POLARIS AIRCRAFT INCOME FUND V, 10-K, 1996-03-29

POLARIS AIRCRAFT INCOME FUND V
10-K, 1996-03-29
EQUIPMENT RENTAL & LEASING, NEC

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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

FORM 10-K

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

_X_ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (Fee Required)

For the fiscal year ended December 31, 1995

___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)

For the transition period _______________ from to _______________

Commission File No. 33-21977

POLARIS AIRCRAFT INCOME FUND V,
A California Limited Partnership
--------------------------------
(Exact name of registrant as specified in its charter)

California 94-3068259
---------- ----------
(State or other jurisdiction of (IRS Employer I.D. No.)
incorporation or organization)

201 Mission Street, 27th Floor, San Francisco, California 94105
- --------------------------------------------------------- -----
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (415) 284-7400

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. ___

No formal market exists for the units of limited partnership interest and
therefore there exists no aggregate market value at December 31, 1995.

Documents incorporated by reference: None

This document consists of 41 pages.

<PAGE>

PART I

Item 1. Business

The principal objectives of Polaris Aircraft Income Fund V, A California Limited
Partnership (PAIF-V or the Partnership), are 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-V
was organized as a California limited partnership on April 29, 1988 and will
terminate no later than December 2020.

PAIF-V has many competitors in the aircraft leasing market, including airlines,
aircraft leasing companies, other limited partnerships, banks and several other
types of financial institutions. This market is highly competitive and there is
no single competitor who has a significant influence on the industry. In
addition to other competitors, the general partner, Polaris Investment
Management Corporation (PIMC), and its affiliates, including GE Capital Aviation
Services, Inc. (GECAS), Polaris Aircraft Leasing Corporation (PALC), Polaris
Holding Company (PHC) and General Electric Capital Corporation (GE Capital),
acquire, lease, finance, sell and remarket aircraft for their own accounts and
for existing aircraft and aircraft leasing programs managed by them. Further,
GECAS provides a significant range of management services to GPA Group plc, a
public limited company organized in Ireland, together with its consolidated
subsidiaries (GPA), which acquires, 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, and GPA.

A brief description of the aircraft owned by the Partnership is set forth in
Item 2. The following table describes certain material terms of the
Partnership's leases to Sun Country Airlines (Sun Country), American Trans Air,
Inc. (ATA), Southwest Airlines Co. (Southwest), Polar Air Cargo, Inc. (Polar Air
Cargo), and American International Airways Limited (AIA) as of December 31,
1995:

<TABLE>
<CAPTION>
Number of Lease
Lessee Aircraft Type Aircraft Expiration Renewal Options (1)
- ------ ------------- -------- ---------- -------------------
<S> <C> <C> <C> <C>
Sun Country Boeing 727-200 Advanced 1 9/96 (2) up to four consecutive
Boeing 727-200 Advanced 1 10/96 (2) one-year periods for
both aircraft

ATA Boeing 727-200 Advanced 2 2/00 (3) up to three one-year
Boeing 727-200 Advanced 1 3/00 (3) periods

Southwest Boeing 737-200 Advanced 1 12/96 (4) none
Boeing 737-200 Advanced 1 12/96 (5) none
Boeing 737-200 Advanced 1 10/96 (6) none
Boeing 737-200 Advanced 4 9/98 (7) none

Polar Air Cargo Boeing 747-100 Special Freighter 1 1/99 (8) none

AIA Boeing 747-100 Special Freighter 1 3/96 (9) none

</TABLE>

(1) The rental rate during the renewal term remains the same as the current
rate unless otherwise noted.

<PAGE>

(2) These aircraft, formerly on lease to Alaska Airlines, Inc. (Alaska),
were leased to Sun Country for three years beginning in October 1993.
Alaska had notified the Partnership of its desire to early terminate
its leases, which were scheduled to expire in May 1994, if a new
lessee could be found. The new lease rate with Sun Country is
approximately 43% of the prior Alaska rate. However, Alaska paid the
difference between its contractual rate and the new Sun Country rate
through the end of Alaska's original lease term. The Partnership
agreed to share in the cost of certain heavy maintenance work on the
aircraft as discussed in Note 3 to the financial statements (Item 8).

(3) These aircraft were formerly leased to USAir Inc. (USAir) through
December 1992. The lease rate is approximately 45% of the prior lease
rate. The lease includes an eleven- month rent suspension period
beginning on the delivery dates in February and March 1993. Under the
ATA lease, the Partnership incurred certain maintenance costs of
approximately $657,000 and may be required to finance certain aircraft
hushkits for use on the aircraft at an estimated aggregate cost of
approximately $7.8 million, which will be partially recovered with
interest through payments from ATA over an extended lease term. The
Partnership loaned $556,000 to ATA in 1993 to finance the purchase by
ATA of one spare engine. ATA transferred to the Partnership three
unencumbered Boeing 727-100 aircraft in 1993 as part of the lease
transaction. Two of the aircraft are subject to a conditional sale
agreement and the third was sold in August 1994, as discussed in Notes
3 and 4 to the financial statements (Item 8).

(4) The original lease was extended for a two-year period beyond the
initial lease expiration date in November 1991 at 60% of the original
lease rate, extended for an additional two-year period at 44% of the
original rate in November 1993, and then again extended from November
1995 to December 1996 at 60% of the original rate.

(5) The original lease was extended for a three-year period beyond the
initial lease expiration date in November 1992 at approximately 43% of
the original lease rate. The lease was then again extended from
November 1995 to December 1996 at approximately 58% of the original
rate.

(6) The original lease was extended for a two-year period beyond the
initial lease expiration date in November 1993 at approximately 40% of
the original lease rate. The lease was then again extended from
November 1995 through October 1996 at approximately 54% of the
original rate.

(7) The original leases were extended for a four-year period beyond the
initial lease expiration date in September 1994 at approximately 39%
of the original lease rates.

(8) This aircraft, formerly leased to Federal Express Corporation (Federal
Express), was leased to Southern Air Transport, Inc. (SAT) at a
variable rate based on usage from June 1993 until January 1999,
although SAT or the Partnership had the right to early terminate the
lease with 30 days prior written notice. In August 1994, the
Partnership exercised its right to terminate its lease with SAT and
simultaneously re-leased the aircraft under the same terms and
conditions to Polar Air Cargo. SAT had been utilizing the aircraft to
provide service for Polar Air Cargo. The lease stipulates that the
Partnership share in the cost of certain Airworthiness Directives
(ADs), which cannot be estimated at this time. The lease also
stipulates that the Partnership share in the cost of certain
maintenance work on the aircraft, a portion of which may be drawn from
maintenance reserves paid to the Partnership by SAT and Polar Air
Cargo.

<PAGE>

(9) This aircraft, formerly leased to Federal Express, was leased to AHK
Air Hong Kong, Ltd. at approximately 59% of the prior rate from May
1993 through mid-November 1993. The lease was then extended at the
same rate to February 1994, however, the lessee did not meet all of
the return requirements set forth in the lease as of the expiration
date. The Partnership received rent through March 31, 1994. The
aircraft was subsequently re-leased to AIA from June 1994 through
March 1996 at a variable rate based on usage. The lease stipulates
that the Partnership share in the cost of certain maintenance and
modification costs which cannot be estimated at this time.

Industry-wide, approximately 475 commercial aircraft are currently available for
sale or lease, approximately 125 less than a year ago. From 1991 through 1994,
depressed demand for air travel limited airline expansion plans, with new
aircraft orders and scheduled deliveries being canceled or substantially
deferred. As profitability declined, many airlines took action to downsize or
liquidate assets and some airlines were forced to file for bankruptcy
protection. Following two years of good traffic growth accompanied by rising
yields, this trend is improving with new aircraft orders last year exceeding
deliveries for the first time since 1990. To date, this recovery has mainly
benefited Stage 3 narrow-bodies and younger Stage 2 narrow-bodies, many of which
are now being upgraded with noise suppression hardware, commonly known as
"hushkits," which, when installed on the aircraft, bring Stage 2 aircraft into
compliance with Federal Aviation Administration (FAA) Stage 3 noise restrictions
as discussed in the Industry Update section of Item 7. Older Stage 2
narrow-bodies have shown marginal signs of recovery. Wide-body lease rates and
values remain broadly unchanged since a year ago due to continuing airline
preference for long-range twin engine aircraft. The Partnership has been forced
to adjust its estimates of the residual values realizable from its aircraft,
which resulted in an increase in depreciation expense, as discussed in Item 7. A
discussion of the current market condition for the type of aircraft owned by the
Partnership follows:

Boeing 727-100 - The Boeing 727 was the first tri-jet introduced into commercial
service. The Boeing 727-100 is a short- to medium-range jet carrying
approximately 125 passengers on trips of up to nautical 1,500 miles. The
operating characteristics of the aircraft, as well as the cost of aging aircraft
and corrosion control ADs, have significantly reduced the possibilities of
re-leasing this aircraft type.

Boeing 727-200 Advanced - The Boeing 727 was the first tri-jet introduced into
commercial service. The Boeing 727 is a short- to medium-range jet used for
trips of up to 1,500 nautical miles. In 1972, Boeing introduced the Boeing
727-200 Advanced model, a higher gross weight version with increased fuel
capacity as compared with the non-advanced model. Hushkits which bring the
Boeing 727-200 Advanced into compliance with FAA Stage 3 noise restrictions, are
now available at an average cost of approximately $2.6 million per aircraft.
Hushkits may not be cost effective on all aircraft due to the age of some of the
aircraft and the time required to fully amortize the additional investment.
Certain ADs applicable to all models of the Boeing 727 have been issued to
prevent fatigue cracks and control corrosion as discussed in Item 7. The market
for this type of aircraft, as for all Stage 2 narrowbody aircraft, has improved
over the previous year.

Boeing 737-200 Advanced - In 1971, Boeing introduced the Boeing 737-200 Advanced
model, a higher gross weight aircraft with increased fuel capacity as compared
to its predecessor, the non-advanced model. This two-engine, two-pilot aircraft
provides operators with 107 to 130 seats, meeting their requirements for
economical lift up to the 2,000 nautical mile range. Hushkits which bring Boeing
737-200 aircraft into compliance with FAA Stage 3 noise restrictions, are now
available at a cost of approximately $1.5 million per aircraft. Hushkits may not
be cost effective on all aircraft due to the age of some of the aircraft and the

<PAGE>

time required to fully amortize the additional investment. Certain ADs
applicable to all models of the Boeing 737 have been issued to prevent fatigue
cracks and control corrosion as discussed in Item 7. The market for this type of
aircraft, as for all Stage 2 narrowbody aircraft, has improved over the previous
year.

Boeing 747-100 Special Freighter - The Boeing 747-100 Special Freighter was
originally manufactured as a Boeing 747-100 passenger aircraft starting in 1968.
From 1975 through 1977, Boeing incorporated several basic changes into the
aircraft to produce a modified Boeing 747-100 Special Freighter with full
freighter capabilities. The Boeing 747, which qualifies as Stage 3 with certain
operating restrictions, is the long-range workhorse of the airfreight industry,
based on its capacity and range in international operations. However, demand for
this type of aircraft remains soft due to competition from the increasing number
of aircraft that have been converted from passenger to freighter configuration.

