SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

                FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

(Mark  One)_X  ANNUAL  REPORT  PURSUANT TO SECTION 13 OR 15(d)OF THE  SECURITIES
EXCHANGE ACT OF 1934__ 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 __For the transition period from _________ to _________

                     Commission File No. 0-24143

               RIDGEWOOD ELECTRIC POWER TRUST V
               (Exact Name of Registrant as Specified in Its Charter)

        Delaware                    22-3437351
(State or Other Jurisdiction     (I.R.S. Employer Identification No.)
of Incorporation or Organization)

  c/o  Ridgewood   Power   Corporation,
   947  Linwood   Avenue,
   Ridgewood,   New  Jersey  07450
(Address  of  Principal   Executive
Offices)                        (Zip Code)

Registrant's Telephone Number, including Area Code:  (201) 447-9000

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

Securities registered pursuant to Section 12(g) of the Act:

Investor Shares of Beneficial Interest(Title of Class)

     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 No X ___

     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.[ ]

     There is no market for the Shares. The aggregate capital contributions made
for the Registrant's  voting Shares held by  non-affiliates of the Registrant at
March 22, 1999 was $95,000,000. Exhibit Index is located on page [ ].



<PAGE>

PART I

Item 1.  Business.

Forward-looking statement advisory

     This Annual Report on Form 10-K, as with some other  statements made by the
Trust  from  time to time,  has  forward-looking  statements.  These  statements
discuss business trends, year 2000 remediation and other matters relating to the
Trust's  future  results and the  business  climate  and are found,  among other
places,  at Items 1(c)(2) - (5), 5(C) and 7. In order to make these  statements,
the Trust has had to make assumptions as to the future.  It has also had to make
estimates in some cases about events that have already happened,  and to rely on
data  that  may be  found  to be  inaccurate  at a  later  time.  Because  these
forward-looking  statements are based on  assumptions,  estimates and changeable
data,  and because any attempt to predict the future is subject to other errors,
what  happens to the Trust in the future may be  materially  different  from the
Trust's statements here.

     The Trust  therefore  warns  readers of this  document that they should not
rely on these  forward-looking  statements without considering all of the things
that could make them inaccurate. This Registration Statement discusses many (but
not all) of the risks and uncertainties that might affect these  forward-looking
statements.

     Some of these are changes in political and economic conditions,  federal or
state  regulatory  structures,   government  taxation,  spending  and  budgetary
policies,  government  mandates,  demand for electricity and thermal energy, the
ability of customers to pay for energy received,  supplies of fuel and prices of
fuels, operational status of plant, mechanical breakdowns, availability of labor
and the  willingness  of electric  utilities to perform  existing power purchase
agreements in good faith.  Some of these cautionary  factors that readers should
consider are  described  below at Item 1(c)(6) - Trends in the Electric  Utility
and Independent Power Industries.

     By making these  statements  now, the Trust is not making any commitment to
revise these forward-looking  statements to reflect events that happen after the
date of this document or to reflect unanticipated future events.<PAGE>

(a)  General Development of Business.

     Ridgewood  Electric Power Trust V, the Registrant  hereunder (the "Trust"),
was organized as a Delaware  business  trust on March 12, 1996 to participate in
the  development,  construction  and operation of  independent  power or similar
generating  facilities  ("Independent Power Projects" or "Projects").  Ridgewood
Energy Holding Corporation ("Ridgewood Holding"), a Delaware corporation, is the
Corporate Trustee of the Trust.

     The Trust sold whole and  fractional  shares of beneficial  interest in the
Trust  ("Investor  Shares") at $100,000 per Investor  Share,  and terminated its
private  placement   offering  on  April  15,  1998.  It  raised   approximately
$95,000,000.  Net of offering  fees,  commissions  and  expenses,  the  offering
provided  approximately  $77,316,000  for  investments  in the  development  and
acquisition of Independent Power Projects and operating expenses.  The Trust has
approximately  2,270 record  holders of Investor  Shares (the  "Investors").  As
described below in Item 1(c)(4),  as of December 31, 1998 the Trust had invested
approximately  $29.1 million of its funds in the acquisition of interests in two
sets of  Independent  Power  Projects  and four other  Projects  and is actively
seeking additional Projects for investment.

     The Trust is  organized to be similar to a limited  partnership.  Ridgewood
Power Corporation (the "Managing Shareholder"),  a Delaware corporation,  is the
Managing Shareholder of the Trust.

     In general, the Managing Shareholder has the powers of a general partner of
a limited  partnership.  It has complete control of the day-to-day  operation of
the Trust and as to most  acquisitions.  The Trust also has an Independent Panel
which does not  exercise  general  oversight of the  Managing  Shareholder.  The
Independent  Panel Members do not have any management or  administrative  powers
over the Trust or its  property,  but approval of a majority of the  Independent
Panel  Members is required  for approval of  transactions  between the Trust and
other investment programs sponsored by the Managing  Shareholder.  The Corporate
Trustee  acts  on  the  instructions  of  the  Managing  Shareholder  and is not
authorized to take independent  discretionary action on behalf of the Trust. See
Item 10 Directors and Executive  Officers of the Registrant  below for a further
description of the  management of the Trust.  The Managing  Shareholder  and the
Investors are collectively referred to as the "Shareholders."

     The Managing  Shareholder  is controlled  by Robert E. Swanson,  who is its
sole  stockholder  and  director and chief  executive  officer.  For  additional
information,  see Item 10 -- Directors and Executive Officers of the Registrant.
The Managing  Shareholder has sponsored five similar business trusts that invest
in the independent electric power industry and other capital projects: Ridgewood
Electric  Power  Trusts I through IV  ("Ridgewood  Power I through  IV") and the
Ridgewood  Power Growth Fund (the "Growth  Fund").  Ridgewood Power I through IV
are referred to as the "Prior Programs."

 (b)  Financial Information about Industry Segments.

     The Trust operates in only one industry segment:  independent power
generation and similar projects.

(c)  Narrative Description of Business.

(1)  General Description.

     The Trust was formed to participate in the  development,  construction  and
operation of independent  electric power projects that generate  electricity for
sale to utilities and other users, and that might provide heat energy as well to
users.  The Trust may also invest in other energy  projects  (but not in nuclear
facilities) or capital projects that have similar risk-return characteristics to
those of electric power  projects.  These projects or potential  investments for
the Trust will be referred to as "Projects." The Trust has acquired  significant
interests  in two sets of  electric  power  Projects  to date.  The Maine  Hydro
Projects are 14 small hydroelectric  projects located in Maine. In December 1996
the Trust and an affiliate,  Ridgewood Power IV, each acquired a 50% interest in
the limited  liability  company owning the Projects.  On July 1, 1997, the Trust
and Ridgewood Power IV purchased a preferred membership interest in Indeck Maine
Energy, L.L.C., an Illinois limited liability company ("Indeck Maine") that owns
two electric power generating  stations fueled by waste wood at West Enfield and
at Jonesboro,  Maine (the "Maine Biomass Projects").  For more information,  see
Item 1(c)(2) - The Trust's Investments, below.

     Historically, producers of electric power in the United States consisted of
regulated  utilities,  government  agencies and  industrial  users that produced
electricity to satisfy their own needs.  The  independent  power industry in the
United  States was  created by federal  legislation  passed in  response  to the
energy crises of the 1970s. The Public Utility Regulatory  Policies Act of 1978,
as  amended  ("PURPA"),  requires  utilities  to  purchase  electric  power from
"Qualifying   Facilities"  (as  defined  in  PURPA),   including   "cogeneration
facilities"  and "small  power  producers,"  and also exempts  these  Qualifying
Facilities from most utility regulatory requirements. Under PURPA, Projects that
are  Qualifying  Facilities  are  generally  not subject to federal  regulation,
including the Public Utility Holding Company Act of 1935, as amended,  and state
regulation. Furthermore, PURPA generally requires electric utilities to purchase
electricity  produced by Qualifying  Facilities at the utility's avoided cost of
producing  electricity  (i.e., the incremental costs the utility would otherwise
face to  generate  electricity  itself  or  purchase  electricity  from  another
source). The Maine Hydro Projects are Qualifying Facilities which have long-term
agreements  with local utilities for the purchase of all of their output ("Power
Contracts")  at fixed  prices.  The Maine Biomass  Projects are also  Qualifying
Facilities but do not have long-term Power Contracts.

     The Trust has also invested in four Projects outside the independent  power
industry:  Santee  River Rubber  Company,  which is building a facility in South
Carolina to recycle used auto and truck tires;  Ridgewood WaterPure Corporation,
which is developing technologies to distill water efficiently;  MetaSound, Inc.,
which is  developing  hardware and software to present  unique  programming  for
persons who are on hold while calling businesses,  and Quantum Conveyor Systems,
Inc., which is developing and marketing proprietary conveyor and package sorting
equipment.

  (2)  The Trust's Investments.

(i)  Maine Hydro Projects

     On December 23, 1996, the Trust  purchased from  Consolidated  Hydro,  Inc.
(now CHI Energy Inc.) a 50% interest in 14 small hydroelectric  projects located
in Maine. In order to increase  diversification of the Trust's investments,  the
remaining 50% interest was purchased by Ridgewood Power IV, a similar investment
program  organized  in  1995  by  the  Managing  Shareholder.  Each  Trust  paid
approximately  $6,700,000  for its interest The jointly owned  partnership  that
acquired  the  Project  also  assumed  a  lease  obligation  in  the  amount  of
$1,005,000.  The  partnership  was  credited  with all  income  relating  to the
projects  from July 1, 1996 to the closing date and the seller was credited with
interest on the purchase price at annual rates of 6% to 8.5% during that period.

     The 14  hydroelectric  projects  have an aggregate  rated  capacity of 11.3
megawatts.  All  electricity  generated by the projects over and above their own
requirements   is  sold  to  either   Central  Maine  Power  Company  or  Bangor
Hydro-electric  Company under long-term power purchase contracts.  Eleven of the
contracts expire at the end of 2008 and the remaining three expire in 2007, 2014
and 2017.

     The Trust's net equity in the income of the Maine Hydro  Projects  for 1998
was $658,000, up from $522,000 in 1997.

     The  Trusts  have  entered  into  a five  year  operating  and  maintenance
agreement  with CHI Energy,  Inc.  under which a  subsidiary  of CHI Energy will
manage and administer the projects for a fixed annual fee of $307,500  (adjusted
upwards for inflation),  plus an annual incentive fee equal to 50% of the excess
of aggregate net cash flow over a target amount of $1.875  million per year. The
maximum  incentive  fee is $112,500 per year;  to the extent the annual net cash
flow exceeds $2.1 million,  the excess will be carried  forward to future years;
to the extent  that the annual net cash flow is less than  $1.875  million,  the
deficit will be carried forward to future years. In addition,  the operator will
be reimbursed  for certain  operating and  maintenance  expenses.  In 1998,  the
operator was paid a total of $429,000 for operating and incentive fees, the same
as for 1997.

(ii) Maine Biomass Projects

     On July 1, 1997,  the Trust and  Ridgewood  Power IV  purchased a preferred
membership  interest  in  Indeck  Maine  Energy,  L.L.C.,  an  Illinois  limited
liability  company  ("Indeck  Maine")  that owns two electric  power  generating
stations fueled by waste wood at West Enfield and at Jonesboro, Maine. The Trust
and Ridgewood Power V purchased the interest through a limited liability company
owned equally by each.  The Trust's share of the purchase  price was  $7,298,000
and Ridgewood Power IV provided an equal amount of the total purchase price.

     The  original  members  of  Indeck  Maine  have  transferred  their  equity
interest,  which is  subject to the  preferred  membership  interest,  to Indeck
Energy Services,  Inc.  ("Indeck").  In connection with the transaction,  Indeck
Maine distributed  $9,143,000 of the purchase price to its original members. The
preferred  membership  interest  entitles  the Trust and  Ridgewood  Power IV to
receive  all net cash flow from  operations  each year until they  receive a 18%
annual  cumulative  return on their capital  contributions  to Indeck Maine. Any
additional  net  operating  cash flow in that  year is paid to Indeck  until the
total paid to it equals the  amount of the 18%  preferred  return for that year,
without  cumulation.  Any  remaining  net  operating  cash  flow for the year is
payable 25% to the Trust and Ridgewood Power V together and 75% to Indeck unless
the Trust and  Ridgewood  Power IV  recover  their  capital  contributions  from
proceeds of a capital event.  Thereafter,  these percentages change to 50% each.
All  non-operating  cash flow,  such as proceeds of capital  events,  is divided
equally between (a) the Trust and Ridgewood Power IV and (b) Indeck.

     Under Indeck Maine's amended operating agreement, the original Indeck Maine
members had the right to  designate a majority of the  managers of Indeck  Maine
and thus had management  control,  although  approval of the Trust and Ridgewood
Power IV jointly was  required for many  significant  decisions.  The  operating
agreement,  however,  provided that if the Trust and Ridgewood  Power IV did not
receive  annual  distributions  at  least  equal  to the  18%  preferred  return
requirement or if Indeck Maine after a cure period failed to make  distributions
to them in  accordance  with the  operating  agreement,  they  had the  right to
designate a majority of the  managers of Indeck  Maine.  The other  Indeck Maine
members had the right regain  control if Indeck Maine  satisfies the  cumulative
preferred return requirement within the next five calendar quarters.  Under that
arrangement  until March 1999  Indeck  Operations,  Inc.,  an  affiliate  of the
original  Indeck Maine members and Indeck,  managed the plant and was reimbursed
for its costs. In addition,  the three managers nominated by the original Indeck
Maine members received  aggregate annual fees of $300,000 and certain other fees
were payable to Indeck  Maine  affiliates.  The  management  agreement  could be
terminated on notice if the Trust and  Ridgewood  Power IV obtained the right to
designate a majority of the managers of Indeck Maine.

         The Trust,  Ridgewood  Power IV and Indeck agreed,  effective  March 1,
1999, to terminate the  arrangements  described above and to transfer  operating
control of the Projects to the Trust and  Ridgewood  Power IV. This has occurred
and the Trust and Ridgewood  Power IV have engaged  Ridgewood  Power  Management
Corporation ("RPMCo") to operate the two Projects.  RPMCo is an affiliate of the
Managing  Shareholder,  as  described  at Item 10(g) - Directors  and  Executive
Officers of the  Registrant - RPMCo.  Each of the  projects has a 24.5  megawatt
rated  capacity  and uses steam  turbines to generate  electricity.  The fuel is
waste wood chips, bark, brush and similar biomass.  Both projects are Qualifying
Facilities.

     The  Indeck  Maine  projects  operated  for  five  months  in 1997  selling
electricity  to  participants  in  the  New  England  Power  Pool  or to  Bangor
Hydro-Electric  Company on monthly contracts.  The contracts were not renewed in
1998 and the projects  were shut down in January  1998.  Later in January  1998,
during a severe ice storm, local officials requested an emergency restart of the
projects. A dispute ensued between Bangor Hydro-Electric  Company and the Indeck
Maine  projects,  caused  by the  high  costs of  restarting  the  plants  on an
emergency  basis.  Bangor   Hydro-Electric   Company  accused  the  projects  of
price-gouging   in  the   emergency.   Indeck   Maine   responded   that  Bangor
Hydro-Electric  was distorting the facts to divert  attention from other matters
and that it would sell the emergency  energy at cost.  The matter was informally
reviewed by the Maine Attorney  General's office,  which advised Indeck Maine at
the  conclusion  of its review that it had no current  intention to take action.
The Trust does not anticipate any material adverse effect from the dispute.  The
Projects did not operate in 1998,  except for testing,  and have not operated to
date in 1999.

     The cost to the owners of Indeck Maine for  maintaining  the  facilities in
operable  condition  and  for  fixed  costs  such as  taxes  and  insurance  was
approximately  $2,667,000  per year for both projects in 1998. A portion of this
cost (approximately $1,430,000) was defrayed during 1998 through the sale of the
projects' "installed capability" to participants in the New England Power Pool.

     Beginning in April 1998, ISO-New England, Inc. (the "ISO"), an independent,
non-profit  organization in which Indeck Maine and  substantially all generators
and distribution  utilities in New England are members, began an auction process
as part of the  deregulation  of the New  England  electricity  market.  See (4)
--Trends  in the  Electric  Utility and  Independent  Power  Industries,  for an
explanation of the deregulatory  process. The first commodity to be auctioned is
"installed capability," a measurement of the rated ability of a generating plant
to create electric power. Plants are credited with installed  capability whether
or not they run. For an additional  discussion of installed capability and other
concepts  related to  electricity  pricing,  see (3) - Plant  Operation,  below.
Beginning  April 1, 1998 each  distribution  utility that is a member of the ISO
must own or  purchase  installed  capability  on a monthly  basis  that at least
equals its  expected  load for the month (the  maximum  amount of power that its
customers may demand) plus mandated  reserves.  Generating  facilities may enter
into contracts to sell installed capability or may auction it through the ISO.

     The Maine Biomass plants have sold  installed  capability  throughout  1998
under short-term  contracts and thus earned revenues without generating material
amounts of electric  power.  In April 1999,  it is planned that the ISO will add
additional commodities to the auction process, such as operating capability (the
amount of power that can be delivered by generating plants that are operating or
can be placed in  operation  on short  notice)  and energy  (the  actual  energy
delivered by operating plants).  The Trust is negotiating with several potential
customers  for sales of operating  capability  as well as installed  capability.
There can be no assurance,  however,  that it will be able to do so successfully
or that the  revenues  it earns in 1999 will be  comparable  to those  earned in
1998.  In that regard,  prices for installed  capability  have tended to decline
from the area of $3 per  kilowatt  per month to $1.50 to $1.75 per  kilowatt per
month in February  1999,  which may reflect  seasonal  variations  in demand for
capability  but  which  may  also  reflect  maturation  of the  market  and  the
availability of additional supplies of capability.

     Indeck Maine funded the approximately  $1.2 million  difference between the
Maine Biomass projects' revenues and operating expenses by borrowing.  The Trust
provided 25% of the loans  ($375,000 in 1998),  Ridgewood Power IV also provided
an equal 25% and the  remaining  50% was  provided  by  Indeck,  all on the same
terms.  Indeck Maine issued demand  promissory  notes bearing interest at 5% per
year to evidence the indebtedness.

     The Trust believes that as utilities sell off generating  assets,  as state
regulators require purchase of "renewable power" as described further at (4)(ii)
- Trends in the  Electric  Utility  and  Independent  Power  Industries  - Maine
Biomass and "Merchant  Power Plants" - Renewable  Power and as the market in New
England for generation becomes more competitive, the Maine Biomass projects will
be able  to sell  their  future  output  profitably.  However,  there  can be no
assurance that they can do so consistently and earn a satisfactory return in the
rapidly  deregulating  electricity  industry.  See generally (4) - Trends in the
Electric Utility and Independent Power Industries for further  discussion of the
opportunities and problems related to the deregulated industry.

     Neither Indeck Maine, its original members,  Indeck nor Indeck  Operations,
Inc.  is  affiliated  with or has any  material  relationship  with  the  Trust,
Ridgewood Power IV, their Managing  Shareholder or their affiliates,  directors,
officers or  associates  of their  directors  and  officers,  other than through
Indeck Maine Energy,  LLC. The sales price and the terms of the acquisition were
determined in arm's length negotiations  between the Managing Shareholder of the
Trust and  representatives  of the original Indeck Maine members.  The source of
the Trust's  funds was  proceeds of its private  placement  offering of Investor
Shares.

(iii)  Santee River Rubber Company

         The Trust and Ridgewood  Power IV have purchased  preferred  membership
interests in Santee River Rubber Company,  LLC, a newly-organized South Carolina
limited  liability  company ("Santee  River").  Santee River is building a waste
tire and rubber processing facility (the "Facility") located in Berkeley County,
South Carolina  approximately 90 miles north of Charleston,  South Carolina. The
Trust and Ridgewood Power IV purchased the interest through a limited  liability
company owned  two-thirds by the Trust and one-third by Ridgewood  Power IV. The
Trust's share of the $13,470,000  purchase price for the membership  interest in
Santee  River was  $8,980,000  and  Ridgewood  Power IV provided  the  remaining
$4,490,000 of the price.

         Until the Facility begins  operations,  Santee River will pay the Trust
and Ridgewood  Power IV a fixed  distribution  of 12% per year on $11,500,000 of
the total they  contributed.  After operations  begin, the preferred  membership
interest  entitles  the Trust and  Ridgewood  Power IV to receive all  available
operating cash flow annually from Santee River after payment of debt service and
other obligations until the Trust receives a cumulative 20% annual return on its
capital investment. Thereafter, the Trust and Ridgewood Power IV are entitled to
receive 25% of any remaining  operating cash flow available for  distribution in
that year from Santee River.  All  non-operating  cash flow, such as proceeds of
capital events,  is divided equally between (a) the Trust and Ridgewood Power IV
and (b)the other owner of Santee River.  All amounts and tax items the Trust and
Ridgewood Power IV receive from Santee River are shared  two-thirds by the Trust
and one-third by Ridgewood Power IV, with neither having any preference over the
other. The Trust and Ridgewood Power IV have the joint right to designate two of
the five  managers of Santee River and have the further  right to remove a third
manager and designate a successor in the event of certain  defaults under Santee
River's  Operating  Agreement.  The remaining equity interest in Santee River is
owned by a wholly-owned  subsidiary of Environmental  Processing  Systems,  Inc.
("EPS") of Garden City,  New York.  EPS is the  developer of the  Facility.  EPS
contributed the contracts,  permits, plans and other intangible property for the
construction of the Facility that EPS generated prior to this transaction. Until
a default, EPS has the right to designate three managers of Santee River.

         Santee River estimates that approximately $52,680,000 will be needed to
construct the Facility and begin operations. After paying costs of the financing
(which  included  a  $333,000  payment  to the Trust and a  $167,000  payment to
Ridgewood Power IV from Santee River to defray the trusts'  transaction  costs),
Santee River had  approximately  $16,500,000  available.  At the same time as it
sold the Trust and Ridgewood Power IV their  membership  interest,  Santee River
borrowed  $16,000,000  through  tax-exempt  revenue bonds sold to  institutional
investors and another  $16,000,000  through  taxable  convertible  bonds sold to
qualified institutional  purchasers. It also obtained $4,500,000 of subordinated
financing from the general contractor for the Facility,  which is only repayable
if the Facility meets specified construction and performance criteria.

         The Facility has been  designed to receive and process  waste tires and
other waste rubber products and produce fine crumb rubber of various sizes.  The
processing system will include both ambient and cryogenic  processing  equipment
using liquid nitrogen.  In addition,  magnets and other screening equipment will
be used to separate and remove ferrous material and fibers from the rubber.  The
Company anticipates that the final product will be fine crumb rubber that can be
used to manufacture new tires or to replace virgin rubber in many  applications.
The Facility will be constructed on an  approximately  30-acre site (the "Site")
in Berkeley County,  South Carolina owned by the Company.  The Site is mortgaged
as security for the bonds issued for the Facility.

         The Facility  will be  constructed  by Bateman  Engineering,  Inc. (the
"Contractor")   pursuant  to  a  turnkey  construction   agreement  between  the
Contractor and Santee River for a fixed price of $30.5 million. The Contractor's
obligations under the Construction Contract will be guaranteed by its affiliate,
Bateman  Project  Holdings  Limited,  a South African  company.  Pursuant to the
Construction  Contract,  the  Contractor has agreed to defer $4.5 million of its
fixed  construction  price and to receive such amount during the initial 4 years
of Facility  operation.  A pilot  facility was  completed  in February  1999 for
testing of the equipment and  processes  and initial  reports  indicate that the
pilot  facility  is  meeting or  exceeding  specifications.  Further  testing is
necessary  before  any  conclusion  can be  drawn as to the  feasibility  of the
equipment and processes.

         Santee River has entered into  long-term  agreements  for supply of its
requirements  of waste  tires and other  waste  rubber as its raw  material,  of
liquid  nitrogen  for  cryogenic  processing  and of  electricity  (from a local
electricity  cooperative).  Santee  River  intends  to  sell  the  crumb  rubber
manufactured at the Facility to various companies in the tire, plastics, rubber,
building products, adhesives and paint industries.

         EPS on behalf of Santee  River has  obtained  short term  crumb  rubber
sales  contracts for a portion of the  Facility's  expected  output with several
major rubber products manufacturers. Each contract is contingent upon successful
testing of the Facility's output.

         EPS will  provide  administrative  services to Santee  River during the
construction  and  operation of the Facility at its cost  (including  direct and
indirect  costs  and  allocable  overhead).  Neither  Santee  River  nor  EPS is
affiliated with or has any material relationship with the Trust, Ridgewood Power
V, their  Managing  Shareholder  or their  affiliates,  directors,  officers  or
associates of their directors and officers. The sales price and the terms of the
acquisition  were determined in arm's length  negotiations  between the Managing
Shareholder of the Trust and  representatives  of EPS. The source of the Trust's
funds was proceeds of its private placement offering of Investor Shares.

(iv)  Quantum Conveyor Systems, LLC

     Quantum Conveyor Systems, LLC ("Quantum"),  a company located in Northvale,
New Jersey, has developed a process of integrating control technology,  software
and conveying  equipment into a modular,  cost-effective  conveying  system.  In
December  1998,  the United  States  Postal  Service  accepted  for  testing two
prototype  units  of  Quantum's  flagship  product  for  package  handling,  the
"Maxisort  system".  Quantum  hopes  that  this  will  be  the  beginning  of  a
multi-hundred  system  sale to the  Postal  Service  and  that  adoption  of the
Maxisort  system by the  Postal  Service  will  encourage  sales to other  large
package and material handling organizations.

         In September  1998,  the Trust  capitalized  a  subsidiary,  which lent
Quantum  $2,985,000 and purchased a 15% equity  interest in Quantum for $15,000.
The  subsidiary  has an option,  exercisable  before May 31, 1999,  to invest an
additional  $1.99  million as a loan on the same terms.  Quantum  also agreed to
allow the  subsidiary to purchase an additional  10% equity  interest in Quantum
for $10,000 in  connection  with the option.  The Trust is prepared to allow two
venture  capital funds  organized and managed by Ridgewood  Capital  Corporation
(Ridgewood  Capital Venture Partners,  LLC and Ridgewood  Institutional  Venture
Partners,  LLC) to fund the  additional  $1.99  million loan and $10,000  equity
investment  and to participate in the subsidiary on the same terms as the Trust.
Ridgewood  Capital  Corporation is also wholly-owned by Robert E. Swanson and is
an affiliate of the Trust. The Independent  Panel Members of the Trust, at their
November  1998  meeting,  authorized  a  co-investment  in Quantum  with the two
venture capital funds.

