UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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FORM 10-K

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_X_ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2003

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

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

201 High Ridge Road, Stamford, Connecticut 06927
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(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
---

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes No X
--- ---

No formal market exists for the units of limited partnership interest and
therefore there exists no aggregate market value at December 31, 2003.

Documents incorporated by reference: None

This document consists of 36 pages.

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, Polaris Investment Management
Corporation (PIMC or the General Partner), 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, Airplanes Group,
together with its subsidiaries (APG), which 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, APG, and other third
parties to whom GECAS provides aircraft management services from time to time.

As of December 31, 2003, the Partnership had four McDonnell Douglas DC-9-30
(DC-9-30) aircraft held for sale previously on operating lease to TWA Airlines
LLC (TWA LLC) a wholly owned subsidiary of American Airlines, Inc. (American).
The four aircraft are being stored in New Mexico and remarketed for sale. Upon
completion of such sales, the Partnership plans to liquidate all its assets in
an orderly manner, make a final distribution, and terminate the Partnership
thereafter; however, it is uncertain when this liquidation will occur. The
General Partner is actively seeking buyers for the aircraft; however the actual
timing for completing such sales and the prices obtained will depend upon a
number of factors outside the control of the General Partner, including market
conditions. Thus, there can be no assurance as to either the timing of such
sales or whether such sales may be completed on terms deemed favorable to the
Partnership. However, the General Partner intends to seek to complete such sales
during calendar year 2004.

See additional discussion of TWA LLC and Trans World Airlines, Inc. ("TWA") in
Note 5 to the financial statements.

Item 2. Properties

At December 31, 2003, the Partnership owned four DC-9-30 aircraft held for sale,
on the ground in New Mexico, out of its original portfolio of 38 aircraft. The
Partnership sold three DC-9-30 aircraft to Aeroturbine, Inc. in October 2001.
The Partnership sold two DC-9-30 aircraft to Amtec Corporation, one in December
2001 and the second in February 2002. The Partnership sold one DC-9-30 aircraft
to American in May 2002.

The following table describes the Partnership's aircraft portfolio at December
31, 2003:

Year of Cycles
Aircraft Type Serial Number Manufacture As of 12/31/03
- ------------- ------------- ----------- --------------
McDonnell Douglas DC-9-30 47028 1967 90,510
McDonnell Douglas DC-9-30 47095 1967 85,185
McDonnell Douglas DC-9-30 47173 1968 89,033
McDonnell Douglas DC-9-30 47491 1970 82,599

The 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. Hushkits have been
installed on the remaining Partnership aircraft. Certain Airworthiness
Directives (ADs) applicable to the DC-9-30 have been issued to prevent fatigue
cracks and control corrosion.

Item 3. Legal Proceedings

Midway Airlines, Inc. (Midway) Bankruptcy - As previously reported in the
Partnership's 2002 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-9-30 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. Pursuant to an order of the Bankruptcy Court, the
Partnership's allowable claim in the matter was substantially reduced. The
General Partner does not expect the Partnership to recover a material amount in
this proceeding.

Please refer to Note 5 to the Financial Statements for additional legal
proceedings in which the Partnership is a party.

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.

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

None.

PART II

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

a) PAIF-III's Limited Partnership Interests (Units) are not publicly
traded. 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, 2003
------------------ ----------------------------

Depository Units Representing Assignments
Of Limited Partnership Interests: 14,922

General Partnership Interest: 1

c) Dividends:

The Partnership distributed cash to partners on a quarterly basis
beginning April 1987. As of January 2002, the Partnership switched to
making distributions on an annual basis. Cash distributions to Unit
Holders during 2003 and 2002 totaled $2,499,120 and $1,249,900,
respectively. Cash distributions per Limited Partnership Unit were
$5.00 and $2.50 in 2003 and 2002, respectively.

Item 6. Selected Financial Data

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

2003 2002 2001 2000 1999
---- ---- ---- ---- ----

Revenues $ 1,817,365 $ 2,887,590 $ 6,891,556 $ 9,742,030 $ 9,590,876

Net Income (Loss) $ (83,089) $ 713,149 $ 2,514,059 $ (6,246,537) $ 5,605,780

Net Income (Loss)
allocated to Limited
Partners $ (282,650) $ 477,982 $ 1,342,125 $ (6,713,976) $ 4,912,337

Net Income (Loss) per
Limited Partnership Unit $ (0.57) $ 0.96 $ 2.68 $ (13.43) $ 9.83

Cash Distributions per
Limited Partnership
Unit $ 5.00 $ 2.50 $ 22.94 $ 10.60 $ 12.75

Limited Partnership Units 499,683 499,824 499,960 499,960 499,960

Amount of Cash
Distributions Included
Above Representing
a Return of Capital on
a Generally Accepted
Accounting Principle
Basis per Limited
Partnership Unit* $ 0.00 $ 0.00 $ 19.78** $ 10.60 $ 12.75

Total Assets $ 2,926,833 $ 6,165,241 $ 7,927,561 $ 21,355,564 $ 36,199,898

Partners' Capital $ 2,776,060 $ 5,635,949 $ 6,311,578 $ 16,540,944 $ 28,675,899

* 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.

** During 2001, total cumulative distributions, per unit, reached $500, the
initial capital contribution per unit, such that all further distributions would
be considered a return on capital.

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

Critical Accounting Policies

In response to the Securities and Exchange Commission's (SEC) Release No.
33-8040, "Cautionary Advice Regarding Disclosure About Critical Accounting
Policies," we identified the most critical accounting principles upon which our
financial reporting depends. We determined the critical principles by
considering accounting policies that involve the most complex or subjective
decisions or assessments. We identified our most critical accounting policies to
be those related to lease revenue recognition, depreciation policies, and
valuation of aircraft. We state these accounting policies in the notes to the
financial statements and in relevant sections in this discussion and analysis.

Business Overview

At December 31, 2003, Polaris Aircraft Income Fund III (PAIF-III or the
Partnership) owned a portfolio of four used McDonnell Douglas DC-9-30 commercial
jet aircraft (DC-9-30) out of its original portfolio of 38 aircraft. All leases
have expired as of December 31, 2003, and the aircraft are being stored in New
Mexico while being marketed for sale. The Partnership sold three DC-9-30
aircraft to Aeroturbine, Inc. in October 2001 that resulted in neither a gain
nor loss to the Partnership. The Partnership sold two DC-9-30 aircraft to Amtec
Corporation, one in December 2001 that resulted in a gain of $115,000 to the
Partnership and the second in February 2002 that resulted in a gain of $65,000.
In May 2002 the Partnership sold one DC-9-30 aircraft to American that resulted
in a gain of $115,000. The Partnership plans to liquidate all its assets in an
orderly manner, make a final distribution, and terminate the Partnership
thereafter; however, it is uncertain when this liquidation will occur. The
General Partner is actively seeking buyers for the aircraft; however the actual
timing for completing such sales and the prices obtained will depend upon a
number of factors outside the control of the General Partner, including market
conditions. Thus, there can be no assurance as to either the timing of such
sales or whether such sales may be completed on terms deemed favorable to the
Partnership. However, the General Partner intends to seek to complete such sales
during calendar year 2004.

