UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the fiscal year ended December 31, 1997 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from to Commission file number 0-11985 Krupp Realty Limited Partnership-V (Exact name of registrant as specified in its charter) Massachusetts 04-2796207 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 470 Atlantic Avenue, Boston, Massachusetts 02210 (Address of principal executive offices) (Zip Code) (Registrant's telephone number, including area code) (617) 423-2233 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Units of Investor Limited Partner Interest 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. [ ]. Aggregate market value of voting securities held by non-affiliates: Not applicable. Documents incorporated by reference: Part IV, Item 14. The exhibit index is located on pages 9-12. The total number of pages in this document is 30. PART I This Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Actual results could differ materially from those projected in the forward-looking statements as a result of a number of factors, including those identified herein. ITEM 1. BUSINESS Krupp Realty Limited Partnership-V ("KRLP-V") was formed on June 16, 1983 by filing a Certificate of Limited Partnership in The Commonwealth of Massachusetts. The Krupp Corporation (a Massachusetts corporation) and The Krupp Company Limited Partnership-II (a Massachusetts limited partnership) are the General Partners of KRLP-V. KRLP-V issued all of the Original Limited Partner Interests to The Krupp Company Limited Partnership-II. On September 6, 1983, KRLP-V, pursuant to a sales agent agreement, commenced the marketing and sale of units of Investor Limited Partner Interest ("Units") for $1,000 per Unit, 35,200 of which were sold. For further details, see Note A to Consolidated Financial Statements included in Item 8 (Appendix A) of this report. KRLP-V considers itself to be engaged only in the industry segment of investment in real estate. KRLP-V invested the net proceeds from the offering in leveraged real estate. KRLP-V originally invested in four multi-family apartment complexes (Century II, Marine Terrace, Fieldcrest Apartments and Park Place Tower Apartments) and a joint venture in Lakeview Tower Apartments (the "Joint Venture") with Krupp Realty Limited Partnership-IV, an affiliated limited partnership. The aggregate purchase price of the properties was approximately $67 million and KRLP-V originally funded approximately $2.3 million to the Joint Venture. On March 20, 1989, the General Partners formed Krupp Realty Park Place-Chicago Limited Partnership ("Realty-V") as a prerequisite for the refinancing of Park Place Tower Apartments ("Park Place"). At the same time, the General Partners transferred ownership of Park Place to Realty-V. The General Partner of Realty-V is The Krupp Corporation ("Krupp Corp."). The Limited Partner of Realty-V is KRLP-V. Krupp Corp. has beneficially assigned its interest in Realty-V to KRLP- V. KRLP-V and Realty-V are collectively known as Krupp Realty Limited Partnership-V and Subsidiary (collectively referred to herein as the "Partnership"). The Partnership sold two of its apartment complexes, Fieldcrest Apartments and Marine Terrace, in 1992 and 1995, respectively. The Partnership also received a distribution of proceeds from the sale of the Joint Venture in 1992. The Partnership's real estate investments are subject to some seasonal fluctuations resulting from changes in utility consumption and seasonal maintenance expenditures. However, the future performance of the Partnership will depend upon factors which cannot be predicted. Such factors include general economic and real estate market conditions, both on a national basis and in those areas where the Partnership's real estate investments are located, real estate tax rates, operating expenses, energy costs, government regulations and federal and state income tax laws. The requirements for compliance with federal, state and local regulations to date have not had an adverse effect on the Partnership's operations, and no adverse effect therefrom is anticipated in the future. The Partnership's investments in real estate are also subject to such risks as (i) competition from existing and future projects held by other owners in the locations of the Partnership's properties, (ii) fluctuations in rental income due to changes in occupancy levels, (iii) possible adverse changes in mortgage interest rates, (iv) possible adverse changes in general economic and local conditions, such as competitive over-building, increases in unemployment, or adverse changes in real estate zoning laws, (v) the possible future adoption of rent control legislation which would not permit the full amount of increased costs to be passed on to tenants in the form of rent increases, and (vi) other circumstances over which the Partnership may have little or no control. As of December 31, 1997, the Partnership did not employ any personnel. ITEM 2. PROPERTIES As of December 31, 1997, the Partnership had leveraged investments in two apartment complexes having an aggregate of 1,369 units. One of the complexes has an additional 18,417 square feet of leasable commercial space. A summary of the Partnership's real estate investments is presented below. Schedule III included in Item 8 (Appendix A) of this report contains additional detailed information with respect to individual properties. Total Units/ Average Occupancy Current For the Year Ended Year of Leasable December 31, DescriptionAcquisitionSquare Footage1997199619951994 1993 Century II Apts. Cockeysville, Maryland 1984 468 Units 100% 96% 92% 92% 91% Park Place Tower Apts. 901 Units 99% 96% 94% 94% 94% Chicago, Illinois 1984 18,417 Sq. Ft. 64% 76% 83% 83% 80% ITEM 3. LEGAL PROCEEDINGS The Partnership is a defendant in a class action suit related to the practice of giving discounts for the early or timely payments of rent at Park Place Apartments ("Park Place") and Marine Terrace Apartments. The central issue of the complaint is whether the operative lease violated a Chicago municipal ordinance relating to late fee charges because it allowed tenants a discount if rent was paid on or before the first of the month. The allegation was that, notwithstanding the stated rental rate and printed discount, the practice represented an unlawful means of exacting late fee charges. In addition to seeking damages for any "forfeited" discounts, plaintiffs seek statutory damages of two months rent per lease violation and reasonable attorneys' fees. To be eligible for such damages plaintiffs must prove that the defendants deliberately used a provision prohibited by the ordinance. During 1994, the Court ruled in favor of the defendants, and accepted the Partnership's Motion to Dismiss the Plaintiff's Third Amended Complaint. The plaintiffs filed an appeal with the Appellate Court of Illinois, First District. During 1996, the decision was reversed on appeal and the case remanded to trial court for further proceedings. The defendants intend to vigorously defend this case. However, the Partnership has recorded a provision of $282,000, representing its share of the discounts and late fees, plus estimated legal costs, in the 1997 consolidated financial statements. The ultimate outcome of the potential punitive damages award related to this litigation, including an estimate of potential loss, cannot presently be determined. