UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THEx
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
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 number 0-19244
Krupp Government Income Trust
Massachusetts 04-3089272
(State or other jurisdiction of (IRS employer
incorporation or organization) identification no.)
470 Atlantic Avenue, Boston, Massachusetts 02210
(Address of principal executive offices) (Zip Code)
(617) 423-2233
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
KRUPP GOVERNMENT INCOME TRUST
<TABLE>
BALANCE SHEETS
ASSETS
<CAPTION>
March 31, December 31,
1996 1995
Participating Insured Mortgage Investments
("PIMIs") (Note 2):
<S> <C> <C>
Insured Mortgages $115,013,102 $115,131,611
Additional loans 20,749,108 20,749,108
Participating Insured Mortgages ("PIMs")
(Notes 2) 57,584,647 57,691,223
Mortgage-Backed Securities and insured
mortgage ("MBS") (Note 3) 29,644,089 31,394,259
Total mortgage investments 222,990,946 224,966,201
Cash and cash equivalents 9,662,884 8,914,295
Interest receivable and other assets 1,715,291 1,862,335
Prepaid acquisition fees and expenses, net
of accumulated amortization of $5,216,749
and $4,909,201, respectively 8,256,610 8,564,158
Prepaid participation servicing fees, net of
accumulated amortization of $1,290,259 and
$1,177,984, respectively 3,200,746 3,313,021
Total assets $245,826,477 $247,620,010
LIABILITIES AND SHAREHOLDERS' EQUITY
Deferred income on Additional Loans (Note 5) $ 6,555,764 $ 5,920,957
Other liabilities 8,362 20,577
Total liabilities 6,564,126 5,941,534
Shareholders' equity (Note 4):
Common stock, no par value; 17,510,000
Shares authorized; 15,053,135 Shares
issued and outstanding 238,288,983 240,103,655
Unrealized gain on MBS 973,368 1,574,821
Total Shareholders equity 239,262,351 241,678,476
Total liabilities and Shareholders'
equity $245,826,477 $247,620,010
</TABLE>
The accompanying notes are an integral
part of the financial statements.
<PAGE>
KRUPP GOVERNMENT INCOME TRUST
<TABLE>
STATEMENTS OF INCOME
<CAPTION>
For the Three Months
Ended March 31,
1996 1995
Revenue:
Interest income - PIMs and PIMIs:
<S> <C> <C>
Base interest $ 3,387,606 $ 3,452,801
Participation income - 90,540
Interest income - MBS 611,716 646,831
Other interest income 121,101 148,896
Total revenue 4,120,423 4,339,068
Expenses:
Asset management fee to an affiliate 415,287 420,226
Expense reimbursements to affiliates 107,746 115,963
Amortization of prepaid fees and expenses 419,823 422,325
Other 99,965 89,314
Total expenses 1,042,821 1,047,828
Net income $ 3,077,602 $ 3,291,240
Earnings per Share $ .20 $ .22
Weighted average Shares outstanding 15,053,135 15,053,135
</TABLE>
The accompanying notes are an integral
part of the financial statements.
<PAGE>
KRUPP GOVERNMENT INCOME TRUST
<TABLE>
STATEMENTS OF CASH FLOWS
<CAPTION>
For the Three Months
Ended March 31,
1996 1995
Operating activities:
<S> <C> <C>
Net income $ 3,077,602 $ 3,291,240
Adjustments to reconcile net income to
net cash provided by operating activities:
Amortization of net premium 1,295 1,500
Amortization of prepaid fees and expenses 419,823 422,325
Changes in assets and liabilities:
Decrease in interest receivable and other
assets 147,044 529,397
Decrease in other liabilities (12,215) (12,629)
Net cash provided by operating activities 3,633,549 4,231,833
Investing activities:
Principal collections on MBS 1,147,422 786,244
Principal collections on PIMs and insured
mortgages 225,085 226,846
Acquisition of MBS - (1,782,280)
Increase in deferred income on Additional Loans 634,807 469,169
Net cash provided by (used for)
investing activities 2,007,314 (300,021)
Financing activity:
Dividends (4,892,274) (4,892,274)
Net increase (decrease) in cash and
cash equivalents 748,589 (960,462)
Cash and cash equivalents, beginning of period 8,914,295 11,068,450
Cash and cash equivalents, end of period $ 9,662,884 $10,107,988
</TABLE>
The accompanying notes are an integral
part of the financial statements.
