POLARIS AIRCRAFT INCOME FUND V, 10-K, 1998-03-30

POLARIS AIRCRAFT INCOME FUND V
10-K, 1998-03-30
EQUIPMENT RENTAL & LEASING, NEC

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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

FORM 10-K

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

_X_ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997

___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __to__

Commission File No. 33-21977

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

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

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

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

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No___

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ___

No formal market exists for the units of limited partnership interest and
therefore there exists no aggregate market value at December 31, 1997.

Documents incorporated by reference: None

This document consists of 37 pages.

<PAGE>

PART I

Item 1. Business

Polaris Aircraft Income Fund V, a California Limited Partnership (PAIF-V or the
Partnership), was formed primarily to purchase and lease used commercial jet
aircraft in order to provide quarterly distributions of cash from operations, to
maximize the residual values of aircraft upon sale and to protect Partnership
capital through experienced management and diversification. PAIF-V was organized
as a California limited partnership on April 29, 1988 and will terminate no
later than December 2020.

As more fully described in Item 7, the Partnership sold its remaining aircraft
during 1997 and collected all remaining notes receivable. Polaris Investment
Management Corporation, the general partner, is in the process of winding up the
Partnership's business. With the exception of reserves maintained for
anticipated expenses and costs of winding up, all proceeds were distributed
during 1997 and the first quarter of 1998.

Item 2. Properties

During 1997, Polaris Aircraft Income Fund V sold its 13 remaining aircraft. Four
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 Polar Air
Cargo, and two Boeing 737-200 Advanced aircraft formerly leased and returned by
Southwest, were sold to Triton Aviation Services V LLC. One Boeing 737-200
Advanced aircraft formerly leased and returned by Southwest in 1996 upon
expiration of its lease was sold to Westjet Airlines, Ltd. in 1997.

Item 3. Legal Proceedings

Kepford, et al. v. Prudential Securities, et al. - On April 13, 1994, this
action was filed in the District Court of Harris County, Texas against Polaris
Investment Management Corporation, Polaris Securities Corporation, Polaris
Holding Company, Polaris Aircraft Leasing Corporation, Polaris Aircraft Income
Fund V (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. The complaint alleges violations of the Texas Securities Act, the Texas
Deceptive Trade Practices Act, sections 11 and 12 of the Securities Act of 1933,
common law fraud, fraud in the inducement, negligent misrepresentation,
negligence, breach of fiduciary duty and civil conspiracy arising from the
defendants' alleged misrepresentation and failure to disclose material facts in
connection with the sale of limited partnership units in the Partnership and the
other Polaris Aircraft Income Funds. Plaintiffs seek, among other things, an
award of compensatory damages in an unspecified amount plus interest, and double
and treble damages under the Texas Deceptive Trade Practices Act. On December 2,
1997, the trial court issued a scheduling order setting a September 7, 1998
trial date.

Riskind, et al. v. Prudential Securities, Inc., et al. - This action was filed
in the District Court of the 165 Judicial District, Maverick County, Texas, on
behalf of over 3,000 individual investors who purchased units in "various
Polaris Aircraft Income Funds," including the Partnership. A 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

2
<PAGE>

connection with the sale of limited partnership units in the Partnership and the
other Polaris Aircraft Income Funds. Plaintiffs seek, among other things, an
award of compensatory damages in an unspecified amount plus interest, and double
and treble damages under the Texas Deceptive Trade Practices Act. Kidder,
Peabody & Co., Inc. (Kidder Peabody) was added as an additional defendant by
virtue of an Intervenor's Amended Plea in Intervention filed on or about April
7, 1995.

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 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. On February 26, 1997, the court issued an order
notifying the remaining plaintiffs that the action would be dismissed on April
21, 1997 for want of prosecution unless the plaintiffs showed cause why the
action should not be dismissed. This action was dismissed for want of
prosecution in April of 1997.

Howland, et al. v. Polaris Holding Company, et al. - This action was transferred
to the multi-district litigation in the Southern District of New York entitled
In re Prudential Securities Limited Partnerships Litigation, which has been
settled as discussed in Part III, Item 10 below.

Adams, et al. v. Prudential Securities, Inc., et al. - This action was
transferred to the multi-district litigation in the Southern District of New
York entitled In re Prudential Securities Limited Partnerships Litigation,
which has been settled as described in Item 10 of Part III below.

Equity Resources, Inc., et al. v. Polaris Investment Management Corporation, et
al. - On or about April 18, 1997, an action entitled Equity Resources Group,
Inc., et al. v. Polaris Investment Management Corporation, et al. was filed in
the Superior Court for the County of Middlesex, Commonwealth of Massachusetts.
The complaint names each of Polaris Investment Management Corporation (PIMC),
the Partnership, Polaris Aircraft Income Fund II, Polaris Aircraft Income Fund
III, Polaris Aircraft Income Fund IV and Polaris Aircraft Income Fund VI, as
defendants. The complaint alleges that PIMC, as general partner of each of the
partnerships, committed a breach of its fiduciary duties, violated applicable
partnership law statutory requirements and breached provisions of the
partnership agreements of each of the foregoing partnerships by failing to
solicit a vote of the limited partners in each of such partnerships in
connection with the Sale Transaction described in Item 7, under the caption
"Remarketing Update -- Sale of Aircraft to Triton" and in failing to disclose
material facts relating to such transaction. The plaintiffs sought to enjoin the
Sale Transaction, but the Superior Court denied their motion on May 6, 1997. The
plaintiffs appealed the Superior Court's denial of their motion to enjoin, but
ultimately, the Supreme Court of Massachusetts denied their appeal on May 29,
1997. On May 23, 1997, the defendants filed a motion to dismiss this action.
Subsequently, the plaintiffs voluntarily sought dismissal of their suit without
prejudice. On September 16, 1997, the court dismissed the plaintiffs' complaint
without prejudice.

Ron Wallace v. Polaris Investment Management Corporation, et al. - On or about
June 18, 1997, a purported class action entitled Ron Wallace v. Polaris
Investment Management Corporation, et al. was filed on behalf of the unitholders
of Polaris Aircraft Income Funds II through VI in the Superior Court of the
State of California, County of San Francisco. The complaint names each of
Polaris Investment Management Corporation (PIMC), GE Capital Aviation Services,
Inc. (GECAS), Polaris Aircraft Leasing Corporation, Polaris Holding Company,

3
><PAGE>

General Electric Capital Corporation, certain executives of PIMC and GECAS and
John E. Flynn, a former PIMC executive, as defendants. The complaint alleges
that defendants committed a breach of their fiduciary duties with respect to the
Sale Transaction involving the Partnership as described in Item 7, under the
caption "Remarketing Update -- Sale of Aircraft to Triton."

On September 2, 1997, an amended complaint was filed adding additional
plaintiffs. On September 16, 1997, the defendants filed a motion to stay
discovery and a demurrer seeking to dismiss the amended complaint. On November
5, 1997, the Superior Court granted the demurrer with leave to replead. On
December 18, 1997, the plaintiffs filed a second amended complaint asserting
their claims derivatively. On January 26, 1998, defendants filed a demurrer
seeking to dismiss the second amended complaint on the grounds that plaintiffs
had failed to satisfy the pre-litigation demand requirements under California
law for commencing a derivative action.

"Accelerated" High Yield Income Fund II, Ltd., L.P. v. Polaris Investment
Management Corporation, et al. - On or about June 19, 1997, and action entitled
"Accelerated" High Yield Income Fund II, Ltd., L.P. v. Polaris Investment
Management Corporation, et al. was filed in the Superior Court of the State of
California, County of San Francisco. The complaint names each of Polaris
Investment Management Corporation (PIMC), GE Capital Aviation Services, Inc. and
Eric Dull (the President of PIMC), as defendants. The complaint alleges that
defendants committed a breach of their fiduciary duties with respect to the Sale
Transaction involving the Partnership as described in Item 7, under the caption
"Remarketing Update -- Sale of Aircraft to Triton." On August 14, 1997,
defendants filed a demurrer seeking to dismiss the complaint. Simultaneously
with the filing of the demurrer, defendants sought a stay of discovery. After a
hearing on the matter, the court overruled the defendants' demurrer. On November
5, 1997, defendants filed a mandamus petition seeking to have the court's
decision on the demurrer overturned. The mandamus was denied, and a trial date
of September 14, 1998 has been set.