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The transfer of Units is subject to certain limitations contained in the Partnership Agreement. There is no public market for the Units and it is not anticipated that any such public market will develop. The number of Investor Limited Partners as of December 31, 1997 was approximately 2,300. One of the objectives of the Partnership is to generate cash available for distribution. The General Partners discontinued distributions during 1990 due to insufficient operating cash flow. However, during 1993, the Partnership distributed $27,888 which was equivalent to the required withholding tax for the state of Maryland which arose from the sale of Fieldcrest Apartments. This amount was paid to the state of Maryland for the benefit of all Partners. In 1995, the General Partners determined that there was sufficient Cash Flow, as calculated under section 8.2 (a) of the Partnership Agreement ("Cash Flow"), and working capital reserves to reinstate distributions. These semiannual distributions, which commenced in the first quarter of 1996, are paid at an annual rate of $20.00 per Unit. The General Partners believed there was sufficient Cash Flow and working capital reserves to increase the annual distribution rate to the current rate of $40.00 per Unit in 1997. The Partnership made the following distributions to its Partners during the years ended December 31, 1997 and 1996: Year Ended December 31, 1997 1996 Amount Per Unit Amount Per Unit Limited Partners: Investor Limited Partners (35,200 Units outstanding) $1,408,000 $40.00 $704,000 $20.00 Original Limited Partner 90,839 45,419 General Partners 15,140 7,570 $1,513,979 $756,989 ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected financial information regarding the Partnership's consolidated financial position and operating results. This information should be used in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and Supplementary Data, which are included in Items 7 and 8 of this report, respectively. 1997 1996 1995 1994 1993 Total revenue $14,523,598 $13,660,261 $13,839,760 $13,652,413$13,684,206 Loss before gain from capital transactions (304,383) (119,075) (795,377) (1,450,214) (3,921,897) Gain on sale of property - - 3,265,789 - - Income (loss) before extraordinary loss (304,383) (119,075) 2,470,412 (1,450,214) (3,921,897) Extraordinary loss (288,156) - (93,215) - - Net income (loss) (592,539) (119,075) 2,377,197 (1,450,214) (3,921,897) Net income (loss) allocated to: Investor Limited Partners (586,614) (117,884) 2,353,425 (1,435,712) (3,882,678) Per Unit (16.67) (3.35) 66.86 (40.79) (110.30) Original Limited Partner - - - - - General Partners (5,925) (1,191) 23,772 (14,502) (39,219) Total assets at December 31, 35,457,032 37,162,269 38,555,732 42,604,180 45,011,823 Long-term obligations at December 31, 41,848,811 41,700,453 42,273,669 46,805,538 47,392,245 Distributions: Investor Limited Partners 1,408,000 704,000 - - 25,936 Per Unit 40.00 20.00 - - .74 Original Limited Partner 90,839 45,419 - - 1,673 General Partners 15,140 7,570 - - 279 The Selected Financial Data results for the periods presented are not comparable due to the sale of Marine Terrace on July 19, 1995. The per Unit distibutions for the years ended December 31, 1997, 1996, 1995, 1994 and 1993 were $40.00, $20.00, $0, $0 and $.74, respectively, none of which represented a return of capital. Prior performance of the Partnership is not necessarily indicative of future operations. ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements including those concerning Management's expectations regarding the future financial performance and future events. These forward-looking statements involve significant risk and uncertainties, including those described herein. Actual results may differ materially from those anticipated by such forward-looking statements. Liquidity and Capital Resources The Partnersip's ability to generate cash adequate to meet its needs is dependent primarily upon the operating performance of its real estate investments. Such ability would also be impacted by the future availability of bank borrowing sources as current debt matures. These sources of liquidity will be used by the Partnership for payment of expenses related to real estate operations, capital improvements, debt service and other expenses. Cash Flow, if any, as calculated under Section 8.2(a) of the Partnership Agreement, will then be available for distribution to the Partners. In 1995, the General Partners determined that there was sufficient Cash Flow and working capital reserves to reinstate distributions. These semiannual distributions commenced in the first quarter of 1996 at an annual rate of $20.00 per Unit. Beginning with the distribution paid in February 1997, the annual distribution rate was increased from $20.00 per Unit, to $40.00 per Unit, based on sufficient cash flow and working capital reserves. On July 19, 1995, the Partnership sold Marine Terrace Apartments, a 187-unit apartment complex located in Chicago,Illinois, for cash proceeds and other considerations which totaled $6,436,505. Proceeds from the sale were used to pay closing costs of $44,152, to repay the existing mortgage note on the property of $4,050,721 and to satisfy other Partnership liabilities. For financial reporting purposes, the Partnership realized a gain of $3,265,789 on the sale. The gain was calculated as the difference between net consideration received, less net book value of the property. On December 10, 1997, the Partnership completed the refinancing of the Century II Apartments ("Century") mortgage note. The property was refinanced with a $11,000,000 non-recourse mortgage note payable at the rate of 6.75% per annum with monthly principal and interest payments of $71,346. The Partnership used the majority of the proceeds from the refinancing to repay the existing mortgage note on the property of $10,309,332, pay closing costs of $227,478, to pay a prepayment premium of $210,825 and to establish various escrows. The Partnership's major capital improvement project, the repair of Park Place Tower Apartments' ("Park Place") building facade, was completed in the fourth quarter of 1995. The external improvements, along with extensive interior improvements, were funded from established reserves and cash generated by the property. The completion of these improvements has greatly enhanced the appearance of the property and has resulted in both increased rents and occupancy. The Partnership's properties, Century and Park Place, are expected to spend approximately $2,408,000 for capital improvements in 1998 in order to remain competitive in their respective markets. These improvements include floor covering, pavement upgrades and appliance replacements, as well as interior improvements and refurbishment of the elevator and convenience store at Park Place. The Partnership expects to fund these improvements from established reserves and cash generated from property operations. Operations The following discussion relates to the operations of the Partnership and its properties (Park Place Tower and Century II Apartments) for the years ended December 31, 1997, 1996 and 1995. 