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, 1998 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.) One Beacon Street, Boston, Massachusetts 02108 (Address of principal executive offices) (Zip Code) (Registrant's telephone number, including area code) (617) 523-7722 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 10-13. The total number of pages in this document is 31. 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, 1998, the Partnership did not employ any personnel. ITEM 2. PROPERTIES As of December 31, 1998, 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, DescriptionAcquisition Square Footage 1998 1997 1996 19951994 Century II Apts. Cockeysville, Maryland 1984 468 Units 100% 100% 96% 92% 92% Park Place Tower Apts. 901 Units 99% 99% 96% 94% 94% Chicago, Illinois 1984 18,417 Sq. Ft. 64% 64% 76% 83% 83% 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 Tower Apartments 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. Continued discussions with Plaintiffs' counsel have resulted in a tentative settlement which was presented to the court in December, 1998. Although the settlement has not been finalized, the Partnership recorded provisions totaling $1,015,000 in the 1998 and 1997 consolidated financial statements of $733,000 and $282,000, respectively. 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, 1998 was approximately 2,100. 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 in 1997 to the current rate of $40.00 per Unit. The Partnership made the following distributions to its Partners during the years ended December 31, 1998 and 1997: Year Ended December 31, 1998 1997 Amount Per Unit Amount Per Unit Limited Partners: Investor Limited Partners (35,200 Units outstanding) $1,408,000 $ 40.00 $1,408,000$ 40.00 Original Limited Partner 90,839 90,839 General Partners 15,140 15,140 $1,513,979 $1,513,979 <page< 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. 1998 1997 1996 1995 1994 Total revenue$15,100,395 $14,523,598$13,660,261$13,839,760$13,652,413 Income (loss) before gain from capital transactions 692,911 (304,383)(119,075) (795,377) (1,450,214) Gain on sale of property - - - 3,265,789 - Income (loss) before extraordinary loss692,911 (304,383)(119,075) 2,470,412 (1,450,214) Extraordinary loss - (288,156) - (93,215) - Net income (loss) 692,911(592,539)(119,075)2,377,197 (1,450,214) Net income (loss) allocated to: Investor Limited Partners 644,407 (586,614) (117,884) 2,353,425 (1,435,712) Per Unit 18.31 (16.67) (3.35) 66.86 (40.79) Original Limited Partner 41,575 - - - - General Partners 6,929 (5,925) (1,191) 23,772 (14,502) Total assets at December 31, 34,721,709 35,457,032 37,162,269 38,555,732 42,604,180 Long-term obligations at December 31, 41,235,548 41,848,811 41,700,453 42,273,669 46,805,538 Distributions: Investor Limited Partners 1,408,000 1,408,000 704,000 - - Per Unit 40.00 40.00 20.00 - - Original Limited Partner 90,839 90,839 45,419 - - General Partners 15,140 15,140 7,570 - - 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 distributions for the years ended December 31, 1998, 1997, 1996, 1995 and 1994 were $40.00, $40.00, $20.00, $0 and $0, 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 Partnership'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 the current rate of $40.00 per Unit, based on sufficient Cash Flow and working capital reserves. 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 $236,763, to pay a prepayment premium of $210,825 and to establish various escrows. The Partnership's properties, Century and Park Place, have spent approximately $1,490,000 in 1998 and are expected to spend approximately $2,036,000 for capital improvements in 1999 in order to remain competitive in their respective markets. These improvements include floor covering, pavement upgrades and appliance replacements, as well as interior improvements at the Partnership's properties. The Partnership expects to fund these improvements from established reserves and cash generated from property operations. Financial Accounting Standards Board Statement No. 131 ("FAS 131") "Disclosures about Segments of an Enterprise and Related Information' establishes standards for disclosing measures for profit or loss and total assets for each reportable segment. FAS 131 is effective for fiscal years beginning after December 15, 1997. Financial Accounting Standards Board Statement No. 133 ("FAS 133") "Accounting for Derivatives" is effective for fiscal years beginning after June 15, 1999. FAS 133 establishes standards related to the accounting and disclosure requirements of derivative financial instruments. Emerging Issues Task Force ruling 97-11 ("EITF 97-11") entitled "Accounting For Real Estate Property Acquisitions", is effective March 19, 1998. EITF 97-11 provides that real estate companies must expense, as incurred, the internal costs of identifying and acquiring operating property. The General Partners believe that the implementation of FAS 131 and EITF 97-11 do not have