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

Item 2. Properties

PAIF-V owns seven Boeing 737-200 Advanced aircraft leased to Southwest, three
Boeing 727-200 Advanced aircraft leased to ATA, two Boeing 727-200 Advanced
aircraft leased to Sun Country, one Boeing 747-100 Special Freighter aircraft
leased to AIA, one Boeing 747-100 Special Freighter aircraft leased to Polar Air
Cargo, and two Boeing 727-100 aircraft, transferred from ATA in 1993, which are
subject to a conditional sale agreement. Except for the Boeing 747s, which
qualify as Stage 3 with certain operating restrictions, the Partnership's entire
fleet consists of Stage 2 aircraft. All leases are operating leases. The
following table describes the Partnership's current aircraft portfolio in
greater detail:

Year of Cycles
Aircraft Type Serial Number Manufacture As of 11/30/95 (1)
- ------------- ------------- ----------- ------------------
Boeing 727-100 19150 1967 40,007
Boeing 727-100 19151 1967 40,950
Boeing 727-200 Advanced 21345 1980 29,725
Boeing 727-200 Advanced 21601 1980 30,291
Boeing 727-200 Advanced 21999 1980 25,285
Boeing 727-200 Advanced 22162 1981 26,089
Boeing 727-200 Advanced 23014 1983 21,408
Boeing 737-200 Advanced 20925 1974 81,035
Boeing 737-200 Advanced 21117 1975 78,467
Boeing 737-200 Advanced 21262 1976 73,422
Boeing 737-200 Advanced 21447 1978 67,464
Boeing 737-200 Advanced 21448 1978 67,578
Boeing 737-200 Advanced 21533 1978 65,711
Boeing 737-200 Advanced 21534 1978 65,707
Boeing 747-100 Special Freighter 19733 1970 18,620
Boeing 747-100 Special Freighter 20247 1971 22,787

(1) Cycle information as of 12/31/95 is not yet available.

<PAGE>

Item 3. Legal Proceedings

Kepford, et al. v. Prudential Securities, et al. - On April 13, 1994, an action
entitled Kepford, et al. v. Prudential Securities, Inc. was filed in the
District Court of Harris County, Texas. The complaint names Polaris Investment
Management Corporation, Polaris Securities Corporation, Polaris Holding Company,
Polaris Aircraft Leasing Corporation, the Partnership, Polaris Aircraft Income
Fund I, Polaris Aircraft Income Fund II, Polaris Aircraft Income Fund III,
Polaris Aircraft Income Fund IV, Polaris Aircraft Income Fund VI, General
Electric Capital Corporation, Prudential Securities, Inc., Prudential Insurance
Company of America and James J. Darr, as defendants. Certain defendants were
served with a summons and original petition on or about May 2, 1994. Plaintiffs'
original petition alleges that defendants violated the Texas Securities Act, the
Texas Deceptive Trade Practices Act, sections 11 and 12 of the Securities Act of
1933 and committed common law fraud, fraud in the inducement, negligent
misrepresentation, negligence, breach of fiduciary duty and civil conspiracy by
misrepresenting and failing to disclose material facts in connection with the
sale of limited partnership units in the Partnership and the other Polaris
Aircraft Income Funds. Plaintiffs seek, among other things, an award of
compensatory damages in an unspecified amount plus interest thereon, and double
and treble damages under the Texas Deceptive Trade Practices Act.

Certain defendants, including Polaris Investment Management Corporation and the
Partnership, filed a general denial on June 29, 1994 and a motion for summary
judgment on June 17, 1994 on the basis that the statute of limitations has
expired. On June 29, 1994 and July 14, 1994, respectively, plaintiffs filed
their first amended original petition and second amended original petition, both
of which added plaintiffs. On July 18, 1994, plaintiffs filed their response and
opposition to defendants' motion for partial summary judgment and also moved for
a continuance on the motion for partial summary judgment. On August 11, 1994,
after plaintiffs again amended their petition to add numerous plaintiffs, the
defendants withdrew their summary judgment motion and motion to stay discovery,
without prejudice to refiling these motions at a later date.

Riskind, et al. v. Prudential Securities, Inc., et al. - An action entitled
Riskind, et al. v. Prudential Securities, Inc., et al. has been filed in the
District Court of the 165 Judicial District, Maverick County, Texas. This action
is on behalf of over 3,000 individual investors who purchased units in "various
Polaris Aircraft Income Funds," including the Partnership. The Partnership and
Polaris Investment Management Corporation received service of plaintiffs' second
amended original petition and, on June 13, 1994, filed an original answer
containing a general denial.

The second amended original petition names the Partnership, Polaris Investment
Management Corporation, Prudential Securities, Inc. and others as defendants and
alleges that these defendants violated the Texas Securities Act and the Texas
Deceptive Trade Practices Act and committed common law fraud, fraud in the
inducement, negligent misrepresentation, negligent breach of fiduciary duty and
civil conspiracy by misrepresenting and failing to disclose material facts in
connection with the sale of limited partnership units in the Partnership and the
other Polaris Aircraft Income Funds. Plaintiffs seek, among other things, an
award of compensatory damages in an unspecified amount plus interest thereon,
and double and treble damages under the Texas Deceptive Trade Practices Act.
Kidder, Peabody & Co. was added as an additional defendant by virtue of an
Intervenor's Amended Plea in Intervention filed on or about April 7, 1995.

Prudential Securities, Inc. reached a settlement with the plaintiffs. The trial
of the claims of one plaintiff, Robert W. Wilson, against Polaris Aircraft
Income Funds I-VI, Polaris Investment Management Corporation and various
affiliates of Polaris Investment Management Corporation, including General
Electric Capital Corporation, was commenced on July 10, 1995. On July 26, 1995,
the jury returned a verdict in favor of the defendants on all counts. Subsequent

<PAGE>

to this verdict, all of the defendants (with the exception of Prudential
Securities, Inc., which had previously settled) entered into a settlement with
the plaintiffs. None of the Polaris Aircraft Income Funds were required to
contribute to this settlement.

Howland, et al. v. Polaris Holding Company, et al. - On or about February 4,
1994, a purported class action entitled Howland, et al. v. Polaris Holding
Company, et al. was filed in the United States District Court for the District
of Arizona on behalf of investors in Polaris Aircraft Income Funds I-VI. The
complaint names each of Polaris Investment Management Corporation, Polaris
Securities Corporation, Polaris Holding Company, Polaris Aircraft Leasing
Corporation, the Partnership, Polaris Aircraft Income Fund I, Polaris Aircraft
Income Fund II, Polaris Aircraft Income Fund III, Polaris Aircraft Income Fund
IV, Polaris Aircraft Income Fund VI, General Electric Capital Corporation,
Prudential Securities, Inc., Prudential Securities Group, Inc., Prudential
Insurance Company of America, George W. Ball, Robert J. Sherman, James J. Darr,
Paul J. Proscia, Frank W. Giordano, William A. Pittman, Joseph H. Quinn, Joe W.
Defur, James M. Kelso and Brian J. Martin, as defendants. The complaint alleges
that defendants violated federal RICO statutes, committed negligent
misrepresentations, and breached their fiduciary duties by misrepresenting and
failing to disclose material facts in connection with the sale of limited
partnership units in the Partnership and the other Polaris Aircraft Income
Funds. Plaintiffs seek, among other things, an accounting of all monies invested
by plaintiffs and the class and the uses made thereof by defendants, an award of
compensatory, punitive and treble damages in unspecified amounts plus interest
thereon, rescission, attorneys' fees and costs. On August 3, 1994, the action
was transferred to the Multi-District Litigation in the Southern District of New
York entitled In re Prudential Securities Limited Partnerships Litigation,
discussed in Part III, Item 10 below.

Adams, et al. v. Prudential Securities, Inc., et al. On or about February 13,
1995, an action entitled Adams, et al. v. Prudential Securities, Inc. et al. was
filed in the Court of Common Pleas, Stark County, Ohio. The action names
Prudential Securities, Inc., Prudential Insurance Company of America, Polaris
Investment Management Corporation, Polaris Securities Corporation, Polaris
Aircraft Leasing Corporation, Polaris Holding Company, General Electric Capital
Corporation, the Partnership, Polaris Aircraft Income Fund I, Polaris Aircraft
Income Fund IV and James Darr as defendants. The complaint alleges that
defendants committed common law fraud, fraud in the inducement, negligent
misrepresentation, negligence, breach of fiduciary duty and civil conspiracy by
misrepresenting and failing to disclose material facts in connection with the
sale of limited partnership units in the Partnership and the other Polaris
Aircraft Income Funds. Plaintiffs seek, among other things, rescission of their
investments in the Partnership and the other Polaris Aircraft Income Funds, an
award of compensatory damages in an unspecified amount plus interest thereon,
and punitive damages in an unspecified amount. On or about March 15, 1995, this
action was removed to the United States District Court for the Northern District
of Ohio, Eastern Division. Subsequently, the Judicial Panel transferred this
action to the Multi-District Litigation filed in the united States District
Court for the Southern District of New York, which is described in Item 10 of
Part III below.

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.

<PAGE>

PART II

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

a) Polaris Aircraft Income Fund V's (PAIF-V or the Partnership) units
representing assignments of limited partnership interest (Units) are
not publicly traded. The Units are held by Polaris Depositary V on
behalf of the Partnership's investors (Unit Holders). There is no
market for PAIF-V'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, 1995
--------------------------- ------------------------

Depository Units Representing Assignments
of Limited Partnership Interests: 15,724

General Partnership Interest: 1

c) Dividends:

The Partnership distributed cash to partners on a quarterly basis
beginning January 1989. Cash distributions to Unit Holders during 1995
and 1994 were $10,000,000 for each period. Cash distributions per
limited partnership unit were $20.00 for each period.

<PAGE>

<TABLE>
Item 6. Selected Financial Data

For the years ended December 31,
--------------------------------
<CAPTION>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues $ 16,587,762 $ 19,250,007 $ 20,287,874 $ 32,769,575 $ 34,005,828

Net Income (Loss) (12,994,459) (10,061,522) 3,068,363 19,125,952 20,944,533

Net Income (Loss)
allocated to Limited
Partners (13,864,414) (10,960,807) 1,787,805 16,058,980 17,859,376

Net Income (Loss) per
Limited Partnership Unit (27.73) (21.92) 3.58 32.12 35.72

Cash Distributions per
Limited Partnership
Unit 20.00 20.00 25.00 57.52 57.52

Amount of Cash
Distributions Included
Above Representing
a Return of Capital on
a Generally Accepted
Accounting Principle
Basis per Limited
Partnership Unit* 20.00 20.00 21.42 25.40 21.80

Total Assets 138,821,191 164,045,656 184,220,856 191,004,365 203,534,940

Partners' Capital 134,451,607 158,557,177 179,729,810 190,550,336 203,379,939

</TABLE>

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

<PAGE>

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

Polaris Aircraft Income Fund V (the Partnership) owns a portfolio of 16 used
commercial jet aircraft, including two such aircraft that are subject to a
conditional sale agreement as discussed below. The portfolio includes seven
Boeing 737-200 Advanced aircraft leased to Southwest Airlines Co. (Southwest);
three Boeing 727-200 Advanced aircraft leased to American Trans Air, Inc. (ATA),
two Boeing 727-200 Advanced aircraft leased to Sun Country Airlines, Inc. (Sun
Country), one Boeing 747-100 Special Freighter aircraft leased to American
International Airways Limited (AIA), and one Boeing 747-100 Special Freighter
aircraft leased to Polar Air Cargo, Inc. (Polar Air Cargo). In addition, the
Partnership retains title to two Boeing 727-100 aircraft of the three such
Boeing 727-100 aircraft that ATA transferred to the Partnership as part of the
ATA lease transaction in 1993, subject to a conditional sale agreement to
Empresa de Transporte Aereo del Peru S.A. (Aeroperu). The sale was financed by
the Partnership and title will transfer to Aeroperu in August 1996 if Aeroperu
performs its payment obligations. The Partnership sold the remaining former ATA
Boeing 727-100 aircraft in August 1994 to Sunrise Partners, Inc.