1997 compared to 1996 Net loss, before extraordinary loss, increased in 1997 when compared to 1996 as the increase in total expenses more than offset the increase in revenue. Total revenue increased in 1997 when compared to 1996, primarily due to increases in average occupancy at both Park Place and Century, as well as increased rental rates at Park Place. Average occupancy rates at Century increased from 96% to 100% in 1996 and 1997, respectively. Average residential occupancy rates at Park Place rose from 96% to 99% in 1996 and 1997, respectively. The Partnership's properties enjoy strong occupancy as capital improvements, including an appliance replacement program at Century and a new fitness center at Park Place, have strenthened leasing efforts at the properties. Interest income decreased as investements in commercial paper declined as a direct result of the 100% increase in the semiannual distributions paid in 1997. Total expenses increased in 1997 when compared to 1996 as a result of increases in maintenance, real estate tax and depreciation expenses. Maintenance expense increased due to payment of the insurance deductible for flood damage at Park Place, repairs to the heating and air conditioning system at Park Place and other preventive maintenance at both of the Partnership's properties, including interior painting and drainage upgrades. The increase in real estate tax expense was due to refunds of prior years' real estate taxes received in 1996 for Park Place toward the 1986, 1987, 1988 and 1990 tax years totaling approximately $325,000. Additionally, 1997 real estate tax expense increased due to an increase in the assessed value of Park Place. Depreciation expense increased in conjunction with capital improvement expenditures. 1996 compared to 1995 Net income, after giving effect to the sale of Marine Terrace, increased in 1996 as compared to 1995 as in increase in revenue more than offset the increase in total expenses. Average residential occupancy at Century and Park Place increased 4% and 2% respectively from 1995 to 1996. This, as well as increased rental rates at both properties, contributed to the rise in rental income, excluding Marine Terrace's revenues. Interest income for the Partnership increased in 1996, primarily from increased average cash and cash equivalent balances during 1996 which resulted from the sale of Marine Terrace in the third quarter of 1995. Total expenses, after giving effect to the sale of Marine Terrace, increased in 1996 as compared to 1995, as the rise in operating and maintenance expenses more than offset the decrease in real estate taxes. The increase in operating expense was due to prior years' insurance refunds received in 1995 combined with an increase in advertising and leasing at both Century and Park Place. These additional advertising and leasing costs, along with the property enhancements discussed above, increased occupancy rates at both properties and allowed management to maintain these high occupancies throughout 1996. Maintenance expense increased a flowers were replanted at Park Place and the interiors of the buildings at both Century and Park Place were painted in 1996. The decrease in real estate taxes was attributed to the successful petition for the reassessment of prior years' real estate taxes on Park Place in 1996. The Partership received real estate tax refunds related to the 1986, 1987, 1988, and 1990 tax years totaling approximately $325,000 in 1996. The refunds were reflected as reductions in the 1996 real estate tax expense. The increase in depreciation expense was directly related to the extensive capital improvement project at Park Place which was completed in 1995. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA SEE APPENDIX A TO THIS REPORT. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The Partnership has no directors or executive officers. Information as to the directors and executive officers of The Krupp Corporation, which is a General Partner of KRLP-V and The Krupp Company Limited Partnership-II, the other General Partner of KRLP-V, is as follows: Position with Name and Age The Krupp Corporation Douglas Krupp (51) President and Co-Chairman of the Board George Krupp (53) Co-Chairman of the Board Wayne H. Zarozny (39)Treasurer Douglas Krupp is Co-Chairman and Co-Founder of The Berkshire Group. Established in 1969 as the Krupp Companies, this real estate-based firm expanded over the years within its areas of expertise including investment program sponsorship, property and asset management, mortgage banking, healthcare facility ownership and the management of the company. Mr. Krupp is a graduate of Bryant College. In 1989 he received an honorary Doctor of Science in Business Administration from this institution and was elected trustee in 1990. Mr. Krupp is Chairman of the Board and a Director of both Berkshire Realty Company, Inc. (NYSE-BRI) and Harborside Healthcare (NYSE-HBR). Mr. Krupp also serves as Chairman of the Board and Trustee of Krupp Government Income Trust and as Chairman of the Board and Trustee of Krupp Government Income Trust II. George Krupp is Douglas Krupp's brother. George Krupp is the Co-Chairman and Co- Founder of The Berkshire Group. Established in 1969 as the Krupp Companies, this real estate-based firm expanded over the years within its areas of expertise including investment program sponsorship, property and asset management, mortgage banking and healthcare facility ownership. Mr. Krupp received his undergraduate education from the University of Pennsylvania and Harvard University Extension School and holds a Master's degree in History from Brown University. Wayne H. Zarozny is Vice President of the Berkshire Group. Mr. Zarozny has held several positions within The Berkshire Group since joining the company in 1986 and is currently responsible for accounting and financial reporting, treasury, accounts payable and payroll activities. Prior to joining The Berkshire Group, he was an audit supervisor for Panell Kerr Forster International and on the audit staff of Deloitte, Haskins and Sells, in Boston. He received a B.S. degree from Bryant College, a Master's degree in Business Administration from Clark University and is a Certified Public Accountant. ITEM 11. EXECUTIVE COMPENSATION The Partnership has no directors or executive officers. