POLARIS AIRCRAFT INCOME FUND III, 10-K405, 2000-03-29

POLARIS AIRCRAFT INCOME FUND III
10-K405, 2000-03-29
EQUIPMENT RENTAL & LEASING, NEC

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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

FORM 10-K

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

_X_ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999

___ 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
--------------------------------
(Exact name of registrant as specified in its charter)

California 94-3023671
------------------------------- -----------------------
(State or other jurisdiction of (IRS Employer I.D. No.)
incorporation or organization)

201 High Ridge Road, Stamford, Connecticut 06927
------------------------------------------ ----------
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (203) 357-3776

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:
Depository Units Representing Assignments of Limited Partnership Interests

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
of 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_

No formal market exists for the units of limited partnership interest and
therefore there exists no aggregate market value at December 31, 1999.

Documents incorporated by reference: None

This document consists of 35 pages.
<PAGE>

PART I

Item 1. Business

Polaris Aircraft Income Fund III, A California Limited Partnership (PAIF-III or
the Partnership), was formed primarily to purchase and lease used commercial jet
aircraft in order to provide quarterly distributions of cash from operations, to
maximize the residual values of aircraft upon sale and to protect Partnership
capital through experienced management and diversification. PAIF-III was
organized as a California Limited Partnership on June 27, 1984 and will
terminate no later than December 2020.

PAIF-III has many competitors in the aircraft leasing market, including
airlines, aircraft leasing companies, other Limited Partnerships, banks and
several other types of financial institutions. This market is highly competitive
and there is no single competitor who has a significant influence on the
industry. In addition to other competitors, the General Partner, Polaris
Investment Management Corporation (PIMC), and its affiliates, including GE
Capital Aviation Services, Inc. (GECAS), Polaris Aircraft Leasing Corporation
(PALC), Polaris Holding Company (PHC) and General Electric Capital Corporation
(GE Capital), acquire, lease, finance, sell and remarket aircraft for their own
accounts and for existing aircraft and aircraft leasing programs managed by
them. Further, GECAS provides a significant range of aircraft management
services to third parties, including without limitation, AerFi Group plc
(formerly GPA Group plc), a public limited company organized in Ireland,
together with its consolidated subsidiaries (AerFi), and Airplanes Group,
together with its subsidiaries (APG), each of which two groups leases and sells
aircraft. Accordingly, in seeking to re-lease and sell its aircraft, the
Partnership may be in competition with the General Partner, its affiliates,
AerFi, APG, and other third parties to whom GECAS provides aircraft management
services from time to time.

A brief description of the aircraft owned by the Partnership is set forth in
Item 2. The following table describes certain material terms of the
Partnership's leases to Trans World Airlines, Inc. (TWA) as of December 31,
1999:

Number of Lease
Lessee Aircraft Type Aircraft Expiration Renewal Options
- ------ ------------- ---------- ---------- ---------------

TWA McDonnell Douglas DC-9-30 10 11/04 (1) none

(1) TWA may specify a lease expiration date for each aircraft up to six
months before the date shown, provided the average date for the 10
aircraft is November 2004. The TWA leases were modified in 1991 and
were extended for an aggregate of 75 months beyond the initial lease
expiration date in November 1991 at approximately 46% of the original
lease rates. In 1996, the leases were extended for a period of eight
years until November 2004. The Partnership also agreed to share in the
costs of certain Airworthiness Directives (ADs). If such costs are
incurred by TWA, they will be credited against rental payments, subject
to annual limitations with a maximum of $500,000 per aircraft over the
lease terms.

In October 1994, TWA notified its creditors, including the Partnership,
of a proposed restructuring of its debt. Subsequently, GECAS negotiated
a standstill agreement with TWA which was approved on behalf of the
Partnership by PIMC. That agreement provided for a moratorium of the
rent due the Partnership in November 1994 and 75% of the rents due the
Partnership from December 1994 through March 1995, with the deferred
rents, which aggregated $2.6 million, plus interest being repaid in
monthly installments between May 1995 through December 1995. The
Partnership received as consideration for the agreement $157,568 and
warrants for TWA Common Stock. These warrants were exercised in 1995
and the related stock was subsequently sold in 1996.

2
<PAGE>

In 1996, GECAS, on behalf of the Partnership, negotiated with TWA for
the acquisition of noise-suppression devices, commonly known as
"hushkits", for the 10 Partnership aircraft currently on lease to TWA,
as well as other aircraft owned by affiliates of PIMC and leased to
TWA. The 10 aircraft were designated by TWA. The hushkits reconditioned
the aircraft so as to meet Stage 3 noise level restrictions. The
installation of the 10 hushkits was completed on the Partnership's
aircraft in November 1996 and the leases for these 10 aircraft were
extended for a period of eight years until November 2004.

The rent payable by TWA under the leases was increased by an amount
sufficient to cover the monthly debt service payments on the hushkits
and fully repay, during the term of the TWA leases, the amount
borrowed. The loan from the engine/hushkit manufacturer is non-recourse
to the Partnership and secured by a security interest in the lease
receivables.

The Partnership transferred three McDonnell Douglas DC-9-10 aircraft, formerly
leased to Midway Airlines, Inc. (Midway), and six Boeing 727-100 aircraft,
formerly leased to Continental, to aircraft inventory in 1992. The three
McDonnell Douglas DC-9-10 aircraft were disassembled for sale of their component
parts, the remainder of which was sold to Soundair, Inc. in 1998. Disassembly of
the six Boeing 727-100 aircraft commenced in December 1994. The leases for three
Boeing 727-200 aircraft to Continental expired in April 1994. These aircraft
were subsequently sold to Continental.

A discussion of the current market condition for the type of aircraft owned by
the Partnership follows. For further information, see Demand For Aircraft in the
Industry Update Section of Item 7.

McDonnell Douglas DC-9-30 - The McDonnell Douglas DC-9-30 is a short- to
medium-range twin-engine jet that was introduced in 1967. Providing reliable,
inexpensive lift, these aircraft fill thin niche markets, mostly in the United
States. Hushkits are available to bring these aircraft into compliance with
Stage 3 noise restrictions at a cost of approximately $1.6 million per aircraft.
As noted above, hushkits have been installed on the 10 remaining aircraft.
Certain ADs applicable to the McDonnell Douglas DC-9 have been issued to prevent
fatigue cracks and control corrosion as discussed in the Industry Update section
of Item 7.

The General Partner believes that, in addition to the factors cited above, the
deteriorated market for the Partnership's aircraft reflects the airline
industry's reaction to the significant expenditures potentially necessary to
bring these aircraft into compliance with certain ADs issued by the FAA relating
to aging aircraft, corrosion prevention and control, and structural inspection
and modification as discussed in the Industry Update section of Item 7.

Item 2. Properties

At December 31, 1999, the Partnership owned a portfolio of 10 used commercial
jet aircraft out of its original portfolio of 38 aircraft. The portfolio
includes 10 McDonnell Douglas DC-9-30 aircraft leased to Trans World Airlines,
Inc. (TWA). The Partnership transferred three McDonnell Douglas DC-9-10 aircraft
and six Boeing 727-100 aircraft to aircraft inventory in 1992. The inventoried
aircraft were disassembled for sale of their component parts, the remainder of
which was sold to Soundair, Inc. in 1998. 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. In June 1997, the Partnership sold three McDonnell
Douglas DC-9-30 aircraft leased to TWA, and five Boeing 727-200 Advanced
aircraft leased to Continental Airlines, Inc. (Continental) to Triton Aviation
Services III LLC.

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<PAGE>

The following table describes the Partnership's aircraft portfolio at December
31, 1999 in greater detail:

Year of Cycles
Aircraft Type Serial Number Manufacture As of 10/31/99 (1)
- ------------- ------------- ----------- ------------------
McDonnell Douglas DC-9-30 47028 1967 87,527
McDonnell Douglas DC-9-30 47030 1967 86,845
McDonnell Douglas DC-9-30 47095 1967 82,669
McDonnell Douglas DC-9-30 47109 1968 85,624
McDonnell Douglas DC-9-30 47134 1967 81,772
McDonnell Douglas DC-9-30 47136 1968 81,841
McDonnell Douglas DC-9-30 47172 1968 83,033
McDonnell Douglas DC-9-30 47173 1968 86,055
McDonnell Douglas DC-9-30 47250 1968 87,215
McDonnell Douglas DC-9-30 47491 1970 78,978

(1) Cycle information as of 12/31/99 was not available.