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.

4
<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, 1997
------------------------ --------------------------

Depository Units Representing Assignments
of Limited Partnership Interests: 14,732

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 1997
and 1996 were $19,719,999 and $10,000,000, respectively. Cash
distributions per limited partnership unit were $39.44 and $20.00
during 1997 and 1996, respectively.

<PAGE>

Item 6. Selected Financial Data
<TABLE>
<CAPTION>
For the years ended December 31,

1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues $ 8,008,088 $ 15,068,573 $ 16,587,862 $ 19,250,007 $ 20,287,874

Net Income (Loss) 5,049,889 (52,832,080) (12,994,459) (10,061,522) 3,068,363

Net Income (Loss)
allocated to Limited
Partners 3,027,587 (53,303,659) (13,864,414) (10,960,807) 1,787,805

Net Income (Loss) per
Limited Partnership Unit 6.06 (106.61) (27.73) (21.92) 3.58

Cash Distributions per
Limited Partnership
Unit 39.44 20.00 20.00 20.00 25.00

Amount of Cash
Distributions Included
Above Representing
a Return of Capital on
a Generally Accepted
Accounting Principle
Basis per Limited
Partnership Unit 39.44 20.00 20.00 20.00 21.42

Total Assets 53,804,199 72,594,268 138,821,191 164,045,656 184,220,856

Partners' Capital 53,647,194 70,508,416 134,451,607 158,557,177 179,729,810
</TABLE>

6
<PAGE>

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

During 1997, Polaris Aircraft Income Fund V (the Partnership) sold its remaining
portfolio of 13 used aircraft out of its original portfolio of 14 aircraft.
Twelve aircraft were sold to Triton Aviation Services V LLC as follows: four
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 Polar Air
Cargo, and two Boeing 737-200 Advanced aircraft formerly leased and returned by
Southwest. The Partnership sold one Boeing 737-200 to Westjet Airlines, Ltd.
(Westjet) in February 1997. As discussed below, the Partnership sold one Boeing
747-100 Special Freighter aircraft to its former lessee American International
Airways Limited (AIA) in June 1996. As discussed below under "Liquidity and Cash
Distributions", Polaris Investment Management Corporation (PIMC or the General
Partner), is in the process of winding up the Partnership's business.

Remarketing Update

Sale of One Boeing 737-200 to Westjet - In February 1997, the Partnership sold
one Boeing 737-200 Advanced aircraft formerly on lease to Southwest Airlines Co.
(Southwest), to Westjet Airlines, Ltd. (Westjet). The Partnership received
$1,150,000 in February 1997, and applied the $250,000 security deposit held in
1996 for a total sales price to Westjet of $1,400,000. In October 1996,
Southwest had paid to the Partnership $155,694, which was recorded as an
increase in maintenance reserves, in lieu of meeting certain return conditions
specified in the lease. Upon the sale of the aircraft in February 1997, this
amount was reported as additional sales revenue. The combined sales revenue of
$1,555,694 approximated the net carrying value of the aircraft.

Sale of Aircraft to Triton - On May 28, 1997, PIMC, on behalf of the
Partnership, executed definitive documentation for the purchase of all 12 of the
Partnership's remaining aircraft (the "Aircraft") and a note receivable by
Triton Aviation Services V LLC, a special purpose company (the "Purchaser"). The
closings for the purchase of all 12 of the Aircraft occurred from May 28, 1997
to June 30, 1997. The Purchaser is managed by Triton Aviation Services, Ltd.
("Triton Aviation" or the "Manager"), a privately held aircraft leasing company
which was formed in 1996 by Triton Investments, Ltd., a company which has been
in the marine cargo container leasing business for 17 years and is diversifying
its portfolio by leasing commercial aircraft. Each Aircraft was sold subject to
the existing leases, if any.

The General Partner's Decision to Approve the Transaction - In determining
whether the transaction was in the best interests of the Partnership and its
unit holders, the General Partner evaluated, among other things, the risks and
significant expenses associated with continuing to own and remarket the Aircraft
(many of which were subject to leases that were nearing expiration). The General
Partner determined that such a strategy could require the Partnership to expend
a significant portion of its cash reserves for remarketing and that there was a
substantial risk that this strategy could result in the Partnership having to
reduce or even suspend future cash distributions to limited partners. The
General Partner concluded that the opportunity to sell the Aircraft at an
attractive price would be beneficial in the present market where demand for
Stage II aircraft is relatively strong rather than attempting to sell the
aircraft "one-by-one" over the coming years when the demand for such Aircraft
might be weaker. GE Capital Aviation Services, Inc. ("GECAS"), which provides
aircraft marketing and management services to the General Partner, sought to
obtain the best price and terms available for these Stage II aircraft given the
aircraft market and the conditions and types of planes owned by the Partnership.
Both the General Partner and GECAS approved the sale terms of the Aircraft as
being in the best interest of the Partnership and its unit holders because both
believe that this transaction will optimize the potential cash distributions to
be paid to limited partners. To ensure that no better offer could be obtained,
the terms of the transaction negotiated by GECAS included a "market-out"
provision that permitted the Partnership to elect to accept an offer for all
(but not less than all) of the assets to be sold by it to the Purchaser on terms

7
<PAGE>

which it deemed more favorable, with the ability of the Purchaser to match the
offer or decline to match the offer and be entitled to be compensated in an
amount equal to 1 1/2% of the Purchaser's proposed purchase price. The
Partnership did not receive any other offers and, accordingly, the General
Partner believes that a valid market check has occurred confirming that the
terms of this transaction were the most beneficial that could have been
obtained.

The Terms of the Transaction - The total contract purchase price (the "Purchase
Price") to the Purchaser was $34,750,259 which was allocated to the Aircraft, a
note and other receivables. The Purchaser paid into an escrow account $3,914,964
of the Purchase Price in cash upon the closing of the first aircraft and
delivered a promissory note (the "Promissory Note") for the balance of
$30,835,295. The Partnership received $3,914,964 from the escrow account on June
24, 1997. On December 30, 1997, the Partnership received prepayment in full of
the outstanding note receivable and interest earned by the Partnership to that
date.

Under the purchase agreement, the Purchaser purchased the Aircraft effective as
of April 1, 1997 notwithstanding the actual closing dates. The utilization of an
effective date facilitated the economic determination of rent and other
allocations between the parties. The Purchaser had the right to receive all
income and proceeds, including rents and receivables, from the Aircraft accruing
from and after April 1, 1997, and the Promissory Note commenced bearing interest
as of April 1, 1997 subject to the closing of the aircraft. Each Aircraft was
sold subject to the existing leases, if any, and as part of the transaction the
Purchaser assumed all obligations relating to maintenance reserves and security
deposits relating to such leases. Subsequent to the Aircraft closings, cash
balances related to maintenance reserves and security deposits of approximately
$1,741,000 and $225,000, respectively were transferred to the Purchaser.

Neither PIMC nor GECAS received a sales commission in connection with the
transaction. In addition, PIMC was not paid a management fee with respect to the
collection of the Promissory Note or on any rents accruing from or after April
1, 1997. Neither PIMC nor GECAS or any of its affiliates holds any interest in
Triton Aviation or any of Triton Aviation's affiliates. John Flynn, the current
President of Triton Aviation, was a Polaris executive until May 1996, and has
over 15 years experience in the commercial aviation industry. At the time Mr.
Flynn was employed at PIMC he had no affiliation with Triton Aviation or its
affiliates.

Polaris Aircraft Income Fund II, Polaris Aircraft Income Fund III, Polaris
Aircraft Income Fund IV and Polaris Aircraft Income Fund VI have also sold
certain aircraft assets to separate special purpose companies under common
management with the Purchaser (collectively, together with the Purchaser, the
"SPC's") on terms similar to those set forth above, with the exception of the
Polaris Aircraft Income Fund VI aircraft, which were sold on an all cash basis.

