UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM 10-Q
------------------
_X_QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
___TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from___to___
------------------
Commission File No. 33-10122
------------------
POLARIS AIRCRAFT INCOME FUND III,
A California Limited Partnership
State of Organization: California
IRS Employer Identification No. 94-3023671
201 Mission Street, 27th Floor, San Francisco, California 94105
Telephone - (415) 284-7400
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, and (2) has been subject to such filing
requirements for the past 90 days.
Yes _X_ No___
This document consists of 15 pages.
<PAGE>
POLARIS AIRCRAFT INCOME FUND III,
A California Limited Partnership
FORM 10-Q - For the Quarterly Period Ended March 31, 1996
INDEX
Part I. Financial Information Page
Item 1. Financial Statements
a) Balance Sheets - March 31, 1996 and
December 31, 1995................................................3
b) Statements of Income - Three Months Ended
March 31, 1996 and 1995..........................................4
c) Statements of Changes in Partners' Capital
(Deficit) - Year Ended December 31, 1995
and Three Months Ended March 31, 1996............................5
d) Statements of Cash Flows - Three Months
Ended March 31, 1996 and 1995....................................6
e) Notes to Financial Statements....................................7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................11
Part II. Other Information
Item 1. Legal Proceedings............................................13
Item 6. Exhibits and Reports on Form 8-K.............................14
Signature.............................................................15
2
<PAGE>
Part I. Financial Information
-----------------------------
Item 1. Financial Statements
POLARIS AIRCRAFT INCOME FUND III,
A California Limited Partnership
BALANCE SHEETS
(Unaudited)
March 31, December 31,
1996 1995
---- ----
ASSETS:
CASH AND CASH EQUIVALENTS $ 25,892,012 $ 25,014,205
MARKETABLE SECURITIES, trading -- 1,659,160
RENT AND OTHER RECEIVABLES 465,512 8,171
NOTES RECEIVABLE, net of allowance for credit
losses of $1,491,255 in 1996 and $1,993,095
in 1995 1,062,783 1,546,407
AIRCRAFT, net of accumulated depreciation
of $77,705,850 in 1996 and $75,198,827 in 1995 50,553,639 53,060,662
AIRCRAFT INVENTORY 297,047 686,670
OTHER ASSETS 26,089 26,089
------------ ------------
$ 78,297,082 $ 82,001,364
============ ============
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT):
PAYABLE TO AFFILIATES $ 85,655 $ 130,584
ACCOUNTS PAYABLE AND ACCRUED
LIABILITIES 53,454 84,084
DEFERRED INCOME 521,781 521,781
------------ ------------
Total Liabilities 660,890 736,449
------------ ------------
PARTNERS' CAPITAL (DEFICIT):
General Partner (1,429,051) (1,392,716)
Limited Partners, 500,000 units
issued and outstanding 79,065,243 82,657,631
------------ ------------
Total Partners' Capital 77,636,192 81,264,915
------------ ------------
$ 78,297,082 $ 82,001,364
============ ============
The accompanying notes are an integral part of these statements.
3
<PAGE>
POLARIS AIRCRAFT INCOME FUND III,
A California Limited Partnership
STATEMENTS OF INCOME
(Unaudited)
Three Months Ended March 31,
----------------------------
1996 1995
---- ----
REVENUES:
Rent from operating leases $3,809,570 $2,272,596
Interest 420,308 433,160
Lessee settlement 144,444 455,555
Other 38,898 157,609
---------- ----------
Total Revenues 4,413,220 3,318,920
---------- ----------
EXPENSES:
Depreciation 2,507,023 2,565,244
Management fees to general partner 190,478 113,630
Operating 3,804 7,893
Administration and other 62,860 67,504
---------- ----------
Total Expenses 2,764,165 2,754,271
---------- ----------
NET INCOME $1,649,055 $ 564,649
========== ==========
NET INCOME ALLOCATED TO THE
GENERAL PARTNER $ 491,443 $ 255,622
========== ==========
NET INCOME ALLOCATED TO
LIMITED PARTNERS $1,157,612 $ 309,027
========== ==========
NET INCOME PER LIMITED
PARTNERSHIP UNIT $ 2.32 $ 0.62
========== ==========
The accompanying notes are an integral part of these statements.