Item 3. Legal Proceedings

Midway Airlines, Inc. (Midway) Bankruptcy - As previously reported in the
Partnership's 1998 Form 10-K, in March 1991, Midway commenced reorganization
proceedings under Chapter 11 of the Federal Bankruptcy Code in the United States
Bankruptcy Court for the Northern District of Illinois, Eastern Division. On
August 9, 1991, the Bankruptcy Court approved Midway's rejection of the leases
of the Partnership's four DC-9-10 aircraft, and the aircraft were returned to
the Partnership on August 12, 1991. On September 18, 1991, the Partnership filed
a proof of claim in Midway's bankruptcy proceeding to recover damages for lost
rent and for Midway's failure to meet return conditions with respect to the four
aircraft. In light of Midway's cessation of operations, on April 30, 1992, the
Partnership amended and restated its prior proof of claim and filed an
additional proof. To date no payment or settlement of the Partnership's
bankruptcy claims has been offered.

Kepford, et al. v. Prudential Securities, et al. -On April 13, 1994, this action
was filed in the District Court of Harris County, Texas against Polaris
Investment Management Corporation, Polaris Securities Corporation, Polaris
Holding Company, Polaris Aircraft Leasing Corporation, the Partnership, Polaris
Aircraft Income Fund I, Polaris Aircraft Income Fund II, Polaris Aircraft Income
Fund IV, Polaris Aircraft Income Fund V, Polaris Aircraft Income Fund VI,
General Electric Capital Corporation, Prudential Securities, Inc., Prudential
Insurance Company of America and James J. Darr. The complaint alleges violations
of the Texas Securities Act, the Texas Deceptive Trade Practices Act, sections
11 and 12 of the Securities Act of 1933, common law fraud, fraud in the
inducement, negligent misrepresentation, negligence, breach of fiduciary duty
and civil conspiracy arising from the defendants' alleged misrepresentation and
failure to disclose material facts in connection with the sale of limited
partnership units in the Partnership and the other Polaris Aircraft Income
Funds. Plaintiffs seek, among other things, an award of compensatory damages in
an unspecified amount plus interest, and double and treble damages under the
Texas Deceptive Trade Practices Act. The trial date for this action was set and
rescheduled by the trial court several times, and on September 2, 1999, the
court granted a stay of this action pending the submission of the remaining
plaintiffs' claims to arbitration.

Other Proceedings - Part III, Item 10 discusses certain other actions which have
been filed against the general partner in connection with certain public
offerings, including that of the Partnership. The Partnership is not a party to
these actions.

4
<PAGE>

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

None.

5
<PAGE>

PART II

Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters

a) Polaris Aircraft Income Fund III's (PAIF-III or the Partnership) units
representing assignments of Limited Partnership interest (Units) are
not publicly traded. The Units are held by Polaris Depositary III on
behalf of the Partnership's investors (Unit Holders). Currently there
is no market for PAIF-III's Units and it is unlikely that any market
will develop.

b) Number of Security Holders:

Number of Record Holders
Title of Class as of December 31, 1999
----------------------------------------- ------------------------

Depository Units Representing Assignments
Of Limited Partnership Interests: 15,776

General Partnership Interest: 1

c) Dividends:

The Partnership distributed cash to partners on a quarterly basis
beginning April 1987. Cash distributions to Unit Holders during 1999
and 1998 totaled $6,374,489 and $19,148,468, respectively. Cash
distributions per Limited Partnership unit were $12.75 and $38.30 in
1999 and 1998, respectively.

6
<PAGE>

Item 6. Selected Financial Data

<TABLE>
<CAPTION>
For the years ended December 31,
--------------------------------

1999 1998 1997 1996 1995
---- ---- ---- ---- ----

<S> <C> <C> <C> <C> <C>
Revenues $ 9,590,876 $ 10,055,914 $ 14,959,380 $ 17,077,758 $ 21,096,762

Net Income (Loss) 5,605,780 5,287,954 4,989,096 (6,803,529) 7,897,946

Net Income (Loss)
allocated to Limited
Partners 4,912,337 3,948,438 4,939,205 (8,622,805) 6,694,079

Net Income (Loss) per
Limited Partnership Unit 9.83 7.90 9.88 (17.25) 13.39

Cash Distributions per
Limited Partnership
Unit 12.75 38.30 22.20 37.75 22.50

Amount of Cash
Distributions Included
Above Representing
a Return of Capital on
a Generally Accepted
Accounting Principle
Basis per Limited
Partnership Unit* 12.75 38.30 22.20 37.75 22.50

Total Assets 36,199,898 40,019,792 58,054,962 67,014,686 82,001,364

Partners' Capital 28,675,899 30,152,885 46,144,927 53,489,164 81,264,915
</TABLE>

* The portion of such distributions which represents a return of capital on an
economic basis will depend in part on the residual sale value of the
Partnership's aircraft and thus will not be ultimately determinable until the
Partnership disposes of its aircraft. However, such portion may be significant
and may equal, exceed or be smaller than the amount shown in the above table.

7
<PAGE>

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

At December 31, 1999, Polaris Aircraft Income Fund III (the Partnership) owned a
portfolio of 10 used McDonnell Douglas DC-9-30 aircraft leased to Trans World
Airlines, Inc. (TWA) out of its original portfolio of 38 aircraft. The
Partnership transferred three McDonnell Douglas DC-9-10 aircraft and six Boeing
727-100 aircraft to aircraft inventory in 1992. The inventoried aircraft were
disassembled for sale of their component parts, the remainder of which was sold
to Soundair, Inc. in 1998. The Partnership sold eight DC-9-10 aircraft in 1992
and 1993 and three Boeing 727-200 aircraft in May 1994. In June 1997, the
Partnership sold three McDonnell Douglas DC-9-30 aircraft leased to TWA, and
five Boeing 727-200 Advanced aircraft leased to Continental Airlines, Inc.
(Continental) to Triton Aviation Services III LLC.

Remarketing Update

General - Polaris Investment Management Corporation (the General Partner or
PIMC) evaluates, from time to time, whether the investment objectives of the
Partnership are better served by continuing to hold the Partnership's remaining
portfolio of Aircraft or marketing such Aircraft for sale. This evaluation takes
into account the current and potential earnings of the Aircraft, the conditions
in the markets for lease and sale and future outlook for such markets, and the
tax consequences of selling rather than continuing to lease the Aircraft.

Partnership Operations

The Partnership reported net income of $5,605,780, or $9.83 per Limited
Partnership unit for the year ended December 31, 1999, compared to net income of
$5,287,954, or $7.90 per Limited Partnership unit and $4,989,096, or $9.88 per
Limited Partnership unit, for the years ended December 31, 1998 and 1997,
respectively. Variances in net income may not correspond to variances in net
income per Limited Partnership unit due to the allocation of components of
income and loss in accordance with the Partnership agreement.

The decrease in rental revenues, depreciation expense and management fees during
1999 and 1998, compared to 1997 was primarily attributable to the sale of 8
aircraft to Triton during 1997. Depreciation expense was further decreased in
1999 and 1998, compared to 1997, as a result of several aircraft having been
fully depreciated down to their original estimated residual values during 1998.
This decrease was partially offset by additional depreciation, due to the
Partnership's downward adjustment of the estimated residual value of the
portfolio aircraft, beginning the fourth quarter of 1999.

In November 1996, hushkits were installed on the 10 aircraft currently leased to
TWA. The leases for these 10 aircraft were extended for a period of eight years
until November 2004. The rent payable by TWA under the leases has been increased
by an amount sufficient to cover the monthly debt service payments on the
hushkits and fully repay, during the term of the TWA leases, the amount
borrowed. The Partnership recorded $581,941, $908,701 and $1,205,566 in interest
expense on the amount borrowed to finance the hushkits during 1999, 1998 and
1997, respectively.

The Partnership recorded other income of $785,094 during 1997 compared to $-0-
and $64 during 1998 and 1999, respectively. Other income, in 1997, was primarily
the result of the receipt of $743,476 related to amounts due under the TWA
maintenance credit and rent deferral agreement.

Interest income decreased during 1998, as compared to 1997, primarily due to the
payoff of notes receivable from Continental Airlines, Inc. and Triton during
1997. Interest income further decreased during 1999, as compared to 1998,
primarily due to a decrease in the cash reserves.