Remarketing Update

Lease Extensions of Three Boeing 737-200 Advanced Aircraft to Southwest - The
leases of three Boeing 737-200 Advanced aircraft to Southwest expired in
November 1995. The leases were extended for a period of approximately one year
at 136% of the prior lease rate.

Remarketing of Aircraft - The leases of three Boeing 737-200 Advanced aircraft
with Southwest, as discussed above, expire in October and December 1996; the
leases of two Boeing 727-200 Advanced aircraft with Sun Country expire in
September and October 1996; and the lease of one Boeing 747-100 Special
Freighter with AIA expires in March 1996. The Partnership is currently
remarketing these aircraft for sale or re-lease.

Partnership Operations

The Partnership recorded net losses of $12,994,459 and $10,061,522, or $27.73
and $21.92 per limited partnership unit for the years ended December 31, 1995
and 1994, respectively, compared to net income of $3,068,363, or $3.58 per
limited partnership unit for the year ended December 31, 1993. The net losses in
1995 and 1994 were primarily the result of increases in depreciation expense for
certain of the Partnership's aircraft. As discussed in the Industry Update
section, if the projected net cash flow for each aircraft (projected rental
revenue, net of management fees, less projected maintenance costs, if any, plus
the estimated residual value) is less than the carrying value of the aircraft,
the Partnership recognizes the deficiency currently as increased depreciation
expense. The Partnership recognized approximately $13,930,000, $10,519,000 and
$857,000, of this deficiency as increased depreciation expense in 1995, 1994 and
1993, respectively. The increased depreciation expense reduces the aircraft's
carrying value and reduces the amount of future depreciation expense that the
Partnership will recognize over the projected remaining economic life of the
aircraft. The Partnership also made downward adjustments to the estimated
residual value of certain of its on-lease aircraft as of December 31, 1995, 1994
and 1993. For any downward adjustment to the estimated residual values, future
depreciation expense over the projected remaining economic life of the aircraft
is increased. The Partnership's earnings are impacted by the net effect of the
adjustments to the aircraft carrying values recorded in 1995, 1994 and 1993 and
the downward adjustments to the estimated residual values recorded in 1995, 1994
and 1993 as discussed later in the Industry Update section.

<PAGE>

Further impacting the decline in operating results in 1995 and 1994 as compared
to 1993, rental revenues have decreased since 1993 as a result of Partnership
aircraft re-leased at lower lease rates. The leases of two Boeing 737-200
Advanced aircraft to Southwest, which expired in November 1993, were extended
for two years at approximately 40% and 73%, respectively, of the prior rates.
The leases of four additional Boeing 737-200 Advanced aircraft to Southwest,
which expired in September 1994, were extended for four years at approximately
39% of the prior rates. Two Boeing 727-200 Advanced aircraft, formerly on lease
to Alaska, were leased to Sun Country for three years beginning in October 1993
at approximately 43% of the prior Alaska rate, although Alaska paid the
difference between its contractual rate and the new Sun Country rate through the
end of Alaska's original lease term in May 1994. In addition, the Boeing 747-100
Special Freighter aircraft was off-lease for two months in 1994 subsequent to
its return from Air Hong Kong and prior to its lease to AIA. This aircraft,
which is on lease to AIA at a variable rate based on usage, underwent certain
maintenance and modification work for approximately 35 days during 1995,
recording no flight hours, thus generating no rental revenue during this
maintenance period.

In 1994 and 1993, the Partnership incurred aircraft maintenance and remarketing
costs related to the former Federal Express Corporation (Federal Express)
aircraft, the aircraft leased to ATA, Southwest and Sun Country. Operating
expenses were significantly reduced during 1995. During 1993, the Partnership
completed extensive heavy maintenance, modification and corrosion control work
on the two Boeing 747-100 Special Freighter aircraft formerly leased to Federal
Express. The Partnership paid approximately $9.85 million for these costs during
1993. The Partnership capitalized approximately $8.15 million of these costs and
included in operating expense during 1993 approximately $1.7 million. The
Partnership also recognized operating expenses of approximately $561,000 during
1993 related to moving the three Boeing 727-200 Advanced aircraft from USAir to
ATA.

The Partnership recognized operating expenses of approximately $214,000 and
$355,000 during 1994 and 1993, respectively, that it agreed to incur as part of
the leases with Southwest. During 1994, the Partnership recognized operating
expenses aggregating approximately $1.86 million for maintenance performed on
two engines on the Boeing 747-100 Special Freighter aircraft leased to Southern
Air Transport, Inc. and subsequently to Polar Air Cargo. In addition during
1994, the Partnership recognized as operating expense certain heavy maintenance
costs of approximately $1.37 million that it agreed to incur on the two Boeing
727-200 Advanced aircraft leased to Sun Country. Approximately $371,000 of heavy
maintenance costs were recognized as operating expense for these aircraft during
1995.

Liquidity and Cash Distributions

Liquidity - The Partnership continues to receive all lease payments on a current
basis, with the exception of payments due from Aeroperu, which have not been
made on a timely basis. The Partnership receives maintenance reserve payments
from certain of its lessees that may be reimbursed to the lessee or applied
against certain costs incurred by the Partnership for maintenance work performed
on the Partnership's aircraft, as specified in the leases. Maintenance reserve
balances remaining at the termination of the lease may be used by the
Partnership to offset future maintenance expenses. The net maintenance reserve
payments aggregate $3,139,136 as of December 31, 1995.

The Partnership's cash reserves are being retained to cover maintenance costs
the Partnership has agreed to incur on certain of its aircraft, to cover the
potential costs of remarketing the Boeing 747-100 Special Freighter aircraft

<PAGE>

currently on lease to AIA through March 1996, and to finance a portion of the
hushkit costs that may be incurred under the leases with ATA. The ATA leases
specify the Partnership may be required to finance certain aircraft hushkits at
an aggregate cost of approximately $7.8 million, which would be partially
recovered with interest through payments from ATA over an extended lease term.

Cash Distributions - Cash distributions to limited partners during 1995, 1994
and 1993 were $10,000,000, $10,000,000 and $12,500,000, respectively. Cash
distributions per limited partnership unit were $20.00, $20.00 and $25.00, in
1995, 1994 and 1993, respectively. The amount of future cash distributions will
depend upon the Partnership's future cash requirements including the potential
costs of remarketing the Partnership's aircraft, the receipt of the rental
payments from Southwest, ATA, Sun Country, Polar Air Cargo and AIA and the
receipt of sale proceeds from Aeroperu.

Industry Update

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

Since 1988, the FAA, working with the aircraft manufacturers and operators, has
issued a series of 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.

In addition, an AD adopted in 1990 requires replacement or modification of
certain structural items on a specific timetable. These structural items were
formerly subject to periodic inspection, with replacement when necessary. The
FAA estimates the cost of compliance with this AD to be approximately $1.0
million, $900,000, and $2.3 million per Boeing 727, Boeing 737, and Boeing 747
aircraft, respectively, if none of the required work had been done previously.
The FAA also issued several ADs in 1993 updating inspection and modification
requirements for Boeing 737 aircraft. The FAA estimates the cost of these
requirements to be approximately $90,000 per aircraft. In general, the new
maintenance requirements must be completed by the later of March 1994, or
75,000, 60,000, and 20,000 cycles for each Boeing 737, 727, and 747,
respectively. The extent of modifications required to an aircraft varies
according to the level of incorporation of design improvements at manufacture.

In December 1990, the FAA adopted another AD intended to mitigate corrosion of
structural components, which would require repeated inspections from 5 years of
age throughout the life of an aircraft, with replacement of corroded components
as needed. Integration of the new inspections into each aircraft operator's
maintenance program was required by December 31, 1991 on Boeing aircraft.

The Partnership's existing leases require the lessees to maintain the
Partnership's aircraft in accordance with an FAA-approved maintenance program
during the lease term. At the end of the leases, each lessee is generally
required to return the aircraft in airworthy condition including compliance with
all ADs for which action is mandated by the FAA during the lease term, except
for certain instances. The Partnership agreed to bear a portion of certain

<PAGE>

maintenance and/or AD compliance costs, as discussed in Item 1, with respect to
the aircraft leased to Sun Country, ATA, Southwest, Polar Air Cargo and AIA. An
aircraft returned to the Partnership as a result of a lease default would most
likely not be returned to the Partnership in compliance with all return
conditions required by the lease. In negotiating subsequent leases, market
conditions may require that the Partnership bear some or all of the costs of
compliance with future ADs or ADs that have been issued, but which did not
require action during the previous lease term. The ultimate effect on the
Partnership of compliance with the FAA maintenance standards is not determinable
at this time and will depend on a variety of factors, including the state of the
commercial aircraft industry, the timing of the issuance of ADs, and the status
of compliance therewith at the expiration of the current leases.

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

On September 24, 1991, the FAA issued final rules on the phase-out of Stage 2
aircraft by the end of this decade. The current U.S. fleet is comprised of
approximately 68% Stage 3 aircraft and 32% Stage 2 aircraft. The key features of
the rule include:

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

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

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

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

Except for the Boeing 747s, which qualify as Stage 3 with certain operating
restrictions, the Partnership's entire fleet consists of Stage 2 aircraft.
Hushkit modifications, which allow Stage 2 aircraft to meet Stage 3
requirements, are currently available for the Partnership's aircraft. However,
while technically feasible, hushkits may not be cost effective on all models due
to the age of some of the aircraft and the time required to fully amortize the
additional investment. The general partner will evaluate, as appropriate, the
potential benefits of installing hushkits on some or all of the Partnership's
aircraft. It is unlikely, however, that the Partnership would incur such costs
unless they can be substantially recovered through a lease. Under the
Partnership's lease with ATA, the Partnership may be required to finance the

<PAGE>

installation of hushkits on such aircraft. Implementation of the Stage 3
standards has adversely affected the value of Stage 2 aircraft, as these
aircraft will require eventual modification to be operated in the U.S. or other
countries with Stage 3 standards after the applicable dates.