a material impact on the Partnership's financial statements, nor will the implementation of FAS 133. The General Partners of the Partnership have conducted an assessment of the Partnership's core internal and external computer information systems and have taken the further necessary steps to understand the nature and extent of the work required to make its systems Year 2000 ready in those situations in which it is required to do so. The Year 2000 readiness issue concerns the inability of computerized information systems to accurately calculate, store or use a date after 1999. This could result in a system failure or miscalculations causing disruptions of operations. The Year 2000 issue affects virtually all companies and all organizations. In this regard, the General Partners of the Partnership, along with certain affiliates, began a computer systems project in 1997 to significantly upgrade its existing hardware and software. The General Partners completed the testing and conversion of the financial accounting operating systems in February 1998. As a result, the General Partners have generated operating efficiencies and believe their financial accounting operating systems are Year 2000 ready. Costs incurred by the Partnership are not significant to date. There are no other systems or software that the Partnership is using at the present time. The General Partners of the Partnership are currently in the process of identifying, evaluating and remedying the Partnership's Year 2000 compliance issues with respect to its non-financial systems, such as computer controlled elevators, boilers, chillers or other miscellaneous systems. The General Partners are in the process of completing the Partnership's Year 2000 compliance initiatives at its properties. Based on their identification and assessment efforts to date, the General Partners believe that certain of the computer equipment and software the Partnership currently uses will require modification or replacement. However, the General Partners do not believe that the future efforts to achieve the Partnership's Year 2000 compliance initiatives will result in material cost to the Partnership or significantly interrupt services or operations. The General Partners of the Partnership are in the process of evaluating the potential adverse impact that could result from the failure of material third-party service providers (including but not limited to its banks and telecommunications providers) and significant vendors to be Year 2000 ready. No estimate can be made at this time as to the impact of the readiness of such third parties. However, if any of the third party service providers cease to conduct business due to Year 2000 related problems, the General Partners expect to be able to contract with alternate providers without experiencing any material adverse effects on the Partnership's financial condition and results of operations. The Partnership is in the process of coordinating their contingency plan with the property manager, in charge of 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, 1998, 1997 and 1996. 1998 compared to 1997 Net income increased in 1998 as compared to 1997, as rental revenue increased and expenses decreased. In comparing 1998 to 1997, the increase in rental revenue is attributable to residential rental rate increases implemented at Park Place and Century. Total expenses decreased when comparing 1998 to 1997, primarily due to decreases in operating, maintenance, real estate taxes and interest expenses, partially offset by an increase in general and administrative and depreciation expenses. The decrease in operating expense is mainly a result of decreases in utilities and insurance expenses. Lower gas expenditures are attributable to a more energy efficient system at Park Place. The decrease in insurance expense is due to a reduction in liability and workers compensation expense at the Partnership's properties, due to lower claims experience. Maintenance expense decreased primarily due to payment of an insurance deductible in 1997 for flood damage at Park Place. Real estate taxes decreased due to actual 1997 tax bills for Park Place lower than estimated. Interest expense decreased as a result of the refinancing of Century's mortgage note in December, 1997. The increase in general and administrative expense is due to an increase in legal expense related to the litigation discussed in Note F to Consolidated Financial Statements included in Item 8 (Appendix A) of this report. Depreciation expense increased in conjunction with capital improvement expenditures. 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 strengthened leasing efforts at the properties. Interest income decreased as investments 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. 