8
<PAGE>

Operating expense decreased in 1999, when compared to 1998 primarily due to
legal expense related to the Ron Wallace Litigation Settlement in 1998 as more
fully described below.

Administrative expenses decreased in 1999 compared 1998 and 1997 primarily due
to additional printing and postage costs incurred in 1998 as a result of the
Triton litigation and settlement.

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.

The Partnership's future earnings are impacted by the net effect of the
adjustments to the carrying value of the aircraft (which has the effect of
decreasing future depreciation expense), and the downward adjustments to the
estimated residual values (which has the effect of increasing future
depreciation expense).

The Partnership made a downward adjustment to the estimated residual value of
its aircraft as of October 1, 1999. As a result of the 1999 adjustment to the
estimated residual value, the Partnership recognized increased depreciation
expense in 1999 of approximately $311,641 or $.62 per Limited Partners unit.

Liquidity and Cash Distributions

Liquidity - The Partnership received all lease payments from lessees, except for
the $850,000 December 27, 1999 payment due from TWA, which was received on
January 3, 2000. This amount was included in rent and other receivables on the
balance sheet at December 31, 1999. While TWA has committed to an uninterrupted
flow of lease payments, there can be no assurance that TWA will continue to
honor its obligations in the future.

During 1998 and 1997, the Partnership received net proceeds from the sale of
aircraft inventory of $230,577 and $590,981, respectively. This includes the
sale of remaining inventory of aircraft parts from the four disassembled
aircraft to Soundair in 1998 for $100,000. There were no such sales in 1999.

The Partnership sold its remaining inventory of aircraft parts from the nine
disassembled aircraft, to Soundair, Inc. The remaining inventory, with a net
carrying value of $-0-, was sold effective February 1, 1998 for $100,000, less
amounts previously received for sales as of that date. The net purchase price of
$88,596 was paid in September 1998, and is included in gain on sale of aircraft
inventory.

PIMC has determined that the Partnership maintain cash reserves as a prudent
measure to ensure that the Partnership has available funds in the event that the
aircraft presently on lease to TWA require remarketing, and for other
contingencies including expenses of the Partnership. The Partnership's cash
reserves will be monitored and may be revised from time to time as further
information becomes available in the future.

As discussed in Note 3 to the financial statements (Item 8), the Partnership
agreed to share the cost of meeting certain Airworthiness Directives (ADs) with
TWA. In accordance with the cost-sharing agreement, TWA may offset up to an
additional $1.0 million against rental payments, subject to annual limitations,
over the remaining lease terms.

Cash Distributions - Cash distributions to Limited Partners were $6,374,489,
$19,148,468, and $11,100,000 in 1999, 1998 and 1997, respectively. Cash
distributions per Limited Partnership unit totaled $12.75, $38.30, and $22.20 in
1999, 1998 and 1997, respectively. The timing and amount of future cash
distributions are not yet known and will depend on the Partnership's future cash

9
<PAGE>

requirements (including expenses of the Partnership) and need to retain cash
reserves as previously discussed in the Liquidity section, and the receipt of
rental payments from TWA.

Impact of the Year 2000 Issue

To date, the Partnership has not incurred any expenditures related to the Year
2000 issue nor does it expect to incur any material costs in the future.

Sale of Aircraft and Inventory

Sale of Aircraft Inventory to Soundair, Inc. - The Partnership sold its
remaining inventory of aircraft parts from the six disassembled aircraft, to
Soundair, Inc. The remaining inventory, with a net carrying value of $-0-, was
sold effective February 1, 1998 for $100,000, less amounts previously received
for sales as of that date. The net purchase price of $88,596 was paid in
September 1998, and is included in gain on sale of aircraft inventory.

Sale of Aircraft to Triton - On May 28, 1997, PIMC, on behalf of the
Partnership, executed definitive documentation for the purchase of 8 of the
Partnership's 18 remaining aircraft (the "Aircraft") and certain of its notes
receivables by Triton Aviation Services III LLC, a special purpose company (the
"Purchaser"). The closings for the purchase of the 8 Aircraft occurred from June
5, 1997 to June 25, 1997. The Purchaser is managed by Triton Aviation Services,
Ltd. ("Triton Aviation" or the "Manager"), a privately held aircraft leasing
company which was formed in 1996 by Triton Investments, Ltd., a company which
has been in the marine cargo container leasing business for 17 years and is
diversifying its portfolio by leasing commercial aircraft. Each Aircraft was
sold subject to the existing leases.

The Terms of the Transaction - The total contract purchase price (the "Purchase
Price") to the Purchaser was $10,947,000 which was allocated to the Aircraft and
a note receivable by the Partnership. The Purchaser paid into an escrow account
$1,233,289 of the Purchase Price in cash at the closing of the first aircraft
and delivered a promissory note (the "Promissory Note") for the balance of
$9,713,711. The Partnership received payment of $1,233,289 from the escrow
account on June 26, 1997. On December 30, 1997, the Partnership received
prepayment in full of the outstanding note receivable and interest earned by the
Partnership to that date.

Under the purchase agreement, the Purchaser purchased the Aircraft effective as
of April 1, 1997 notwithstanding the actual closing dates. The utilization of an
effective date facilitated the determination of rent and other allocations
between the parties. The Purchaser had the right to receive all income and
proceeds, including rents and receivables, from the Aircraft accruing from and
after April 1, 1997, and the Promissory Note commenced bearing interest as of
April 1, 1997 subject to the closing of the Aircraft. Each Aircraft was sold
subject to the existing leases.

The Accounting Treatment of the Transaction - In accordance with GAAP, the
Partnership recognized rental income up until the closing date for each aircraft
which occurred from June 5, 1997 to June 25, 1997. However, under the terms of
the transaction, the Purchaser was entitled to receive any payments of the
rents, interest income and receivables accruing from April 1, 1997. As a result,
the Partnership made payments to the Purchaser for the amounts due and received
from April 1, 1997 to the closing date. Amounts totaling $1,341,968 during this
period are included in rents from operating leases, interest and other income.
For financial reporting purposes, the cash down payment portion of the sales
proceeds of $1,233,289 has been adjusted by the following; income and proceeds,
including rents and receivables from the effective date of April 1, 1997 to the
closing date, interest due from the Purchaser on the cash portion of the
purchase price, interest on the Promissory Note from the effective date of April
1, 1997 to the closing date and estimated selling costs. As a result of these

10
<PAGE>

GAAP adjustments, the net adjusted sales price recorded by the Partnership,
including the Promissory Note, was $9,827,305.

The Aircraft sold pursuant to the definitive documentation executed on May 28,
1997 had been classified as aircraft held for sale from that date until the
actual closing date. Under GAAP, aircraft held for sale are carried at their
fair market value less estimated costs to sell. The adjustment to the sales
proceeds described above and revisions to estimated costs to sell the Aircraft
required the Partnership to record an adjustment to the net carrying value of
the aircraft held for sale of $1,092,046 during the three months ended June 30,
1997. This adjustment to the net carrying value of the aircraft held for sale is
included in depreciation expense on the statement of operations.

Ron Wallace Litigation Settlement

Ron Wallace v. Polaris Investment Management Corporation, et al. - On or about
June 18, 1997, a purported class action entitled Ron Wallace v. Polaris
Investment Management Corporation, et al. was filed on behalf of the unitholders
of Polaris Aircraft Income Funds II through VI in the Superior Court of the
State of California, County of San Francisco. The complaint names each of
Polaris Investment Management Corporation (PIMC), GE Capital Aviation Services,
Inc. (GECAS), Polaris Aircraft Leasing Corporation, Polaris Holding Company,
General Electric Capital Corporation, certain executives of PIMC and GECAS and
John E. Flynn, a former PIMC executive, as defendants. The complaint alleges
that defendants committed a breach of their fiduciary duties with respect to the
Sale Transaction involving the Partnership as described in Item 7, under the
caption "Sale of Aircraft -- Sale of Aircraft to Triton." On September 2, 1997,
an amended complaint was filed adding additional plaintiffs, and on December 18,
1997, the plaintiffs filed a second amended complaint asserting their claims
derivatively.

On November 9, 1998, defendants, acting through their counsel, entered into a
settlement agreement with plaintiffs and with the plaintiff in a related action,
"Accelerated" High Yield Income Fund II, Ltd., L.P. v. Polaris Investment
Management Corporation, et al. The settlement agreement does not provide for any
payments to be made to the Partnership. Plaintiff's counsel sought reimbursement
from the Partnership for its attorneys' fees and expenses. A settlement notice
setting forth the terms of the settlement was mailed to the last known address
of each unitholder of the Partnership on November 20, 1998. On December 24,
1998, the Court approved the terms of the settlement and approved plaintiffs'
attorney's fees and expenses in the amount of $288,949, which is included in
1998 operating expenses.

