UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESx
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 0-19244
Krupp Government Income Trust
(Exact name of registrant as specified in its charter)
Massachusetts 04-3089272
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification
No.)
470 Atlantic Avenue, Boston, Massachusett 02210
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (617) 423-2233
Securities registered pursuant to Section 12(b) of the Act:
Title Name of Exchange on which Registered
Shares of Beneficial Interest None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ].
Aggregate market value of voting securities held by non-affiliates: Not
applicable.
Documents incorporated by reference: see Part IV, Item 14
The exhibit index is located on pages 12-22.
<PAGE>
PART I
This Form 10-K contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Actual results could differ materially from those
projected in the forward-looking statements as a result of a number of
factors, including those identified herein.
ITEM 1. BUSINESS
Krupp Government Income Trust (the "Trust") was formed on November 1,
1989 by filing a Declaration of Trust in the Commonwealth of
Massachusetts. The Trust is authorized to sell and issue not more than
17,510,000 shares of beneficial interest ("the Shares"). The Trust raised
approximately $300 million through a public offering of Shares of
beneficial interest and used the proceeds available for investment
primarily to acquire participating insured mortgages ("PIMs"),
participating insured mortgage investments ("PIMIs"), and mortgage-backed
securities ("MBS"). The Trust considers itself to be engaged in only one
industry segment, investment in mortgages. The Trust has elected to be
treated as a real estate investment trust ( REIT ) under the Internal
Revenue Code of 1986, as amended. The Trust shall terminate on December
31, 2029, unless earlier terminated by the affirmative vote of holders of a
majority of the outstanding Shares entitled to vote thereon.
The Trust's investments in PIMs on multi-family residential properties
consist of 1) a MBS or an insured mortgage loan (collectively, the "insured
mortgage") guaranteed or insured as to principal and basic interest and 2)
a participating mortgage. The insured mortgages were issued or originated
under or in connection with the housing programs of the Federal National
Mortgage Association ("FNMA"), the Government National Mortgage Association
("GNMA"), or the Federal Housing Administration ("FHA") under the authority
of the Department of Housing and Urban Development ("HUD"). PIMs provide
the Trust with monthly payments of principal and basic interest and may
also provide for Trust participation in the current revenue stream and in
residual value, if any, from a sale or other realization of the underlying
property. The borrower conveys these rights to the Trust through a
subordinated promissory note and mortgage. The participation features are
neither insured nor guaranteed.
The PIMIs consist of 1) an insured mortgage issued by GNMA or originated
under the lending program of the FHA, 2) an additional loan ("Additional
Loan") to the borrower or owners of the borrower that increases the Trust's
total financing with respect to that property and its participation
interests and 3) a participating mortgage. Additional Loans associated
with an insured mortgage issued or originated in connection with HUD
insured programs cannot, under government regulations, be collateralized by
a mortgage on the underlying property. These Additional Loans are
typically collateralized by a security interest satisfactory to Berkshire
Mortgage Advisors Limited Partnership ("the Advisor"). The Additional
Loans are neither insured nor guaranteed. In addition, the participation
features related to the participating mortgage are neither insured nor
guaranteed. Additional Loans should provide the Trust with semi-annual
interest payments and may provide additional interest in the future while
the participating mortgage should provide for Trust participation in the
net income and residual value, if any, of the underlying property.
The Trust also acquired MBS collateralized by single-family mortgage
loans issued or originated by GNMA, FNMA, the Federal Home Loan Mortgage
Corporation ("FHLMC") or FHA. FNMA and FHLMC guarantee the principal and
basic interest of the FNMA and FHLMC MBS, respectively. GNMA guarantees
the timely payment of principal and interest on its MBS, and HUD insures
the pooled mortgage loans underlying the GNMA MBS and FHA mortgage loans.
The Trust can reinvest principal proceeds from its mortgage investments
which it receives or is in the process of collection prior to December 14,
<PAGE>
1997 in new mortgages. Any reinvestment in mortgages will be based on
management's evaluation of market conditions for mortgages. When the
reinvestment period ends the Trust will distribute proceeds from
prepayments or other realizations of mortgage assets to investors either
through quarterly distributions or possibly special distributions.
Although the Trust will terminate no later than December 31, 2029,
management expects that the value of the PIMs and PIMIs generally will be
realized by the Trust through repayment or sale as early as ten years from
the dates of the closings of the permanent loans, and that the Trust may
realize the value of all of its other investments within that time frame
thereby resulting in a dissolution of the Trust significantly prior to
December 31, 2029.
