INDEPENDENT AUDITORS' REPORT






The Owners
Canadian Air Trust #3

We have audited the accompanying balance sheet of the Canadian Air Trust #3 (the
Trust) as of December  31,  1998,  and the  related  statements  of  operations,
changes  in  owners'  equity,  and cash  flows  for the year then  ended.  These
financial  statements  are the  responsibility  of the owner's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audit.

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

As described  in Note 1 to the  financial  statements,  the Trust is expected to
liquidate in 2000, as the aircraft in the Trust has been sold.

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the financial  position of the Trust as of December 31,
1998,  and the  results of its  operations  and its cash flows for the year then
ended  in  conformity  with  generally  accepted  accounting   principles.   The
accompanying  1999 and 1997  financial  statements  were not  audited by us, and
accordingly, we express no opinion or any other form of assurance on them.



/s/ KPMG
SAN FRANCISCO, CALIFORNIA
June 9, 2000



<PAGE>

<TABLE>
<CAPTION>


                                            CANADIAN AIR TRUST #3
                                                  (A Trust)
                                                Balance Sheets
                                                 December 31,
                                          (in thousands of dollars)





                                                                               1999               1998
                                                                           (unaudited)
                                                                          -------------------------------------
  ASSETS

  <S>                                                                     <C>               <C>
  Accounts receivable                                                     $            315  $            564

                                                                          -------------------------------------
        Total assets                                                      $            315  $            564
                                                                          =====================================


  LIABILITIES AND OWNERS' EQUITY

  Liabilities:
  Due to affiliates                                                       $              4  $               6
                                                                          ------------------------------------
    Total liabilities                                                                    4                  6

  Owners' equity                                                                       311                558
                                                                          ------------------------------------

        Total liabilities and owners' equity                              $            315  $             564
                                                                          ====================================


</TABLE>










      See accompanying auditors' report and notes to financial statements.


<PAGE>
<TABLE>
<CAPTION>


                                            CANADIAN AIR TRUST #3
                                                  (A Trust)
                                           STATEMENTS OF OPERATIONS
                                       For the Years Ended December 31,
                                          (in thousands of dollars)


                                                             1999                1998                1997
                                                                                               -----------------
                                                          (unaudited)                            (unaudited)
                                                       ---------------------------------------------------------
  REVENUES

  <S>                                                  <C>                  <C>                   <C>
  Lease revenue                                        $            --      $        1,933        $      5,547
  Interest income                                                   50                  74                  79
  Gain from the sale of aircraft                                    --              13,733                  --
                                                       ---------------------------------------------------------
    Total revenues                                                  50              15,740               5,626
                                                       ---------------------------------------------------------

  EXPENSES

  Depreciation and amortization expense                             --               1,262               5,641
  Management fees to affiliate                                      --                  36                  97
  Insurance expense                                                 --                  18                  29
  Administrative expenses to affiliates                             --                  40                  70
  Administrative expenses                                           --                   6                   2
                                                       ---------------------------------------------------------
    Total expenses                                                  --               1,362               5,839
                                                       ---------------------------------------------------------

        Net income (loss)                              $            50      $       14,378        $      (213)
                                                       =========================================================

</TABLE>










      See accompanying auditors' report and notes to financials tatements.


<PAGE>



                              CANADIAN AIR TRUST #3
                                    (A Trust)
                     STATEMENTS OF CHANGES IN OWNERS' EQUITY
             For the Years Ended December 31, 1999 , 1998, and 1997
                            (in thousands of dollars)







   Owners' equity at December 31, 1996 (unaudited)          $        16,597

  Net loss                                                             (213)

  Distributions paid                                                 (3,299)
                                                            -----------------

   Owners' equity at December 31, 1997 (unaudited)                   13,085

  Owners' capital contribution                                        1,199

  Net income                                                         14,378

  Distributions paid                                                (28,104)
                                                            -----------------

   Owners' equity at December 31, 1998                                  558

  Net income                                                             50

  Distributions paid                                                   (297)
                                                            -----------------

    Owners' equity at December 31, 1999 (unaudited)         $           311
                                                            =================











      See accompanying auditors' report and notes to financial statements.