<PAGE>
KRUPP GOVERNMENT INCOME TRUST
NOTES TO FINANCIAL STATEMENTS
1. Accounting Policies
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted in this report on
Form 10-Q pursuant to the Rules and Regulations of the Securities and
Exchange Commission. However, in the opinion of Berkshire Mortgage
Advisors Limited Partnership (the "Advisor") of Krupp Government Income
Trust (the "Trust"), the disclosures contained in this report are
adequate to make the information presented not misleading. See Notes
to Financial Statements in the Trust's Form 10-K for the year ended
December 31, 1995 for additional information relevant to significant
accounting policies followed by the Trust.
In the opinion of the Advisor of the Trust, the accompanying unaudited
financial statements reflect all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the Trust's financial
position as of March 31, 1996 and the results of its operations and its
cash flows for the three months ended March 31, 1996 and 1995.
The results of operations for the three months ended March 31, 1996 are
not necessarily indicative of the results which may be expected for the
full year. See Management's Discussion and Analysis of Financial
Condition and Results of Operations included in this report.
2. PIMs and PIMIs
At March 31, 1996, the Trust s PIMs and PIMIs have a fair value of
approximately $187,234,000 and gross unrealized gains and losses of
approximately $325,000 and $6,438,000, respectively. The PIMs and
PIMIs have maturities ranging from 2001 to 2034.
3. MBS
At March 31, 1996, the Trust s MBS portfolio has an amortized cost of
approximately $28,671,000 and unrealized gains and losses of $983,000
and $9,000, respectively. The MBS portfolio has maturities ranging
from 2008 to 2029.
<PAGE>
KRUPP GOVERNMENT INCOME TRUST
NOTES TO FINANCIAL STATEMENTS, Continued
4. Changes in Shareholders' Equity
A summary of changes in shareholders' equity for three months ended
March 31, 1996 is as follows:
<TABLE>
<CAPTION>
Total
Common Retained Unrealized Shareholders'
Stock Earnings Gain Equity
Balance at
<S> <C> <C> <C> <C>
December 31, 1995 $240,103,655 $ - $ 1,574,821 $241,678,476
Net income - 3,077,602 - 3,077,602
Dividends (1,814,672) (3,077,602) - (4,892,274)
Decrease in unrealized
gain on MBS - - (601,453) (601,453)
Balance at March 31, 1996 $238,288,983 $ - $ 973,368 $239,262,351
</TABLE>
5. Related Party Transactions
During the three months ended March 31, 1996 and 1995, the Trust earned
$150,413 and $150,413, respectively, of interest income on Additional
Loans from affiliates of the Advisor.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity and Capital Resources
The most significant demand on the Trust's liquidity is dividends paid
to investors of approximately $4.9 million per quarter. The Trust
currently has an annual dividend rate of $1.30 per share, paid in quarterly
installments of $.325 per share. Funds for dividends come from interest
income received on PIMs, PIMIs, MBS, cash and cash equivalents net of
operating expenses, and the principal collections received on PIMs, PIMIs
and MBS. The portion of dividends funded from principal collections
reduces the capital resources of the Trust. As the capital resources of
the Trust decrease, the total cash flows to the Trust will also decrease
which may result in periodic adjustments to the dividends paid to the
investors.
The Trust s investments in PIMs and PIMIs provide guaranteed or insured
monthly principal and interest payments and may provide the Trust with
participation income depending on the operating performance of the
underlying property. For PIMIs, payment of Additional Loan base interest,
after escrows and reserves are exhausted, will depend primarily on the
operating performance of the underlying properties. The Lincoln Green PIM
and the Timber Ridge PIMI have had very strong operating performances and
in 1995 provided the Trust with significant participation income, which
should continue. Timber Ridge is delinquent on additional amounts of
participation income, and the Trust is aggressively pursuing collection of
this income owed on the Timber Ridge PIMI. Lifestyles Apartments
operating performance continues to be impeded by competition from new
apartment complexes and affordable single-family homes in the area that
limit its ability to raise rents. Overall, operations have remained
stable, however, they are not expected to improve significantly this year.