The Trust's investments are not expected to be subject to seasonal
fluctuations, although net income may vary somewhat from quarter to quarter
based upon the participation features of its investments. The requirements
for compliance with federal, state and local regulations to date have not
adversely affected the Trust's operations, and the Trust anticipates no
adverse effect in the future.
To qualify as a real estate investment trust ("REIT") for federal income
tax purposes, the Trust made a valid election to be so treated and must
continue to satisfy a range of complex requirements including criteria
related to its ownership structure, the nature of its assets, the sources
of its income and the amount of its distributions to shareholders. The
Trust intends to qualify as a REIT in each year of operation, however,
certain factors may have an adverse effect on the Trust's REIT status. If
for any taxable year, the Trustees and the Advisor determine that any of
the asset, income, or distribution tests are not likely to be satisfied,
the Trust may be required to borrow money, dispose of mortgages or take
other action to avoid loss of REIT status.
Additionally, if the Trust does not qualify as a REIT for any taxable
year, it will be subject to federal income tax as if it were a corporation
and the shareholders will be taxed as shareholders of a corporation. If
the Trust were taxed as a corporation, the payment of such tax by the Trust
would substantially reduce the funds available for distribution to
shareholders or for reinvestment. To the extent that distributions had been
made in anticipation of the Trust's qualification as a REIT, the Trust
might be required to borrow additional funds or to liquidate certain of its
investments in order to pay the applicable tax. Moreover, should the
Trust's election to be taxed as a REIT be terminated or voluntarily
revoked, the Trust may not be able to elect to be treated as a REIT for the
following five-year period.
As of December 31, 1996, there were no personnel directly employed by
the Trust.
ITEM 2. PROPERTIES
None.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Trust is a
party or to which any of its investments are subject to.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
There currently is no established public trading market for the Shares.
The number of investors holding Shares as of December 31, 1996 is
approximately 14,000.
The Trust has and will continue to declare and pay dividends on a
quarterly basis. The Trustees established a dividend rate per Share per
quarter of $.325 for 1996 and 1995.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial information regarding
the Trust's financial position and operating results. This information
should be read in conjunction with Management's Discussion and Analysis of
Financial Condition and Results of Operations and the Financial Statements
and Supplementary Data, which are included in Item 7 and Item 8 (Appendix
A) of this report, respectively.
<TABLE>
(Amounts in thousands, except for per Share amounts)
<CAPTION>
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Total revenues $ 16,358 $ 17,200 $ 16,846 $ 18,046 $ 17,285
Net income $ 12,481 $ 13,022 $ 12,599 $ 13,869 $ 13,633
Net income per Share $ .83 $ .87 $ .84 $ .92 $ .91
Weighted average Shares
outstanding 15,053 15,053 15,053 15,053 15,053
Total assets at
December 31 $241,634 $247,620 $251,333 $256,565 $265,347
Average dividends
per Share $ 1.30 $ 1.30 $ 1.30 $ 1.70 $ 1.70
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management s discussion and analysis of financial condition and results of
operations contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Actual results could differ materially from those
projected in the forward-looking statements as a result of a number of
factors, including those identified herein.
Liquidity and Capital Resources
At December 31, 1996, the Trust has significant liquidity
consisting of cash and cash equivalents, of approximately $19 million as
well as the cash inflows provided by PIMs, PIMIs, MBS, cash and cash
equivalents. Included in the cash and cash equivalents is approximately
$8.9 million from the prepayment of the Canyon Ridge Apartments PIM
prepayment. The Trust is currently looking at investment opportunities for
<PAGE>
this prepayment. The Trust may also receive additional cash flow from the
participation features of its PIMs and PIMIs. The Trust anticipates that
these sources will be adequate to provide the Trust with sufficient
liquidity to meet its obligations, including providing dividends to its
investors.
The most significant demand on the Trust's liquidity are
dividends paid to investors which currently approximate $19.6 million per
year ($4.9 million per quarter). For 1996, the Trust declared an annual
dividend 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 and 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 will result in periodic
adjustments to the dividends paid to the investors.