     In February 1999 Quantum agreed to allow the Trust's  subsidiary to acquire
the  additional  10% equity  interest  before the related $1.99 million loan was
made.  The two venture  capital funds  contributed  $10,000 to the subsidiary to
purchase that equity interest and have been credited with  beneficial  ownership
of that 10% interest pending their providing the $2 million for the loan.

     The co-investment subjects the Managing Shareholder to a potential conflict
of interest because of its common ownership with Ridgewood Capital  Corporation.
The Trust and the two  venture  capital  funds (to the extent they invest in the
subsidiary) would have proportional interests in all securities of Quantum owned
by the subsidiary.

         Quantum  designs  equipment and controls for two primary  markets:  (i)
package  handling -- consisting  of boxed or bagged  packages that are generally
sized for finished goods in a manufacturing or distribution operation;  and (ii)
small  product  handling  and sorting --  consisting  of mail  order,  video and
cassette  distribution,  bulk  mailings,  overnight  mail,  software  and books.
Quantum has  combined  the  elements of conveyor  technology,  controls and data
collection for each of these  applications  into a modular and flexible conveyor
system that has data collection  capability as well as location  control of each
product in the conveyor  system.  Quantum markets its products  primarily to the
package-handling  segment of the  conveyor  systems  industry,  which  comprises
10-15% of the $55.0 billion domestic market for conveyor systems.

         Quantum's  newest  equipment for sale includes (i) the Quantum Quantrak
Conveyor, comprised of alternating plastic lifter extrusions and standard belts.
As products are conveyed on conveyor  belts,  lifters are raised by low-pressure
air above the height of the belt  surface  when  products  need to be stopped or
spaced;  (ii) The Tracker  Assembly - consisting of a series of molded  urethane
wheels which give package position and length, and verify data transfers;  (iii)
The Universal Controller - a micro-based  pre-programmed  product which includes
all control functions required for a conveyor system;  (iv) The Tracker Program;
(v)  QuikSort  Bi-Directional  Diverter - a small  product  sorting  system with
sorting rates of up to four a second;  (vi) MaxiSort - a bi-directional  sorting
system utilized in the overnight package and flat delivery  business;  and (vii)
QuanStak - a mechanical  device used to automatically  stack like product from a
sorting system.

         Quantum has partnered  with  Northrop-Grumman  Corporation  to sell the
MaxiSort  system and other Quantum  systems to the U.S. Postal Service and other
governmental   agencies  with  similar   material   handling   needs.   MaxiSort
automatically  routes  heavy mail trays onto the  appropriate  pallets for quick
shipment,  replacing  manual  carrying  or  fork-lift  movement  of  the  trays.
Northrop-Grumman  will design and  engineer the two fully  integrated  prototype
systems  with  MaxiSort as the central  component.  Quantum  also has obtained a
recent  order  of  about  $250,000  from a  systems  integrator  for  use of its
QuickSort system at a large retailer's  distribution center and a $160,000 order
for a MaxiSort system at Venator Group, Inc., the specialty  retailing successor
of Woolworth Corp.

     The  originators of the Quantum systems were Matthew  Mulhern,  Hans J. Lem
and Henry Pahl, who had organized a corporation  named Quantum Conveyor Systems,
Inc. ("Old Quantum") to develop and manufacture the systems. The Trust organized
Quantum  in  August  1998.  In  early   September  1998,  Old  Quantum  and  its
shareholders contributed substantially all of Old Quantum's assets to Quantum in
exchange for a 37.2% equity interest in Quantum.  Mr. Lem, who owned certain key
patents and  intellectual  property,  was also issued a 37.2% equity interest in
exchange for those  patents and  intellectual  property.  In  addition,  Quantum
assumed Old Quantum's  indebtedness to Mr. Mulhern,  who received Quantum's note
for $4 million secured by all of Quantum's property. At the closing, Mr. Mulhern
and Mr. Lem were each given a $250,000  loan from Quantum.  Mr.  Mulhern and Mr.
Lem also entered into three-year  executive  employment  contracts with Quantum,
terminable for cause and renewable for up to two  additional  years at Quantum's
option. The Trust has designated the chief financial officer of Quantum, Jeffrey
Strasberg.  Mr.  Strasberg  is an employee of the  Managing  Shareholder  and of
Ridgewood Capital Corporation.

     The existing  loan note is also  secured by all of  Quantum's  property and
under an intercreditor  arrangement with Mr. Mulhern, the subsidiary's note will
share  pro rata with Mr.  Mulhern's  in any  repayments  or  recoveries.  If the
subsidiary exercises the option to lend an additional $1,990,000, the additional
loan would also be subject to the intercreditor agreement.

(v)  MetaSound Systems, Inc.

         MetaSound Systems, Inc. is developing "digital audio marketing" systems
tied into the  Internet.  The  systems are  designed to provide  digital-quality
messages,  music and sound  information  to  telephone  callers  on hold or in a
call-center queue while they wait or to shoppers,  visitors and others in retail
stores and waiting areas.  MetaSound's  products feature 100% digital sound, the
ability to update and modify  messages either at the call site or from a central
broadcast  location  through the Internet or telephone  lines and the ability to
broadcast  content  from  many  sources  economically.  Other  features  include
superior  abilities for the customer to mix voice messages,  music and broadcast
content  and the  ability  of the  customer  to  manage  multiple  installations
world-wide from a single point.

         MetaSound is striving to offer a complete product by integrating  three
separate  elements:  content,   distribution  and  customer-level  hardware  and
software.  Currently,  most on-hold and similar  systems play  messages or music
from audiocassettes made or purchased by the customer. Updates require recording
a new cassette.  Some large media  companies  provide music and  information  by
telephone to the customer but do not provide  fully  variable  content.  Because
MetaSound's  systems can efficiently  rebroadcast  content  provided through the
Internet,   MetaSound  has  negotiated  a  non-exclusive  content  license  with
CNN-On-Hold  to provide  news to and through  MetaSound  systems.  MetaSound  is
exploring other similar  arrangements.  In addition,  MetaSound  itself provides
broadcast  application  services allowing  customers to create and produce their
own broadcasts and a library of music and sounds to support those broadcasts.

         MetaSound   has   also   signed    distribution    partnerships    with
telecommunications  companies,  hardware "original equipment  manufacturers" and
resellers such as GTE Network Services,  SBC  Communications  and Iwatsu.  These
will allow  Metasound to offer both  hardware  sales and support and  economical
distribution  of content to  customers.  Finally,  MetaSound  is  continuing  to
develop its hardware  and software to appeal to both small and large  businesses
and to give its customers  maximum ability to create custom messages.  MetaSound
is installing its systems at 700 Office Depot locations (with a 36 month service
contract) , Compaq Computer Corp. (250 units),  AT&T Corp. (50 units),  McKesson
Water  Products  Inc.  (50 units) and Aveda  Corp.  (180  units) and is actively
negotiating additional and repeat business.

         MetaSound believes that its competitive advantages are its high-quality
audio,  its ability to create alliances and partnerships to give its customers a
complete  solution,  and  its  ability  to  download   electronically   digital,
broadcast-quality,  real-time  messages to any telephone  system with  MetaSound
equipment.  MetaSound's  products have won the Call Center Solutions  magazine's
1998 "Editor's Choice Award," the 1998 and 1997 Teleconnect Magazine "Best of CT
Expo" awards, and the 1997 "Product of the Year" awards by Teleconnect  Magazine
and Computer Telephony Magazine.

         MetaSound  was  organized  in  September  1996 and has  developed  four
related  audio  broadcast  systems  for  customer  use as well as a package  for
customers to create  messages and sound tracks.  Through  November  1998, it had
raised  $5,330,000 in common and preferred equity and had additionally  borrowed
$545,000 in long term debt.

     In December 1998, the Manager Shareholder and Ridgewood Capital Corporation
created Ridgewood  MetaSound,  LLC. Ridgewood MetaSound received initial funding
of  approximately  $2,500,000 from the Trust.  At that time Ridgewood  MetaSound
acquired  approximately  4,676,000  shares of the Series C Preferred  Stock at a
price of $.54 per  share  (totalling  $2,525,000)  and  received  a  warrant  to
purchase up to 4,676,000  additional  shares  which  expires May 31, 1999 at the
same price. Ridgewood MetaSound has agreed to exercise the warrant in full on or
before May 31, 1999, based on MetaSound's  statement that it has already met the
required  sales and product  development  targets.  Those  targets  include firm
contracts for or completed sales of at least 800 systems,  many of which must be
with large businesses,  execution of the license agreement with CNN-On-Hold at a
fee not  exceeding 30% of revenues,  and  execution of at least two  remarketing
agreements.  An  additional  warrant for 2 million  shares of Series C Preferred
Stock was also  granted to Ridgewood  MetaSound  at the same price,  expiring in
2003.  Ridgewood MetaSound also has received a warrant to purchase 50,000 shares
of  MetaSound's  Series B Preferred  Stock at $.52 per share in connection  with
temporary  financing that was rolled into the purchase of the Series C Preferred
Stock.

     The  $2,525,000  funding for  Ridgewood  MetaSound's  anticipated  May 1999
exercise  of the  4,676,000  share  warrant is  expected  to be  provided by the
venture  capital funds  sponsored by Ridgewood  Capital  Corporation  through an
investment  by them in  Ridgewood  MetaSound,  divided  in  proportion  to their
available  funds.  If that  occurs,  the Trust and the  venture  funds  will own
undivided  interests in Ridgewood  Metasound in  proportion  to the capital they
contribute and none will have any preferences over another.

         After the December  1998  transactions,  MetaSound  has three series of
preferred stock (A, B and C), all of which particpate pro rata and none of which
has a preference over the others,  although all preferred stock is senior to the
Common  Stock.  The Series C Preferred  Stock has an annual  dividend  amount of
$.00432  per  share  and a  liquidation  amount  of $.54 per  share.  There  are
approximately  320,000  shares of Series A  Preferred  Stock  having an  annual,
non-cumulative  preferred  dividend  of $.08 per share and  4,751,000  currently
outstanding  shares of Series B Preferred  Stock with an annual,  non-cumulative
preferred dividend of $.0416 per share. In the event of liquidation,  each share
of preferred stock is entitled to receive  declared but unpaid dividends plus $1
per share (Series A), $.52 per share (Series B) and $.54 per share (Series C). A
merger of MetaSound that does not give the holders of all of MetaSound's stock a
majority of the voting power of the successor company, or a sale of substanially
all  of  its  assets,   will  trigger  the  liquidation  rights.  The  preferred
liquidation  amounts are senior to the Common Stock but if the available  assets
are  insufficient  to fund all  preferred  liquidation  amounts,  the  preferred
stockholders  of all classes share pro rata with no class having any  preference
over another.

         Each share of the Series B and C Preferred  Stock is  convertible  into
one share of Common  Stock and each  share of the  Series A  Preferred  Stock is
convertible  into four shares of Common  Stock.  Conversion  is automatic if the
Company closes an underwritten public offering of Common Stock for at least $7.5
million  or if 2/3  of  the  preferred  stock,  voting  as a  single  class,  so
determines.   All  classes  of  preferred  stock  have  customary  anti-dilution
protections  except that no protection  is given for exercise of employee  stock
options or benefits  (but no more than  3,500,000  shares may be issued for that
purpose).  The consent of a majority of the holders of all classes of  preferred
stock,  voting  together as a single  class,  is needed for any amendment to the
terms of any class of  preferred  stock,  the  creation  of stock  senior to the
preferred stock, or other actions materially and adversely affecting the holders
of preferred stock. For that reason, if the warrant expiring May 31, 1999 is not
exercised,  holders  of  classes  of  preferred  stock  other  than the Series C
Preferred  Stock may be able to  adversely  change the terms or  position of the
Series C  Preferred  Stock.  So long as there are at least 4  million  shares of
Series C Preferred Stock outstanding,  (a) the holders of the Series C Preferred
Stock are entitled to elect two directors,  if the number of directors is six or
fewer, (b) they may elect three directors, if there are seven or eight directors
in total,  (c) they may elect four  directors,  if there are nine  directors  in
total and (d) the number of directors cannot be changed without the consent of a
majority of the holders of the Series C  Preferred  Stock,  voting as a separate
class.  The  holders  of the  Series A and  Series  B  Preferred  Stock,  voting
together,  have the right to elect the  remaining  directors.  Each share of the
preferred  stock  otherwise  has the same voting power as attaches to the Common
Stock  into which it can be  converted,  and is voted  together  with the Common
Stock as a single voting class.

         Ridgewood  MetaSound also received  registration  rights for the Common
Stock into which its preferred  stock can be converted,  subject to the right of
an  underwriter  of Metasound to require a 180 "lock-up" if the shares are to be
sold in an initial public  offering of Metasound,  the right to receive  certain
financial  information  and limited first refusal  rights with regard to certain
non-public and small public offerings of securities by MetaSound.

Condensed financial information for MetaSound is as follows:

                         Nine months ended Dec. 31, 1998
Net operating revenues ........................................     $   245,000
Income (loss) from operations .................................      (1,117,000)
Net income ....................................................      (1,496,000)
Total assets on end date ......................................       2,748,000
Long-term debt ................................................         642,000
Series A and B Preferred Stock ................................       2,019,000
Series C Preferred Stock ......................................       2,525,000
Total stockholders' equity ....................................       1,369,000


Ridgewood Waterpure

     Ridgewood  Waterpure  Corporation  ("Ridgewood  Waterpure")  is a 54% owned
subsidiary of the Trust that is developing an advanced water distillation system
that  was  previously  developed  by  Superstill   Corporation   ("Superstill").
Superstill  became a debtor under Chapter 11 of the Bankruptcy  Code in 1997. In
December 1998,  Ridgewood Waterpure acquired  substantially all of the assets of
Superstill  (consisting  primarily of patents,  intellectual property rights and
in-process research and development) under a plan of reorganization  approved by
the  U.S.   Bankruptcy  Court  for  the  Northern  District  of  California  and
Superstill's creditors.

     The Trust  invested  $3,500,000  and acquired 54% of Ridgewood  Waterpure's
common stock.  Creditors and  licensors of  intellectual  property to Superstill
received  the  remaining  46% of the common  stock in exchange  for their claims
against  Superstill.  The Trust's  invested  funds will be used by  Waterpure to
design,  develop and commercialize  water distillation and purification  systems
using the Superstill technology.

     The Trust caused Ridgewood  Waterpure to write off the entire amount of the
acquired  in-process  research  and  development  asset  ($1,968,102)  based  on
generally accepted accounting principles.

     The Trust intends to lease  manufacturing  space in Oak Harbor, Ohio and to
begin  shortly  initial  construction  of prototype  water  purification  units.
Completion  of  prototypes  and  testing  is  expected  to be in late  1999.  If
successful, the Trust intends to expand into commercial production.

 (vii)  Proposed Investments.

     The Managing Shareholder is considering several additional  investments for
the Trust's  approximately  $42 million of uninvested  funds.  In March 1999 the
Managing  Shareholder  signed a letter  of  intent  to  acquire  five  operating
landfill gas Projects as well as 17 Projects in  development  located in England
and  Scotland  for  approximately  $33  million.  If the  investment  is made as
planned,   the  Managing   Shareholder  expects  that  the  Trust  will  provide
approximately  $15  million of the  investment  and that the  Growth  Fund would
provide  the  remainder.  The  Managing  Shareholder  is  also  considering  the
development  of an 50 megawatt  oil-fired  power  plant in Surinam,  in northern
South  America,  for an investment of  approximately  $27 million,  of which the
Trust on current expectations would provide approximately $12 million.

     If  investments  in any of  these  Projects  did not  occur,  the  Managing
Shareholder   is   considering   power   plant  and   desalination   development
opportunities in Egypt,  purchase of a small  hydroelectric plant in the eastern
U.S., development of other small power plants in Caribbean Basin countries,  and
possible Projects in Asia.

     The Trust is actively seeking additional Projects for investment, either by
itself  or  in  conjunction  with  other  programs  sponsored  by  the  Managing
Shareholder if such programs are authorized to do so.

     If the Trust and another  program with similar  investment  objectives have
funds available at the same time for investment in the same or similar Projects,
and a  conflict  of  interest  thus  arises  as to which  program  will make the
investment,  the Managing  Shareholder  will review the investment  portfolio of
each program. It will make the investment decision on the basis of such factors,
among others,  as the effects of the investment on the  diversification  of each
program's portfolio,  potential alternative investments,  the effects investment
by either program would have on the program's risk-return profile, the estimated
tax effects of the investment on each program, the amount of funds available and
the length of time those funds have been available for investment.  If more than
one program has funds  available for investment and the factors  discussed above
and other  considerations  indicate  that the  Project has  approximately  equal
benefit for each program,  the Managing  Shareholder will generally allocate the
opportunity  to each program in order of its  organization  date. In that event,
the  Managing  Shareholder  will cause the  oldest  program to commit all of its
reasonably available funds to that opportunity; if those funds are insufficient,
the remainder of the opportunity will be offered to each successive program with
reasonably  available  funds until the investment  opportunity  is exhausted.  A
similar process would be followed for divestiture  opportunities  or competitive
electricity sales.

     An additional  conflict could arise where the entities make  investments in
different forms, which would be the case where one entity's  investment took the
form of equity and the other's  took the form of debt.  Although it  anticipates
that  this  situation  is  unlikely  to  arise,  the  Managing  Shareholder,  if
practicable,  would attempt to resolve any conflict of this type by reference to
the terms  negotiated  by other  debt or  equity  participants  in the  relevant
Project or similar Projects.  Although the Managing  Shareholder  believes these
practices may reduce potential  conflicts of interest of this type, there can be
no assurance that the interests of the entities will not diverge.

(3)  Project Operation.

     The Maine Hydro  Projects are  Qualifying  Facilities  under PURPA and have
entered into long-term Power Contracts with their local distribution  utilities.
Under the Power Contracts for the Maine Hydro Projects,  the local utilities are
obligated to purchase the entire  output of the Projects (up to rated  levels)at
formula prices.

     The Maine  Hydro  Projects  are  licensed  or  operated  as  "run-of-river"
facilities, which means that the amount of water passing through the turbines is
directly  dependent upon the  fluctuating  level of flow of the river or stream.
The Projects  have a very  limited  ability to store water during high flows for
use at low flow periods. As a result, these Projects are unable to earn capacity
payments  and are often  unable to produce  high  output in the peak  summer and
winter months when spot  electricity  rates are highest.  Instead,  they produce
electric  energy and sell it as  generated  at the fixed  rates  provided in the
Power Contracts. No separate payments are made for capacity or capability.

     The Maine Biomass  Projects do not have long-term  Power Contracts and sell
their  capability  and output  competitively.  To date,  the Projects  have been
unable to obtain  Power  Contracts  (although  negotiations  are  underway  with
several power marketers and competitive  electricity suppliers) or to sell their
energy   output.   The  Projects  are  selling   "installed   capability"  on  a
month-to-month basis as described above.

     The Trust's  decisions to purchase Projects in New England have been driven
in part by the  relatively  high  prices  paid for  energy in the  region  and a
shortage of generating  capacity  caused in large part by the forced shutdown of
four large  nuclear  power plants owned by Northeast  Utilities,  Inc. and other
utilities for  regulatory  and safety  violations.  See the  discussion at Items
1(c)(6)  Trends in the Electric  Utility and  Independent  Power  Industries and
1(c)(7)  -  Competition  below  for  information   regarding  proposed  capacity
additions and cost factors that may offset that shortage.

     The Santee River Project is under construction and the Ridgewood  Waterpure
Project is in testing and production planning. For information about MetaSound's
operations, see item 1(c)(3)(v) above.

     Customers of Projects that  accounted for more than 10% of annual  revenues
from operating sources to the Trust in each of the last three fiscal years are:

<TABLE>

<CAPTION>
                                    Calendar year
                                1998          1997          1996

<S>                         <C>          <C>             <C>
Central Maine Power Company     52%           80%<F1>        <F2>
  (Maine Hydro Projects)
Bangor Hydro-electric Co.       13%           20%<F1>        <F2>
  (Maine Hydro Projects)

<FN>
<F1>Estimated.
<F2>Not  meaningful.  Trust owned Maine Hydro Projects only for period from
 December 23 -December 31, 1996.</FN>
</TABLE>

     The major costs of a Project  while in  operation  will be debt service (if
applicable), fuel, taxes, maintenance and operating labor. The ability to reduce
operating  interruptions and to have a Project's  capacity available at times of
peak demand are critical to the profitability of a Project. Accordingly, skilled
management is a major factor in the Trust's business.

     The Maine Hydro  Projects  are managed by their former  owner,  CHI Energy,
Inc., which owns or operates other  hydroelectric  facilities in the region, and
the Maine Biomass Plants are currently managed by RPMCo.

     Electricity  produced by a Project is typically  delivered to the purchaser
through  transmission  lines which are built to interconnect  with the utility's
existing power grid, or in the case of the Maine Biomass  Projects,  via utility
lines  owned by Bangor  Hydro-Electric  Company  ("Bangor  Hydro")  to the ISO's
transmission  facilities.  Bangor  Hydro's  tariffs  for  transmission  and  for
electricity  demand  (incurred  by the need for the Maine  Biomass  Projects  to
purchase electricity in order to start boilers,  generators and other equipment)
imposed a significant  burden on their potential  profitability.  After extended
investigation,  the Managing  Shareholder and Indeck Operations,  Inc. concluded
that the Projects were eligible under  regulations of the New England Power Pool
and ISO-New England to be considered as directly  connected to the ISO's "pooled
transmission  facilities." That status would  significantly  reduce transmission
charges for the Projects. Indeck Maine petitioned the New England Power Pool and
ISO-New  England  to  recognize  the  Projects  as  being  connected  to  pooled
transmission  facilities  and when those  petitions  were  disapproved,  brought
administrative  complaints in October 1998 before the Federal Energy  Regulatory
Commission  ("FERC")  alleging  that the failures to recognize the Projects were
anti-competitive,  in violation of system rules  approved by FERC actions and in
violation of FERC  deregulatory  orders.  Those  complaints are pending.  Indeck
Maine has also entered  negotiations with Bangor Hydro and the New England Power
Pool for a package of special  facilities  agreements  that would remove most of
the  tariff  disadvantages.  Those  negotiations  are  near  conclusion  but any
settlement  will  require  approval  by both FERC and the Maine  Public  Utility
Commission.

     The overall demand for electrical energy is somewhat seasonal,  with demand
usually  peaking  in the  summertime  as a result  of the  increased  use of air
conditioning.  As described  above,  peak periods in New England  generally  are
limited to daytime and evening  hours in the summer  months (with a smaller peak
in Maine for  light  and  heating  during  the  winter)  and  power  prices  are
significantly higher during those periods.

     The  technology  involved  in  conventional  power plant  construction  and
operations  as well as electric  and heat energy  transfers  and sales is widely
known  throughout the world.  There are usually a variety of vendors  seeking to
supply the necessary  equipment  for any Project.  So far as the Trust is aware,
there are no  limitations  or  restrictions  on the  availability  of any of the
components  which would be  necessary  to  complete  construction  and  commence
operations of any Project.  Generally,  working capital  requirements  are not a
significant  item in the  independent  power  industry.  The cost of maintaining
adequate supplies of fuel is usually the most significant  factor in determining
working capital needs.

     The Maine Hydro  Projects owned by the Trust use  hydroelectric  energy and
are not subject to fuel price changes or supply interruptions. Because the Maine
Hydro  Projects  are  "run-of-river"   hydroelectric  plants,  their  output  is
dependent  upon rainfall and snowfall in the areas above the dams and output has
varied  in the  range of 30% over or 25%  below  the  average  output  from 1987
through 1997.  Output is generally lowest in the summer months and in the winter
and highest in the spring and fall.

     The Maine Biomass Projects burn wood waste,  including brush and chips from
woodcutting  or processing of raw wood at paper mills or sawmills.  The price of
wood waste  fluctuates and is a primary  determinant of whether the Projects can
run  profitably  or not.  The major  causes of the  fluctuation  are  changes in
woodcutting or wood processing  volumes caused by general  economic  conditions,
increases  in the use of wood  waste by paper  mills for their own  cogeneration
plants,  changes in demand from competing  generating plants using wood waste or
paper mill refuse and weather conditions.

     The Santee River Project is under construction. When completed, the primary
raw materials for the Santee River Project will be used tires, which are readily
available, electricity (purchased from the local rural electric cooperative) and
liquid nitrogen for freezing the tires (which is available,  as described above,
under a long-term contract from a producer of liquid oxygen).  Accordingly,  the
Santee  River  Project is not  currently  expected to be subject to  unexpected,
adverse raw material price changes or supply interruptions.

     In order to  commence  operations,  most  Projects  require  a  variety  of
permits,  including zoning and environmental  permits.  Inability to obtain such
permits will likely mean that a Project will not be able to commence operations,
and even if  obtained,  such  permits must usually be kept in force in order for
the Project to continue its operations.

     Compliance  with  environmental  laws  is  also a  material  factor  in the
independent power industry. The Trust believes that capital expenditures for and
other costs of environmental  protection have not materially  disadvantaged  its
activities  relative  to other  competitors  and  will not do so in the  future.
Although the capital costs and other  expenses of  environmental  protection may
constitute a significant  portion of the costs of a Project,  the Trust believes
that those costs as imposed by current laws and  regulations  have been and will
continue to be largely  incorporated into the prices of its investments and that
it accordingly  has adjusted its investment  program so as to minimize  material
adverse effects. If future environmental  standards require that a Project spend
increased  amounts for  compliance,  such increased  expenditures  could have an
adverse  effect  on the Trust to the  extent  it is a holder  of such  Project's
equity securities.

     Of the 14 Maine Hydro  Projects,  six operate under existing  hydroelectric
project licenses from the Federal Energy Regulatory  Commission ("FERC") and two
have license applications pending. Changes to the six other, unlicensed Projects
(which are currently  exempt from  licensing) may trigger a requirement for FERC
licensing.  FERC licensing requirements have become progressively more stringent
and often require that output of a Project that is being  licensed or relicensed
be  restricted   in  order  to  allow  a  more  natural  flow  of  water,   that
archaeological  and  historical  surveys be  undertaken,  that public  access to
waterways be provided  (sometimes  requiring  purchase of property rights by the
hydroelectric  licensee)  and that  various  site  improvements  be made.  These
requirements can materially impair a project's  profitability.  See Item 1(c)(8)
Business - Narrative Description of Business Regulatory Matters.