Industry Update

Demand for Aircraft - At year end 2003, there were approximately 17,300 western
built passenger and freighter jet aircraft in the world fleet. As a result of a
slowdown in travel that began in the spring of 2001 as well as the large shift
in travel levels in the wake of the September 11th tragedy, 2,125 of those
aircraft are currently stored or out of active service. Air travel as measured
by global revenue passenger miles for 2003 is expected to be approximately 1%
less than the poor results from the year 2002 when the final numbers are
compiled. The traffic levels in 2004 are expected to show growth from this low
base as evidenced by growth shown in the fourth quarter 2003. The war with Iraq,
SARS and continued threat of global terrorism impacted 2003 traffic levels,
particularly through spring and summer. While production rates are relatively
low and retirements are fairly high, the number of surplus aircraft is still at
record levels.

The unprecedented, sustained and worldwide decrease in demand has had profound
implications to airlines as well as aircraft owners and manufacturers. Network
airlines are still experiencing losses, and are struggling to match capacity and
pricing to demand. Manufacturers have attempted to deliver the aircraft that
were in the backlog and the modest orders in 2002-2003, and achieve some

stability in their production lines. Trading values and lease rates have
declined further, particularly on older aircraft as the demand shock took a
cyclical downturn into a deep trough. As manufacturers reduce production,
airlines accelerate retirements of older aircraft, and as a recovering air
travel market begins to reduce the aircraft surplus, this cyclical downturn is
expected to reverse itself and the market is expected to return to a stable
condition. This will take more time as manufacturers cannot drop production
overnight and owners will be reluctant to scrap aircraft that they own despite
the lack of a current market for them.

Low cost carriers were able to prosper in this environment of commoditized
airfare pricing. The bulk of the orders that were actually placed during
2002-2003 came from low cost carriers such as Easyjet. Asia is recovering well
from the SARS epidemic and is now showing traffic growth again after a sharp
decline for carriers in affected areas last year.

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 Airworthiness Directives (ADs) which mandate that operators
conduct more intensive inspections, primarily of the aircraft fuselages. The
results of these mandatory inspections may result in the need for repairs or
structural modifications that may not have been required under pre-existing
maintenance programs.

Under the Previous Leases (see Note 5 to the financial statements), TWA was
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. Three of the Partnership's Aircraft were returned by TWA without meeting
the return conditions specified in the Previous Leases, and the return
conditions under the modified lease terms and conditions for the Partnership's
remaining Aircraft were quite limited. The costs of compliance with FAA
maintenance standards caused the Partnership to sell for scrap value the three
Aircraft being returned by TWA under the Rejected Leases and the aircraft
returned in 2001 was likewise marketed at scrap value. Similarly, such costs
will likely cause the Partnership to sell for scrap value the Partnership's four
remaining Aircraft.

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 are the standard for all new
aircraft.

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

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.

Legislation had been drafted and was under review by the EU for sometime to
adopt anti-hushkitting regulations within member states. The legislation sought
to ban hushkitted aircraft from being added to member states registers and
precluded all operation of hushkitted aircraft within the EU after certain
specific dates. Due to criticism by the US Government, the enactment of this
legislation has been withheld. However, 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.

Partnership Operations

The Partnership reported net loss of $83,089 which resulted in a net loss per
Limited Partnership unit of $0.57 for the year ended December 31, 2003, as
compared to net income of $713,149 and $0.96 per Limited Partnership unit,
respectively, for the year ended December 31, 2002 and net income of $2,514,059
and $2.68 per Limited Partnership unit, respectively, for the year ended
December 31, 2001. 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 net income in 2003, as compared to 2002, is primarily due to
decreases in rental and interest income and no recognized gains on sale of
aircraft, as well as increases in operating and administration expenses,
partially offset by an increase in revenues from lessee return condition and
other settlements and decreases in depreciation and management fees to the
General Partner, as discussed below. The decrease in net income in 2002, as
compared to 2001, is primarily due to decreases in rental and interest income
and an increase in management fees to the General Partner, partially offset by
increases in gain on sale of aircraft, settlement income and decreases in
depreciation, operating expenses, legal fees, and administration and other
expenses.

Rent from operating leases decreased in 2003, as compared to 2002, primarily due
to fewer aircraft on lease. Additionally, the decrease in rent from operating
leases was also caused by lower recognition of deferred revenue in 2003, as
compared to 2002. Rental income decreased in 2002, as compared to 2001,
primarily due to the lower lease rates and fewer aircraft on lease as a result
of the 2001 TWA bankruptcy. Additionally, the decrease in rent from operating
leases was also caused by lower recognition of deferred revenue. As discussed in
Note 5 to the financial statements, the deferred revenue balance existing at the
time of the lease revisions in March 2001 was recognized over the new lease
terms for the Assumed Leases, while it was recognized upon lease rejection for
the three Rejected Aircraft.

Interest income decreased in 2003, as compared to 2002, and in 2002 as compared
to 2001, primarily due to lower interest rates and lower average cash balances.

There were no sales of aircraft in 2003. A gain on sale of aircraft of $180,000
during 2002 was due to the sale of two aircraft for $550,000. A gain on sale of
$115,000 during 2001 was due to the sale of four aircraft for $835,000.

Lessee return condition settlements increased during 2003, as compared to 2002,
and in 2002, as compared to 2001. The increase during 2003, as compared to 2002,
is due to three aircraft being returned to the Partnership with engine
conditions being below target as the lease terms expired. During 2002 and 2001,
return condition settlements were received for the return of one aircraft in
each year. The amount of return condition settlement for each aircraft can vary
significantly due to the fact that TWA LLC is required to return the installed

engines on each aircraft with a target level of average cycle life remaining to
replacement for all life limited parts. If the average cycle life remaining on
the installed engines on an aircraft is below the target level, a financial
adjustment is payable by TWA LLC to the Partnership (but no payment will be owed
by the Partnership to TWA LLC if cycle life remaining at return exceeds the
target level).

Lessee settlement income increased during 2003, as compared to 2002, and in
2002, as compared to 2001. The payments received during 2003 resulted from two
distributions by TWA's bankrupt estate of a portion of the $465,277
administrative rent claims. The payment during 2002 represents settlement of an
administrative claim filed in the TWA bankruptcy proceeding in connection with
certain legal expenses incurred by the Partnership. Note 5 to the financial
statements includes a further discussion of these items. There were no such
payments of lessee settlements during 2001.

There was an absence of other income in 2003 and 2002, as compared to 2001, due
to the receipt of default interest in 2001 from TWA resulting from late rental
payments subsequent to the TWA bankruptcy filing. Note 5 to the financial
statements includes a further discussion of this item.