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT As of December 31, 1997, beneficial owners of record owning more than 5% of the Partnership's 35,200 outstanding Units were as follows: Title Name and Address Amount and Nature Percent of of of of Class Beneficial Owner Beneficial Ownership Class Investor Equity Resource Fund XIX L.P. Limited 14 Story Street Partner Cambridge, MA 02138 Units 125.00 Units .35% Investor Equity Resource General Fund L.P. Limited 14 Story Street Partner Cambridge, MA 02138 Units 20.00 Units .06% Investor Equity Resource Fund XVII L.P. Limited 14 Story Street Partner Cambridge, MA 02138 Units 1,559.50 Units 4.43% Investor Equity Fund XIX L.P. Limited 14 Story Street Partner Cambridge, MA 02138 Units 225.00 Units .64% Total 1,929.50 Units 5.48% On that date, the General Partners or their affiliates owned 53 Units (.15% of the total outstanding) of the Partnership in addition to their General and Original Limited Partner Interests. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Partnership does not have any directors, executive officers or nominees for election as director. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Consolidated Financial Statements - see Index to Consolidated Financial Statements and Schedule included under Item 8 (Appendix A), on page F-2 of this Report. 2. Consolidated Financial Statement Schedule - see Index to Consolidated Financial Statements and Schedule included under Item 8 (Appendix A), on page F-2 of this Report. All other schedules are omitted as they are not applicable, not required or the information is provided in the Consolidated Financial Statements or the Notes thereto. (b) Exhibits: Number and Description Under Regulation S-K The following reflects all applicable Exhibits required under Item 601 of Regulation S-K. (4) Instruments defining the rights of security holders including indentures: (4.1) Amended Agreement of Limited Partnership dated as of July 27, 1983 [Exhibit A to Prospectus included in Registrant's Registration Statement on Form S-11 (File 2-84645)].* (4.2) Amended Certificate of Limited Partnership filed with the Massachusetts Secretary of State on December 16, 1983 [Exhibit 4.2 to Registrant's Report on Form 10-K for 1983 (File 2-84645)].* (10) Material Contracts: Park Place Apartments (10.1) Purchase and Sale Agreement dated April 24, 1984 between Douglas Krupp and Sheldon J. Mandell, Howard J. Mandell, Jerome W. Mandell and Norman Mandell [Exhibit 1 to Registrant's Report on Form 8-K dated May 4, 1984 (File No. 2-84645)].* (10.2) Assignment of Beneficial Interest in Land Trust dated May 1, 1984 by Sheldon J. Mandell, Howard J. Mandell, Jerome W. Mandell and Norman Mandell to Krupp Realty Limited Partnership-V. [Exhibit 10.9 to Registrant's Report on Form 10-K for the year ended November 30, 1984 (File No. 0-11985)].* (10.3) Addendum to Management Agreement between Krupp Realty Park Place - Chicago Limited Partnership and Krupp Asset Management Company, now known as Berkshire Property Management [Exhibit 2 to Registrant's Report on Form 8-K dated April 27, 1989 (File No. 0-11985)].* (10.4) Agreement of Limited Partnership of Krupp Realty Park Place - Chicago Limited Partnership dated March 15, 1989 [Exhibit 5 to Registrant's Report on Form 8-K dated April 27, 1989 (File No. 0-11985)].* (10.5) Assignment of General Partners interests in Krupp Realty Park Place - Chicago Limited Partnership by The Krupp Corporation to Krupp Realty Limited Partnership-V dated March 15, 1989 [Exhibit 6 to Registrant's Report on Form 8-K dated April 27, 1989 (File No. 0-11985)].* (10.6) Written Consent of Directors of The Krupp Corporation dated April 18, 1989 assigning beneficial interest in Park Place Apartments to Krupp Realty Park Place - Chicago Limited Partnership [Exhibit 7 to Registrant's Report on Form 8-K dated April 27, 1989 (File No. 0- 11985)].* (10.7) Property Management Agreement, dated May 4, 1984 between Krupp Realty Limited Partnership-V, as Owner, and BRI OP Limited Partnership, formerly known as Berkshire Property Management, a subsidiary of Berkshire Realty Company, Inc. [Exhibit 10.18 to Registrant's Report on Form 10-K for the year ended November 30, 1984 (File No. 0-11985)].* (10.8) Loan Modification/Cancellation Agreement dated September 14, 1993 between South Chicago Bank, as Trustee, and Krupp Realty Park Place - Chicago Limited Partnership (File No. 0-11985).* (10.9) Modification to mortgage note dated September 14, 1993 between South Chicago Bank, as Trustee, and Government National Mortgage Association (File No. 0-11985).* (10.10) Modification of mortgage dated September 14, 1993 between South Chicago Bank, as Trustee, and Government National Mortgage Association (File No. 0-11985).* (10.11) Regulatory Agreement for Multifamily Housing Projects dated September 14, 1993, between South Chicago Bank, as Trustee, and Krupp Realty Park Place - Chicago Limited Partnership (File No. 0-11985).* Century II Apartments (10.12) Agreement of Sale, dated September 18, 1984 between the Partners of Century III Associates and Douglas Krupp and related exhibits including Mortgage Notes and Related Mortgages [Exhibit 1 to Registrant's Report on Form 8-K dated October 11, 1984 (File No. 0-11985)].* (10.13) Assignment of Partnership Interest in Century III Associates dated October 10, 1984 by the Partners of Century III Associates to The Krupp Company Limited Partnership-II, The Krupp Corporation and Krupp Realty Limited Partnership-V [Exhibit 2 to Registrant's Report on Form 8-K dated October 11, 1984 (File No. 0-11985)].* (10.14) Fifth, Sixth and Seventh Amended and Restated Limited Partnership Agreement of Century III Associates Limited Partnership [Exhibit 3 to Registrant's Report on Form 8-K dated October 11, 1984 (File No. 0-11985)].* (10.15) Assignment of Beneficial Interest in Century III Associates from The Krupp Company Limited Partnership-II and The Krupp Corporation to Krupp Realty Limited Partnership-V. [Exhibit 10.32 to Registrant's Report on Form 10-K for the year ended November 30, 1984 (File No. 0-11985)].* (10.16) Property Management Agreement, dated October 11, 1984 between Krupp Realty Limited Partnership-V, as Owner, and BRI OP Limited Partnership, formerly known as Berkshire Property Management, an affiliate of Berkshire Realty Company, Inc. [Exhibit 10.33 to Registrant's Report on Form 10-K for the year ended November 30, 1984 (File No. 0-11985)].* (10.17) Third Amended and Restated Promissory Note dated April 27, 1989 between Century III Associates Limited Partnership and Bankers United Life Assurance Company. [Exhibit 8 to Registrant's Report on Form 8-K dated April 27, 1989 (File No. 0-11985)].* (10.18) Third Amended and Restated Deed of Trust dated April 27, 1989 between Century III Associates Limited Partnership and Bankers United Life Assurance Company. [Exhibit 9 to Registrant's Report on Form 8-K dated April 27, 1989 (File No. 0-11985)].* (10.19) Multifamily Note dated December 10, 1997 between Century III Associates Limited Partnership and Reilly Mortgage Group, Inc.+ (10.20) Multifamily Deed of Trust, Assignment of Rents, and Security Agreement dated December 8, 1997 between Century III Associates Limited Partnership and Trust Company of Chicago and Reilly Mortgage Group, Inc.+ * Incorporated by reference. + Filed herein. (c) Reports on Form 8-K During the last quarter of the fiscal year ended December 31, 1997, the Partnership did not file any reports on Form 8-K. 