(4) Trends in the Electric Utility and Independent Power Industries

         There are numerous  references for further  information on the electric
power industry.  Interested  persons may particularly  wish to refer to the U.S.
Department of Energy's Annual Energy Outlooks and special  studies,  prepared by
the department's  Energy Information  Administration  (the "EIA").  Much of this
information is available on EIA's World Wide Web site at  http://www.eia.doe.gov
under the "Electric"  heading.  Neither the Department of Energy nor EIA nor any
other agency of the United States  Government has endorsed or approved the Trust
or the Investor Shares and the Trust takes no responsibility for the preparation
or content of the Department of Energy's publications.

         (i)  Qualifying Facilities with Long-Term Power Contracts

         The Trust is somewhat insulated from recent  deregulatory trends in the
electric  industry  because the Maine Hydro Projects are  Qualifying  Facilities
with long-term  formula-price Power Contracts.  Each Power Contract now provides
for rates in excess of current  short-term rates for purchased power.  There has
been speculation that in the course of deregulating the electric power industry,
federal or state regulators or utilities would attempt to invalidate these power
purchase  contracts as a means of causing owners of independent  power plants to
bear  some  of  the  costs  of   deregulation.   Further,   there  are   federal
constitutional provisions restricting actions to impair existing contracts.

     To date, the Federal  Energy  Regulatory  Commission and state  authorities
have  ruled  that  existing  Power  Contracts  will  not be  affected  by  their
deregulation initiatives.  The regulators have so far rejected the requests of a
few utilities to invalidate existing Power Contracts.  Instead, most state plans
for deregulation of the electric power industry (including those in Maine) treat
the value of long-term  Power  Contracts that are above current and  anticipated
market  prices as "stranded  costs" of the  utilities.  The  utilities are to be
allowed to recover  those costs  during a transition  period.  This is typically
done by  imposing a  transition  fee or  surcharge  on rates that is paid to the
utility.

     No material  action has yet been taken by federal or state  legislators  to
date to impair independent power projects' existing power sales contracts,  and.
There can not be any assurance, however, that the rapid changes occurring in the
industry and the economy as a whole would not cause  regulators  or  legislative
bodies  to  attempt  to change  the  regulatory  structure  in ways  harmful  to
Independent  Power  Projects  or to attempt  to impair  existing  contracts.  In
particular,  some  regulatory  agencies have urged  utilities to construe  Power
Contracts  strictly  and have  required  utilities to police  independent  power
projects' compliance with those Power Contracts (and in California,  fuel supply
contracts) vigorously.

     Predicting the  consequences  of any  legislative  or regulatory  action is
inherently speculative and the effects of any action proposed or effected in the
future may harm or help the Trust.  Because of the  consistent  position  of the
regulatory  authorities to date and the other factors  discussed here, the Trust
believes that so long as it performs its obligations  under the Power Contracts,
it will be entitled to the benefits of the contracts.

     In recent years,  many  electric  utilities  have  attempted to exploit all
possible means of terminating  Power Contracts with independent  power projects,
including  requests to  regulatory  agencies  and  alleging  violations  of even
immaterial terms of the Power Contracts as justification  for terminating  those
contracts.  If such an attempt  were to be made,  the Trust might face  material
costs in contesting  those utility  actions.  Other  utilities have from time to
time made offers to purchase and  terminate  Power  Contracts  for lump sums. No
such offer has been  suggested  or made to the Trust,  although  the Trust would
entertain such an offer.

     Finally,  the Power  Contracts are subject to  modification or rejection in
the  event  that  the  utility  purchaser  enters  bankruptcy.  There  can be no
assurance that the utility purchaser will stay out of bankruptcy.

     After the Power  Contracts for the Maine Hydro  Projects  expire at varying
times from 2008 to 2017 or those  contracts  terminate for other reasons,  those
Projects  under  currently  anticipated  conditions  would be free to sell their
output on the  competitive  electric supply market,  either in spot,  auction or
short-term  arrangements or under  long-term  contracts if those Power Contracts
could be obtained. There is no assurance that the Projects could then sell their
output or do so profitably.  The Maine Hydro Projects may have  diseconomies  of
small scale and, because they are run-of-river  projects,  they cannot commit to
producing  fixed amounts of  electricity on schedule.  This might  significantly
restrict  demand for their output  after their Power  Contracts  terminate.  The
Trust is unable to anticipate  whether the Maine Hydro  Projects would have cost
disadvantages  or  advantages  after their Power  Contracts  expire.  It is thus
impossible to predict the  profitability of those Projects after  termination of
the Power Contracts.

         (ii)  Maine Biomass Projects and "Merchant Power Plants"

         The Maine Biomass  Projects do not have long-term  Power  Contracts and
are exposed to the newly-deregulating  market for electricity generation.  Those
Projects and other similar plants  without  long-term  Power  Contracts that the
Trust may acquire are sometimes  described as "merchant  power  plants"  because
they sell their output on the open market. As a consequence of federal and state
moves  to  deregulate  large  areas  of the  electric  power  industry  and  the
existence, spurred by PURPA, of private competitors to electric utilities in the
market for generating electricity, a number of interrelated trends are occurring
that will affect merchant power plants.

Continued Deregulation of the Generating Market

         The  Comprehensive  Energy  Policy Act of 1992 (the "1992  Energy Act")
encourages  electric utilities to expand their wholesale  generating capacity by
removing  some,  but not  all,  of the  limitations  on their  ownership  of new
generating  facilities that qualify as "exempt wholesale  generators"  ("EWG's")
and on their  ability  to  participate  in  merchant  power  plants.  Many state
electric  utility   regulators  are  considering   plans  to  further  encourage
investment in wholesale  generators and to facilitate  utility decisions to spin
off  or  divest  generating  capacity  from  the  transmission  or  distribution
businesses of the  utilities.  As a result,  merchant power plants in the future
will face  competition not only from other  independent  power plants seeking to
sell  electricity on a wholesale basis but also from EWG's,  electric  utilities
with excess capacity and independent  generators spun off or otherwise separated
from their parent utilities.

Wholesale-level Access to Transmission Capacity

         Without access to transmission  capacity, an independent power plant or
other  wholesale  generator can only sell to the local electric  utility or to a
facility  on  which  it is  located  (or,  in some  states,  which  adjoins  its
location).  The most important  changes occurring in the electric power industry
are the  efforts  of  FERC to  compel  utilities  and  power  pools  to  provide
nationwide access to transmission  facilities to all wholesale power generators.
When combined with the increased  competition  in the generating  area,  this is
likely to create an  electricity  supply market that may  profoundly  change the
operations of electric utilities, consumers and independent power plants.

         The 1992 Energy Act empowered  FERC to require  electric  utilities and
power pools to transmit  electric power generated by other wholesale  generators
to wholesale  customers.  This process is referred to as "wheeling" the electric
power.  Essentially,  the generator contributes power to a utility or power pool
and is credited  with that  contribution,  and the utility or power pool serving
the wholesale  customer  makes  available  that amount of electric  power to the
customer and debits the generator. Wheeling is effected between power pools on a
similar basis.

         On April 24,  1996 the Federal  Energy  Regulatory  Commission  adopted
Order  888,  which  requires  electric  utilities  and  power  pools to  provide
wholesale transmission  facilities and information to all power producers on the
same terms,  and endorses the recovery by utilities of uneconomic  capital costs
from  wholesale  customers who change  suppliers.  The  utilities  would also be
required to furnish ancillary services,  such as scheduling,  load dispatch, and
system protection,  as needed. These rights,  however, would apply only to sales
of new  electric  power over and above  existing  utility  supply  arrangements.
Non-utility  wholesale  deliveries  of  electricity  have grown  vigorously  and
according  to the EIA have  grown  at the rate of 21% per year in the ten  years
from 1986 to 1996.

         The Maine Biomass  Projects are dependent on wheeling power in order to
sell their  capacity or energy to  purchasers  other than Bangor  Hydro-electric
Company,  as described above. Order 888 takes no action to modify existing Power
Contracts.  The  order  intends  to  create a  competitive  national  market  in
electricity  generation  and thus may create  additional  pressure  on  electric
utilities to seek changes to long-term  power purchase  contracts,  as described
further  below.  State public utility  regulatory  agencies must also review and
approve certain aspects of wholesale power deregulation,  and those agencies are
currently holding proceedings and making determinations. In addition to the FERC
order or other  Congressional  or  regulatory  actions  that may result in freer
access to transmission capacity,  agreements with Canada, and to a lesser extent
with Mexico,  are leading toward access for those countries'  generators to U.S.
markets.  In particular,  certain Canadian  suppliers,  such as HydroQuebec (the
Quebec  provincial   utility)  are  already  offering   substantial  amounts  of
electricity in New England, and more may be offered if sufficient  generation or
transmission  capacity  can be approved  and built.  These  agreements  may also
afford access to those  countries'  markets in the future for independent  power
plants.  As a result,  there is the possibility that a North American  wholesale
market will develop for electricity,  with additional  competitive  pressures on
U.S. generators.

Retail-level Competition

         An even more  radical  prospect  for the  electric  power  industry  is
retail-level competition,  in which generators would be allowed to sell directly
to  customers by using (and paying a fee for) the local  utility's  distribution
facilities.  Retail-level  competition presupposes the ability to wheel power in
the  appropriate  amounts at  economic  costs from the  generating  plant to the
electric  utility  whose wires link to the retail  customer  (typically  a large
industrial,  commercial or  governmental  unit) and the ability to use the local
utility's facilities to deliver the electricity to the customer.  In addition to
the business and regulatory issues arising from wholesale wheeling, retail-level
competition  raises  fundamental  concerns  as to the  ability of  utilities  to
recover  stranded  costs  at  the  generating  and  distribution   levels,   the
possibility  that smaller  customers  will have less  ability to demand  pricing
concessions,  incentives for governmental  agencies to act as intermediaries for
consumers  and  the   functions  of   state-level   regulatory   agencies  in  a
price-competitive  environment  which may be inconsistent with their traditional
price-setting and service-prescribing roles.

         Although  retail  deregulation  is  being  implemented  currently  on a
state-by-state  basis,  there are some common  elements which are expected to be
included  in  the  Maine  and  Massachusetts  deregulation  plans.  First,  most
deregulating  states will require that local utilities will be the "suppliers of
last  resort,"  which are  required  to serve any  customers  in their  existing
territories who do not purchase  generated  electricity  from another source and
which are required to obtain adequate  generating  capacity to meet those needs.
Second,  most  deregulating  states  are  requiring  that  utilities  and  other
suppliers of electricity work through "independent system operators" such as the
ISO, which coordinate  purchase,  transmission  and sale of electricity  between
generators and distribution  utilities.  Independent  system operators will have
significant responsibility for supply reliability.

         Third,  most  deregulating  states  are  requiring  that  utilities  be
compensated  for stranded costs (which include  long-term  Power  Contracts with
Independent power projects that are above current and anticipated market prices)
for a transition period.  This is typically done by imposing a transition fee or
surcharge on rates that is paid to the utility.  In some states,  utilities  are
being  encouraged or ordered to issue bonds or other  financial  instruments  to
retire  stranded  cost assets or  contracts,  supported by  transition  charges.
Fourth,  many states are requiring  local utilities to divest a large portion or
all of their  generating  assets or to sell their rights under  long-term  Power
Contracts.  The states have cited concerns such as the anti-competitive  effects
of allowing  the  utilities,  which  retain a monopoly  over the wires that take
electricity the last stages to the customer, to own generating assets.  Further,
the sale of assets (or  above-market  Power  Contracts)  sets a market price for
those assets and allows a somewhat  objective  computation of the stranded costs
related to those assets or contracts.  For example,  the true stranded cost of a
nuclear plant is approximately  the difference  between the value assigned to it
under state regulation and the price someone will pay for it at auction.

         Fifth,  utilities  having stranded costs are expected to mitigate those
costs by buying out contracts or selling costly assets. Finally, many states are
attempting  to  protect  generators  who  use  "renewable  fuels"  or  that  are
considered to have  environmental or social benefits.  As discussed below, Maine
and Massachusetts are doing so.

Price and Cost Pressures

         The  pricing  pressures  that  retail and  wholesale  deregulation  are
bringing are expected to decrease the marginal cost of electricity.  Competition
will force utilities and generators to reduce overhead and administrative costs,
to trim  operation and  maintenance  costs and to more  efficiently  buy and use
fuel. Further, wholesale and retail deregulation and new generating technologies
discussed below are expected to significantly reduce capital costs. For example,
electric utilities  currently  maintain large amounts of generating  capacity in
reserve to meet peak loads (for example,  to serve customers  during a heat wave
in July).  According to the EIA, competition may lead to pricing strategies that
reduce  these  peak  loads.   Competition  may  also  force  utilities  to  stop
maintaining  high-cost reserve capacity and to take greater risks.  Finally, the
widening  wholesale  market for electricity may increase  efficiency by allowing
utilities and power consumers to obtain distant, lower-cost capacity for reserve
purposes  rather  than  maintain  local,  higher  cost,   underutilized  reserve
capacity. For these and other reasons, the EIA currently estimates that national
average electricity rates in real terms (adjusted for inflation) will decline to
about 6.3 cents per  kilowatt-hour  in 2015 from the 1996  average  level of 7.1
cents per kilowatt-hour.

         As these trends  continue,  high-cost  generators will be disadvantaged
and may fail.  The  Trust's  small-scale  generating  plants have tended to have
higher  per-kilowatt  hour  costs  (except  for  fuel)  than  new,  large  scale
generating  plants.  The  fuel  cost  advantages,   if  any,  of  landfill  gas,
hydroelectricity  or waste biomass are thus critical to the  competitiveness  of
the Trust's merchant power plants.

    Conversely,  decreases  in  electricity  costs  may  reduce  Santee  River's
production costs, although its business plan does not assume any such decreases.

New Generating Technologies and New Industry Participants

         Recent improvements in turbine technology, coupled with what is seen as
the ample supply and relative  cheapness of natural gas,  have made gas turbines
the favored  technology for new electric  generating  plants.  The EIA estimates
that 80% of the new electric  generating  capacity to be added from 1995 to 2015
will be fueled  by  natural  gas and that the  amount  of  generation  fueled by
natural gas will increase from the current 10% to 29%. According to the EIA, new
gas turbines only need 15 days per year of maintenance, on the average, compared
with 30 days a year for steam turbines.  Although gas turbines historically have
been used to meet peak demand rather than baseload demand,  new "combined cycle"
units (which use heat from the turbine's  exhaust to drive a second steam or gas
turbine)  have  thermal  efficiencies  approaching  60% (60% of the  theoretical
maximum heat from the burning gas is converted to  electricity)  and can be used
as baseload units. In contrast,  steam turbines fired by coal have  efficiencies
in the 36% range and have operating and  maintenance  costs higher than those of
combined cycle plants.  Further,  natural gas-fired turbines emit relatively low
levels of sulfur dioxide, particulates and complex carbon compounds and thus may
have lower  environmental  compliance costs than coal-fired or oil-fired plants.
The EIA estimates that combined cycle gas turbine plants alone will account from
96,000 to 143,000 Megawatts of the 319,000  Megawatts of additional  capacity to
be added in the next 17 years.

         The new  emphasis  on natural  gas-fired  generation  is causing  large
natural  gas  transmission  or  brokering  companies  to enter  the  electricity
generation market rapidly. They have access to large volumes of gas and have the
ability to raise large amounts of capital.  Accordingly,  most new investment in
combined cycle gas Projects and other  large-scale gas turbine Projects is being
made by  these  natural  gas/energy  companies  or by large  utilities  that are
entering the competitive generation industry.

         A number of large participants in the independent  generating  industry
have announced their intentions to build large gas turbine merchant power plants
in Connecticut,  Massachusetts and Maine in sizes from 250 to 750 Megawatts. The
capacity of the proposed plants exceeds  three-quarters  of the total deficit in
capacity caused by the shutdown of the Northeast Utilities nuclear power plants.
If all or many of the  announced  plants were  built,  there might be a material
increase in low-cost  generation  capacity in the New England  area.  There have
also  been  reports,   especially  from  the  northeastern  states,  that  large
non-utility   generating   companies  and  utilities  entering  the  competitive
generating  market outside their existing  service  territories are buying large
numbers of older  plants from local  utilities  with the  intention of replacing
them on site with new, large,  natural  gas-fueled plants. It is unclear whether
many of the announced  merchant  power plants will actually be built,  given the
uncertainties  of the market for electricity and the possibility  that there may
be  insufficient  gas pipeline  capacity or supplies to fuel all of the recently
announced  plants.  There have been recent  announcements  that the  capacity of
pipelines under  construction  might be increased to serve the proposed electric
generating plants.

         Many companies,  including  affiliates of fuel suppliers and utilities,
have applied to FERC to act as electric power marketers, because they anticipate
that if wholesale  wheeling becomes  significant there will be strong demand for
brokers or market  makers in  electric  power.  It is  uncertain  whether  power
marketers  will become  significant  factors in the  electric  power  market.  A
related  development is the creation of derivative  contracts for hedging of and
speculation in electricity supplies,  which may offer generators,  utilities and
large industrial or commercial consumers the ability to reduce the volatility of
competitive  prices. To date, the effects of derivative  contracts on the market
for electricity in the Northeast have not been material.

Renewable Power

         The pressures of competition are expected to harm the "renewable power"
segment of the industry, which includes the Maine Biomass Projects and the Maine
Hydro Projects.  "Renewable power" (often called "green power") is a catchphrase
that includes  Projects  (such as solar,  wind,  small  hydroelectric,  biomass,
geothermal  and  landfill-gas)  that do not use fossil  fuels or nuclear  fuels.
Renewable  power plants  typically  have high capital costs and often have total
costs that are well above  current total costs for new  gas-turbine  production.
Many  observers  believe that  renewable  power plants  without  existing  Power
Contracts (with the possible exception of biomass,  hydroelectric and geothermal
plants  with very low or zero fuel  costs)  will be  non-competitive  in the new
markets  unless  they are given  governmental  protection.  A number of  states,
including  Massachusetts  and Maine, are requiring that retailers of electricity
purchase a certain  minimum  amount of  electricity  (often between 5% to 30% of
their total  requirements)  from  renewable  power  sources.  Unless  there is a
shortage of renewable  capacity these state requirements may still not raise the
price  for  renewable  power  high  enough to make the  Maine  Biomass  Projects
profitable.

Initial Effects of Trends

         With these  conditions in mind,  the Trust sees two primary  strategies
for  non-utility  generating  plants to  succeed in the  United  States:  first,
Projects that have existing, firm, long-term Power Contracts may do well so long
as  regulatory or  legislative  actions do not abrogate the  contracts.  Second,
Projects that are low-cost producers of electricity, either from efficiencies or
good management or as the result of successful cogeneration  technologies,  will
have advantages in the market.

         Finally,  there have been industry-wide  moves toward  consolidation of
participants  and  divestiture of Projects.  A number of utilities and equipment
suppliers  have  proposed or entered  into joint  ventures  to reduce  risks and
mobilize  additional  capital for the more competitive  environment,  while many
electric  utilities  are in the  process  of  combining,  either  as a means  of
reducing costs and capturing  efficiencies,  or asa means of obtaining  regional
market power,  or as a means of increasing  size as an  organizational  survival
tactic. This consolidation tends to create additional  competitive  pressures in
the electric power industry that may disadvantagethe  Trust; however, this trend
may also  encourage  the  divestiture  of smaller  Projects or Projects that are
deemed less central to the operations of large, consolidated businesses.

(5).  Competition

     There are a large number of participants in the independent power industry.
Several  large  corporations  specialize in  developing,  building and operating
independent power plants. Equipment manufacturers, including many of the largest
corporations in the world,  provide  equipment and planning services and provide
capital through finance affiliates. Many regulated utilities are preparing for a
competitive  market,  and a  significant  number of them already have  organized
subsidiaries  or affiliates to  participate in  unregulated  activities  such as
planning,  development,  construction and operating services or in owning exempt
wholesale  generators or up to 50% of  independent  power  plants.  In addition,
there are many  smaller  firms whose  businesses  are  conducted  primarily on a
regional or local basis.  Many of these companies  focus on limited  segments of
the cogeneration and independent  power industry and do not provide a wide range
of products and services.  There is significant  competition  among  non-utility
producers,  subsidiaries of utilities and utilities themselves in developing and
operating  energy-producing projects and in marketing the power produced by such
projects.

     The Trust is unable to accurately  estimate the number of  competitors  but
believes that there are many competitors at all levels and in all sectors of the
industry.  Many of those  competitors,  especially  affiliates  of utilities and
equipment manufacturers, may be far better capitalized than the Trust.

     Please also review the  discussion of changes in the industry  above at (4)
Trends in the Electric Utility and Independent Power Industries.

(6).  Regulatory Matters.

     Projects are subject to energy and  environmental  laws and  regulations at
the federal,  state and local levels in connection with development,  ownership,
operation, geographical location, zoning and land use of a Project and emissions
and other substances produced by a Project.  These energy and environmental laws
and  regulations  generally  require  that a wide  variety of permits  and other
approvals be obtained before the commencement of construction or operation of an
energy-producing  facility and that the facility then operate in compliance with
such permits and approvals.

(i)  Energy Regulation.

(A)  PURPA.  The  enactment  in 1978 of PURPA and the  adoption  of  regulations
thereunder by FERC  provided  incentives  for the  development  of  cogeneration
facilities  and small power  production  facilities  meeting  certain  criteria.
Qualifying  Facilities  under PURPA are generally  exempt from the provisions of
the Public Utility Holding Company Act of 1935, as amended (the "Holding Company
Act"), the Federal Power Act, as amended (the "FPA"),  and, except under certain
limited  circumstances,  state laws regarding rate or financial  regulation.  In
order to be a Qualifying Facility, a cogeneration  facility must (a) produce not
only  electricity  but also a certain  quantity of heat  energy  (such as steam)
which is used for a purpose other than power generation, (b) meet certain energy
efficiency  standards  when  natural gas or oil is used as a fuel source and (c)
not be  controlled  or more than 50% owned by an  electric  utility or  electric
utility holding  company.  Other types of Independent  Power Projects,  known as
"small power production  facilities," can be Qualifying  Facilities if they meet
regulations  respecting  maximum size (in certain cases),  primary energy source
and utility  ownership.  Recent federal  legislation  has eliminated the maximum
size  requirement for solar,  wind,  waste and geothermal small power production
facilities (but not for hydroelectric or biomass) for a fixed period of time.

     In addition,  PURPA  requires  electric  utilities to purchase  electricity
generated by Qualifying  Facilities at a price equal to the purchasing utility's
full "avoided cost" and to sell back up power to Qualifying  Facilities on a non
discriminatory  basis.  Avoided  costs are defined by PURPA as the  "incremental
costs to the electric  utility of electric energy or capacity or both which, but
for the purchase from the  Qualifying  Facility or Qualifying  Facilities,  such
utility would  generate  itself or purchase from another  source."  While public
utilities are not required by PURPA to enter into long-term  Power  Contracts to
meet their obligations to purchase from Qualifying  Facilities,  PURPA helped to
create a  regulatory  environment  in which it has become  more  common for such
contracts to be negotiated until recent years.

     The exemptions  from  extensive  federal and state  regulation  afforded by
PURPA to Qualifying  Facilities are important to the Trust and its  competitors.
The Trust believes that the Maine Hydro and Maine Biomass  Projects,  which sell
electricity to public  utilities,  are Qualifying  Facilities.  Maintaining  the
Qualified  Facility  status  of an  electric  generating  Project  is of  utmost
importance to the Trust.  Such status may be lost if a Project does not meet the
operational  or  ownership  requirements  of PURPA.  For small power  production
facilities such as the Maine Hydro and Maine Biomass Projects,  the requirements
are  limited to  maximum  size,  fuel use and  ownership  requirements  that are
currently  unlikely  to  be  violated.   If  the  Trust  acquires  interests  in
cogeneration Projects that are Qualifying Facilities, those facilities must meet
more stringent requirements,  such as minimum operating efficiency standards and
minimum use of thermal energy by customers of a cogeneration Project.

     The Trust endeavors to comply with applicable  PURPA  requirements and does
not believe that the Maine  Biomass and Maine Hydro  Projects are subject to any
requirement that could jeopardize their statuses as Qualified Facilities. If the
Trust  were to  invest  in  cogeneration  Projects  or  certain  other  types of
Qualifying  Facilities,  the PURPA  standards  could raise  material  compliance
questions.  In any event, there can be no assurance that a Project will maintain
its  Qualified  Facility  status.  If a Project  loses its  Qualifying  Facility
status,   the  utility  can   reclaim   payments  it  made  for  the   Project's
non-qualifying  output to the  extent  those  payments  are in excess of current
avoided costs (which are generally substantially below the Power Contract rates)
or the  Project's  Power  Contract can be  terminated  by the electric  utility.
States may  require  utilities  to  institute  monitoring  systems  under  which
electric utilities continuously meter a cogeneration Project's performance.

(B) The 1992 Energy Act. The Comprehensive  Energy Policy Act of 1992 (the "1992
Energy Act")  empowered  FERC to require  electric  utilities to make  available
their transmission  facilities to and wheel power for Independent power projects
under  certain  conditions  and created an  exemption  for  electric  utilities,
electric utility holding  companies and other  independent  power producers from
certain  restrictions  imposed by the Holding  Company  Act.  Although the Trust
believes  that  the  exemptive  provisions  of the  1992  Energy  Act  will  not
materially  and  adversely  affect  its  business  plan,  the act may  result in
increased competition in the sale of electricity.

     The 1992 Energy Act created the "exempt wholesale  generator"  category for
entities certified by FERC as being exclusively  engaged in owning and operating
electric  generation   facilities  producing   electricity  for  resale.  Exempt
wholesale  generators remain subject to FERC regulation in all areas,  including
rates,  as well  as  state  utility  regulation,  but  electric  utilities  that
otherwise would be precluded by the Holding Company Act from owning interests in
exempt wholesale generators may do so. Exempt wholesale generators, however, may
not sell  electricity to affiliated  electric  utilities  without  express state
approval  that  addresses  issues of fairness to consumers  and utilities and of
reliability.

(C)  The  Federal  Power  Act.  The  FPA  grants  FERC   exclusive   rate-making
jurisdiction over wholesale sales of electricity in interstate commerce. The FPA
provides  FERC with ongoing as well as initial  jurisdiction,  enabling  FERC to
revoke  or  modify  previously  approved  rates.  Such  rates  may be based on a
cost-of-service   approach  or  determined   through   competitive   bidding  or
negotiation.  While  Qualifying  Facilities  under  PURPA  are  exempt  from the
rate-making and certain other provisions of the FPA,  non-Qualifying  Facilities
are subject to the FPA and to FERC rate-making jurisdiction.