Depreciation expense decreased in 2003, as compared to 2002, and in 2002, as
compared to 2001 primarily as a result of fewer aircraft remaining on lease and
being depreciated; however, as discussed below, 2003 depreciation expense also
includes a fair market adjustment for aircraft held for sale as compared to
2002, which had no such impairment expense.

The Partnership periodically reviews the estimated realizability of the residual
values at the projected end of each aircraft's economic life based on estimated
fair values at that time. 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).

Aircraft held for sale are carried at the lower of cost or fair value less cost
to sell. During the year ended December 31, 2003, the Partnership recognized
additional depreciation expense of $487,000, or $0.97 per Limited Partnership
Unit, on aircraft held for sale due to changes in estimated fair market values.
No such adjustments to market value through additional depreciation expense were
made during 2002.

If the projected net cash flow for each aircraft on operating lease (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, the Partnership recognizes an impairment loss for the amount by which
the carrying amount exceeds its fair value. The impairment loss is recognized as
depreciation expense. The Partnership recognized impairment losses on aircraft
to be held and used or held for sale by the Partnership aggregating
approximately $850,000, or $1.70 per Limited Partnership unit in 2001, as
increased depreciation expense as a result of the TWA bankruptcy and the
modified lease terms with TWA LLC. The Partnership decided to accept American's
proposal to take assignment of seven of the ten existing leases on modified
terms and conditions. This acceptance constituted an event that required the
Partnership to review the aircraft carrying values pursuant to Statement of
Financial Accounting Standards 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of" (as amended by SFAS 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets"). As a result
of a review of the aircraft, future cash flows expected to be derived from the
aircraft over the projected lease terms were less than the carrying value of the
aircraft, so the Partnership recorded impairment losses as of September 30,
2001. Management believes the assumptions related to fair value of impaired
assets represented the best estimates based on reasonable and supportable
assumptions and projections.

Management fees to the General Partner decreased in 2003, as compared to 2002,
primarily as a result of fewer aircraft being on lease during 2003 and all
aircraft being off-lease as of December 31, 2003. Management fees to the General
Partner increased slightly in 2002, as compared to 2001, primarily as a result
of the deferred management fees being recognized for three rejected leases and
leases expiring during 2001 due to the TWA bankruptcy.

There was no interest expense in 2003 and 2002 due to outstanding debt being
fully repaid in 2001. The interest expense in 2001 was from debt incurred to
install hushkits on the Partnership's aircraft. In November 1996 and February
1997 hushkits were installed on the ten Partnership aircraft. The leases then in
place for these ten aircraft were then extended for a period of eight years. 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.

Operating expenses increased during 2003, as compared to 2002, primarily due to
maintenance and storage related costs associated with the aircraft as they come
off lease and are prepared for and kept in storage while being held for sale.
During 2003, three aircraft were returned and prepared for storage. As of
December 31, 2003, four aircraft remain in storage while being marketed for
sale. Operating expense decreased in 2002, as compared to 2001, primarily due to
reduced costs associated with the storage of aircraft from the time of their
return to the time of their sale. During 2002, one aircraft was prepared for
storage and stored for 1 month, and two aircraft prepared for storage during
2001 were stored for an average of three months during 2002. During 2001, six
aircraft were prepared for storage and stored for an average of 5 months each at
a facility that was more expensive than the facility aircraft are now flown to
at lease expiration.

Legal expenses were significantly higher in 2001, as compared to 2003 and 2002,
primarily due to the costs incurred in connection with the TWA bankruptcy.

Administration and other expense increased slightly during 2003, as compared to
2002, primarily due to increased audit fees and printing and postage costs.
Administration and other expenses decreased in 2002, as compared to 2001,
primarily due to costs incurred in 2001 that were related to the TWA bankruptcy.
This includes audit fees, as well as additional printing and postage expenses.

Liquidity and Cash Distributions

Liquidity - The Partnership received all rent payments due in 2003 and 2002 from
its sole lessee, TWA Airlines LLC for the aircraft while on lease. As of
December 31, 2003, no further rent payments will be received since all lease
terms have expired.

PIMC, the General Partner, has determined that cash reserves be maintained as a
prudent measure to ensure that the Partnership has available funds for winding
up the affairs of the Partnership and for other contingencies. The Partnership
plans to liquidate all its assets in an orderly manner, make a final
distribution, and terminate the Partnership thereafter; however, it is uncertain
when this liquidation will occur. The General Partner is actively seeking buyers
for the aircraft; however the actual timing for completing such sales and the
prices obtained will depend upon a number of factors outside the control of the
General Partner, including market conditions. Thus, there can be no assurance as
to either the timing of such sales or whether such sales may be completed on
terms deemed favorable to the Partnership. However, the General Partner intends
to seek to complete such sales during calendar year 2004. The Partnership's cash
reserves will be monitored and may be revised from time to time as further
information becomes available in the future.

Cash Distributions - Cash distributions to holders of depository units
representing assignments of Limited Partnership interests (Limited Partners)
were $2,499,120, $1,249,900 and $11,469,083 in 2003, 2002 and 2001,
respectively. Cash distributions per Limited Partnership unit were $5.00, $2.50
and $22.94 in 2003, 2002 and 2001, respectively. The General Partner has
determined that it is in the best interests of the Partnership to suspend any
further cash distributions until the Partnership is in a position to dissolve,
wind up and terminate, and make a final distribution of its remaining cash. In
reaching this conclusion, the General Partner considered the anticipated costs
of storing and insuring the aircraft pending sale, the anticipated costs of
marketing and preparing the aircraft for sale, the anticipated costs of winding
up the Partnership's business, the uncertainty as to the period of time required
to sell the aircraft and wind up the Partnership, the uncertainty as to the
terms on which the Partnership's aircraft may be sold and the desirability of
maintaining a prudent level of cash reserves for Partnership needs and
contingencies.

The Partnership does not have any material off balance sheet commitments or
obligations.

Sale of Aircraft

On October 19, 2001, PIMC, on behalf of the Partnership, sold three DC-9-30
aircraft to Aeroturbine, Inc. for $535,000 cash. The Partnership recognized
neither a loss nor a gain on the transaction due to an impairment expense being
taken in anticipation of the sales. On December 19, 2001 PIMC on behalf of the
Partnership, sold one DC-9-30 aircraft to Amtec Corporation for $300,000 cash.
The Partnership recognized a gain of $115,000 over its book value. On February
13, 2002, the General Partner sold one DC-9-30 to Amtec Corp for $250,000
resulting in a gain of $65,000. On May 29, 2002, the General Partner sold one
DC-9-30 to American for $300,000 resulting in a gain of $115,000.

Aircraft Impairment Assessment

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 is increased.

The Partnership uses available information and estimates related to the
Partnership's aircraft, to determine an estimate of fair value to measure
impairment as required by SFAS 144, "Accounting for the Impairment or Disposal
of Long-Lived Assets" (SFAS 144), and to determine residual values. 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.