The Accounting Treatment of the Transaction - In accordance with generally
accepted accounting principles (GAAP), the Partnership recognized rental income
up until the closing date for each aircraft which occurred from May 28, 1997 to
June 30, 1997. However, under the terms of the transaction, the Purchaser was
entitled to receive any payments of rents accruing from April 1, 1997 to the
closing dates. As a result, the Partnership made payments to the Purchaser for
the amounts due and received effective April 1, 1997. Payments during this
period totaling $1,501,456 are included in rent from operating leases and
interest income. For financial reporting purposes, the cash down payment portion
of the sales proceeds of $3,914,964 have been adjusted by the following: income
and proceeds, including rents and receivables from the effective date of April
1, 1997 to the closing date, interest due on the cash portion of the purchase
price, interest on the Promissory Note from the effective date of April 1, 1997
to the closing date, estimated selling costs, adjustments to the aircraft
maintenance reserves due the Purchaser and aircraft return conditions payments
that the Partnership was entitled to retain. As a result of these GAAP
adjustments, the net adjusted sales price recorded by the Partnership, including
the Promissory Note, was $33,141,808.

<PAGE>

The Aircraft sold pursuant to the definitive documentation executed on May 28,
1997 had been classified as aircraft held for sale from that date until the
closing date. Under GAAP, aircraft held for sale are carried at their fair
market value less estimated costs to sell. The adjustment to the sales proceeds
described above and revisions to estimated costs to sell the aircraft required
the Partnership to record an adjustment to the net carrying value of the
Aircraft held for sale of approximately $1,318,620 during the three months ended
June 30, 1997. This adjustment to the net carrying value of the aircraft held
for sale is included in depreciation and amortization expense on the statement
of operations in 1997.

Partnership Operations

The Partnership reported net income of $5,049,889, or $6.06 per limited
partnership unit for the year ended December 31, 1997, compared to net losses of
$52,832,080 and $12,994,459, or $106.61 and $27.73 per limited partnership unit
for the years ended December 31, 1996 and 1995, respectively. The net losses in
1996 and 1995 were primarily the result of increases in depreciation expense for
certain of the Partnership's aircraft.

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) was less than the carrying value of the aircraft, the
Partnership recognized the deficiency currently as increased depreciation
expense. The Partnership recognized impairment losses on aircraft to be held and
used by the Partnership aggregating approximately $54.9 million and $13.9
million, or $109.84 and $27.58 per limited Partnership unit as increased
depreciation expense in 1996 and 1995, respectively. In 1996, the impairment
loss was the result of several significant factors. As a result of industry and
market changes, a more extensive review of the Partnership's aircraft was
completed in the fourth quarter of 1996 which resulted in revised assumptions of
future cash flows including reassessment of projected re-lease terms and
potential future maintenance costs. As discussed in Note 4, the Partnership
accepted an offer to purchase 12 of the Partnership's remaining aircraft and
certain notes receivable subject to each aircraft's existing lease. This offer
constituted an event that required the Partnership to review the aircraft
carrying values pursuant to SFAS 121. In determining this additional impairment
loss, the Partnership estimated the fair value of the aircraft based on the
proposed purchase price reflected in the offer, less the estimated costs and
expenses of the proposed sale. The Partnership is deemed to have an impairment
loss to the extent that the carrying value exceeded the fair value. Management
believes the assumptions related to fair value of impaired assets represented
the best estimates based on reasonable and supportable assumptions and
projections.

The increased depreciation expense reduced the aircraft's carrying value and
reduced the amount of future depreciation expense that the Partnership would
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.

Rental revenues, management fees and depreciation decreased during 1997, as
compared to 1996, due to the sale of the Partnership's 13 Aircraft to Triton and
Westjet during 1997. Interest income increased during 1997, compared to the same
periods in 1996, due to interest income earned on the Promissory Note from
Triton.

Rental revenues in 1996, compared to 1995, decreased as a result of the
Partnership's aircraft having been re-leased at lower lease rates. In 1996, the
aircraft leased to AIA was sold, resulting in a decrease in rental revenues
during 1996.

The Partnership incurred approximately $536,000 and $371,000 of heavy
maintenance costs, recognized as operating expense during 1996 and 1995,
respectively, for the two Boeing 727-200 Advanced aircraft leased to Sun
Country. There were no comparable costs in 1997.

9
<PAGE>

Liquidity and Cash Distributions

Liquidity - As previously discussed, the Partnership sold its remaining aircraft
during 1997. PIMC has determined that the Partnership maintain cash reserves as
a prudent measure to ensure that the Partnership has available sufficient funds
to satisfy anticipated contingencies and expenses in connection with winding up
its business. The Partnership's cash reserves will be monitored and may be
revised from time to time as further information becomes available in the
future.

Cash Distributions - Cash distributions to limited partners during 1997, 1996
and 1995 were $19,719,999, $10,000,000 and $10,000,000, respectively. Cash
distributions per limited partnership unit were $39.44 during 1997, and $20.00
in both 1996 and 1995. The Partnership is now in the process of winding up its
business. With the exception of reserves maintained for anticipated expenses and
costs of winding up, the Partnership distributed all of its available cash
during 1997 and the first quarter of 1998. Consequently the timing and amount of
future cash distributions, if any, are not yet known and will depend upon
whether the Partnership's reserves exceed its actual expenses and contingencies
in winding up and on the time required to complete the winding up process.

10
<PAGE>

Item 8. Financial Statements and Supplementary Data

POLARIS AIRCRAFT INCOME FUND V,
A California Limited Partnership

FINANCIAL STATEMENTS AS OF DECEMBER 31, 1997 AND 1996

TOGETHER WITH

AUDITORS' REPORT

11
<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, 1997 and 1996, 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, 1997.
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, 1997 and 1996, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1997 in conformity with generally accepted accounting
principles.

ARTHUR ANDERSEN LLP

San Francisco, California,
January 23, 1998

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<PAGE>

POLARIS AIRCRAFT INCOME FUND V,
A California Limited Partnership

BALANCE SHEETS

DECEMBER 31, 1997 AND 1996

1997 1996
---- ----
ASSETS:

CASH AND CASH EQUIVALENTS $ 53,802,187 $ 23,252,136

RENT AND OTHER RECEIVABLES 2,012 1,371,941

NOTES RECEIVABLE - 12,118,157

AIRCRAFT, net of accumulated depreciation
of $146,813,332 in 1996 - 35,852,034
------------ ------------

$ 53,804,199 $ 72,594,268
============ ============

LIABILITIES AND PARTNERS' CAPITAL (DEFICIT):

PAYABLE TO AFFILIATES $ 103,569 $ 231,741

ACCOUNTS PAYABLE AND ACCRUED
LIABILITIES 53,436 73,093

SECURITY DEPOSITS - 475,000

MAINTENANCE RESERVES - 1,306,018
------------ ------------

Total Liabilities 157,005 2,085,852
------------ ------------

PARTNERS' CAPITAL (DEFICIT):
General Partner (1,674,489) (1,505,679)
Limited Partners, 500,000 units
issued and outstanding 55,321,683 72,014,095
------------ ------------

Total Partners' Capital 53,647,194 70,508,416
------------ ------------

$ 53,804,199 $ 72,594,268
============ ============

The accompanying notes are an integral part of these statements.
13
<PAGE>

POLARIS AIRCRAFT INCOME FUND V,
A California Limited Partnership

STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

1997 1996 1995
---- ---- ----

REVENUES:
Rent from operating leases $ 3,911,355 $ 12,944,667 $ 14,922,692
Interest and other 4,096,733 1,747,001 1,177,018
Gain on sale of aircraft - 376,905 488,152
----------- ------------- -------------

Total Revenues 8,008,088 15,068,573 16,587,862
----------- ------------- -------------

EXPENSES:
Depreciation and amortization 2,297,427 66,375,892 28,087,007
Management fees to general partner 120,495 647,233 746,135
Operating 191,939 550,710 384,838
Administration and other 348,338 326,818 364,341
----------- ---------- ----------

