26, 2023. For the additional 29 aircraft acquired in fiscal 2000,
the Servicing Agreement will expire on May 1, 2025. However, each party has the
right to terminate the Servicing Agreement under certain circumstances.

NOTE 13--ACQUISITION OF NET ASSETS

During fiscal 2000, MSAF group acquired a portfolio of 29 commercial
aircraft, as well as certain other assets and liabilities related to these
aircraft, from MSF. The assets and liabilities acquired have been recorded at
MSF's historical book value at the date of purchase. A summary of the net assets
acquired is presented below:

DOLLARS IN THOUSANDS
--------------------

Aircraft under operating leases, net of accumulated
depreciation of $30,859................................... $1,025,267
Cash and other assets....................................... 16,701
Deferred rental income...................................... (8,638)
Liability for maintenance................................... (51,730)
Security deposits........................................... (7,118)
Interest rate swap contracts................................ (3,922)
----------
Net assets acquired......................................... $ 970,560
==========

MSAF group financed the acquisition with the net proceeds of the 2000 Notes
(see Note 8) and a non-cash capital contribution from MSF. MSAF group's fiscal
2000 results include the revenues and expenses associated with these 29 aircraft
since March 15, 2000, the date of acquisition.

The following unaudited summarized proforma consolidated results of
operations data for year-ended November 30, 2000 and 1999 assumes the
acquisition of the aircraft had occurred on December 1, 1998:

FISCAL 2000 FISCAL 1999
----------- -----------
DOLLARS IN THOUSANDS

Total revenues.............................................. $262,127 $244,759
Net loss.................................................... $ (7,157) $ (7,451)

The summarized proforma consolidated results of operations data does not
purport to represent what MSAF group's results of operations would have actually
been if the acquisition in fact had occurred at the date indicated or to project
MSAF group's results of operations at any future date or for any future period.

F-16

MORGAN STANLEY AIRCRAFT FINANCE AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

NOTE 14--QUARTERLY DATA (UNAUDITED)

FISCAL 2000
-----------------------------------------
QUARTER QUARTER QUARTER QUARTER
ENDED ENDED ENDED ENDED
FEB. 29, MAY 31, AUG. 31, NOV. 30,
2000 2000 2000 2000
-------- -------- -------- --------
(DOLLARS IN THOUSANDS)

Revenues:
Lease income, net..................................... $25,716 $52,567 $65,533 $76,003
Investment income on collection account............... 539 973 1,032 1,168
------- ------- ------- -------
Total revenues........................................ 26,255 53,540 66,565 77,171
------- ------- ------- -------
Expenses:
Interest expense...................................... 15,245 30,873 33,285 32,802
Depreciation expense.................................. 11,765 22,961 25,401 25,401
Operating expenses:
Service provider and other fees..................... 1,682 5,572 2,968 3,774
Maintenance and other aircraft related costs........ 7,429 4,028 2,194 6,274
------- ------- ------- -------
Total expenses........................................ 36,121 63,434 63,848 68,251
------- ------- ------- -------
Net (loss)/income....................................... $(9,866) $(9,894) $ 2,717 $ 8,920
======= ======= ======= =======

FISCAL 1999
-----------------------------------------
QUARTER QUARTER QUARTER QUARTER
ENDED ENDED ENDED ENDED
FEB. 28, MAY 31, AUG. 31, NOV. 30,
1999 1999 1999 1999
-------- -------- -------- --------
(DOLLARS IN THOUSANDS)

Revenues:
Lease income, net..................................... $27,088 $32,045 $27,898 $27,620
Investment income on collection account............... 431 450 463 501
------- ------- ------- -------
Total revenues........................................ 27,519 32,495 28,361 28,121
------- ------- ------- -------
Expenses:
Interest expense...................................... 16,349 16,046 15,491 15,698
Depreciation expense.................................. 11,765 11,765 11,765 11,765
Operating expenses:
Service provider and other fees..................... 2,047 2,244 2,153 2,124
Maintenance and other aircraft related costs........ 1,072 1,926 2,448 (230)
------- ------- ------- -------
Total expenses........................................ 31,233 31,981 31,857 29,357
------- ------- ------- -------
Net (loss)/income....................................... $(3,714) $ 514 $(3,496) $(1,236)
======= ======= ======= =======

During the fourth quarter ended November 30, 1999, maintenance and other
aircraft related costs included the reversal of certain provisions made in the
previous quarter relating to maintenance costs that were subsequently paid by
the lessee.

F-17

MORGAN STANLEY AIRCRAFT FINANCE
CASH ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(1)
TWELVE MONTH PERIOD FROM DECEMBER 1999 TO NOVEMBER 2000

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

(1) This report was filed with the Securities and Exchange Commission on
Form 8-K on February 13, 2001. All information contained in it is as of
February 1, 2001.

A-1

CONTENTS

I BACKGROUND AND GENERAL INFORMATION

II(a) COMPARISON OF ACTUAL CASH FLOWS VERSUS THE 1998 BASE CASE FOR THE FOUR
MONTH PERIOD FROM DECEMBER 1999 TO MARCH 2000

II(b) COMPARISON OF ACTUAL CASH FLOWS VERSUS THE 2000 BASE CASE FOR THE EIGHT
MONTH PERIOD FROM APRIL 2000 TO NOVEMBER 2000

III OTHER FINANCIAL DATA

IV RECENT DEVELOPMENTS

V APPENDICES

A-2

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 as 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 as of
September 30, 1997 of $1,115.5 million from International Lease Finance
Corporation ("ILFC"). All but one of the 33 aircraft were acquired by MSAF with
an appraised value of $1,086.9 million as of September 30, 1997.

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, the
New 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"). 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 PORTFOLIO

As a result of the March 2000 acquisition, the overall size of MSAF's
combined aircraft fleet is now 61 aircraft plus an engine with a total appraised
value of $1,911.2 million as of September 30, 2000. As of February 1, 2001, MSAF
had 60 lease contracts in effect with 42 lessees based in 27 countries as shown
in Appendix A. Under one of the leases, the lessee has not yet taken delivery of
the aircraft. The aircraft, an A320-200, is due to be delivered to the lessee in
late February 2001.

MANAGEMENT DISCUSSION AND ANALYSIS

The discussion and analysis that follows in Section II and III is based on
the results of MSAF and its subsidiaries as a single entity (collectively the
"MSAF GROUP") for the reporting period December 1999 to November 2000.

Section II (a) covers the four month period, December 1999 to March 2000,
prior to the New Issuance and the aircraft acquisition on March 15, 2000 and
therefore relates to the Initial Portfolio of 32 aircraft plus an engine. The
cash flows over this four month period are compared against the 1998 Base Case.

For the purposes of this report, the "FOUR MONTH PERIOD", discussed in
Section II (a) shall comprise information from the monthly cash reports dated
December 15, 1999 to March 15, 2000. The financial data in this section includes
cash receipts from November 9, 1999 (first day of the Collection Period for the
December 2000 Report) up to March 9, 2000 (last day of the Collection Period for
the March 2000 Report). It also includes payments made by MSAF Group between
November 16, 1999 and up to March 15, 2000 (the Note Payment Date for the
March 2000 Report).

Section II (b) covers the eight month period, April 2000 to November 2000,
after the New Issuance and the aircraft acquisition on March 15, 2000 and
therefore relates to the Combined Portfolio of 61 aircraft plus an engine. The
cash flows over this eight month period are compared against the 2000 Base Case.

For the purposes of this report, the "EIGHT MONTH PERIOD", discussed in
Section II (b) shall comprise information from the monthly cash reports dated
April 15, 2000 to November 15, 2000. The financial data

A-3

in this section includes cash receipts from March 10, 2000 (first day of the
Collection Period for the April 2000 Report) up to November 9, 2000 (last day of
the Collection Period for the November 2000 Report). It also includes payments
made by MSAF Group between March 16, 2000 and up to November 15, 2000 (the Note
Payment Date for the November 2000 Report).

The discussion and analysis in Section IV--"Recent Developments" relates to
the Combined Portfolio 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 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. 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, (1) by the composition of its fleet in terms of mix, relative age and
popularity of aircraft type (2) operating restrictions imposed by the Indenture
and (3) the ability of other lessors, who may possess substantially greater
financial resources, to offer leases on more favorable terms than MSAF Group.

II(a) COMPARISON OF ACTUAL CASH FLOWS VERSUS THE 1998 BASE CASE FOR THE FOUR
MONTH PERIOD FROM DECEMBER 1999 TO MARCH 2000

The February 20, 1998 Offering Memorandum and the November 4, 1998
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 section, "NET CASH COLLECTIONS" is defined as Total
Cash Collections less Total Cash Expenses, Drawings from and Transfers to
Expense Account, Interest Payments, Swap Payments and Exceptional Items. A
discussion of the Cash Collections, Cash Expenses, Drawings from and Transfers
to Expense Account, Interest Payments, Swap Payments, Exceptional Items and
Principal Payments is given below and should be read in conjunction with the
analysis in Appendix B.

CASH COLLECTIONS

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

ACTUAL BASE CASE VARIANCE
CASH COLLECTIONS $ MM $ MM $ MM
- ---------------- -------- --------- --------

Lease Rentals............................................... 44.2 44.2 --
-- Renegotiated Leases.................................... (0.9) -- (0.9)
-- Rental Resets.......................................... (0.1) -- (0.1)
---- ---- ----
CONTRACTED LEASE RENTALS.................................... 43.2 44.2 (1.0)
Movement in Current Arrears Balance......................... (0.2) -- (0.2)
Net Stress-related Costs.................................... (4.4) (2.0) (2.4)
---- ---- ----
NET LEASE RENTALS........................................... 38.6 42.2 (3.6)
Interest Earned............................................. 0.7 0.5 0.2
Net Maintenance............................................. (2.1) -- (2.1)
---- ---- ----
TOTAL CASH COLLECTIONS...................................... 37.2 42.7 (5.5)
==== ==== ====

A-4

In the Four Month Period, MSAF Group generated approximately $37.2 million
in Total Cash Collections, $5.5 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 Four Month Period, the amount of revenue loss attributed to
Renegotiated Leases was $0.9 million. This is mainly 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. During the Four Month
Period, no new leases were written, however, lost revenue attributable to leases
that had rental resets prior to the Four Month Period amounted to $0.1 million.