The Partnership made downward adjustments to the estimated residual value of
certain of its aircraft on-lease as of September 30, 2001. This decrease
reflected the weakening used aircraft market and reflected the additional facts
and circumstances resulting from the advanced negotiations with Aeroturbine,
which resulted in a sale of three held for sale aircraft on October 19, 2001. As
a result, the Partnership decreased the residual values as of September 30, 2001
to reflect the depressed market. This decrease in residual values will be
reflected in greater depreciation expense over the remaining life of the
aircraft. The Partnership recognized an impairment loss as increased
depreciation expense in 2001 of approximately $850,000, or $1.70 per Limited
Partnership unit.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

The following discussion about market risk disclosures involves forward-looking
statements. Market risks may include exposure to changes in equity prices,
interest rates and foreign currency exchange rates. Actual results could differ
materially from those projected in the forward-looking statements. The
Partnership does not use derivative financial instruments for speculative,
trading or any other purpose.

Equity Price Risk - The potential for changes in the market value of marketable
securities is referred to as "market risk". The Partnership does not own any
marketable securities.

Interest Rate Risk - Exposure to market risk resulting from changes in interest
rates relates primarily to the Partnership's lease portfolio. Income and cash
flows would not be impacted by changes in the general level of U.S. interest
rates since the Partnership's leases are fixed rate. The General Partner would
not expect an immediate 10% increase or decrease in current interest rates to
have a material effect on the fair market value of the Partnership's lease
portfolio.

Foreign Currency Risk - The Partnership does not have any foreign currency
denominated assets or liabilities or purchase commitments and have not entered
into any foreign currency contracts. Accordingly, the Partnership is not exposed
to fluctuations in foreign currency exchange rates.

Item 8. Financial Statements and Supplementary Data

POLARIS AIRCRAFT INCOME FUND III,
A California Limited Partnership

FINANCIAL STATEMENTS AS OF DECEMBER 31, 2003 AND 2002

AND FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001

TOGETHER WITH THE

REPORT OF INDEPENDENT AUDITORS

The Partners
Polaris Aircraft Income Fund III

We have audited the accompanying balance sheets of Polaris Aircraft Income Fund
III (a California Limited Partnership), as of December 31, 2003 and 2002, and
the related statements of operations, changes in partners' capital (deficit) and
cash flows for years then ended. 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. The 2001 financial
statements were audited by other auditors who have ceased operations. Those
auditors expressed an unqualified opinion on those financial statements in their
report dated February 1, 2002.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 2003 and 2002 financial statements referred to above present
fairly, in all material respects, the financial position of Polaris Aircraft
Income Fund III as of December 31, 2003 and 2002, and the results of its
operations and its cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States.

/s/ Ernst & Young LLP

San Francisco, California,
February 13, 2004

This is a copy of the audit report previously issued by Arthur Andersen LLP in
connection with the Polaris Aircraft Income Fund III's filing on Form 10-K for
the year ended December 31, 2001. This audit report has not been reissued by
Arthur Andersen LLP in connection with this filing on Form 10-K.

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, 2001 and 2000, 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, 2001.
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.

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, 2001 and 2000, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States.

ARTHUR ANDERSEN LLP

San Francisco, California,
February 1, 2002 (except with respect to the matter discussed in Note 11, as to
which the date is February 13, 2002)

POLARIS AIRCRAFT INCOME FUND III,
A California Limited Partnership

BALANCE SHEETS

DECEMBER 31, 2003 AND 2002

2003 2002
---- ----
ASSETS:

CASH AND CASH EQUIVALENTS $ 2,524,997 $ 4,118,926

RENT RECEIVABLE -- 120,000

OTHER RECEIVABLES 1,836 59,691

AIRCRAFT HELD FOR SALE 400,000 185,000

AIRCRAFT ON OPERATING LEASE, net of accumulated
depreciation of $0 in 2003 and $22,922,026 in 2002 -- 1,681,624
----------- -----------

Total Assets $ 2,926,833 $ 6,165,241
=========== ===========

LIABILITIES AND PARTNERS' CAPITAL (DEFICIT):

PAYABLE TO AFFILIATES $ 96,353 $ 31,637

ACCOUNTS PAYABLE AND ACCRUED
LIABILITIES 54,420 147,054

DEFERRED INCOME -- 350,601
----------- -----------

Total Liabilities 150,773 529,292
----------- -----------

PARTNERS' CAPITAL (DEFICIT):
General Partner (3,862,671) (3,784,552)
Limited Partners, 499,683 units (499,824 in 2002)
issued and outstanding 6,638,731 9,420,501
----------- -----------

Total Partners' Capital 2,776,060 5,635,949
----------- -----------

Total Liabilities and Partners' Capital $ 2,926,833 $ 6,165,241
=========== ===========

The accompanying notes are an integral part of these statements.

POLARIS AIRCRAFT INCOME FUND III,
A California Limited Partnership

STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001

2003 2002 2001
---- ---- ----

REVENUES:
Rent from operating leases $ 1,533,267 $ 2,544,748 $ 6,364,964
Interest 23,437 57,126 355,208
Gain on sale of aircraft -- 180,000 115,000
Lessee return condition settlements 137,750 57,855 35,381
Lessee settlement 122,911 47,861 --
Other -- -- 21,003
----------- ----------- -----------

Total Revenues 1,817,365 2,887,590 6,891,556
----------- ----------- -----------

EXPENSES:
Depreciation 1,466,624 1,744,470 3,518,540
Management fees to General Partner 43,124 67,057 22,654
Interest -- -- 4,960
Operating 68,212 53,596 287,674
Legal 20,983 31,624 168,646
Administration and other 301,511 277,694 375,023
----------- ----------- -----------

Total Expenses 1,900,454 2,174,441 4,377,497
----------- ----------- -----------

NET INCOME (LOSS) $ (83,089) $ 713,149 $ 2,514,059
=========== =========== ===========

NET INCOME ALLOCATED TO
THE GENERAL PARTNER $ 199,561 $ 235,167 $ 1,171,934

NET INCOME (LOSS) ALLOCATED TO
THE LIMITED PARTNERS $ (282,650) $ 477,982 $ 1,342,125

NET INCOME (LOSS) PER LIMITED
PARTNERSHIP UNIT $ (0.57) $ 0.96 $ 2.68

UNITS USED TO CALCULATE
NET INCOME (LOSS) PER
LIMITED PARTNERSHIP UNIT 499,683 499,824 499,960

The accompanying notes are an integral part of these statements.

POLARIS AIRCRAFT INCOME FUND III,
A California Limited Partnership

STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)

FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001

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

Balance, December 31, 2000 $ (3,778,433) $ 20,319,377 $ 16,540,944

Net income 1,171,934 1,342,125 2,514,059

Cash distributions to partners (1,274,342) (11,469,083) (12,743,425)
------------ ------------ ------------

Balance, December 31, 2001 (3,880,841) 10,192,419 6,311,578

Net income 235,167 477,982 713,149

Cash distributions to partners (138,878) (1,249,900) (1,388,778)
------------ ------------ ------------

Balance, December 31, 2002 (3,784,552) 9,420,501 5,635,949

Net income (loss) 199,561 (282,650) (83,089)

Cash distributions to partners (277,680) (2,499,120) (2,776,800)
------------ ------------ ------------

Balance, December 31, 2003 $ (3,862,671) $ 6,638,731 $ 2,776,060
============ ============ ============

The accompanying notes are an integral part of these statements.