Industry Update

Maintenance of Aging Aircraft - The process of aircraft maintenance begins at
the aircraft design stage. For aircraft operating under Federal Aviation
Administration (FAA) regulations, a review board consisting of representatives
of the manufacturer, FAA representatives and operating airline representatives
is responsible for specifying the aircraft's initial maintenance program. The
General Partner understands that this program is constantly reviewed and
modified throughout the aircraft's operational life.

Since 1988, the FAA, working with the aircraft manufacturers and operators, has
issued a series of ADs which mandate that operators conduct more intensive
inspections, primarily of the aircraft fuselages. The results of these mandatory
inspections may uncover the need for repairs or structural modifications that
may not have been required under pre-existing maintenance programs.

In addition, an AD adopted in 1990, applicable to McDonnell Douglas aircraft,
requires replacement or modification of certain structural items on a specific
timetable. These structural items were formerly subject to periodic inspection,
with replacement when necessary. The AD requires specific work to be performed
at various cycle thresholds between 40,000 and 100,000 cycles, and on specific

11
<PAGE>

date or age thresholds. The estimated cost of compliance with all of the
components of this AD is approximately $850,000 per aircraft. The extent of
modifications required to an aircraft varies according to the level of
incorporation of design improvements at manufacture.

In January 1993, the FAA adopted another AD intended to mitigate corrosion of
structural components, which would require repeated inspections from 5 years of
age throughout the life of an aircraft, with replacement of corroded components
as needed. Integration of the new inspections into each aircraft operator's
maintenance program was required by January 31, 1994.

The Partnership's existing leases require the lessees to maintain the
Partnership's aircraft in accordance with an FAA-approved maintenance program
during the lease term. At the end of the leases, each lessee is generally
required to return the aircraft in airworthy condition, including compliance
with all ADs for which action is mandated by the FAA during the lease term. The
Partnership agreed to bear a portion of certain maintenance and/or AD compliance
costs, as discussed in Item 1, with respect to the aircraft leased to TWA. An
aircraft returned to the Partnership as a result of a lease default would most
likely not be returned to the Partnership in compliance with all return
conditions required by the lease. In negotiating subsequent leases, market
conditions currently generally require that the Partnership bear some or all of
the costs of compliance with future ADs or ADs that have been issued, but which
did not require action during the previous lease term. The ultimate effect on
the Partnership of compliance with the FAA maintenance standards is not
determinable at this time and will depend on a variety of factors, including the
state of the commercial aircraft industry, the timing of the issuance of ADs,
and the status of compliance therewith at the expiration of the current leases.

Aircraft Noise - Another issue which has affected the airline industry is that
of aircraft noise levels. The FAA has categorized aircraft according to their
noise levels. Stage 1 aircraft, which have the highest noise level, are no
longer allowed to operate from civil airports in the United States. Stage 2
aircraft meet current FAA requirements, subject to the phase-out rules discussed
below. Stage 3 aircraft are the most quiet and Stage 3 is the standard for all
new aircraft.

On September 24, 1991, the FAA issued final rules on the phase-out of Stage 2
aircraft by the end of this decade. The key features of the rule include:

- Compliance can be accomplished through a gradual process of
phase-in or phase-out (see below) on each of three interim
compliance dates: December 31, 1994, 1996 and 1998. All Stage
2 aircraft must be phased out of operations in the contiguous
United States by December 31, 1999, with waivers available in
certain specific cases to December 31, 2003.

- All operators have the option of achieving compliance through
a gradual phase-out of Stage 2 aircraft (i.e., eliminate 25%
of its Stage 2 fleet on each of the compliance dates noted
above), or a gradual phase-in of Stage 3 aircraft (i.e., 55%,
65% and 75% of an operator's fleet must consist of Stage 3
aircraft by the respective interim compliance dates noted
above).

The federal rule does not prohibit local airports from issuing more stringent
phase-out rules. In fact, several local airports have adopted more stringent
noise requirements which restrict the operation of Stage 2 and certain Stage 3
aircraft.

Other countries have also adopted noise policies. The European Union (EU)
adopted a non-addition rule in 1989, which directed each member country to pass
the necessary legislation to prohibit airlines from adding Stage 2 aircraft to
their fleets after November 1, 1990, with all Stage 2 aircraft phased-out by the
year 2002. The International Civil Aviation Organization has also endorsed the
phase-out of Stage 2 aircraft on a world-wide basis by the year 2002.

12
<PAGE>

Hushkit modifications, which allow Stage 2 aircraft to meet Stage 3
requirements, are currently available for the Partnership's aircraft. Hushkits
were added to 10 of the Partnership's Stage 2 aircraft in 1996.

Currently, legislation has been drafted and is under review by the EU to adopt
anti-hushkitting regulations within member states. The legislation seeks to ban
hushkitted aircraft from being added to member states registers after May 1,
2000 (deferred from an April 1, 1999 deadline) and will preclude all operation
of hushkitted aircraft within the EU by April 1, 2002. The effect of this
proposal has been to reduce the demand for hushkitted aircraft within the EU and
its neighboring states, including the former Eastern Block states.

Demand for Aircraft - At year end 1999, there were approximately 13,550 jet
aircraft in the world fleet. Approximately 1,800 aircraft were leased or sold
during 1999, an increase of 9% over 1998. Air travel continued to be strong in
1999 with traffic growth around the 5% level. In 2000 traffic is projected to
drop off slightly to an estimated growth rate of 4.5%. Surging fuel prices in
1999 hit the Gulf War levels as airlines added a $20 surcharge to their tickets.
The increase in fuel prices cost the industry an approximate $350 million in the
fourth quarter of 1999. Alliances continued to evolve in 1999 as airlines
aligned themselves with code sharing, joint pricing, schedule integration and
corporate agreements. The stage II fleet was projected to drop to 5% at year end
1999 and to 2% in 2002. During 1999 Airbus captured 55% of the orders placed as
they outpaced Boeing by 10%. Manufacturers continue to produce at high levels
compared to what demand will require in the future years. Asia has improved over
1998, however South America continues its economic turmoil. Timing of when the
down cycle ends or how severe it will be is still in question, however it should
be less severe than anticipated in 1998.

Effects on the Partnership's Aircraft - 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.

As discussed above, the Partnership uses information obtained from third party
valuation services in arriving at its estimate of fair value for purposes of
determining residual values. The Partnership will use similar information, plus
available information and estimates related to the Partnership's aircraft, to
determine an estimate of fair value to measure impairment as required by SFAS
No. 121. The estimates of fair value can vary dramatically depending on the
condition of the specific aircraft and the actual marketplace conditions at the
time of the actual disposition of the asset. If assets are deemed impaired,
there could be substantial write-downs in the future.

13
<PAGE>

Item 8. Financial Statements and Supplementary Data

POLARIS AIRCRAFT INCOME FUND III,
A California Limited Partnership

FINANCIAL STATEMENTS AS OF DECEMBER 31, 1999 AND 1998

AND FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

TOGETHER WITH THE

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

14
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Partners of
Polaris Aircraft Income Fund III,
A California Limited Partnership:

We have audited the accompanying balance sheets of Polaris Aircraft Income Fund
III, A California Limited Partnership as of December 31, 1999 and 1998, and the
related statements of operations, changes in partners' capital (deficit) and
cash flows for each of the three years in the period ended December 31, 1999.
These financial statements are the responsibility of the General Partner. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. 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
General Partner, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Polaris Aircraft Income Fund
III, A California Limited Partnership as of December 31, 1999 and 1998, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1999, in conformity with generally accepted accounting
principles.