     Companies whose  facilities are subject to regulation by FERC under the FPA
because  they  do  not  meet  the  requirements  of  PURPA  may  be  limited  in
negotiations  with power purchasers.  However,  since such projects would not be
bound by PURPA's heat energy use requirement for cogeneration  facilities,  they
may have greater  latitude in site  selection  and facility  size. If any of the
Trust's  electric power Projects  failed to be a Qualifying  Facility,  it would
have to comply with the FPA.

     The FPA also provides that any hydroelectric  facility that is located on a
navigable stream or that affects public lands or water from a government dam may
not  be  constructed  or be  operated  without  a  license  from  FERC.  Certain
facilities  that were  operating  before  1935 are  exempt,  if the  waterway is
non-navigable,  or  "grandfathered"  and do not require  licenses so long as the
facilities  are not  modernized or otherwise  materially  altered.  Licenses are
granted for 30 to 50 year terms. All but six of the Maine Hydro Projects (with a
rated  capacity  of 2.1  Megawatts)  are  subject to  licensing.  Of these eight
Projects,  six (with a rated  capacity of 6.4 Megawatts)  have current  licenses
that  expire  from time to time  between  the  years  2019 and 2037 and two (1.5
Megawatts) are currently in the licensing process,  which can take from three to
five years. The Trust believes that it will obtain licenses for each of these.

     The proposed  conditions for one pending license, at the Pittsfield Project
on the Kennebec River (1.1 Megawatt),  have been received. The Project will have
to provide  upstream fish  passages no earlier than 2002 or, if later,  the time
when all dams further upstream have provided passage. The Project will also have
to provide  interim  fish passage both  upstream  and  downstream  to the extent
warranted by fishery  studies;  downstream  mitigation  measures may require the
Project to restrict flow through its turbines  during  certain  spring peak flow
periods that could  materially  impair  electricity  output.  Until  studies are
complete,  it is not  possible  to  estimate  the  effects of these  conditions.
Further,  as noted above at Item 1(c)(3) - Business - Narrative  Description  of
Business - Project Operation, the licenses may include other onerous conditions.
The  Trust is a  member  of the  Kennebec  Hydro  Developers  Group,  which  has
negotiated  with Maine  agencies  and  environmental  groups for  watershed-wide
studies and remediation programs.

(D) Fuel Use Act. Projects that may be developed or acquired may also be subject
to the Fuel Use Act, which limits the ability of power producers to burn natural
gas in new generation  facilities  unless such facilities are also  coal-capable
within the meaning of the Fuel Use Act.

(E) State  Regulation.  State public utility  regulatory  commissions have broad
jurisdiction over Independent Power Projects which are not Qualifying Facilities
under PURPA, and which are considered public utilities in many states. In states
where the wholesale or retail  electricity  market remains  regulated,  Projects
that are not  Qualifying  Facilities  may be  subject to state  requirements  to
obtain  certificates of public convenience and necessity to construct a facility
and could have their organizational,  accounting,  financial and other corporate
matters  regulated on an ongoing  basis.  Although FERC  generally has exclusive
jurisdiction  over  the  rates  charged  by a  non-Qualifying  Facility  to  its
wholesale  customers,  state  public  utility  regulatory  commissions  have the
practical  ability to  influence  the  establishment  of such rates by asserting
jurisdiction over the purchasing utility's ability to pass through the resulting
cost of purchased power to its retail customers. In addition,  states may assert
jurisdiction over the siting and construction of non-Qualifying  Facilities and,
among other things, issuance of securities,  related party transactions and sale
and transfer of assets.  The actual scope of  jurisdiction  over  non-Qualifying
Facilities by state public utility  regulatory  commissions varies from state to
state.

(ii)  Environmental Regulation.

     The  construction  and  operation  of  independent  power  projects and the
exploitation of natural  resource  properties are subject to extensive  federal,
state and local laws and regulations  adopted for the protection of human health
and  the  environment  and to  regulate  land  use.  The  laws  and  regulations
applicable to the Trust and Projects in which it invests  primarily  involve the
discharge of emissions into the water and air and the disposal of waste, but can
also  include  wetlands  preservation  and  noise  regulation.  These  laws  and
regulations  in many cases  require a lengthy  and  complex  process of renewing
licenses,  permits  and  approvals  from  federal,  state  and  local  agencies.
Obtaining  necessary approvals regarding the discharge of emissions into the air
is  critical  to the  development  of a Project  and can be  time-consuming  and
difficult.  Each Project  requires  technology and facilities  which comply with
federal,  state and local  requirements,  which  sometimes  result in  extensive
negotiations  with  regulatory  agencies.   Meeting  the  requirements  of  each
jurisdiction with authority over a Project may require  extensive  modifications
to existing Projects.

     The Clean Air Act Amendments of 1990 contain  provisions which regulate the
amount of sulfur  dioxide  and  oxides of  nitrogen  which may be  emitted  by a
Project.  These emissions may be a cause of "acid rain."  Qualifying  Facilities
are  currently  exempt from the acid rain  control  program of the Clean Air Act
Amendments.  However, non-Qualifying Facility Projects will require "allowances"
to emit  sulfur  dioxide  after  the year  2000.  Under  the  Amendments,  these
allowances may be purchased from utility  companies then emitting sulfur dioxide
or  from  the  EPA.  Further,  an  Independent  Power  Project  subject  to  the
requirements has a priority over utilities in obtaining allowances directly from
the EPA if (a) it is a new  facility or unit used to generate  electricity;  (b)
80% or  more  of its  output  is sold at  wholesale;  (c) it does  not  generate
electricity  sold to affiliates (as determined under the Holding Company Act) of
the owner or operator (unless the affiliate cannot provide allowances in certain
cases)  and (d) it is  non-recourse  project-financed.  The  market  price of an
allowance  cannot be predicted  with  certainty at this time.  In recent  years,
supply of allowances has tended to exceed demand,  primarily because of improved
control technologies and the increased use of natural gas.

     Title V of the Clean Air Act Amendments added a new permitting  requirement
for existing  sources that requires all significant  sources of air pollution to
submit new applications to state agencies.  Title V implementation by the states
generally does not impose  significant  additional  restrictions  on the Trust's
Projects,  other than requirements to continually  monitor certain emissions and
document compliance. The permitting process is voluminous and protracted and the
costs of fees for Title V applications,  of testing and of engineering  firms to
prepare the necessary documentation have increased.  The Trust believes that all
of its  facilities  will be in compliance  with Title V  requirements  with only
minor  modifications  such  as  the  installation  of  an  additional  catalytic
converter on some engines.

     In July 1997 the  Environmental  Protection  Agency  adopted more stringent
standards for levels of ozone and small particulate  matter (particles less than
25 microns in diameter) in geographic areas.  These new standards may cause some
areas in which Projects are located to be classified as non-attainment areas. If
so, states will be required to impose additional  requirements for industries to
reduce emissions. It is uncertain whether or how any reductions would be applied
to small facilities such as the Trust's  Projects.  If reductions were required,
the Trust  might have to make  significant  capital  investments  to install new
control technology or might have to reduce operations. In addition, many eastern
states,  including Maine, have organized in the Ozone Transport Assessment Group
to  require  further   restrictions  on  emissions  of  nitrogen   oxides.   The
Environmental  Protection Agency is considering the Group's  recommendations  as
well as other  proposals  to  reduce  emissions  of  nitrogen  oxides  and other
ozone-forming chemicals. If adopted, new regulations could required the Trust to
install additional  equipment to reduce those emissions or to change operations.
Nitrogen oxide  reductions can be difficult to achieve with add-on equipment and
often  require  decreases  in  operating  efficiency,  both of which could cause
material cost to the Trust. It is not possible at this time to estimate  whether
or not any potential regulatory changes would materially affect the Trust.

     The Clean Air Act  Amendments  empower  states to impose  annual  operating
permit  fees of at  least  $25 per ton of  regulated  pollutants  emitted  up to
$100,000 per  pollutant.  To date, no state in which the Trust operates has done
so. If a state were to do so,  such fees  might  have a  material  effect on the
Trust's  costs  of  generation,  in light of the  relatively  small  size of the
Trust's  facilities  as opposed to large  utility  generation  plants that might
benefit from the cap on fees.

     The  Trust's  Projects  must  comply  with many  federal and state laws and
regulations  governing  wastewater and stormwater  discharges from the Projects.
These are generally  enforced by states under "NPDES"  permits for point sources
of  discharges  and by  stormwater  permits.  Under the Clean  Water Act,  NPDES
permits  must be renewed  every  five years and permit  limits can be reduced at
that time or under  re-opener  clauses at any time.  The  Projects  have not had
material difficulty in complying with their permits or obtaining  renewals.  The
Projects use  closed-loop  engine  cooling  systems  which do not require  large
discharges of coolant except for periodic  flushing to local sewer systems under
permit and do not make other material discharges.

     In 1998, the Trust's Projects became subject to the reporting  requirements
of the  Emergency  Planning  and  Community  Right-to-Know  Act that require the
Projects to prepare toxic release inventory release forms. These forms will list
all toxic  substances on site that are used in excess of threshold  levels so as
to allow  governmental  agencies  and the public to learn about the  presence of
those substances and to assess potential hazards and hazard responses. The Trust
does not anticipate that this  requirement  will result in any material  adverse
effect on it.

     Based  on  current   trends,   the   Managing   Shareholder   expects  that
environmental and land use regulation will become more stringent.  The Trust and
the Managing  Shareholder  have  developed  limited  expertise and experience in
obtaining  necessary licenses,  permits and approvals,  which in the case of the
Maine Hydro Project are the responsibility of Consolidated Hydro, Inc. The Trust
will rely upon qualified  environmental  consultants and  environmental  counsel
retained  by it or by Project  sponsors  to assist in  evaluating  the status of
Projects regarding such matters.

(d)  Financial Information about Foreign and Domestic Operations and Export
Sales.

     The Trust has invested its funds to date only within the United States.

     The Trust is  considering an investment in Projects in Surinam and in Great
Britain and from time to time has  investigated  potential  investments  in East
Asia,  Egypt the Caribbean and South America.  No material  operations or income
have yet been taken or earned outside the United States.

(e)  Employees.

     The Trust has no employees. The persons described below at Item 5 Directors
and  Executive  Officers of the  Registrant  serve as executive  officers of the
Trust and have the duties and powers usually applicable to similar officers of a
Delaware corporation in carrying out the Trust business.

     Ridgewood Waterpure has 2 employees located in Oak Harbor, Ohio.

Item 2.  Properties.

     Pursuant to the  Management  Agreement  between the Trust and the  Managing
Shareholder  (described at Item 10(c)),  the Managing  Shareholder  provides the
Trust with office space at the Managing  Shareholder's  principal  office at The
Ridgewood Commons, 947 Linwood Avenue, Ridgewood, New Jersey 07450.

     The following  table shows the material  properties  (relating to Projects)
owned or leased by the Trust's subsidiaries.

Approximate
                                                       Square
                     Ownership  Ground   Approximate  Footage of   Description
                     Interests  Lease      Acreage    Project          of
Projects   Location  in Land  Expiration   of Land    (Actual        Project
                                                     or Projected)

Maine Hydro 14 sites
            in Maine   Owned     n/a        24            n/a          Hydro-
                       by joint                                      electric
                       venture*                                    facilities

*Joint venture equally owned by Trust and Ridgewood Power IV.

     The Trust owns less than 50% of the equity  interest in the Maine  Biomass,
Santee River, Quantum and Metasound investments.

     The Trust believes that these properties are currently adequate for current
operations at those sites.

Item 3.  Legal Proceedings.

     The Trust is not a party to any material current legal proceedings.

Item 4.  Submission of Matters to a Vote of Security Holders.

     The Trust has not submitted  any matters to a vote of its security  holders
during the fourth quarter of 1998.

PART II

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

     The Trust sold 950.00 Investor  Shares of beneficial  interest in the Trust
in its private placement  offering,  which concluded on April 15, 1998. There is
currently no established  public trading market for the Investor  Shares and the
Trust does not intend to allow a public  trading  market to  develop.  As of the
date of this  Annual  Report on Form 10-K,  all such  Investor  Shares have been
issued and are  outstanding.  There are no  outstanding  options or  warrants to
purchase, or securities convertible into, Investor Shares.

     Investor Shares are restricted as to transferability under the Declaration,
as well as under federal and state laws  regulating  securities.  See Item 11(d)
Description  of  Registrant's  Securities  to be  Registered -  Restrictions  on
Transfer  of  Investor  Shares.  The  Investor  Shares have not been and are not
expected to be  registered  under the  Securities  Act of 1933,  as amended (the
"1933  Act"),  or under any other  similar law of any state  (except for certain
registrations  that do not permit free  resale) in reliance  upon what the Trust
believes to be exemptions from the registration  requirements contained therein.
Because the  Investor  Shares  have not been  registered,  they are  "restricted
securities"  as defined  in Rule 144 under the 1933 Act.  As of the date of this
Annual  Report on Form 10-K,  no  Investor  Shares are  sellable  under Rule 144
because the requirements of Rule 144(c) have not been met.

     The Managing Shareholder is considering the possibility of a combination of
the  Trust  and  five  other  investment  programs  sponsored  by  the  Managing
Shareholder (Ridgewood Electric Power Trusts I, II, III and IV and the Ridgewood
Power  Growth  Fund) into a publicly  traded  entity.  This  would  require  the
approval  of the  Investors  in the  Trust and the other  programs  after  proxy
solicitations  complying  with  requirements  of  the  Securities  and  Exchange
Commission,  compliance  with the "rollup"  rules of the Securities and Exchange
Commission and other regulations,  and a change in the federal income tax status
of the  combined  entity from a  partnership  (which is not subject to tax) to a
corporation.  The process of  considering  and effecting a  combination,  if the
decision is made to do so, will be very lengthy.  There is no assurance that the
Managing  Shareholder  will recommend a  combination,  that the Investors of the
Trust or other  programs  will  approve  it,  that  economic  conditions  or the
business results of the participants  will be favorable for a combination,  that
the combination  will be effected or that the economic results of a combination,
if effected, will be favorable to the Investors of the Trust or other programs.

(b)  Holders

     As of the date of this Annual Report on Form 10-K, there are  approximately
2,270 record holders of Investor Shares.

(c)  Dividends

     The Trust made distributions as follows in 1997 and 1998:

                                         Year ended December 31,
                                            1997        1998
Total distributions to Investors        $1,398,357  $4,089,130
Distributions per Investor Share             1,833       4,261
Distributions to Managing Shareholder      $14,124     $41,304

     Distributions  have been made on a quarterly  basis  since April 1997.  The
Trust's ability to make future  distributions to Investors and their timing will
depend on the net cash flow of the Trust and retention of reasonable reserves as
determined by the Trust to cover its anticipated expenses. See also Item 1(c)(3)
above as to  considerations  affecting  the  Trust's  ability  to  increase  the
frequency of distributions to a monthly basis.

     Occasionally,  distributions  may include funds derived from the release of
cash from operating or debt service reserves.  Further, the Declaration of Trust
authorizes  distributions to be made from cash flows rather than income, or from
cash reserves in some instances.  For purposes of generally accepted  accounting
principles,  amounts  of  distributions  in excess of  accounting  income may be
considered to be capital in nature.  Investors should be aware that the Trust is
organized to return net cash flow rather than accounting income to Investors.

Item 6  Selected Financial Data.

     The following data is qualified in its entirety by the financial statements
presented elsewhere in this Annual Report on Form 10-K.

<TABLE>
<CAPTION>
                                                                              As of and for the
                                                                           Period from Commencement
                                                                               of Share Offering
                                     As of and for the Years                     (April 12, 1996)
                                       Ended December 31,                              through
                                      1998              1997                    December 31, 1996

<S>                              <C>              <C>                       <C>
Interest income                     $ 2,767,348       1,003,276                 $        158,236
Total revenue                         3,020,949         844,877                          257,460
Net (loss)                           (2,643,662)     (1,345,153)                        (114,375)
Net assets (shareholders'
  equity)                            69,216,738      53,046,118                       14,501,931
Investments                          29,110,238      13,466,706                        7,133,340
Total assets                         71,753,025      54,469,925                       14,945,301
Long-term obligations                         0               0                                0
Per Share of Trust
 Interest:
  Revenues                                3,179            1,108                           1,418
  Net (loss)                             (2,782)          (1,763)                           (630)
  Net asset value                        72,859           69,342                          79,856
Distributions to Investors                4,332            1,833                           1,466

</TABLE>

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

Introduction

     The following  discussion and analysis  should be read in conjunction  with
the Trust's  consolidated  financial  statements and the notes thereto presented
below.  Dollar amounts in this  discussion are generally  rounded to the nearest
$1,000.

    The consolidated  financial statements include the accounts of the Trust and
Ridgewood Waterpure Corporation.  The Trust uses the equity method of accounting
for its investments in the Maine Hydro Projects, Maine Biomass Projects,  Santee
River Rubber Project, Quantum Conveyor and MetaSound Systems.

Outlook

     The U.S.  electricity  markets are being  restructured and there is a trend
away from regulated electricity systems towards deregulated,  competitive market
structures.  The states that the Trust's  Projects operate in have passed or are
considering new legislation that would permit utility  customers to choose their
electricity  supplier  in a  competitive  electricity  market.  The Maine  Hydro
Projects  are  "Qualified  Facilities"  as  defined  under  the  Public  Utility
Regulatory  Policies Act of 1978 and  currently  sell their  electric  output to
utilities  under  long-term  contracts.  Eleven  of the  Maine  Hydro  Projects'
contracts  expire in 2008 and the remaining three expire in 2007, 2014 and 2017.
During the term of the  contracts,  the  utilities may or may not attempt to buy
out the contracts prior to expiration. At the end of the contracts, the Projects
will become  merchant plants and may be able to sell the electric output at then
current market prices.  There can be no assurance that future market prices will
sufficient to allow the Trust's Projects to operate profitably.

     The  Maine  Hydro   Projects  have  a  limited   ability  to  store  water.
Accordingly,  the  amount of  revenue  from  electricity  generation  from these
Projects is directly related to river water flows, which have fluctuated as much
as 30%  from  the  average  over  the past  ten  years.  It is not  possible  to
accurately predict revenues from the Maine Hydro Projects.

     The Maine Biomass  Projects sold  electricity  under  short-term  contracts
during the months of July,  August,  October,  November and December  1997.  The
Projects are currently  shut down and will not be operated  (except for required
tests) unless sales  arrangements  are obtained  which would provide  sufficient
revenue  to  cover  the  Projects'  fixed  and  variable  costs.  Under  current
legislation, the electricity market in the State of Maine will be deregulated on
March 1, 2000. If biomass fuel can be purchased at reasonable prices in the year
2000 and  beyond,  the  Maine  Biomass  Projects  could  be  among  the low cost
producers of electricity  in Maine and could be able to operate  profitably in a
competitive market environment.  In the meantime,  the Trust intends to keep the
Projects in an idle mode until market conditions become more favorable,  and the
Project  operator  will seek  short-term  contracts  to sell  energy,  installed
capability and operable capability.

     All  power  generation  projects  currently  owned  by  the  Trust  produce
electricity  from  renewable  energy  sources,  such as  hydropower  and biomass
("renewable  power," and sometimes called "green power"). In the State of Maine,
as  a  condition  of  licensing,  competitive  generation  providers  and  power
marketers  will  have to  demonstrate  that at  least  30% of  their  generation
portfolio is from renewable power sources. Other states in the New England Power
Pool  have  or  are  expected  to  have  similar   renewable   power   licensing
requirements,  although the percentage of renewable power  generation may differ
from state to state. These renewable power licensing  requirements should have a
beneficial effect on the future profitability of the Trust's Projects.

     The Santee River  Rubber  Project,  which is currently in the  construction
phase, will process waste tires and generate high quality crumb rubber. Assuming
that the plant  functions as specified and that the price received for the crumb
rubber from  customers  is as  forecast,  the Project  should  begin  profitable
operations in late 1999 or early 2000.

     Quantum Conveyor  designs,  manufactures and sells modular conveyor systems
used by post  offices,  distribution  centers,  warehouses  and  other  material
handling facilities.  The conveyor system market is very competitive and Quantum
Conveyor's  strategy is to increase its sales and operating  results by offering
capable, inexpensive conveyor systems that are easy to install.

     WaterPure  Corporation  is a  development  stage company  developing  water
purification  technology.  WaterPure  Corporation's  strategy is to validate the
technology and manufacture water purification systems.

     MetaSound Systems is developing  digital audio marketing systems to provide
messages,  music and sound information to telephone callers on hold or in a call
center  queue.  The  audio  marketing  system  market  is very  competitive  and
MetaSound  Systems'  strategy is to increase its sales and operating  results by
offering more flexible systems that offer superior sound quality.

     Additional  trends affecting the independent  power industry  generally are
described at Item 1 - Business.

Results of Operations

The year ended December 31, 1998 compared to the year ended December 31, 1997.

     In 1998,  the Trust had a net loss of  $2,644,000 as compared to a net loss
of $1,345,000 in 1997.  The 1998 and 1997 losses  include the following  results
from projects:

   Project                                 1998          1997
   -------                                 ----          ----
Maine Hydro Projects        (1)         $ 658,000     $ 522,000
Maine Biomass Projects      (1)          (694,000)     (680,000)
Santee River Rubber         (1)           363,000           ---
MetaSound Systems           (1)           (61,000)          ---
Quantum Conveyor            (1)           (12,000)          ---
WaterPure Corporation       (2)        (1,881,000)          ---

(1) Equity interest in income (loss) of the project. (2) Loss, net of minority
interest

     The  increase in income from the Maine Hydro  Projects  reflects the higher
revenues in 1998 compared to 1997. The improved revenues were a result of better
rainfall improving water flow through the hydroelectric dams.

     The loss from the shutdown  Maine  Biomass  Projects in 1998 was similar to
the loss  incurred in 1997.  However,  the 1998 loss  reflects  twelve months of
operations  compared  to six  months in 1997.  The lower  loss per month in 1998
reflects a reduction in expenses as well as the sale of installed capacity.

     Income from the Santee River Rubber  project  reflects the Trust's share of
interest income earned on unexpended cash balances.

     The loss incurred by MetaSound Systems primarily reflects the marketing and
sales costs of introducing its digital audio marketing products.

     The loss  incurred  by Quantum  Conveyor  primarily  reflects  the costs of
aggressively marketing its conveyor systems.

     WaterPure  Corporation's net loss for 1998 primarily  reflected the cost of
acquiring  the  assets of  Superstill  Corporation,  a  company  in  Chapter  11
bankruptcy.  Included in the assets  acquired from  Superstill  Corporation  was
in-process  research and development with an estimated fair value of $1,970,000.
In accordance with generally  accepted  accounting  principles,  this amount was
written-off in the statement of operations.

     Interest  income at the Trust level  increased  from  $1,003,000 in 1997 to
$2,709,000  in 1998 as a result of the  higher  average  cash  balances  on hand
during the year.

     Excluding  the  $1,970,000  charge in 1998  discussed  above related to the
acquisition of Waterpure Corporation,  Trust-level expenses increased $1,478,000
from  $2,190,000  in 1997 to  $3,668,000  in 1998.  The  primary  reason for the
increase was $1,606,000 of management  fees charged by the Managing  shareholder
beginning in April 1998.  Reimbursements to the Managing  Shareholder  increased
from $393,000 in 1997 to $794,000 in 1998. These increases were partially offset
by a decrease in the 2% investment fee on capital  contributions from $1,145,000
in 1997 to $337,000 in 1998  reflecting  the  decrease in capital  contributions
caused by the  closing  of the  Trust  offering  in April  1998.  Due  diligence
expenses related to unsuccessful  potential investments increased to $831,000 in
1998 from $604,000 in 1997.

The year ended  December  31,  1997  compared  to the period  April 12,  1996 to
December 31, 1996.

     In 1997,  the Trust had total  revenue of  $845,000  as  compared  to total
revenue of $257,000 in 1996. The interest income component of revenue  increased
by  $845,000  to  $1,003,000  in 1997 from  $158,000  in 1996 as a result of the
higher average balance of cash and cash  equivalents.  The 1997 revenue includes
equity in the full year's net income  from the Maine Hydro  Projects of $522,000
and equity in the net loss of the Maine Biomass Projects of $680,000 since their
acquisition in July 1997. The 1996 revenue  includes equity in the net income of
the Maine Hydro Projects of $99,000.

     Trust level  expenses  increased by  $1,818,000  to $2,190,000 in 1997 from
$372,000 in 1996.  The expense  related to the 2% investment  fee charged on new
contributions  increased by $812,000  due to the higher level of  contributions.
The  1997  expenses   include  $393,000  of   reimbursements   to  the  Managing
Shareholder.  Due  diligence  costs  increased  $599,000  due  to the  costs  of
investigating potential projects that were ultimately rejected and reserving for
the potential uncollectibility of advances to such projects.

Liquidity and Capital Resources

     In 1998, the Trust's operating  activities used cash of $2,782,000 compared
to $231,000 in 1997 as a result of higher  management  fees and due diligence on
projects that were ultimately rejected.

     In  1998,  the  Trust's  used  $14,021,000  in  its  investing  activities,
primarily the purchase of its interest in Santee River Rubber,  Quantum Conveyor
and MetaSound  Systems.  In 1997,  the $6,492,000  used in investing  activities
primarily related to the investment in the Maine Biomass Projects.

     Distributions  to  shareholders   increased  from  $1,412,000  in  1997  to
$4,130,000  reflecting an increase in the rate of distributions per share and an
increased number of shareholders.

     As of December 31, 1998,  the Trust had  $42,832,000  of cash on hand.  The
Trust anticipates investing most of these funds in new projects in 1999.

     During  the  fourth  quarter of 1997,  the Trust and Fleet  Bank,N.A.  (the
"Bank")  entered  into a revolving  line of credit  agreement,  whereby the Bank
provides a three year committed line of credit facility of $750,000. Outstanding
borrowings bear interest at the Bank's prime rate or, at the Trust's choice,  at
LIBOR plus 2.5%. The credit agreement  requires the Trust to maintain a ratio of
total  debt to  tangible  net worth of no more  than 1 to 1 and a  minimum  debt
service  coverage ratio of 2 to 1. The credit  facility was obtained in order to
allow the Trust to operate using a minimum  amount of cash,  maximize the amount
invested in Projects and maximize cash distributions to Investors. There were no
borrowings under the line of credit in 1998 or 1997.

     Other than  investments  of available  cash in power  generation  Projects,
obligations of the Trust are or will be generally  limited to payment of Project
operating  expenses,  payment of a management  fee to the Managing  Shareholder,
payments  for  certain  accounting  and  legal  services  to third  persons  and
distributions to shareholders of available  operating cash flow generated by the
Trust's  investments.  The Trust's  policy is to  distribute  as much cash as is
prudent to  Shareholders.  Accordingly,  the Trust has not found it necessary to
retain a material  amount of  working  capital.  The  amount of working  capital
retained is further reduced by the availability of the line of credit facility.