POLARIS AIRCRAFT INCOME FUND III,
A California Limited Partnership

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001

2003 2002 2001
---- ---- ----
OPERATING ACTIVITIES:
Net income (loss) $ (83,089) $ 713,149 $ 2,514,059
Adjustments to reconcile net
income (loss) to net cash
provided by operating activities:
Depreciation and amortization 1,466,624 1,744,470 3,518,540
Gain on sale of aircraft -- (180,000) (115,000)
Changes in operating assets
and liabilities:
Decrease (increase) in
rent and other receivables 177,855 (18,175) 436,216
Decrease in other assets -- -- 14,291
Increase (decrease) in
payable to affiliates 64,716 (435,695) 246,993
Increase (decrease) in
accounts payable and
accrued liabilities (92,634) (15,582) 31,700
Decrease in deferred income (350,601) (635,414) (3,272,459)
------------ ------------ ------------

Net cash provided by
operating activities 1,182,871 1,172,753 3,374,340
------------ ------------ ------------

INVESTING ACTIVITIES:
Net proceeds from sale of aircraft
inventory -- 550,000 835,000
------------ ------------ ------------

Net cash provided by
investing activities -- 550,000 835,000
------------ ------------ ------------

FINANCING ACTIVITIES:
Principal payments on notes
payable -- -- (204,871)
Cash distributions to partners (2,776,800) (1,388,778) (12,743,425)
------------ ------------ ------------

Net cash used in
financing activities (2,776,800) (1,388,778) (12,948,296)
------------ ------------ ------------

CHANGES IN CASH AND CASH
EQUIVALENTS (1,593,929) 333,975 (8,738,956)

CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 4,118,926 3,784,951 12,523,907
------------ ------------ ------------

CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 2,524,997 $ 4,118,926 $ 3,784,951
============ ============ ============

Supplemental Disclosure of Non-Cash Investing Activities:
- --------------------------------------------------------
Reclassification of aircraft on
operating leases to aircraft
held for sale $ 555,000 $ 185,000 $ 370,000
============ ============ ============

The accompanying notes are an integral part of these statements.

POLARIS AIRCRAFT INCOME FUND III,
A California Limited Partnership

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2003

Note 1. Organization and the Partnership

Polaris Aircraft Income Fund III, A California Limited Partnership (PAIF-III or
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 initial Limited Partner
contributed $500 to capital. The Partnership recognized no profits and losses
during the periods ended December 31, 1984 and 1985. The offering of depository
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 and are referred to collectively as
the Limited Partners. During January 1998, 40 units were redeemed by the
Partnership in accordance with section 18 of the Limited Partnership Agreement.
During 2002 and 2003, 136 and 141 units were abandoned, respectively. At
December 31, 2003, there were 499,683 units outstanding, net of redemptions.

As of December 31, 2003, the Partnership owned four aircraft, which are being
marketed for sale. Upon completion of such sales, the Partnership plans to
liquidate all its assets in an orderly manner, make a final distribution, and
terminate the Partnership thereafter; however, it is uncertain when this
liquidation will occur. The General Partner is actively seeking buyers for the
aircraft; however the actual timing for completing such sales and the prices
obtained will depend upon a number of factors outside the control of the General
Partner, including market conditions. Thus, there can be no assurance as to
either the timing of such sales or whether such sales may be completed on terms
deemed favorable to the Partnership. However, the General Partner intends to
seek to complete such sales during calendar year 2004.

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 7 and 8.

Note 2. Accounting Principles and Policies

Accounting Method - The Partnership maintains its accounting records, and
prepares its financial statements on the accrual basis of accounting. The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States (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 the residual values of the
aircraft, the useful lives of the aircraft, and the estimated amount and timing
of cash-flows associated with each aircraft which are used to determine
impairment, if any.

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 or the end
of the remaining lease term if beyond the 30 year life. Depreciation in the year
of acquisition was calculated based upon the number of days that the aircraft
were in service.

If the projected net cash flow for each aircraft on lease (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 144 "Accounting for the Impairment or Disposal of Long-Lived Assets"
(SFAS 144), 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. Aircraft
held for sale are carried at the lower of cost or fair value less cost to sell.

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 or the remaining lease term, if shorter. These
costs are also subject to periodic impairment evaluation as discussed above.

Operating Leases - The aircraft leases are accounted for as operating leases.
Lease revenues are recognized in equal installments over the terms of the
leases. Due to the fact that the Partnership received greater payments in the
beginning of the lease than at the end of the lease under the terms of the
leases in effect at the time of the TWA bankruptcy filing (the Previous Leases)
(See Note 5), this has resulted in deferred income on the balance sheet. As of
December 31, 2003, deferred income and deferred management fees were fully
amortized as all remaining lease terms ended during 2003. As of December 31,
2003, there are no leases in place.

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

Net Income (Loss) Per Limited Partnership Unit - Net income per depository unit
representing assignment of Limited Partnership interest (Limited Partnership
unit) is based on the Limited Partners' share of net income or loss and the
number of units outstanding of 499,683 for the year ended December 31, 2003,
499,824 for the year ended December 31, 2002 and 499,960 for the year ended
December 31, 2001.

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

Fair Value of Financial Instruments - The recorded amounts of the Partnership's
cash and cash equivalents, rent and other receivables, payable to affiliates,
accounts payable and accrued liabilities as of December 31, 2003 approximate
their fair value because of the liquidity and/or short-term maturity of these
instruments.

Reclassification - Certain 2002 and 2001 amounts have been reclassified to
conform to the 2003 presentation. These reclassifications had no impact on
previously reported net income or partners' capital.

Note 3. Aircraft

At December 31, 2003, the Partnership owned four used commercial jet aircraft
from its original portfolio of 38 aircraft, which were acquired and leased or
sold as discussed below. The remaining four aircraft are off lease and held for
sale as of December 31, 2003. The aircraft leases were net operating leases,
requiring the lessees to pay all operating expenses associated with the aircraft
during the lease term. The leases generally stated a minimum acceptable return
condition for which the lessee was liable under the terms of the lease
agreement. Of its original portfolio of 38 aircraft, the Partnership sold one
aircraft in 1992, seven aircraft in 1993, three aircraft in 1994, eight aircraft
in 1997, four aircraft in 2001 and two aircraft in 2002. In addition, nine
aircraft were disassembled for sale of their component parts, the remainder of
which was sold to Soundair, Inc. in 1998.