ARTHUR ANDERSEN LLP

San Francisco, California,
January 21, 2000

15
<PAGE>

POLARIS AIRCRAFT INCOME FUND III,
A California Limited Partnership

BALANCE SHEETS

DECEMBER 31, 1999 AND 1998

1999 1998
---- ----
ASSETS:

CASH AND CASH EQUIVALENTS $ 12,317,505 $ 13,423,701

RENT AND OTHER RECEIVABLES 863,257 850,748

AIRCRAFT, net of accumulated depreciation
of $59,165,441 in 1999 and $56,439,234 in 1998 23,019,136 25,745,343
------------ ------------

Total Assets $ 36,199,898 $ 40,019,792
============ ============

LIABILITIES AND PARTNERS' CAPITAL (DEFICIT):

PAYABLE TO AFFILIATES $ 170,274 $ 115,888

ACCOUNTS PAYABLE AND ACCRUED
LIABILITIES 127,948 121,632

DEFERRED INCOME 3,047,843 1,837,210

NOTES PAYABLE 4,177,934 7,792,177
------------ ------------

Total Liabilities 7,523,999 9,866,907
------------ ------------

PARTNERS' CAPITAL (DEFICIT):
General Partner (3,657,030) (3,642,196)
Limited Partners, 499,960 units
issued and outstanding 32,332,929 33,795,081
------------ ------------

Total Partners' Capital (Deficit) 28,675,899 30,152,885
------------ ------------

Total Liabilities and Partners' Capital
(Deficit) $ 36,199,898 $ 40,019,792
============ ============

The accompanying notes are an integral part of these statements.

16
<PAGE>

POLARIS AIRCRAFT INCOME FUND III,
A California Limited Partnership

STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

1999 1998 1997
---- ---- ----

REVENUES:
Rent from operating leases $ 8,989,368 $ 8,989,368 $11,965,617
Interest 601,444 835,969 1,617,688
Gain on sale of aircraft inventory -- 230,577 590,981
Other 64 -- 785,094
----------- ----------- -----------

Total Revenues 9,590,876 10,055,914 14,959,380
----------- ----------- -----------

EXPENSES:
Depreciation 2,726,207 2,826,371 7,930,392
Management fees to General Partner 347,147 347,147 420,482
Interest 581,941 908,701 1,205,566
Operating 17,722 318,160 33,158
Administration and other 312,079 367,581 380,686
----------- ----------- -----------

Total Expenses 3,985,096 4,767,960 9,970,284
----------- ----------- -----------

NET INCOME $ 5,605,780 $ 5,287,954 $ 4,989,096
=========== =========== ===========

NET INCOME ALLOCATED TO
THE GENERAL PARTNER $ 693,443 $ 1,339,516 $ 49,891
=========== =========== ===========

NET INCOME ALLOCATED TO
THE LIMITED PARTNERS $ 4,912,337 $ 3,948,438 $ 4,939,205
=========== =========== ===========

NET INCOME PER LIMITED
PARTNERSHIP UNIT $ 9.83 $ 7.90 $ 9.88
=========== =========== ===========

The accompanying notes are an integral part of these statements.

17
<PAGE>

POLARIS AIRCRAFT INCOME FUND III,
A California Limited Partnership

STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)

FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

General Limited
Partner Partners Total
------- -------- -----

Balance, December 31, 1996 $ (1,670,662) $ 55,159,826 $ 53,489,164

Net income 49,891 4,939,205 4,989,096

Cash distributions to partners (1,233,333) (11,100,000) (12,333,333)
------------ ------------ ------------

Balance, December 31, 1997 (2,854,104) 48,999,031 46,144,927

Net income 1,339,516 3,948,438 5,287,954

Capital redemptions -- (3,920) (3,920)

Cash distributions to partners (2,127,608) (19,148,468) (21,276,076)
------------ ------------ ------------

Balance, December 31, 1998 (3,642,196) 33,795,081 30,152,885

Net income 693,443 4,912,337 5,605,780

Cash distributions to partners (708,277) (6,374,489) (7,082,766)
------------ ------------ ------------

Balance, December 31, 1999 $ (3,657,030) $ 32,332,929 $ 28,675,899
============ ============ ============

The accompanying notes are an integral part of these statements.

18
<PAGE>

POLARIS AIRCRAFT INCOME FUND III,
A California Limited Partnership

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 5,605,780 $ 5,287,954 $ 4,989,096
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 2,726,207 2,826,371 7,930,392
Gain on sale of aircraft inventory -- (230,577) (590,981)
Changes in operating assets and liabilities:
Decrease (increase) in rent and other
receivables (12,509) 12 (498,866)
Decrease in other assets -- -- 104,275
Increase (decrease) in payable to affiliates 54,386 (7,354) 37,237
Increase (decrease) in accounts payable
and accrued liabilities 6,316 41,421 (43,147)
Increase in deferred income 1,210,633 1,210,632 166,498
------------ ------------ ------------

Net cash provided by operating activities 9,590,813 9,128,459 12,094,504
------------ ------------ ------------

INVESTING ACTIVITIES:
Proceeds from sale of aircraft inventory -- 230,577 590,981
Proceeds from sale of aircraft -- -- 1,506,762
Payments to Purchaser related to sale of aircraft -- -- (1,341,968)
Principal payments on notes receivable -- -- 9,713,711
------------ ------------ ------------

Net cash provided by investing activities -- 230,577 10,469,486
------------ ------------ ------------

FINANCING ACTIVITIES:
Principal payments on notes payable (3,614,243) (3,287,827) (1,827,274)
Capital redemptions -- (3,920) --
Cash distributions to partners (7,082,766) (21,276,076) (12,333,333)
------------ ------------ ------------

Net cash used in financing activities (10,697,009) (24,567,823) (14,160,607)
------------ ------------ ------------

CHANGES IN CASH AND CASH
EQUIVALENTS (1,106,196) (15,208,787) 8,403,383

CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 13,423,701 28,632,488 20,229,105
------------ ------------ ------------

CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 12,317,505 $ 13,423,701 $ 28,632,488
============ ============ ============
</TABLE>

The accompanying notes are an integral part of these statements.

19
<PAGE>

POLARIS AIRCRAFT INCOME FUND III,
A California Limited Partnership

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1999

1. Accounting Principles and Policies

Accounting Method - Polaris Aircraft Income Fund III, A California Limited
Partnership (PAIF-III or the Partnership), maintains its accounting records,
prepares its financial statements and files its tax returns on the accrual basis
of accounting. The preparation of financial statements in conformity with
generally accepted accounting principles (GAAP) requires management to make
estimates and assumptions that affect reported amounts and related disclosures.
Actual results could differ from those estimates. The most significant estimates
with regard to these financial statements are related to the projected cash
flows analysis in determining the fair value of assets.

Cash and Cash Equivalents - This includes deposits at banks and investments in
money market funds. Cash and Cash Equivalents is stated at cost, which
approximates fair value.

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. 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 will be 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 in Note 3, 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.

Aircraft Inventory - Aircraft held in inventory for sale are reflected at the
lower of depreciated cost or estimated net realizable value. Proceeds from sales
are applied against inventory until the book value is fully recovered. The
remaining book value of the inventory was recovered in 1996. The Partnership
sold its remaining inventory of aircraft parts in 1998. Proceeds in excess of
the inventory net book value are recorded as revenue when received.

Operating Leases - The aircraft leases are accounted for as operating leases.
Lease revenues are recognized in equal installments over the terms of the
leases.

20
<PAGE>

Operating Expenses - Operating expenses include costs incurred to maintain,
insure and lease the Partnership's aircraft, including costs related to lessee
defaults and costs of disassembling aircraft inventory.

Net Income Per Limited Partnership Unit - Net income per Limited Partnership
unit is based on the Limited Partners' share of net income or loss and the
number of units outstanding of 499,960 for the year ended December 31, 1999 and
1998, and 500,000 for the year ended December 31, 1997.

Income Taxes - The Partnership files federal and state information income tax
returns only. Taxable income or loss is reportable by the individual partners.

2. Organization and the Partnership

The Partnership was formed on June 27, 1984 for the purpose of acquiring and
leasing aircraft. The Partnership will terminate no later than December 2020.
Upon organization, both the General Partner and the depositary contributed $500
to capital. The Partnership recognized no profits and losses during the periods
ended December 31, 1984 and 1985. The offering of depositary units (Units),
representing assignments of Limited Partnership interest, terminated on
September 30, 1987 at which time the Partnership had sold 500,000 Units of $500,
representing $250,000,000. All unit holders were admitted to the Partnership on
or before September 30, 1987. During January 1998, 40 units were redeemed by the
Partnership in accordance with section 18 of the Limited Partnership agreement.
At December 31, 1999, there were 499,960 units outstanding, net of redemptions.