The Trust's investments in PIMs and PIMIs in addition to
providing guaranteed or insured monthly principal and interest payments
should provide the Trust with additional income through participation in
the cash generated by the operations of the underlying properties and a
portion of the appreciation realized upon the sale or refinancing of the
underlying properties. The Trust's participation interests and the
interest payments on the Additional Loan portion of the PIMIs are neither
insured nor guaranteed, and will depend primarily on the successful
operation of the underlying properties. Seven of the Trust's nine PIMIs
funded the construction of multi-family housing, which require time to
achieve stabilized operations following completion of construction. With
this in mind, the Trust required the borrowers to establish reserves and
escrows with Additional Loan proceeds to provide funds for the Additional
Loan base interest payments during the construction and lease-up periods.
As these reserves become depleted full payment of the Additional Loan base
interest will depend primarily on whether the underlying property can
generate sufficient operating cash flow. As of December 31, 1996, Coconut
Palm, Mountain View, Red Run and The Seasons have sufficient escrows to
make the required Additional Loan base interest payments in 1997 if
necessary. Management is closely monitoring the operating performances of
the remaining properties. Overall, the Trust's ability to meet its
objectives will depend primarily on the operating performance of the
properties underlying the PIMs and PIMIs.
Many of the properties had stable or improved performances in
1996. High occupancy rates were maintained and rental rate increases were
achieved at more than half of the properties due to stable or improving
markets or the unique character of the specific property. Three of the
properties continued to maintain strong operating performances from 1995 to
1996 and paid participation income during 1996; two others achieved a
successful level of performance in 1996 that will result in the payment of
participation income for the first time during 1997. Timber Ridge
Apartments operations generated sufficient cash flow to provide the Trust
with $160,000 of participation income and provide for the Additional Loan
base interest payments. The Trust received approximately $130,000 of
participation income from Lincoln Green PIM, and management expects this
property will continue to improve in 1997. Riverview Apartment s 1995
operating performance reached the participation threshold and paid the
Trust approximately $12,000 in participation income during 1996.
Management expects continued improvement in 1997. The Seasons, which was
completely renovated in 1994 and 1995, performed very well during 1996 and,
as a result, will pay participation income to the Trust in 1997. Waterford
Townhomes operations reached the participation threshold during 1996 and
will pay the Trust participation income for the first time in 1997.
Other properties underlying the PIMI s have not achieved the
desired level of operating performance. Lifestyles Apartments, Windward
Lakes Apartments and Coconut Palm Apartments all have been impeded by
competition from new apartment complexes and affordable single-family homes
<PAGE>
in markets where the ability to raise rents is limited. Lifestlyes
operations deteriorated during the first half of 1996. As a result, the
borrower of the Lifestyles PIMI requested some form of debt service
relief. During the third quarter the Advisor and the borrower finalized an
agreement that includes a 1% per annum reduction in the interest paid
monthly on the insured mortgage for a 24-month period. The agreement also
specifies that Additional Loan base interest payments will be based on
surplus cash and extends the prepayment lockout date by five years. The
borrower contributed $150,000 to fund current operating deficits of the
property and agreed to fund future operating deficits of the property up to
a maximum of $50,000 per year if deemed necessary by the Trust. In
addition to the workout s financial attributes, the Advisor required a
change in the property s on-site management. Since the new management
company assumed responsibility for day-to-day operations, occupancy has
improved dramatically. Windward Lakes operating performance deteriorated
in 1996 as the property also was challenged by a rash of burglary incidents
which affected occupancy. The drop in occupancy exacerbated operating
deficits which led the borrower to seek debt service relief from the Trust.
During the first quarter of 1997, the Advisor agreed to a workout that
includes a reduction in the interest paid on the insured mortgage of 2% per
annum for a 12 month period and then a 1% per annum for a 36 month period.
The agreement also specifies that Additional Loan base interest will be
based on the property s surplus cash calculation. In addition, the
borrower will contribute $133,000 of new equity to fund the cost of
security systems. Coconut Palm s operating performance also dropped during
1996 as a result of increased vacancy in a competitive market. There are
adequate escrows to cover the 1997 base interest payments. Management will
continue to closely monitor the operations of the property.
Whether the operating performance at any of the properties
mentioned above improves enough to provide sufficient cash flow to pay
Additional Loan interest will depend on factors that the Trust has little
or no control over. Should the properties be unable to generate sufficient
cash flow to pay their Additional Loan base interest, it would reduce the
Trust's distributable cash flow and could affect the value of the
Additional Loan collateral.