<PAGE>
<TABLE>
<CAPTION>



                                            CANADIAN AIR TRUST #3
                                                  (A Trust)
                                           STATEMENTS OF CASH FLOWS
                                       For the Years Ended December 31,
                                          (in thousands of dollars)


                                                                      1999                1998              1997
                                                                  (unaudited)                           (unaudited)
                                                               ---------------------------------------------------------

  OPERATING ACTIVITIES

  <S>                                                           <C>                <C>               <C>
  Net income (loss)                                             $            50    $        14,378   $           (213)
  Adjustments to reconcile net income to net cash
      provided by (used in) operating activities:
    Depreciation and amortization                                            --              1,262              5,641
    Gain from the sale of aircraft                                           --            (13,733)                --
    Changes in operating assets and liabilities:
      Accounts receivable                                                   249              1,313               (917)
      Prepaid deposits                                                       --                  5                  1
      Accounts payable and accrued expenses                                  (2)                (4)                (4)
      Due to affiliates                                                      --                (21)                18
      Lessee deposits                                                        --                 --             (1,227)
                                                                -------------------------------------------------------
        Net cash provided by operating activities                           297              3,200              3,299
                                                                -------------------------------------------------------

  Investing activities

  Payment for capitalized repairs                                            --             (1,199)                --
  Payment of acquisition fees                                                --                (54)                --
  Payment for lease negotiation fees                                         --                (12)                --
  Proceeds from the sale of aircraft                                         --             24,970                 --
                                                                -------------------------------------------------------
        Net cash provided by investing activities                            --             23,705                 --
                                                                -------------------------------------------------------

  Financing activities

  Owners' capital contribution                                               --              1,199                 --
  Distributions paid                                                       (297)           (28,104)            (3,299)
                                                                -----------------------------------------------------
        Net cash used in financing activities                              (297)           (26,905)            (3,299)
                                                                -------------------------------------------------------

  Net change in cash and cash equivalents                                    --                 --                 --
  Cash and cash equivalents at beginning of year                             --                 --                 --
                                                                -------------------------------------------------------
  Cash and cash equivalents at end of year                      $            --    $            --   $             --
                                                                =======================================================


</TABLE>









      See accompanying auditors' report and notes to financial statements.


<PAGE>



                              CANADIAN AIR TRUST #3
                                    (A TRUST)
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 1999

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     ORGANIZATION

In 1995, a Trust  Agreement  (the Trust) was entered into between PLM  Equipment
Growth Fund V (EGF V), a California  limited  partnership,  PLM Equipment Growth
Fund VI (EGF VI), a  California  limited  partnership,  PLM  Equipment  Growth &
Income Fund VII (EGF VII), a California  limited  partnership,  and Professional
Lease Management Income Fund I (Fund I), a Delaware Limited  Liability  Company,
(the  Owners).  The Trust was entered  into for the purpose of  purchasing  five
Boeing 737-200  commercial  aircraft.  The Trust has no employees nor operations
other than the operation of the five Boeing 737-200's.

The  Trust  contained  a  provision  for  allocating  specific  aircraft  to the
beneficial owners under certain  circumstances.  One of the commercial aircraft,
owned by EGF V, was transferred to the limited  partnership  during 1996. All of
the remaining  aircraft in the Trust had been sold as of December 31, 1998.  The
Trust is expected to liquidate in 2000.

PLM Financial Services Inc., (FSI) is the General Partner of EGFs V, VI, and VII
and  the  Manager  of  Fund  I.  FSI  is  a   wholly-owned   subsidiary  of  PLM
International, Inc.

The aircraft were purchased  during 1996 for $28.1  million.  EGF V, EGF VI, and
EGF VII (the EGF's)  collectively paid acquisition and lease negotiation fees of
$1.0  million  to  PLM  Worldwide  Management  Services  (WMS),  a  wholly-owned
subsidiary of PLM International, Inc., based on the prorata share of the cost of
the  aircraft  purchased.  No fees were paid by Fund I. Upon the purchase of the
aircraft,  a lease with Canadian Airlines  International was entered into with a
term expiring in March 2002.

These accompanying  financial statements have been prepared on the accrual basis
of accounting in accordance with generally accepted accounting principles.  This
requires  management to make estimates and assumptions  that affect the reported
amounts  of  assets  and  liabilities,  disclosures  of  contingent  assets  and
liabilities at the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting  period.  Actual results could differ
from those estimates.

     OPERATIONS

The  aircraft in the Trust were  managed  under a  management  agreement  by PLM
Investment  Management,  Inc.  (IMI),  a  wholly-owned  subsidiary  of FSI.  IMI
received a monthly management fee from the Trust for managing the aircraft (Note
2). FSI, in conjunction with its subsidiaries, sells transportation equipment to
investor programs and third parties,  manages pools of transportation  equipment
under agreements with the investor programs, and is a general partner in limited
partnerships.

     CASH AND CASH EQUIVALENTS

All cash  generated from  operations is distributed to the owners,  accordingly,
the Trusi has no cash balance at December 31, 1999 and 1998.

     ACCOUNTING FOR LEASES

The  aircraft  in the Trust were  leased  under an  operating  lease.  Under the
operating  lease method of accounting,  the leased asset is recorded at cost and
depreciated  over its  estimated  useful life.  Rental  payments are recorded as
revenue over the lease term in accordance  with Financial  Accounting  Standards
Board Statement No. 13 "Accounting  for Leases".  Lease  origination  costs were
amortized over the life of the lease.