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 (52) President and Co-Chairman of the Board George Krupp (54) Co-Chairman of the Board Wayne H. Zarozny (40)Treasurer Douglas Krupp co-founded and serves as Co- Chairman and Chief Executive Officer of The Berkshire Group, an integrated real estate financial services firm engaged in real estate acquisition, mortgage banking, investment sponsorship, venture capital investing and financial management. Mr. Krupp has held the position of Co-Chairman since The Berkshire Group was established as The Krupp Companies in 1969 and he has served as the Chief Executive Officer since 1992. Mr. Krupp serves as Chairman of the Board and Director of Berkshire Realty Company, Inc. (NYSE-BRI) and he is also a member of the Board of Trustees at Brigham & Women's Hospital. He is a graduate of Bryant College where he received an honorary Doctor of Science in Business Administration in 1989 and was elected trustee in 1990. George Krupp is the Co-Founder and Co- Chairman of The Berkshire Group, an integrated real estate financial services firm engaged in real estate acquisition, mortgage banking, investment sponsorship, venture capital investing and financial management. Mr. Krupp has held the position of Co-Chairman since The Berkshire Group was established as The Krupp Companies in 1969. Mr. Krupp has been an instructor of history at the New Jewish High School in Waltham, Massachusetts since September of 1997. Mr. Krupp attended the University of Pennsylvania and Harvard University 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 asset management, accounting, financial reporting and treasury 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, 1998, 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 225.00 Units .64% InvestorEquity Resource General Fund L.P. Limited 14 Story Street Partner Cambridge, MA 02138 Units 20.00 Units .06% InvestorEquity Resource Fund XVII L.P. Limited 14 Story Street Partner Cambridge, MA 02138 1,599.50 Units 4.54% Units Investor Equity Resource Boston Fund Limited 14 Story Street Partner Cambridge, MA 02138 205.00 Units .58% Units Investor Equity Resource Cambridge Fund Limited 14 Story Street Partner Cambridge, MA 02138 Units 125.00 Units .36% Investor Equity Resource Fund XXI L.P. Limited 14 Story Street Partner Cambridge, MA 02138 Units 887.00 Units 2.52% Total 3,061.50 Units 8.70% On that date, the General Partners or their affiliates owned 106 Units (.30% 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. (c) Reports on Form 8-K During the last quarter of the fiscal year ended December 31, 1998, 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 3Oth day of March, 1999. 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 30th day of March, 1999. 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) and George Krupp Director of The Krupp Corporation, a General Partner. /s/ Wayne H. Zarozny Treasurer of The Krupp Corporation, a General Wayne H. Zarozny 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, 1998 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, 1998 and December 31, 1997 F-4 Consolidated Statements of Operations for the years ended December 31, 1998, 1997 and 1996F-5 Consolidated Statements of Changes in Partners' Deficit for the years ended December 31, 1998, 1997 and 1996 F-6 Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996F-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: In our opinion, the consolidated financial statements and the financial statement schedule listed in the index on page F-2 present fairly, in all material respects, the financial position of Krupp Realty Limited Partnership-V and Subsidiary (the "Partnership") at December 31, 1998 and December 31, 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. 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 financial statement schedule based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. Boston, Massachusetts /s/ PricewaterhouseCoopers LLP February 10, 1999 KRUPP REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS December 31, 1998 and 1997 ASSETS 1998 1997 Multi-family apartment complexes, net of accumulated depreciation of $45,292,687 and $41,602,481, respectively (Note D) $ 28,589,655$ 30,790,070 Cash and cash equivalents (Note C) 2,101,415 802,726 Cash restricted for tenant security deposits 311,432 294,572 Replacement reserve escrows (Note D) 664,186 399,771 Prepaid expenses and other assets (Note E) 2,572,492 2,662,138 Deferred expenses, net of accumulated amortization of $82,843 and $48,332, respectively (Note E) 482,529 507,755 Total assets $ 34,721,709$ 35,457,032 LIABILITIES AND PARTNERS' DEFICIT Liabilities: Mortgage notes payable (Note D) $ 41,836,237$ 42,400,979 Accrued real estate taxes 2,008,500 1,950,000 Accrued expenses and other liabilities 1,841,074 1,249,087 Total liabilities 45,685,811 45,600,066 Contingency (Note F) Partners' deficit (Note G): Investor Limited Partners (35,200 Units outstanding) (10,130,376) (9,366,783) Original Limited Partner (420,061) (370,797) General Partners (413,665) (405,454) Total Partners' deficit (10,964,102) (10,143,034) Total liabilities and Partners' deficit $ 34,721,709$ 35,457,032 