4
<PAGE>
POLARIS AIRCRAFT INCOME FUND III,
A California Limited Partnership
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(Unaudited)
Year Ended December 31, 1995 and
Three Months Ended March 31, 1996
---------------------------------
General Limited
Partner Partners Total
------- -------- -----
Balance, December 31, 1994 $ (1,346,583) $ 87,213,552 $ 85,866,969
Net income 1,203,867 6,694,079 7,897,946
Cash distributions to partners (1,250,000) (11,250,000) (12,500,000)
------------ ------------ ------------
Balance, December 31, 1995 (1,392,716) 82,657,631 81,264,915
Net income 491,443 1,157,612 1,649,055
Cash distributions to partners (527,778) (4,750,000) (5,277,778)
------------ ------------ ------------
Balance, March 31, 1996 $ (1,429,051) $ 79,065,243 $ 77,636,192
============ ============ ============
The accompanying notes are an integral part of these statements.
5
<PAGE>
POLARIS AIRCRAFT INCOME FUND III,
A California Limited Partnership
STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31,
----------------------------
1996 1995
---- ----
OPERATING ACTIVITIES:
Net income $ 1,649,055 $ 564,649
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 2,507,023 2,565,244
Changes in operating assets and liabilities:
Decrease in marketable securities, trading 1,659,160 -
Decrease (increase) in rent and other
receivables (457,341) 9,779
Decrease in payable to affiliates (44,929) (56,273)
Increase (decrease) in accounts payable
and accrued liabilities (30,630) 29,169
----------- ----------
Net cash provided by operating activities 5,282,338 3,112,568
----------- ----------
INVESTING ACTIVITIES:
Net proceeds from sale of aircraft inventory 390,423 510,897
Inventory disassembly costs (800) (30,600)
Principal payments on notes receivable 483,624 378,900
----------- ----------
Net cash provided by investing activities 873,247 859,197
----------- ----------
FINANCING ACTIVITIES:
Cash distributions to partners (5,277,778) (2,777,778)
----------- ----------
Net cash used in financing activities (5,277,778) (2,777,778)
----------- ----------
CHANGES IN CASH AND CASH
EQUIVALENTS 877,807 1,193,987
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 25,014,205 15,810,799
----------- ----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $25,892,012 $17,004,786
=========== ===========
The accompanying notes are an integral part of these statements.
6
<PAGE>
POLARIS AIRCRAFT INCOME FUND III,
A California Limited Partnership
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. Accounting Principles and Policies
In the opinion of management, the financial statements presented herein include
all adjustments, consisting only of normal recurring items, necessary to
summarize fairly Polaris Aircraft Income Fund III's (the Partnership's)
financial position and results of operations. The financial statements have been
prepared in accordance with the instructions of the Quarterly Report to the
Securities and Exchange Commission (SEC) Form 10-Q and do not include all of the
information and note disclosures required by generally accepted accounting
principles. These statements should be read in conjunction with the financial
statements and notes thereto for the years ended December 31, 1995, 1994, and
1993 included in the Partnership's 1995 Annual Report to the SEC on Form 10-K
(Form 10-K).
Aircraft and Depreciation - The aircraft are recorded at cost, which includes
acquisition costs. Depreciation to an estimated residual value is computed using
the straight-line method over the estimated economic life of the aircraft which
was originally estimated to be 30 years from the date of manufacture.
Depreciation in the year of acquisition was calculated based upon the number of
days that the aircraft were in service.
The Partnership periodically reviews the estimated realizability of the residual
values at the projected end of each aircraft's economic life based on estimated
residual values obtained from independent parties which provide current and
future estimated aircraft values by aircraft type. For any downward adjustment
in estimated residual value or decrease in the projected remaining economic
life, the depreciation expense over the projected remaining economic life of the
aircraft is increased.