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, on the 24th day of March, 1998. KRUPP REALTY LIMITED PARTNERSHIP-V By: The Krupp Corporation, a General Partner By:/s/ Douglas Krupp Douglas Krupp, President, Co-Chairman (Principal Executive Officer) and Director of The Krupp Corporation 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 indicated, on the 24th day of March, 1998. Signatures Titles /s/ Douglas Krupp President, Co-Chairman (Principal Executive Douglas Krupp Officer) and Director of The Krupp Corporation, a General Partner. /s/ George Krupp Co-Chairman (Principal Executive Officer) George Krupp and Director of The Krupp Corporation, a General Partner. /s/ Wayne H. Zarozny Treasurer of The Krupp Corporation, a Wayne H. Zarozny General Partner. APPENDIX A KRUPP REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE ITEM 8 OF FORM 10-K ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION For the Year Ended December 31, 1997 KRUPP REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE Report of Independent Accountants F-3 Consolidated Balance Sheets at December 31, 1997 and December 31, 1996 F-4 Consolidated Statements of Operations for the years ended December 31, 1997, 1996 and 1995 F-5 Consolidated Statements of Changes in Partners' Deficit for the years ended December 31, 1997, 1996 and 1995 F-6 Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995 F-7 Notes to Consolidated Financial StatementsF-8 - F-15 Schedule III - Real Estate and Accumulated Depreciation F-16 - F-17 All other schedules are omitted as they are not applicable, not required, or the information is provided in the consolidated financial statements or the notes thereto. REPORT OF INDEPENDENT ACCOUNTANTS To the Partners of Krupp Realty Limited Partnership-V and Subsidiary: We have audited the consolidated financial statements and the financial statement schedule of Krupp Realty Limited Partnership-V and Subsidiary (the "Partnership") listed in the index on page F-2 of this Form 10-K. These financial statements and financial statement schedule are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements and schedule 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 consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated 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 consolidated financial position of Krupp Realty Limited Partnership-V and Subsidiary as of December 31, 1997 and 1996 and the consolidated 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. In addition, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. Boston, Massachusetts COOPERS & LYBRAND L.L.P. February 2, 1998 KRUPP REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS December 31, 1997 and 1996 ASSETS 1997 1996 Multi-family apartment complexes, net of accumulated depreciation of $41,602,481 and $38,066,263, respectively (Notes D and E)$30,790,070$32,598,192 Cash and cash equivalents (Note C) 802,726 1,767,094 Cash restricted for tenant security deposits 294,572 307,908 Replacement reserve and repair escrows (Note E) 399,771 689,656 Prepaid expenses and other assets 2,662,138 1,377,390 Deferred expenses, net of accumulated amortization of $48,332 and $469,134, respectively (Note F) 507,755 422,029 Total assets $35,457,032$37,162,269 LIABILITIES AND PARTNERS' DEFICIT Liabilities: Mortgage notes payable (Notes D and E) $42,400,979$42,270,255 Accrued real estate taxes 1,950,000 1,660,000 Accrued expenses and other liabilities 1,249,087 1,242,050 Due to affiliates (Note F) - 26,480 Total liabilities 45,600,066 45,198,785 Commitments and contingencies (Note G) Partners' deficit (Note H): Investor Limited Partners (35,200 Units outstanding) (9,366,783) (7,372,169) Original Limited Partner (370,797) (279,958) General Partners (405,454) (384,389) Total Partners' deficit (10,143,034) (8,036,516) Total liabilities and Partners' deficit $35,457,032$37,162,269 The accompanying notes are an integral part of the consolidated financial statements. KRUPP REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS For the Years Ended December 31, 1997, 1996 and 1995 1997 1996 1995 Revenue: Rental (Note I)$14,395,306 $13,489,627 $13,695,050 Interest income 128,292 170,634 144,710 Total revenue 14,523,598 13,660,261 13,839,760 Expenses: Operating (Note F) 3,629,513 3,635,470 3,732,763 Maintenance 1,136,671 927,736 895,329 General and administrative (Notes F and G) 324,660 323,652 170,943 Real estate taxes(Note J)2,280,910 1,621,545 2,201,309 Management fees (Note F) 475,569 442,295 512,462 Depreciation and amortization 3,600,639 3,387,658 3,405,153 Interest (Note E) 3,380,019 3,440,980 3,717,178 Total expenses 14,827,981 13,779,336 14,635,137 Loss before gain on sale of property and extraordinary loss (304,383) (119,075) (795,377) Gain on sale of property (Note D) - - 3,265,789 Income (loss) before extraordinary loss(304,383) (119,075) 2,470,412 Extraordinary loss (Note E) (288,156) - (93,215) Net income (loss) (Note K)$ (592,539)$ (119,075) $ 2,377,197 Allocation of net income (loss)(Note H): Investor Limited Partners (35,200 Units outstanding) $ (586,614)$ (117,884)$ 2,353,425 Per Unit of Investor Limited Partner Interest: Loss before gain on sale of property and extraordinary loss $ (8.56)$ (3.35) $ (22.37) Gain on sale of property - - 91.85 Extraordinary loss (8.11) - (2.62) Net income (loss) $ (16.67)$ (3.35)$ 66.86 Original Limited Partner: Loss before gain on sale of property and extra- ordinary loss $ - $ - $ - Gain on sale of property - - - Extraordinary loss - - - Net income (loss) $ - $ - $ - General Partners: Loss before gain on sale of property and extra- ordinary loss $ (3,044)$ (1,191) $ (7,954) Gain on sale of property - - 32,658 Extraordinary loss (2,881) - (932) Net income (loss) $ (5,925)$ (1,191)$ 23,772 The accompanying notes are an integral part of the consolidated financial statements. KRUPP REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT For the Years Ended December 31, 1997, 1996 and 1995 Investor Original Total Limited Limited General Partners' Partners Partner Partners Deficit Balance at December 31, 1994$(8,903,710)$(234,539)$(399,400)$ (9,537,649) Gain on sale of property, net 3,233,131 - 32,658 3,265,789 Early extinguishment of debt (92,283) - (932) (93,215) Loss before extraordinary loss (787,423) - (7,954) (795,377) Balance at December 31, 1995 (6,550,285) (234,539) (375,628) (7,160,452) Distributions (704,000) (45,419) (7,570) (756,989) Net loss (117,884) - (1,191) (119,075) Balance at December 31, 1996 (7,372,169) (279,958) (384,389) (8,036,516) Distributions (Note H)(1,408,000)(90,839) (15,140) (1,513,979) Early extinguishment of debt (285,275) - (2,881) (288,156) Loss before extraordinary loss (Note H) (301,339) - (3,044) (304,383) Balance at December 31, 1997$(9,366,783)$(370,797)$(405,454)$(10,143,034) The per Unit distributions for the years ended December 31, 1997, 1996 and 1995 were $40.00, $20.00 and $0, respectively, none of which represents a return of capital for tax purposes. The accompanying notes are an integral part of the consolidated financial statements. KRUPP REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 1997, 1996 and 1995 1997 1996 1995 Operating activities: Net income (loss) $ (592,539)$ (119,075)$ 2,377,197 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Interest