The following table describes the Partnership's aircraft portfolio at December
31, 2003:

Year of
Aircraft Type Serial Number Manufacture
- ------------- ------------- -----------
McDonnell Douglas DC-9-30 47028 1967
McDonnell Douglas DC-9-30 47095 1967
McDonnell Douglas DC-9-30 47173 1968
McDonnell Douglas DC-9-30 47491 1970

Initially 13 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 1995 bankruptcy filing. In June 1997, three of the 13
aircraft were sold, subject to the existing leases, to Triton Aviation Services
III LLC. The leases for 10 of the 13 aircraft were extended again for eight
years until November 2004. As a result of the bankruptcy of TWA in 2001,
modified terms and conditions were accepted that were substantially less
favorable to the Partnership than the terms and conditions specified in the
Previous Leases (see Note 5 to the financial statements). In particular, rather
than returning the aircraft at the previously scheduled expiry date under the
Previous Leases, TWA LLC, who, in 2001, assumed seven of the 10 then existing
TWA leases of the Partnership's aircraft under modified terms, would return each
aircraft at the time when such aircraft required a heavy maintenance check of
the airframe, provided that the aggregate average number of months for which all
seven aircraft were on lease to TWA LLC was not less than 22 months from and
after March 12, 2001. In addition, TWA LLC reduced the rental rate for each of
the aircraft to $40,000 per month. Further, at lease expiry, TWA LLC was
required to return each airframe in a "serviceable" condition, rather than being
required to meet the more stringent maintenance requirements of the Previous
Leases. Finally, TWA LLC was required to return the installed engines on each
aircraft with a target level of average cycle life remaining to replacement for

all life limited parts of 25%. If the average cycle life remaining on the
installed engines on an aircraft was below the 25% target level, a financial
adjustment was payable by TWA LLC to the Partnership (but no payment was owed by
the Partnership to TWA LLC if cycle life remaining at return exceeded the target
level). For the three aircraft returned during 2003, $137,750 was paid by the
lessee for engines being returned below such target levels. For the one aircraft
returned to the Partnership during 2002, $57,855, included in Other Receivable
on the Balance Sheet, was due from the lessee for the engines being below such
target level. The 2002 payment was received on January 14, 2003.

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. 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).

Aircraft held for sale are carried at the lower of cost or fair value less cost
to sell. During the year ended December 31, 2003, the Partnership recognized
additional depreciation expense of $487,000 on aircraft held for sale due to
changes in estimated fair market values. Management believes the assumptions
related to the fair value of impaired assets represents the best estimates based
on reasonable and supportable assumptions and projections.

The Partnership made a downward adjustment to the estimated net book values and
residual values of its aircraft on-lease as of September 30, 2001 as a result of
the anticipated sale of three aircraft. The Partnership recognized an impairment
loss as increased depreciation expense in 2001 of approximately $570,000 or
$1.14 per Limited Partnership unit for aircraft on lease and $280,000 or $0.56
per Limited Partnership unit for aircraft held for sale. The Partnership
recorded impairment losses on aircraft that were deemed impaired to the extent
that the carrying value exceeded the fair value. For aircraft held for sale, the
Partnership records losses to the extent that carrying value exceeds the fair
value less cost to sell. Management believes the assumptions related to the fair
value of impaired assets represented the best estimates based on reasonable and
supportable assumptions and projections.

Note 4. Sale of Aircraft

On October 19, 2001, PIMC, on behalf of the Partnership, sold three DC-9-30
aircraft for $535,000 cash. The Partnership recognized neither a loss nor a gain
on the transaction due to an impairment expense being taken on these aircraft in
anticipation of the sales. On December 19, 2001, PIMC on behalf of the
Partnership, sold one DC-9-30 aircraft for $300,000 cash. The Partnership
recognized a gain of $115,000 over its book value. On February 13, 2002, PIMC on
behalf of the Partnership, sold one DC-9-30 aircraft for $250,000. The
Partnership recognized a gain of $65,000 over its book value. On May 29, 2002,
PIMC on behalf of the Partnership, sold one DC-9-30 aircraft for $300,000. The
Partnership recognized a gain of $115,000 over its book value.

Note 5. TWA Bankruptcy Filing and Transaction with American Airlines

Trans World Airlines, Inc. (TWA) filed a voluntary petition in the United States
Bankruptcy Court of the District of Delaware (the Bankruptcy Court) for
reorganization relief under Chapter 11 of the Bankruptcy Code on January 10,
2001. One day prior to filing its bankruptcy petition, TWA entered into an Asset
Purchase Agreement with American Airlines, Inc. (American) that provided for the
sale to American of substantially all of TWA's assets and permitted American to
exclude certain TWA contracts (including aircraft leases) from the assets of TWA

to be acquired by American. On February 28, 2001, American presented the General
Partner of the Partnership (General Partner) with a written proposal to assume,
on modified terms and conditions, the Previous Leases applicable to seven of the
ten Aircraft. The General Partner decided to accept American's proposal.

On April 9, 2001, the American acquisition of the selected TWA assets was
consummated. As a result of this closing, TWA LLC assumed the Previous Leases
applicable to seven of the 10 aircraft, and simultaneously, such Previous Leases
were amended to incorporate modified terms (as so assumed and amended, the
Assumed Leases). The Assumed Leases are substantially less favorable to the
Partnership than the Previous Leases. In particular, the monthly rental rate for
each aircraft was reduced from $85,000 to $40,000, and the reduced rate was made
effective as of March 12, 2001 by a rent credit granted to TWA LLC for the
amount of rent above $40,000 previously paid by TWA in respect of the period
from and after March 12, 2001. In addition, the term of each Assumed Lease was
scheduled to expire at the time of the next scheduled heavy maintenance check of
the applicable aircraft, compared to the scheduled expiry date of November 27,
2004 under the Previous Leases, provided that the aggregate average number of
months for which all seven aircraft were on lease to TWA LLC was not less than
22 months from and after March 12, 2001. Finally, the maintenance condition of
the aircraft to be met at lease expiry was eased in favor of TWA LLC, as
compared to the corresponding conditions required under the Previous Leases.

With respect to the three aircraft that TWA LLC did not elect to acquire, TWA
officially rejected the Previous Leases applicable to these aircraft
(collectively, the Rejected Leases) as of April 20, 2001. All three aircraft
were returned to the Partnership. As aircraft were returned to the Partnership
they were parked in storage in Arizona while the General Partner remarketed them
for sale. The three aircraft were sold on October 19, 2001, for $535,000,
resulting in neither a gain nor a loss for the Partnership. In addition, the
General Partner filed administrative rent claims in the amount of $465,277 in
the TWA bankruptcy proceeding in an effort to recover the fair value of TWA's
actual use, if any, of these three aircraft under the Rejected Leases during the
60-day period following TWA's filing of its bankruptcy petition. These
administrative rent claims were approved by the estate with the plan of
reorganization on June 25, 2002 (the Plan) and are to be paid to the Partnership
through periodic distributions over the subsequent one to two years from the
date of reorganization. These funds are being recognized as income on a cash
basis as they are received. During the year ended December 31, 2003, the
Partnership received payments totaling $122,911 from a portion of these
administrative rent claims distributions. The General Partner also filed
administrative claims in the amount of $64,254 in the TWA bankruptcy proceeding
in connection with certain legal expenses incurred by the Partnership in
connection with the bankruptcy proceeding. The administrative claims were
settled for $47,861 with the estate under the Plan and settlement was received
by the Partnership on September 26, 2002. Furthermore, the General Partner filed
general unsecured claims for damages arising from TWA's breach of the Rejected
Leases. However, there can be no assurances as to whether, or when, the General
Partner will be successful in asserting the value of the general unsecured
claims or be able to collect any amounts out of the TWA bankruptcy estate.