If the projected net cash flow for each aircraft (projected rental revenue, net
of management fees, less projected maintenance costs, if any, plus the estimated
residual value) is less than the carrying value of the aircraft, an impairment
loss is recognized. Pursuant to Statement of Financial Accounting Standards
(SFAS) No. 121, as discussed below, measurement of an impairment loss will be
based on the "fair value" of the asset as defined in the statement.
Capitalized Costs - Aircraft modification and maintenance costs which are
determined to increase the value or extend the useful life of the aircraft are
capitalized and amortized using the straight-line method over the estimated
useful life of the improvement. These costs are also subject to periodic
evaluation as discussed above.
Financial Accounting Pronouncements - SFAS No. 107, "Disclosures about Fair
Value of Financial Instruments," requires the Partnership to disclose the fair
value of financial instruments. Cash and cash equivalents is stated at cost,
which approximates fair value. Marketable Securities, trading (Note 2) were
carried at fair value, which was determined based on quoted market prices. The
fair value of the Partnership's notes receivable is estimated by discounting
future estimated cash flows using current interest rates at which similar loans
would be made to borrowers with similar credit ratings and remaining maturities.
As discussed in Note 3, the carrying value of the notes receivable from
Continental Airlines, Inc. (Continental) for deferred rents is zero due to a
recorded allowance for credit losses equal to the balance of the notes. As of
March 31, 1996, the aggregate fair value of the Continental deferred rent notes
7
<PAGE>
receivable was estimated to be approximately $1.5 million. The carrying value of
the Partnership's remaining notes receivable discussed in Notes 2 and 4
approximate their estimated fair value.
The Partnership adopted SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," as of January 1,
1996. This statement requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. The Partnership estimates that this pronouncement will
not have a material impact on the Partnership's financial position or results of
operations unless events or circumstances change that would cause projected net
cash flows to be adjusted. No impairment loss was recognized by the Partnership
during the first quarter of 1996.
2. Trans World Airlines, Inc. (TWA) Reorganization
As discussed in the Form 10-K, the Partnership renegotiated the TWA leases after
TWA defaulted under its leases with the Partnership during 1991. The
renegotiated agreement stipulated that the Partnership share in the cost of
certain Airworthiness Directives after TWA successfully reorganized. Pursuant to
this cost-sharing agreement, since TWA emerged from its reorganization
proceedings in 1993, expenses totaling $4.55 million ($1.95 million in 1993 and
$2.6 million in 1994) have been offset against rental payments. Under the terms
of this agreement, TWA may offset up to an additional $1.95 million against
rental payments, subject to annual limitations, over the remaining lease terms.
In October 1994, TWA notified its creditors, including the Partnership, of
another proposed restructuring of its debt. Subsequently, GE Capital Aviation
Services, Inc. (GECAS) negotiated a standstill arrangement, as set forth in a
letter agreement dated December 16, 1994 (the Deferral Agreement), with TWA for
the 46 aircraft that are managed by GECAS, 13 of which are owned by the
Partnership. As required by its terms, the Deferral Agreement (which has since
been amended as discussed below) was approved by Polaris Investment Management
Corporation (PIMC) on behalf of the Partnership with respect to the
Partnership's aircraft.
The Deferral Agreement provided for (i) a moratorium on the rents due to the
Partnership in November 1994 and on 75% of the rents due to the Partnership from
December 1994 through March 1995, and (ii) all of the deferred rents, together
with interest thereon, to be repaid in monthly installments beginning in May
1995 and ending in December 1995. The repayment schedule was subsequently
accelerated upon confirmation of TWA's bankruptcy plan. The Partnership did not
recognize either the $1,137,500 rental amount deferred in 1994 or the $1,462,500
rental amount deferred during the first quarter of 1995 as rental revenue until
the deferred rents were received. The deferred rents were paid in full by
October 1995.
In consideration for the partial rent moratorium described above, TWA agreed to
make a lump sum payment of $1,000,000 to GECAS for the TWA lessors for whom
GECAS provides management services and who agreed to the Deferral Agreement. The
Partnership received $157,568 in January 1995 as its pro-rata share of such
payment by TWA. This amount was recognized as other revenue in the accompanying
statement of operations for the three months ended March 31, 1995. In addition,
TWA agreed to issue warrants to the Partnership for TWA Common Stock.