The borrower of the Canyon Ridge Apartments PIM was delinquent
on its debt service payments and the servicer and the Federal National
Mortgage Association ( FNMA ) intended to foreclose on the property. Prior
to this foreclosure the Trust received a prepayment from FNMA, and
subsequently the borrower filed for bankruptcy. The Trust received
approximately $8.9 million and intends to reinvest it in a new mortgage
investment. The Trust is currently looking at investment opportunities.
The Trust subsequently collected $200,000 of participation interest income
through a claim with the bankruptcy court.
During the fourth quarter, the owner of Timber Ridge Apartments
approached the Trust about prepaying the PIMI and subsequently prepaid the
PIMI during the first quarter of 1997. The Trust received remaining
principal balance of the first mortgage and additional loan of $5.6 million
and $1.54 million, respectively. In addition, the Trust received $1.05
million representing additional interest. The Trust intends to reinvest
the principal proceeds in a new mortgage investment.
For the first five years of the PIMs and PIMIs the borrowers are
prohibited from repaying. For the second five years, the borrower can
repay the loans incurring a prepayment penalty for PIMs or paying all
amounts due under the PIMIs and satisfying the required preferred return.
The Trust has the option to call certain PIMs and all the PIMIs by
accelerating their maturity, if the loans are not prepaid 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.
(Amounts in thousands, except per Share amounts)
<PAGE>
<TABLE>
<CAPTION>
Year Inception
Ended Through
12/31/96 12/31/96
Distributable Cash Flow (a):
<S> <C> <C>
Net income $12,481 $ 84,735
Items not requiring or providing the
use of operating funds:
Amortization of prepaid fees and
expenses and organization costs 1,614 7,751
Additional Loan Interest Deferred 1,404 7,325
Total Distributable Cash Flow ("DCF") 15,499 99,811
DCF per Share based on Shares
outstanding at December 31, 1996 $ 1.03 $ 6.63 (c)
Dividends:
Total dividends to Shareholders $19,569(b) $136,680 (b)
Average dividend per Share based
on Shares outstanding at
December 31, 1996 $ 1.30 $ 9.08
(b)(c)
</TABLE>
(a) Distributable Cash Flow consists of income before
amortization of prepaid fees and expenses and organization
costs and includes deferred interest on Additional Loans.
The Trust believes Distributable Cash Flow is an appropriate
supplemental measure of operating performance, however, it
should not be considered as a substitute for net income as an
indication of operating performance or cash flows as a
measure of liquidity.
(b) Includes an estimate of the distribution to be paid February
1997.
(c) Shareholders average per Share return of capital on a cash
basis as of February 1997 is $2.45 [$9.08 - $6.63]. Return
of capital represents that portion of the dividends which is
not funded from DCF such as principal collections received
from MBS and PIMs.
Assessment of Credit Risk
The Trust's investments in mortgages are guaranteed or insured by the
Federal National Mortgage Association ("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
<PAGE>
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.
Operations
The following discussion relates to the operations of the Trust during
the years ended December 31, 1996, 1995 and 1994. Dollars are stated in
thousands, except for per Share amounts.
<TABLE>
Year Ended December 31,
<CAPTION>
1996 1995 1994
Per Per Per
Amount Share Amount Share Amount Share
<S> <C> <C> <C> <C> <C> <C>
Interest income on PIMs
and insured mortgages $13,167 $ .88 $14,062 $ .93 $13,854 $ .92
Additional loan interest
received 1,404 .09 1,277 .09 1,710 .11
Interest income on MBS 2,306 .15 2,608 .17 2,402 .16
Other interest income 886 .06 531 .04 590 .04
Trust expenses (2,264) (.15) (2,496) (.17) (2,545) (.17)
DCF 15,499 1.03 15,982 1.06 16,011 1.06
Reconciliation to
net income:
Amortization of prepaid
fees, expenses and
organization costs (1,614) (.11) (1,683) (.10) (1,702) (.11)
Additional loan interest
deferred (1,404) (.09) (1,277) (.09) (1,710) (.11)
Net income $12,481 $ .83 $13,022 $ .87 $12,599 $ .84
Weighted average
Shares outstanding 15,053,135 15,053,135 15,053,135
</TABLE>
The Trust's net income for 1996 decreased by approximately $541,000 as
compared to 1995 due primarily to decreases in base interest income on PIMs
and insured mortgages and interest income on MBS of approximately $895,000
and $302,000, respectively, which were partially offset by an increase in
other interest income of approximately $355,000 and a decrease in Trust
expenses of approximately $232,000. The decrease in base interest income
on PIMs and insured mortgages for 1996 as compared to 1995 was due
primarily to the prepayment of the Canyon Ridge PIM which caused a decline
in interest income of $502,000 and interest rate reductions of $211,000 for
the Mountain View and Lifestlyes Apartments PIMs. Interest income on MBS
will continue to decline as principal collections reduce the outstanding
balance of the MBS portfolio. Other interest income increased as a result
of short-term investments made with the proceeds from the Canyon Ridge
prepayment. Expenses decreased for 1996 as compared to 1995 due primarily
to lower asset management fees, expenses reimbursements to affiliates and
general and administrative expenses.