earned on replacement reserve and repair escrows (17,068) (27,713) (30,520) Depreciation and amortization 3,600,639 3,387,658 3,405,153 Gain on sale of property - - (3,265,789) Extraordinary loss from early extinguishment of debt 288,156 - 93,215 Changes in assets and liabilities: Decrease in cash restricted for tenant security deposits 13,336 130,341 78,078 Decrease (increase) in prepaid expenses and other assets(1,284,748) (6,508) 197,690 Decrease in accounts payable (83) (37,352) (143,652) Increase (decrease) in accrued real estate taxes 290,000 - (235,473) Increase (decrease) in accrued expenses and other liabilities 7,120 58,499 (36,033) Decrease in due to affiliates (26,480) (7,847) (1,231,933) Net cash provided by operating activities 2,278,333 3,378,003 1,207,933 Investing activities: Deposits to replacement reserve escrow (212,912) (212,912) (212,912) Withdrawals from replacement reserve and repair escrows 519,865 280,477 432,971 Additions to fixed assets (1,728,096) (2,413,114) (1,539,727) Net consideration received from the sale of property - - 6,392,353 Increase (decrease) in accounts payable related to fixed asset additions - - (189,020) Net cash provided by (used in) investing activities (1,421,143) (2,345,549) 4,883,665 Financing activities: Proceeds from mortgage note payable 11,000,000 - - Repayment of mortgage notes payable (10,309,332) - (4,050,721) Payment of prepayment premium (210,825) - (78,179) Principal payments on mortgage notes payable (559,944) (530,699) (538,813) Increase in deferred expenses (227,478) - - Distributions (1,513,979) (756,989) - Net cash used in financing activities (1,821,558) (1,287,688) (4,667,713) Net increase (decrease) in cash and cash equivalents (964,368) (255,234) 1,423,885 Cash and cash equivalents, beginning of year 1,767,094 2,022,328 598,443 Cash and cash equivalents, end of year $ 802,726$ 1,767,094$ 2,022,328 The accompanying notes are an integral part of the consolidated financial statements. KRUPP REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A.Organization Krupp Realty Limited Partnership-V ("KRLP-V") was formed on June 16, 1983 by filing a Certificate of Limited Partnership in The Commonwealth of Massachusetts. KRLP-V terminates on December 31, 2020, unless earlier terminated upon the sale of the last of KRLP-V's properties or the occurrence of certain other events as set forth in the Partnership Agreement. KRLP-V issued all of the General Partner Interests to The Krupp Corporation ("Krupp Corp.") (a Massachusetts corporation) and The Krupp Company Limited Partnership-II ("KCLP- II") (a Massachusetts limited partnership), in exchange for capital contributions aggregating $1,000. Except under certain limited circumstances upon termination of KRLP-V, the General Partners are not required to make any additional capital contributions. KRLP-V also issued all of the Original Limited Partner Interests to KCLP-II in exchange for a capital contribution of $4,000. On September 6, 1983, KRLP-V commenced the marketing and sale of units of Investor Limited Partner Interest ("Units") for $1,000 per Unit. The public offering was closed on December 2, 1983 at which time a total of 35,200 Units had been sold for $35,200,000. On March 20, 1989, the General Partners formed Krupp Realty Park Place-Chicago Limited Partnership ("Realty-V") as a prerequisite for the refinancing of Park Place Tower Apartments ("Park Place"). At the same time, the General Partners transferred ownership of Park Place to Realty-V. The General Partner of Realty-V is Krupp Corp. The Limited Partner of Realty- V is KRLP-V. Krupp Corp. has beneficially assigned its interest in Realty-V to KRLP-V. KRLP-V and Realty-V are collectively known as Krupp Realty Limited Partnership-V and Subsidiary (collectively referred to herein as the "Partnership"). B.Significant Accounting Policies The Partnership uses the following accounting policies for financial reporting purposes, which may differ in certain respects from those used for federal income tax purposes (see Note K). Basis of Presentation The consolidated financial statements present the consolidated assets, liabilities and operations of the Partnership. All intercompany balances and transactions have been eliminated. Risks and Uncertainties The Partnership invests its cash primarily in deposits and money market funds with commercial banks. The Partnership has not experienced any losses to date on its invested cash. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, contingent assets and liabilities and revenues and expenses during the reporting period. Actual results could differ from those estimates. Continued KRUPP REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued B.Significant Accounting Policies, Continued Cash and Cash Equivalents The Partnership includes all short-term investments with maturities of three months or less from the date of acquisition in cash and cash equivalents. The cash investments are recorded at cost, which approximates current market values. Rental Revenues Leases require the payment of base rent monthly in advance. Rental revenues are recorded on the accrual basis. Depreciation Depreciation is provided for by the use of the straight-line method over estimated useful lives of the related assets as follows: Buildings and improvements5 to 25 years Appliances, carpeting and equipment3 to 8 years Impairment of Long-Lived Assets Real estate assets and equipment are stated at depreciated cost. Pursuant to Statement of Financial Accounting Standards Opinion No. 121, "Accounting for the Impairment of Long- Lived Assets and for Long-Lived Assets to be Disposed of", impairment losses are recorded on long-lived assets used in operations on a property by property basis, when events and circumstances indicate that the assets might be impaired and the estimated undiscounted cash flows to be generated by those assets are less than the carrying amount of those assets. Upon determination that an impairment has occurred, those assets shall be reduced to fair value. Deferred Expenses Costs of obtaining and recording mortgages on the properties are amortized over the term of the related mortgage notes using the straight- line method. Income Taxes The Partnership is not liable for federal or state income taxes as Partnership income or loss is allocated to the Partners for income tax purposes. In the event that the Partnership's tax returns are examined by the Internal Revenue Service or state taxing authority and the examination results in a change in the Partnership's taxable income or loss, such change will be reported to the Partners. Reclassifications Certain prior year balances have been reclassified to conform with current year consolidated financial statement presentation. Continued KRUPP REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued C. Cash and Cash Equivalents Cash and cash equivalents consisted of the following: December 31, 1997 1996 Cash and money market accounts $ 802,726$ 282,482 Commercial paper - 1,484,612 $ 802,726$ 1,767,094 D.Disposition of Real Estate Investment On July 19, 1995, the Partnership sold Marine Terrace Apartments, a 