[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 Four Month Period, Contracted
Lease Rentals were $43.2 million, $1.0 million less than assumed in the 1998
Base Case. The difference is due to losses from Renegotiated Leases and Rental
Resets as discussed above in line items [2] and [3].

[5] MOVEMENT IN CURRENT ARREARS BALANCE

Current Arrears refers to 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 Four Month Period was
$3.0 million versus $3.2 million at the end of the Four Month Period, an
increase of $0.2 million.

CURRENT CURRENT MOVEMENT SECURITY
ARREARS ARREARS IN CURRENT DEPOSITS
11/15/99 3/15/00 ARREARS HELD
AIRCRAFT TYPE COUNTRY $ MM $ MM $ MM $ MM
- ------------- -------- -------- -------- ---------- --------

A310-300........................................ Brazil 0.6 0.7 0.1 --
A310-300........................................ Oman 0.1 -- (0.1) --
A320-200........................................ Canada -- 0.5 0.5 0.3
A320-200........................................ Ireland 0.3 0.3 0.0 0.5
A321-100........................................ Turkey 0.6 1.2 0.6 0.7
B737-300........................................ Brazil 0.9 0.5 (0.4) 0.7
B737-400........................................ Mexico* 0.5 -- (0.5) --
--- ---- ---- ---
TOTAL........................................... 3.0 3.2 0.2 2.2
=== ==== ==== ===

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

* Re-classified as Bad Debts during January 2000

As at November 15, 1999, six lessees were in arrears, owing $3.0 million,
against which MSAF Group held security deposits of $2.9 million. One of the six
lessees, TAESA, based in Mexico, defaulted during the Four Month Period and the
aircraft was repossessed. Rental arrears amounting to $0.5 million associated

A-5

with this lessee at the time of repossession were deemed irrecoverable and
reclassified from Current Arrears to Bad Debts. Additional analysis of this Bad
Debt is provided below in line item [6].

As of the Noteholders Report on March 15, 2000, five lessees were in
arrears, owing $3.2 million, against which MSAF Group held security deposits of
$2.2 million.

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.

ACTUAL BASE CASE VARIANCE
NET STRESS-RELATED COSTS $ MM $ MM $ MM
- ------------------------ -------- --------- --------

Bad Debts................................................... (0.5)
Security Deposits Drawn Down................................ 0.5
Restructured Arrears........................................ --
AOG......................................................... (5.4)
Other Leasing Income........................................ 1.1
Repossession Costs.......................................... (0.1)
---- ---- ----
NET STRESS-RELATED COSTS.................................... (4.4) (2.0) (2.4)
==== ==== ====

For the Four Month Period, Net Stress-related Costs amounted to
$4.4 million (12.2% of Contracted Lease Rentals) compared to $2.0 million
assumed in the 1998 Base Case, a variance of $2.4 million. A detailed analysis
of Net Stress-related Costs is provided below in line items [6] to [11].

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

Bad Debts refers to 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 lessees. In the Four Month Period, rental arrears associated with one
lessee were deemed irrecoverable and classified as Bad Debts.

SECURITY TOTAL
BAD DEBTS BAD DEBTS DEPOSITS LOST
RENTAL RECOVERED DRAWN RENTAL
AIRCRAFT TYPE LESSEE COUNTRY $ MM $ MM $ MM $ MM
- ------------- --------- -------- --------- --------- -------- --------

B737-400.............................. TAESA Mexico (0.5) 0.0 0.5 0.0
---- ---- ---- ----
TOTAL................................. (0.5) 0.0 0.5 0.0
==== ==== ==== ====

During the Four Month Period, $0.5 million was written off in respect of
lease rental due from a former lessee, TAESA, based in Mexico, against which
MSAF Group drew down a security deposit of $0.5 million.

[8] RESTRUCTURED ARREARS

Restructured Arrears refers to current arrears that have been capitalized
and restructured into a note payable, which is repaid over an agreed period.
There were no losses from Restructured Arrears in the Four Month Period.

A-6

[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. The impact of AOG downtime amounted to lost
rental of $5.4 million during the Four Month Period. This was in respect of four
aircraft:

AOG ANALYSIS FOR THE FOUR MONTH PERIOD

OLD TERMINATION LOST RENTAL
AIRCRAFT TYPE LESSEE NEW LESSEE TYPE $ MM
------------- --------- --------------------- ------------ -----------

1 A310-300........................ Oman Air Region Air Scheduled 0.8
2 A310-300........................ Oman Air Region Air Scheduled 0.8
3 B737-400........................ TAESA Travel Service Unscheduled 0.6
4 B747-300........................ VARIG Air Atlanta Icelandic Unscheduled 3.2
---
TOTAL........................... 5.4
===

[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, default interest or payment for
excess flight hours flown. In the Four Month Period, Other Leasing Income
amounted to $1.1 million.

[11] REPOSSESSION COSTS

Repossession Costs consists of legal and aircraft technical costs incurred
as a result of repossessing an aircraft. In the Four Month Period, Repossession
Costs amounted to $0.1 million, which primarily related to consultancy and legal
fees incurred during the repossession of the B737-400 previously on lease to
TAESA and the repossession of the B747-300 previously on lease to VARIG.

[13] NET LEASE RENTALS

Net Lease Rentals is Contracted Lease Rentals plus the Movement in Current
Arrears Balance less Net Stress-related Costs. In the Four Month Period, Net
Lease Rentals amounted to $38.6 million, $3.6 million less than assumed in the
1998 Base Case. The variance was primarily attributable to the lost rental from
AOG downtime, which is discussed above in line item [9].

[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 Four
Month Period 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. In the Four Month Period, Interest Earned amounted to
$0.7 million, $0.2 million more than assumed in the 1998 Base Case. The
difference was due primarily to interest earned on the intra-month cash balances
in the Collection and Expense Account. The 1998 Base Case made no assumption as
to the interest earned on these balances.

[15] NET MAINTENANCE

Net Maintenance refers to maintenance receipts less any maintenance
reimbursements paid to lessees. In the Four Month Period, actual maintenance
receipts amounted to $3.9 million while maintenance expenditure amounted to
$6.0 million, generating negative Net Maintenance of $2.1 million.

A-7

Maintenance expenditure included costs incurred in the

- overhaul of a B757-200ER repossessed from Guyana Airways ($3.6 million)

- reimbursement from airframe reserves of $0.9 million in respect of a
B767-300ER in accordance with a lease restructuring

- reimbursement from the engine reserves of $1.5 million in respect of a
B737-400 previously on lease to TAESA.

The 1998 Base Case made no assumption for Net Maintenance as it assumed
that, over time, maintenance receipts would equal maintenance expenditure.
However, it is unlikely that in any particular Note Payment Period, maintenance
receipts would exactly equal maintenance expenditure.

CASH EXPENSES

"Total Cash Expenses" includes Aircraft Operating Expenses and Selling,
General and Administrative ("SG&A") Expenses. In the Four Month Period, Total
Cash Expenses were $2.2 million, resulting in a $2.3 million positive variance
against the 1998 Base Case, which assumed total cash expenses of $4.5 million.

ACTUAL BASE CASE VARIANCE
CASH EXPENSES $ MM $ MM $ MM
- ------------- -------- --------- --------

Aircraft Operating Expenses........................ (0.1) (1.5) 1.4
SG&A Expenses...................................... (2.1) (3.0) 0.9
---- ---- ---
TOTAL CASH EXPENSES................................ (2.2) (4.5) 2.3
==== ==== ===

AIRCRAFT OPERATING EXPENSES includes all operational costs related to the
leasing of an aircraft including costs of insurance, re-leasing and other
overhead costs. In the Four Month Period, Aircraft Operating Expenses amounted
to $0.1 million, $1.4 million less than the 1998 Base Case, which assumed these
costs to be 3.5% of the 1998 Base Case Lease Rentals. The variance is discussed
below in line items [17] to [18].

[17] INSURANCE

No insurance costs were incurred in the Four Month Period.

[18] RE-LEASING AND OTHER OVERHEAD COSTS

Re-leasing and other overhead costs consists of miscellaneous re-delivery
and leasing costs associated with re-leasing events. In the Four Month Period
these costs amounted to $0.1 million, mainly relating to costs incurred in the
re-leasing of two A310-300s, previously on lease to Oman Air.

SG&A EXPENSES relates to fees paid to the Aircraft Servicer and to other
service providers. In the Four Month Period, SG&A Expenses were $2.1 million,
$0.9 million lower than assumed in the 1998 Base Case. The variance is described
below in line items [20] and [21].

[20] AIRCRAFT SERVICER FEES

Aircraft Servicer Fees is defined as amounts paid to the Aircraft Servicer,
ILFC, in accordance with the terms of the Servicing Agreement. In the Four Month
Period, total Aircraft Servicer Fees paid was $1.4 million, $0.5 million less
than the 1998 Base Case assumptions, reflecting lower actual rentals achieved
and high AOG downtime.

A-8

Aircraft Servicer Fees consist of:

$ MM
--------

Base Fee.................................................... 0.6
Rent Collected Fee.......................................... 0.4
Rent Contracted Fee......................................... 0.4
Incentive Fee *............................................. 0.0
---
TOTAL SERVICER FEE.......................................... 1.4
===

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

* FOR FINANCIAL YEAR ENDED NOVEMBER 30, 2000

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 1.0% of all
rentals contracted in the current calendar month. The Rent Collected Fee is
equal to approximately 1.0% of all rentals received during the previous calendar
month. The Incentive Fee applies to the Initial Portfolio only and is set at 10%
of all cash flow received above a targeted annual amount set in the Operating
Budget at the beginning of each financial year. No Incentive Fee was payable to
ILFC in the Four Month Period for the financial year ended November 2000.

[21] OTHER SERVICER FEES

Other Servicer Fees relates to fees and expenses paid to other service
providers including the Administrative Agent, Financial Advisor, legal advisors,
accountants and Independent Trustees. In the Four Month Period, Other Servicer
Fees amounted to $0.7 million as compared to an assumed expense of $1.1 million
in the 1998 Base Case, a positive variance of $0.4 million.