The property operations at Mountain View Apartments improved slightly due
to an improved rental market and the installation of a new management
company in late 1995. Once the reserves set aside to fund Windward Lakes
Apartments Additional Loan base interest payments are depleted, the
property operations may not generate sufficient cash flow to meet the
Additional Loan base interest payments. The Advisor is currently
evaluating an appropriate course of action if property operations do not
improve.
In February 1996, the Trust learned that the borrower of the first
mortgage loan underlying the Canyon Ridge PIM was two months in arrears on
its debt service payments. Subsequently, the servicer and the Federal
National Mortgage Association ("FNMA") initiated a foreclosure proceeding
that should conclude in the second quarter of 1996. To date, the Trust has
received all of its guaranteed monthly principal and interest collections
from the servicer as required. The Trust s Advisor is discussing with FNMA
alternative approaches of loan disposition that would be more favorable to
the Trust. While the Trust will receive a repayment of principal and
interest on the PIM it may not receive any participation income. The Trust
would be able to reinvest any proceeds in mortgages based on the Advisor s
evaluation of market conditions for mortgages at that time.
For the first five years of the PIMs and PIMIs the borrowers are
prohibited from repaying. For the second five years, the borrowers can
repay the loans and pay the greater of a prepayment penalty or all
participation interest for PIMs, or by paying all amounts due under the
PIMIs and satisfying the required preferred return. The participation
features and Additional Loans are neither insured nor guaranteed and if
repayment of a PIM or PIMI results from foreclosure on the underlying
property or an insurance claim the Trust would not receive any
participation interest or any amounts due under the Additional Loan. The
Trust has the option to call PIMs and PIMIs by accelerating their maturity
if the loans are not repaid by the tenth year after permanent funding. The
Trust will determine the merits of exercising the call option for each PIM
or PIMI as economic conditions warrant. Such factors as the condition of
the asset, local market conditions, interest rates and available financing
will have an impact on this decision.
<PAGE>
<TABLE>
<CAPTION>
(Amounts in thousands, except per Share amounts)
Period Ended Inception Through
3/31/96 3/31/96
Distributable Cash Flow (a):
<S> <C> <C>
Net income $ 3,078 $ 75,332
Items providing or not requiring the
use of operating funds:
Amortization of prepaid fees and
expenses and organization costs 420 6,557
Additional Loan Interest 635 6,556
Total Distributable Cash Flow 4,133 88,445
DCF per Share based on Shares
outstanding at March 31, 1996 $ .28 $ 5.88 (c)
Dividends:
Total dividends to Shareholders $ 4,892 (b) $122,003 (b)
Average dividend per Share based
on Shares outstanding at
March 31, 1996 $ .32 $ 8.10 (b)(c)
</TABLE>
(a) Distributable Cash Flow consists of income before
amortization of prepaid fees and expenses and organization
costs and before the effect of any gains or losses from the
sale of assets, and includes interest collections on
Additional Loans.
(b) Includes an estimate of the distribution to be paid in May
1996.
(c) Shareholders average per Share return of capital as of May
1996 is $2.22 [$8.10 - $5.88]. Return of capital represents
that portion of the dividends which is not funded from DCF
such as proceeds from the sale of assets and substantially
all of the principal collections received from MBS and PIMs.
Assessment of Credit Risk
The Trust's investments in mortgages are guaranteed or
insured by FNMA, the Federal Home Loan Mortgage Corporation ("FHLMC"), the
Government National Mortgage Association ( GNMA ) and the Department of
Housing and Urban Development ("HUD") and therefore the certainty of their
cash flows and the risk of material loss of the amounts invested depends on
the creditworthiness of these entities.
FNMA is a federally-chartered private corporation that
guarantees obligations originated under its programs. FHLMC is a
federally-chartered corporation that guarantees obligations originated
under its programs and is wholly-owned by the twelve Federal Home Loan
Banks. These obligations are not guaranteed by the U.S. Government or the
Federal Home Loan Bank Board. GNMA guarantees the full and timely payment
of principal and basic interest on the securities it issues, which
represents interest in pooled mortgages insured by HUD. Obligations
insured by HUD, an agency of the U.S. Government, are backed by the full
faith and credit of the U.S. Government.