Total Expenses 2,958,199 67,900,653 29,582,321
----------- ---------- ----------

NET INCOME (LOSS) $ 5,049,889 $ (52,832,080) $ (12,994,459)
=========== ============= =============

NET INCOME ALLOCATED TO
THE GENERAL PARTNER $ 2,022,302 $ 471,579 $ 869,955
=========== ============= =============

NET INCOME (LOSS) ALLOCATED
TO LIMITED PARTNERS $ 3,027,587 $ (53,303,659) $ (13,864,414)
=========== ============= =============

NET INCOME (LOSS) PER LIMITED
PARTNERSHIP UNIT $ 6.06 $ (106.61) $ (27.73)
=========== ============= =============

The accompanying notes are an integral part of these statements.
14
<PAGE>

POLARIS AIRCRAFT INCOME FUND V,
A California Limited Partnership

STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

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

Net income (loss) 471,579 (53,303,659) (52,832,080)

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

Balance, December 31, 1996 (1,505,679) 72,014,095 70,508,416

Net income 2,022,302 3,027,587 5,049,889

Cash distributions to partners (2,191,112) (19,719,999) (21,911,111)
----------- ------------- -------------

Balance, December 31, 1997 $(1,674,489) $ 55,321,683 $ 53,647,194
=========== ============= =============

The accompanying notes are an integral part of these statements.
15
<PAGE>

<TABLE>
POLARIS AIRCRAFT INCOME FUND V,
A California Limited Partnership

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 5,049,889 $(52,832,080) $(12,994,459)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 2,297,427 66,375,892 28,087,007
Gain on sale of aircraft -- (376,905) (488,152)
Changes in operating assets and liabilities:
Decrease (increase) in rent and other
receivables 321,251 1,843,480 (818,902)
Increase (decrease) in payable to affiliates (75,742) (562,160) 573,786
Decrease in accounts payable
and accrued liabilities (235,557) (94,454) (1,236,612)
Increase (decrease) in security deposits (225,000) 206,000 --
Decrease in maintenance reserves (909,642) (1,833,118) (456,069)
------------ ------------ ------------

Net cash provided by operating activities 6,222,626 12,726,655 12,666,599
------------ ------------ ------------

INVESTING ACTIVITIES:
Proceeds from sale of aircraft and engine 5,722,173 1,898,776 --
Increase in notes receivable -- (146,646) --
Payments to Purchaser related to sale of aircraft (2,290,443) -- --
Principal payments on notes receivable 30,835,295 386,457 73,095
Principal payments on finance sale of aircraft 11,971,511 1,405,394 488,152
Increase in aircraft capitalized costs -- (2,750,000) --
------------ ------------ ------------

Net cash provided by investing activities 46,238,536 793,981 561,247
------------ ------------ ------------

FINANCING ACTIVITIES:
Cash distributions to partners (21,911,111) (11,111,111) (11,111,111)
------------ ------------ ------------

Net cash used in financing activities (21,911,111) (11,111,111) (11,111,111)
------------ ------------ ------------

CHANGES IN CASH AND CASH
EQUIVALENTS 30,550,051 2,409,525 2,116,735
------------ ------------ ------------

CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 23,252,136 20,842,611 18,725,876
------------ ------------ ------------

CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 53,802,187 $ 23,252,136 $ 20,842,611
============ ============ ============
</TABLE>

The accompanying notes are an integral part of these statements.
16

<PAGE>

POLARIS AIRCRAFT INCOME FUND V,
A California Limited Partnership

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1997

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 (GAAP) requires management to make
estimates and assumptions that affect reported amounts and related disclosures.
Actual results could differ from those estimates. The most significant estimates
with regard to these financial statements are related to the projected cash
flows analysis in determining the fair value of assets.

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

Aircraft and Depreciation - The aircraft were recorded at cost, which included
acquisition costs. Depreciation to an estimated residual value was 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 reviewed 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 provided
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 was increased.

Capitalized Costs - Aircraft modification and maintenance costs which were
determined to increase the value or extend the useful life of the aircraft were
capitalized and amortized using the straight-line method over the estimated
useful life of the improvement. These costs were also subject to periodic
evaluation as discussed above.

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

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

Maintenance Reserves - The Partnership received 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
performed on the Partnership's aircraft or engines, as specified in the leases.
Maintenance reserve payments were 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.

17
<PAGE>

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, 1997, 1996,
and 1995.

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

Notes Receivable - The Partnership had recorded an allowance for credit losses
for an impaired note as a result of issues regarding its collection (Note 4).
The impaired note was paid in full during 1996. The Partnership recognizes
revenue on impaired notes only as payments are received.

1996
----
Allowance for credit losses,
beginning of year $ (376,905)
Collections 376,905
-----------
Allowance for credit losses
end of year $ -
===========

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 6.

3. Aircraft

During 1997, the Partnership sold all of its remaining aircraft from its
original portfolio of 14 used commercial jet aircraft. The aircraft leases were
generally net operating leases, requiring the lessees to pay all operating
expenses associated with the aircraft during the lease term. While the leases
required the lessees to comply with Airworthiness Directives (ADs) which have
been or may be issued by the Federal Aviation Administration and required
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 were 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 stated a minimum acceptable
return condition for which the lessee is liable under the terms of the lease
agreement.

As discussed in Note 1, the Partnership periodically reviewed 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

18
<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 aircraft as of December 31, 1996 and 1995.

The Partnership recognized impairment losses on aircraft to be held and used by
the Partnership aggregating approximately $54.9 million and $13.9 million, or
$109.84 and $27.58 per limited Partnership unit as increased depreciation
expense in 1996 and 1995, respectively. The deficiencies in 1995 were generally
the result of declining estimates in the residual values of the aircraft. In
1996, the impairment loss was the result of several significant factors. As a
result of industry and market changes, a more extensive review of the
Partnership's aircraft was completed in the fourth quarter of 1996 which
resulted in revised assumptions of future cash flows including reassessment of
projected re-lease terms and potential future maintenance costs. As discussed in
Note 4, the Partnership accepted an offer to purchase 12 of the Partnership's
remaining aircraft subject to each aircraft's existing lease. This offer
constitutes an event that required the Partnership to review the aircraft
carrying value pursuant to SFAS 121. In determining this additional impairment
loss, the Partnership estimated the fair value of these aircraft based on the
purchase price reflected in the offer, less the estimated costs and expenses of
the proposed sale. The Partnership is deemed to have an impairment loss to the
extent that the carrying value exceeded the fair value. Management believes the
assumptions related to fair value of impaired assets represents the best
estimates based on reasonable and supportable assumptions and projections.

4. Sale of Aircraft

On December 30, 1997, the Partnership received prepayment in full of the
outstanding note receivable and interest earned by the Partnership to that date.

19
<PAGE>

sold subject to the existing leases, if any, and as part of the transaction the
Purchaser assumed all obligations relating to maintenance reserves and security
deposits relating to such leases. Subsequent to the Aircraft closings, cash
balances related to maintenance reserves and security deposits of approximately
$1,741,000 and $225,000, respectively were transferred to the Purchaser.

The Partnership did not transfer the note receivable from AIA (the "AIA
Receivable"), which had initially been included in the assets which were to be
transferred to the Purchaser. After the date that the Partnership and the
Purchaser entered into the definitive documentation for the sale transaction,
but prior to the date that the AIA Receivable was transferred to the Purchaser,
AIA failed to make a scheduled principal payment under the AIA Receivable and
asked the Partnership to modify and restructure the AIA Receivable. As a result,
the Partnership and the Purchaser agreed to modify and reform the definitive
documentation for the sale transaction to exclude the AIA Receivable. The AIA
Receivable is secured by a mortgage on a Boeing 747-100 Special Freighter
aircraft. The AIA Receivable was amended, as discussed in above.

The Accounting Treatment of the Transaction - In accordance with GAAP, the
Partnership recognized rental income up until the closing date for each aircraft
which occurred from May 28, 1997 to June 30, 1997. However, under the terms of
the transaction, the Purchaser was entitled to receive any payments of rents
accruing from April 1, 1997 to the closing dates. As a result, the Partnership
made payments to the Purchaser for the amounts due and received effective April
1, 1997. Payments during this period totaling $1,501,456 are included in rent
from operating leases and interest income. For financial reporting purposes, the
cash down payment portion of the sales proceeds of $3,914,964 have been adjusted
by the following: income and proceeds, including rents and receivables from the
effective date of April 1, 1997 to the closing date, interest due on the cash
portion of the purchase price, interest on the Promissory Note from the
effective date of April 1, 1997 to the closing date, estimated selling costs,
adjustments to the aircraft maintenance reserves due the Purchaser and aircraft
return conditions payments that the Partnership was entitled to retain. As a
result of these GAAP adjustments, the net adjusted sales price recorded by the
Partnership, including the Promissory Note, was $33,141,808.