NET CASH COLLECTIONS

"Net Cash Collections" equals Total Cash Collections less Total Cash
Expenses, Drawings from and Transfers to Expense Account, Interest Payments,
Swap Payments and Exceptional Items.

ACTUAL BASE CASE VARIANCE
NET CASH COLLECTIONS $ MM $ MM $ MM
- -------------------- -------- --------- --------

Total Cash Collections...................................... 37.2 42.7 (5.5)
Total Cash Expenses......................................... (2.2) (4.5) 2.3
Drawings from Expense Account............................... 6.4 -- 6.4
Transfers to Expense Account................................ (8.6) -- (8.6)
Interest Payments........................................... (20.6) (20.4) (0.2)
Swap Payments............................................... (0.9) (1.3) 0.4
Exceptional Items........................................... -- -- --
----- ----- ----
NET CASH COLLECTIONS........................................ 11.3 16.5 (5.2)
===== ===== ====

[23] TOTAL CASH COLLECTIONS

As discussed in line items [2] to [15], MSAF Group generated approximately
$37.2 million in Total Cash Collections, $5.5 million less than assumed in the
1998 Base Case.

[24] TOTAL CASH EXPENSES

As discussed in line items [17] to [21], MSAF Group incurred approximately
$2.2 million in Total Cash Expenses, $2.3 million lower than assumed in the 1998
Base Case.

A-9

[25] DRAWINGS FROM EXPENSE ACCOUNT

The Expense Account contains cash set aside each month from current cash
collections to pay for expenses which are expected to be payable over the next
three months. The Administrative Agent determines the level of cash set aside
each month. In the Four Month Period, $6.4 million was drawn from the Expense
account to pay for expenses incurred and which were payable during the period.
The 1998 Base Case made no assumption as to the level of these Drawings.

[26] TRANSFERS TO EXPENSE ACCOUNT

Transfers to the Expense Account represents the level of cash set aside each
month to pay for expenses which are expected to be payable over the next three
months. During the Four Month Period, $8.6 million was transferred to the
Expense Account. As at March 15, 2000, the closing balance in the Expense
Account was $5.8 million.

[27] INTEREST PAYMENTS AND [28] SWAP PAYMENTS

In the Four Month Period, Interest Payments to Noteholders amounted to
$20.6 million. This was $0.2 million higher than the 1998 Base Case, which
assumed Interest Payments to be $20.4 million. While the total debt balance
outstanding during the Four Month Period was lower than expected in the 1998
Base Case, Interest Payments rose due to a higher than assumed average LIBOR.
The average LIBOR for the Four Month Period was 5.88% versus an assumed LIBOR of
5.75%.

The higher Interest Payments were offset by a reduction in the amount of
Swap Payments. MSAF Group paid $0.9 million in Swap Payments, $0.4 million less
than assumed in the 1998 Base Case.

[29] EXCEPTIONAL ITEMS

Exceptional Items refers to cash flows that occur infrequently and are
outside the normal business activities of MSAF Group. There were no exceptional
cash flows in the Four Month Period.

[31] PRINCIPAL PAYMENTS

In the Four Month Period, total Principal Payments to Noteholders amounted
to $11.3 million, $5.2 million lower than assumed in the 1998 Base Case. This
reflects the lower Net Cash Collections available during the Four Month Period,
mainly as a result of the lower than expected lease revenue performance.

II(b) COMPARISON OF ACTUAL CASH FLOWS VERSUS THE 2000 BASE CASE FOR THE EIGHT
MONTH PERIOD FROM APRIL 2000 TO NOVEMBER 2000

The March 8, 2000 Offering Memorandum and the October 31, 2000 Prospectus
for the New Notes contain assumptions in respect of MSAF Group's future cash
flows and cash expenses (the "2000 BASE CASE"). For the purpose of this report,
"NET CASH COLLECTIONS" is defined as Total Cash Collections less Total Cash
Expenses, Drawings from and Transfers to Expense Account, Interest Payments,
Swap Payments and Exceptional Items. A discussion of the Cash Collections, Cash
Expenses, Drawings from and Transfers to Expense Account, Interest Payments,
Swap Payments, Exceptional Items and Principal Payments is given below and
should be read in conjunction with the analysis in Appendix C.

A-10

CASH COLLECTIONS

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

ACTUAL BASE CASE VARIANCE
CASH COLLECTIONS $ MM $ MM $ MM
- ---------------- -------- --------- --------

Lease Rentals............................................... 160.7 160.7 --
--Renegotiated Leases..................................... -- -- --
--Rental Resets........................................... (0.1) -- (0.1)
----- ----- ----
CONTRACTED LEASE RENTALS.................................... 160.6 160.7 (0.1)

Movement in Current Arrears Balance......................... (0.7) -- (0.7)
Net Stress-related Costs.................................... 3.3 (7.3) 10.6
----- ----- ----
NET LEASE RENTALS........................................... 163.2 153.4 9.8

Interest Earned............................................. 2.8 1.7 1.1
Net Maintenance............................................. (0.5) -- (0.5)
----- ----- ----

TOTAL CASH COLLECTIONS...................................... 165.5 155.1 10.4
===== ===== ====

In the Eight Month Period, MSAF Group generated approximately
$165.5 million in Total Cash Collections, $10.4 million more than assumed in the
2000 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 C).

[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. During the Eight Month Period, one lease was renegotiated,
resulting in a small decrease in the present value of the rental cash flows over
the lease term. The new rental was agreed in exchange for an extension of the
lease term.

[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 2000 Base Case. During the Eight Month
Period, one lease was extended on a power by hour basis, which resulted in lost
rental of $0.1 million when compared against the 2000 Base Case assumptions for
this aircraft. See Section IV--"Recent Developments" for a discussion of current
re-leasing events as of February 1, 2001.

[4] CONTRACTED LEASE RENTALS

Contracted Lease Rentals represents the current contracted lease rental
rollout which equates to the 2000 Base Case Lease Rentals less adjustments for
Renegotiated Leases and Rental Resets. For the Eight Month Period, Contracted
Lease Rentals were $160.6 million, slightly lower than assumed in the 2000 Base
Case.

[5] MOVEMENT IN CURRENT ARREARS BALANCE

Current Arrears refers to the total Contracted Lease Rentals outstanding
from current lessees at a given date and excludes any amounts classified as Bad
Debts. Movement in Current Arrears Balance measures the difference in arrears
balances between the start of the 2000 Base Case, March 15, 2000, and

A-11

November 15, 2000. For the purposes of the 2000 Base Case only, Current Arrears
Balance at the New Issuance date (March 15, 2000) was assumed to be nil. Actual
Current Arrears were $3.2 million as of March 15, 2000 and these pertain to the
Initial Portfolio only. Actual Current Arrears as of November 15, 2000 were
$0.7 million and relate to the Combined Portfolio.

CURRENT CURRENT MOVEMENT SECURITY
ARREARS ARREARS IN CURRENT DEPOSITS
3/15/00 11/15/00 ARREARS HELD
AIRCRAFT TYPE COUNTRY $ MM $ MM $ MM $ MM
- ------------- -------- -------- -------- ---------- --------

A321-100......................................... Turkey 0.0 0.7 0.7 0.7
--- --- --- ---
TOTAL............................................ 0.0 0.7 0.7 0.7
=== === === ===

As of the Noteholders Report on November 15, 2000, one lessee was in
arrears, owing $0.7 million, against which MSAF Group held security deposits of
$0.7 million. See Section IV--"Recent Developments" for a discussion of the
total Current Arrears as of February 1, 2001.

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
2000 Base Case assumes Net Stress-related Costs equal to 4.5% of the 2000 Base
Case Lease Rentals.

ACTUAL BASE CASE VARIANCE
NET STRESS-RELATED COSTS $ MM $ MM $ MM
- ------------------------ -------- --------- --------

Bad Debts................................................... (1.8)
Security Deposits Drawn Down................................ 1.1
Restructured Arrears........................................ --
AOG......................................................... (4.7)
Other Leasing Income........................................ 9.1
Repossession Costs.......................................... (0.4)
---- ---- ----
NET STRESS-RELATED COSTS.................................... 3.3 (7.3) 10.6
==== ==== ====

For the Eight Month Period, Net Stress-related Costs amounted to income of
$3.3 million, $10.6 million greater than the 2000 Base Case. A detailed analysis
of Net Stress-related Costs is provided below in line items [6] to [11].

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

Bad Debts refers to 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 lessees. In the Eight Month Period, rental arrears associated with two
lessees were deemed irrecoverable and classified as Bad Debts.

One of the two lessees based in Brazil, B.R.A., defaulted on its obligations
under its lease of an A310-300 and the aircraft was repossessed in May, 2000.
The lease was scheduled to expire in July 2007. Rental arrears, associated with
the lessee, at the time of repossession amounted to $1.3 million and were
re-classified from Current Arrears to Bad Debts during the Eight Month Period.
There was no security deposit held by MSAF Group to offset against the arrears
balance.

A second Brazilian lessee, VASP, defaulted on its obligations under its
lease of a B737-300 and the aircraft was repossessed in May, 2000, following
legal proceedings against VASP. The lease was scheduled to expire in
March 2003. Rental arrears, associated with the lessee, at the time of
repossession amounted to $0.5 million and were re-classified from Current
Arrears to Bad Debts during the Eight Month Period.

A-12

A security deposit of $0.7 million, held by MSAF Group, was drawn down against
this lessee, covering the arrears and a portion of the expenditure incurred in
returning the aircraft to a deliverable condition.

[8] RESTRUCTURED ARREARS

[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. The impact of AOG downtime amounted to lost
rental of $4.7 million during the Eight Month Period. This was in respect of six
aircraft:

AOG ANALYSIS FOR THE EIGHT MONTH PERIOD

TERMINATION LOST RENTAL
AIRCRAFT TYPE OLD LESSEE NEW LESSEE TYPE $MM
------------- ---------- -------------- ------------ -----------

1 A310-300 B.R.A. Region Air Unscheduled 1.8
2 A310-300 Oman Air Region Air Scheduled 0.2
3 A320-200 TransAer Cyprus Airways Unscheduled 0.3
4 A320-200 TransAer -- Unscheduled 0.3
5 B737-300 VASP -- Unscheduled 1.4
6 B737-400 TAESA Travel Service Unscheduled 0.7
---
TOTAL 4.7
===

See Section IV--"Recent Developments" for an analysis of AOG as of
February 1, 2001.