The Accounting Treatment of the TWA Transaction
In accordance with GAAP, the Partnership recognized rental income and management
fees on a straight line basis over the original lease terms of the Previous
Leases. As a result, deferred revenue and accrued management fees were recorded
each month since the inception of each Previous Lease, resulting in balances of
deferred rental income and accrued management fees of $3,899,131 and $180,107,
respectively as of March 12, 2001. Since the Previous Leases were effectively
modified on March 12, 2001, the Partnership recognized the balances of deferred

revenue and accrued management fees over the new lease terms, from the date the
leases were modified. For the three Rejected Leases, the deferred revenue and
accrued management fees amounting to $1,275,431 and $59,691 were recognized as
rental revenue and a reduction of management fee, respectively, in March 2001.
For the Assumed Leases, the deferred revenue and accrued management fees
associated with each aircraft were recognized over the new lease terms, ranging
from 2 months to 33 months as of March 31, 2001. As of December 31, 2002, the
Partnership had deferred revenue balance of $350,601, and deferred management
fee balance of $16,009 included in Payable to Affiliates on the Balance Sheet,
which were recognized over the remaining useful life varying between eight and
12 months. As of December 31, 2003, deferred revenue and deferred management
fees were fully recognized as all remaining lease terms ended during 2003.

Note 6. Notes Payable

In connection with reconditioning of certain aircraft to meet noise level
restriction undertaken in 1996 and 1997, the Partnership issued notes payable to
the manufacturer of noise suppression devices to finance the related purchase.
The notes payables bore interest at a rate of 10% per annum and were repaid in
2001. Cash paid for interest in 2001 was $4,960. No debt was outstanding nor was
interest incurred in 2002 and 2003.

Note 7. Related Parties

Under the Limited Partnership Agreement (the 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
2003, 2002 and 2001, the Partnership paid management fees to PIMC of
$66,600, $265,205 and $0, respectively. Management fees payable to PIMC
were $0 and $23,476 at December 31, 2003 and 2002, respectively.

b. Reimbursement of certain out-of-pocket expenses incurred in connection with
the management of the Partnership and supervision of its assets. In 2003,
2002 and 2001, the Partnership reimbursed PIMC for expenses of $373,196,
$616,191 and $668,867, respectively. Reimbursements totaling $96,353 and
$8,161 were payable to PIMC at December 31, 2003 and 2002, 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 original aircraft
cost, gains from additional sales or disposals must be allocated to the
General Partner's capital account until the General Partner's capital
account is no longer in a deficit position.

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 8).

Note 8. 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 7). Such allocations are made using income or loss calculated under
GAAP for book purposes, which, as more fully described in Note 10, 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. In 2003 cash distributions of $277,680 and $2,499,120 were paid to the
General Partner and the Limited Partners, respectively. Cash distributions paid
in 2002 were $138,878 and $1,249,900 to the General Partner and the Limited
Partners, respectively.

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, 2003 at
the current carrying value, the tax basis capital (deficit) accounts of the
General Partner and the Limited Partners is estimated to be $(22,876) and
$3,486,655, respectively.

Note 9. 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, 2003 and 2002, are as
follows (unaudited):

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

2003: Assets $2,926,833 $3,614,552 $ (687,719)
Liabilities 150,773 150,773 -

2002: Assets $6,165,241 $5,927,510 $ 237,731
Liabilities 529,292 178,691 350,601

Note 10. Reconciliation of Book Net Income to Taxable Net Income

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

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

2003 2002 2001
---- ---- ----

Book net income (loss) per Limited Partnership
unit $(0.57) $ 0.96 $ 2.68
Adjustments for tax purposes represent
differences between book and tax revenue
and expenses:
Rental revenue (0.69) (1.26) (4.97)
Gain (Loss) on sale of aircraft (0.10) 0.02 (1.59)
Management fee expense - (0.09) -
Depreciation 1.83 1.95 4.32
------ ------ ------

Taxable net income per Limited Partnership unit $ 0.47 $ 1.58 $ 0.44
====== ====== ======

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 on a
straight line basis for operating leases. For tax purposes, revenue is generally
recognized when legally earned. For tax purposes, management fee expense is
accrued in the same year as the tax basis rental revenue while management fees
are accrued using GAAP revenue for book purposes.

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 increases 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.

Note 11. Selected Quarterly Financial Data

The following is a summary of the quarterly results of operations for the years
ended December 31, 2003 and 2002 (unaudited):

2003 March 31 June 30 Sept. 30 Dec. 31
-------- ------- -------- -------

Total Revenues $ 474,360 $ 549,844 $ 490,934 $ 302,227
Net Income (Loss) $ 54,731 $ 78,290 $(424,398) $ 208,288
Net Income (Loss) - General
Partner $ 200,939 $ 783 $ (4,244) $ 2,083
Net Income (Loss) - Limited
Partners $(146,208) $ 77,507 $(420,154) $ 206,205
Net Income (Loss) Per Limited
Partnership Unit $ (0.29) $ 0.15 $ (0.84) $ 0.41

2002 March 31 June 30 Sept. 30 Dec. 31
-------- ------- -------- -------

Total Revenues $ 718,128 $ 769,471 $ 703,192 $ 696,799
Net Income $ 179,838 $ 209,360 $ 176,773 $ 147,178
Net Income - General Partner $ 115,984 $ 115,943 $ 1,768 $ 1,472
Net Income - Limited Partners $ 63,854 $ 93,417 $ 175,005 $ 145,706
Net Income Per Limited
Partnership Unit $ 0.13 $ 0.19 $ 0.35 $ 0.29

Note 12. Subsequent Event

On February 15, 2004, the Partnership distributed $499,683 to the Limited
Partners, or $1.00 per Limited Partnership Unit, and $55,520 to the General
Partner.

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

On August 1, 2002, the Board of Directors of the general partner of the
Partnership, on behalf of the Partnership, adopted a resolution dismissing
Arthur Andersen LLP (Andersen) as the Partnership's auditors and appointed Ernst
& Young LLP (E&Y) to replace Andersen.

Andersen's reports on the Partnership's financial statements as of and for each
of the years ended December 31, 2001 and 2000 did not contain an adverse opinion
or disclaimer of opinion, nor were they qualified or modified as to uncertainty,
audit scope or accounting principles.