20
<PAGE>

Sale to Aeroperu - Three Boeing 727-100 aircraft were transferred from American
Trans Air, Inc. (ATA) to the Partnership in 1993 as part of the ATA lease
transaction. 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. 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 was
recognized as payments were received. During 1996 and 1995, the Partnership
received principal and interest payments due from Aeroperu totaling $396,000 and
$572,000, respectively, of which $376,905 and $488,152 were recorded as gain on
sale in the year ended December 31, 1996 and 1995 statements of operations,
respectively. The notes receivable and corresponding allowances for credit
losses were reduced by the principal portion of payments received. In July 1996,
the Partnership received the final payment due from Aeroperu and the remaining
balance of the security deposit posted by Aeroperu was applied to the last
installment due from Aeroperu. The third aircraft was sold in August 1994 to
Sunrise Partners, Inc. for $250,000.

Sale to AIA - The lease of one Boeing 747-100 Special Freighter with AIA was
originally scheduled to expire on March 31, 1996. The lease was extended through
May 31, 1996. Upon review of the aircraft in the second quarter of 1996, it was
determined that certain maintenance work on three out of four of the aircraft's
engines, aggregating approximately $5,000,000, would be required to remarket
this aircraft for re-lease. The Partnership determined that a sale of the
aircraft would maximize the projected economic return on the aircraft to the
Partnership.

The Partnership reviewed the aircraft for impairment based on the projected
discounted cash flow generated from the aircraft sale. Previous estimates of
cash flow for this aircraft were based on the continued lease of the aircraft
through its estimated economic life. As a result, in accordance with SFAS No.
121, the Partnership recognized an impairment loss of approximately $5.8 million
on this aircraft during 1996.

In June 1996, the Partnership sold the aircraft to AIA for $13.0 million. In
addition, the Partnership retained maintenance reserves aggregating
approximately $1,749,000 that had been held by the Partnership to offset
potential future maintenance expenses for this aircraft. The Partnership agreed
to accept payment of the sale price, in sixty equal monthly installments with
interest at a rate of 10% per annum, beginning July 1996.

AIA delivered to the Partnership, an "Amended and Restated Purchase Money
Promissory Note" dated September 9, 1997. Under the terms of the amendment, AIA
was required to pay the originally scheduled interest portion of the payments,
but deferred the principal payments due in April 1997 through October 1997 (the
Deferred Principal). The Deferred Principal was to be paid back during a seven
month extension of the loan term, accruing interest at a rate of 13% per annum
from the date of the deferral through the date the deferred amount is paid. On
November 19, 1997, the Partnership received $11,520,685 from AIA as prepayment
in full of its outstanding note receivable and interest earned by the
Partnership through the payment date.

5. Engine Purchase

In September 1996, the Partnership purchased two refurbished engines to replace
two inoperable engines on the Boeing 747-100 Special Freighter aircraft on lease
to Polar Air Cargo, Inc. (Polar Air Cargo) for an aggregate cost of $2.75
million. The Partnership capitalized the cost of the two refurbished engines to
be depreciated over the remaining estimated useful life of the aircraft. These
engines were sold along with the aircraft to Triton Aviation Services V LLC as
discussed in Note 4. The Partnership sold one of the inoperable engines in
October 1996 for $150,000, which was applied to the net book value of the two
refurbished engines. The second inoperable engine was transferred to a
maintenance facility in settlement of disputed claims.

21
<PAGE>

6. 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 1997, 1996 and 1995, the Partnership paid management fees to
PIMC of $155,522, $698,249 and $727,431, respectively. Management
fees payable to PIMC at December 31, 1997 and 1996 were $0 and
$87,461, respectively.

b. Out-of-pocket expenses incurred in connection with the management
of the Partnership and its assets. The Partnership paid
$1,126,007, $1,481,892 and $4,238,469 to PIMC in 1997, 1996 and
1995, respectively. At December 31, 1997 and 1996, $103,569 and
$144,280 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. After the Partnership has sold or disposed
of aircraft representing 50% of the total aircraft cost, gains
from the sale or other disposition of aircraft are generally
allocated first to the General Partner until such time that the
General Partner's capital account is equal to the amount to be
distributed to the General Partner from the proceeds of such sale
or disposition.

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.

e. In the event that, immediately prior to the dissolution and
termination of the Partnership, the General Partner shall have a
deficit balance in its tax basis capital account, then the General
Partner shall contribute in cash to the capital of the Partnership
an amount which is equal to such deficit (see Note 7).

7. Partners' Capital

The Partnership Agreement (the Agreement) stipulates different methods by which
revenue, income and loss from operations and gain or loss on the sale of
aircraft are to be allocated to the General Partner and the Limited Partners
(see Note 6). Such allocations are made using income or loss calculated under
GAAP for book purposes, which, as more fully described in Note 9, varies from
income or loss calculated for tax purposes.

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

22
<PAGE>

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

At December 31, 1997, the tax basis capital (deficit) accounts of the General
Partner and the Limited Partners were ($1,141,606) and $54,788,802,
respectively.

8. 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, 1997 and 1996 are as
follows:

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

1997: Assets $ 53,804,199 $ 53,804,199 $ -
Liabilities 157,005 157,005 -

1996: Assets $ 72,594,268 $ 97,027,418 $ (24,433,150)
Liabilities 2,085,852 828,269 1,257,583

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

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

1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Book net income (loss) per limited partnership unit $ 6.06 $(106.61) $(27.73)
Adjustments for tax purposes represent differences
between book and tax revenue and expenses:
Rental and maintenance reserve revenue recognition 0.38 5.69 (0.97)
Management fee expense -- (0.04) (0.04)
Depreciation (12.44) 93.61 14.84
Gain or loss on sale of aircraft (39.55) (10.71) (0.97)
Capitalized costs 0.31 0.73 4.36
Other revenue and expense items (0.63) (4.15) (0.04)
------- -------- --------

Taxable loss per limited partnership unit $(45.87) $(21.48) $(10.55)
======== ======== ========
</TABLE>
The differences between net income and loss for book purposes and net income and
loss for tax purposes resulted from the temporary differences of certain revenue
and deductions.

23
<PAGE>

For book purposes, rental revenue was generally recorded as it was earned. For
tax purposes, certain temporary differences existed in the recognition of
revenue. For tax purposes, management fee expense was 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 were capitalized
or expensed for tax purposes, as appropriate.

The Partnership computed depreciation using the straight-line method for
financial reporting purposes and generally an accelerated method for tax
purposes. The Partnership also periodically evaluated 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 tax depreciation expense
was greater than the book 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.

10. Subsequent Events

The Partnership made a cash distribution of $14,175,000 or $28.35 per limited
partnership unit, to limited partners, and $1,575,000 to the General Partner on
January 15, 1998.

The Partnership made a special cash distribution of $32,755,000, or $65.51 per
limited partnership unit, to limited partners, and $3,639,444 to the General
Partner on February 23, 1998, as a result of the prepayment of the Promissory
Note from Triton, as discussed in Note 4.

<PAGE>

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), restructured their operations and businesses (the
Polaris Restructuring) in 1994. In connection therewith, PIMC entered into a
services agreement dated as of July 1, 1994 (the Services Agreement) with GE
Capital Aviation Services, Inc. (GECAS), a Delaware corporation which is a
wholly owned subsidiary of General Electric Capital Corporation, a New York
corporation (GE Capital). GE Capital has been PHC's parent company since 1986.
As subsidiaries of GE Capital, the Servicer and PIMC are affiliates.