<PAGE>
The Trust's net income for 1995 increased by approximately $423,000 as
compared to 1994 due primarily to an increase in interest income on PIMS
and MBS of approximately $208,000 and $206,000, respectively. Although the
Trust had a higher average balance in early 1994, the significant MBS
prepayments during the first half of 1994 reduced MBS investments and
interest income on MBS. To improve the return on the Trust's invested
assets, the Trust acquired approximately $6 million of MBS during the third
quarter of 1994 and invested in a Federal Housing Administration
construction loan having a face value of approximately $5 million. As a
result, interest income on MBS increased when comparing 1995 to 1994.
During the third quarter of 1995, the Trust received $200,000 of
participation interest income on the Timber Ridge PIMI, which increased
interest income on PIMs $126,000 during 1995 as compared to 1994.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Appendix A to this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information as to the Trustees and Executive Officers of Krupp Government
Income Trust is as follows:
Position with Krupp
Name and Age Government Income Trust
Douglas Krupp (50) Chairman of Board of Trustees and Trustee
Laurence Gerber (40) President and Trustee
* Charles N. Goldberg (55) Trustee
* E. Robert Roskind (51) Trustee
* J. Paul Finnegan (71) Trustee
Robert A. Barrows (39) Treasurer and Chief Accounting Officer
Scott D. Spelfogel (36) Clerk
K. Scott Griggs (34) Assistant Clerk
* Independent Trustee
Douglas Krupp is Co-Chairman and Co-Founder of The Berkshire Group.
Established in 1969 as the Krupp Companies, this real estate-based firm
expanded over the years within its areas of expertise including investment
program sponsorship, property and asset management, mortgage banking,
healthcare facility ownership and the management of the Company. Today,
The Berkshire Group is an integrated real estate, mortgage and healthcare
company which is headquartered in Boston with regional offices throughout
the country. A staff of 3,400 are responsible for the more than $3 billion
under management for institutional and individual clients. Mr. Krupp is a
graduate of Bryant College. In 1989 he received an honorary Doctor of
Science in Business Administration from this institution and was elected
trustee in 1990. Mr. Krupp serves as Chairman of the Board and a
director of Berkshire Realty Company, Inc. (BRI-NYSE). Mr. Krupp also
serves as Chairman of the Board and a Trustee of Krupp Government Income
Trust II.
Laurence Gerber is the President and Chief Executive Officer of The
Berkshire Group. Prior to becoming President and Chief Executive Officer
<PAGE>
in 1991, Mr. Gerber held various positions with The Berkshire Group which
included overall responsibility at various times for: strategic planning
and product development, real estate acquisitions, corporate finance,
mortgage banking, syndication and marketing. Before joining The Berkshire
Group in 1984, he was a management consultant with Bain & Company, a
national consulting firm headquartered in Boston. Prior to that, he was a
senior tax accountant with Arthur Andersen & Co., an international
accounting and consulting firm. Mr. Gerber has a B.S. degree in Economics
from the University of Pennsylvania, Wharton School and an M.B.A. degree
with high distinction from Harvard Business School. He is a Certified
Public Accountant. Mr. Gerber also serves as President and a Director of
Berkshire Realty Company, Inc. (NYSE-BRI) and President and Trustee of
Krupp Government Income Trust II.
Charles N. Goldberg is the Managing Partner of Goldberg Brown,
Attorneys at Law in Houston, Texas since 1980. He is a member of the State
Bar of Texas and is admitted to practice before the U.S. Court of Appeals,
Fifth Circuit and U.S. District Court, Southern District of Texas.