187-unit apartment complex located in Chicago, Illinois, for cash proceeds and other considerations which totaled $6,436,505. Proceeds from the sale were used to pay closing costs of $44,152, to repay the existing mortgage note on the property of $4,050,721 and to satisfy other Partnership liabilities. For financial reporting purposes, the Partnership realized a gain of $3,265,789 on the sale. The gain was calculated as the difference between net consideration received, less net book value of the property. E. Mortgage Notes Payable The properties owned by the Partnership are pledged as collateral for the non-recourse mortgage notes outstanding at December 31, 1997 and 1996. Mortgage notes payable consisted of the following: Annual Interest Principal Rate Property 1997 1996 1997 1996 Maturity Date Century II Apartments $11,000,000 $10,450,896 6.75% 10.625% January 1, 2008 Park Place Tower Apartments 31,400,979 31,819,359 6.75% 6.750%May 1, 2024 Total $42,400,979 $42,270,255 Continued KRUPP REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued E.Mortgage Notes Payable, Continued Century II Apartments On December 10, 1997, the Partnership completed the refinancing of the Century II Apartments mortgage note. The property was refinanced with a $11,000,000 non-recourse mortgage note payable at the rate of 6.75% per annum with monthly principal and interest payments of $71,346. The mortgage note, which is collateralized by the property, matures on January 1, 2008 at which time the remaining principal (approximately $9,401,537) and accrued interest are due. The note may be prepaid, subject to a prepayment penalty, at any time with 30 days notice. The Partnership used the majority of the proceeds from the refinancing to repay the existing mortgage note on the property of $10,309,332, pay closing costs of $227,478, to pay a prepayment premium of $210,825 and to establish various escrows. The prepayment premium as well as unamortized deferred mortgage costs of $77,331, are reported in the Statement of Operations as an extraordinary loss from early extinguishment of debt for the year ended December 31, 1997. At December 31, 1996, the property was subject to a non-recourse first mortgage note of $11,000,000, which was payable in equal monthly installments of principal and interest of $104,844, based on a 25-year amortization schedule. Based on the borrowing rates currently available to the Partnership for bank loans with similar terms and average maturities, the fair value of long term debt is approximately $10,470,000 and $11,430,000 for the years ended December 31, 1997 and 1996, respectively. Park Place Tower Apartments The property is subject to a non-recourse mortgage note in the original amount of $33,000,000, dated September 15, 1993, held by the U.S. Department of Housing and Urban Development ("HUD"). The note is payable in equal monthly installments of principal and interest of $212,783, based on a 31-year amortization. At maturity, all unpaid principal (approximately $1,457,000) and any accrued interest are due. The note may not be prepaid prior to October 1, 1998. In the event prepayment of principal occurs any time after this date, a prepayment premium shall be due, based on a declining premium rate of 5% to 0% of the outstanding principal balance over a period of 5 years. As stipulated in the Regulatory Agreement with HUD, the Partnership makes monthly deposits of $17,743 in an established reserve for replacements to be used for improvements. Under the terms of the loan, HUD restricts the distribution of funds to Surplus Cash, as defined by HUD in the Regulatory Agreement. Since the mortgage note cannot be prepaid prior to October 1, 1998, the fair market value cannot be determined. Continued KRUPP REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued E. Mortgage Notes Payable, Continued Marine Terrace Apartments In conjunction with the sale of the property on July 19, 1995, the Partnership prepaid the non-recourse first mortgage note of $4,050,721. As a result of the retirement of debt, the Partnership incurred a prepayment premium of $78,179. The prepayment premium, as well as unamortized deferred mortgage costs of $15,036, are reported in the Statement of Operations as an extraordinary loss from early extinguishment of debt for the year ended December 31, 1995. The aggregate scheduled principal amounts of long-term borrowings due during the five years ending December 31, 2002 are $552,168, $600,689, $642,513, $687,250 and $735,102. During the years ended December 31, 1997, 1996 and 1995, the Partnership paid $3,221,886, $3,280,828 and $3,555,694 of interest on its mortgage notes, respectively. F.Related Party Transactions The Partnership pays property management fees to an affiliate of the General Partners for management services. Pursuant to the management agreements, management fees are payable monthly at a rate of 5% of the gross receipts from the properties under management. The affiliate of the General Partners sold these management agreements to BRI OP Limited Partnership, a subsidiary of Berkshire Realty Company Inc., a publicly traded real estate investment trust and an affiliate of the General Partners, on February 28, 1997. The Partnership also reimburses affiliates of the General Partners for certain expenses incurred in connection with the operation of the Partnership and its properties including administrative expenses. Amounts accrued or paid to the General Partners' affiliates during the years ended December 31, 1997, 1996 and 1995 were as follows: 1997 1996 1995 Property management fees $475,569 $442,295 $512,462 Expense reimbursements 317,432 288,226 267,147 C harged to operations $793,001 $730,521 $779,609 Due to affiliates consisted of expense reimbursements of $26,480 at December 31, 1996. In addition to the amounts above, refinancing costs of $110,000 were paid to the General Partners' affiliates during the year ended December 31, 1997. Continued KRUPP REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued G.Legal Proceeding The Partnership is a defendant in a class action suit related to the practice of giving discounts for the early or timely payments of rent at Park Place Apartments ("Park Place") and Marine Terrace Apartments, a previously owned property. The central issue of the complaint is whether the operative lease violated a Chicago municipal ordinance relating to late fee charges because it allowed tenants a discount if rent was paid on or before the first of the month. The allegation was that, notwithstanding the stated rental rate and printed discount, the practice represented an unlawful means of exacting late fee charges. In addition to seeking damages for any "forfeited" discounts, plaintiffs seek statutory damages of two months rent per lease violation and reasonable attorneys' fees. To be eligible for such damages plaintiffs must prove that the defendants deliberately used a provision prohibited by the ordinance. During 1994, the Court ruled in favor of the defendants, and accepted the Partnership's Motion to Dismiss the Plaintiff's Third Amended Complaint. The plaintiffs filed an appeal with