In order to resolve certain issues that arose after the execution of the
Deferral Agreement, TWA and GECAS entered into a letter agreement dated June 27,
1995, pursuant to which they agreed to amend certain provisions of the Deferral
Agreement (as so amended, the Amended Deferral Agreement). The effect of the
Amended Deferral Agreement, which was approved by PIMC with respect to the
8
<PAGE>
Partnership's aircraft, is that TWA, in addition to agreeing to repay the
deferred rents to the Partnership, agreed (i) to a fixed payment amount (payable
in warrants, the number of which was determined by formula) in consideration for
the aircraft owners' agreement to defer rent under the Deferral Agreement, and,
(ii) to the extent the market value of the warrants is less than the payment
amount, to supply maintenance services to the aircraft owners having a value
equal to such deficiency. The payment amount was determined by subtracting
certain maintenance reimbursements owed to TWA by certain aircraft owners,
including the Partnership, from the aggregate amount of deferred rents. The
amount of such maintenance reimbursement has not been finally determined.
The Partnership received warrants to purchase 159,919 shares of TWA Common Stock
from TWA in November 1995. The Partnership exercised the warrants on December
29, 1995 for the strike price of $0.01 per share. The fair market value of the
TWA stock at December 31, 1995 of $1,659,160 is reflected in the accompanying
December 31, 1995 balance sheet. The Partnership sold the TWA Common Stock by
February 1996, net of broker commissions, for $1,698,057 and recognized a gain
on trading securities of $38,897 in the first quarter of 1996.
3. Continental Lease Modification
As discussed in the Form 10-K, the leases with Continental were modified after
Continental filed for Chapter 11 bankruptcy protection in December 1990.
Continental terminated the leases on the six 727-100s and returned these
aircraft to the Partnership. The modified agreement for the Partnership's three
Boeing 727-200 aircraft and five Boeing 727-200 Advanced aircraft specifies (i)
extension of the leases for the three 727-200s (which were subsequently sold to
Continental as discussed in Note 4) to April 1994, and for the five 727-200
Advanced aircraft to October 1996; (ii) renegotiated rental rates averaging
approximately 73% of the original lease rates; (iii) payment of ongoing rentals
at the reduced rates beginning in October 1991; (iv) payment of deferred rentals
with interest beginning in July 1992; and (v) payment by the Partnership of
certain aircraft maintenance, modification and refurbishment costs, not to
exceed approximately $3.2 million, a portion of which will be recovered with
interest through payments from Continental over the extended lease terms. The
Partnership's share of such costs may be capitalized and depreciated over the
remaining lease terms, subject to the capitalized cost policy as described in
Note 1. The Partnership has approved invoices aggregating $1,698,106 for
interior modifications on the Partnership's aircraft. The Partnership financed
the aggregate amount of these invoices to Continental from 1992 through 1995 to
be repaid by Continental with interest over the remaining lease terms of the
aircraft. The Partnership's balance sheets reflect the net reimbursable costs
incurred of $388,966 and $547,549 as of March 31, 1996 and December 31, 1995,
respectively, as notes receivable.
The agreement with Continental included an extended deferral of the dates when
Continental will remit its rental payments for the period from December 3, 1990
through September 30, 1991 and for a period of three months, beginning in
November 1992, aggregating $9,917,500 (the Deferred Amount). The Partnership
recorded a note receivable and an allowance for credit losses equal to the total
of the deferred rents and prior accrued interest, the net of which is reflected
in the accompanying balance sheets. The note receivable and corresponding
allowance for credit losses are reduced by the principal portion of payments
received. In addition, the Partnership recognizes rental revenue and interest
revenue in the period the deferred rental payments are received.
The allowances for credit losses on the principal and interest portions due were
$1,491,255 and $1,993,095 as of March 31, 1996 and December 31, 1995,
respectively. The unrecognized Deferred Amounts as of March 31, 1996 and
December 31, 1995 were $1,461,953 and $1,941,522, respectively. In accordance
with the aforementioned agreement, Continental began making supplemental
9
<PAGE>
payments for the Deferred Amount plus interest on July 1, 1992. During the three
months ended March 31, 1996 and 1995, the Partnership received supplemental
payments of $550,116 each period, of which $479,570 and $405,096 was recognized
as rental revenue in the three months ended March 31, 1996 and 1995,
respectively.