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, 1998, 1997 and 1996 1998 1997 1996 Revenue: Rental (Note H) $14,987,931$14,395,306$13,489,627 Interest income 112,464 128,292 170,634 Total revenue 15,100,395 14,523,598 13,660,261 Expenses: Operating (Note E) 3,205,429 3,629,513 3,635,470 Maintenance 961,085 1,136,671 927,736 General and administrative (Notes E and F) 891,841 324,660 323,652 Real estate taxes (Note I) 2,117,434 2,280,910 1,621,545 Management fees (Note E) 506,198 475,569 442,295 Depreciation and amortization 3,724,717 3,600,639 3,387,658 Interest (Note D) 3,000,780 3,380,019 3,440,980 Total expenses 14,407,484 14,827,981 13,779,336 Income (loss) before extraordinary loss 692,911 (304,383) (119,075) Extraordinary loss (Note D) - (288,156) - Net income (loss) (Note J) $ 692,911$ (592,539)$ (119,075) Allocation of net income (loss)(Note G): Investor Limited Partners (35,200 Units outstanding): Income (loss) before extraordinary loss $ 644,407$ (301,339)$ (117,884) Extraordinary loss - (285,275) - Net income (loss) $ 644,407$ (586,614)$ (117,884) Investor Limited Partners Per Unit: Income (loss) before extraordinary loss $ 18.31 $ (8.56) $ (3.35) Extraordinary loss - (8.11) - Net income (loss) $ 18.31 $(16.67) $ (3.35) Original Limited Partner: Income (loss) before extraordinary loss $41,575 $ - $ - Extraordinary loss - - - Net income (loss) $ 41,575$ - $ - General Partners: Income (loss) before extraordinary loss $ 6,929 $ (3,044) $ (1,191) Extraordinary loss - (2,881) - Net income (loss) $6,929 $ (5,925)$ (1,191) 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, 1998, 1997 and 1996 Investor Original Total Limited Limited General Partners' Partners Partner Partners Deficit Balance at December 31, 1995$ (6,550,285)$(234,539) $(375,628) $(7,160,452) Distributions (704,000) (45,419) (7,570) (756,989) Net loss (117,884) - (1,191) (119,075) Balance at December 31, 1996 (7,372,169) (279,958) (384,389) (8,036,516) Distributions (1,408,000) (90,839) (15,140) (1,513,979) Early extinguishment of debt (285,275) - (2,881) (288,156) Loss before extraordinary loss (301,339) - (3,044) (304,383) Balance at December 31, 1997 (9,366,783) (370,797) (405,454) (10,143,034) Net income (Note G) 644,407 41,575 6,929 692,911 Distributions (Note G) (1,408,000)(90,839) (15,140) (1,513,979) Balance at December 31, 1998$(10,130,376)$(420,061)$(413,665)$(10,964,102) The per Unit distributions for the years ended December 31, 1998, 1997 and 1996 were $40.00, $40.00 and $20.00, 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, 1998, 1997 and 1996 1998 1997 1996 Cash flows from operating activities: Net income (loss) $ 692,911 $ (592,539) $ (119,075) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Interest earned on replacement reserve escrows (14,933) (17,068) (27,713) Depreciation and amortization 3,724,717 3,600,639 3,387,658 Extraordinary loss from early extinguishment of debt - 288,156 - Changes in assets and liabilities: Decrease (increase) in cash restricted for tenant security deposits (16,860) 13,336 130,341 Decrease (increase) in prepaid expenses and other assets 89,646 (1,284,748) (6,508) Increase in accrued real estate taxes 58,500 290,000 - Increase in accrued expenses and other liabilities 591,492 7,037 21,147 Decrease in due to affiliates - (26,480) (7,847) Net cash provided by operating activities 5,125,473 2,278,333 3,378,003 Cash flow from investing activities: Deposits to replacement reserve escrows (306,512) (212,912) (212,912) Withdrawals from replacement reserve escrows 57,030 519,865 280,477 Additions to fixed assets (1,489,791) (1,728,096) (2,413,114) Increase in accrued expenses and other liabilities related to fixed asset additions 495 - - Net cash used in investing activities (1,738,778) (1,421,143) (2,345,549) Cash flow from financing activities: Proceeds from mortgage note payable - 11,000,000 - Repayment of mortgage notes payable - (10,309,332) - Payment of prepayment premium - (210,825) - Principal payments on mortgage notes payable (564,742) (559,944) (530,699) Increase in deferred expenses (9,285) (227,478) - Distributions (1,513,979) (1,513,979) (756,989) Net cash used in financing activities (2,088,006)(1,821,558) (1,287,688) Net increase (decrease) in cash and cash equivalents 1,298,689 (964,368) (255,234) Cash and cash equivalents, beginning of year 802,726 1,767,094 2,022,328 Cash and cash equivalents, end of year $ 2,101,415$ 802,726 $ 1,767,094 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 J). 