Demand for Aircraft - Industry-wide, approximately 475 commercial aircraft are
currently available for sale or lease, approximately 125 less than a year ago.
From 1991 through 1994, depressed demand for air travel limited airline
expansion plans, with new aircraft orders and scheduled deliveries being
canceled or substantially deferred. As profitability declined, many airlines
took action to downsize or liquidate assets and some airlines were forced to
file for bankruptcy protection. Following two years of good traffic growth
accompanied by rising yields, this trend is improving with new aircraft orders
last year exceeding deliveries for the first time since 1990. To date, this
recovery has mainly benefited Stage 3 narrow-bodies and younger Stage 2
narrow-bodies, many of which are now being upgraded with hushkits, whereas older
Stage 2 narrow-bodies have shown marginal signs of recovery. Wide-body lease
rates and values remain broadly unchanged since a year ago due to continuing
airline preference for long-range twin engine aircraft.

Effects on the Partnership's Aircraft - The Partnership periodically reviews the
estimated realizability of the residual values at the projected end of each
aircraft's economic life based on estimated residual values obtained from
independent parties which provide current and future estimated aircraft values
by aircraft type. The Partnership made downward adjustments to the estimated
residual value of certain of its on-lease aircraft as of December 31, 1995, 1994
and 1993. For any downward adjustment in estimated residual value or decrease in
the projected remaining economic life, the depreciation expense over the
projected remaining economic life of the aircraft is increased.

If the projected net cash flow for each aircraft (projected rental revenue, net
of management fees, less projected maintenance costs, if any, plus the estimated
residual value) is less than the carrying value of the aircraft, the Partnership
recognizes the deficiency currently as increased depreciation expense. The
Partnership recognized approximately $13,930,000, $10,519,000 and $857,000, or
$27.58, $20.83 and $1.70 per limited Partnership unit, of this deficiency as
increased depreciation expense in 1995, 1994 and 1993, respectively. The
deficiencies in 1995, 1994 and 1993 were generally the result of declining
estimates in the residual values of the aircraft. The increased depreciation
expense reduces the aircraft's carrying value and therefore reduces the amount
of future depreciation expense that the Partnership will recognize over the
projected remaining economic life of the aircraft.

<PAGE>

expense of approximately $204,000 per year beginning in 1995 through the end of
the estimated economic lives of the aircraft. The net effect of the 1995
adjustments to the estimated residual values and the adjustments to the carrying
values of the aircraft recorded in 1995 is to cause the Partnership to recognize
decreased depreciation expense of approximately $553,000 per year beginning in
1996 through the end of the estimated economic lives of the aircraft.

Effective January 1, 1996, the Partnership adopted SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of." This statement requires that long-lived assets be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. In performing the review for recoverability,
the statement provides that the Partnership should estimate the future cash
flows expected to result from the use of the asset and its eventual disposition.
If the projected net cash flow for each aircraft (projected rental revenue, net
of management fees, less projected maintenance costs, if any, plus the estimated
residual value) is less than the carrying value of the aircraft, an impairment
loss is recognized. Pursuant to the statement, measurement of an impairment loss
for long-lived assets will be based on the "fair value" of the asset as defined
in the statement.

SFAS No. 121 states that the fair value of an asset is the amount at which the
asset could be bought or sold in a current transaction between willing parties,
i.e., other than in a forced or liquidation sale. Quoted market prices in active
markets are the best evidence of fair value and will be used as the basis for
the measurement, if available. If quoted market prices are not available, the
estimate of fair value will be based on the best information available in the
circumstances. Pursuant to the statement, the estimate of fair value will
consider prices for similar assets and the results of valuation techniques to
the extent available in the circumstances. Examples of valuation techniques
include the present value of estimated expected future cash flows using a
discount rate commensurate with the risks involved, option-pricing models,
matrix pricing, option-adjusted spread models, and fundamental analysis.

Beginning in 1996, the Partnership will periodically review its aircraft for
impairment in accordance with SFAS No. 121. Using an estimate of the fair value
of the Partnership's aircraft to measure impairment may result in greater
write-downs than would be recognized under the accounting method currently
applied by the Partnership. The Partnership uses information obtained from third
party valuation services in arriving at its estimate of fair value for purposes
of determining residual values. The Partnership will use similar information,
plus available information and estimates related to the Partnership's aircraft,
to determine an estimate of fair value to measure impairment as required by the
statement. 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's leases expire between March 1996 and March 2000. To the extent
that the Partnership's aircraft continue to be significantly affected by
industry events, the Partnership will evaluate each aircraft as it comes off
lease to determine whether a re-lease or a sale at the then-current market rates
would be most beneficial for unit holders.

<PAGE>

Item 8. Financial Statements and Supplementary Data

POLARIS AIRCRAFT INCOME FUND V,
A California Limited Partnership

FINANCIAL STATEMENTS AS OF DECEMBER 31, 1995 AND 1994

TOGETHER WITH

AUDITORS' REPORT

<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

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

We have audited the accompanying balance sheets of Polaris Aircraft Income Fund
V, A California Limited Partnership as of December 31, 1995 and 1994, 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, 1995.
These financial statements are the responsibility of the general partner. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Polaris Aircraft Income Fund V,
A California Limited Partnership as of December 31, 1995 and 1994, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1995 in conformity with generally accepted accounting
principles.

ARTHUR ANDERSEN LLP

San Francisco, California,
January 31, 1996 (except with
respect to the matter discussed
in Note 8, as to which the
date is March 22, 1996)

<PAGE>

<TABLE>

POLARIS AIRCRAFT INCOME FUND V,
A California Limited Partnership

BALANCE SHEETS

DECEMBER 31, 1995 AND 1994

<CAPTION>
1995 1994
---- ----
ASSETS:
<S> <C> <C>
CASH AND CASH EQUIVALENTS $ 20,842,611 $ 18,725,876

RENT AND OTHER RECEIVABLES 3,215,421 2,396,519

NOTES RECEIVABLE, net of allowance for credit
losses of $376,905 in 1995 and $865,057 in 1994 386,457 459,552

AIRCRAFT, net of accumulated depreciation of
$102,154,767 in 1995 and $74,067,760 in 1994 114,376,702 142,463,709
------------- -------------

$ 138,821,191 $ 164,045,656
============= =============

LIABILITIES AND PARTNERS' CAPITAL (DEFICIT):

PAYABLE TO AFFILIATES $ 793,901 $ 220,115

ACCOUNTS PAYABLE AND ACCRUED
LIABILITIES 167,547 1,404,159

SECURITY DEPOSITS 269,000 269,000

MAINTENANCE RESERVES 3,139,136 3,595,205
------------- -------------

Total Liabilities 4,369,584 5,488,479
------------- -------------

PARTNERS' CAPITAL (DEFICIT):
General Partner (866,147) (624,991)
Limited Partners, 500,000 units
issued and outstanding 135,317,754 159,182,168
------------- -------------

Total Partners' Capital 134,451,607 158,557,177
------------- -------------

$ 138,821,191 $ 164,045,656
============= =============

</TABLE>

The accompanying notes are an integral part of these statements.

<PAGE>

<TABLE>

POLARIS AIRCRAFT INCOME FUND V,
A California Limited Partnership

STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

<CAPTION>
1995 1994 1993
---- ---- ----

REVENUES:
<S> <C> <C> <C>
Rent from operating leases $ 14,922,692 $ 17,865,447 $19,563,655
Interest and other 1,177,018 835,819 554,102
Gain on sale of aircraft 488,152 548,741 170,117
------------ ------------ -----------

Total Revenues 16,587,862 19,250,007 20,287,874
------------ ------------ -----------

EXPENSES:
Depreciation and amortization 28,087,007 24,594,671 13,340,093
Management fees to general partner 746,135 893,272 978,183
Operating 384,838 3,569,509 2,624,654
Administration and other 364,341 254,077 276,581
------------ ------------ -----------

Total Expenses 29,582,321 29,311,529 17,219,511
------------ ------------ -----------

NET INCOME (LOSS) $(12,994,459) $(10,061,522) $ 3,068,363
============ ============ ===========

NET INCOME ALLOCATED TO
THE GENERAL PARTNER $ 869,955 $ 899,285 $ 1,280,558
============ ============ ===========

NET INCOME (LOSS) ALLOCATED
TO LIMITED PARTNERS $(13,864,414) $(10,960,807) $ 1,787,805
============ ============ ===========

NET INCOME (LOSS) PER LIMITED
PARTNERSHIP UNIT $ (27.73) $ (21.92) $ 3.58
============ ============ ===========

</TABLE>
The accompanying notes are an integral part of these statements.

<PAGE>

<TABLE>

POLARIS AIRCRAFT INCOME FUND V,
A California Limited Partnership

STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)

FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

<CAPTION>
General Limited
Partner Partners Total
------- -------- -----

<S> <C> <C> <C>
Balance, December 31, 1992 $ (304,834) $ 190,855,170 $ 190,550,336

Net income 1,280,558 1,787,805 3,068,363

Cash distributions to partners (1,388,889) (12,500,000) (13,888,889)
----------- ------------- -------------

Balance, December 31, 1993 (413,165) 180,142,975 179,729,810

Net income (loss) 899,285 (10,960,807) (10,061,522)

Cash distributions to partners (1,111,111) (10,000,000) (11,111,111)
----------- ------------- -------------

Balance, December 31, 1994 (624,991) 159,182,168 158,557,177

Net income (loss) 869,955 (13,864,414) (12,994,459)

Cash distributions to partners (1,111,111) (10,000,000) (11,111,111)
----------- ------------- -------------

Balance, December 31, 1995 $ (866,147) $ 135,317,754 $ 134,451,607
=========== ============= =============
</TABLE>
The accompanying notes are an integral part of these statements.

<PAGE>

<TABLE>

POLARIS AIRCRAFT INCOME FUND V,
A California Limited Partnership

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

<CAPTION>
1995 1994 1993
---- ---- ----

OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income (loss) $(12,994,459) $(10,061,522) $ 3,068,363
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 28,087,007 24,594,671 13,340,093
Gain on sale of aircraft (488,152) (548,741) (170,117)
Changes in operating assets and liabilities:
Decrease (increase) in rent and other
receivables (818,902) 574,687 (1,490,665)
Increase (decrease) in payable to affiliates 573,786 (650,225) 751,948
Increase (decrease) in accounts payable
and accrued liabilities (1,236,612) 1,328,659 (35,137)
Increase in security deposits -- -- 44,000
Increase (decrease) in maintenance
reserves (456,069) 318,999 3,276,206
------------ ------------ ------------
Net cash provided by operating
activities 12,666,599 15,556,528 18,784,691
------------ ------------ ------------

INVESTING ACTIVITIES:
Net proceeds from sale of aircraft -- 245,937 --
Increase in notes receivable -- -- (556,000)
Principal payments on notes receivable 73,095 74,898 21,550
Principal payments on finance sale of aircraft 488,152 302,804 170,117
Increase in aircraft capitalized costs -- -- (8,149,000)
------------ ------------ ------------
Net cash provided by (used in)
investing activities 561,247 623,639 (8,513,333)
------------ ------------ ------------

FINANCING ACTIVITIES:
Cash distributions to partners (11,111,111) (11,111,111) (13,888,889)
------------ ------------ ------------

Net cash used in financing activities (11,111,111) (11,111,111) (13,888,889)
------------ ------------ ------------

CHANGES IN CASH AND CASH
EQUIVALENTS 2,116,735 5,069,056 (3,617,531)

CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 18,725,876 13,656,820 17,274,351
------------ ------------ ------------

CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 20,842,611 $ 18,725,876 $ 13,656,820
============ ============ ============
</TABLE>

The accompanying notes are an integral part of these statements.