[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, default interest or payment for
excess flight hours flown. In the Eight Month Period, Other Leasing Income
amounted to $9.1 million. This primarily relates to

- $4.2 million received in respect of an insurance claim submitted for the
maintenance work, repairs and services required to reconstruct the
technical records following repossession of a B757-200ER from Guyana
Airways

- $3.0 million received in connection with MSAF's original purchase of an
A340-300

- $1.0 million received in connection with MSAF's original purchase of an
A330-300.

- $0.6 million received for excess flight hours flown by four aircraft on
lease to four different lessees

- $0.3 million received from a lessee in respect of the fee payable upon
exercise of an early termination option

[11] REPOSSESSION COSTS

Repossession Costs consists of legal and aircraft technical costs incurred
as a result of repossessing an aircraft. In the Eight Month Period, Repossession
Costs amounted to $0.4 million, which primarily related to consultancy and legal
fees incurred during the repossession of the A310-300 previously on lease to
B.R.A., the B737-400 previously on lease to TAESA and the B737-300 previously on
lease to VASP.

A-13

[13] NET LEASE RENTALS

Net Lease Rentals is Contracted Lease Rentals plus the Movement in Current
Arrears Balance less Net Stress-related Costs. In the Eight Month Period, Net
Lease Rentals amounted to $163.2 million, $9.8 million greater than assumed in
the 2000 Base Case. The variance was primarily attributable to the increase in
Other Leasing Income, which is discussed above in line item [10].

[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
Eight Month Period consisted of the cash liquidity reserve amount of
$30.0 million, lessee Security Deposits of $19.2 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 interest rate for the Eight Month Period was 6.35%, versus the interest
rate of 5.77% assumed in the 2000 Base Case. In the Eight Month Period, Interest
Earned amounted to $2.8 million, $1.1 million more than assumed in the 2000 Base
Case. The difference was due primarily to a higher interest rate and interest
earned on Other Leasing Income received during the Eight Month Period.

[15] NET MAINTENANCE

Net Maintenance refers to maintenance receipts less any maintenance
reimbursements paid to lessees. In the Eight Month Period, actual maintenance
receipts amounted to $19.3 million while maintenance expenditure amounted to
$19.8 million, generating negative Net Maintenance of $0.5 million.

The 2000 Base Case makes no assumptions for Net Maintenance as it assumes
that, over time, maintenance receipts will equal maintenance expenditure.
However, it is unlikely that in any particular Note Payment Period, maintenance
receipts will exactly equal maintenance expenditure.

CASH EXPENSES

"Total Cash Expenses" includes Aircraft Operating Expenses and SG&A
Expenses. In the Eight Month Period, Total Cash Expenses were $8.3 million,
$0.2 million greater than assumed in the 2000 Base Case, which assumes these
costs to be 5.0% of the 2000 Base Case Lease Rentals.

ACTUAL BASE CASE VARIANCE
CASH EXPENSES $ MM $ MM $ MM
- ------------- -------- --------- --------

Aircraft Operating Expenses........................ (0.8) (1.3) 0.5
SG&A Expenses...................................... (7.5) (6.8) (0.7)
---- ---- ----
TOTAL CASH EXPENSES................................ (8.3) (8.1) (0.2)
==== ==== ====

AIRCRAFT OPERATING EXPENSES includes all operational costs related to the
leasing of an aircraft including costs of insurance, re-leasing and other
overhead costs. In the Eight Month Period, Aircraft Operating Expenses amounted
to $0.8 million, $0.5 million less than the 2000 Base Case, which assumes these
costs to be 0.8% of the 2000 Base Case Lease Rentals. The variance is discussed
below in line items [17] to [18].

[17] INSURANCE

Insurance costs of $0.6 million were incurred in the Eight Month Period and
related to the payment of the premium in respect of the aircraft contingent
insurance program.

A-14

[18] RE-LEASING AND OTHER OVERHEAD COSTS

Re-leasing and other overhead costs consists of miscellaneous re-delivery
and leasing costs associated with re-leasing events. In the Eight Month Period
these costs amounted to $0.2 million.

SG&A EXPENSES relates to fees paid to the Aircraft Servicer and to other
service providers. In the Eight Month Period, SG&A Expenses were $7.5 million,
$0.7 million greater than assumed in the 2000 Base Case. The variance is
described below in line items [20] and [21].

[20] AIRCRAFT SERVICER FEES

Aircraft Servicer Fees is defined as amounts paid to the Aircraft Servicer,
ILFC, in accordance with the terms of the Servicing Agreement. In the Eight
Month Period, the total Aircraft Servicer Fees paid was $5.5 million, slightly
lower than the 2000 Base Case assumptions. Aircraft Servicer Fees consist of:

$ MM
--------

Base Fee.................................................... 2.0
Rent Collected Fee.......................................... 1.9
Rent Contracted Fee......................................... 1.6
Incentive Fee 1999/2000*.................................... 0.0
---
TOTAL SERVICER FEE.......................................... 5.5
===

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

* FOR FINANCIAL YEAR ENDED NOVEMBER 30, 2000

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 in the current calendar month. The Rent Collected Fee is
equal to approximately 1.25% of all rentals received during the previous
calendar month. The Incentive Fee applies to the Initial Portfolio only and is
set at 10% of all cash flow received above a targeted annual amount set in the
Operating Budget at the beginning of each financial year. No Incentive Fee was
payable to ILFC in the Eight Month Period for the financial year ended
November 2000.

[21] OTHER SERVICER FEES

Other Servicer Fees relates to fees and expenses paid to other service
providers including the Administrative Agent, Financial Advisor, legal advisors,
accountants and Independent Trustees. In the Eight Month Period, Other Servicer
Fees amounted to $2.0 million as compared to an assumed expense of $1.2 million
in the 2000 Base Case, a negative variance of $0.8 million.

NET CASH COLLECTIONS

"Net Cash Collections" equals Total Cash Collections less Total Cash
Expenses, Drawings from and Transfers to Expense Account, Interest Payments,
Swap Payments and Exceptional Items.

ACTUAL BASE CASE VARIANCE
NET CASH COLLECTIONS $ MM $ MM $ MM
- -------------------- -------- --------- --------

Total Cash Collections...................................... 165.5 155.1 10.4
Total Cash Expenses......................................... (8.3) (8.1) (0.2)
Drawings from Expense Account............................... 22.5 -- 22.5
Transfers to Expense Account................................ (27.7) -- (27.7)
Interest Payments........................................... (88.1) (82.8) (5.3)
Swap Payments............................................... (2.0) (6.8) 4.8
Exceptional Items........................................... -- -- --
----- ----- -----
NET CASH COLLECTIONS........................................ 61.9 57.4 4.5
===== ===== =====

A-15

[23] TOTAL CASH COLLECTIONS

As discussed in line items [2] to [15], MSAF Group generated approximately
$165.5 million in Total Cash Collections, $10.4 million more than assumed in the
2000 Base Case.

[24] TOTAL CASH EXPENSES

As discussed in line items [17] to [21], MSAF Group incurred approximately
$8.3 million in Total Cash Expenses, $0.2 million higher than assumed in the
2000 Base Case.

[25] DRAWINGS FROM EXPENSE ACCOUNT

The Expense Account contains cash set aside each month from current cash
collections to pay for expenses which are expected to be payable over the next
three months. The Administrative Agent determines the level of cash set aside
each month. In the Eight Month Period, $22.5 million was drawn from the Expense
account to pay expenses incurred and which were payable during the period. The
2000 Base Case makes no assumption as to the level of these Drawings.

[26] TRANSFERS TO EXPENSE ACCOUNT

Transfers to the Expense Account represents the level of cash set aside each
month to pay for expenses which are expected to be payable over the next three
months. During the Eight Month Period, $27.7 million was transferred to the
Expense Account. As at November 15, 2000, the closing balance on the Expense
Account was $11.0 million, which will be used to fund future cash expenses,
primarily maintenance costs.

[27] INTEREST PAYMENTS AND [28] SWAP PAYMENTS

In the Eight Month Period, Interest Payments to Noteholders amounted to
$88.1 million. This is $5.3 million higher than the 2000 Base Case, which
assumes Interest Payments for the Eight Month Period to be $82.8 million. The
higher Interest Payments are due to a higher than assumed average LIBOR. The
average LIBOR for the Eight Month Period was 6.47% versus an assumed LIBOR of
5.97%.

The higher Interest Payments were partially offset by a reduction in the
amount of Swap Payments. MSAF paid $2.0 million in Swap Payments, $4.8 million
less than assumed in the 2000 Base Case.

[29] EXCEPTIONAL ITEMS

Exceptional Items refers to cash flows that occur infrequently and are
outside the normal business activities of MSAF Group. There were no exceptional
cash flows in the Eight Month Period.

[31] PRINCIPAL PAYMENTS

In the Eight Month Period, total Principal Payments to Noteholders amounted
to $61.9 million, $4.5 million greater than assumed in the 2000 Base Case,
reflecting the higher Net Cash Collections available during this period, offset
by the increased cash balance held in the Expense Account to fund future cash
expenses.

III OTHER FINANCIAL DATA

Details of interest and debt coverage ratios and Loan-to-Value ratios
(LTV's) as of November 15, 2000 are shown in Appendix D.

A-16

CASH

Cash held at November 15, 2000 was $60.2 million. This included
$30.0 million representing the cash portion of the Liquidity Reserve Amount at
that time. This is a source of liquidity for, among other things, maintenance
obligations, operating expenses and contingent liabilities. The balance
consisted of $19.2 million in lessee security deposits and $11.0 million in
accrued expenses held in the Expense Account in respect of future cash expenses.

In addition to the $60.2 million cash balance held at November 15, 2000, the
Liquidity Reserve Amount also contained credit and liquidity facilities provided
by MSDW and ILFC aggregating to $70.0 million. Neither of these facilities was
drawn upon in the Eight Month Period.

AIRCRAFT VALUES

Under the terms of the Indenture, 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
Indenture Trustee no later than October 31 of each year. The aircraft appraisals
delivered to the Indenture Trustee on October 31, 2000 are shown in Appendix A.