The officers and directors of PIMC are:

Name PIMC Title
----------------- -------------------------
Eric M. Dull President; Director
Marc A. Meiches Chief Financial Officer
Richard J. Adams Director
Norman C. T. Liu Vice President; Director
Ray Warman Secretary
Robert W. Dillon Assistant Secretary

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

Mr. Dull, 37, assumed the position of President and Director of PIMC effective
January 1, 1997. Mr. Dull previously was a Director of PIMC from March 31, 1995
to July 31, 1995. Mr. Dull holds the position of Executive Vice President - Risk
and Portfolio Management of GECAS, having previously held the positions of
Executive Vice President - Portfolio Management and Senior Vice President -
Underwriting Risk Management of GECAS. Prior to joining GECAS, Mr. Dull held
various positions with Transportation and Industrial Funding Corporation (TIFC).

Mr. Meiches, 45, assumed the position of Chief Financial Officer of PIMC
effective October 9, 1995. Previously, he held the position of Vice President of
PIMC from October 1995 to October 1997. Mr. Meiches presently holds the
positions of Executive Vice President and Chief Financial and Operating Officer
of GECAS. Prior to joining GECAS, Mr. Meiches has been with General Electric
Company (GE) and its subsidiaries since 1978. Since 1992, Mr. Meiches held the
position of Vice President of the General Electric Capital Corporation Audit
Staff. Between 1987 and 1992, Mr. Meiches held Manager of Finance positions for
GE Re-entry Systems, GE Government Communications Systems and the GE Astro-Space
Division.

Mr. Adams, 64, held the position of Senior Vice President - Aircraft Sales and
Leasing of PIMC and PALC from August 1992 until October 1997, 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 assumed the position of Director of
PIMC. Mr. Adams presently holds the position of Senior Vice President - Fleet
Advisory Services of GECAS, having previously held the position of Senior Vice
President - Stage II Aircraft.

Mr. Liu, 40, assumed the position of Vice President of PIMC effective May 1,
1995 and Director of PIMC effective July 31, 1995. Mr. Liu presently holds the
position of Executive Vice President - Marketing and Structured Finance of
GECAS, having previously held the position of Executive Vice President - Capital
Funding and Portfolio Management of GECAS. Prior to joining GECAS, Mr. Liu was

26
<PAGE>

with General Electric Capital Corporation for nine years. He has held management
positions in corporate Business Development and in Syndications and Leasing for
TIFC. Mr. Liu previously held the position of managing director of Kidder,
Peabody & Co., Incorporated.

Mr. Warman, 49, assumed the position of Secretary of PIMC effective March 23,
1998. Mr. Warman has served as a GECAS Senior Vice President and Associate
General Counsel since March 1996, and for 13 years theretofore was a partner,
with an air-finance and corporate practice of the national law firm of Morgan,
Lewis & Bockius LLP.

Mr. Dillon, 56, held the position of Vice President - Aviation Legal and
Insurance Affairs, from April 1989 to October 1997. Previously, he served as
General Counsel of PIMC and PALC effective January 1986. Effective July 1,
1994, Mr. Dillon assumed the position of Assistant Secretary of PIMC. Mr.
Dillon presently holds the position of Senior Vice President and Managing
Counsel of GECAS.

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 Partnership is not named as a defendant in this action.
The complaint seeks an award of compensatory and other damages and remedies. On
July 20, 1994, the court entered an order dismissing almost all of the claims in
the complaint and amended complaint. Plaintiffs filed a notice of appeal on
September 2, 1994. On April 25, 1996, the Appellate Division for the First
Department affirmed the trial court's order which had dismissed most of
plaintiffs' claims. On September 25, 1997, this action was discontinued with
prejudice by stipulation of the parties.

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. The
Partnership is not named as a defendant in this action. Plaintiffs seek class
action certification on behalf of a class of investors in Polaris Aircraft
Income Fund IV, Polaris Aircraft Income Fund V 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,

27
<PAGE>

1993, the Court of Appeal granted the writ of certiorari, quashed the order, and
remanded the action with instruction to grant the stay.

Moross, et al. v. Polaris Holding Company, et al. was transferred to the
Multi-District Litigation, which has been settled as described below.

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,
Polaris Aircraft Leasing Corporation, Polaris Investment Management Corporation
and Polaris Securities Corporation. The Partnership is not named as a defendant
in this action. The complaint alleges that the Prudential defendants created a
scheme for the sale of approximately $8-billion of limited partnership interests
in 700 allegedly 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 April 22, 1997, the Polaris defendants entered into a settlement agreement
with plaintiffs pursuant to which, among other things, the Polaris defendants
agreed to make a payment to a class of unitholders previously certified by the
Court. On August 1, 1997, the Court approved a class settlement with the Polaris
defendants.

On or about January 12, 1995, a class action complaint entitled Cohen, et al. v.
Kidder Peabody & Company, Inc. (Kidder Peabody), 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 Partnership is not named as a defendant in this action. 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 Polaris Aircraft Income Fund
III, Polaris Aircraft Income Fund IV, Polaris Aircraft Income Fund V, 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. Plaintiffs filed a motion for leave to
file a second amended complaint, which was granted on October 3, 1995. On March
18, 1996, plaintiffs moved for class certification. On the eve of class
discovery, April 26, 1996, plaintiffs moved for a voluntary dismissal of Counts
I and II (claims brought pursuant to the Securities Act of 1933) of the Second

28
<PAGE>

Amended Complaint and simultaneously filed a motion to remand this action to
state court for lack of federal jurisdiction. Plaintiff's motion for voluntary
dismissal of the federal securities law claims and motion for remand were
granted on July 10, 1996. On December 18, 1997, the Court ordered that
plaintiffs show good cause why the action should not be dismissed without
prejudice for lack of prosecution. On January 14, 1998, a hearing was held with
respect to the order to show cause, and the Court determined that the action
should be dismissed without prejudice for lack of prosecution.

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 Partnership is not named as a defendant in
this action. 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 August 16, 1996, defendants filed a motion to dismiss plaintiffs' amended
complaint. On October 8, 1997, this action was discontinued with prejudice by
stipulation of the parties.

Mary C. Scott v. Prudential Securities Inc. et al. was transferred to the
Multi-District Litigation, which has been settled as described above.

On or around September 27, 1995, a complaint entitled Martha J. Harrison v.
General Electric Company, et al. was filed in the Civil District Court for the
Parish of Orleans, State of Louisiana. The complaint names as defendants General
Electric Company and Prudential Securities Incorporated. The Partnership is not
named as a defendant in this action. Plaintiff alleges claims of tort, breach of
fiduciary duty in tort, contract and quasi-contract, violation of sections of
the Louisiana Blue Sky Law and violation of the Louisiana Civil Code concerning
the inducement and solicitation of purchases arising out of the public offering
of Polaris Aircraft Income Fund IV. Plaintiff seeks compensatory damages,
attorney's fees, interest, costs and general relief.

On or around December 8, 1995, a complaint entitled Overby, et al. v. General
Electric Company, et al. was filed in the Civil District Court for the Parish of
Orleans, State of Louisiana. The complaint names as defendants General Electric
Company and General Electric Capital Corporation. The Partnership is not named
as a defendant in this action. Plaintiffs allege claims of tort, breach of
fiduciary duty, in tort, contract and quasi-contract, violation of sections of
the Louisiana Blue Sky Law and violation of the Louisiana Civil Code in
connection with the public offering of Polaris Aircraft Income Funds III and IV.
Plaintiffs seek compensatory damages, attorneys' fees, interest, costs and
general relief.

In or around November 1994, a complaint entitled Lucy R. Neeb, et al. v.
Prudential Securities Incorporated et al. was filed in the Civil District Court
for the Parish of Orleans, State of Louisiana. The complaint named as defendants
Prudential Securities, Incorporated and Stephen Derby Gisclair. On or about
December 20, 1995, plaintiffs filed a First Supplemental and Amending Petition
adding as additional defendants General Electric Company, General Electric
Capital Corporation and Smith Barney, Inc. The Partnership is not named as a
defendant in this action. Plaintiffs allege claims of tort, breach of fiduciary

29
<PAGE>

duty, in tort, contract and quasi-contract, violation of sections of the
Louisiana Blue Sky Law and violation of the Louisiana Civil Code in connection
with the public offering of Polaris Aircraft Income Funds III and IV. Plaintiffs
seek compensatory damages, attorneys' fees, interest, costs and general relief.