     The Trust  anticipates  that,  during 1999, its cash flow from  operations,
unexpended  offering  proceeds and line of credit  facility  will be adequate to
fund its obligations.

Year 2000 Remediation
     The  Managing  Shareholder  and its  affiliates  began year 2000 review and
planning  in  early  1997.  After  initial  remediation  was  completed,  a more
intensive review discovered additional issues and the Managing Shareholder began
a formal remediation program in late 1997. The Managing Shareholder has assessed
problems, has a written plan for remediation and is implementing the plan.

     The accounting,  network and financial packages for the Ridgewood companies
are basically  off-the-shelf packages that will be remediated,  where necessary,
by obtaining patches or updated versions.  The Managing Shareholder expects that
updating  will be  complete  before  the end of April  1999 with  ample time for
implementation,  testing  and  custom  changes  to  some  modifications  made by
Ridgewood to those programs.  To a large extent,  these software  packages would
have been upgraded within a three to five year time frame,  even absent the Year
2000 problem.  The Managing  Shareholder  estimates  that the Trust's  allocable
portion of the cost of upgrades that were  accelerated  because of the Year 2000
problem is less than $1,500.

     The Managing  Shareholder  has identified  two major systems  affecting the
Trust that rely on custom-written software, the subscription/investor  relations
and investor  distribution  systems,  which maintain individual investor records
and effect  disbursement  of  distributions  to  Investors.  In late  1998,  the
Managing  Shareholder's  outside  computer  consultant  reviewed the remediation
completed for those systems and advised the Managing  Shareholder  that material
additional work was required for these systems to work  efficiently  after 1999.
The Managing  Shareholder  accordingly  employed a new  specialist for Year 2000
remediation  of those  systems and other  software and for  information  systems
support generally. Changes to the distribution system and testing of that system
were  completed by the end of the first  quarter of 1999 on  schedule.  The plan
also  targets  completion  by the end of the  second  quarter  of 1999 of  minor
changes to the elements of the subscription/investor  relations system that will
allow it to handle individual  investors'  records,  and of all testing of those
modifications.  Elements of that system used to generate  internal sales reports
and other  internal  reports (but which do not affect  investors'  records) will
require  major  remediation.  Remediation  of  the  internal  report  generating
programs  is expected to be  completed  by the end of the third  quarter of 1999
with testing and any additional  modifications to be completed no later than the
end of 1999.

     The Managing  Shareholder is confident that all software systems  necessary
to maintain  investor  records will be remediated and tested well before the end
of  1999.   If  the  systems  used  to  generate   internal   reports  from  the
subscription/investor  relations  system are not  remediated by the end of 1999,
the Managing  Shareholder  is developing a contingency  plan to use the existing
systems  together  with  manual  entry of data and  checking  of  results  until
remediation is complete. The Managing Shareholder has done this in the past when
system  problems  have  occurred  and it thus  believes  that  there  will be no
material or  noticeable  effect on the accuracy of its records or  generation of
internal  reports,  although it may  experience  delays in  generating  internal
reports of a few days.

     Some systems are being remediated using the "sliding window" technique,  in
which two digit  years less than a  threshold  number  are  assumed to be in the
2000's and higher two digit  numbers are  assumed to be in the 1900's.  Although
this will allow  compliance  for several years beyond the year 2000,  eventually
those  systems  will  have to be  rewritten  again  or  replaced.  The  Managing
Shareholder expects that the ordinary course of system upgrading will eventually
cure this problem.

     The Trust's share of the incremental cost for Year 2000 remediation of this
custom written  software and related items for 1998 and prior years is estimated
at $27,200 and is estimated to be approximately $25,500 for 1999.

     Each of the Trust's electric generating facilities is being reviewed during
the  first  quarter  of  1999  by an  outside  consultant  to  determine  if its
electronic control systems contain software affected by the Year 2000 problem or
contain  embedded  components that contain Year 2000 flaws.  Many of the Trust's
facilities are small electric generating  facilities that rely on mechanical and
analog  systems  that are  generally  not  subject  to Year 2000  problems.  The
facilities  use  personal   computers  running  packaged  software  for  routine
recordkeeping and data logging, which have been upgraded as described above.

     The Trust's two  largest  generating  plants,  the Maine  Biomass  Projects
(total  capacity net to the Trust:  26  megawatts),  have been managed by Indeck
Operations,  Inc., an affiliate of Indeck Energy Systems,  Inc.,  until March 1,
1999.  The Trust took over  management  responsibility  as of that  date.  Those
plants have not  operated  since fall 1997 and  currently  are shut down with an
anticipated  startup date of April 2000. The manager of the plants  informed the
Trust in December 1998 that the plants contained electronic control systems with
embedded components  containing Year 2000 flaws. The manufacturer of the control
systems has been  contacted and  custom-made  replacement  components  have been
ordered,  which are  expected to be obtained  and  installed  by the end of June
1999. If these  components are not  remediated,  the Trust has been advised that
the plants would be inoperable from January 1, 2000.  Because the Trust does not
anticipate that the plants would be in operation until April 2000, the year 2000
problems would not result in a shutdown in January 2000.

     Although the plants are not operating,  they do currently  sell  "installed
capability" (a theoretical measurement of the reserve generating capacity of the
plants) to members of the New England  Power Pool.  Installed  capability  sales
require  that the plants be  operated  at  capacity  for 24 hours in February or
March of each year as a test. A year 2000 failure that continued beyond February
or  March  2000  might  also  disqualify  the  Trust  from  selling   "installed
capability" (the  theoretical  reserve capacity of the plants) after February or
March 2000.

     Based on discussions with Indeck Operations,  Inc., the Trust believes that
the  embedded  components  will be replaced  and testing  completed  well before
January 2000 and that the possibility  that the plants will be unable to operate
is remote.  The Trust is also investigating  whether,  in the unlikely event the
embedded  components  cannot be replaced  and tested in time,  the plants can be
operated with manual or analog  systems.  The Trust's  share of the  anticipated
costs of  remediation  is  estimated at less than  $50,000.  Except as described
above, the Trust has discovered no systems at its operating  facilities that, if
they were not Year 2000  compliant,  would  have a  material  adverse  impact on
output, environmental compliance,  recordkeeping or any other material aspect of
operations.

     Quantum  Conveyor  has advised the Trust that it has  reviewed its products
for Year 2000 problems and has found that they are Year 2000 compliant.  Quantum
Conveyor has also reviewed its principal  supply chains and has determined  that
all  essential  sources  are Year 2000  compliant  or that  there  are  adequate
alternate sources for those supplies.  Ridgewood Waterpure has advised the Trust
that its  prototypes  and designs have been  reviewed for Year 2000 problems and
that they and their components are compliant.

     The Managing  Shareholder and its affiliates do not  significantly  rely on
computer input from  suppliers and customers and thus are not directly  affected
by other companies' year 2000 compliance. However, if customers' payment systems
or suppliers' systems were adversely  affected by year 2000 problems,  the Trust
could be  affected.  For example,  if the  utilities  that  purchase the Trust's
electricity  output  were  unable  to  accept  electricity   because  of  system
malfunctions or transmission failures caused by Year 2000 non-compliance by them
or other persons,  the Trust would lose revenues that could not be recouped at a
later date.  Similarly,  if utility  payment  systems were to  malfunction,  the
Trust's  revenues  might be  delayed.  Based on  published  reports,  the  Trust
believes  that it is now  very  unlikely  that  utilities  will  fail to  accept
electricity  for more than a very short time because of  malfunctions  caused by
the Year 2000 problem.  Although the Trust also  believes  that utility  payment
problems are unlikely and, if they occur,  will not exceed a month or two, there
can be no  assurance  that  payments to the Trust will not be  interrupted.  The
Trust has  established  a line of  credit,  described  above at  "Liquidity  and
Capital   Resources,"  to  cover  this  contingency  and  others.   The  Trust's
non-utility  customers are being contacted  during the first and second quarters
of 1999.  The Trust  anticipates  that the customers will advise it that they do
not anticipate  that their own Year 2000  problems,  if any, will interfere with
taking or paying for the Trust's  outputs of  electricity or heat, but that they
will decline to give any assurance that they will be able to do so.

     The Trust's plants are fueled by renewable  sources of energy such as water
at hydroelectric dams and wood waste. The Managing  Shareholder does not believe
that availability of these energy sources will be significantly  affected by the
Year  2000  problem.  Availability  of other  supplies  such as spare  parts and
consumables  may be affected by Year 2000 problems;  the Trust  purchases  these
items from many different sources,  no single one or group of which could have a
material effect on the Trust if it or they were not Year 2000 compliant.

     Because the Trust and the Managing Shareholder are extremely small relative
to the size of their  material  customers and suppliers and are paid or supplied
using the same systems as larger companies,  requests for written  assurances of
compliance  from those customers or suppliers are not  cost-effective.  Instead,
the Managing  Shareholder  is monitoring  industry  trends and compliance and is
working to assure the Trust's  continued  operations.  Similarly,  as  described
above, in most cases there are no cost-effective  contingency  measures that can
be taken against the major risks to the Trust that  utilities  will fail to take
or fail to pay for the  Trust's  electricity  output as the  result of Year 2000
problems.  The Trust believes that in the event that any embedded  components or
other  systems are found to have Year 2000  problems at its power plants it will
be able to remediate  them  promptly and before the end of 1999. It is preparing
contingency plans to operate the plants with manual or analog control systems if
Year 2000  problems  cannot be  remediated.  Because the Maine Hydro  plants are
small and use simple  technologies (small  hydroelectric  turbines) that are not
dependent on date-sensitive electronics,  the Trust believes that it is unlikely
that the Maine  Hydro  Plants  would be unable to  operate  because of Year 2000
problems.

     Based on its internal  evaluations and the risks and contexts identified by
the Commission in its rules and interpretations,  the Trust believes that except
with regard to the Maine Biomass Plants Year 2000 issues  relating to its assets
and  remediation  program  will not have a  material  effect on its  facilities,
financial position or operations, and that the costs of addressing the Year 2000
issues  will not have a  material  effect on its future  consolidated  operating
results,  financial condition or cash flows.  However, this belief is based upon
current information,  and there can be no assurance that unanticipated  problems
will not occur or be discovered that would result in material adverse effects on
the Trust.

     The Trust is unable to predict  reliably  what,  if  anything,  will happen
after  December  31,  1999  with  regard  to Year  2000  problems  caused by the
inability of other  businesses  and  government  agencies to complete  Year 2000
remediation.  The Trust knows of no specific problems identified by customers or
suppliers that would have a material adverse effect on the Trust.

     The  reasonable  worst case scenario  anticipated  by the Trust is that its
electric  generating  facilities will be able to operate on and after January 1,
2000 but that there may be some  short-term  inability of their customers to pay
promptly.  In that event, the Trust's revenues could be materially reduced for a
temporary  period  and it  might  have  to draw  upon  its  credit  line to fund
operating  expenses  until the utility makes up any payment  arrears.  The Trust
believes that the Maine Biomass  facilities  will be capable of operation  after
January 1, 2000. For purposes of a worst case scenario it will assume, until the
survey of embedded components is completed or remediation is completed, that the
Maine Biomass facilities would not be able to complete their spring 2000 testing
because there might be embedded  components that are not Year 2000 compliant and
the components could not be replaced in time.  Revenue from sales of the Trust's
share of installed  capability  from the Maine  Biomass  facilities  in 1998 was
approximately $570,000.

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk.

     Qualitative Information About Market Risk.

     The Trust's investments in financial instruments are short-term investments
of working capital or excess cash. Those  short-term  investments are limited by
its  Declaration of Trust to investments in United States  government and agency
securities  or to  obligations  of banks  having at least $5  billion in assets.
Because the Trust invests only in short-term  instruments  for cash  management,
its exposure to interest rate changes is low. The Trust has limited  exposure to
trade accounts  receivable and believes that their carrying amounts  approximate
fair value.

     The Trust's  primary  market risk  exposure is limited  interest  rate risk
caused  by  fluctuations  in  short-term  interest  rates.  The  Trust  does not
anticipate  any changes in its primary market risk exposure or how it intends to
manage it. The Trust does not trade in market risk sensitive instruments.

     Quantitative Information About Market Risk

         This table provides information about the Trust's financial instruments
that are  defined by the  Securities  and  Exchange  Commission  as market  risk
sensitive instruments.  These include only short-term U.S. government and agency
securities and bank  obligations.  The table  includes  principal cash flows and
related weighted average interest rates by contractual maturity dates.

                              December 31, 1998

                                 Expected Maturity Date
                                                                       1999
                                    (U.S. $)

Bank Deposits and Commercial
  Paper                               $42,832,000
  Average interest rate                     5.225%

Item 8.  Financial Statements and Supplementary Data.

Index to Consolidated Financial Statements
Report of Independent Accountants                   F-2
Consolidated Balance Sheets at December 31, 1998
   and 1997                                         F-3
Consolidated Statement of Operations for Years
  Ended December 31, 1998 and 1997 and period
  from April 12, 1996 through December 31, 1996     F-4
Consolidated Statement of Changes in
  Shareholders' Equity for Years Ended December
  31, 1998 and 1997 and period from April 12,
  1996 through December 31, 1996                    F-5
Consolidated Statement of Cash Flows for Years
  Ended December  31, 1998 and 1997 and period
  from April 12, 1996 through December 31, 1996     F-6
Notes to Consolidated Financial Statements          F-7 to F-16

Financial Statements for Maine Hydro Projects
Financial Statements for Maine Biomass Projects*

*To be filed by amendment.

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

     The  financial  statements  are  presented  in  accordance  with  generally
accepted accounting principles for operating companies,  using consolidation and
equity method accounting  principles.  This differs from the basis used by three
prior independent power programs  sponsored by the Managing  Shareholder,  which
present the Trust's  investments  in Projects on the estimated fair value method
rather than the consolidation and equity accounting method.

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

     Neither  the  Trust nor the  Managing  Shareholder  has had an  independent
accountant  resign  or  decline  to  continue  providing  services  since  their
respective inceptions and neither has dismissed an independent accountant during
that period.  During that period of time no new independent  accountant has been
engaged by the Trust or the Managing Shareholder, and the Managing Shareholder's
current accountants, PricewaterhouseCoopers LLP, have been engaged by the Trust.

PART III

Item 10.  Directors and Executive Officers of the Registrant.

(a)  General.

     As Managing  Shareholder  of the Trust,  Ridgewood  Power  Corporation  has
direct and exclusive  discretion in management and control of the affairs of the
Trust (subject to the general supervision and review of the Independent Trustees
and the Managing  Shareholder  acting  together as the Board of the Trust).  The
Managing  Shareholder will be entitled to resign as Managing  Shareholder of the
Trust  only  (i)  with  cause   (which  cause  does  not  include  the  fact  or
determination  that  continued  service  would be  unprofitable  to the Managing
Shareholder) or (ii) without cause with the consent of a majority in interest of
the  Investors.  It may be removed from its capacity as Managing  Shareholder as
provided in the Declaration.

     Ridgewood  Holding,  which was incorporated in April 1992, is the Corporate
Trustee of the Trust.

(b)  Managing Shareholder.

     Ridgewood Power Corporation was incorporated in February 1991 as a Delaware
corporation  for the  primary  purpose  of acting as a managing  shareholder  of
business trusts and as a managing general partner of limited  partnerships which
are organized to participate in the  development,  construction and ownership of
Independent  Power  Projects.  It  organized  the  Trust  and  is  its  managing
shareholder.

     Robert  E.  Swanson  has  been  the  President,   sole  director  and  sole
stockholder  of the Managing  Shareholder  since its inception in February 1991.
The Managing  Shareholder  has also organized  Ridgewood  Electric Power Trust I
("Ridgewood Power I"), Ridgewood Electric Power Trust II ("Ridgewood Power II"),
Ridgewood  Electric Power Trust III ("Ridgewood Power III"),  Ridgewood Electric
Power Trust IV ("Ridgewood  Power IV") and The Ridgewood  Power Growth Fund (the
"Growth Fund") as Delaware  business  trusts to  participate in the  independent
power industry.  Ridgewood Power Corporation is also their managing shareholder.
The business objectives of these five trusts are similar to those of the Trust.

     A number of other  companies are affiliates of Mr. Swanson and the Managing
Shareholder. Each of these is a corporation that is wholly-owned by Mr. Swanson.
The  Managing  Shareholder  is an  affiliate  of  Ridgewood  Energy  Corporation
("Ridgewood  Energy"),  which has organized and operated 48 limited  partnership
funds  and  one  business  trust  over  the  last 17  years  (of  which  25 have
terminated) and which had total capital contributions in excess of $190 million.
The programs  operated by Ridgewood  Energy have invested in oil and natural gas
drilling and completion and other related  activities.  Other  affiliates of the
Managing  Shareholder  include  Ridgewood  Securities  Corporation   ("Ridgewood
Securities"),  an NASD member which has been the placement agent for the private
placement offerings of the six trusts sponsored by the Managing  Shareholder and
the funds sponsored by Ridgewood Energy;  Ridgewood Capital,  organized in 1998,
which  assists in offerings  made by the Managing  Shareholder  and which is the
sponsor of two  privately  offered  venture  capital  funds  (Ridgewood  Capital
Venture   Partners,   LLC  and   Ridgewood   Institutional   Venture   Partners,
LLC),Ridgewood  Power VI  Corporation  ("Power VI  Corp."),  which is a managing
shareholder of the Growth Fund, and RPMCo.

     Set forth below is certain  information  concerning  Mr.  Swanson and other
executive officers of the Managing Shareholder.

     Robert E. Swanson,  age 52, has also served as President of the Trust since
its  inception in November  1992 and as President of RPMCo,  Ridgewood  Power I,
Ridgewood Power II, Ridgewood Power III,  Ridgewood Power V and the Growth Fund,
since their respective inceptions. Mr. Swanson has been President and registered
principal  of  Ridgewood  Securities  and  became the  Chairman  of the Board of
Ridgewood  Capital on its organization in 1998. He also is Chairman of the Board
of Ridgewood Capital Venture Partners,  LLC and Ridgewood  Institutional Venture
Partners,  LLC. In  addition,  he has been  President  and sole  stockholder  of
Ridgewood Energy since its inception in October 1982. Prior to forming Ridgewood
Energy in 1982,  Mr.  Swanson  was a tax  partner at the former New York and Los
Angeles  law firm of Fulop & Hardee and an  officer in the Trust and  Investment
Division of Morgan Guaranty Trust Company.  His specialty is in personal tax and
financial  planning,  including  income,  estate and gift tax. Mr.  Swanson is a
member of the New York State and New Jersey bars, the  Association of the Bar of
the City of New York and the New York State Bar Association. He is a graduate of
Amherst College and Fordham University Law School.

     Robert L. Gold,  age 40,  has served as  Executive  Vice  President  of the
Managing Shareholder,  RPMCo,  Ridgewood Power I, the Trust, Ridgewood Power II,
Ridgewood  Power  III,  Ridgewood  Power  V and  the  Growth  Fund  since  their
respective   inceptions,   with  primary   responsibility   for   marketing  and
acquisitions.  He has been President of Ridgewood Capital since its organization
in 1998. As such, he is President of Ridgewood Capital Venture Partners, LLC and
Ridgewood  Institutional Venture Partners,  LLC. He has served as Vice President
and General Counsel of Ridgewood Securities Corporation since he joined the firm
in December  1987.  Mr.  Gold has also served as  Executive  Vice  President  of
Ridgewood  Energy since October  1990. He served as Vice  President of Ridgewood
Energy from December  1987 through  September  1990.  For the two years prior to
joining Ridgewood Energy and Ridgewood  Securities  Corporation,  Mr. Gold was a
corporate attorney in the law firm of Cleary,  Gottlieb, Steen & Hamilton in New
York  City  where  his  experience   included  mortgage  finance,   mergers  and
acquisitions, public offerings, tender offers, and other business legal matters.
Mr.  Gold is a member of the New York  State bar.  He is a  graduate  of Colgate
University and New York University School of Law.

     Thomas R. Brown,  age 44, joined the Managing  Shareholder in November 1994
as Senior Vice  President and holds the same position with the Trust,  RPMCo and
each of the other trusts sponsored by the Managing Shareholder.  He became Chief
Operating Officer of the Managing  Shareholder,  RPMCo and the Ridgewood Power I
through V trusts in  October  1996,  and is the Chief  Operating  Officer of the
Growth Fund.  He is also Senior Vice  President of Ridgewood  Capital and of the
two venture capital funds it manages. Mr. Brown has over 20 years' experience in
the development and operation of power and industrial projects.  From 1992 until
joining the Managing Shareholder he was employed by Tampella Services,  Inc., an
affiliate of Tampella, Inc., one of the world's largest manufacturers of boilers
and related equipment for the power industry.  Mr. Brown was Project Manager for
Tampella's  Piney Creek  project,  a $100  million  bituminous  waste coal fired
circulating  fluidized  bed power  plant.  Between  1990 and 1992 Mr.  Brown was
Deputy Project  Manager at Inter-Power of  Pennsylvania,  where he  successfully
developed a 106 megawatt  coal fired  facility.  Between 1982 and 1990 Mr. Brown
was employed by  Pennsylvania  Electric  Company,  an integrated  utility,  as a
Senior Thermal  Performance  Engineer.  Prior to that, Mr. Brown was an Engineer
with  Bethlehem  Steel  Corporation.  He has an  Bachelor  of Science  degree in
Mechanical  Engineering from Pennsylvania State University and an MBA in Finance
from the University of  Pennsylvania.  Mr. Brown  satisfied all  requirements to
earn the Professional Engineer designation in 1985.

     Martin V. Quinn,  age 51, assumed the duties of Chief Financial  Officer of
the  Managing  Shareholder,  the Trust,  the prior four trusts  organized by the
Managing Shareholder and RPMCo in November 1996 under a consulting  arrangement.
He became a full-time  officer of the  Managing  Shareholder  and RPMCo in April
1997 and is now also Chief Financial  Officer of the Growth Fund. He is also the
Chief Financial  Officer of Ridgewood  Capital and of Ridgewood  Capital Venture
Partners, LLC and Ridgewood Institutional Venture Partners, LLC.

     Mr. Quinn has 30 years of experience in financial  management and corporate
mergers and acquisitions,  gained with major,  publicly-traded  companies and an
international  accounting  firm. He formerly served as Vice President of Finance
and Chief Financial Officer of NORSTAR Energy, an energy services company,  from
February 1994 until June 1996.  From 1991 to March 1993,  Mr. Quinn was employed
by  Brown-Forman  Corporation,  a  diversified  consumer  products  company  and
distiller, where he was Vice President-Corporate Development. From 1981 to 1991,
Mr. Quinn held various  officer-level  positions with NERCO,  Inc., a mining and
natural  resource  company,  including  Vice  President-  Controller  and  Chief
Accounting  Officer  for  his  last  six  years  and  Vice   President-Corporate
Development.  Mr.  Quinn's  professional  qualifications  include his  certified
public  accountant  qualification in New York State,  membership in the American
Institute of Certified  Public  Accountants,  six years of  experience  with the
international  accounting  firm of Price  Waterhouse,  and a Bachelor of Science
degree in Accounting and Finance from the University of Scranton (1969).

     Mary Lou  Olin,  age 46,  has  served  as Vice  President  of the  Managing
Shareholder,  RPMCo,  Ridgewood Capital, the Trust, Ridgewood Power I, Ridgewood
Power II, Ridgewood Power III, Ridgewood Power V and the Growth Fund since their
respective inceptions. She has also served as Vice President of Ridgewood Energy
since   October  1984,   when  she  joined  the  firm.   Her  primary  areas  of
responsibility are investor relations, communications and administration.  Prior
to her employment at Ridgewood Energy, Ms. Olin was a Regional  Administrator at
McGraw-Hill  Training  Systems  where she was employed  for two years.  Prior to
that,  she was  employed  by RCA  Corporation.  Ms.  Olin has a Bachelor of Arts
degree from Queens College.

 (c)  Management Agreement.

     The  Trust  has  entered  into a  Management  Agreement  with the  Managing
Shareholder  detailing  how the  Managing  Shareholder  will render  management,
administrative and investment advisory services to the Trust. Specifically,  the
Managing  Shareholder  will  perform  (or arrange  for the  performance  of) the
management and administrative  services required for the operation of the Trust.
Among other services,  it will administer the accounts and handle relations with
the Investors, provide the Trust with office space, equipment and facilities and
other  services  necessary for its  operation and conduct the Trust's  relations
with  custodians,  depositories,  accountants,  attorneys,  brokers and dealers,
corporate  fiduciaries,  insurers,  banks and others, as required.  The Managing
Shareholder  will also be  responsible  for  making  investment  and  divestment
decisions, subject to the provisions of the Declaration.

     The Managing  Shareholder  will be obligated to pay the compensation of the
personnel and all  administrative  and service expenses necessary to perform the
foregoing  obligations.  The Trust  will pay all other  expenses  of the  Trust,
including  transaction  expenses,  valuation  costs,  expenses of preparing  and
printing  periodic  reports for Investors and the Commission,  postage for Trust
mailings,  Commission fees,  interest,  taxes, legal,  accounting and consulting
fees,  litigation expenses and other expenses properly payable by the Trust. The
Trust will reimburse the Managing  Shareholder  for all such Trust expenses paid
by it.

     As  compensation  for the  Managing  Shareholder's  performance  under  the
Management Agreement,  the Trust is obligated to pay the Managing Shareholder an
annual  management fee described below at Item 13 -- Certain  Relationships  and
Related Transactions.

     The Board of the Trust (including both initial  Independent  Trustees) have
approved  the initial  Management  Agreement  and its  renewals.  Each  Investor
consented to the terms and  conditions  of the initial  Management  Agreement by
subscribing to acquire  Investor Shares in the Trust.  The Management  Agreement
will remain in effect until January 4, 2000 and year to year  thereafter as long
as it is  approved  at least  annually by (i) either the Board of the Trust or a
majority  in interest of the  Investors  and (ii) a majority of the  Independent
Trustees.  The agreement is subject to termination at any time on 60 days' prior
notice by the Board,  a majority in interest of the  Investors  or the  Managing
Shareholder.  The  agreement  is subject to  amendment  by the parties  with the
approval of (i) either the Board or a majority in interest of the  Investors and
(ii) a majority of the Independent Trustees.

(d) Executive Officers of the Trust.

     Pursuant  to  the  Declaration,  the  Managing  Shareholder  has  appointed
officers of the Trust to act on behalf of the Trust and sign documents on behalf
of the Trust as authorized  by the Managing  Shareholder.  Mr.  Swanson has been
named the President of the Trust and the other  executive  officers of the Trust
are identical to those of the Managing Shareholder.