A-D NOTE BALANCE

As of November 15, 2000, the aggregate amount of Class A-D Notes outstanding
was $1,772.4 million. This is $4.5 million less than the 2000 Base Case, which
assumes the aggregate amount of Class A-D Notes outstanding to be
$1,776.9 million.

IV RECENT DEVELOPMENTS

The following discussion refers to information pertaining to the portfolio
of 61 aircraft plus an engine which were owned by MSAF Group as of February 1,
2001.

RE-MARKETING TASK FOR COMBINED PORTFOLIO

As of February 1, 2001, two aircraft from a portfolio of 61 aircraft plus an
engine were off-lease. The Servicer is currently marketing the two aircraft, an
A320-300 and a B737-300.

SUMMARY

NO. OF AIRCRAFT
---------------

No. of Aircraft Assets subject to Lease Agreements.......... 60
No. of Aircraft Assets off-lease............................ 2
--
Total No. of Aircraft Assets................................ 62
--

No. of Leases scheduled to expire before December 31,
2001...................................................... 6
No. of Leases scheduled to expire in the year to December
31, 2002.................................................. 10
--
EQUALS Total Near-term re-marketing task.................... 16
--
Of which LOI signed......................................... 2
--

Under one of the leases, the lessee had not yet taken delivery of the
aircraft. The aircraft, an A320-200, was due to be delivered to the lessee in
late February 2001. Sixteen leases are scheduled to expire before December 31,
2002, of which two are subject to a non-binding letter of intent. The other
leases are not yet subject to non-binding letters of intent, but the Servicer is
currently negotiating lease extensions with three of the current lessees.

A-17

RE-MARKETING TASK: BY NUMBER OF AIRCRAFT

YEAR ENDING 2001 2002 2003 2004 2005 >2006 TOTAL
- ----------- -------- -------- -------- -------- -------- -------- --------

A300............................................... 1 1 2
A310............................................... 2 1 3
A320............................................... 2(-)* 2 1(+) 1 6
A321............................................... 1 1 2
A330............................................... 1 1
A340............................................... 1 1
B737............................................... 5(-) 3* 5 4 2 1 20
B747............................................... 1 1 2
B757............................................... 2 4 2 8
B767............................................... 1 2 1 1 1 6
F50................................................ 2 2
F70................................................ 1 2 3
MD82............................................... 1 1
MD83............................................... 1 1 1 1 4
Engine............................................. 1 1
--- -- -- -- -- -- --
TOTAL.............................................. 8 10 18 10 9 7 62
=== == == == == == ==

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

* INCLUDES AIRCRAFT CURRENTLY SUBJECT TO A NON-BINDING LETTER OF INTENT.

(-) INCLUDES AIRCRAFT CURRENTLY OFF-LEASE.

(+) INCLUDES AIRCRAFT THAT HAS NOT YET BEEN DELIVERED TO LESSEE.

RE-MARKETING TASK: BY APPRAISED VALUE*

YEAR ENDING 2001 2002 2003 2004 2005 >2006 TOTAL
- ----------- -------- -------- -------- -------- -------- -------- --------

A300........................................ 2.45% 2.27% 4.72%
A310........................................ 2.38% 1.42% 3.80%
A320........................................ 3.30% 3.07% 1.53% 1.47% 9.37%
A321........................................ 2.02% 2.04% 4.06%
A330........................................ 4.05% 4.05%
A340........................................ 4.77% 4.77%
B737........................................ 5.50% 3.57% 6.52% 4.80% 1.58% 1.44% 23.41%
B747........................................ 4.72% 2.24% 6.96%
B757........................................ 3.50% 7.30% 4.14% 14.94%
B767........................................ 2.96% 3.93% 2.98% 3.27% 3.32% 16.46%
F50......................................... 0.60% 0.60%
F70......................................... 0.62% 1.32% 1.94%
MD82........................................ 0.94% 0.94%
MD83........................................ 0.87% 0.92% 0.91% 0.97% 3.67%
Engine...................................... 0.31% 0.31%
---- ----- ----- ----- ----- ----- -----
TOTAL....................................... 9.67% 21.13% 27.09% 14.02% 14.48% 13.61% 100%
==== ===== ===== ===== ===== ===== =====

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

* APPRAISED VALUE AS OF SEPTEMBER 30, 2000

As of February 1, 2001, 55 leases, representing 86.39% of the portfolio by
appraised value as of September 30, 2000, were scheduled to expire before
December 31, 2005. As of February 1, 2001, the average remaining term to lease
expiry date, weighted by appraised value as of September 30, 2000 was

A-18

36 months. This would extend to 38 months if the two aircraft currently subject
to non-binding letters of intent were progressed to signed leases.

AIRCRAFT ON GROUND (AOG)

As of February 1, 2001, there were two aircraft on the ground:

AOG ANALYSIS FEBRUARY 1, 2001

AIRCRAFT TYPE OLD LESSEE STATUS EXPECTED DELIVERY DATE
- ------------- ---------- --------- ----------------------

A320-200..... TransAer Available n/a
B737-300..... VASP Available n/a

The lease in respect of the A320-200 aircraft with TransAer was terminated
in October 2000. TransAer had been operating this aircraft on wet lease to
Libyan Arab Airlines, which continues to detain the aircraft. MSAF believes that
Libyan Arab Airlines has no right to keep possession of the aircraft. The
Servicer has submitted an insurance claim for the loss of the aircraft, which is
currently pending. The Servicer also continues to explore recovery options
consistent with compliance with United States law. MSAF may incur significant
costs and time in resolving this matter. This aircraft represents 1.7% of the
portfolio by appraised value as of September 30, 2000

The B737-300 aircraft was repossessed from VASP in May 2000. The aircraft
cannot be released until it has been deregistered from the Brazilian registry.
As a result of VASP's non-cooperation in completing deregistration, a court
order is necessary to complete the process. This aircraft represents
approximately 1.0% of the portfolio by appraised value as of September 30, 2000.

LESSEE DIFFICULTIES

As of February 1, 2001, seven lessees were in arrears. The ten aircraft on
lease to these lessees represented 13.7% of the portfolio by appraised value as
of September 30, 2000. The total Current Arrears amount with respect to these
seven lessees was $6.4 million, of which $4.7 million related to rental payments
and $1.7 million related to maintenance reserves. MSAF Group held security
deposits of $4.8 million against these arrears. The Current Arrears amount
represented 2.0% of annual lease rental payments. The weighted average number of
days past due of such arrears was 61 days.

The categorization of countries into the geographical regions of Developed
Markets, Emerging Markets and Other is determined using Morgan Stanley Capital
International, Inc. ("MSCI") designations. A regional analysis of Current
Arrears as of February 1, 2001 is shown below.

% CURRENT SECURITY
APPRAISED NO. OF NO. OF NO. OF ARREARS DEPOSIT
REGION VALUE COUNTRIES AIRCRAFT LESSEES $ MM $ MM
------ --------- --------- -------- -------- -------- --------

Developed Europe............................. 0.3% 1 1 1 0.1 0.1
North America...................... 6.8% 1 5 2 2.4 2.6
Pacific............................ -- 0 0 0 0.0 0.0
Emerging Europe and Middle East............. 4.4% 3 3 3 2.9 1.6
Asia............................... -- 0 0 0 0.0 0.0
Latin America...................... -- 0 0 0 0.0 0.0
Other Other.............................. 2.2% 1 1 1 1.0 0.5
---- -- -- -- --- ---
TOTAL ARREARS...................... 13.7% 6 10 7 6.4 4.8
==== == == == === ===

A-19

EUROPE (DEVELOPED)

MSAF Group currently leases 23.1% of the portfolio by appraised value as of
September 30, 2000 in the Europe (Developed) region. One of the seven lessees
currently in arrears is based in this region.

As of February 1, 2001, KLM, a lessee based in the Netherlands, owed rental
arrears of $0.1 million in respect of an engine against which MSAF Group held a
security deposit of $0.1 million. This asset, a GE Engine, represents 0.3% of
the portfolio by appraised value as of September 30, 2000.

NORTH AMERICA (DEVELOPED)

MSAF Group currently leases 15.4% of the portfolio by appraised value as of
September 30, 2000 in the North America (Developed) region. Two of the seven
lessees currently in arrears are based in the North America region.

As of February 1, 2001, TWA, a lessee based in the U.S.A., owed rental
arrears of $1.3 million in respect of 4 aircraft against which MSAF Group held
security deposits of $2.0 million. On January 10, 2001, TWA announced that it
and certain of its subsidiaries had voluntarily filed petitions in the U.S.
District Court in Wilmington, Delaware for relief under Chapter 11 of the U.S.
Bankruptcy Code. TWA also announced that it had reached agreement with American
Airlines, Inc. ("American"), in which American would acquire substantially all
the assets of TWA. MSAF Group currently has 4 aircraft on lease to TWA, or
approximately 5.1% of the fleet by appraised value as of September 30, 2000. The
four aircraft are: one Boeing 757-200ER, two MD-83s and one MD-82. MSAF Group is
not yet aware as to whether TWA intends to affirm or reject some or all of these
leases in its bankruptcy proceeding or how the agreement between American and
TWA may impact these leases.

As of February 1, 2001, National Airlines, a lessee based in the U.S.A.,
owed rental arrears of $1.0 million against which MSAF Group held a security
deposit of $0.6 million. MSAF Group currently leases one B757-200 to National
Airlines, which represents 1.6% of the portfolio by appraised value as of
September 30, 2000. On December 6, 2000, National Airlines announced that it had
voluntarily filed petitions in the U.S. District Court in Wilmington, Delaware
for relief under Chapter 11 of the U.S. Bankruptcy Code. It is not yet clear
whether National Airlines will raise the necessary financing to continue
operations.

PACIFIC (DEVELOPED)

MSAF Group currently leases 13.1% of the portfolio by appraised value as of
September 30, 2000 in the Pacific (Developed) region. As of February 1, 2001,
none of these lessees were in arrears.

EUROPE AND MIDDLE EAST (EMERGING)

MSAF Group currently leases 7.7% of the portfolio by appraised value as of
September 30, 2000 in the Europe and Middle East (Emerging) region. Three of the
seven lessees in arrears are based in this region.