Polaris Investment Management Corporation (PIMC), the sole General Partner of
the Partnership, supervises the day-to-day operations of the Partnership.
Polaris Depository Company III (PDC) serves as the depositary. PIMC and PDC are
wholly-owned subsidiaries of Polaris Aircraft Leasing Corporation (PALC).
Polaris Holding Company (PHC) is the parent company of PALC. General Electric
Capital Corporation (GE Capital), an affiliate of General Electric Company, owns
100% of PHC's outstanding common stock. PIMC has entered into a services
agreement dated as of July 1, 1994 with GE Capital Aviation Services, Inc.
(GECAS). Allocations to affiliates are described in Notes 8 and 9.

3. Aircraft

At December 31, 1999, the Partnership owned 10 aircraft from its original
portfolio of 38 used commercial jet aircraft, which were acquired and leased or
sold as discussed below. All aircraft were acquired from an affiliate and
purchased within one year of the affiliate's acquisition at the affiliate's
original price paid. The aircraft leases are net operating leases, requiring the
lessees to pay all operating expenses associated with the aircraft during the
lease term. While the leases require the lessees to comply with Airworthiness
Directives (ADs) which have been or may be issued by the Federal Aviation
Administration and require compliance during the lease term, in certain of the
leases, the Partnership has agreed to share in the cost of compliance with ADs.
TWA may offset up to an additional $1.0 million against rental payments, subject
to annual limitations, over the remaining lease terms. The leases generally
state a minimum acceptable return condition for which the lessee is liable under
the terms of the lease agreement. Certain leases also provide that if the
aircraft are returned at a level above the minimum acceptable level, the
Partnership must reimburse the lessee for the related excess, subject to certain
limitations. The related liability, if any, is currently inestimable and
therefore is not reflected in the financial statements. Of its original
portfolio of 38 aircraft, the Partnership sold one aircraft in 1992, seven
aircraft in 1993, three aircraft in 1994 and eight aircraft in 1997. In
addition, nine aircraft were disassembled for sale of their component parts
(Note 6), the remainder of which was sold to Soundair, Inc. in 1998.

21
<PAGE>

The following table describes the Partnership's aircraft portfolio at December
31, 1999 in greater detail:

Year of
Aircraft Type Serial Number Manufacture
- ------------- ------------- -----------
McDonnell Douglas DC-9-30 47028 1967
McDonnell Douglas DC-9-30 47030 1967
McDonnell Douglas DC-9-30 47095 1967
McDonnell Douglas DC-9-30 47109 1968
McDonnell Douglas DC-9-30 47134 1967
McDonnell Douglas DC-9-30 47136 1968
McDonnell Douglas DC-9-30 47172 1968
McDonnell Douglas DC-9-30 47173 1968
McDonnell Douglas DC-9-30 47250 1968
McDonnell Douglas DC-9-30 47491 1970

Ten McDonnell Douglas DC-9-30s - Initially thirteen aircraft were acquired for
$86,163,046 during 1986 and 1987, and leased to Ozark Air Lines, Inc. (Ozark).
In 1987, Trans World Airlines, Inc. (TWA) merged with Ozark and assumed the
leases. The leases were modified and extended prior to TWA's bankruptcy filing.
In June 1997, three of the thirteen aircraft were sold, subject to the existing
leases, to Triton Aviation Services III LLC, as discussed in Note 4. The leases
for 10 of the 13 aircraft were extended again for eight years until November
2004.

The following is a schedule by year of future minimum rental revenue under the
existing leases:

Year Amount
---- ------
2000 $10,200,000
2001 10,200,000
2002 7,450,000
2003 7,200,000
2004 6,000,000
-----------
$41,050,000
===========

Future minimum rental payments may be offset or reduced by future costs as
described above.

As discussed in Note 1, 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.

22
<PAGE>

condition of the specific aircraft and the actual marketplace conditions at the
time of the actual disposition of the asset. If assets are deemed impaired,
there could be substantial write-downs in the future.

The General Partner evaluates, from time to time, whether the investment
objectives of the Partnership are better served by continuing to hold the
Partnership's remaining portfolio of Aircraft or marketing such Aircraft for
sale. This evaluation takes into account the current and potential earnings of
the Aircraft, the conditions in the markets for lease and sale and future
outlook for such markets, and the tax consequences of selling rather than
continuing to lease the Aircraft. The General Partner has had discussions with
third parties regarding the possibility of selling some or all of these
Aircraft. While such discussions may continue, and similar discussions may occur
again in the future, there is no assurance that such discussions will result in
the Partnership receiving a purchase offer for all or any of the Aircraft which
the General Partner would regard as acceptable.

4. Sale of Aircraft

23
<PAGE>

5. Ron Wallace Litigation Settlement

Ron Wallace v. Polaris Investment Management Corporation, et al. - On or about
June 18, 1997, a purported class action entitled Ron Wallace v. Polaris
Investment Management Corporation, et al. was filed on behalf of the unitholders
of Polaris Aircraft Income Funds II through VI in the Superior Court of the
State of California, County of San Francisco. The complaint names each of
Polaris Investment Management Corporation (PIMC), GE Capital Aviation Services,
Inc. (GECAS), Polaris Aircraft Leasing Corporation, Polaris Holding Company,
General Electric Capital Corporation, certain executives of PIMC and GECAS and
John E. Flynn, a former PIMC executive, as defendants. The complaint alleges
that defendants committed a breach of their fiduciary duties with respect to the
Sale Transaction involving the Partnership as described in Note 4, under the
caption "Sale of Aircraft -- Sale of Aircraft to Triton." On September 2, 1997,
an amended complaint was filed adding additional plaintiffs, and on December 18,
1997, the plaintiffs filed a second amended complaint asserting their claims
derivatively.

6. Disassembly of Aircraft

In an attempt to maximize the economic return from three of the remaining four
McDonnell Douglas DC-9-10 aircraft formerly leased to Midway Airlines, Inc.
(Midway) and the six Boeing 727-100 aircraft formerly leased to Continental
Airlines, Inc. (Continental), the Partnership entered into an agreement with
Soundair, Inc. (Soundair) for the disassembly and sale of these aircraft in
1992.

The Partnership has incurred the cost of disassembly and received the proceeds
from the sale of such parts, net of necessary overhaul expenses, and commissions
paid to Soundair. During 1998 and 1997, the Partnership received net proceeds
from the sale of aircraft inventory of $230,577 (including the proceeds
discussed below) and $590,981, respectively. There were no such receipts in
1999.

24
<PAGE>

7. TWA Lease Extension

GECAS, on behalf of the Partnership, negotiated with TWA for the acquisition of
noise-suppression devices, commonly known as "hushkits", for the 10 Partnership
aircraft currently on lease to TWA, as well as other aircraft owned by
affiliates of PIMC and leased to TWA. The 10 aircraft that received hushkits
were designated by TWA. The hushkits recondition the aircraft so as to meet
Stage 3 noise level restrictions. Installation of the 10 hushkits on the
Partnership's aircraft was completed in November 1996 and the leases for these
10 aircraft were extended for a period of eight years until November 2004.

The aggregate cost of the hushkit reconditioning was $15,930,822, or
approximately $1.6 million per aircraft, which was capitalized by the
Partnership. The Partnership paid $3.0 million of the aggregate hushkit cost and
the balance of $12,930,822 was financed by the engine/hushkit manufacturer over
50 months (through December 2000) at an interest rate of approximately 10% per
annum. Cash paid for interest expense on the loan was $585,758, $912,172 and
$1,100,648 in 1999, 1998 and 1997, respectively.

The rent payable by TWA under the leases was increased by an amount sufficient
to cover the monthly debt service payments on the hushkits and fully repay,
during the term of the TWA leases, the amount borrowed. The loan from the
engine/hushkit manufacturer is non-recourse to the Partnership and secured by a
security interest in the lease receivables.

8. Related Parties

Under the Limited Partnership Agreement (Partnership Agreement), the Partnership
paid or agreed to pay the following amounts to PIMC and/or its affiliates in
connection with services rendered:

a. An aircraft management fee equal to 5% of gross rental revenues with
respect to operating leases or 2% of gross rental revenues with respect to
full payout leases of the Partnership, payable upon receipt of the rent.
In 1999, 1998 and 1997, the Partnership paid management fees to PIMC of
$300,000, $300,000, and $369,396, respectively. Management fees payable to
PIMC were $151,823 and $104,676 at December 31, 1999 and 1998,
respectively.

b. Reimbursement of certain out-of-pocket expenses incurred in connection
with the management of the Partnership and supervision of its assets. In
1999, 1998 and 1997, the Partnership reimbursed PIMC for expenses of
$309,612, $714,049, and $470,603, respectively. Reimbursements totaling
$18,451 and $11,211 were payable to PIMC at December 31, 1999 and 1998,
respectively.

c. A 10% interest to PIMC in all cash distributions and sales proceeds, gross
income in an amount equal to 9.09% of distributed cash available from
operations and 1% of net income or loss and taxable income or loss, as
such terms are defined in the Partnership Agreement. After the Partnership
has sold or disposed of aircraft representing 50% of the total aircraft
cost, gains from the sale or other disposition of aircraft are generally
allocated first to the General Partner until such time that the General
Partner's capital account is equal to the amount to be distributed to the
General Partner from the proceeds of such sale or disposition.