     The  officers  have the  duties and powers  usually  applicable  to similar
officers of a Delaware  business  corporation  in carrying  out Trust  business.
Officers  act under the  supervision  and control of the  Managing  Shareholder,
which is entitled to remove any officer at any time. Unless otherwise  specified
by the Managing Shareholder, the President of the Trust has full power to act on
behalf of the Trust. The Managing Shareholder expects that most actions taken in
the name of the  Trust  will be taken by Mr.  Swanson  and the  other  principal
officers in their capacities as officers of the Trust under the direction of the
Managing Shareholder rather than as officers of the Managing Shareholder.

(e)  The Independent Panel Members.

     The  Declaration  provides for an  Independent  Review Panel (the "Panel"),
with   responsibility   for  independently   reviewing  and  approving  material
transactions  ("Ridgewood Program Transactions") between the Trust and any other
investment  programs  sponsored by the Managing  Shareholder  or its  Affiliates
("Ridgewood Programs").

     All Ridgewood  Program  Transactions  (which include material  transactions
between the Trust or entities in which the Trust  invests,  on the one hand, and
other  Ridgewood  Programs or entities in which they invest or have control,  on
the other),  must be  approved by a majority of the Panel  Members (if there are
only two Panel Members, both must approve) or by a Majority of the Investors. In
reviewing and approving a Ridgewood Program  Transaction,  the Panel Members are
be guided by the  provisions of Delaware law regarding the  responsibilities  of
directors  of a  business  corporation  who  pass  upon a  transaction  with  an
affiliated corporation.  In so doing, the Panel Members are subject to duties of
loyalty to the Trust and its Investors  and care in reviewing  the  transaction,
and are  obligated to consider  the entire  fairness of the  transaction  to the
Trust.  There is no  requirement,  however,  that the Trust  participate  in the
transaction  on  identical  terms  with  the  other  Ridgewood   Programs.   The
Declaration specifies,  in addition,  that the Panel Members will be entitled to
the benefits of the "business  judgment rule" of Delaware law, which  exonerates
directors for their negligence or mistaken decisions in the absence of bad faith
or clear conflicts of interest.

     The Independent Review Panel provisions were included in the Declaration in
recognition  that  the  Trust's  investment  program   anticipates   significant
co-investment  by the Trust in Projects in which other  Ridgewood  Programs will
invest. In particular,  the investment in the Maine Hydro Projects involved a $7
million  co-investment  with Ridgewood  Power IV and the investment in the Maine
Biomass Projects also involved a $7 million  co-investment  with Ridgewood Power
IV. The  Managing  Shareholder  intends to have the Venture  Funds  co-invest in
Quantum and in MetaSound and it is possible that future  projects  might involve
co-investment with the Growth Fund or the Venture Fund. The Managing Shareholder
concluded  that given the  potential  conflicts of interest  and the  additional
complexities and responsibilities that characterize co-investment decisions, the
Trust  should  create  a  mechanism  for  independent  review  and  approval  of
co-investments.

     The Managing  Shareholder  has  designated  the initial  Panel of two Panel
Members.  All incumbent Panel Members must consent for the Panel to take action.
A majority of the Managing  Shareholder and the incumbent Panel Members,  acting
together,  may  authorize an increase to no more than eight Panel  Members (or a
decrease to not fewer than two) and may fill  vacancies  on the Panel within 180
days. If there is no incumbent Panel Member,  however,  vacancies must be filled
by the Managing Shareholder with the approval of a Majority of the Investors.  A
Panel Member may not be an  Affiliate of the Trust and may not be an  investment
advisor or underwriter for the Trust, a person  beneficially owning five percent
or more of the Investor Shares,  an entity in which the Trust  beneficially owns
five percent or more of the outstanding equity securities,  an agent or employee
of the  Trust or its  subsidiaries,  a member  of the  immediate  family  of any
individual  described  above,  or a person  who  served  at any time  after  the
beginning of the second-to-last full calendar year as legal counsel to the Trust
or the Managing Shareholder,  or a partner,  principal or employee of that legal
counsel.

     The Panel is not required to review other  transactions  that might involve
the Managing Shareholder or its Affiliates and the Trust, such as the Management
Agreement or  temporary  advances of funds by the  Managing  Shareholder  to the
Trust. The Managing  Shareholder,  in its sole discretion,  may refer such other
transactions to the Panel for advice, and the Panel, in its sole discretion, may
elect  to  review  and  report  to the  Managing  Shareholder  on  the  referred
transaction,  or to decline to review it. Neither the Managing  Shareholder  nor
the Panel Members shall incur liability to the Trust or any Shareholder by their
decisions  to  refer  or not to  refer,  or to  review  or  not to  review,  any
transaction that is not a Ridgewood Program Transaction.

     The Panel Members are not trustees of the Trust,  have no general fiduciary
responsibility for the Trust's investments or operations, and have no continuing
oversight  responsibilities  for the Trust.  The Panel meets only on the call of
the Managing Shareholder. Panel Members may resign and may be removed either for
cause by action of at least two-thirds of the remaining Panel Members or for any
reason by action of the holders of at least two-thirds of the Investor Shares.

     Compensation  of the Panel Members is set in the  Declaration at $5,000 per
year,  plus  out-of-pocket  expenses  incurred..  If  the  Managing  Shareholder
certifies in the Trust's  records that there is no reasonable  probability  that
the Trust will engage in further Ridgewood Program Transactions,  the Panel will
be suspended  and will take no further  action.  During that  period,  the Panel
Members'  compensation  will cease.  A suspended  Panel may be reinstated by the
Managing Shareholder at any time.

     The current  Panel  Members are Ralph O.  Hellmold and Jonathan C. Kaledin,
who also serve as independent trustees of two Prior Programs, Ridgewood Power II
and Ridgewood  Power III. Both are independent  power programs  sponsored by The
Managing  Shareholder.  Independent  panel  members  must  approve  transactions
between their program and the Managing  Shareholder or companies affiliated with
the  Managing  Shareholder,  but have no  other  responsibilities.  Neither  Mr.
Hellmold nor Mr.  Kaledin is  otherwise  affiliated  with the Trust,  any of the
Trust's officers or agents,  the Managing  Shareholder,  any other Trustee,  any
affiliates of the Managing Shareholder and any other Trustees,  or any director,
officer or agent of any of the foregoing.

     Ralph O. Hellmold,  age 58, is founder,  sole  shareholder and President of
Hellmold  Associates,  Inc., an investment  banking firm and investment  adviser
specializing  in working with  troubled  companies  or their  creditors to raise
capital,  divest businesses and restructure  liabilities,  whether in or outside
bankruptcy.  Other financial advisory services provided by Hellmold  Associates,
Inc. include mergers and acquisitions advice, valuations,  fairness opinions and
expert  witness  testimony.  In addition to working with  troubled  companies or
their creditors, Hellmold Associates, Inc. also acts as general partner of funds
which invest in the securities of financially distressed companies.

     From 1987 to 1990, when he formed Hellmold  Associates,  Inc., Mr. Hellmold
was a Managing Director at Prudential-Bache  Capital Funding, where he served as
co-head  of the  Corporate  Finance  Group,  co-head of the  Investment  Banking
Committee and head of the Financial  Restructuring Group. From 1974 to 1987, Mr.
Hellmold was a partner at Lehman Brothers and its successors, where he worked in
the General Corporate  Finance Group and co-founded the Financial  Restructuring
Group.  Prior  thereto,  he was a  research  analyst at Lehman  Brothers  and at
Francis I. du Pont & Company.  He received  his  undergraduate  degree magna cum
laude from  Harvard  College and an M.I.A.  from  Columbia  University.  He is a
Chartered  Financial  Analyst  and a member of the New York  Society of Security
Analysts.  Mr.  Hellmold  is the holder of one-half  share in each of  Ridgewood
Power I and Ridgewood  Power III, a shareholder  of one-half  Share in the Trust
and a limited  partner or shareholder  in numerous  limited  partnerships  and a
business  trust  sponsored  by  Ridgewood  Energy  to  invest  in  oil  and  gas
development and related businesses. Mr. Hellmold is a director of Core Materials
Corporation,  Columbus, Ohio and of International Aircraft Investors,  Torrance,
California.

     Jonathan  C.  Kaledin,  age 41, has been New York  Regional  Counsel of The
Nature  Conservancy,  the international  land conservation  organization,  since
September  1995.  From 1990 to June 1995, he was the  Executive  Director of the
National  Water  Funding  Council  ("NWFC"),  an  advocacy  and  public  affairs
organization representing municipalities, businesses, financial institutions and
others on the financial aspects of clean water infrastructure  projects required
by the federal Clean Water Act and the federal Safe Drinking  Water Act..  Prior
to running the NWFC,  Mr.  Kaledin  practiced law in both the private and public
sectors,  specializing in  environmental  and real estate  matters.  Mr. Kaledin
received his undergraduate degree magna cum laude from Harvard College and a law
degree from New York University.

(f)  Corporate Trustee

     The  Corporate  Trustee of the Trust is Ridgewood  Holding.  Legal title to
Trust  property  is now and in the future  will be in the name of the Trust,  if
possible,  or Ridgewood Holding as trustee.  Ridgewood Holding is also a trustee
of Ridgewood Power I, Ridgewood Power II,  Ridgewood Power III,  Ridgewood Power
IV, the Growth Fund and of an oil and gas business trust  sponsored by Ridgewood
Energy and is expected  to be a trustee of other  similar  entities  that may be
organized by the Managing Shareholder and Ridgewood Energy. The President,  sole
director and sole  stockholder  of Ridgewood  Holding is Robert E. Swanson;  its
other executive officers are identical to those of the Managing Shareholder. The
principal  office of  Ridgewood  Holding is at 1105 North Market  Street,  Suite
1300, Wilmington, Delaware 19899.

(g)  Section 16(a) Beneficial Ownership Reporting Compliance

     Mr.  Swanson,  Mr. Gold,  Mr.  Quinn,  Ms. Olin and Mr. Brown filed Forms 3
after  their  due  dates,  as  the  result  of  an  oversight  by  the  Managing
Shareholder's  staff.  No other reports were  required,  to the knowledge of the
Managing Shareholder.

(h)  RPMCo.

     As  discussed  above  at  Item  1  -  Business,  RPMCo  assumed  day-to-day
management responsibility for the Maine Biomass Projects in March 1999. Like the
Managing Shareholder,  RPMCo is wholly owned by Robert E. Swanson. It will enter
into an "Operation  Agreement" with Indeck Maine Energy,  LLC under which RPMCo,
under the supervision of the Managing Shareholder,  will provide the management,
purchasing, engineering, planning and administrative services for the Providence
Project.  RPMCo will charge the Trust at its cost for these services and for the
Trust's  allocable  amount of certain  overhead  items.  RPMCo  shares space and
facilities with the Managing Shareholder and its affiliates.  To the extent that
common expenses can be reasonably  allocated to RPMCo, the Managing  Shareholder
may, but is not required to, charge RPMCo at cost for the allocated  amounts and
such  allocated  amounts will be borne by the Trust and other  programs.  Common
expenses that are not so allocated will be borne by the Managing Shareholder.

     Initially,  the Managing Shareholder does not anticipate charging RPMCo for
the full amount of rent,  utility  supplies  and office  expenses  allocable  to
RPMCo.  As a  result,  both  initially  and on an  ongoing  basis  the  Managing
Shareholder  believes  that  RPMCo's  charges for its  services to the Trust are
likely to be materially  less than its economic  costs and the costs of engaging
comparable third persons as managers. RPMCo will not receive any compensation in
excess of its costs.

     Allocations  of costs  will be made  either  on the  basis of  identifiable
direct costs,  time records or in proportion to each  program's  investments  in
Projects managed by RPMCo;  and allocations will be made in a manner  consistent
with generally accepted accounting principles.

     RPMCo will not provide any services  related to the  administration  of the
Trust, such as investment, accounting, tax, investor communication or regulatory
services,  nor will it  participate  in  identifying,  acquiring or disposing of
Projects.  RPMCo will not have the power to act in the  Trust's  name or to bind
the Trust,  which will be exercised by the Managing  Shareholder  or the Trust's
officers.

     The  Operation  Agreement  does not have a fixed term and is  terminable by
RPMCo,  by the  Managing  Shareholder  or by vote of a majority  in  interest of
Investors,  on 60 days' prior notice. The Operation  Agreement may be amended by
agreement of the Managing  Shareholder  and RPMCo;  however,  no amendment  that
materially  increases the obligations of the Trust or that materially  decreases
the  obligations  of RPMCo shall become  effective  until at least 45 days after
notice of the amendment,  together with the text thereof,  has been given to all
Investors.

     The executive officers of RPMCo are Mr. Swanson (President), Mr. Gold
(Executive Vice President), Mr. Brown (Senior Vice
President and Chief Operating Officer), Mr. Quinn (Senior Vice President and
Chief Financial Officer) and Ms. Olin (Vice President.
Douglas V. Liebschner, Vice President - Operations, is a key employee.

     Douglas V. Liebschner,  age 51, joined RPMCo in June 1996 as Vice President
of  Operations.  He has  over  27  years  of  experience  in the  operation  and
maintenance of power plants.  From 1992 until joining RPMCo,  he was employed by
Tampella  Services,  Inc.,  an affiliate of Tampella,  Inc.,  one of the world's
largest  manufacturers of boilers and related  equipment for the power industry.
Mr. Liebschner was Operations  Supervisor for Tampella's Piney Creek project,  a
$100 million bituminous waste coal fired circulating fluidized bed ("CFB") power
plant.  Between 1989 and 1992,  he  supervised  operations  of a waste to energy
plant  in  Poughkeepsie,  N.Y.  and  an  anthracite-waste-coal-burning   CFB  in
Frackville,  Pa.  From 1969 to 1989,  Mr.  Liebschner  served in the U.S.  Navy,
retiring  with the rank of  Lieutenant  Commander.  While in the Navy, he served
mainly in billets  dealing with the  operation,  maintenance  and repair of ship
propulsion plants,  twice serving as Chief Engineer on board U.S. Navy combatant
ships.  He has a  Bachelor  of  Science  degree  from  the U.S.  Naval  Academy,
Annapolis, Md.

Item 11.  Executive Compensation.

     The  Trust  reimburses  RPMCo  at cost for  services  provided  by  RPMCo's
employees and reimburses the Managing Shareholder at allocated cost for services
outside  the  scope  of the  Management  Agreement;  no such  reimbursement  per
employee exceeded $60,000 in 1997 or 1998. Information as to the fees payable to
the Managing  Shareholder and certain affiliates is contained at Item 13 Certain
Relationships and Related Transactions.

     As  compensation  for  services  rendered  to the  Trust,  pursuant  to the
Declaration,  each Independent  Panel Member is entitled to be paid by the Trust
the sum of $5,000 annually and to be reimbursed for all reasonable out-of-pocket
expenses  relating to attendance at Board  meetings or otherwise  performing his
duties to the Trust.  Accordingly  in August 1996,  January  1997 and  following
years the Trust paid each Independent Panel Member $5,000 for his services.  The
Independent  Panel Members and the Managing  Shareholder  are entitled to review
the compensation  payable to the Independent Panel Members annually and increase
or  decrease it as they see  reasonable.  The consent of a majority of the Panel
Members and the consent of the Managing Shareholder is necessary for a change in
compensation.  The Trust is not entitled to pay the  Independent  Panel  Members
compensation for consulting  services rendered to the Trust outside the scope of
their duties to the Trust without similar approval.

     Ridgewood  Holding,  the Corporate Trustee of the Trust, is not entitled to
compensation for serving in such capacity,  but is entitled to be reimbursed for
Trust  expenses  incurred  by it  which  are  properly  reimbursable  under  the
Declaration.

Item 12.  Security Ownership of Certain Beneficial Owners and Management.

     The Managing  Shareholder  purchased for cash one full Investor  Share.  By
virtue of its purchase of Investor Shares, the Managing  Shareholder is entitled
to the same ratable  interest in the Trust as all other  purchasers  of Investor
Shares.  No other Trustees or executive  officers of the Trust acquired Investor
Shares in the Trust's  offering.  No person  beneficially owns 5% or more of the
Investor Shares.

     The  Managing  Shareholder  was  issued one  Management  Share in the Trust
representing  the  beneficial  interests and  management  rights of the Managing
Shareholder in its capacity as the Managing Shareholder  (excluding its interest
in the Trust  attributable to Investor Shares it acquired in the offering).  The
management  rights of the Managing  Shareholder  are described in further detail
above  at Item 1 -  Business  and  below  in Item 10.  Directors  and  Executive
Officers of the Registrant. Its beneficial interest in cash distributions of the
Trust and its  allocable  share of the  Trust's  net  profits and net losses and
other items attributable to the Management Share are described in further detail
below at Item 13 -- Certain Relationships and Related Transactions.

Item 13.  Certain Relationships and Related Transactions.

     The  Declaration  provides  that cash flow of the  Trust,  less  reasonable
reserves which the Trust deems necessary to cover anticipated Trust expenses, is
to be  distributed  to the  Shareholders  from time to time as the  Trust  deems
appropriate.  The  allocation  of  distributions  between the  Investors and the
Managing  Shareholder is described at Item 11(a) - Description  of  Registrant's
Securities to be Registered - Distribution and Dissolution Rights.

     The Trust made distributions to the Managing Shareholder (which is a member
of the Board of the  Trust) and  Investors  in 1997 and 1998 as stated at Item 5
Market Price of and  Dividends  on the  Registrant's  Common  Equity and Related
Stockholder  Matters.  The Trust paid fees to the Managing  Shareholder  and its
affiliates as follows:

Fee                    Paid to          1998         1997         1996

Investment fee        Managing
                      Shareholder   $   337,158   $1,145,212  $ 333,346
Placement agent fee   Ridgewood
 and sales commis-    Securities
 sions                Corporation       277,008      572,606    166,673
Organizational,       Managing
 distribution and     Shareholder
 offering fee                         1,448,944    3,435,636  1,000,038
Management fee        Managing
                      Shareholder     1,606,269            0          0
Due diligence         Managing
 expenses             Shareholder       830,823      603,639      4,500
Reimbur-              Managing
 sements              Shareholder       793,654      392,752          0

     The  investment  fee equaled 2% of the proceeds of the offering of Investor
Shares and was payable for the Managing  Shareholder's services in investigating
and evaluating investment  opportunities and effecting investment  transactions.
The placement agent fee (1% of the offering proceeds) and sales commissions were
also paid from proceeds of the offering, as was the organizational, distribution
and offering fee (5% of offering  proceeds) for legal,  accounting,  consulting,
filing, printing,  distribution,  selling, closing and organization costs of the
offering.

     In addition to the foregoing, the Trust reimbursed the Managing Shareholder
and RPMCo at cost for expenses and fees of  unaffiliated  persons engaged by the
Managing  Shareholder  for Trust  business and for certain  expenses  related to
management of Projects.

     Other  information in response to this item is reported in response to Item
12. Executive Compensation,  which information is incorporated by reference into
this Item 13.

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

 (a)  Financial Statements.

     See the Index to Financial Statements in Item 8 hereof.

 (b) Reports on Form 8-K.

     No Form 8-K was filed  with the  Commission  by the  Registrant  during the
quarter ending December 31, 1998.

 (c)  Exhibits

     3.A.  Certificate of Trust of the Registrant.  Incorporated by reference to
Exhibit 3.A of the Registrant's  Registration  Statement on Form 10, dated April
30, 1998.

     3.B.  Amended  Declaration  of Trust  of the  Registrant.  Incorporated  by
reference to Exhibit 3.B of the Registrant's  Registration Statement on Form 10,
dated April 30, 1998.

     3.C.  Amendment No. 2 to Declaration of Trust. Incorporated by reference to
 Exhibit 3.C of the Registrant's Registration
Statement on Form 10, dated April 30, 1998.

         3.D.  Amendment No. 3 to Declaration of Trust.  Incorporated by
reference to Exhibit 3.D of the Registrant's Registration
Statement on Form 10, dated April 30, 1998.

     10.A.  Agreement  of  Merger,  dated  as of  July  1,  1996,  by and  among
Consolidated Hydro Maine, Inc., CHI Universal,  Inc.,  Consolidated Hydro, Inc.,
Ridgewood  Maine Power  Partners,  L.P. and Ridgewood  Maine Hydro  Corporation.
Incorporated by reference to Exhibit 2.1 of the Current Report on Form 8-K filed
by  Ridgewood   Electric  Power  Trust  IV  (Commission  File  No.0-25430,   CIK
0000930364) with the Commission on January 8, 1997.

     10.B.  Letter,  dated  November  15,  1996,  amending  Agreement of Merger.
Incorporated  by  reference  to Exhibit 2.2 of  Amendment  No. 1 to the -Current
Report on Form 8-K filed by Ridgewood  Electric Power Trust IV (Commission  File
No. 0-25430, CIK 0000930364) with the Commission on January 9, 1997.

     10.C.  Letter,  dated  December  3,  1996,  amending  Agreement  of Merger.
Incorporated by reference to Exhibit 2.3 of the Current Report on Form 8-K filed
by  Ridgewood   Electric  Power  Trust  IV  (Commission  File  No.0-25430,   CIK
0000930364) with the Commission on January 8, 1997.

     10.D. Operation,  Maintenance and Administration Agreement,  dated November
1996, by and among Ridgewood Maine Hydro  Partners,  L.P., CHI Operations,  Inc.
and  Consolidated  Hydro,  Inc.  Incorporated  by reference to Exhibit 10 of the
Current  Report  on  Form  8-K  filed  by  Ridgewood  Electric  Power  Trust  IV
(Commission File  No.0-25430,  CIK 0000930364) with the Commission on January 8,
1997.

     10.E.  Management  Agreement,  dated  as of April  12,  1996,  between  the
Registrant and Ridgewood Power Corporation. Page 172

     10.F.  Agreement  to Purchase  Membership  Interests,  dated as of June 11,
1997, by and between  Ridgewood Maine,  L.L.C.  and Indeck Maine Energy,  L.L.C.
Incorporated  by reference to Exhibit 2.A. of Amendment No. 1 to Current  Report
on Form  8-K  filed by  Ridgewood  Electric  Power  Trust  IV  (Commission  File
No.0-25430, CIK 0000930364), dated July 1, 1997.

     10.G.  Amended and Restated  Operating  Agreement  ofIndeck  Maine  Energy,
L.L.C., dated as of June 11, 1997.  Incorporated by reference to Exhibit 2.B. of
Amendment No. 1 to Current Report on Form 8-K filed by Ridgewood  Electric Power
Trust IV (Commission File No.0-25430, CIK 0000930364) dated July 1, 1997.

     10.H.  Omitted.  No longer in force.

     10.I.  Limited Liability Company Agreement of Santee River Rubber Company,
LLC.                                    Page

The Registrant agrees to furnish supplementally a copy of any omitted exhibit or
schedule to agreements filed as exhibits to the Commission upon request.

     21.   Subsidiaries of the Registrant               Page 187

     24.   Powers of Attorney                           Page 188

     27.   Financial Data Schedule                      Page 189





<PAGE>


SIGNATURES

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

Signature                     Title                          Date



RIDGEWOOD ELECTRIC POWER TRUST V (Registrant)

By:/s/ Robert E. Swanson    President and Chief    April 14, 1999
Robert E. Swanson     Executive Officer

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

By:/s/ Robert E. Swanson    President and Chief    April 14, 1999
       Robert E. Swanson     Executive Officer

By:/s/ Martin V. Quinn      Senior Vice President and
       Martin V. Quinn    Chief Financial Officer  April 15, 1999

By:/s/ Kathleen P. McSherry   Controller           April 15, 1999
       Kathleen P. McSherry

RIDGEWOOD POWER CORPORATION  Managing Shareholder

By:/s/ Robert E. Swanson    President              April 14, 1999
       Robert E. Swanson

<PAGE>

                        Ridgewood Electric Power Trust V

                        Consolidated Financial Statements

                        December 31, 1998, 1997 and 1996


                                      -F1-
<PAGE>

PricewaterhouseCoopers LLP
1301 Avenue of the Americas
New York, NY 10036

[Letterhead of PricewaterhouseCoopers LLP]



                        Report of Independent Accountants

  March 23, 1999

  To the Shareholders and Trustee of
  Ridgewood Electric Power Trust V


  In our opinion,  the accompanying  consolidated  balance sheet and the related
  consolidated statements of operations,  changes in shareholders' equity and of
  cash flows present fairly, in all material respects, the financial position of
  Ridgewood  Electric Power Trust V (the "Trust") at December 31, 1998 and 1997,
  and the results of their  operations  and their cash flows for each of the two
  years in the period  ended  December  31,  1998 and the period  April 12, 1996
  (commencement of share offering) through December 31, 1996, in conformity with
  generally accepted accounting  principles.  These financial statements are the
  responsibility of the Trust's management;  our responsibility is to express an
  opinion on these financial  statements  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.