As of February 1, 2001, Air Alfa, a lessee based in Turkey, owed total
arrears of $2.3 million, of which $1.7 million related to rental payments and
$0.6 million related to maintenance reserves. MSAF Group held a security deposit
of $0.7 million against these arrears. The lessee is unable to cure its payment
defaults and as a result the Servicer has commenced repossession proceedings.
This aircraft, an A321-100, represents 2.0% of the portfolio by appraised value
as of September 30, 2000.

As of February 1, 2001, Travel Service, a lessee based in the Czech
Republic, owed maintenance arrears of $0.2 million, against which MSAF Group
held a security deposit of $0.5 million. This aircraft, a B737-400, represents
1.1% of the portfolio by appraised value as of September 30, 2000.

A-20

As of February 1, 2001, Olympic Airways, a lessee based in the Greece, owed
total arrears of $0.4 million, of which $0.3 million related to rental payments
and $0.1 million related to maintenance reserves. MSAF Group held a security
deposit of $0.5 million against these arrears. This aircraft, a B737-400,
represents 1.3% of the portfolio by appraised value as of September 30, 2000.

ASIA (EMERGING)

MSAF Group currently leases 15.9% of the portfolio by appraised value as of
September 30, 2000 in the Asia (Emerging) region. As of February 1, 2001, none
of the lessees in this region were in arrears.

LATIN AMERICA (EMERGING)

MSAF Group currently leases 5.0% of the portfolio in Latin America (all in
Mexico) by appraised value as of September 30, 2000. None of the lessees
currently in arrears are based in Latin America. However, arrears that were
categorized as Bad Debts during the Eight Month Period related to two aircraft
that were leased in Latin America. See "Bad Debts" below and Section II
(b)--"Comparison of Actual Cash Flows versus the 2000 Base Case for the Eight
Month Period from April 2000 to November 2000", line items [6] and [7] for a
discussion of these Bad Debts.

OTHER

MSAF Group currently leases 17.2% of the portfolio by appraised value as of
September 30, 2000 in the Other region. One of the seven lessees currently in
arrears is based in this region.

As of February 1, 2001, Air Atlanta Icelandic, a lessee based in Iceland,
owed total arrears of $1.0 million, of which $0.5 million related to rental
payment and $0.5 million related to maintenance reserves. MSAF Group held a
security deposit of $0.5 million against these arrears. The aircraft, a
B747-300, represents 2.2% of the portfolio by appraised value as of
September 30, 2000.

BAD DEBTS

With the exception of the Current Arrears of $6.4 million that was discussed
under Lessee Difficulties above, as of February 1, 2001 there were no other
arrears amounts due to be paid to the MSAF Group.

During the Eight Month Period, rental arrears associated with two lessees,
both based on Brazil, were deemed irrecoverable and classified as Bad Debts.

One of the lessees, B.R.A., defaulted on its obligations under its lease of
an A310-300 and the aircraft was repossessed in May 2000. The lease was
scheduled to expire in July 2007. Rental arrears, associated with the lessee, at
the time of repossession amounted to $1.3 million and were re-classified from
Current Arrears to Bad Debts during the Eight Month Period. There was no
security deposit held by MSAF Group to offset against the arrears balance.

The second lessee, VASP, defaulted on its obligations under its lease of a
B737-300 and the aircraft was repossessed in May 2000, following legal
proceedings against VASP. The lease was scheduled to expire in March 2003.
Rental arrears, associated with the lessee, at the time of repossession amounted
to $0.5 million and were re-classified from Current Arrears to Bad Debts during
the Eight Month Period. A security deposit of $0.7 million, held by MSAF Group,
was drawn down against this lessee, covering the arrears and a portion of the
expenditure incurred in returning the aircraft to a deliverable condition.

RESTRUCTURED ARREARS

A former Brazilian lessee, VARIG, negotiated an early termination of its
lease of a B747-300 aircraft in July 1999. The total amount of rental payments
and maintenance reserves due under this lease, at the date of the termination
agreement, was $4.8 million against which MSAF Group drew down a security

A-21

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. As of February 1, 2001, VARIG had made all payments
due under the note payable. This aircraft represents approximately 2.2% of the
portfolio by appraised value as of September 30, 2000.

In January 2000, TransAer, a lessee based in Ireland, restructured rental
and maintenance arrears for two A320-200 aircraft into a note payable of
$1.4 million. The terms of the restructuring agreement were that amounts
totaling $1.4 million would be repaid during June, July and August 2000. None of
these restructured arrears were paid. In October 2000, TransAer filed for
bankruptcy, with total arrears outstanding of $1.6 million at that date. MSAF
Group drew down security deposits of $1.0 million against these arrears. These
aircraft, both A320-200s, represent 3.2% of the portfolio by appraised value as
of September 30, 2000.

AIRWORTHINESS DIRECTIVE

The FAA issued an Airworthiness Directive (AD) in each of July and
August 2000 requiring special detailed inspections to detect cracking of the
main deck cargo door frames of Pemco-converted Boeing 737-200 and 737-300
freighters. The FAA is now considering a further AD to supersede the first two
ADs, the result of which may be a requirement to replace the main deck cargo
door frames. There are two aircraft in the portfolio, which may be subject to
the findings of the FAA, together representing 2.0% of the portfolio by
appraised value as of September 30, 2000. Under the lease of the first aircraft,
all costs of compliance with ADs are the obligation of the lessee. Under the
lease of the second aircraft, all costs of compliance of this potential AD are
to be shared by lessor and lessee. The lessee of the second aircraft has
completed all required changes in respect of this AD. The cost of the work was
less than $50,000.

On September 14, 2000, the United States Federal Aviation Administration
(FAA) announced a proposal for the long-term redesign of the Boeing 737 rudder
system and several short-term initiatives designed to enhance rudder safety on
all Boeing 737 models. The redesign would increase the overall safety of the
B737 by simplifying the rudder system and eliminating a range of both previously
known and recently discovered failure possibilities. It may be some time before
the FAA issues a formal AD. There are currently twenty B737s in the portfolio,
together representing 23.4% of the portfolio by appraised value as of
September 30, 2000. One of the twenty B737 aircraft is currently off-lease, but
under the remaining nineteen leases all costs of compliance with ADs are the
obligation of the lessees.

A-22

V APPENDICES

See attached sheets for details

A-23

APPENDIX A

PORTFOLIO ANALYSIS
AS OF FEBRUARY 1, 2001

ENGINE SERIAL DATE OF
REGION(1) COUNTRY LESSEE TYPE CONFIGURATION NUMBER MANUFACTURER
--------- -------------- ---------------------- ------------ ---------------- -------- -------------

1 Europe France Air Liberte MD-83 PW 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 Netherlands KLM Engine CF6-80C2-B6F 704279 Jul-95
5 Netherlands KLM Cityhopper F50 PW100-125B 20232 Oct-91
6 Netherlands KLM Cityhopper F50 PW100-125B 20233 Oct-91
7 Netherlands Transavia B737-300 CFM 56-3C1 27635 May-95
8 Norway Braathens B737-500 CFM 56-3B1 25165 Apr-93
9 Norway Braathens B737-500 CFM 56-3C1 26304 Sep-94
10 Spain Air Europa B737-400 CFM 56-3C1 24707 Jun-91
11 UK Air 2000 B757-200ER RB211-535-E4 23767 Apr-87
12 UK Air 2000 B767-300ER CF6-80C2-B6F 26256 Apr-93
13 UK Britannia Airways B757-200ER RB211-535-E4-37 26266 Jan-93
14 UK JMC Airlines A320-200 V2500-A1 393 Feb-93
15 UK JMC Airlines B757-200ER RB211-535-E4-37 24367 Feb-89
16 UK Monarch Airlines A320-200 CFM 56-5A3 446 Oct-93
--subtotal

17 North America Canada Air Canada A320-200 CFM 56-5A3 279 Feb-92
18 (Developed) Canada Canada 3000 A320-200 CFM 56-5A3 397 Mar-93
19 U.S.A. Alaska Airlines B737-400 CFM 56-3C1 25104 May-93
20 U.S.A. Alaska Airlines B737-400 CFM 56-3C1 25105 Jul-93
21 U.S.A. Continental Airlines B737-300 CFM 56-3B1 26309 Dec-94
22 U.S.A. National Airlines B757-200ER RB211-535-E4 24260 Dec-88
23 U.S.A. Southwest Airlines B737-300 CFM 56-3B1 23255 Jun-85
24 U.S.A. Southwest Airlines B737-300 CFM 56-3B2 23256 Jul-85
25 U.S.A. TWA B757-200ER PW 2037 28160 Jul-96
26 U.S.A. TWA MD-83 PW JT8D-219 49657 Apr-88
27 U.S.A. TWA MD-83 PW JT8D-219 49824 Mar-89
28 U.S.A. TWA MD-82 PW JT8D-217C 49825 Mar-89
--subtotal

29 Pacific Australia Ansett B767-200 CF6-80A 23807 Aug-87
30 (Developed) Hong Kong Cathay Pacific B747-400 RB211-525-H2-19 24955 Sep-91
31 New Zealand Air New Zealand B767-300ER CF6-80C2-B6 24875 Jun-91
32 Singapore Region Air A310-300 PW JT9D-7R4E1 409 Nov-85
33 Singapore Region Air A310-300 PW JT9D-7R4E1 410 Nov-85
34 Singapore Region Air A310-300 PW JT9D-7R4E1 437 Nov-86
--subtotal

35 Europe and Czech Republic Travel Service B737-400 CFM 56-3B2 24234 Oct-88
36 Middle East Greece Olympic Airways B737-400 CFM 56-3C1 25371 Jan-92
37 (Emerging) Hungary Malev F-70 TAY MK620-15 11564 Dec-95
38 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 CFM 56-3C1 26279 Feb-92
--subtotal