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 equipment 3 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 which approximates the effective interest 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. Continued KRUPP REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued B. Significant Accounting Policies, Continued Descriptive Information About Reportable Segments During the fourth quarter of 1998, the Partnership adopted the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and Related Information ("Statement No. 131"). Statement No. 131 superseded FASB Statement No. 14, "Financial Reporting for Segments of a Business Enterprise". Statement No. 131 establishes standards for the way that public business enterprises report information regarding reportable operating segments. The adoption of Statement No. 131 did not affect the results of operations or financial position of the Partnership. The Partnership operates and develops apartment communities which generate rental and other income through the leasing of apartment units. The General Partners separately evaluate the performance of each of the Partnership's apartment communities. However, because each of the apartment communities have similar economic characteristics, facilities, services and tenants, the apartment communities have been aggregated into a single dominant apartment communities segment. All revenues are from external customers and no revenues are generated from transactions with other segments. There are no tenants which contributed 10% or more of the Partnership's total revenue during 1998, 1997 or 1996. Reclassifications Certain prior year balances have been reclassified to conform with current year consolidated financial statement presentation. C. Cash and Cash Equivalents Cash and cash equivalents consisted of the following: December 31, 1998 1997 Cash and money market accounts$ 405,431$ 802,726 Treasury bills 1,695,984 - $ 2,101,415$ 802,726 D. Mortgage Notes Payable The properties owned by the Partnership are pledged as collateral for the non-recourse mortgage notes outstanding at December 31, 1998 and 1997. Mortgage notes payable consisted of the following: Annual Principal Interest Property 1998 1997 Rate Maturity Date Century II Apartments $10,882,768 $11,000,000 6.75% January 1, 2008 Park Place Tower Apartments 30,953,469 31,400,979 6.75% May 1, 2024 Total $41,836,237 $42,400,979 Continued KRUPP REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued D. 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 $236,763, 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 $10,898,000 and $10,470,000 for the years ended December 31, 1998 and 1997, 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 be prepaid subject to a prepayment premium. In the event prepayment of principal occurs, 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. 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 $31,766,000 at December 31, 1998. At December 31, 1997, the fair market value could not be determined since the mortgage note could not be prepaid until 1998. Due to restrictions on transfers and prepayment, the Partnership may be unable to refinance certain mortgage notes payable at such calculated fair value. Continued KRUPP REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued D.Mortgage Notes Payable, Continued The aggregate scheduled principal amounts of long-term borrowings due during the five years ending December 31, 2003 are $600,689, $642,513, $687,250, $735,102 and $786,286. During the years ended December 31, 1998, 1997 and 1996, the Partnership paid $2,844,807, $3,221,886 and $3,280,828 of interest on its mortgage notes, respectively. E.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 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, 1998, 1997 and 1996 were as follows: 1998 1997 1996 Property management fees $506,198 $475,569 $442,295 Expense reimbursements 307,468 317,432 288,226 Charged to operations $813,666 $793,001 $730,521 Expense reimbursements due from affiliates of $1,456 were included in prepaid expenses and other assets for the year ended December 31, 1998. 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. F. 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. Continued KRUPP REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued F. Legal Proceeding, Continued 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. Continued discussions with Plaintiffs' counsel have resulted in a tentative settlement which was presented to the court in December, 1998. Although the settlement has not been finalized, the Partnership recorded provisions totaling $1,015,000 in the 1998 and 1997 consolidated financial statements of $733,000 and $282,000, respectively. G. Partners' Deficit Under the terms of the Partnership Agreement, losses from operations are allocated 99% to the Investor Limited Partners and 1% to the General Partners and profits from operations are allocated 93% to the Investor Limited Partners, 6% to the Original Limited Partner and 1% to the General Partners until such time that the Investor Limited Partners have received a return of their total invested capital plus a 9% per annum cumulative return thereon and thereafter, 65% to the Investor Limited Partners, 28% to the Original Limited Partner and 7% to the General Partners. Profits from Capital Transactions are allocated first, to the Investor Limited Partners until they have received a return of their total invested capital. Thereafter, profits