Goldberg Brown specializes in the representation of lenders and developers
in their acquisition, refinancing and disposition of property. He received
a B.B.A. degree and J.D. degree from the University of Texas. Mr. Goldberg
also serves as a Trustee of Krupp Government Income Trust II and as a
Director of Berkshire Realty Company, Inc. (NYSE-BRI).
E. Robert Roskind is the Chairman and Co-Chief Executive Officer of
Lexington Corporate Properties, a self administered REIT which owns 23
properties, each net leased to a single corporate tenant, and whose Shares
are listed on the New York Stock Exchange. Mr. Roskind is also the
Managing Partner of The LCP Group, a real estate investment firm based in
New York, which has acquired on behalf of the partnerships sponsored by the
firm over 400 properties throughout the United States. Most of such
properties have been net leased to major U.S. corporations. The LCP Group
is the successor to Lepercq Capital Partners and Lepercq Capital
Corporation. Mr. Roskind in 1974 co-founded Lepercq Capital Corporation
and served as its Chairman. Mr. Roskind is also Chairman of Net Lease
Partners Realty Advisors, a registered pension fund advisor, which advises
pension funds with respect to the acquisition and subsequent management of
properties net leased to major corporations. He is a graduate of the
University of Pennsylvania and Columbia Law School and has been a member of
the New York Bar since 1970. Mr. Roskind also serves as a Trustee of Krupp
Government Income Trust II and as a Director of Berkshire Realty Company,
Inc. (NYSE-BRI).
J. Paul Finnegan is a retired partner of Coopers & Lybrand, L.L.P.
where he specialized in tax matters. He retired in September 1987 and
since then has been engaged in business as a consultant, a director and an
arbitrator for the American Arbitration Association and the National
Association of Securities Dealers, Inc. Mr. Finnegan is a graduate of
Harvard College and Boston College Law School and is a Certified Public
Accountant. Mr. Finnegan also serves as a Trustee of Krupp Government
Income Trust II and as a Director of Berkshire Realty Company, Inc. (NYSE-
BRI). He is also a director at Scituate Federal Savings Bank.
Robert A. Barrows is Senior Vice President and Chief Financial
Officer of Berkshire Mortgage Finance and The Berkshire Group. Mr. Barrows
has held several positions within The Berkshire Group since joining the
company in 1983 and is currently responsible for accounting and financial
reporting, treasury, tax, payroll and office administrative activities.
Prior to joining The Berkshire Group, he was an audit supervisor for
Coopers & Lybrand L.L.P. in Boston, He received a B.S. degree from Boston
College and is a Certified Public Accountant.
<PAGE>
Scott D. Spelfogel is Senior Vice President and General Counsel to
The Berkshire Group. He previously served as Vice President and Assistant
General Counsel. Before joining the firm in November 1988, he was a
litigator in private practice in Boston. He received a Bachelor of Science
degree in Business Administration from Boston University, a Juris Doctor
Degree from Syracuse University's College of Law, and a Master of Laws
degree in Taxation from Boston University Law School. He is admitted to
practice law in Massachusetts and New York, is a member of the American,
Boston, Massachusetts and New York State bar associations, the American
Corporate Counsel Association and the American Society of Corporate
Secretaries and is a licensed real estate broker in Massachusetts.
K. Scott Griggs is Assistant Clerk of the Trust and Assistant
General Counsel of The Berkshire Group. Before joining The Berkshire Group
in March 1991, he served as counsel to The Fafard Companies, a construction
and real estate firm in Greater Boston. He received a B.A. degree from
Columbia University in 1984 and a J.D. degree from the Boston University
School of Law in 1989. He is a member of the American, Boston and
Massachusetts Bar associations.
In addition, the following are deemed to be Executive Officers of
the registrant:
George Krupp (age 52) is the Co-Chairman and Co-Founder of The
Berkshire Group. Established in 1969 as the Krupp Companies, this real
estate-based firm expanded over the years within its areas of expertise
including investment program sponsorship, property and asset management,
mortgage banking and healthcare facility ownership. Today, The Berkshire
Group is an integrated real estate, mortgage and healthcare company which
is headquartered in Boston with regional offices throughout the country. A
staff of 3,400 are responsible for more than $3 billion under management
for institutional and individual clients. Mr. Krupp attended the
University of Pennsylvania and Harvard University. Douglas Krupp is George
Krupp's brother.