APPRAISED
VALUE AS OF
SEPT. 30, 2000 % OF
($'000) FLEET REGIONAL
-------------- -------- --------

1 16,707 0.9%
2 19,530 1.0%
3 77,318 4.0%
4 5,893 0.3%
5 5,715 0.3%
6 5,711 0.3%
7 27,504 1.4%
8 18,849 1.0%
9 20,464 1.1%
10 23,263 1.2%
11 27,392 1.4%
12 62,500 3.3%
13 39,490 2.1%
14 29,170 1.5%
15 30,714 1.6%
16 31,200 1.6%
23.1%
17 28,074 1.5%
18 29,538 1.5%
19 26,271 1.4%
20 26,144 1.4%
21 25,569 1.3%
22 30,979 1.6%
23 14,753 0.8%
24 15,374 0.8%
25 43,991 2.3%
26 17,297 0.9%
27 18,495 1.0%
28 17,969 0.9%
15.4%
29 31,208 1.6%
30 90,278 4.7%
31 56,575 3.0%
32 22,134 1.2%
33 23,356 1.2%
34 27,170 1.4%
13.1%
35 20,429 1.1%
36 24,455 1.3%
37 11,882 0.6%
38 12,651 0.7%
39 12,655 0.7%
40 39,062 2.0%
41 25,816 1.4%
7.7%

A-24

ENGINE SERIAL DATE OF
REGION(1) COUNTRY LESSEE TYPE CONFIGURATION NUMBER MANUFACTURER
--------- -------------- ---------------------- ------------ ---------------- -------- -------------

42 Asia China China Hainan B737-300 CFM 56-3C1 26295 Dec-93
43 (Emerging) South Korea Asiana Airlines B767-300ER CF6-80C2-B6F 24798 Oct-90
44 South Korea Asiana Airlines B767-300ER CF6-80C2-B6F 25132 Feb-92
45 South Korea Asiana Airlines B737-400 CFM 56-3C1 26291 Aug-93
46 South Korea Asiana Airlines B737-400 CFM 56-3C1 26308 Oct-94
47 Taiwan China Airlines A300-600R PW 4158 555 Mar-90
48 Taiwan China Airlines A300-600R PW 4158 625 Mar-92
49 Taiwan F.E.A.T. B757-200ER PW 2037 25044 May-91
--subtotal

50 Latin America Mexico AeroMexico B757-200ER PW 2037 26272 Mar-94
51 (Emerging) Mexico AeroMexico MD-83 PW JT8D-219 53050 May-90
52 Mexico Mexicana B757-200ER PW 2040 24965 Mar-92
--subtotal

53 Other Cyprus(2) Cyprus Airways A320-200 V2500-A1 414 May-93
54 Fiji Air Pacific B767-300ER CF6-80C2-B6 26260 Sep-94
55 Iceland Air Atlanta Icelandic B747-300B CF6-80C2 24106 Apr-88
56 Iceland Icelandair B737-300F CFM 56-3B2 23811 Oct-87
57 Lithuania Lithuanian Airlines B737-300 CFM 56-3B2 24449 Apr-90
58 Macau Air Macau A321-100 V2530-A5 557 Dec-95
59 Malta Air Malta B737-300 CFM 56-3B2 25161 Feb-92
60 Mauritius Air Mauritius A340-300 CFM 56-5C3G 94 Mar-95
--subtotal

61 Available for lease AOG AOG A320-200 V2500-A1 428 May-94
62 AOG AOG B737-300 CFM 56-3B2 24299 Nov-88
--subtotal
Total.....

APPRAISED
VALUE AS OF
SEPT. 30, 2000 % OF
($'000) FLEET REGIONAL
-------------- -------- --------

42 24,340 1.3%
43 43,822 2.3%
44 56,994 3.0%
45 26,273 1.4%
46 26,402 1.4%
47 43,331 2.3%
48 46,916 2.5%
49 35,192 1.8%
15.9%
50 39,585 2.1%
51 17,633 0.9%
52 38,212 2.0%
5.0%
53 29,273 1.5%
54 63,435 3.3%
55 42,841 2.2%
56 19,513 1.0%
57 19,973 1.0%
58 38,514 2.0%
59 23,423 1.2%
60 91,100 4.8%
17.2%
61 31,873 1.7%
62 19,032 1.0%
2.7%
--------- ---- ----
1,911,224 100% 100%
========= ==== ====

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

(1) Regions are defined according to the Morgan Stanley Capital International
designations

(2) Aircraft has not yet been delivered to Cyrpus Airways

Number of aircraft on lease................................. 60
Number of aircraft off-lease................................ 2
-----
Total number of aircraft.................................... 62
=====
Number of lessees........................................... 42
Number of countries......................................... 27
Total developed............................................. 51.6%
Total emerging.............................................. 28.5%
Total other................................................. 17.2%
Total AOG................................................... 2.7%
-----
100.0%
=====

A-25

APPENDIX B

COMPARISON OF ACTUAL CASH FLOWS
VERSUS THE 1998 BASE CASE
FOR DECEMBER 1999 TO MARCH 2000

AMOUNTS IN MILLIONS OF
USD % OF 1998 BASE CASE
--------------------------- ---------------------------
ACTUAL BASE CASE VARIANCE ACTUAL BASE CASE VARIANCE
------ --------- -------- ------ --------- --------

CASH COLLECTIONS
[1] Lease Rentals............ 44.2 44.2 -- 100.0% 100.0% --
[2] --Renegotiated Leases.... (0.9) -- (0.9) -2.0% -- -2.0%
[3] --Rental Resets.......... (0.1) -- (0.1) -0.2% -- -0.2%
----- ----- ----- ----- ----- -----
CONTRACTED LEASE
[4] [1]...[3] RENTALS.................. 43.2 44.2 (1.0) 97.8% 100.0% -2.2%
Movement in Current
[5] Arrears Balance.......... (0.2) -- (0.2) -0.5% -- -0.5%
less Net Stress-related
Costs
[6] --Bad Debts.............. (0.5) -1.1%
--Security Deposits Drawn
[7] Down..................... 0.5 1.1%
[8] --Restructured Arrears... -- --
[9] --AOG.................... (5.4) -12.2%
[10] --Other Leasing Income... 1.1 2.5%
[11] --Repossession Costs..... (0.1) -0.2%
----- ----- ----- ----- ----- -----
[12] [6]...[11] sub-total................ (4.4) (2.0) (2.4) -9.9% -4.5% -5.4%
[13] [4]+[5]+[12] NET LEASE RENTALS........ 38.6 42.2 (3.6) 87.4% 95.5% -8.1%
[14] Interest Earned.......... 0.7 0.5 0.2 1.6% 1.1% 0.5%
Maintenance Receipts..... 3.9 -- 3.9 8.8% -- 8.8%
Maintenance Payments..... (6.0) -- (6.0) -13.6% -- -13.6%
----- ----- ----- ----- ----- -----
[15] Net Maintenance.......... (2.1) -- (2.1) -4.8% -- -4.8%
[16] [13]...[15] TOTAL CASH COLLECTIONS... 37.2 42.7 (5.5) 84.2% 96.6% -12.4%

CASH EXPENSES
Aircraft Operating
Expenses
[17] --Insurance.............. -- --
--Re-leasing and other
[18] overheads................ (0.1) -0.2%
----- ----- ----- ----- ----- -----
[19] [17]+[18] sub-total................ (0.1) (1.5) 1.4 -0.2% -3.5% 3.3%
SG&A Expenses
Aircraft Servicer Fees
--Base Fee............... (0.6) -1.4%
--Rent Collected Fee..... (0.4) -0.9%
--Rent Contracted Fee.... (0.4) -0.9%
--Incentive Fee.......... -- --
----- ----- ----- ----- ----- -----
[20] sub-total................ (1.4) (1.9) 0.5 -3.2% -4.2% 1.0%
Other Servicer Fees
--Cabot.................. (0.5) (0.6) 0.1 -1.1% -1.4% 0.3%
--Other Service
Providers................ (0.2) (0.5) 0.3 -0.5% -1.1% 0.6%
----- ----- ----- ----- ----- -----
[21] sub-total................ (0.7) (1.1) 0.4 -1.6% -2.5% 0.9%
[22] [19]...[21] TOTAL CASH EXPENSES...... (2.2) (4.5) 2.3 -5.0% -10.2% 5.2%

NET CASH COLLECTIONS
[23] [16] Total Cash Collections... 37.2 42.7 (5.5) 84.2% 96.6% -12.4%
[24] [22] Total Cash Expenses...... (2.2) (4.5) 2.3 -5.0% -10.2% 5.2%
Drawings from Expense
[25] Account.................. 6.4 -- 6.4 14.5% -- 14.5%
Transfers to Expense
[26] Account.................. (8.6) -- (8.6) -19.5% -- -19.5%
[27] Interest Payments........ (20.6) (20.4) (0.2) -46.6% -46.2% -0.4%
[28] Swap Payments............ (0.9) (1.3) 0.4 -2.0% -2.9% 0.9%
[29] Exceptional Items........ -- -- -- -- -- --
----- ----- ----- ----- ----- -----
[30] [23]...[29] TOTAL.................... 11.3 16.5 (5.2) 25.6% 37.3% -11.7%
===== ===== ===== ===== ===== =====
[31] PRINCIPAL PAYMENTS
subclass A1.............. -- -- -- -- -- --
subclass A2.............. 9.9 15.1 (5.2) 22.5% 34.2% -11.7%
subclass B1.............. 1.3 1.3 -- 2.9% 2.9% --
subclass C1.............. 0.1 0.1 -- 0.2% 0.2% --
subclass D1.............. -- -- -- -- -- --
----- ----- ----- ----- ----- -----
TOTAL.................... 11.3 16.5 (5.2) 25.6% 37.3% -11.7%
===== ===== ===== ===== ===== =====

A-26

APPENDIX C

COMPARISON OF ACTUAL CASH FLOWS
VERSUS THE 2000 BASE CASE
FROM APRIL 2000 TO NOVEMBER 2000

AMOUNTS IN
MILLIONS OF USD % OF 2000 BASE CASE
---------------------------- ---------------------------
ACTUAL BASE CASE VARIANCE ACTUAL BASE CASE VARIANCE
------- --------- -------- ------ --------- --------