<PAGE>

POLARIS AIRCRAFT INCOME FUND V,
A California Limited Partnership

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1995

1. Accounting Principles and Policies

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

Cash and Cash Equivalents - This includes deposits at banks and investments in
money market funds.

Aircraft and Depreciation - The aircraft are recorded at cost, which includes
acquisition costs. Depreciation to an estimated residual value is computed using
the straight-line method over the estimated economic life of the aircraft which
was originally estimated to be 30 years from the date of manufacture.
Depreciation in the year of acquisition was calculated based upon the number of
days that the aircraft were in service.

The Partnership periodically reviews the estimated realizability of the residual
values at the projected end of each aircraft's economic life based on estimated
residual values obtained from independent parties which provide current and
future estimated aircraft values by aircraft type. For any downward adjustment
in estimated residual value or decrease in the projected remaining economic
life, the depreciation expense over the projected remaining economic life of the
aircraft is increased.

Other Assets - Lease acquisition costs are capitalized as other assets and
amortized using the straight-line method over the term of the lease.
Organization costs are capitalized and amortized using the straight-line method
over a period of five years.

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

Maintenance Reserves - The Partnership receives maintenance reserve payments
from certain of its lessees that may be reimbursed to the lessee or applied
against certain costs incurred by the Partnership or lessee for maintenance work

<PAGE>

performed on the Partnership's aircraft or engines, as specified in the leases.
Maintenance reserve payments are recognized when received and balances remaining
at the termination of the lease, if any, may be used by the Partnership to
offset future maintenance expenses or recognized as revenue.

Operating Expenses - Operating expenses include costs incurred to maintain,
insure, lease and sell the Partnership's aircraft.

Net Income (Loss) Per Limited Partnership Unit - Net income (loss) per limited
partnership unit is based on the limited partners' share of net income (loss)
and the number of units outstanding for the years ended December 31, 1995, 1994,
and 1993.

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

Financial Accounting Pronouncements - The Partnership adopted Statement of
Financial Accounting Standards (SFAS) No. 114, "Accounting by Creditors for
Impairment of a Loan," and the related SFAS No. 118 as of January 1, 1995. SFAS
No. 114 and SFAS No. 118 require that certain impaired loans be measured based
on the present value of expected cash flows discounted at the loan's effective
interest rate; or, alternatively, at the loan's observable market price or the
fair value of the collateral if the loan is collateral dependent. The
Partnership had previously measured the allowance for credit losses using
methods similar to that prescribed in SFAS No. 114. As a result, no additional
provision was required by the adoption of this pronouncement. The Partnership
has recorded an allowance for credit losses for certain impaired loans as a
result of issues regarding their collection. The Partnership recognizes revenue
on these impaired loans only as payments are received.

1995
----
Impaired loans or receivables with
allowances for credit losses $ 376,905
Impaired loans or receivables without
allowances for credit losses -
---------
Total impaired loans 376,905
Allowance for credit losses (376,905)
---------
$ -
=========
Allowance for credit losses,
beginning of year $(865,057)
Provision for credit losses -
Write-downs -
Collections 488,152
---------
Allowance for credit losses,
end of year $(376,905)
==========

SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires
the Partnership to disclose the fair value of financial instruments. Cash and
Cash Equivalents is stated at cost, which approximates fair value. The fair
value of the notes receivable is estimated by discounting future estimated cash
flows using current interest rates at which similar loans would be made to
borrowers with similar credit ratings and remaining maturities. The carrying
value of the note receivable from American Trans Air, Inc. (ATA) discussed in
Note 3 approximates its estimated fair value. As discussed in Note 4, the
carrying value of the note receivable from Empresa de Transporte Aereo del Peru

<PAGE>

S.A. (Aeroperu) is zero due to a recorded allowance for credit losses equal to
the balance of the note. As of December 31, 1995, the aggregate fair value of
the Aeroperu notes receivable was estimated to be approximately $225,000.

SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. This statement will be
adopted by the Partnership as of January 1, 1996 and will be applied
prospectively. The Partnership estimates that the adoption of this pronouncement
will not have an immediate material impact on the Partnership's financial
position or results of operations unless events or circumstances change that
would cause projected net cash flows to be adjusted. The estimate of fair value
and measurement of impairment loss is described in Note 3.

Reclassification - Certain 1993 balances have been reclassified to conform to
the 1995 presentation.

2. Organization and the Partnership

The Partnership was formed on April 29, 1988 for the purpose of acquiring and
leasing aircraft. The Partnership will terminate no later than December 2020.
Upon organization, both the general partner and the depositary contributed $500.
On January 9, 1990, the Partnership completed its offering for the sale of
500,000 depositary units, representing assignments of limited partnership
interest (Units), at a price of $500 per Unit, for a total of $250,000,000.

Polaris Investment Management Corporation (PIMC), the sole general partner of
the Partnership, supervises the day-to-day operations of the Partnership.
Polaris Depositary Company V (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 partners are described in Note 5.

3. Aircraft Under Operating Leases

The Partnership owns a portfolio of 16 used commercial jet aircraft, which were
acquired and leased or sold as discussed below. Two of these aircraft are
subject to a conditional sale agreement as discussed in Note 4. All aircraft
acquired from an affiliate were purchased within one year of the affiliate's
acquisition at the affiliate's original price paid. The aircraft leases are
generally net operating leases, requiring the lessees to pay all operating
expenses associated with the aircraft during the lease term. While the leases
require the lessees to comply with Airworthiness Directives (ADs) which have
been or may be issued by the Federal Aviation Administration (FAA) and require
compliance during the lease term, in certain of the leases the Partnership has
agreed to share in the cost of compliance with ADs. In addition to basic rent,
certain lessees are required to pay supplemental amounts based on flight hours
or cycles into a maintenance reserve account, to be used for heavy maintenance
of the engines or airframe. The leases generally state a minimum acceptable
return condition for which the lessee is liable under the terms of the lease
agreement.

<PAGE>

The following table describes the Partnership's current aircraft portfolio in
greater detail:

Year of
Aircraft Type Serial Number Manufacture
- ------------- ------------- -----------
Boeing 727-100 19150 1967
Boeing 727-100 19151 1967
Boeing 727-200 Advanced 21345 1980
Boeing 727-200 Advanced 21601 1980
Boeing 727-200 Advanced 21999 1980
Boeing 727-200 Advanced 22162 1981
Boeing 727-200 Advanced 23014 1983
Boeing 737-200 Advanced 20925 1974
Boeing 737-200 Advanced 21117 1975
Boeing 737-200 Advanced 21262 1976
Boeing 737-200 Advanced 21447 1978
Boeing 737-200 Advanced 21448 1978
Boeing 737-200 Advanced 21533 1978
Boeing 737-200 Advanced 21534 1978
Boeing 747-100 Special Freighter 19733 1970
Boeing 747-100 Special Freighter 20247 1971

Three Boeing 727-100 - These aircraft were transferred from American Trans Air,
Inc. (ATA) to the Partnership in 1993 as part of the ATA lease transaction. Two
of the aircraft are subject to a conditional sale agreement as discussed in Note
4. The third aircraft was sold in August 1994 to Sunrise Partners, Inc. for
$250,000. The Partnership paid excise taxes on the transfer of ownership of the
aircraft in the amount of $4,063 and recorded a net gain on sale of $245,937 in
1994.

Three Boeing 737-200 Advanced - These aircraft were acquired for $28,750,000 in
1988 and leased to Southwest Airlines Co. (Southwest). One lease expired in
November 1991 and was extended for a two-year period at 60% of the original
lease rate. The lease was again extended for an additional two-year period at
44% of the original rate, then extended to December 1996 at 60% of the original
lease rate. The second lease expired in November 1992 and was extended for a
three-year period at approximately 43% of the original lease rate, then extended
to December 1996 at approximately 58% of the original lease rate. The third
lease expired in November 1993 and was extended for a two-year period at
approximately 40% of the original lease rate, then extended to October 1996 at
approximately 54% of the original lease rate.

The previous lease extensions specified that the Partnership incur certain
maintenance costs aggregating $569,334. In accordance with these cost-sharing
agreements, Southwest submitted to the Partnership invoices for maintenance
costs paid by Southwest, and subsequently offset $214,027 and $355,307 from
rental payments due the Partnership during 1994 and 1993, respectively. The
Partnership recognizes the rental offsets as maintenance expense in the
corresponding year's statement of operations.

Four Boeing 737-200 Advanced - These aircraft were acquired for $46,660,000 in
1989 and leased to Southwest until September 1994. Southwest exercised its
option to renew the leases for one four-year term through September 1998. The
new lease rates are approximately 39% of the prior rates.

<PAGE>

Three Boeing 727-200 Advanced - These aircraft were acquired for $40,900,000 in
1989 and leased to USAir, Inc. (USAir). Under the leases, USAir had the option
to return the aircraft at the end of September, October, November or December
1992. USAir paid rent through December 1992, although the aircraft were returned
at various dates prior to that.

In December 1992, the Partnership negotiated a seven-year lease with ATA for the
ex-USAir aircraft at fair market lease rates, which are approximately 45% of the
prior rates. The leases began in February and March 1993. ATA was not required
to begin making cash rental payments until January and February 1994, although
recognition of rental income was amortized over the entire lease term. The
leases are renewable for up to three one-year periods. ATA transferred to the
Partnership three unencumbered Boeing 727-100 aircraft in 1993 as part of the
lease transaction as previously discussed.

Under the ATA lease, the Partnership incurred certain maintenance costs of
approximately $657,000 and may be required to finance aircraft hushkits for use
on the aircraft at an estimated aggregate cost of approximately $7.8 million,
which will be partially recovered with interest through payments from ATA over
an extended lease term. The Partnership loaned $556,000 to ATA in 1993 to
finance the purchase by ATA of one spare engine. This loan is reflected as a
note receivable in the accompanying balance sheets. The Partnership has received
all scheduled payments due under the note. The balance of the note at December
31, 1995 and 1994 was $386,457 and $459,552, respectively.

Two Boeing 727-200 Advanced - These aircraft were acquired for $25,962,685 in
1989 and leased to Alaska Airlines, Inc. (Alaska) until May 1994. In 1993,
Alaska notified the Partnership of its desire to early terminate its leases if a
new lessee could be found. These two aircraft were then leased to Sun Country
Airlines, Inc. (Sun Country) for three years beginning in October 1993. The new
lease rate with Sun Country is approximately 43% of the prior Alaska rate;
however, Alaska paid the difference between its contractual rate and the new Sun
Country rate through the end of Alaska's original lease term in May 1994.