25
<PAGE>

d. A subordinated sales commission to PIMC of 3% of the gross sales price of
each aircraft for services performed upon disposition and reimbursement of
out-of-pocket and other disposition expenses. Subordinated sales
commissions will be paid only after unit holders have received
distributions in an aggregate amount equal to their capital contributions
plus a cumulative non-compounded 8% per annum return on their adjusted
capital contributions, as defined in the Partnership Agreement. The
Partnership did not pay or accrue a sales commission on any aircraft sales
to date as the subordination threshold has not been met.

e. In the event that, immediately prior to the dissolution and termination of
the Partnership, the General Partner shall have a deficit balance in its
tax basis capital account, then the General Partner shall contribute in
cash to the capital of the Partnership an amount which is equal to such
deficit (see Note 9).

9. Partners' Capital

The Partnership Agreement (the Agreement) stipulates different methods by which
revenue, income and loss from operations and gain or loss on the sale of
aircraft are to be allocated to the General Partner and the Limited Partners
(see Note 8). Such allocations are made using income or loss calculated under
GAAP for book purposes, which, as more fully described in Note 11, varies from
income or loss calculated for tax purposes.

Cash available for distributions, including the proceeds from the sale of
aircraft, is distributed 10% to the General Partner and 90% to the Limited
Partners.

The different methods of allocating items of income, loss and cash available for
distribution combined with the calculation of items of income and loss for book
and tax purposes result in book basis capital accounts that may vary
significantly from tax basis capital accounts. The ultimate liquidation and
distribution of remaining cash will be based on the tax basis capital accounts
following liquidation, in accordance with the Agreement.

Had all the assets of the Partnership been liquidated at December 31, 1999 at
the current carrying value, the tax basis capital accounts of the General
Partner and the Limited Partners is estimated to be $2,301,914 and $29,421,827,
respectively.

10. Income Taxes

Federal and state income tax regulations provide that taxes on the income or
loss of the Partnership are reportable by the partners in their individual
income tax returns. Accordingly, no provision for such taxes has been made in
the financial statements.

The net differences between the tax basis and the reported amounts of the
Partnership's assets and liabilities at December 31, 1999 and 1998 are as
follows:

Reported Amounts Tax Basis Net Difference
---------------- --------- --------------

1999: Assets $36,199,898 $19,838,816 $16,361,082
Liabilities 7,523,999 4,461,131 3,062,868

1998: Assets $40,019,792 $23,550,781 $16,469,011
Liabilities 9,866,907 8,144,706 1,722,201

26
<PAGE>

11. Reconciliation of Book Net Income to Taxable Net Income

The following is a reconciliation between net income per Limited Partnership
unit reflected in the financial statements and the information provided to
Limited Partners for federal income tax purposes:

For the years ended December 31,
--------------------------------

1999 1998 1997
---- ---- ----

Book net income per Limited Partnership unit $ 9.83 $ 7.90 $ 9.88
Adjustments for tax purposes represent
differences between book and tax revenue
and expenses:
Rental revenue 2.40 2.40 (0.53)
Management fee expense 0.23 (0.15) 0.06
Depreciation 0.21 (1.37) 5.12
Gain or loss on sale of aircraft - - 9.00
Basis in inventory - - (0.40)
Other revenue and expense items - 0.84 -
------ ------ -------

Taxable net income per Limited Partnership
unit $12.67 $ 9.62 $23.13
====== ====== ======

The differences between net income and loss for book purposes and net income and
loss for tax purposes result from the temporary differences of certain revenue
and deductions.

For book purposes, rental revenue is generally recorded as it is earned. For tax
purposes, certain temporary differences exist in the recognition of revenue. For
tax purposes, management fee expense is accrued in the same year as the tax
basis rental revenue.

The Partnership computes depreciation using the straight-line method for
financial reporting purposes and generally an accelerated method for tax
purposes. The Partnership also periodically evaluates the ultimate
recoverability of the carrying values and the economic lives of its aircraft for
book purposes and, accordingly recognized adjustments which increased book
depreciation expense. As a result, the current year book depreciation expense is
greater than the tax depreciation expense. These differences in depreciation
methods result in book to tax differences on the sale of aircraft. In addition,
certain costs were capitalized for tax purposes and expensed for book purposes.

For book purposes, aircraft held in inventory are reflected at the lower of
depreciable cost or estimated net realizable value. Differences in book and tax
revenue and loss from inventory result from the differences in the book and tax
carrying value of the inventory.

12. Subsequent Events

The Partnership made a cash distribution of $1,324,894 or $2.65 per Limited
Partnership unit, to Limited Partners, and $147,210 to the General Partner on
January 14, 2000.

27
<PAGE>

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

None.

28
<PAGE>

PART III

Item 10. Directors and Executive Officers of the Registrant

Polaris Aircraft Income Fund III, A California Limited Partnership (PAIF-III or
the Partnership) has no directors or officers. Polaris Holding Company (PHC) and
its subsidiaries, including Polaris Aircraft Leasing Corporation (PALC) and
Polaris Investment Management Corporation (PIMC), the General Partner of the
Partnership (collectively Polaris), restructured their operations and businesses
(the Polaris Restructuring) in 1994. In connection therewith, PIMC entered into
a services agreement dated as of July 1, 1994 (the Services Agreement) with GE
Capital Aviation Services, Inc. (GECAS), a Delaware corporation which is a
wholly owned subsidiary of General Electric Capital Corporation, a New York
corporation (GE Capital). GE Capital has been PHC's parent company since 1986.
As subsidiaries of GE Capital, GECAS and PIMC are affiliates.

The officers and directors of PIMC are:

Name PIMC Title
---- -----------

Eric M. Dull President; Director
Marc A. Meiches Chief Financial Officer
Barbara Macholl Director
Norman C. T. Liu Vice President; Director
Ray Warman Secretary
Robert W. Dillon Assistant Secretary

Substantially all of these management personnel will devote only such portion of
their time to the business and affairs of PIMC as deemed necessary or
appropriate.

Mr. Dull, 39, assumed the position of President and Director of PIMC effective
January 1, 1997. Mr. Dull previously was a Director of PIMC from March 31, 1995
to July 31, 1995. Mr. Dull holds the position of Executive Vice President - Risk
and Portfolio Management of GECAS, having previously held the positions of
Executive Vice President - Portfolio Management and Senior Vice President -
Underwriting Risk Management of GECAS. Prior to joining GECAS, Mr. Dull held
various positions with Transportation and Industrial Funding Corporation (TIFC).

Mr. Meiches, 47, assumed the position of Chief Financial Officer of PIMC
effective October 9, 1995. Previously, he held the position of Vice President of
PIMC from October 1995 to October 1997. Mr. Meiches presently holds the
positions of Executive Vice President and Chief Financial and Operating Officer
of GECAS. Prior to joining GECAS, Mr. Meiches has been with General Electric
Company (GE) and its subsidiaries since 1978. Since 1992, Mr. Meiches held the
position of Vice President of the General Electric Capital Corporation Audit
Staff. Between 1987 and 1992, Mr. Meiches held Manager of Finance positions for
GE Re-entry Systems, GE Government Communications Systems and the GE Astro-Space
Division.

Ms. Macholl, 46, assumed the position of Director of PIMC effective February 27,
1999. Ms. Macholl presently holds the position of Senior Vice President,
Marketing Finance for GECAS. Prior to joining GECAS, Ms. Macholl has been with
the General Electric Company (GE) and its subsidiaries since 1977. Ms. Macholl
previously held the position of Vice President Finance for CBSI Inc., a wholly
owned subsidiary of the General Electric Company. Ms. Macholl has also held
various financial management positions for the GE Lighting business.