Continental continues to pay all other amounts due under the prior agreement. As
of March 31, 1996, Continental is current on all payments due the Partnership.
The Partnership has not recorded an allowance for credit losses on the
additional Continental aircraft finance sale note receivable described in Note 4
or the Continental modification financing note receivable described above, as
they are currently deemed to be collectible. The Partnership's rights to receive
payments under the agreements fall into various categories of priority under the
Bankruptcy Code. In general, the Partnership's claims are administrative claims.
If Continental's reorganization is not successful, it is likely that a portion
of the Partnership's claims will not be paid in full.
In January 1995, the United States Bankruptcy Court approved an agreement
between the Partnership and Continental which specified payment to the
Partnership by Continental of approximately $1.3 million as final settlement for
the return of six Boeing 727-100 aircraft, as discussed in the Form 10-K. The
Partnership received an initial payment of $311,111 in February 1995 and has
received the balance of the settlement in equal monthly installments of $72,222
through February 1996. The settlement payments are recorded as revenue when
received. The Partnership recorded payments of $144,444 and $455,555 as revenue
during the three months ended March 31, 1996 and 1995, respectively.
4. Sale of Aircraft to Continental
The leases of three Boeing 727-200 aircraft to Continental expired on April 30,
1994 as discussed in Note 3. In May 1994, the Partnership sold these aircraft to
Continental for an aggregate sale price of $3,019,719. The Partnership agreed to
accept payment of the sale price in 29 monthly installments of $115,500, with
interest at a rate of 9.5% per annum. The Partnership recorded a note receivable
for the sale price and recognized a loss on sale of $3,588,919 in the second
quarter of 1994. The Partnership has received all scheduled payments due under
the note. The note receivable balance at March 31, 1996 and December 31, 1995
was $673,817 and $998,858, respectively.
5. Related Parties
Under the Limited Partnership Agreement, the Partnership paid or agreed to pay
the following amounts for the current quarter to the general partner, PIMC, in
connection with services rendered or payments made on behalf of the Partnership:
Payments for
Three Months Ended Payable at
March 31, 1996 March 31, 1996
-------------- --------------
Aircraft Management Fees $190,478 $ 23,000
Out-of-Pocket Administrative Expense
Reimbursement 91,834 62,655
Out-of-Pocket Operating and
Remarketing Expense Reimbursement 51,189 --
-------- --------
$333,501 $ 85,655
======== ========
10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Polaris Aircraft Income Fund III (the Partnership) owns a portfolio of 18 used
commercial jet aircraft and certain inventoried aircraft parts out of its
original portfolio of 38 aircraft. The portfolio includes 13 McDonnell Douglas
DC-9-30 aircraft leased to Trans World Airlines, Inc. (TWA) and five Boeing
727-200 Advanced aircraft leased to Continental Airlines, Inc. (Continental).
The Partnership transferred three McDonnell Douglas DC-9-10 aircraft and six
Boeing 727-100 aircraft to aircraft inventory. The inventoried aircraft have
been disassembled for sale of their component parts. Of its original aircraft
portfolio, the Partnership sold eight DC-9-10 aircraft in 1992 and 1993 and
three Boeing 727-200 aircraft in May 1994.
Partnership Operations
The Partnership recorded net income of $1,649,055, or $2.32 per limited
partnership unit, for the three months ended March 31, 1996 compared to net
income of $564,649, or $0.62 per unit for the same period in 1995.
Rental revenues, net of related management fees, were significantly higher
during the first quarter of 1996 as compared to the first quarter of 1995
primarily as a result of an increase in 1996 in rental revenue recognized on the
Partnership's leases with TWA. In December 1994, GE Capital Aviation Services,
Inc. (GECAS) negotiated a standstill agreement with TWA, as set forth in a
letter agreement dated December 16, 1994 (the Deferral Agreement). That
agreement provided for a deferral of the rent due the Partnership in November
1994 and 75% of the rents due the Partnership from December 1994 through March
1995. The Partnership did not recognize the deferred rent as rental revenue
until it was received, including $1,462,500 deferred in the first three months
of 1995.