/s/  PricewaterhouseCoopers LLP
                                      -F2-
<PAGE>



Ridgewood Electric Power Trust V
Consolidated Balance
Sheet
--------------------------------------------------------------------------------

                                                         December 31,
                                                     1998            1997
                                                 ------------    ------------
Assets:
Cash and cash equivalents ....................   $ 42,832,241    $ 40,821,582
Due from affiliates ..........................      1,165,140          14,467
Interest receivable ..........................         96,806         166,916
Other current assets .........................        165,683             254
                                                 ------------    ------------

         Total current assets ................     44,259,870      41,003,219

Investments:
    Maine Hydro Projects .....................      6,217,289       6,694,826
    Maine Biomass Projects ...................      6,306,817       6,617,862
    MetaSound Systems ........................      2,447,413            --
    Quantum Conveyor .........................      3,096,170            --
    Santee River Rubber ......................      9,007,968            --

Deferred due diligence costs .................        399,498         154,018
                                                 ------------    ------------

         Total assets ........................   $ 71,735,025    $ 54,469,925
                                                 ------------    ------------

Liabilities and shareholders' equity:

Liabilities:
Accounts payable and accrued expenses ........   $    194,531    $  1,101,285
Due to affiliates ............................        593,582         322,522
                                                 ------------    ------------

         Total current liabilities ...........        788,113       1,423,807
                                                 ------------    ------------

Minority interest ............................      1,730,174            --

Commitments and contingencies

Shareholders' equity:
    Shareholders' equity (950 and 762.8
       shares issued and outstanding
       at December 31, 1998 and 1997) ........     69,315,887      53,077,526
    Managing shareholder's accumulated deficit        (99,149)        (31,408)
                                                 ------------    ------------
         Total shareholders' equity ..........     69,216,738      53,046,118
                                                 ------------    ------------

         Total liabilities and shareholders'
           equity ............................   $ 71,735,025    $ 54,469,925
                                                 ------------    ------------









        See accompanying notes to the consolidated financial statements.
                                      -F3-
<PAGE>

Ridgewood Electric Power Trust V
Consolidated Statement of Operations
--------------------------------------------------------------------------------


                                                               Commencement
                                                              of Share Offering
                                For the Year    For the Year  (April 12, 1996)
                               Ended December  Ended December Through December
                                  31, 1998       31, 1997       31, 1996
                                 -----------    -----------    -----------

Revenue:
Interest income ..............   $ 2,767,348    $ 1,003,276    $   158,236
Equity interest in income
  (loss) of:
    Maine Hydro Projects .....       657,989        521,710         99,224
    Maine Biomass Projects ...      (694,321)      (680,109)          --
    MetaSound Systems ........       (61,227)          --             --
    Quantum Conveyor .........       (12,191)          --             --
    Santee River Rubber ......       363,351           --             --
                                 -----------    -----------    -----------

Total revenue ................     3,020,949        844,877        257,460
                                 -----------    -----------    -----------

Expenses:
Investment fee ...............       337,158      1,145,212        333,346
Project due diligence costs ..       830,823        603,639          4,500
Management fees ..............     1,606,269           --             --
Allocated management costs ...       793,654        392,752           --
Accounting and legal fees ....        59,719         30,130         31,356
Purchased research and
  development ................     1,969,951           --             --
Other expenses ...............        40,342         18,297          2,633
                                 -----------    -----------    -----------

Total expenses ...............     5,637,916      2,190,030        371,835
                                 -----------    -----------    -----------

Loss from operations .........    (2,616,967)    (1,345,153)      (114,375)

Minority interest in income of
    consolidated subsidiaries         26,695           --             --
                                 -----------    -----------    -----------

Net loss .....................   $(2,643,662)   $(1,345,153)   $  (114,375)
                                 -----------    -----------    -----------















        See accompanying notes to the consolidated financial statements.

                                      -F4-
<PAGE>



Ridgewood Electric Power Trust V
Consolidated Statement of Changes In Shareholders' Equity
For The Years Ended December 31, 1998 and 1997 and The Period April 12, 1996
To December 31, 1996
--------------------------------------------------------------------------------

                                                    Managing
                                 Shareholders     Shareholder        Total
                                 ------------    ------------    ------------

Initial capital contributions,
  net (181.6 shares) .........   $ 14,885,205    $       --      $ 14,885,205

Cash distributions ...........       (266,210)         (2,689)       (268,899)

Net loss for the period ......       (113,231)         (1,144)       (114,375)
                                 ------------    ------------    ------------

Shareholders' equity,
  December 31, 1996 (181.6
  shares) ....................     14,505,764          (3,833)     14,501,931

Capital contributions, net
  (581.2 shares) .............     41,301,821            --        41,301,821

Cash distributions ...........     (1,398,357)        (14,124)     (1,412,481)

Net loss for the year ........     (1,331,702)        (13,451)     (1,345,153)
                                 ------------    ------------    ------------

Shareholders' equity,
  December 31, 1997 (762.8
  shares) ....................     53,077,526         (31,408)     53,046,118

Capital contributions, net
  (187.2 shares) .............     22,944,716            --        22,944,716

Cash distributions ...........     (4,089,130)        (41,304)     (4,130,434)

Net loss for the year ........     (2,617,225)        (26,437)     (2,643,662)
                                 ------------    ------------    ------------

Shareholders' equity,
  December 31, 1998 (950
  shares) ....................   $ 69,315,887    $    (99,149)   $ 69,216,738
                                 ------------    ------------    ------------























        See accompanying notes to the consolidated financial statements.

                                      -F5-
<PAGE>
Ridgewood Electric Power Trust V
Consolidated Statement of Cash Flows
--------------------------------------------------------------------------------

                                                                Commencement
                                                              of Share Offering
                                     For The      For The      (April 12, 1996)
                                   Year Ended     Year Ended       Through
                                  December 31,    December 31,    December 31,
                                      1998            1997             1996
                                  ------------    ------------    ------------
Cash flows from operating
 activities:
 Net loss .....................   $ (2,643,662)   $ (1,345,153)   $   (114,375)
                                  ------------    ------------    ------------
 Adjustments to reconcile net
  loss to net cash used in
  operating activities:
   Charge for purchased
    research and development ..      1,969,951            --              --
   Minority interest in income
    of subsidiary .............         26,695            --              --
   Equity interest in (income)
    loss of:
    Maine Hydro Projects ......       (657,989)       (521,710)        (99,224)
    Maine Biomass Projects ....        694,321         680,109            --
    MetaSound Systems .........         61,227            --              --
    Quantum Conveyor ..........         12,191            --              --
    Santee River Rubber .......       (363,351)           --              --
    Changes in assets and
     liabilities:
     Decrease (increase) in
      interest receivable .....         70,110        (136,916)        (30,000)
     Increase in other current
      assets ..................       (165,429)           (254)           --
     (Decrease) increase in
       accounts payable and
       accrued expenses .......       (906,754)        703,381         397,904
     (Increase) decrease in due
       to/from affiliate, net .       (879,613)        389,931         (81,876)
                                  ------------    ------------    ------------
    Total adjustments .........       (138,641)      1,114,541         186,804
                                  ------------    ------------    ------------
    Net cash (used in) provided
     by operating activities ..     (2,782,303)       (230,612)         72,429
                                  ------------    ------------    ------------
Cash flows from investing
 activities:
 Investment in Hydro Projects .           --          (265,952)     (6,814,197)
 Investment in Biomass
  Projects ....................       (383,276)     (7,297,971)           --
 Investment in MetaSound
  Systems .....................     (2,508,640)           --              --
 Investment in Quantum
  Conveyor ....................     (3,108,361)           --              --
 Investment in Santee River
  Rubber ......................     (8,984,891)           --              --
 Investment in WaterPure
  Corporation, net of cash
  acquired ....................       (266,472)           --              --
 Distributions from Hydro
  projects ....................      1,135,526       1,006,257            --
 Distributions from Santee
  River Rubber ................        340,274            --              --
 Deferred due diligence costs .       (245,480)         65,901        (219,919)
                                  ------------    ------------    ------------
   Net cash used in investing
    activities ................    (14,021,320)     (6,491,765)     (7,034,116)
                                  ------------    ------------    ------------
Cash flows from financing
 activities:
 Proceeds from shareholders'
  contributions ...............     25,471,126      52,580,637      17,553,004
 Selling commissions and
  offering costs paid .........     (2,526,410)    (11,278,816)     (2,667,799)
 Cash distributions to
  shareholders ................     (4,130,434)     (1,412,481)       (268,899)
                                  ------------    ------------    ------------
   Net cash provided by
    financing activities ......     18,814,282      39,889,340      14,616,306
                                  ------------    ------------    ------------
Net increase in cash and cash
 equivalents ..................      2,010,659      33,166,963       7,654,619
Cash and cash equivalents,
 beginning of period ..........     40,821,582       7,654,619            --
                                  ------------    ------------    ------------
Cash and cash equivalents,
 end of period ................   $ 42,832,241    $ 40,821,582    $  7,654,619
                                  ------------    ------------    ------------

               See accompanying notes to the financial statements.
                                      -F6-
<PAGE>


Ridgewood Electric Power Trust V
Notes to the Consolidated Financial Statements
--------------------------------------------------------------------------------


1.       Organization and Purpose

         Nature of Business
         Ridgewood Electric Power Trust V (the "Trust") was formed as a Delaware
         business trust in March 1996, by Ridgewood  Energy Holding  Corporation
         acting as the Corporate Trustee.  The managing shareholder of the Trust
         is Ridgewood  Power  Corporation.  The Trust began  offering  shares on
         April 12, 1996 and discontinued its offering on April 15, 1998.

         The Trust has been organized to invest  primarily in independent  power
         generation  facilities,  in the development of these  facilities and in
         other projects.  These  independent  power  generation  facilities will
         include  cogeneration  facilities,  which produce both  electricity and
         heat  energy and other  power  plants  that use  various  fuel  sources
         (except nuclear).

2.       Summary Of Significant Accounting Policies

         Principles of consolidation and accounting for investment in power
         generation projects
         The consolidated financial statements include the accounts of the Trust
         and an  affiliate  owned  more  than  50%.  All  material  intercompany
         transactions have been eliminated.

         The Trust uses the equity method of accounting  for its  investments in
         affiliates  in which the Trust has the ability to exercise  significant
         influence  over the operating  and financial  policies of the affiliate
         but does not control the  affiliate.  The Trust's share of the earnings
         of  the  affiliates  is  included  in  the   consolidated   results  of
         operations.

         Use of estimates
         The  preparation of financial  statements in conformity  with generally
         accepted  accounting  principles  requires management to make estimates
         and  assumptions  that  affect  the  reported  amounts  of  assets  and
         liabilities, and disclosure of contingent assets and liabilities at the
         date of the financial  statements and the reported  amounts of revenues
         and expenses during the reporting  period.  Actual results could differ
         from the estimates.

         Cash and cash equivalents
         The Trust considers all highly liquid  investments with maturities when
         purchased of three months or less to be cash and cash equivalents.

         Income taxes
         No  provision is made for income  taxes in the  accompanying  financial
         statements as the income or losses of the Trust are passed  through and
         included  in the tax  returns  of the  individual  shareholders  of the
         Trust.

         Offering costs
         Costs  associated  with  offering  Trust shares  (selling  commissions,
         distribution  and offering  costs) are  reflected as a reduction of the
         shareholders' capital contributions.

         Due diligence costs relating to potential power projects
         Costs  relating to the due  diligence  performed on  potential  project
         investments  are  initially  deferred,  until  such  time as the  Trust
         determines  whether or not it will make an investment in the respective
         project. Costs relating to completed projects are capitalized and costs
         relating to rejected projects are expensed at the time of rejection.

         Subscriptions receivable
         Capital  contributions  are recorded  upon  receipt of the  appropriate
         subscription documents.  Subscriptions receivable from shareholders are
         reflected as a reduction of shareholders'  equity.
                                     -F7-
<PAGE>
At December 31, 1998
         and 1997,  the Trust  has  subscriptions  receivable  of  $113,500  and
         $8,604,653, respectively.


3.       Investments

         The Trust has the following investments:

                                                  Investment at December 31,
                                                   -------------------------
            Project Name        Accounting Method     1998           1997
           ----------------------   -------------   -----------   -----------

          Maine Hydro Projects .   Equity Method   $ 6,217,289   $ 6,694,826
          Maine Biomass Projects   Equity Method     6,306,817     6,617,862
          MetaSound Systems ....   Equity Method     2,447,413          --
          Quantum Conveyor .....   Equity Method     3,096,170          --
          Santee River Rubber ..   Equity Method     9,007,968          --
          WaterPure Corporation    Consolidation     2,031,073          --
                                                   -----------   -----------
                                                   $29,106,730   $13,312,688
                                                  -----------   -----------

         Maine Hydro Projects
         On September 5, 1996,  Ridgewood Maine Hydro Partners,  L.P. was formed
         as a Delaware limited  partnership  ("Ridgewood Hydro L.P."). The Trust
         made investments totaling $6,748,256 and owns a 50% limited partnership
         interest in  Ridgewood  Hydro L.P. In addition,  Ridgewood  Maine Hydro
         Corporation  was formed as a  Delaware  corporation  ("RMHCorp.").  The
         Trust invested $65,941 and owns 50% of the outstanding  common stock of
         RMHCorp., which is the sole general partner of Ridgewood Hydro L.P.

         On December 23, 1996,  in a merger  transaction,  Ridgewood  Hydro L.P.
         acquired 14 hydroelectric projects,  located in Maine (the "Maine Hydro
         Projects"),  from a subsidiary of Consolidated  Hydro,  Inc. The assets
         acquired  include a total of 11.3  megawatts of  electrical  generating
         capacity.  The  electricity  generated  is sold to Central  Maine Power
         Company  and  Bangor  Hydro  Company  under  long-term  contracts.  The
         purchase price was $13,628,395 cash,  including  transaction  costs. In
         addition,  Ridgewood Hydro L.P. assumed a long-term lease obligation of
         $1,004,679.  The Trust's 50% share of the cash  consideration  paid was
         $6,814,198.  The  remaining  50% was paid by Ridgewood  Electric  Power
         Trust IV ("Trust  IV").  Ridgewood  Power  Corporation  is the managing
         partner of the Trust and Trust IV.

         The Trust's 50% investment in the Maine Hydro Projects is accounted for
         under  the  equity  method of  accounting.  The  Trust's  equity in the
         earnings of the Maine Hydro Projects has been included in the financial
         statements since December 23, 1996.

         The Maine Hydro  Projects are operated by a subsidiary of  Consolidated
         Hydro,  Inc.,  under  an  Operation,   Maintenance  and  Administrative
         Agreement.  The  annual  operator's  fee  is  $307,500,   adjusted  for
         inflation,  plus an annual  incentive  fee equal to 50% of the net cash
         flow in excess of a target amount.  The Maine Hydro  Projects  recorded
         $429,714,  $429,430 and $3,070 of expense under this arrangement during
         the periods ended December 31, 1998, 1997 and 1996,  respectively.  The
         agreement  has a five-year  term and can be renewed for two  additional
         five-year terms by mutual consent.
                                      -F8-
<PAGE>

         Summarized  financial  information  for the Maine Hydro  Projects is as
         follows:

         Balance Sheet Information

                                      December 31, 1998   December 31, 1997
                                            -----------   -----------

            Current assets ..............   $ 1,346,077   $ 1,757,908
            Electric power sales contract    11,165,469    12,225,765
            Other non-current assets ....     1,057,892       634,952
                                            -----------   -----------
            Total assets ................   $13,569,438   $14,618,625
                                            -----------   -----------

            Current liabilities: ........   $   438,443   $   291,911
            Non-current liabilities .....       696,418       937,062
            Partners' equity ............    12,434,577    13,389,652
                                            -----------   -----------
            Total liabilities and equity    $13,569,438   $14,618,625
                                            -----------   -----------

         Statement of Operations Information

                                                                 For the Period
                                                                   December 23,
                                       For the      For the       1996 (date of
                                     Year Ended   Year Ended      acquisition)
                                    December 31,  December 31,  to December 31,
                                        1998          1997            1996
                                     -----------   -----------    -----------
         Revenue .................   $ 4,511,361   $ 4,113,065    $   192,152
         Total expenses ..........     3,217,846     2,952,589         50,340
         Interest income (expense)        22,464      (117,056)        56,635
                                     -----------   -----------    -----------
         Net income ..............   $ 1,315,979   $ 1,043,420    $   198,447
                                     -----------   -----------    -----------

         The Maine Hydro Projects qualify as small power  production  facilities
         under the Public  Utility  Regulatory  Policies  Act  ("PURPA").  PURPA
         requires that each electric  utility company  operating at the location
         of  a  small  power  production  facility,  as  defined,  purchase  the
         electricity  generated by such  facility at a specified  or  negotiated
         price.  The  Maine  Hydro  Projects  sell  substantially  all of  their
         electrical output to two public utility companies,  Central Maine Power
         Company  ("CMP")  and  Bangor  Hydro-Electric  Company  ("BHC"),  under
         long-term  power  purchase  agreements.  Eleven  of  the  twelve  power
         purchase  agreements with CMP expire in December 2008 and are renewable
         for  an  additional   five-year  period.  The  twelfth  power  purchase
         agreement  with CMP expires in December 2007 with CMP having the option
         to extend the  contract  three more  five-year  periods.  The two power
         purchase agreements with BHC expire December 2014 and February 2017.

         Maine Biomass Projects
         On July 1, 1997, through a subsidiary,  the Trust purchased a preferred
         membership  interest in Indeck Maine  Energy,  L.L.C.  ("Maine  Biomass
         Projects"), which owns two electric power generating stations fueled by
         waste wood.  The aggregate  purchase  price was $7,297,971 and includes
         transaction  costs of  $297,971.  Each  project has 24.5  megawatts  of
         electrical  generating  capacity.  The Penobscot  project is located in
         West Enfield,  Maine and the Eastport  project is located in Jonesboro,
         Maine.  The Maine Biomass  Projects had a power sales contract with the
         New  England  Power  Pool,  which  expired  on  August  31,  1997.  The
         facilities  were shut down in September  1997 and were  reactivated  in
         November  1997 to sell  capacity  and  energy to Bangor  Hydro-Electric
         Company,  a  local  utility  ("BHC")  on a  month-to-month  basis.  The
         facilities  were  again  shut  down in  January  1998.  The  facilities
         currently sell installed  capacity and are  periodically  restarted for
         testing. The cost of maintaining the idled facilities in good condition
         is approximately $100,000 per month.
                                      -F9-
<PAGE>

         The preferred  membership interest entitles the Trust to receive an 18%
         cumulative annual return on its $7,000,000 capital  contribution to the
         Maine  Biomass  Projects  from the  operating  net cash  flow  from the
         projects.  Trust IV also  purchased an identical  preferred  membership
         interest  in Indeck  Maine.  After  payments  in full to the  preferred
         membership  interests,  up to $2,520,000 of any remaining operating net
         cash flow  during the year is paid to the other Maine  Biomass  Project
         members.  Any  remaining  operating net cash flow is payable 25% to the
         Trust and Trust IV and 75% to the other Maine Biomass Project members.

         In 1998,  the  Trust  loaned  $375,000  to the Maine  Biomass  Projects
         ("Maine  Biomass  Projects").  The loan is in the form of three  demand
         notes  that bear  interest  at 5% per  annum.  Trust IV,  which owns an
         identical preferred  membership interest in the Maine Biomass Projects,
         also made  identical  loans to the Maine  Biomass  Projects.  The other
         Maine Biomass Project members also loaned $750,000 to the Maine Biomass
         Projects with the same terms.

         The Trust's  investment in the Maine Biomass  Projects is accounted for
         under the equity method of  accounting.  The Trust's equity in the loss
         of the  Maine  Hydro  Projects  has  been  included  in  the  financial
         statements since July 1, 1997.

         The Penobscot and Eastport projects were operated by Indeck Operations,
         Inc.,  an  affiliate  of  the  members  of  Indeck  Maine.  The  annual
         operator's fee is $300,000, of which $200,00 is payable contingent upon
         the Trusts  receiving their  cumulative  annual return.  The management
         agreement  had a term  of one  year  and  automatically  continued  for
         successive one year terms,  unless canceled by either the Maine Biomass
         Projects  or  Indeck  Operations,   Inc.  The  Maine  Biomass  Projects
         exercised  their  right to  terminate  the  contract  of March 1,  1999
         because certain  preferred  membership  interest payments have not been
         made.  Under an Operating  Agreement  with the Trust,  Ridgewood  Power
         Management Corporation ("Ridgewood  Management"),  an entity related to
         the  managing  shareholder  through  common  ownership,   will  provide
         management,   purchasing,   engineering,  planning  and  administrative
         services to the Maine Biomass Projects.  Ridgewood  Management  charges
         the  projects  at its cost for  these  services  and for the  allocable
         amount of certain overhead items. Allocations of costs are on the basis
         of identifiable  direct costs, time records or in proportion to amounts
         invested in projects

         Summarized  financial  information for the Maine Biomass Projects is as
         follows:

         Balance Sheet Information

                                      December 31, 1998   December 31, 1997
                                             ----------   ----------

              Current assets: ............   $  668,228   $  861,677
              Other non-current assets ...    3,339,584    3,524,356
                                             ----------   ----------
              Total assets ...............   $4,007,812   $4,386,033
                                             ----------   ----------

              Current liabilities: .......   $1,952,062   $  912,683
              Members' equity ............    2,055,750    3,473,350
                                             ----------   ----------
              Total liabilities and equity   $4,007,812   $4,386,033
                                             ----------   ----------
                                     -F10-
<PAGE>

         Statement of Operations Information

                                               For the Period July
                           For the Year Ended  1, 1997 to December 31,
                            December 31, 1998        1997
                               -----------        -----------

              Revenue ......   $ 1,430,296        $ 2,991,793
              Total expenses     2,847,896          4,376,458
                               -----------        -----------
              Net loss .....   $(1,417,600)       $(1,384,665)
                               -----------        -----------

         MetaSound Corporation
         In December 1998, through a subsidiary, the Trust purchased an interest
         in MetaSound Systems, Inc. ("MetaSound  Systems"),  which is developing
         digital audio marketing systems connected to the internet.  The systems
         are  designed  to provide  digital  quality  messages,  music and sound
         information to telephone callers on hold or in a call center queue. For
         an  aggregate  purchase  price  of  $2,508,640,   the  Trust  purchased
         4,676,000  shares of Series C Preferred Stock, a warrant to purchase up
         to 4,676,000  additional  shares at $.54 per share  expiring on May 31,
         1999 and a second warrant to purchase up to 2,000,000 additional shares
         at $.54 per share expiring in 2003. The Series C Preferred Stock may be
         converted into an equal number of shares of common stock at the Trust's
         option. The Series C Preferred Stock automatically converts into common
         stock in the event of a public  offering of MetaSound  Systems  meeting
         certain requirements.

         The Trust intends to allow  Ridgewood  Capital Venture  Partners,  LLC.
         (the "Venture Fund"), a newly organized investment program sponsored by
         an  affiliate  of the Managing  Shareholder,  to invest the  $2,525,040
         required for the  anticipated  May 1999 exercise of the 4,676,000 share
         warrant.  If that  occurs,  the  Trust  and the  Venture  Fund will own
         undivided  interests in MetaSound  Systems in proportion to the capital
         they contributed.

         Assuming  that the Series C Preferred  Stock is  converted  into common
         stock, the Trust would own an 18.75% interest in MetaSound Systems.  If
         the Series C Preferred Stock is converted into common stock and the May
         1999  warrants  are  exercised,  it is expected  that the Trust and the
         Venture Fund would own a 32% interest in MetaSound Systems.

         The Trust's  investment in the MetaSound Systems is accounted for under
         the equity  method of  accounting.  The  Trust's  equity in the loss of
         MetaSound  Systems has been included in the financial  statements since
         December 1,1998.

         Summarized financial information for MetaSound Systems is as follows:

         Balance Sheet Information

                                      December 31, 1998
                                        (unaudited)
                                       ----------

         Current assets .............   $2,678,000
         Other non-current assets ...       70,000
                                        ----------
         Total assets ...............   $2,748,000
                                        ----------

         Current liabilities ........   $  738,000
         Non-current liabilities ....      641,000
         Members' equity ............    1,369,000
                                        ----------
         Total liabilities and equity   $2,748,000
                                        ----------
                                     -F11-
<PAGE>

         Statement of Operations Information

                    For the Period December
                    1, 1998 to December 31,
                           1998
                         (unaudited)
                          ---------

         Revenue ......   $  28,000
         Total expenses     257,000
                          ---------
         Net loss .....   $(229,000)
                          ---------

         Santee River Rubber
         In  August  1998,  the  Trust and an  affiliate,  Trust  IV,  purchased
         preferred membership  interests in Santee River Rubber Company,  LLC, a
         newly organized South Carolina limited liability company ("Santee River
         Rubber").  Santee  River  Rubber is  building  a waste  tire and rubber
         processing facility located near Charleston,  South Carolina. The Trust
         and Trust IV  purchased  the  interests  through  a  limited  liability
         company  owned  two-thirds  by the Trust and one-third by Trust IV. The
         Trust's share of the purchase price was $8,979,639 and Trust IV's share
         of the purchase price was $4,489,820.

         Until January 2000 or until the facility begins operations,  which ever
         occurs  first,  Santee  River  Rubber  will pay the  Trust and Trust IV
         interest at 12% per year on  $11,000,000  of their  investments.  After
         operations  begin,  the Trusts are  entitled  to receive  all cash flow
         after payment of debt and other  obligations until the Trusts receive a
         cumulative 20% return on their total investment. Thereafter, the Trusts
         receive 25% of any remaining cash flow available for distribution.  All
         cash  distributions  and tax  allocations  received  from Santee  River
         Rubber are shared two-thirds by the Trust and one-third by Trust IV.

         The  Trusts  have the right to  designate  two of the five  members  of
         Santee River Rubber and have the further right to remove a third member
         and designate a successor in the event of certain defaults under Santee
         River Rubber's  operating  agreement.  The remaining equity interest is
         owned by a wholly-owned subsidiary of Environmental Processing Systems,
         Inc. of Garden City, New York.

         At the same time as the Trusts  purchased their  membership  interests,
         Santee River Rubber  borrowed  $16,000,000  through tax exempt  revenue
         bonds and another  $16,000,000  through taxable  convertible  bonds. It
         also obtained  $4,500,000 of  subordinated  financing  from the general
         contractor of the facility.

         The  project has been  designed to receive and process  waste tires and
         other waste  rubber  products  and produce fine crumb rubber of various
         sizes.   The  processing   will  include  both  ambient  and  cryogenic
         processing  equipment  using  liquid  nitrogen.   Santee  River  Rubber
         anticipates  that the final  product will be fine crumb rubber that can
         be used to  manufacture  new tires or to replace  virgin rubber in many
         applications.

         Santee  River  Rubber has entered  into  long-term  agreements  for the
         supply of its  requirements  for waste  tires,  electricity  and liquid
         nitrogen. Santee River Rubber has entered into short-term (ranging from
         one to three years) crumb rubber sales  contracts  for a portion of the
         facility's  output with Goodyear Tire & Rubber  Company,  Continental -
         General Tire, Inc., British Tire & Rubber,  Inc. and Recycled Solutions
         for  Industry,  Inc. The  agreements  are  contingent  upon  successful
         testing of the facility's output.
                                     -F12-
<PAGE>

         The Trust's  investment  in the Santee River  Rubber is  accounted  for
         under the equity method of accounting. The Trust's equity in the income
         of Santee River Rubber has been  included in the  financial  statements
         since August 19, 1998.

         Summarized financial information for Santee River Rubber is as follows:

         Balance Sheet Information

                                                           December 31, 1998
                                                              (unaudited)
                                                         ----------------------

           Current assets                                          $ 1,738,422
           Construction in progress                                 18,468,255
           Other non-current assets                                 25,622,193
                                                         ----------------------
           Total assets                                           $ 45,828,870
                                                         ----------------------

           Liabilities                                            $ 33,680,000
           Members' equity                                          12,148,870
                                                         ----------------------
           Total liabilities and equity                           $ 45,828,870
                                                         ----------------------

         Statement of Operations Information

                                                              For the Period
                                                           August 19, 1998 to
                                                            December 31, 1998
                                                              (unaudited)
                                                         ----------------------

          Revenue                                                  $1,252,899
          Total expenses                                              604,029
                                                         ----------------------
          Net income                                                 $648,870
                                                         ----------------------

         Quantum Conveyor
         In September  1998, the Trust  purchased a 15%  membership  interest in
         Quantum  Conveyor  Systems,  LLC, a newly  organized  Delaware  limited
         liability  company  ("Quantum  Conveyor")  through a subsidiary  of the
         Trust. At the same time, Quantum Conveyor acquired substantially all of
         the assets and certain of the liabilities of Quantum Conveyor  Systems,
         Inc. Quantum Conveyor designs,  manufactures and sells modular conveyor
         systems used by post offices,  distribution  centers,  warehouses,  and
         other material handling facilities.