In or about January of 1995, a complaint entitled Albert B. Murphy, Jr. v.
Prudential Securities, Incorporated et al. was filed in the Civil District Court
for the Parish of Orleans, State of Louisiana. The complaint named as defendants
Prudential Securities Incorporated and Stephen Derby Gisclair. On or about
January 18, 1996, plaintiff filed a First Supplemental and Amending Petition
adding defendants General Electric Company and General Electric Capital
Corporation. The Partnership is not named as a defendant in this action.
Plaintiff alleges claims of tort, breach of fiduciary duty in tort, contract and
quasi-contract, violation of sections of the Louisiana Blue Sky Law and
violation of the Louisiana Civil Code in connection with the public offering of
Polaris Aircraft Income Funds III and IV. Plaintiffs seek compensatory damages,
attorneys' fees, interest, costs and general relief.

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

In or around December 1994, a complaint entitled John J. Jones, Jr. v.
Prudential Securities Incorporated et al. was filed in the Civil District Court
for the Parish of Orleans, State of Louisiana. The complaint named as defendants
Prudential Securities, Incorporated and Stephen Derby Gisclair. On or about
March 29, 1996, plaintiffs filed a First Supplemental and Amending Petition
adding as additional defendants General Electric Company and General Electric
Capital Corporation. The Partnership is not named as a defendant in this action.
Plaintiff alleges claims of tort, breach of fiduciary duty in tort, contract and
quasi-contract, violation of section of the Louisiana Blue Sky Law and violation
of the Louisiana Civil Code concerning the inducement and solicitation of
purchases arising out of the public offering of Polaris Aircraft Income Fund
III. Plaintiff seeks compensatory damages, attorneys' fees, interest, costs and
general relief.

On or around February 16, 1996, a complaint entitled Henry Arwe, et al. v.
General Electric Company, et al. was filed in the Civil District Court for the
Parish of Orleans, State of Louisiana. The complaint named as defendants General
Electric Company and General Electric Capital Corporation. The Partnership is
not named as a defendant in this action. Plaintiffs allege claims of tort,
breach of fiduciary duty in tort, contract and quasi-contract, violation of
sections of the Louisiana Blue Sky Law and violation of the Louisiana Civil Code
concerning the inducement and solicitation of purchases arising out of the
public offering of Polaris Aircraft Income Funds III and IV. Plaintiffs seek
compensatory damages, attorneys' fees, interest, costs and general relief.

On or about May 7, 1996, a petition entitled Charles Rich, et al. v. General
Electric Company and General Electric Capital Corporation was filed in the Civil
District Court for the Parish of Orleans, State of Louisiana. The complaint
names as defendants General Electric Company and General Electric Capital
Corporation. The Partnership is not named as a defendant in this action.
Plaintiffs allege claims of tort concerning the inducement and solicitation of
purchases arising out of the public offering of Polaris Aircraft Income Funds
III and IV. Plaintiffs seek compensatory damages, attorneys' fees, interest,
costs and general relief.

30
<PAGE>

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

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

The following actions were settled pursuant to a settlement agreement entered
into on June 6, 1997. An additional settlement was entered into on November 19,
1997 with certain plaintiffs who had refused to participate in the first
settlement:

A complaint entitled Joyce H. McDevitt, et al. v. Polaris Holding Company, et
al., which was filed in the Superior Court of the State of California, County of
Sacramento, on or about October 15, 1996, by individual plaintiffs who purchased
limited partnership units in Polaris Aircraft Income I-VI. The complaint names
Polaris Holding Company, Polaris Aircraft Leasing Corporation, Polaris
Investment Management Corporation, Polaris Securities Corporation, Polaris Jet
Leasing, Inc., Polaris Technical Services, Inc., General Electric Company,
General Electric Financial Services, Inc., General Electric Capital Corporation,
General Electric Credit Corporation and Does 1-100 as defendants. The
Partnership is not named as a defendant in this action. The complaint alleges
violations of state common law, including fraud, negligent misrepresentation,
breach of fiduciary duty, and violations of the rules of the National
Association of Securities Dealers. The complaint seeks to recover compensatory
damages and punitive damages in an unspecified amount, interest, and rescission
with respect to Polaris Aircraft Income Funds I-VI.

A complaint entitled Mary Grant Tarrer, et al. v. Kidder Peabody & Co.,et al.,
which was filed in the Superior Court of the State of California, County of
Sacramento, on or about October 16, 1996, by individual plaintiffs who purchased
limited partnership units in Polaris Aircraft Income Funds III-VI. The complaint
names Kidder, Peabody & Co. Incorporated, KP Realty Advisors, Inc., Polaris
Holding Company, Polaris Aircraft Leasing Corporation, Polaris Investment
Management Corporation, Polaris Securities Corporation, Polaris Jet Leasing,
Inc., Polaris Technical Services, Inc., General Electric Company, General
Electric Financial Services, Inc., General Electric Capital Corporation, General
Electric Credit Corporation and Does 1-100 as defendants. The Partnership is not
named as a defendant in this action. The complaint alleges violations of state
common law, including fraud, negligent misrepresentation, breach of fiduciary
duty, and violations of the rules of the National Association of Securities
Dealers. The complaint seeks to recover compensatory damages and punitive
damages in an unspecified amount, interest, and rescission with respect to
Polaris Aircraft Income Funds III-VI and all other limited partnerships alleged
to have been sold by Kidder Peabody to the plaintiffs.

31
<PAGE>

A complaint entitled Janet K. Johnson, et al. v. Polaris Holding Company, et
al., which was filed in the Superior Court of the State of California, County of
Sacramento, on or about November 6, 1996, by individual plaintiffs who purchased
limited partnership units in Polaris Aircraft Income I-VI. The complaint names
Polaris Holding Company, Polaris Aircraft Leasing Corporation, Polaris
Investment Management Corporation, Polaris Securities Corporation, Polaris Jet
Leasing, Inc., Polaris Technical Services, Inc., General Electric Company,
General Electric Financial Services, Inc., General Electric Capital Corporation,
General Electric Credit Corporation and Does 1-100 as defendants. The
Partnership is not named as a defendant in this action. The complaint alleges
violations of state common law, including fraud, negligent misrepresentation,
breach of fiduciary duty, and violations of the rules of the National
Association of Securities Dealers. The complaint seeks to recover compensatory
damages and punitive damages in an unspecified amount, interest, and rescission
with respect to Polaris Aircraft Income Funds I-VI.

A complaint entitled Wayne W. Kuntz, et al. v. Polaris Holding Company, et al.,
which was filed in the Superior Court of the State of California, County of
Sacramento, on or about November 13, 1996, by individual plaintiffs who
purchased limited partnership units in Polaris Aircraft Income Funds I-VI. The
complaint names Polaris Holding Company, Polaris Aircraft Leasing Corporation,
Polaris Investment Management Corporation, Polaris Securities Corporation,
Polaris Jet Leasing, Inc., Polaris Technical Services, Inc., General Electric
Company, General Electric Financial Services, Inc., General Electric Capital
Corporation, General Electric Credit Corporation and Does 1-100 as defendants.
The Partnership is not named as a defendant in this action. The complaint
alleges violations of state common law, including fraud, negligent
misrepresentation, breach of fiduciary duty, and violations of the rules of the
National Association of Securities Dealers. The complaint seeks to recover
compensatory damages and punitive damages in an unspecified amount, interest,
and rescission with respect to Polaris Aircraft Income Funds I-VI.

A complaint entitled Thelma Abrams, et al. v. Polaris Holding Company, et al.,
which was filed in the Superior Court of the State of California, County of
Sacramento, on or about November 26, 1996, by individual plaintiffs who
purchased limited partnership units in Polaris Aircraft Income Funds I-VI. The
complaint names Polaris Holding Company, Polaris Aircraft Leasing Corporation,
Polaris Investment Management Corporation, Polaris Securities Corporation,
Polaris Jet Leasing, Inc., Polaris Technical Services, Inc., General Electric
Company, General Electric Financial Services, Inc., General Electric Capital
Corporation, General Electric Credit Corporation and Does 1-100 as defendants.
The Partnership is not named as a defendant in this action. The complaint
alleges violations of state common law, including fraud, negligent
misrepresentation, breach of fiduciary duty, and violations of the rules of the
National Association of Securities Dealers. The complaint seeks to recover
compensatory damages and punitive damages in an unspecified amount, interest,
and rescission with respect to Polaris Aircraft Income Funds I-VI.