In consideration for the rent deferral, TWA agreed to make a lump sum payment of
$1,000,000 to GECAS for the TWA lessors for whom GECAS provides management
services and who agreed to the Deferral Agreement. The Partnership received
$157,568 in January 1995 as its pro-rata share of such payment by TWA. This
amount was recognized as other revenue in the first quarter of 1995. In
addition, TWA agreed to issue warrants to the Partnership for TWA Common Stock.
The Partnership received warrants to purchase 159,919 shares of TWA Common Stock
from TWA in November 1995 and exercised the warrants on December 29, 1995. The
Partnership sold the TWA Common Stock by February 1996, net of broker
commissions, for $1,698,057 and recognized a gain on trading securities of
$38,898 during the first quarter of 1996.
Liquidity and Cash Distributions
Liquidity - The Partnership has received from Continental all payments due under
the modified lease agreement, the aircraft sale agreement, and the settlement
agreement for the return of the six Boeing 727-100 aircraft. In addition,
payments totaling $390,423 have been received during the first quarter of 1996
from the sale of parts from the nine disassembled aircraft and have been applied
against aircraft inventory. The net book value of the Partnership's aircraft
inventory was $297,047 as of March 31, 1996.
As discussed above, TWA repaid its deferred rents in full with interest by
October 1995. The Partnership also received from TWA warrants to purchase
11
<PAGE>
159,919 shares of TWA Common Stock. The Partnership exercised the warrants in
1995 and sold the TWA Common Stock in the first quarter of 1996, net of broker
commissions, for $1,698,057.
As discussed in Note 3 to the financial statements, the Continental leases
provide for payment by the Partnership of the costs of certain maintenance work,
Airworthiness Directive (AD) compliance, aircraft modification and refurbishment
costs, which are not to exceed approximately $3.2 million, a portion of which
will be recovered with interest through payments from Continental over the lease
terms. In accordance with the Continental leases, the Partnership may be
required to finance up to an additional $946,346 for new image modifications in
the future. As discussed in Note 2 to the financial statements, the Partnership
agreed to share the cost of meeting certain ADs with TWA. In accordance with the
cost- sharing agreement, TWA may offset up to an additional $1.95 million
against rental payments, subject to annual limitations, over the remaining lease
terms. The Partnership's cash reserves are being retained to finance future
modification costs for Continental and to meet the obligations under the TWA
leases.
Cash Distributions - Cash distributions to limited partners during the three
months ended March 31, 1996 and 1995 were $4,750,000, or $9.50 per limited
partnership unit and $2,500,000, or $5.00 per unit, respectively. The timing and
amount of future cash distributions are not yet known and will depend on the
Partnership's future cash requirements including the potential costs of
remarketing the Partnership's aircraft; continued receipt of the renegotiated
rental payments from Continental and TWA; the receipt of the deferred rental
payments, modification financing payments and aircraft sale payments from
Continental; and the receipt of payments generated from the sale of aircraft
inventory.
12
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
As discussed in Item 3 of Part I of Polaris Aircraft Income Fund III's (the
Partnership) 1995 Annual Report to the Securities and Exchange Commission (SEC)
on Form 10-K (Form 10-K), there are a number of pending legal actions or
proceedings involving the Partnership. There have been no material developments
with respect to any such actions or proceedings during the period covered by
this report.
Other Proceedings - Item 10 in Part III of the Partnership's 1995 Form 10-K
discusses certain actions which have been filed against Polaris Investment
Management Corporation and others in connection with the sale of interests in
the Partnership and the management of the Partnership. With the exception of
Novak, et al v. Polaris Holding Company, et al, (which has been dismissed as
discussed in Item 10 of the Partnership's 1995 Form 10-K) where the Partnership
was named as a defendant for procedural purposes, the Partnership is not a party
to these actions. There have been no material developments with respect to any
of the actions described therein during the period covered by this report, but
the following new proceedings have been commenced.