During 1993, Alaska paid to the Partnership approximately $1.1 million in lieu
of meeting certain return conditions as specified in their lease. The
Partnership subsequently paid approximately $1.0 million for certain maintenance
and modification costs which it has offset against the approximately $1.1
million received from Alaska. The balance of approximately $88,000 was
recognized as other revenue in 1994. As specified in the lease with Sun Country,
the Partnership agreed to pay a pro-rata share of certain heavy maintenance
costs, based on time elapsed between the dates on which the last required heavy
maintenance was completed by Alaska and the dates the aircraft were delivered to
Sun Country. Sun Country performed the required heavy maintenance on the
aircraft during 1994. The Partnership recognized as operating expense during
1995 and 1994 its pro-rata share of such heavy maintenance costs of
approximately $371,000 and $1.366 million, respectively. In addition, as
specified in the lease, the Partnership reimbursed to Sun Country during 1995 an
additional amount of approximately $318,000 from maintenance reserves, which
were previously paid to the Partnership by Sun Country prior to the completion
of the heavy maintenance.

Two Boeing 747-100 Special Freighters - These aircraft were acquired for
$64,000,000 in 1989 and leased to Federal Express Corporation (Federal Express)
until late 1992. Federal Express negotiated a short-term lease extension for the
two aircraft at approximately 89% of the prior rate. The aircraft were returned
to the Partnership in January 1993, and extensive heavy maintenance,
modification and corrosion control work was completed. The Partnership paid
approximately $9.85 million, of which approximately $8.15 million was
capitalized in 1993 and amortized as discussed in Note 1.

<PAGE>

One of the aircraft was subsequently leased to AHK Air Hong Kong, Ltd. (Air Hong
Kong) at approximately 59% of the prior rate from May 1993 through mid-November
1993. The lease was then extended at the same rate to February 1994. The
aircraft was returned to the Partnership and subsequently re-leased to American
International Airways Limited (AIA) from June 1994 through March 1996 at a
variable rate based on usage. The lease stipulates that the Partnership share in
the cost of certain maintenance and modification costs which were completed
during 1995. The Partnership's share of such costs of approximately $615,000
were paid from excess maintenance reserves previously paid to the Partnership by
Air Hong Kong. AIA's share of such cost of approximately $152,000, is reflected
in rent and other receivables in the Partnership's 1995 balance sheet. The cost
of future maintenance and modifications, if any, cannot be estimated at this
time.

The second aircraft formerly leased to Federal Express was leased to Southern
Air Transport, Inc. (SAT) at a variable rate based on usage from June 1993 until
January 1999, although SAT or the Partnership had the right to early terminate
the lease with 30 days prior written notice. In August 1994, The Partnership
exercised its right to terminate its lease with SAT and simultaneously released
the aircraft under the same terms and conditions to Polar Air Cargo, Inc. (Polar
Air Cargo). SAT had been utilizing the aircraft to provide service for Polar Air
Cargo. The Partnership or Polar Air Cargo have the right to early terminate the
lease with 30 days prior written notice.

The lease stipulates that the Partnership share in the cost of certain
maintenance work on the aircraft, a portion of which may be drawn from
maintenance reserves paid by Polar Air Cargo. During 1994, the Partnership paid
approximately $3.99 million for maintenance work performed on the aircraft, of
which approximately $2.13 million was drawn from maintenance reserves previously
paid to the Partnership by SAT and Polar Air Cargo. The balance of approximately
$1.86 million was recognized as operating expense in the 1994 statement of
operations. The lease also stipulates that the Partnership share in the cost of
certain ADs. An AD aggregating approximately $850,000 was completed during 1995.
The Partnership's share of such cost of approximately $343,000 was paid from
maintenance reserves previously paid to the Partnership by Polar Air Cargo and
SAT. As stipulated in the lease, the lessee's portion of AD costs of $507,808,
which is reflected in notes receivable in the December 31, 1995 balance sheet,
is to be reimbursed by Polar Air Cargo in monthly installments, with interest at
a rate of 10% per annum, over the remaining term of the lease. The cost of
future ADs, if any, cannot be estimated at this time.

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

Year Amount
---- ------
1996 $ 8,813,216
1997 4,975,716
1998 4,315,716
1999 2,335,716
2000 and thereafter 300,603
-----------

Total $20,740,967
===========

As discussed in Note 1, the Partnership periodically reviews the estimated
realizability of the residual values at the projected end of each aircraft's
economic life based on estimated residual values obtained from independent

<PAGE>

parties which provide current and future estimated aircraft values by aircraft
type. The Partnership made downward adjustments to the estimated residual value
of certain of its on-lease aircraft as of December 31, 1995, 1994 and 1993. For
any downward adjustment in estimated residual value or decrease in the projected
remaining economic life, the depreciation expense over the projected remaining
economic life of the aircraft is increased.

As discussed in Note 1, if the projected net cash flow for each aircraft
(projected rental revenue, net of management fees, less projected maintenance
costs, if any, plus the estimated residual value) is less than the carrying
value of the aircraft, the Partnership recognizes the deficiency currently as
increased depreciation expense. The Partnership recognized approximately
$13,930,000, $10,519,000 and $857,000, or $27.58, $20.83 and $1.70 per limited
Partnership unit, of this deficiency as increased depreciation expense in 1995,
1994 and 1993, respectively. The deficiencies in 1995, 1994 and 1993 were
generally the result of declining estimates in the residual values of the
aircraft. The increased depreciation expense reduces the aircraft's carrying
value and reduces the amount of future depreciation expense that the Partnership
will recognize over the projected remaining economic life of the aircraft.

The Partnership's future earnings are impacted by the net effect of the
adjustments to the carrying values of the aircraft recorded in 1995, 1994 and
1993 (which has the effect of decreasing future depreciation expense) and the
downward adjustments to the estimated residual values recorded in 1995, 1994 and
1993 (which has the effect of increasing future depreciation expense). The net
effect of the 1993 adjustments to the estimated residual values and the
adjustments to the carrying values of the aircraft recorded in 1993 is to cause
the Partnership to recognize increased depreciation expense of approximately
$1,347,000 per year beginning in 1994 through the end of the estimated economic
lives of the aircraft. The net effect of the 1994 adjustments to the estimated
residual values and the adjustments to the carrying values of the aircraft
recorded in 1994 is to cause the Partnership to recognize increased depreciation
expense of approximately $204,000 per year beginning in 1995 through the end of
the estimated economic lives of the aircraft. The net effect of the 1995
adjustments to the estimated residual values and the adjustments to the carrying
values of the aircraft recorded in 1995 is to cause the Partnership to recognize
decreased depreciation expense of approximately $553,000 per year beginning in
1996 through the end of the estimated economic lives of the aircraft.

<PAGE>

the extent available in the circumstances. Examples of valuation techniques
include the present value of estimated expected future cash flows using a
discount rate commensurate with the risks involved, option-pricing models,
matrix pricing, option-adjusted spread models, and fundamental analysis.

4. Sale of Aircraft

Sale to Aeroperu - In August 1993, the Partnership negotiated a sale to Aeroperu
of two of the Boeing 727-100 aircraft that were transferred to the Partnership
under the ATA lease (Note 3). The Partnership agreed to accept payment of the
sale prices of approximately $699,000 and $639,000 in 36 monthly installments of
$23,000 and $21,000, respectively, with interest at a rate of 12% per annum. The
Partnership recorded a note receivable and an allowance for credit losses equal
to the discounted sale prices. Gain on sale of the aircraft and interest revenue
will be recognized as payments are received. The security deposit of $44,000
posted by Aeroperu will be applied to the last installment due August 1996, at
which time title to the aircraft will transfer to Aeroperu. During 1995, 1994
and 1993, the Partnership received principal and interest payments due from
Aeroperu totaling $572,000, $396,000 and $220,000, respectively, of which
$488,152, $302,804 and $170,117 were recorded as gain on sale in the year ended
December 31, 1995, 1994 and 1993 statements of operations, respectively. The
notes receivable and corresponding allowances for credit losses are reduced by
the principal portion of payments received. As of December 31, 1995, Aeroperu
had not paid to the Partnership the monthly payments due for November and
December 1995 (Note 8). The balances of the notes receivable and corresponding
allowances for credit losses were $376,905 and $865,057 as of December 31, 1995
and 1994, respectively.

5. Related Parties

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

a. An aircraft management fee equal to 5% of gross rental revenues with
respect to operating leases or 2% of gross rental revenues with respect
to full payout leases of the Partnership, payable upon receipt of the
rent, subordinated to receipt by unit holders of distributions equaling
an 8% cumulative, non-compounded return on capital contributions, as
defined in the Partnership Agreement. In 1995, 1994 and 1993, the
Partnership paid management fees to PIMC of $727,431, $924,947 and
$900,543, respectively. Management fees payable to PIMC at December 31,
1995 and 1994 were $138,477 and $119,775, respectively.

<PAGE>

b. Out-of-pocket expenses incurred in connection with the management of
the Partnership and its assets. The Partnership paid $4,238,469,
$6,303,791 and $13,888,416 to PIMC in 1995, 1994 and 1993,
respectively. The 1994 and 1993 payments include reimbursements for
maintenance and modifications to the former Federal Express aircraft as
discussed in Note 3. At December 31, 1995 and 1994, $655,424 and
$100,340 were payable to PIMC, respectively.

c. A 10% interest to PIMC in all cash distributions from operations 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.

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 above subordination
threshold has not been met.

6. 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, 1995 and 1994 are as
follows:

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

1995: Assets $ 138,821,191 $ 118,262,791 $ 20,558,400
Liabilities 4,369,584 1,113,620 3,255,964

1994: Assets $ 164,045,656 $ 134,637,107 $ 29,408,549
Liabilities 5,488,479 2,058,850 3,429,629

<PAGE>

7. Reconciliation of Book Net Income (Loss) to Taxable Net Income (Loss)

<TABLE>

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:

For the years ended December 31,
--------------------------------
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Book net income (loss) per limited partnership unit $ (27.73) $ (21.92) $ 3.58
Adjustments for tax purposes represent differences
between book and tax revenue and expenses:
Rental and maintenance reserve revenue recognition (0.97) 1.05 6.37
Management fee expense (0.04) 0.18 -
Depreciation 14.84 9.03 (11.36)
Gain or loss on sale of aircraft (0.97) (1.14) (0.34)
Capitalized costs 4.36 4.59 2.19
Other revenue and expense items (0.04) 0.05 -
--------- ---------- ----------

Taxable net income (loss) per limited partnership unit $ (10.55) $ (8.16) $ 0.44
========= ========== ==========
</TABLE>

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

For book purposes, rental revenue is generally recorded as it is earned. For tax
purposes, certain temporary differences exist in the recognition of revenue. For
tax purposes, management fee expense is accrued in the same year as the tax
basis rental revenue. Increases in the Partnership's book maintenance reserve
liability were recognized as rental revenue for tax purposes. Disbursements from
the Partnership's book maintenance reserves are capitalized or expensed for tax
purposes, as appropriate.

The Partnership computes depreciation using the straight-line method for
financial reporting purposes and generally an accelerated method for tax
purposes. The Partnership also periodically evaluates the ultimate
recoverability of the carrying values and the economic lives of its aircraft for
book purposes and accordingly recognized adjustments which increased book
depreciation expense. As a result, the net 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.