The Trust's Additional Loans have similar risks as those
associated with higher risk debt instruments, including: reliance on the
owner's operating skills, ability to maintain occupancy levels, control
operating expenses, maintain the properties and obtain adequate insurance
coverage; adverse changes in general economic conditions, adverse local
conditions, and changes in governmental regulations, real estate zoning
laws, or tax laws; and other circumstances over which the Trust may have
little or no control.
<PAGE>
Operations
The following discussion relates to the operations of the
Trust during the three months ended March 31, 1996 and 1995 (dollars in
thousands, except per Share amounts):
<TABLE>
<CAPTION>
Three Months Ended March 31,
1996 1995
Per Per
Amount Share Amount Share
Interest income - PIMs and PIMIs:
<S> <C> <C> <C> <C>
Base interest $3,388 $ .23 $3,453 $ .23
Participation income - - 90 .01
Additional loan interest 635 .04 469 .03
Interest income on MBS 612 .04 647 .04
Other interest income 121 .01 149 .01
Trust expenses (623) (.04) (626) (.04)
DCF 4,133 .28 4,182 .28
Reconciliation to net income:
Amortization of prepaid fees and
expenses and organization costs (420) (.04) (422) (.03)
Additional loan interest deferred (635) (.04) (469) (.03)
Net income $3,078 $ .20 $3,291 $ .22
Weighted average Shares 15,053,135 15,053,135
</TABLE>
Net income for the first quarter of 1996 decreased by approximately
$213,000 as compared to the first quarter of 1995 due in part to lower
interest income resulting from a declining asset base and because the
Trust received approximately $90,000 of participation income in 1995 and
no participation income in 1996. As principal collections reduce the
Trust s investments in MBS, PIMs and insured mortgages interest income
on MBS and base interest income on PIMs and PIMIs will also decline. The
Trust funds a portion of dividends with principal collections which will
continue to reduce the asset base generating income for the Trust in the
future.
<PAGE>
KRUPP GOVERNMENT INCOME TRUST
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Response: None
Item 2. Changes in Securities
Response: None
Item 3. Defaults upon Senior Securities
Response: None
Item 4. Submission of Matters to a Vote of Security Holders
Response: None
Item 5. Other Information
Response: None
Item 6. Exhibits and Reports on Form 8-K
Response: None
<PAGE>
SIGNATURE
Pursuant to the requirements 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.
Krupp Government Income Trust
(Registrant)
BY: /s/ Robert A. Barrows
Robert A. Barrows
Treasurer and Chief Accounting Officer of
Krupp Government Income Trust
DATE: April 24, 1996
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the balance
sheet and statement of income and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 9,662,884
<SECURITIES> 222,990,946<F1>
<RECEIVABLES> 1,715,291
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,457,356<F2>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 245,826,477
<CURRENT-LIABILITIES> 6,564,126<F3>
<BONDS> 0
0
0
<COMMON> 238,288,983
<OTHER-SE> 973,368<F4>
<TOTAL-LIABILITY-AND-EQUITY> 245,826,477
<SALES> 0
<TOTAL-REVENUES> 4,120,423<F5>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,042,821<F6>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,077,602
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,077,602
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,077,602
<EPS-PRIMARY> .20
<EPS-DILUTED> 0
<FN>
<F1>Includes Participating Insured Mortgage Investments ("PIMIs") (insured
mortgages of $115,013,102 and Additional Loans of $20,749,108), Participating
Insured Mortgages("PIMs") of $57,584,647 and Mortgage-backed securities of
$29,644,089.
<F2>Includes prepaid acquisition fees and expenses of $13,473,359 net of
accumulated amortization of $5,216,749 and prepaid participation servicing fees
of $4,491,005 net of accumulated amortization of $1,290,259.
<F3>Includes deferred income on Additional Loans of $6,555,764.
<F4>Unrealized gain on MBS.
<F5>Represents interest income on investments in mortgages and cash.
<F6>Includes $419,823 of amortization of prepaid fees and expenses.
</FN>
</TABLE>