During the years ended December 31, 2001 and 2000 and through the date hereof,
there were no disagreements with Andersen on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedure
which, if not resolved to Andersen's satisfaction, would have caused Andersen to
make reference to the subject matter in connection with its report on the
Partnership's financial statements for such years; and there were no reportable
events as described in Item 304(a)(1)(v) of Regulation S-K.

During the years ended December 31, 2001 and 2000 and through the date hereof,
the Partnership did not consult E&Y with respect to the application of
accounting principles to a specified transaction, either completed or proposed,
or the type of audit opinion that might be rendered on the Partnership's
financial statements, or any other matters or reportable events as set forth in
Items 304(a)(2)(i) and (ii) of Regulation S-K.

The Partnership has provided Andersen with a copy of the foregoing statements.
Because the Partnership has been informed by Andersen that as of July 1, 2002 it
would not be providing the letter stating that it was in agreement with the
statements contained herein, no such letter is attached to this filing as an
Exhibit. The inability to obtain such letter from Andersen and not attaching a
letter to this filing is permitted by Item 304T(b)(2) of Regulation S-K.

Item 9A. Controls and Procedures

(a) Evaluation of disclosure controls and procedures

PIMC management reviewed the Partnership's internal controls and procedures and
the effectiveness of these controls. As of December 31, 2003, PIMC management,
including its Chief Executive Officer and Chief Financial Officer, carried out
an evaluation of the effectiveness of the design and operation of the
Partnership's disclosure controls and procedures pursuant to Rules 13a-14(c) and
15d-14(c) of the Securities Exchange Act of 1934. Based upon that evaluation,
the Chief Executive Officer and Chief Financial Officer concluded that the
Partnership's disclosure controls and procedures are effective in timely
alerting them to material information relating to the Partnership required to be
included in its periodic SEC filings.

(b) Change to internal controls

There was no change in the Partnership's internal controls over financial
reporting or in other factors during the Partnership's last quarter that
materially affected, or are reasonably likely to materially affect, the
Partnership's internal controls over financial reporting. There were no
significant deficiencies or material weaknesses, and therefore no corrective
actions taken.

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 Delaware
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
---- -----------

William Carpenter President; Director
Stephen E. Yost Chief Financial Officer
Diarmuid Hogan Vice President; Director
Norman C. T. Liu Vice President; Director
Charles Meyer 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. Carpenter, 40, assumed the position of President and Director of PIMC
effective October 1, 2001. Mr. Carpenter holds the position of Executive Vice
President and Chief Risk Manager of GECAS, having previously held the position
of Vice President - Chief Risk Manager of GECAS (Acting). Prior to joining GECAS
eight years ago, Mr. Carpenter was an aerospace engineer specializing in
aircraft handling qualities. Prior to that, Mr. Carpenter was a commissioned
officer and pilot in the United States Armed Forces.

Mr. Yost, 42, assumed the position of Chief Financial Officer of PIMC effective
April 17, 2002. Mr. Yost presently holds the position of Senior Vice President
and Manager Transaction Advisory for GECAS. Mr. Yost has been with the General
Electric Company (GE) and its subsidiaries since 1994. Prior to joining GECAS,
Mr. Yost held the position of European Controller for GE Capital Fleet Services
and prior to that, Controller of GE Capital Commercial Finance. Mr. Yost is a
Certified Public Accountant and prior to joining GE was an audit manager with
Coopers & Lybrand.

Mr. Hogan, 35, assumed the position of Vice President and Director of PIMC
effective October 1, 2003. Mr. Hogan presently holds the position of Senior Vice
President, Financial Planning and Analysis for GECAS. Mr. Hogan has been with
the General Electric Company (GE) and its subsidiaries since 1995. Mr. Hogan is
a member of the Institute of Chartered Accountants in Ireland and prior to
joining GE was an audit senior with KPMG.

Mr. Liu, 46, 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 - Commercial Operations of GECAS, having
previously held the positions of Executive Vice President - Sales and Marketing
and 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 for General Electric Capital Corporation and in
Syndications and Leasing for the Transportation & Industrial Funding division of
General Electric Capital Corporation. Mr. Liu previously held the position of
managing director of Kidder, Peabody & Co., Incorporated.

Mr. Meyer, 51, assumed the position of Secretary on October 1, 2003. Mr. Meyer
presently holds the position of Senior Vice President - Taxes and Senior Tax
Counsel of GECAS. Prior to joining GECAS, Mr. Meyer was the Senior Tax Director
- - Research and Planning for Northwest Airlines.

Mr. Dillon, 62, assumed the position of Assistant Secretary of PIMC on July 1,
1994. Mr. Dillon presently holds the position of Senior Vice President and
Associate General Counsel of GECAS. Mr. Dillon held the position of Vice
President - Aviation Legal and Insurance Affairs of PHC, from April 1989 to
October 1997. Previously, he served as General Counsel of PIMC and PALC
effective January 1986.

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.

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
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.

Item 11. Executive Compensation

The Partnership has no directors or officers. The Partnership is managed by
PIMC, the General Partner. In connection with management services provided,
management and advisory fees of $66,600 were paid to PIMC in 2003, in addition
to a 10% interest in all cash distributions as described in Note 7 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 of all cash 100%
Partner Management distributions, gross income in an
Interest Corporation 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.

Item 14. Principal Accounting Fees and Services

Audit Fees - For audits of the years ended December 31, 2003 and 2002, the
Partnership paid or accrued fees of $22,000 and $26,000, respectively, to its
independent auditors Ernst and Young LLP. Audit fees for 2003 and 2002 were for
professional services provided for the quarterly review of the financial
statements in the Partnership's Form 10-Q and the annual audit of the financial
statements in the Partnership's Form 10-K.

Tax Fees - For the year ended December 31, 2003 and 2002, the Partnership was
billed $0 and $3,000, respectively, by Deloitte & Touche for the review of
federal and state partnership tax returns.

PART IV

Item 15. 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 Auditors 14
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,
2003.

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

31.1 CEO Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 CFO Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.1 Code of Ethics

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.

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 30, 2004 By: /S/ William Carpenter
- --------------------------- ----------------------------
Date William Carpenter, 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/William Carpenter President and Director of Polaris March 30, 2004
- -------------------- Investment Management Corporation, --------------
(William Carpenter) General Partner of the Registrant

/S/Stephen E. Yost Chief Financial Officer of Polaris March 30, 2004
- ------------------ Investment Management Corporation, --------------
(Stephen E. Yost) General Partner of the Registrant

/S/Diarmuid Hogan Vice President and Director of March 30, 2004
- ----------------- Polaris Investment Management Corporation, --------------
(Diarmuid Hogan) General Partner of the Registrant

/S/Norman C. T. Liu Vice President and Director of March 30, 2004
- ------------------- Polaris Investment Management Corporation, --------------
(Norman C. T. Liu) General Partner of the Registrant