8. Subsequent Event

Payment from Aeroperu - As discussed in Note 4, at December 31, 1995 Aeroperu
had not paid to the Partnership two of the monthly installments due in 1995.
Aeroperu has since paid the installments delinquent as of December 31, 1995.

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

None.

<PAGE>

PART III

Item 10. Directors and Executive Officers of the Registrant

Polaris Aircraft Income Fund V, A California Limited Partnership (PAIF-V 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), recently 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. (the Servicer or GECAS), a Delaware corporation
which is a wholly owned subsidiary of General Electric Capital Corporation, a
New York corporation (GE Capital). GE Capital has been PHC's parent company
since 1986. As subsidiaries of GE Capital, the Servicer and PIMC are affiliates.

The officers and directors of PIMC are:

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

James W. Linnan President; Director
Richard J. Adams Vice President; Director
Norman C. T. Liu Vice President; Director
Edward Sun Vice President
John E. Flynn Vice President
Robert W. Dillon Vice President; Assistant Secretary
Marc A. Meiches Chief Financial Officer
Richard L. Blume 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. Linnan, 54, assumed the position of President and Director of PIMC effective
March 31, 1995. Mr. Linnan had previously held the positions of Vice President
of PIMC effective July 1, 1994, Vice President - Financial Management of PIMC
and PALC effective April 1991, and Vice President - Investor Marketing of PIMC
and PALC since July 1986.

Mr. Adams, 62, Senior Vice President - Aircraft Marketing, North America, served
as Senior Vice President - Aircraft Sales and Leasing of PIMC and PALC effective
August 1992, having previously served as Vice President - Aircraft Sales &
Leasing - Vice President, North America, and Vice President - Corporate Aircraft
since he joined PALC in August 1986. Effective July 1, 1994, Mr. Adams held the
positions of Vice President and Director of PIMC.

Mr. Liu, 38, has assumed the position of Vice President of PIMC effective May 1,
1995 and has assumed the position of Director of PIMC effective July 31, 1995.
Mr. Liu presently holds the position of Executive Vice President - Marketing of
GECAS, having previously held the position of Executive Vice President - Capital
Funding and Portfolio Management of GECAS. Prior to joining GECAS, Mr. Liu was
with General Electric Capital Corporation for nine years. He has held management
positions in corporate Business Development and in Syndications and Leasing for
Transportation and Industrial Funding Corporation (TIFC). Mr. Liu previously
held the position of managing director of Kidder, Peabody & Co., Incorporated.

<PAGE>

Mr. Sun, 46, has assumed the position of Vice President of PIMC effective May 1,
1995. Mr. Sun presently holds the position of Senior Vice President - Structured
Finance of GECAS. Prior to joining GECAS, Mr. Sun held various positions with
TIFC since 1990.

Mr. Flynn, 55, Vice President - Marketing of GECAS, served as Senior Vice
President - Aircraft Marketing for PIMC and PALC effective April 1991, having
previously served as Vice President North America of PIMC and PALC effective
July 1989. Mr. Flynn joined PALC in March 1989 as Vice President - Cargo. For
the two years prior to joining PALC, Mr. Flynn was a transportation consultant.
Effective July 1, 1994, Mr. Flynn held the position of Vice President of PIMC.

Mr. Dillon, 54, became Vice President - Aviation Legal and Insurance Affairs,
effective April 1989. Previously, he served as General Counsel of PIMC and PALC
effective January 1986. Effective July 1, 1994, Mr. Dillon held the positions of
Vice President and Assistant Secretary of PIMC. Mr. Dillon presently holds the
position of Senior Vice President of GECAS.

Mr. Blume, 54, has assumed the position of Secretary of PIMC effective May 1,
1995. Mr. Blume presently holds the position of Executive Vice President and
General Counsel of GECAS. Prior to joining GECAS, Mr. Blume was counsel at GE
Aircraft Engines since 1987.

Mr. Meiches, 43, has assumed the position of Chief Financial Officer of PIMC
effective October 9, 1995. Mr. Meiches presently holds the positions of
Executive Vice President and Chief Financial Officer of GECAS. Prior to joining
GECAS, Mr. Meiches has been with General Electric Company (GE) and its
subsidiaries since 1978. Since 1992, Mr. Meiches held the position of Vice
President of the General Electric Capital Corporation Audit Staff. Between 1987
and 1992, Mr. Meiches held Manager of Finance positions for GE Re-entry Systems,
GE Government Communications Systems and the GE Astro-Space Division.

<PAGE>

Certain Legal Proceedings:

On October 27, 1992, a class action complaint entitled Weisl, Jr. et al., v.
Polaris Holding Company, et al. was filed in the Supreme Court of the State of
New York for the County of New York. The complaint sets forth various causes of
action which include allegations against certain or all of the defendants (i)
for alleged fraud in connection with certain public offerings, including that of
the Partnership, on the basis of alleged misrepresentation and alleged omissions
contained in the written offering materials and all presentations allegedly made
to investors; (ii) for alleged negligent misrepresentation in connection with
such offerings; (iii) for alleged breach of fiduciary duties; (iv) for alleged
breach of third party beneficiary contracts; (v) for alleged violations of the
NASD Rules of Fair Practice by certain registered broker dealers; and (vi) for
alleged breach of implied covenants in the customer agreements by certain
registered brokers. The complaint seeks an award of compensatory and other
damages and remedies. On January 19, 1993, plaintiffs filed a motion for class
certification. On March 1, 1993, defendants filed motions to dismiss the
complaint on numerous grounds, including failure to state a cause of action and
statute of limitations. On July 20, 1994, the court entered an order dismissing
almost all of the claims in the complaint and amended complaint. Certain claims,
however, remain pending. Plaintiffs filed a notice of appeal on September 2,
1994. The Partnership is not named as a defendant in this action.

On or around February 17, 1993, a civil action entitled Einhorn, et al. v.
Polaris Public Income Funds, et al., was filed in the Circuit Court of the 11th
Judicial Circuit in and for Dade County, Florida against, among others, Polaris
Investment Management Corporation and Polaris Depositary Company. Plaintiffs
seek class action certification on behalf of a class of investors in the
Partnership, Polaris Aircraft Income Fund IV, and Polaris Aircraft Income Fund
VI who purchased their interests while residing in Florida. Plaintiffs allege
the violation of Section 517.301, Florida Statutes, in connection with the
offering and sale of units in such Polaris Aircraft Income Funds. Among other
things, plaintiffs assert that the defendants sold interests in such Polaris
Aircraft Income Funds while "omitting and failing to disclose the material facts
questioning the economic efficacy of" such Polaris Aircraft Income Funds.
Plaintiffs seek rescission or damages, in addition to interest, costs, and
attorneys' fees. On April 5, 1993, defendants filed a motion to stay this action
pending the final determination of a prior filed action in the Supreme Court for
the State of New York entitled Weisl v. Polaris Holding Company. On that date,
defendants also filed a motion to dismiss the complaint on the grounds of
failure to attach necessary documents, failure to plead fraud with particularity
and failure to plead reasonable reliance. On April 13, 1993, the court denied
the defendants' motion to stay. On May 7, 1993, the court stayed the action
pending an appeal of the denial of the motion to stay. Defendants subsequently
filed with the Third District Court of Appeal a petition for writ of certiorari
to review the lower court's order denying the motion to stay. On October 19,
1993, the Court of Appeal granted the writ of certiorari, quashed the order, and
remanded the action with instruction to grant the stay. The Partnership is not
named as a defendant in this action.

On or around May 14, 1993, a purported class action entitled Moross, et al., v.
Polaris Holding Company, et al., was filed in the United States District Court
for the District of Arizona. This purported class action was filed on behalf of
investors in Polaris Aircraft Income Funds I - VI by nine investors in such
Polaris Aircraft Income Funds. The complaint alleges that defendants violated
Arizona state securities statutes and committed negligent misrepresentation and
breach of fiduciary duty by misrepresenting and failing to disclose material
facts in connection with the sale of limited partnership units in the
above-named funds. An amended complaint was filed on September 17, 1993, but has
not been served upon defendants. On or around October 4, 1993, defendants filed
a notice of removal to the United States District Court for the District of
Arizona. Defendants also filed a motion to stay the action pending the final

<PAGE>

determination of a prior filed action in the Supreme Court for the State of New
York entitled Weisl v. Polaris Holding Company ("Weisl") and to defendants' time
to respond to the complaint until 20 days after disposition of the motion to
action pending resolution of the motions for class certification and motions to
dismiss pending in Weisl. On January 20, 1994, the court stayed the action and
required defendants to file status reports every sixty days setting forth the
status of the motions in Weisl. On April 18, 1995, this action was transferred
to the Multi-District Litigation described below. The Partnership is not named
as a defendant in this action.

On September 21, 1993, a purported derivative action entitled Novak, et al., v.
Polaris Holding Company, et al., was filed in the Supreme Court of the State of
New York, County of New York. This action was brought on behalf of the Polaris
Aircraft Income Fund I, Polaris Aircraft Income Fund II and Polaris Aircraft
Income Fund III. The complaint names as defendants Polaris Holding Company, its
affiliates and others. Each of the Partnership, Polaris Aircraft Income Fund II
and Polaris Aircraft Income Fund III is named as a defendant for procedural
purposes, but no recovery is sought from these defendants. The complaint
alleges, among other things, that defendants mismanaged the Partnership and the
other Polaris Aircraft Income Funds, engaged in self-dealing transactions that
were detrimental to the Partnership and the other Polaris Aircraft Income Funds
and failed to make required disclosure in connection with the sale of the units
in the Partnership and the other Polaris Aircraft Income Funds. The complaint
alleges claims of breach of fiduciary duty and constructive fraud and seeks,
among other things an award of compensatory and punitive damages in an
unspecified amount, re-judgment interest, and attorneys' fees and costs. On
January 13, 1994, certain of the defendants, including Polaris Holding Company,
filed motions to dismiss the complaint on the grounds of, among others, failure
to state a cause of action and failure to plead the alleged wrong in detail. On
August 11, 1994, the court denied in part and granted in part defendants'
motions to dismiss. Specifically, the court denied the motions as to the claims
for breach of fiduciary duty, but dismissed plaintiffs' claim for constructive
fraud with leave to replead. On October 7, 1994, defendants filed a notice of
appeal. On November 15, 1994, defendants submitted an answer to the remaining
causes of action. On July 7, 1995, defendants filed briefs in support of their
appeal from that portion of the trial court's order denying the motion to
dismiss. On March 14, 1996, the appellate court reversed the trial court's order
denying the motion to dismiss, and dismissed the complaint.

On or around March 13, 1993, a purported class action entitled Kahn v. Polaris
Holding Company, et al., was filed in the Supreme Court of the State of New
York, County of New York. This purported class action on behalf of investors in
the Partnership was filed by one investor in the fund. The complaint names as
defendants Polaris Investment Management Corporation, Polaris Holding Company,
its affiliates and others. The complaint charges defendants with common law
fraud, negligent misrepresentation and breach of fiduciary duty in connection
with certain misrepresentations and omissions allegedly made in connection with
the sale of interests in the Partnership. Plaintiffs seek compensatory and
consequential damages in an unspecified amount, plus interest, disgorgement and
restitution of all earnings, profits and other benefits received by defendants
as a result of their alleged practices, and attorneys' fees and costs.
Defendants' time to move, answer or otherwise plead with respect to the
complaint was extended by stipulation up to and including April 24, 1995. On
April 18, 1995, the action was discontinued without prejudice. The Partnership
is not named as a defendant in this action.