         At the same time as the Trust's  subsidiary  purchased  its  membership
         interest,  it made a secured loan of $2,985,000 to Quantum Conveyor. In
         addition, the Trust's subsidiary had an option that expired on March 2,
         1999 to purchase an  additional  10%  membership  interest  for $10,000
         which was exercised by the Venture Fund in February  1999.  The Trust's
         subsidiary  extended  a  line  of  credit  to  loan  up to an  addition
         $1,990,000  to  Quantum  Conveyor  through  June 1, 2003 under the same
         terms as the  $2,985,000  loan.  The Trust intends to allow the Venture
         Fund to make any additional loans that are required.  The Trust and the
         Venture  Fund  own  the  subsidiary  in  proportion  to  their  capital
         contributions.

         The  remaining  membership  interests of Quantum  Conveyor are owned by
         three individuals. As part of the transaction, the president of Quantum
         Conveyor,  who  owns  a  membership  interest,  accepted  a  $4,000,000
         promissory note in satisfaction of all indebtedness of Quantum Conveyor
         to him. The promissory  note has the same terms as the Trust's  secured
         loan to Quantum Conveyor.
                                     -F13-
<PAGE>

         The secured  loan and  promissory  note bear  interest at 12% per year.
         From  September  1998 to August 2000,  no interest  payments by Quantum
         Conveyor  are  required.  From  September  2000 to June  2003,  Quantum
         Conveyor is required to make quarterly  payments of interest only. From
         July 2003 to September 2008, Quantum Conveyor must make equal quarterly
         payments sufficient to fully repay the principal and interest due under
         the note by September 2008.

         The Trust's  investment in Quantum  Conveyor is accounted for under the
         equity method of accounting.  The Trust's equity in the loss of Quantum
         Conveyor has been included in the financial  statements since September
         1998.

         Summarized financial information for Quantum Conveyor is as follows:

         Balance Sheet Information

                                                            December 31, 1998
                                                      -------------------------

           Current assets                                         $ 2,022,126
           Non-current assets                                       5,395,560
                                                      -------------------------
           Total assets                                           $ 7,417,686
                                                      -------------------------

           Current liabilities                                      $ 852,160
           Non-current liabilities                                  7,260,336
           Members' deficit                                          (694,810)
                                                      -------------------------
           Total liabilities and equity                           $ 7,417,686
                                                      -------------------------

         Statement of Operations Information

                                                              For the Period
                                                           August 20, 1998 to
                                                            December 31, 1998
                                                         ----------------------

          Revenue                                                  $ 437,806
          Total expenses                                           1,222,616
                                                         ----------------------
          Net loss                                                $ (784,810)
                                                         ----------------------

         WaterPure Corporation
         In August 1998,  the Trust and two unrelated  entities  filed a revised
         reorganization  plan for  Superstill  Technology,  Inc  ("Superstill").
         Superstill,  a  California  company,  has been a debtor in  Chapter  11
         bankruptcy since July 1997. The reorganization plan was approved by the
         bankruptcy  court and  Superstill's  creditors  in  December  1998.  In
         accordance   with  the   reorganization   plan,   Ridgewood   WaterPure
         Corporation  ("WaterPure  Corporation")  acquired substantially all the
         assets of  Superstill  and made certain  payments to satisfy the claims
         against Superstill.  The purchase price was allocated to the assets and
         liabilities  acquired based upon their respective fair values. Of these
         assets,  $1,969,951  consisted of in-process  research and  development
         which has been written-off in the statement of operations in accordance
         with generally accepted accounting principles.

         Superstill holds various patents and intellectual property rights to an
         energy efficient water  purification  technology that it has developed.
         Superstill   has  also   designed   and   licensed   distillation   and
         desalinization equipment of various sizes and capacities.

         The Trust made an investment of $3,500,000 in WaterPure  Corporation in
         exchange for 5,400,000 shares of common stock representing a 54% equity
         interest in WaterPure  Corporation.  The remaining  equity  interest in
         WaterPure Corporation was issued to other creditors and license
                                     -F14-
<PAGE>
     holders  of  Superstill  in  satisfaction  of their  claims  and to acquire
certain  licensing  rights.  WaterPure  Corporation  will  design,  develop  and
commercialize water purification  systems  incorporating the technology acquired
from Superstill.

         Summarized financial  information for WaterPure  Corporation,  which is
         included in these consolidated financial statements, is as follows:

         Balance Sheet Information

                                                December 31, 1998
                                                       ----------

         Cash .......................................  $3,748,475
         Other current assets .......................      12,771
                                                       ----------
         Total assets ...............................  $3,761,246
                                                       ----------

         Shareholders' equity .......................  $3,761,246
                                                       ----------

         Statement of Operations Information

                                                       For the Period
                                                     August 31, 1998 to
                                                      December 31, 1998
                                                        -----------

         Interest income ............................   $    58,121
         Write-off purchased research and development     1,969,951
         Other expenses .............................            89
                                                        -----------
         Net loss ...................................   $(1,911,919)
                                                        -----------

5.       Line of Credit Facility

         During the fourth  quarter of 1997,  the Trust and its  principal  bank
         executed a revolving  line of credit  agreement,  whereby the bank will
         provide a three-year  committed line of credit facility of $750,000 for
         borrowings or letters of credit.  Outstanding  borrowings bear interest
         at the bank's prime rate or, at the Trust's choice, at LIBOR plus 2.5%.
         The credit  agreement  will  require  the Trust to  maintain a ratio of
         total debt to  tangible  net worth of no more than 1 to 1 and a minimum
         debt service  coverage  ratio of 2 to 1. The Maine Hydro  projects have
         outstanding  standby  letters  of credit  totaling  $300,000  which are
         covered by the line of credit facility.  At December 31, 1998 and 1997,
         there were no borrowings outstanding under the facility.

6.       Fair Value of Financial Instruments

         At  December  31,  1998,  the  carrying  value  of  the  Trust's  cash,
         receivables and accounts payable approximates their fair value.

7.       Transactions With Managing Shareholder and Affiliates

         The Trust pays to the managing  shareholder a distribution and offering
         fee up to 6% of each capital  contribution  made to the Trust. This fee
         is intended to cover legal, accounting,  consulting,  filing, printing,
         distribution,  selling and closing costs for the offering of the Trust.
         For the periods ended December 31, 1998,  1997 and 1996, the Trust paid
         fees for these  services to the  managing  shareholder  of  $1,020,474,
         $4,562,147 and $1,082,038,  respectively.  These fees are recorded as a
         reduction in the shareholders' capital contribution.
                                     -F15-
<PAGE>

         The Trust also pays to the managing shareholder an investment fee up to
         2% of each capital  contribution  made to the Trust. The fee is payable
         to the  managing  shareholder  for its  services in  investigating  and
         evaluating  investment  opportunities  and effecting  transactions  for
         investing the capital of the Trust.  For the period ended  December 31,
         1998,  1997 and 1996,  the Trust paid  investment  fees to the managing
         shareholder of $337,158, $1,145,212 and $333,346, respectively.

         The  Trust  entered  into a  management  agreement  with  the  managing
         shareholder  under  which  the  managing  shareholder  renders  certain
         management,  administrative  and advisory  services and provides office
         space  and  other  facilities  to the  Trust.  As  compensation  to the
         managing  shareholder  for such  services,  the Trust pays the managing
         shareholder an annual management fee equal to 2.5% of the total capital
         contributions  to the Trust  payable  monthly  upon the  closing of the
         Trust which  occurred in April 1998.  For the year ended  December  31,
         1998, the Trust paid  management fees of $1,606,269.  In addition,  the
         managing  shareholder  provides certain project management  services to
         the Trust. The managing  shareholder  charges the Trust at its cost for
         the services and for the allocable  amount of certain  overhead  items.
         For the year ended December 31, 1998 and 1997, the managing shareholder
         charged $793,654 and $392,752, respectively, to the Trust.

         Under the Declaration of Trust, the managing shareholder is entitled to
         receive each year 1% of all distributions made by the Trust (other than
         those  derived  from the  disposition  of  Trust  property)  until  the
         shareholders  have been distributed each year an amount equal to 14% of
         their equity  contribution.  Thereafter,  the managing  shareholder  is
         entitled to receive 20% of the  distributions  for the remainder of the
         year.  The  managing  shareholder  is  entitled  to  receive  1% of the
         proceeds from  dispositions of Trust  properties until the shareholders
         have  received   cumulative   distributions  equal  to  their  original
         investment  ("Payout").  After  Payout,  the  managing  shareholder  is
         entitled to receive 20% of all remaining distributions of the Trust.

         Where permitted,  in the event the managing shareholder or an affiliate
         performs brokering services in respect of an investment  acquisition or
         disposition opportunity for the Trust, the managing shareholder or such
         affiliate may charge the Trust a brokerage fee. Such fee may not exceed
         2% of the gross  proceeds of any such  acquisition or  disposition.  No
         such fees have been paid through December 31, 1997.

         The managing  shareholder  purchased one share of the Trust for $83,000
         in 1996.  Through December 31, 1998,  commissions and placement fees of
         $1,016,287  were  earned  by  Ridgewood  Securities   Corporation,   an
         affiliate of the managing shareholder.
                                     -F16-
<PAGE>

<PAGE>

                      Ridgewood Maine Hydro Partners, L.P.

                              Financial Statements

                        December 31, 1998, 1997 and 1996

                                      -F1-
<PAGE>


PricewaterhouseCoopers LLP
1301 Avenue of the Americas
New York, NY 10036

[Letterhead of PricewaterhouseCoopers LLP]



                        Report of Independent Accountants

March 23, 1999

To the Partners of
Ridgewood Maine Hydro Partners, L.P.


In our opinion,  the accompanying  balance sheets and the related  statements of
operations, changes in shareholders' equity and of cash flows present fairly, in
all material respects, the financial position of Ridgewood Maine Hydro Partners,
L.P. (the  "Partnership")  at December 31, 1998 and 1997, and the results of its
operations  and its cash  flows  for each of the two years in the  period  ended
December 31, 1998 and the period  September 5, 1996 (date of formation)  through
December 31, 1996, in conformity with generally accepted accounting  principles.
These  financial   statements  are  the   responsibility  of  the  Partnership's
management;  our  responsibility  is to express  an  opinion on these  financial
statements  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.

/s/  PricewaterhouseCoopers LLP
                                      -F2-
<PAGE>



Ridgewood Maine Hydro Partners, L.P.
Balance Sheet
--------------------------------------------------------------------------------

                                                     December 31,
                                              ----------------------------
                                                  1998           1997
                                              ------------    ------------
Assets:
Cash and cash equivalents .................   $    607,119    $    596,208
Accounts receivable, trade ................        574,022         468,651
Due from affiliates .......................         87,369         103,650
Deposits ..................................           --           500,000
Prepaid and other current assets ..........         77,567          89,399
                                              ------------    ------------
     Total current assets .................      1,346,077       1,757,908

Property, plant and equipment .............      1,089,248         336,635
Accumulated depreciation ..................        (31,356)         (1,683)
                                              ------------    ------------
     Property, plant and equipment, net ...      1,057,892         334,952
                                              ------------    ------------

Electric power sales contracts ............     13,311,374      13,311,374
Accumulated amortization ..................     (2,145,905)     (1,085,609)
                                              ------------    ------------
     Electric power sales contracts, net ..     11,165,469      12,225,765
                                              ------------    ------------

Deposits ..................................           --           300,000
                                              ------------    ------------

     Total assets .........................   $ 13,569,438    $ 14,618,625
                                              ------------    ------------

Liabilities and Partners' Equity:
Liabilities:
Accounts payable and accrued expenses .....   $    197,799    $    157,017
Current portion of
  long-term lease obligations .............        240,644         134,894
                                              ------------    ------------

     Total current liabilities ............        438,443         291,911

Non-current portion of long-term
  lease obligations .......................        696,418         937,062
                                              ------------    ------------

Commitments and contingencies

Partners' equity:
General partner ...........................        114,624         124,175
Limited partners ..........................     12,319,953      13,265,477
                                              ------------    ------------

     Total partners' equity ...............     12,434,577      13,389,652
                                              ------------    ------------

     Total liabilities and partners' equity   $ 13,569,438    $ 14,618,625
                                              ------------    ------------












                See accompanying notes to the financial statement
                                      -F3-

<PAGE>



Ridgewood Maine Hydro Partners, L.P.
Statement of Operations
--------------------------------------------------------------------------------

                                   For
                                the Period
                                 September
                                  For the        For the        5, 1996
                                 Year Ended     Year Ended    (Inception)
                                 December       December      to December
                                 31, 1998       31, 1997        31, 1996
                                -----------    -----------    -----------

Net sales ...................   $ 4,511,361    $ 4,113,065    $   192,152
                                -----------    -----------    -----------

Operating expenses:
Depreciation and amortization     1,089,969      1,062,838         24,454
Labor .......................       592,812        549,289         11,071
Insurance ...................       194,458        246,665          5,069
Property taxes ..............       267,046        258,953          5,938
Contract management .........       429,714        429,430          3,070
Other expenses ..............       643,847        405,414            738
                                -----------    -----------    -----------
                                  3,217,846      2,952,589         50,340
                                -----------    -----------    -----------

Income from operations ......     1,293,515      1,160,476        141,812
                                -----------    -----------    -----------

Other income (expense):
Interest income .............       153,983         30,812         59,479
Interest expense ............      (131,519)      (147,868)        (2,844)
                                -----------    -----------    -----------
  Other income (expense), net        22,464       (117,056)        56,635
                                -----------    -----------    -----------

Net income ..................   $ 1,315,979    $ 1,043,420    $   198,447
                                -----------    -----------    -----------




























               See accompanying notes to the financial statements.

                                      -F4-
<PAGE>



Ridgewood Maine Hydro Partners, L.P.
Statement of Changes in Partners' Equity
For the Years Ended December 31, 1998 and 1997 and the Period  September 5, 1996
(Inception) to December 31, 1996
--------------------------------------------------------------------------------


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

Initial capital contributions   $ 13,496,513    $    131,882    $ 13,628,395

Net income for the period ...        196,463           1,984         198,447
                                ------------    ------------    ------------

Partners' equity,
  December 31, 1996 .........     13,692,976         133,866      13,826,842

Additional contributions ....        531,906            --           531,906

Cash distributions ..........     (1,992,391)        (20,125)     (2,012,516)

Net income for the year .....      1,032,986          10,434       1,043,420
                                ------------    ------------    ------------

Partners' equity,
  December 31, 1997 .........     13,265,477         124,175      13,389,652

Cash distributions ..........     (2,248,343)        (22,711)     (2,271,054)

Net income for the year .....      1,302,819          13,160       1,315,979
                                ------------    ------------    ------------

Partners' equity,
  December 31, 1998 .........   $ 12,319,953    $    114,624    $ 12,434,577
                                ------------    ------------    ------------




























               See accompanying notes to the financial statements.
                                      -F5-

<PAGE>



Ridgewood Maine Hydro Partners, L.P.
Statement of Cash Flows
--------------------------------------------------------------------------------

                                       For
                                   the Period
                                    September
                                   For the         For the         5, 1996
                                  Year Ended      Year Ended     (Inception)
                                   December        December      to December
                                   31, 1998        31, 1997        31, 1996
                                 ------------    ------------    ------------

Cash flows from operating
 activities
 Net income ..................   $  1,315,979    $  1,043,420    $    198,447
                                 ------------    ------------    ------------
 Adjustments to reconcile net
  income to net cash flows
  from operating activities
  Depreciation and
   amortization ..............      1,089,969       1,062,838          24,454
  Changes in assets and
   liabilities, net of effects
   of the Maine Hydro Projects
   purchase:
  (Increase) decrease in
    accounts receivable ......       (105,371)        529,205        (163,519)
  (Increase) decrease prepaid
   and other current assets ..         11,832         (41,722)         (9,154)
  Decrease (increase) in due
   to/from affiliates, net ...         16,281        (303,259)        199,609
  Accounts payable and accrued
   expenses ..................         40,782        (505,122)        496,782
                                 ------------    ------------    ------------
 Total adjustments ...........      1,053,493         741,946         548,172
                                 ------------    ------------    ------------
 Net cash provided by
  operating activities .......      2,369,472       1,785,366         746,619
                                 ------------    ------------    ------------

Cash flows from investing
 activities
 Payments to purchase Maine
   Hydro Projects ............           --          (323,217)    (13,305,178)
 Capital expenditures ........       (752,613)       (336,635)           --
                                 ------------    ------------    ------------
 Net cash used in investing
  activities .................       (752,613)       (659,852)    (13,305,178)
                                 ------------    ------------    ------------

Cash flows from financing
 activities
 Cash contributed by partners            --           531,906      13,628,395
 Cash distributions to
  partners ...................     (2,271,054)     (2,012,516)           --
 Return of  deposits .........        800,000            --              --
 Payments to reduce long-term
  lease obligations ..........       (134,894)       (118,532)           --
                                 ------------    ------------    ------------
 Net cash (used in) provided
  by financing activities ....     (1,605,948)     (1,599,142)     13,628,395
                                 ------------    ------------    ------------

Net increase (decrease) in
 cash and cash equivalents ...         10,911        (473,628)      1,069,836

Cash and cash equivalents,
 beginning of period .........        596,208       1,069,836            --
                                 ------------    ------------    ------------

Cash and cash equivalents,
 end of period ...............   $    607,119    $    596,208    $  1,069,836
                                 ------------    ------------    ------------














                See accompanying notes to the financial statement
                                      -F6-
<PAGE>



Ridgewood Maine Hydro Partners, L.P.
Notes to Financial
Statements
--------------------------------------------------------------------------------


1.       Organization and Business Activity

         On September 5, 1996,  Ridgewood Maine Hydro Partners,  L.P. was formed
         as a Delaware limited partnership  ("Ridgewood Hydro L.P.").  Ridgewood
         Maine Hydro Corporation,  a Delaware  Corporation  ("RMHCorp"),  is the
         sole general  partner of Ridgewood  Hydro L.P. and is owned  equally by
         Ridgewood  Electric Power Trust IV ("Trust IV") and Ridgewood  Electric
         Power Trust V ("Trust V"), both Delaware business trusts (collectively,
         the "Trusts"). The Trusts are equal limited partners in Ridgewood Hydro
         L.P.  The Trusts  receive  funds from  private  placement  offerings of
         shares of beneficial  interest and invest the net proceeds  received in
         independent power generation facilities.

         In 1996,  the general and limited  partners made the following  capital
         contributions to Ridgewood Hydro L.P.:

         General Partner   RMHCorp    $   131,882
         Limited Partner   Trust IV     6,748,256
         Limited Partner   Trust V      6,748,257
                                      -----------
                                      $13,628,395
                                      -----------

         On December 23, 1996,  in a merger  transaction,  Ridgewood  Hydro L.P.
         acquired 14  hydroelectric  projects located in Maine (the "Maine Hydro
         Projects")  from a subsidiary of  Consolidated  Hydro,  Inc. The assets
         acquired  include a total of 11.3  megawatts of  electrical  generating
         capacity.  The  electricity  generated  is sold to Central  Maine Power
         Company and Bangor Hydro Company under  long-term  contracts.  In 1997,
         the limited partners made additional contributions of $531,906.

2.       Summary of Significant Accounting Policies

         Use of estimates
         The  preparation of financial  statements in conformity  with generally
         accepted  accounting  principles  requires management to make estimates
         and  assumptions  that  affect  the  reported  amounts  of  assets  and
         liabilities, and disclosure of contingent assets and liabilities at the
         date of the financial  statements and the reported  amounts of revenues
         and expenses during the reporting  period.  Actual results could differ
         from the estimates.

         Cash and cash equivalents
         Ridgewood  Hydro L.P.  considers all highly  liquid  investments  with
         maturities  when  purchased of three months or less as cash and cash
         equivalents.

         Revenue recognition
         Power  generation  revenue is  recognized  based on power  delivered at
         rates  stipulated  in the power  sales  contracts.  Interest  income is
         recorded when earned.

         Plant and equipment
         Machinery  and   equipment,   consisting   principally   of  electrical
         generating equipment,  is stated at cost. Renewals and betterments that
         increase  the useful  lives of the assets are  capitalized.  Repair and
         maintenance expenditures that increase the efficiency of the assets are
         expensed as incurred.

         Depreciation is recorded using the straight-line method over the useful
         lives of the  assets,  which  vary from 3 to 20 years.  During the year
         ended  December  31,  1998  and  1997,  Maine  Hydro,   L.P.   recorded
         depreciation expense of $29,673 and $1,683, respectively.
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         Intangible asset
         A  portion  of the  purchase  price of the  Maine  Hydro  Projects  was
         assigned to the Electric Power Sales  Contracts and is being  amortized
         over the duration of the  contract (11 to 21 years) on a  straight-line
         basis.   Management  periodically  reviews  intangibles  for  potential
         impairment.  During the periods ended December 31, 1998, 1997 and 1996,
         Maine  Hydro,  L.P.  recorded   amortization   expense  of  $1,060,296,
         $1,061,155 and $24,454, respectively.

         Income taxes
         No  provision is made for income  taxes in the  accompanying  financial
         statements  as the income or loss of  Ridgewood  Hydro  L.P.  is passed
         through and included in the tax returns of the individual partners.

3.       Acquisition of the Maine Hydro Project

         On December 23, 1996,  in a merger  transaction,  Ridgewood  Hydro L.P.
         acquired the Maine Hydro  projects.  The purchase price was $13,628,395
         cash, including  transaction  costs. In addition,  Ridgewood Hydro L.P.
         assumed a long-term lease obligation of $1,004,679.

         The  acquisition  of the Maine Hydro  Projects was  accounted  for as a
         purchase as of December 23, 1996,  and the results of operations of the
         Maine Hydro Projects have been included in Maine Hydro L.P.'s financial
         statements since that date. The purchase price was allocated to the net
         assets  acquired,  based on their  respective fair values. A portion of
         the purchase  price  ($13,311,374)  was allocated to the Electric Power
         Sales Contracts.

4.       Obligation Under Capital Lease

         Ridgewood Hydro L.P.  assumed a hydroelectric  facility leased pursuant
         to a long-term lease agreement dated July 16, 1979, and as amended (the
         "Agreement"). Upon proper notice, Ridgewood Hydro L.P. has the right to
         purchase  all the  equipment  covered in the  Agreement  at Fair Market
         Value (as defined) or elect to extend the terms of the Agreement for up
         to three  five-year  periods at a rental equal to Fair Rental Value (as
         defined).  In  addition,  Ridgewood  Hydro  L.P.  also has the right to
         terminate the Agreement  and purchase the  hydroelectric  facility upon
         proper  notice  and  payment of a  scheduled  close-out  amount,  which
         reduces to $750,000 at April 30, 2000. This lease is accounted for as a
         capital lease, and accordingly,  the lease obligation has been recorded
         in the accompanying balance sheet.

         Aggregate minimum future lease payments are as follows:

                 1999                                            $ 266,400
                 2000                                              816,600
                 Thereafter                                            ---
                                                              --------------

                 Total minimum lease payments                    1,083,000
                      Less:  Amount representing interest         (145,938)
                                                              --------------

                 Present value of net minimum lease payments
                                                                   937,062
                      Less: Current portion                       (240,644)

                                                              --------------
                                                                 $ 696,418
                                                              --------------

5.       Lease Commitments

         The Company leases the sites of two of its hydroelectric projects under
         operating  leases expiring in June 2078. Total monthly payments in 1998
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         were the  greater of $1,216 or a  percentage  of the  revenue  from the
         hydroelectric  project. At December 31, 1998, the future minimum rental
         payments required under these leases are as follows:

                                    1999                     $ 14,592
                                    2000                       14,592
                                    2001                       14,592
                                    2002                       14,592
                                    2003                       14,592
                                    Thereafter              1,087,104
                                                    ------------------
                                                           $1,160,064
                                                    ------------------

6.       Power Generation Contracts

         Ridgewood Hydro L.P.  operates  facilities which qualify as small power
         production  facilities under the Public Utility Regulatory Policies Act
         ("PURPA"). PURPA requires that each electric utility company, operating
         at the  location  of a small  power  production  facility,  as defined,
         purchase the  electricity  generated by such facility at a specified or
         negotiated price.  Ridgewood Hydro L.P. sells  substantially all of its
         electrical output to two public utility companies,  Central Maine Power
         Company ("CMP") and Bangor Hydro-Electric Company ("BHC"),  pursuant to
         long-term  power  purchase  agreements.  Eleven  of  the  twelve  power
         purchase  agreements with CMP expire in December 2008 and are renewable
         for  an  additional  five  year  period.  The  twelfth  power  purchase
         agreement  with CMP expires in December 2007 with CMP having the option
         to extend the  contract  three more  five-year  periods.  The two power
         purchase  agreements  with BHC expire  December 2014 and February 2017.
         Ridgewood  Hydro is  required  to  maintain  standby  letters of credit
         totaling $300,000 under the long-term power purchase agreement.

7.       Fair Value of Financial Instruments

         At December 31, 1998 and 1997,  the carrying value of the Trust's cash,
         accounts receivable and accounts payable approximates their fair value.
         The fair value of the long-term capital lease  obligations,  calculated
         using   current   rates  for  loans  with  similar   maturities,   also
         approximates its carrying value.

8.       Management Agreement

         The Maine Hydro  Projects are operated by a subsidiary of  Consolidated
         Hydro,  Inc.,  under  an  Operation,   Maintenance  and  Administrative
         Agreement.   The  annual   operator's  fee  is  $307,500  adjusted  for
         inflation,  plus an annual  incentive  fee equal to 50% of the net cash
         flow in excess of a target amount. The maximum incentive fee payable in
         a year  is  $112,500.  The  Maine  Hydro  Projects  recorded  $429,714,
         $429,430  and  $3,070 of  expense  under  this  arrangement  during the
         periods  ended  December 31,  1998,  1997 and 1996,  respectively.  The
         agreement  has a  five-year  term  expiring on June 30, 2001 and can be
         renewed for two additional five-year terms by mutual consent.

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