CASH COLLECTIONS
[1] Lease Rentals 160.7 160.7 -- 100.0% 100.0% --
[2] --Renegotiated Leases -- -- -- -- -- --
[3] --Rental Resets (0.1) -- (0.1) -0.1% -- -0.1%
------- ------- ----- ----- ----- -----
[4] SIGMA [1]....[3] CONTRACTED LEASE RENTALS 160.6 160.7 (0.1) 99.9% 100.0% -0.1%
[5] Movement in Current
Arrears Balance (0.7) -- (0.7) -0.4% -- -0.4%
less Net Stress-related
Costs
[6] --Bad Debts (1.8) -1.1%
[7] --Security Deposits Drawn
Down 1.1 0.7%
[8] --Restructured Arrears -- --
[9] --AOG (4.7) -2.9%
[10] --Other Leasing Income 9.1 5.7%
[11] --Repossession Costs (0.4) -0.3%
------- ------- ----- ----- ----- -----
[12] SIGMA [6]....[11] sub-total 3.3 (7.3) 10.6 2.1% -4.5% 6.6%
[13] [4]+[5]+[12] NET LEASE RENTALS 163.2 153.4 9.8 101.6% 95.5% 6.1%
[14] Interest Earned 2.8 1.7 1.1 1.7% 1.1% 0.6%
Maintenance Receipts 19.3 -- 19.3 12.0% -- 12.0%
Maintenance Payments (19.8) -- (19.8) -12.3% -- -12.3%
------- ------- ----- ----- ----- -----
[15] Net Maintenance (0.5) -- (0.5) -0.3% -- -0.3%
[16] SIGMA [13]....[15] TOTAL CASH COLLECTIONS 165.5 155.1 10.4 103.0% 96.6% 6.4%

CASH EXPENSES
Aircraft Operating
Expenses
[17] --Insurance (0.6) -0.3%
[18] --Re-leasing and other
overheads (0.2) -0.2%
------- ------- ----- ----- ----- -----
[19] [17]+[18] sub-total (0.8) (1.3) 0.5 -0.5% -0.8% 0.3%
SG&A Expenses
Aircraft Servicer Fees
--Base Fee (2.0) (2.0) -- -1.2% -1.2% --
--Rent Collected Fee (1.9) (2.0) 0.1 -1.1% -1.2% 0.1%
--Rent Contracted Fee (1.6) (1.6) -- -1.0% -1.0% --
--Incentive Fee -- -- -- -- -- --
------- ------- ----- ----- ----- -----
[20] sub-total (5.5) (5.6) 0.1 -3.3% -3.4% 0.1%
Other Servicer Fees
--Cabot (0.7) (0.7) -- -0.5% -0.5% --
--Other Service Providers (1.3) (0.5) (0.8) -0.8% -0.3% -0.5%
------- ------- ----- ----- ----- -----
[21] sub-total (2.0) (1.2) (0.8) -1.3% -0.8% -0.5%
[22] SIGMA [19]....[21] TOTAL CASH EXPENSES (8.3) (8.1) (0.2) -5.1% -5.0% -0.1%

NET CASH COLLECTIONS
[23] [16] Total Cash Collections 165.5 155.1 10.4 103.0% 96.6% 6.4%
[24] [22] Total Cash Expenses (8.3) (8.1) (0.2) -5.1% -5.0% -0.1%
[25] Drawings from Expense
Account 22.5 -- 22.5 13.9% -- 13.9%
[26] Transfers to Expense
Account (27.7) -- (27.7) -17.2% -- -17.2%
[27] Interest Payments (88.1) (82.8) (5.3) -54.8% -51.6% -3.2%

A-27

[28] Swap Payments (2.0) (6.8) 4.8 -1.3% -4.3% 3.0%
[29] Exceptional Items -- -- -- -- -- --
------- ------- ----- ----- ----- -----
[30] SIGMA [23]....[29] TOTAL.................... 61.9 57.4 4.5 38.5% 35.7% 2.8%
======= ======= ===== ===== ===== =====
[31] PRINCIPAL PAYMENTS
subclass A2.............. 14.2 13.0 1.2 8.8% 8.1% 0.7%
subclass A3.............. -- -- -- -- -- --
subclass A4.............. -- -- -- -- -- --
subclass A5.............. 42.6 39.3 3.3 26.5% 24.4% 2.1%
subclass B1.............. 4.5 4.5 -- 2.8% 2.8% --
subclass B2.............. -- -- -- -- -- --
subclass C1.............. 0.6 0.6 -- 0.4% 0.4% --
subclass C2.............. -- -- -- -- -- --
subclass D1.............. -- -- -- -- -- --
------- ------- ----- ----- ----- -----
TOTAL.................... 61.9 57.4 4.5 38.5% 35.7% 2.8%
======= ======= ===== ===== ===== =====
[33] DEBT BALANCES
subclass A2.............. 210.5 211.7 1.2
subclass A3.............. 580.0 580.0 --
subclass A4.............. 200.0 200.0 --
subclass A5.............. 357.4 360.7 3.3
subclass B1.............. 85.2 85.2 --
subclass B2.............. 75.0 75.0 --
subclass C1.............. 99.3 99.3 --
subclass C2.............. 55.0 55.0 --
subclass D1.............. 110.0 110.0 --
------- ------- -----
TOTAL.................... 1,772.4 1,776.9 4.5
======= ======= =====

A-28

APPENDIX D

COVERAGE RATIOS
AS OF NOVEMBER 15, 2000

ALL AMOUNTS IN MILLIONS OF USD UNLESS OTHERWISE STATED
------------------------------------------------------
ACTUAL 2000 BASE CASE VARIANCE
---------- --------------- ---------

SOURCE OF FUNDS
Net Cash Collections.............................. 61.9 57.4 4.5
ADD BACK INTEREST................................. 88.1 82.8 5.3
ADD BACK SWAP PAYMENTS............................ 2.0 6.8 (4.8)
------- ------- ----
a 152.0 147.0 5.0
------- ======= ====
APPLICATION OF FUNDS
b Swap Payments..................................... 2.0 6.8 (4.8)
c Class A Interest.................................. 65.5 60.7 4.8
d Class A Minimum................................... 5.8 4.8 1.0
e Class B Interest.................................. 8.1 7.6 0.5
f Class B Minimum................................... 3.2 3.2 --
g Class C Interest.................................. 8.1 8.1 --
h Class C Minimum................................... -- -- --
i Class D Interest.................................. 6.4 6.4 --
j Class D Minimum................................... -- -- --
k Class A Scheduled................................. 0.8 0.2 0.6
l Class B Scheduled................................. 1.3 1.3 --
m Class C Scheduled................................. 0.6 0.6 --
n Class D Scheduled................................. -- -- --
o Permitted Aircraft Modifications.................. -- -- --
p Class A Supplemental.............................. 50.2 47.3 2.9
------- ------- ----
152.0 147.0 5.0
------- ------- ----
[1] INTEREST COVERAGE RATIO
Class A........................................... 2.25 2.18 = a / (b+c)
Class B........................................... 1.87 1.84 = a / (b+c+d+e)
Class C........................................... 1.64 1.61 = a / (b+c+d+e+f+g)
Class D........................................... 1.53 1.51 = a / (b+c+d+e+f+g+h+i)
[2] DEBT COVERAGE RATIO
Class A........................................... 1.52 1.50 = a / (b+c+d+e+f+g+h+i+j+k)
Class B........................................... 1.50 1.48 = a / (b+c+d+e+f+g+h+i+j+k+l)
Class C........................................... 1.49 1.47 = a /
(b+c+d+e+f+g+h+i+j+k+l+m)
Class D........................................... 1.49 1.47 = a /
(b+c+d+e+f+g+h+i+j+k+l+m+n)

2000 2000
BASE CASE ACTUAL BASE CASE
LOAN-TO-VALUE RATIOS 15-MAR-00 15-NOV-00 15-NOV-00
-------------------- --------- --------- ---------

[3] ASSUMED PORTFOLIO VALUE........................... 2,049.1 1,992.0

[4] ADJUSTED PORTFOLIO VALUE.......................... 1,900.9

Liquidity Reserve Amount
--Cash............................................ 30.0 30.0 30.0
--Accrued Expenses................................ 6.0 11.0 11.0
--Security Deposits............................... 7.1 19.2 19.2
------- ------- -------
subtotal cash..................................... 43.1 60.2 60.2
--Letters of Credit............................... 82.1 70.0 70.0
------- ------- -------
Total Liquidity Reserve........................... 125.2 130.2 130.2

[5] TOTAL ASSET VALUE................................. 2,174.3 2,031.1 2,122.2

NOTE BALANCE
Class A........................................... 1,404.7 64.6% 1,347.9 63.5% 1,352.4 63.7%
Class B........................................... 164.7 72.2% 160.2 71.1% 160.2 71.3%
Class C........................................... 154.9 79.3% 154.3 78.3% 154.3 78.5%
Class D........................................... 110.0 84.4% 110.0 83.5% 110.0 83.7%
------- ------- -------
Total............................................. 1,834.3 1,772.4 1,776.9

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

[1] INTEREST COVERAGE RATIO is equal to Net Cash Collections, before interest
and swap payments, expressed as a ratio of the swap costs and 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.

A-29

[2] DEBT COVERAGE RATIO is equal to Net Cash Collections before 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
ar 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 Portfolio Value plus Liquidity Reserve
Amount.

A-30

EXHIBIT INDEX

EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION OF DOCUMENT NUMBERED PAGE
------- ------------------------------------------------------------ -------------

3.1 Certificate of Trust of MSAF*

3.2 Fourth Amended and Restated Trust Agreement of MSAF dated as
of March 15, 2000*

4.1 Indenture dated as of March 3, 1998 by and among MSAF and
Bankers Trust Company, as Trustee with respect to the Notes*

4.2 Indenture Supplement No. 1 dated as of March 15, 2000 among
MSAF and Bankers Trust Company**

4.3 Form of Global Note (included in Exhibit 4.1)

4.4 Registration Rights Agreement dated March 15, 2000 by and
between MSAF and Morgan Stanley & Co. International
Limited**

10.2 Cash Management Agreement dated as of March 3, 1998 among
MSAF, Bankers Trust Company, as Security Trustee and as Cash
Manager and each subsidiary of MSAF*

10.3 Accession Agreement to Cash Management Agreement among the
Cash Manager, the Security Trustee, MSA II, MSA III,
MSA IV, MSA V, MSA VI, MSA VII, and ILFC, dated as of
March 15, 2000**

10.4 Financial Advisory Agreement dated as of March 3, 1998
between MSAF and Morgan Stanley & Co. Incorporated, as
Financial Adviser*