On June 8, 1994, a consolidated complaint captioned In re Prudential Securities
Inc. Limited Partnerships Litigation was filed in the United States District
Court for the Southern District of New York, purportedly consolidating cases
that had been transferred from other federal courts by the Judicial Panel on
Multi-District Litigation. The consolidated complaint names as defendants
Prudential entities and various other sponsors of limited partnerships sold by
Prudential, including Polaris Holding Company, one of its former officers,

<PAGE>

Polaris Aircraft Leasing Corporation, Polaris Investment Management Corporation
and Polaris Securities Corporation. The complaint alleges that the Prudential
defendants created a scheme for the sale of approximately $8-billion of limited
partnership interests in 700 assertedly high-risk limited partnerships,
including the Partnership, to approximately 350,000 investors by means of false
and misleading offering materials; that the sponsoring organizations (including
the Polaris entities) participated with the Prudential defendants with respect
to, among other things, the partnerships that each sponsored; and that all of
the defendants conspired to engage in a nationwide pattern of fraudulent conduct
in the marketing of all limited partnerships sold by Prudential. The complaint
alleges violations of the federal Racketeer Influenced and Corrupt Organizations
Act and the New Jersey counterpart thereof, fraud, negligent misrepresentation,
breach of fiduciary duty and breach of contract. The complaint seeks rescission,
unspecified compensatory damages, treble damages, disgorgement of profits
derived from the alleged acts, costs and attorneys fees. On October 31, 1994,
Polaris Investment Management Corporation and other Polaris entities filed a
motion to dismiss the consolidated complaint on the grounds of, inter alia,
statute of limitations and failure to state a claim. The Partnership is not
named as a defendant in this action. Prudential Securities, Inc., on behalf of
itself and its affiliates has made an Offer of Settlement. A class has been
certified for purposes of the Prudential Settlement and notice to the class has
been sent. Any questions concerning Prudential's Offer of Settlement should be
directed to 1-800- 327-3664, or write to the Claims Administrator at:

Prudential Securities Limited Partnerships
Litigation Claims Administrator
P.O. Box 9388
Garden City, New York 11530-9388

A further litigation captioned Romano v. Ball et. al, an action by Prudential
Insurance Company policyholders against many of the same defendants (including
Polaris Investment Management Corporation and Polaris Aircraft Leasing
Corporation), has also been commenced by policy holders of the Prudential
Insurance Company as a purported derivative action on behalf of the Prudential
Insurance Company. The complaint alleges claims under the federal Racketeer
Influenced and Corrupt Organizations Act, as well as claims for waste,
mismanagement and intentional and negligent misrepresentation, and seeks
unspecified compensatory, treble and punitive damages. The case is being
coordinated with In re Prudential.

On or about February 6, 1995, a class action complaint entitled Cohen, et al. v.
J.B. Hanauer & Company, et al. was filed in the Circuit Court of the Fifteenth
Judicial Circuit in and for Palm Beach County, Florida. The complaint names J.B.
Hanauer & Company, General Electric Capital Corporation, General Electric
Financial Services, Inc., and General Electric Company as defendants. The action
purports to be on behalf of "approximately 5,000 persons throughout the United
States" who purchased units in Polaris Aircraft Income Funds I through VI. The
complaint sets forth various causes of action which include allegations against
certain or all of the defendants (i) for violation of Section 12(2) of the
Securities Act of 1933, as amended, by a registered broker dealer and for
violation of Section 15 of such act by all defendants in connection with certain
public offerings, including that of the Partnership, on the basis of alleged
misrepresentation and alleged omissions contained in the written offering
materials and all presentations allegedly made to investors; (ii) for alleged
fraud in connection with such offerings; (iii) for alleged negligent
misrepresentation in connection with such offerings; (iv) for alleged breach of
fiduciary duties; (v) for alleged breach of third party beneficiary contracts;
(vi) for alleged violations of the NASD Rules of Fair Practice by a registered
broker dealer; and (vii) for alleged breach of implied covenants in the customer
agreements by a registered broker dealer. The complaint seeks an award of
compensatory and punitive damages and other remedies. On June 7, 1995,
plaintiffs filed an amended complaint which did not include as defendants

<PAGE>

General Electric Capital Corporation, General Electric Financial Services, Inc.,
and General Electric Company, thus effectively dismissing without prejudice the
case against these entities. The Partnership is not named as a defendant in this
action.

On or about January 12, 1995, a class action complaint entitled Cohen, et al. v.
Kidder Peabody & Company, Inc., et al. was filed in the Circuit Court of the
Fifteenth Judicial Circuit in and for Palm Beach County, Florida, and on March
31, 1995 the case was removed to the United States District Court for the
Southern District of Florida. An amended class action complaint (the "amended
complaint"), which re-named this action Bashein, et al. v. Kidder, Peabody &
Company Inc., et al., was filed on June 13, 1995. The amended complaint names
Kidder Peabody & Company, Inc., General Electric Capital Corporation, General
Electric Financial Services, Inc., and General Electric Company as defendants.
The action purports to be on behalf of "approximately 20,000 persons throughout
the United States" who purchased units in Polaris Aircraft Income Funds III
through VI. The amended complaint sets forth various causes of action
purportedly arising in connection with the public offerings of the Partnership,
Polaris Aircraft Income Fund III, Polaris Aircraft Income Fund IV, and Polaris
Aircraft Income Fund VI. Specifically, plaintiffs assert claims for violation of
Sections 12(2) and 15 of the Securities Act of 1933, fraud, negligent
misrepresentation, breach of fiduciary duty, breach of third party beneficiary
contract, violation of NASD Rules of Fair Practice, breach of implied covenant,
and breach of contract. Plaintiffs seek compensatory damages, interest, punitive
damages, costs and attorneys' fees, as well as any other relief the court deems
just and proper. Defendants moved to dismiss the amended complaint on June 26,
1995. On October 2, 1995, the court denied the defendants' motion to dismiss.
The Partnership is not named as a defendant in this action.

On or around April 13, 1995, a class action complaint entitled B & L Industries,
Inc., et al. v. Polaris Holding Company, et al. was filed in the Supreme Court
of the State of New York. The complaint names as defendants Polaris Holding
Company, Polaris Aircraft Leasing Corporation, Polaris Investment Management
Corporation, Polaris Securities Corporation, Peter G. Pfendler, Marc P.
Desautels, General Electric Capital Corporation, General Electric Financial
Services, Inc., General Electric Company, Prudential Securities Inc., and Kidder
Peabody & Company Incorporated. The complaint sets forth various causes of
action purportedly arising out of the public offerings of Polaris Aircraft
Income Fund III and Polaris Aircraft Income Fund IV. Plaintiffs allege claims of
fraud, negligent misrepresentation, breach of fiduciary duty, knowingly inducing
or participating in breach of fiduciary duty, breach of third party beneficiary
contract, violation of NASD Rules of Fair Practice, breach of implied covenant,
and unjust enrichment. Plaintiffs seek compensatory damages, interest, general,
consequential and incidental damages, exemplary and punitive damages,
disgorgement, rescission, costs, attorneys' fees, accountants' and experts'
fees, and other legal and equitable relief as the court deems just and proper.
On October 2, 1995, defendants moved to dismiss the complaint. The Partnership
is not named as a defendant in this action.

On or around August 15, 1995, a complaint entitled Mary C. Scott v. Prudential
Securities Inc. et al. was filed in the Court of Common Pleas, County of Summit,
Ohio. The complaint names as defendants Prudential Securities Inc., Polaris
Aircraft Income Fund II, Polaris Aircraft Income Fund III, Polaris Aircraft
Income Fund IV, Polaris Aircraft Income Fund VI, P-Bache/A.G. Spanos Genesis
Income Partners LP 1, Prudential-Bache Properties, Inc., A.G. Spanos Residential
Partners - 86, Polaris Securities Corporation and Robert Bryan Fitzpatrick.
Plaintiff alleges claims of fraud and violation of Ohio securities law arising
out of the public offerings of Polaris Aircraft Income Fund II, Polaris Aircraft
Income Fund III, Polaris Aircraft Income Fund IV, Polaris Aircraft Income Fund
VI, and P-Bache/A.G. Spanos Genesis Income Partners LP 1. Plaintiff seeks
compensatory damages, general, consequential and incidental damages, punitive
damages, rescission, costs, attorneys' fees and other and further relief as the

<PAGE>

Court deems just and proper. The Partnership is not named as a defendant in this
action. On September 15, 1995, defendants removed this action to the United
States District Court, Eastern District of Ohio. On September 18, 1995,
defendants sought the transfer of this action to the Multi-District Litigation
and sought a stay of all proceedings by the district court, which stay was
granted on September 25, 1995. The Judicial Panel transferred this action to the
Multi-District Litigation on or about February 7, 1996.

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

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

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

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

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. 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

<PAGE>

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

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

Disclosure pursuant to Section 16, Item 405 of Regulation S-K:

Based solely on its review of the copies of such forms received or written
representations from certain reporting persons that no Forms 3, 4, or 5 were
required for those persons, the Partnership believes that, during 1995 all
filing requirements applicable to its officers, directors and greater than ten
percent beneficial owners were met.

Item 11. Executive Compensation

PAIF-V has no directors or officers. PAIF-V is managed by PIMC, the General
Partner. In connection with management services provided, management and
advisory fees of $727,431 were paid to PIMC in 1995 in addition to a 10%
interest in all cash distributions as described in Note 5 to the financial
statement (Item 8).

Item 12. Security Ownership of Certain Beneficial Owners and Management

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

b) The General Partner of PAIF-V owns the equity securities of PAIF-V 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-V, including any pledge by any
person of securities of PAIF-V, the operation of which may at a
subsequent date result in a change in control of PAIF-V.

Item 13. Certain Relationships and Related Transactions

None.

<PAGE>

PART IV

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

1. Financial Statements.

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

Report of Independent Public Accountants 17
Balance Sheets 18
Statements of Operations 19
Statements of Changes in Partners' Capital (Deficit) 20
Statements of Cash Flows 21
Notes to Financial Statements 22

2. Reports on Form 8-K.

None.

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

27. Financial Data Schedules (Filed electronically only).

4. Financial Statement Schedules.

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

<PAGE>

SIGNATURES

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

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

March 25, 1996 By: /S/ James W. Linnan
- --------------------------- -------------------
Date James W. Linnan, 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/James W. Linnan President and Director of Polaris March 25, 1996
- ------------------ Investment Management Corporation, --------------
(James W. Linnan) General Partner of the Registrant

/S/Norman C. T. Liu Vice President and Director of Polaris March 25, 1996
- ------------------- Investment Management Corporation, --------------
(Norman C. T. Liu) General Partner of the Registrant

/S/Marc A. Meiches Chief Financial Officer of Polaris March 25, 1996
- ------------------ Investment Management Corporation, --------------
(Marc A. Meiches) General Partner of the Registrant

<ARTICLE>5

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