29
<PAGE>

Mr. Liu, 42, assumed the position of Vice President of PIMC effective May 1,
1995 and Director of PIMC effective July 31, 1995. Mr. Liu presently holds the
position of Executive Vice President - Marketing and Structured Finance of
GECAS, having previously held the position of Executive Vice President - Capital
Funding and Portfolio Management of GECAS. Prior to joining GECAS, Mr. Liu was
with General Electric Capital Corporation for nine years. He has held management
positions in corporate Business Development and in Syndications and Leasing for
TIFC. Mr. Liu previously held the position of managing director of Kidder,
Peabody & Co., Incorporated.

Mr. Warman, 51, assumed the position of Secretary of PIMC effective March 23,
1998. Mr. Warman has served as a GECAS Senior Vice President and Associate
General Counsel since March 1996, and for 13 years theretofore was a partner,
with an air-finance and corporate practice of the national law firm of Morgan,
Lewis & Bockius LLP.

Mr. Dillon, 58, held the position of Vice President - Aviation Legal and
Insurance Affairs, from April 1989 to October 1997. Previously, he served as
General Counsel of PIMC and PALC effective January 1986. Effective July 1, 1994,
Mr. Dillon assumed the position of Assistant Secretary of PIMC. Mr. Dillon
presently holds the position of Senior Vice President and Associate General
Counsel of GECAS.

Certain Legal Proceedings:

On or around September 27, 1995, a complaint entitled Martha J. Harrison v.
General Electric Company, et al. was filed in the Civil District Court for the
Parish of Orleans, State of Louisiana. The complaint names as defendants General
Electric Company and Prudential Securities Incorporated. The Partnership is not
named as a defendant in this action. 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 IV. Plaintiff seeks compensatory damages,
attorney's fees, interest, costs and general relief.

On or around December 8, 1995, a complaint entitled Overby, 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 names as defendants General Electric
Company and General Electric Capital Corporation. The Partnership is not named
as a defendant in this action. 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 in
connection with the public offering of Polaris Aircraft Income Funds III and IV.
Plaintiffs seek compensatory damages, attorneys' fees, interest, costs and
general relief.

In or around November 1994, a complaint entitled Lucy R. Neeb, et al. 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
December 20, 1995, plaintiffs filed a First Supplemental and Amending Petition
adding as additional defendants General Electric Company, General Electric
Capital Corporation and Smith Barney, Inc. The Partnership is not named as a
defendant in this action. 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 in connection
with the public offering of Polaris Aircraft Income Funds III and IV. Plaintiffs
seek compensatory damages, attorneys' fees, interest, costs and general relief.

30
<PAGE>

In or about January of 1995, a complaint entitled Albert B. Murphy, 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
January 18, 1996, plaintiff filed a First Supplemental and Amending Petition
adding defendants General Electric Company and General Electric Capital
Corporation. The Partnership is not named as a defendant in this action.
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 in connection with the public offering of
Polaris Aircraft Income Funds III and IV. Plaintiffs seek compensatory damages,
attorneys' fees, interest, costs and general relief.

On or about January 22, 1996, a complaint entitled Mrs. Rita Chambers, et al. v.
General Electric Co., et al. was filed in the Civil District Court for the
Parish of Orleans, State of Louisiana. The complaint names as defendants General
Electric Company and General Electric Capital Corporation. The Partnership is
not named as a defendant in this action. 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
in connection with the public offering of Polaris Aircraft Income Fund IV.
Plaintiffs seek compensatory damages, attorneys' fees, interest, costs and
general relief.

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. The Partnership is not named as a defendant in this action.
Plaintiff alleges claims of tort, breach of fiduciary duty in tort, contract and
quasi-contract, violation of section 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.

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. The Partnership is
not named as a defendant in this action. 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.

On or about May 7, 1996, a petition entitled Charles Rich, et al. v. General
Electric Company and General Electric Capital Corporation was filed in the Civil
District Court for the Parish of Orleans, State of Louisiana. The complaint
names as defendants General Electric Company and General Electric Capital
Corporation. The Partnership is not named as a defendant in this action.
Plaintiffs allege claims of tort 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.

On or about March 4, 1996, a petition entitled Richard J. McGiven v. General
Electric Company and General Electric Capital Corporation was filed in the Civil
District Court for the Parish of Orleans, State of Louisiana. The complaint

31
<PAGE>

names as defendants General Electric Company and General Electric Capital
Corporation. The Partnership is not named as a defendant in this action.
Plaintiff alleges claims of tort concerning the inducement and solicitation of
purchases arising out of the public offering of Polaris Aircraft Income Fund V.
Plaintiff seeks compensatory damages, attorneys' fees, interest, costs and
general relief.

On or about March 4, 1996, a petition entitled Alex M. Wade v. General Electric
Company and General Electric Capital Corporation was filed in the Civil District
Court for the Parish of Orleans, State of Louisiana. The complaint names as
defendants General Electric Company and General Electric Capital Corporation.
The Partnership is not named as a defendant in this action. Plaintiff alleges
claims of tort concerning the inducement and solicitation of purchases arising
out of the public offering of Polaris Aircraft Income Fund V. Plaintiff seeks
compensatory damages, attorneys' fees, interest, costs and general relief.

Other Proceedings - Part I, Item 3 discusses certain other actions arising out
of certain public offerings, including that of the Partnership, to which both
the Partnership and its general partner are parties.

Item 11. Executive Compensation

PAIF-III has no directors or officers. PAIF-III is managed by PIMC, the General
Partner. In connection with management services provided, management and
advisory fees of $300,000 were paid to PIMC in 1999 in addition to a 10%
interest in all cash distributions as described in Note 8 to the financial
statements (Item 8).

Item 12. Security Ownership of Certain Beneficial Owners and Management

a) No person owns of record, or is known by PAIF-III to own beneficially
more than five percent of any class of voting securities of PAIF-III.

b) The General Partner of PAIF-III owns the equity securities of PAIF-III
as set forth in the following table:

Title Name of Amount and Nature of Percent
of Class Beneficial Owner Beneficial Ownership of Class
-------- ---------------- -------------------- --------

General Polaris Investment Represents a 10.0% interest 100%
Partner Management of all cash distributions,
Interest Corporation gross income in an amount
equal to 9.09% of distributed
cash available from operations,
and a 1% interest in net income
or loss

c) There are no arrangements known to PAIF-III, including any pledge by
any person of securities of PAIF-III, the operation of which may at a
subsequent date result in a change in control of PAIF-III.

Item 13. Certain Relationships and Related Transactions

None.

32
<PAGE>

PART IV

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

1. Financial Statements.

The following are included in Part II of this report:
Page No.
--------

Report of Independent Public Accountants 15
Balance Sheets 16
Statements of Operations 17
Statements of Changes in Partners' Capital (Deficit) 18
Statements of Cash Flows 19
Notes to Financial Statements 20

2. Reports on Form 8-K.

No reports on Form 8-K were filed during the quarter ended December 31,
1999.

3. Exhibits required to be filed by Item 601 of Regulation S-K.

27. Financial Data Schedule (in electronic format only).

4. Financial Statement Schedules.

All financial statement schedules are omitted because they are not
applicable, not required or because the required information is
included in the financial statements or notes thereto.

33
<PAGE>
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.

POLARIS AIRCRAFT INCOME FUND III,
A California Limited Partnership
(REGISTRANT)
By: Polaris Investment
Management Corporation
General Partner

March 24, 2000 By: /S/ Eric M. Dull
-------------- -------------------------
Date Eric M. Dull, President

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 and
in the capacities and on the dates indicated.

Signature Title Date
--------- ----- ----

/S/Eric M. Dull President and Director of Polaris March 24, 2000
--------------- Investment Management Corporation, --------------
(Eric M. Dull) General Partner of the Registrant

/S/Marc A. Meiches Chief Financial Officer of Polaris March 24, 2000
------------------ Investment Management Corporation, --------------
(Marc A. Meiches) General Partner of the Registrant

/S/Barbara Macholl Director of Polaris Investment March 24, 2000
------------------- Management Corporation, General --------------
(Barbara Macholl) Partner of the Registrant

/S/Norman C. T. Liu Vice President and Director of March 24, 2000
------------------- Polaris Investment Management --------------
(Norman C. T. Liu) Corporation, General Partner
of the Registrant

<ARTICLE> 5

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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 12317505
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<RECEIVABLES> 863257
<ALLOWANCES> 0
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</TABLE>