from Capital Transactions are allocated in accordance with the Partnership Agreement. Losses from Capital Transactions are allocated 99% to the Investor Limited Partners and 1% to the General Partners. Notwithstanding anything above, the General Partners shall be allocated at least 1% of all profits and losses from Capital Transactions. Under the Partnership Agreement, cash distributions are made on the same basis as the allocations of profits described above. Pursuant to the Partnership Agreement, proceeds from Capital Transactions shall first be applied to the payment of all debts and liabilities of the Partnership and second to fund reserves for contingent liabilities. The remaining net cash proceeds shall then be distributed in accordance with the Partnership Agreement. Continued KRUPP REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued G. Partners' Deficit, Continued As of December 31, 1998, the following cumulative partner contributions and allocations have been made since inception of the Partnership: Investor Original Limited Limited General Partners Partner Partners Total Capital contributions$ 35,200,000$4,000 $1,000 $ 35,205,000 Syndication costs (4,501,000) - - (4,501,000) Distributions (7,619,303)(478,576) (79,762) (8,177,641) Net income (loss) before capital transactions (39,885,037) 54,515 (402,327) (40,232,849) Net gains on capital transactions 6,674,964 - 67,424 6,742,388 Balance at December 31, 1998$(10,130,376)$(420,061)$(413,665)$(10,964,102) H. Future Base Rents Due Under Commercial Operating Leases Future base rent receivable under commercial operating leases for the years 1999 through 2003 and thereafter is as follows: 1999 $149,330 2000 93,989 2001 81,653 2002 82,361 2003 71,177 Thereafter 155,981 I. 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. J. 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. Continued KRUPP REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued J.Federal Income Taxes, Continued 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, 1998, 1997 and 1996 is as follows: 1998 1997 1996 Net income (loss) per Consolidated Statement of Operations $ 692,911$ (592,539) $ (119,075) Difference between book and tax depreciation and amortization 414,641 317,863 (30,155) Difference between book and tax legal adjustment 733,000 113,526 168,474 Net income (loss) for federal income tax purposes $ 1,840,552$(161,150) $ 19,244 The allocation of the net income for federal income tax purposes for 1998 is as follows: Portfolio Passive Income Income Total Investor Limited Partners$ 101,864 $1,609,849 $ 1,711,713 Original Limited Partner 6,572 103,861 110,433 General Partners 1,096 17,310 18,406 $ 109,532 $1,731,020 $ 1,840,552 During the years ended December 31, 1998, 1997 and 1996 the per Unit net income (loss) to the Investor Limited Partners for federal income tax purposes were $48.63, $(4.58) and $.54, respectively. The basis of the Partnership's assets for financial reporting purposes exceeded its tax basis by approximately $7,651,000 and $8,063,500 at December 31, 1998 and 1997, respectively. The basis of the Partnership's liabilities for financial reporting purposes exceeded its tax basis by approximately $1,015,000 and $282,000 at December 31, 1998 and 1997, respectively. KRUPP REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1998 Costs Capitalized Subsequent to Initial Cost to Partnership Acquisition Buildings & Buildings & Depreciable Description Encumbrances Land Improvements Improvements Life Century II Apartments Cockeysville, Maryland $ 10,882,768 $1,049,868 $ 13,948,246 $ 5,333,8393 to 25 Yrs. Park Place Tower Apartments Chicago, Illinois 30,953,469 2,877,561 38,230,448 12,442,3803 to 25 Yrs. Total $ 41,836,237 $3,927,429 $ 52,178,694 $17,776,219 Gross Amounts Carried at End of Year Buildings Year and Accumulated Construction Year Description Land Improvements TotalDepreciation Completed Acquired Century II Apartments Cockeysville, Maryland $1,049,868 $19,282,085 $20,331,953 $12,758,634 1971 1984 Park Place Tower Apartments Chicago, Illinois 2,877,561 50,672,828 53,550,389 32,534,053 1973 1984 Total $3,927,429 $ 69,954,913$73,882,342$ 45,292,687 Continued KRUPP REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION, Continued December 31, 1998 Reconciliation of Real Estate and Accumulated Depreciation for each of the three years in the period ended December 31, 1998: 1998 1997 1996 Real Estate Balance at beginning of year $72,392,551 $70,664,455 $68,251,341 Acquisitions and improvements 1,489,791 1,728,096 2,413,114 Balance at end of year$73,882,342 $72,392,551 $70,664,455 1998 1997 1996 Accumulated Depreciation Balance at beginning of year $41,602,481 $38,066,263 $34,745,814 Depreciation expense 3,690,206 3,536,218 3,320,449 Balance at end of year$45,292,687 $41,602,481 $38,066,263 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 $73,894,392 and the aggregate accumulated depreciation for federal income tax purposes was $52,945,211, at December 31, 1998.