<PAGE>



                              CANADIAN AIR TRUST #3
                                    (A TRUST)
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 1999

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     DEPRECIATION

Depreciation  of aircraft  equipment  was  computed  using the  double-declining
balance method,  taking a full month's depreciation in the month of acquisition,
based  upon an  estimated  useful  life of 12  years.  Acquisition  fees of $0.8
million  were  paid  to WMS and  were  capitalized  as  part of the  cost of the
equipment and amortized over the life of the aircraft.

     AIRCRAFT

In accordance with the Financial  Accounting  Standards Board Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of", FSI reviewed the carrying value of the aircraft under the Trust
at least quarterly, and whenever circumstances indicated that the carrying value
of the aircraft may not be  recoverable  in relation to expected  future  market
conditions for the purpose of assessing  recoverability of the recorded amounts.
If  projected  undiscounted  future cash flows and fair value were less than the
carrying value of the aircraft,  a loss on revaluation would have been recorded.
No reductions to the carrying value of the aircraft were required during 1998 or
1997.

     REPAIRS AND MAINTENANCE

Repair and  maintenance  for the  aircraft  was  usually the  obligation  of the
lessee.

     NET INCOME AND CASH DISTRIBUTIONS TO OWNERS

The net income and cash  distributions of the Trust are allocated to the Owners.
Net income is  generally  allocated  to the Owners  based on number of  aircraft
owned. Certain depreciable and amortizable amounts are allocated specifically to
the EGF's,  such as depreciation on acquisition  fees and  amortization on lease
negotiation  fees.  Cash  distributions  are  allocated  based on the  number of
aircraft owned.

     COMPREHENSIVE INCOME

The  Trust's  net income is equal to  comprehensive  income for the years  ended
December 31, 1999, 1998, and 1997.

2.   TRANSACTIONS WITH AFFILIATES

Under the equipment management agreement,  IMI received a monthly management fee
equal to the  lessor of (i) the fees that  would be  charged  by an  independent
third party for similar  services for similar  equipment or (ii) 5% of the gross
lease revenues  attributable  to equipment that is subject to operating  leases.
The  Trust's  management  fee expense to  affiliate  was $0,  $36,000,  and $0.1
million during 1999, 1998, and 1997, respectively.

The Trust  reimbursed FSI $0, $40,000,  and $0.1 million during 1999,  1998, and
1997,  respectively,  for data processing and  administrative  expenses directly
attributable to the Trust.

The balance due to  affiliates as of December 31, 1999,  included  $3,000 due to
affiliates for management  fees and $1,000 due to an affiliated  partnership for
expenses paid on its behalf.



<PAGE>



                              CANADIAN AIR TRUST #3
                                    (A TRUST)
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 1999

3.   AIRCRAFT ON LEASE

Revenues  were earned by placing the  aircraft in operating  leases.  A six-year
lease with Canadian  Airlines  International  was signed upon the acquisition of
the aircraft in 1996.

During 1997, the lessee was having financial  difficulties and was unable to pay
the Trust 3 months  rent.  The Trust  negotiated a repayment  schedule  starting
October 1998 in which the lessee would make 10 equal quarterly installments plus
interest of 12% on the unpaid balance  secured by a  letter-of-credit.  The last
quarterly  installment  is due January 2001. As of July 2000, the lessee remains
current with the repayment plan.

The  aircraft  lease is  accounted  for as an operating  lease.  Future  minimum
rentals under  noncancelable  operating  leases, as of December 31, 1999, during
each of the next five years are approximately $6.9 million in 2000, $6.9 million
in 2001, $1.7 million in 2002, and $0 thereafter.

4.   GEOGRAPHIC INFORMATION

The aircraft were leased and operated in Canada.

5.   INCOME TAXES

The Trust is not subject to income  taxes,  as any income or loss is included in
the tax returns of the Owners of the Trust. Accordingly, no provision for income
taxes has been made in the financial statements of the Trust.

As of  December  31,  1999,  there were no  temporary  differences  between  the
financial statements carrying value of assets and the income tax basis.

6.   CONCENTRATIONS OF CREDIT RISK

Financial instruments,  which potentially subject the Trust to concentrations of
credit risk, consist principally of lease receivables.

The  aircraft  in the Trust were on lease to only one  customer  during 1998 and
1997. This lessee,  Canadian  Airlines  International,  accounted for all of the
lease  revenue.  Triton  Aviation  Services,  Ltd.  purchased all the commercial
aircraft with the existing  lease  attached from the Trust and the gain from the
sale accounted for 87% of total consolidated revenues during 1998.

As of December 31, 1999, the manager believes the Trust had no other significant
concentrations  of credit risk that could have a material  adverse effect on the
Trust.