the Appellate Court of Illinois, First District. During 1996, the decision was reversed on appeal and the case remanded to trial court for further proceedings. The defendants intend to vigorously defend this case. However, the Partnership has recorded a provision of $282,000, representing its share of the discounts and late fees, plus estimated legal costs, in the 1997 consolidated financial statements. The ultimate outcome of the litigation, including an estimate of potential loss, cannot presently be determined. H.Partners' Deficit Under the terms of the Partnership Agreement, losses from operations are allocated 99% to the Investor Limited Partners and 1% to the General Partners and profits from operations are allocated 93% to the Investor Limited Partners, 6% to the Original Limited Partner and 1% to the General Partners until such time that the Investor Limited Partners have received a return of their total invested capital plus a 9% per annum cumulative return thereon and thereafter, 65% to the Investor Limited Partners, 28% to the Original Limited Partner and 7% to the General Partners. Profits from Capital Transactions are allocated first, to the Investor Limited Partners until they have received a return of their total invested capital. Thereafter, profits from Capital Transactions are allocated in accordance with the Partnership Agreement. Losses from Capital Transactions are allocated 99% to the Investor Limited Partners and 1% to the General Partners. Notwithstanding anything above, the General Partners shall be allocated at least 1% of all profits and losses from Capital Transactions. Under the Partnership Agreement, cash distributions are made on the same basis as the allocations of profits described above. Pursuant to the Partnership Agreement, proceeds from Capital Transactions shall first be applied to the payment of all debts and liabilities of the Partnership and second to fund reserves for contingent liabilities. The remaining net cash proceeds shall then be distributed in accordance with the Partnership Agreement. Continued KRUPP REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued H. Partners' Deficit, Continued As of December 31, 1997, the following cumulative partner contributions and allocations have been made since inception of the Partnership: Investor Original Limited Limited General Partners Partner Partners Total Capital contributions$ 35,200,000$ 4,000 $ 1,000 $ 35,205,000 Syndication costs (4,501,000) - - (4,501,000) Distributions (6,211,303) (387,737) (64,622) (6,663,662) Net income (loss) before capital transactions (40,529,444) 12,940 (409,256) (40,925,760) Net gains on capital transactions 6,674,964 - 67,424 6,742,388 Balance at December 31, 1997$ (9,366,783)$(370,797)$(405,454)$(10,143,034) I. Future Base Rents Due Under Commercial Operating Leases Future base rent receivable under commercial operating leases for the years 1998 through 2002 and thereafter is as follows: 1998 $80,834 1999 90,040 2000 58,443 2001 41,889 2002 30,000 Thereafter 39,360 J.Real Estate Taxes During the third quarter of 1996, the Partnership successfully petitioned for the reassessment of prior years' real estate taxes on Park Place Tower Apartments. The Partnership received tax refunds toward the 1986, 1987, 1988 and 1990 real estate taxes totaling approximately $325,000, which was reflected as a reduction in the 1996 real estate tax expense. Continued KRUPP REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued K. Federal Income Taxes For federal income tax purposes, the Partnership is depreciating property using the Accelerated Cost Recovery System ("ACRS") and the Modified Accelerated Cost Recovery System ("MACRS") depending on which is applicable. The reconciliation of the net income (loss) reported in the accompanying Consolidated Statement of Operations with the net income (loss) reported in the Partnership's federal income tax return for the years ended December 31, 1997, 1996 and 1995 is as follows: 1997 1996 1995 Net income (loss) per Consolidated Statement of Operations $ (592,539) $ (119,075)$ 2,377,197 Difference between book and tax depreciation 317,863 (30,155) 540 Difference between book and tax gain on sale of property - - 962,454 Difference between book and tax legal adjustment 113,526 168,474 - Net income (loss) for federal income tax purposes $ (161,150)$ 19,244 $ 3,340,191 The allocation of the net loss for federal income tax purposes for 1997 is as follows: Portfolio Passive Income Loss Total General Partners $ 1,254 $ (2,865)$ (1,611) Original Limited Partner - - - Investor Limited Partners 124,106 (283,645) (159,539) $ 125,360 $ (286,510)$ (161,150) During the years ended December 31, 1997, 1996 and 1995 the per Unit net income (loss) to the Investor Limited Partners for federal income tax purposes were ($4.58), $.54 and $93.94, respectively. The basis of the Partnership's assets for financial reporting purposes exceeded its tax basis by approximately $8,063,500 and $8,400,000 at December 31, 1997 and 1996, respectively. The basis of the Partnership's liabilities for financial reporting purposes exceeded its tax basis by approximately $282,000 and $168,000 at December 31, 1997 and 1996, respectively. KRUPP REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1997 Costs Capitalized Subsequent to Initial Cost to Partnership Acquisition Buildings & Buildings &Depreciable Description Encumbrances Land Improvements Improvements Life Century II Apartments Cockeysville, Maryland $ 11,000,000 $1,049,868 $ 13,948,246 $ 4,351,0253 to 25 Yrs. Park Place Tower Apartments Chicago, Illinois 31,400,979 2,877,561 38,230,448 11,935,4033 to 25 Yrs. Total $ 42,400,979 $3,927,429 $ 52,178,694 $16,286,428 Gross Amounts Carried at End of Year Buildings Year and Accumulated Construction Year Description Land Improvements Total Depreciation Completed Acquired Century II Apartments Cockeysville, Maryland $1,049,868 $18,299,271 $19,349,139 $11,684,831 1971 1984 Park Place Tower Apartments Chicago, Illinois 2,877,561 50,165,851 53,043,412 29,917,650 1973 1984 Total $3,927,429 $ 68,465,122 $72,392,551$ 41,602,481 Continued KRUPP REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued) December 31, 1997 Reconciliation of Real Estate and Accumulated Depreciation for each of the three years in the period ended December 31, 1997: 1997 1996 1995 Real Estate Balance at beginning of year $70,664,455 $68,251,341 $73,325,592 Acquisitions and improvements 1,728,096 2,413,114 1,539,727 Sale of property - - (6,613,978) Balance at end of year$72,392,551 $70,664,455 $68,251,341 1997 1996 1995 Accumulated Depreciation Balance at beginning of year $38,066,263 $34,745,814 $34,905,809 Depreciation expense 3,536,218 3,320,449 3,327,419 Sale of property - - (3,487,414) Balance at end of year $41,602,481 $38,066,263 $34,745,814 Note:The Partnership uses the cost basis for property valuation for both income tax and financial statement purposes. The aggregate cost of the Partnership's real estate for federal income tax purposes was $72,396,372 and the aggregate accumulated depreciation for federal income tax purposes was $(49,667,880), at December 31, 1997.