A complaint entitled Enita Elphick, et al. v. Kidder Peabody & Co.,et al., which
was filed in the Superior Court of the State of California, County of
Sacramento, on or about January 16, 1997, by individual plaintiffs who purchased
limited partnership units in Polaris Aircraft Income Funds III-VI and other
limited partnerships sold by Kidder Peabody. The complaint names Kidder, Peabody
& Co. Incorporated, KP Realty Advisors, Inc., Polaris Holding Company, Polaris
Aircraft Leasing Corporation, Polaris Investment Management Corporation, Polaris
Securities Corporation, Polaris Jet Leasing, Inc., Polaris Technical Services,
Inc., General Electric Company, General Electric Financial Services, Inc.,
General Electric Capital Corporation, General Electric Credit Corporation and
Does 1-100 as defendants. The Partnership is not named as a defendant in this
action. The complaint alleges violations of state common law, including fraud,
negligent misrepresentation, breach of fiduciary duty, and violations of the
rules of the National Association of Securities Dealers. The complaint seeks to

32
<PAGE>

recover compensatory damages and punitive damages in an unspecified amount,
interest, and rescission with respect to Polaris Aircraft Income Funds III-VI
and all other limited partnerships alleged to have been sold by Kidder Peabody
to the plaintiffs.

A complaint entitled George Zicos, et al. v. Polaris Holding Company, et al.,
which was filed in the Superior Court of the State of California, County of
Sacramento, on or about February 14, 1997, by individual plaintiffs who
purchased limited partnership units in Polaris Aircraft Income Funds I-VI. The
complaint names Polaris Holding Company, Polaris Aircraft Leasing Corporation,
Polaris Investment Management Corporation, Polaris Securities Corporation,
Polaris Jet Leasing, Inc., Polaris Technical Services, Inc., General Electric
Company, General Electric Financial Services, Inc., General Electric Capital
Corporation, General Electric Credit Corporation and Does 1-100 as defendants.
The Partnership is not named as a defendant in this action. The complaint
alleges violations of state common law, including fraud, negligent
misrepresentation, breach of fiduciary duty, and violations of the rules of the
National Association of Securities Dealers. The complaint seeks to recover
compensatory damages and punitive damages in an unspecified amount, interest,
and rescission with respect to Polaris Aircraft Income Funds I-VI.

Three complaints which were filed on or about March 21, 1997 in the Superior
Court of the State of California, County of Sacramento naming as defendants
Kidder, Peabody & Company, Incorporated, Polaris Holding Company, Polaris
Aircraft Leasing Corporation, Polaris Investment Management Corporation, Polaris
Securities Corporation, Polaris Jet Leasing, Inc., Polaris Technical Services,
Inc., General Electric Company, General Electric Capital Services, General
Electric Capital Corporation, GE Capital Aviation Services and Does 1-100. The
first complaint, entitled Michael J. Ouellette, et al. v. Kidder Peabody & Co.,
et al., was filed by over 50 individual plaintiffs who purchased limited
partnership units in one or more of Polaris Aircraft Income Funds I-VI. The
second complaint, entitled Thelma A. Rolph, et al. v. Polaris Holding Company,
et al., was filed by over 500 individual plaintiffs who purchased limited
partnership units in one or more of Polaris Aircraft Income Funds I-VI. The
third complaint, entitled Carl L. Self, et al. v. Polaris Holding Company, et
al., was filed by over 500 individual plaintiffs who purchased limited
partnership units in one or more of Polaris Aircraft Income Funds I-VI. The
Partnership is not named as a defendant in any of these actions. Each complaint
alleges violations of state common law, including fraud, negligent
misrepresentation and breach of fiduciary duty, and violations of the rules of
the National Association of Securities Dealers, Inc. Each complaint seeks to
recover compensatory damages and punitive damages in an unspecified amount,
interest and rescission with respect to Polaris Aircraft Income Funds I-VI and
all other limited partnerships alleged to have been sold by Kidder Peabody to
the plaintiffs.

A summons and First Amended Complaint entitled Sara J. Bishop, et al. v. Kidder
Peabody & Co., et al., which was filed in the Superior Court of the State of
California, County of Sacramento, on or about April 9, 1996, by over one hundred
individual plaintiffs who purchased limited partnership units in Polaris
Aircraft Income Funds III, IV, V and VI and other limited partnerships sold by
Kidder Peabody. The complaint names Kidder, Peabody & Co. Incorporated, KP
Realty Advisors, Inc., Polaris Holding Company, Polaris Aircraft Leasing
Corporation, Polaris Investment Management Corporation, Polaris Securities
Corporation, Polaris Jet Leasing, Inc., Polaris Technical Services, Inc.,
General Electric Company, General Electric Financial Services, Inc., General
Electric Capital Corporation, General Electric Credit Corporation and Does 1-100
as defendants. The Partnership is not named as a defendant in this action. The
complaint alleges violations of state common law, including fraud, negligent
misrepresentation, breach of fiduciary duty, and violations of the rules of the
National Association of Securities Dealers. The complaint seeks to recover
compensatory damages and punitive damages in an unspecified amount, interest,
and rescission with respect to Polaris Aircraft Income Funds III-VI and all

33
<PAGE>

other limited partnerships alleged to have been sold by Kidder Peabody to the
plaintiffs.

A complaint entitled Wilson et al. v. Polaris Holding Company et al., which was
filed in the Superior Court of the State of California for the County of
Sacramento on October 1, 1996, by over 500 individual plaintiffs who purchased
limited partnership units in one or more of Polaris Aircraft Income Funds I
through VI. The complaint names Polaris Holding Company, Polaris Aircraft
Leasing Corporation, Polaris Investment Management Corporation, Polaris
Securities Corporation, Polaris Jet Leasing, Inc., Polaris Technical Services,
Inc., General Electric Company, General Electric Capital Services, Inc., General
Electric Capital Corporation, GE Capital Aviation Services, Inc. and Does 1-100
as defendants. The Partnership has not been named as a defendant. The complaint
alleges violations of state common law, including fraud, negligent
misrepresentation, negligence, breach of contract, and breach of fiduciary duty.
The complaint seeks to recover compensatory damages and punitive damages in an
unspecified amount, interest and rescission with respect to the Polaris Aircraft
Income Funds sold to plaintiffs.

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 1997 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 $155,522 were paid to PIMC in 1997 in addition to a 10%
interest in all cash distributions as described in Note 6 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.

34
<PAGE>

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

c) There are no arrangements known to PAIF-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.

35
<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 12
Balance Sheets 13
Statements of Operations 14
Statements of Changes in Partners' Capital (Deficit) 15
Statements of Cash Flows 16
Notes to Financial Statements 17

2. Reports on Form 8-K.

No reports on Form 8-K were filed during the quarter ended December 31,
1997.

A current report on Form 8-K was filed on January 5, 1998 to report the
prepayment in full of the Promissory Note due from Triton Aviation
Services V LLC on December 30, 1997.

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

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

4. Financial Statement Schedules.

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

36
<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 27, 1998 By: /S/ Eric M. Dull
------------------------- ----------------
Date Eric M. Dull, President

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.

Signature Title Date

/S/Eric M. Dull President and Director of Polaris March 27, 1998
--------------- Investment Management Corporation, --------------
(Eric M. Dull) General Partner of the Registrant

/S/Marc A. Meiches Chief Financial Officer of Polaris March 27, 1998
------------------ Investment Management Corporation, --------------
(Marc A. Meiches) General Partner of the Registrant

/S/Richard J. Adams Director of Polaris Investment March 27, 1998
------------------- Management Corporation, General --------------
(Richard J. Adams) Partner of the Registrant

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<NET-INCOME> 5049889
<EPS-PRIMARY> 6.06
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</TABLE>