In or around December 1994, a complaint entitled John J. Jones, Jr. v.
Prudential Securities Incorporated et al., was filed in the Civil District Court
for the Parish of Orleans, State of Louisiana. The complaint named as defendants
Prudential Securities, Incorporated and Stephen Derby Gisclair. On or about
March 29, 1996, plaintiffs filed a First Supplemental and Amending Petition
adding as additional defendants General Electric Company and General Electric
Capital Corporation. Plaintiff alleges claims of tort, breach of fiduciary duty
in tort, contract and quasi-contract, violation of sections of the Louisiana
Blue Sky Law and violation of the Louisiana Civil Code concerning the inducement
and solicitation of purchases arising out of the public offering of Polaris
Aircraft Income Fund III. Plaintiff seeks compensatory damages, attorneys' fees,
interest, costs and general relief. The Partnership is not named as a defendant
in this action.
On or around February 16, 1996, a complaint entitled Henry Arwe, et al. v.
General Electric Company, et al., was filed in the Civil District Court for the
Parish of Orleans, State of Louisiana. The complaint named as defendants General
Electric Company and General Electric Capital Corporation. Plaintiffs allege
claims of tort, breach of fiduciary duty in tort, contract and quasi-contract,
violation of sections of the Louisiana Blue Sky Law and violation of the
Louisiana Civil Code concerning the inducement and solicitation of purchases
arising out of the public offering of Polaris Aircraft Income Funds III and IV.
Plaintiffs seek compensatory damages, attorneys' fees, interest, costs and
general relief. The Partnership is not named as a defendant in this action.
On or about April 9, 1996, a summons and First Amended Complaint entitled Sara
J. Bishop, et al. v. Kidder Peabody & Co., et al. was filed in the Superior
Court of the State of California, County of Sacramento, by over one hundred
individual plaintiffs who purchased limited partnership units in Polaris
Aircraft Income Funds III, IV, V and VI and other limited partnerships sold by
Kidder Peabody. The complaint names Kidder, Peabody & Co. Incorporated, KP
Realty Advisors, Inc., Polaris Holding Company, Polaris Aircraft Leasing
Corporation, Polaris Investment Management Corporation, Polaris Securities
Corporation, Polaris Jet Leasing, Inc., Polaris Technical Services, Inc.,
General Electric Company, General Electric Financial Services, Inc., General
Electric Capital Corporation, General Electric Credit Corporation and DOES 1-100
as defendants. The complaint alleges violations of state common law, including
fraud, negligent misrepresentation, breach of fiduciary duty, and violations of
the rules of the National Association of Securities Dealers. The complaint seeks
to recover compensatory damages and punitive damages in an unspecified amount,
interest, and rescission with respect to the Polaris Aircraft Income Funds
III-VI and all other limited partnerships alleged to have been sold by Kidder
Peabody to the plaintiffs. The Partnership is not named as a defendant in this
action.
13
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits (numbered in accordance with Item 601 of Regulation S-K)
27. Financial Data Schedule (Filed electronically only)
b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during the quarter for
which this report is filed.
14
<PAGE>
SIGNATURE
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.
POLARIS AIRCRAFT INCOME FUND III,
A California Limited Partnership
(Registrant)
By: Polaris Investment
Management Corporation,
General Partner
May 8, 1996 By: /S/Marc A. Meiches
- ----------------------------- ------------------
Marc A. Meiches
Chief Financial Officer
(principal financial officer and
principal accounting officer of
Polaris Investment Management
Corporation, General Partner of
the Registrant)
15
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 25892012
<SECURITIES> 0
<RECEIVABLES> 3019550
<ALLOWANCES> 1491255
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 128556536
<DEPRECIATION> 77705850
<TOTAL-ASSETS> 78297082
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 77636192
<TOTAL-LIABILITY-AND-EQUITY> 78297082
<SALES> 0
<TOTAL-REVENUES> 4413220
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2764165
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1649055
<INCOME-TAX> 0
<INCOME-CONTINUING> 1649055
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1649055
<EPS-PRIMARY> 2.32
<EPS-DILUTED> 0
</TABLE>