Peter F. Donovan (age 43) is President of Berkshire Mortgage Finance
and directs the underwriting, servicing and asset management of a $3.9
billion multi-family loan portfolio. Previously, he was Senior Vice
President of Berkshire Mortgage Finance and was responsible for all
participating mortgage originations. Before joining the firm in 1984, he
was Second Vice President, Real Estate Finance for Continental Illinois
National Bank & Trust, where he managed a $300 million construction loan
portfolio of commercial properties. Mr. Donovan received a B.A. from
Trinity College and an M.B.A. degree from Northwestern University.
ITEM 11. EXECUTIVE COMPENSATION
Except for the Independent Trustees as described below, the Trustees
and Officers of the Trust have not been and will not be compensated by the
Trust for their services. However, the Officers will be compensated by the
Advisor or an affiliate of the Advisor.
Compensation of Trustees
The Trust paid each of the Independent Trustees a fee of $25,000 in
1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
<PAGE>
As of February 5, 1997, no person owned of record or was known by
the Advisor to own beneficially more than 5% of the Trust's 15,053,135
outstanding Shares. The only shares held by the Advisor or any of its
affiliates consist of the original 10,000 Shares.
<TABLE>
<CAPTION>
Class of Name of Beneficial Amount and Nature of Percent
Stock Owner Beneficial Interest of Class
<S> <C> <C> <C>
Shares of Laurence Gerber
Beneficial 470 Atlantic Avenue
Interest Boston, Mass. 02210 10,000 Shares* ***
Shares of Douglas Krupp
Beneficial 470 Atlantic Avenue
Interest Boston, Mass. 02210 10,000 Shares** ***
Shares of
Beneficial All Directors and
Interest Officers 10,000 Shares ***
</TABLE>
* Mr. Gerber is a beneficial owner of 10,000 shares held by Berkshire
Mortgage Advisors Limited Partnership, the Advisor to the Company, by
virtue of being the president of Berkshire Funding Corporation, the general
partner of Berkshire Mortgage Advisors Limited Partnership. In each case
where Mr. Gerber is a beneficial owner of shares he has shared voting and
investment powers and such shares are also beneficially owned by Mr. Krupp.
** Mr. Krupp is a beneficial owner of the 10,000 shares held by
Berkshire Mortgage Advisors Limited Partnership, the Advisor to the
Company, by virtue of being a director of Berkshire Funding Corporation,
the general partner of Berkshire Mortgage Advisors Limited Partnership. In
each case where Mr. Krupp is a beneficial owner of shares he has shared
voting and investment powers and such shares are also beneficially owned by
Mr. Gerber.
*** The amount owned does not exceed one percent of the shares of
beneficial interest of the Trust outstanding as of February 5, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See Note G to Financial Statements included in Appendix A of this
report.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements - see Index to Financial Statements
and Supplementary Data included under Item 8, Appendix
A, on page F-2 of this report.
2. Financial Statement Schedules - see Index to Financial
Statements and Supplementary Data included under Item 8,
Appendix A, on page F-2 of this report. All schedules
are omitted as they are not applicable, not required or
the information is provided in the Financial Statements
or the Notes thereto.
(b) Exhibits:
Number and Description
Under Regulation S-K
<PAGE>
The following reflects all applicable Exhibits required under Item 601
of Regulation S-K:
(4) Instruments defining the rights of security holders
including indentures:
(4.1) Second Amended and Restated Declaration of Trust
filed with The Massachusetts Secretary of State
on April 12, 1990 [Included as Exhibit 4.4 to
Prospectus included in Pre-effective Amendment
No. 3 to Registrant's Registration Statement on
Form S-11 dated April 16, 1990 (File No. 33-
31942)].*
(4.2) Subscription Agreement Specimen [Included as
Exhibit C to Prospectus included in Pre-
effective Amendment No. 2 to Regis-trant's
Registration Statement on Form S-11 dated March
23, 1990 (File No. 33-31942)].*
(10) Material Contracts:
(10.1) Advisory Services Agreement dated October 22,
1990 between the Trustee and Krupp Mortgage
Advisors Limited Partnership. [Exhibit 10.1 to
Registrant's report on Form 10-K for the year
ended December 31, 1994 (File No. 0-19244)].*
(10.2) Assignment and Assumption Agreement dated
December 29, 1994 by and between Berkshire
Realty Advisors Limited Partnership (formerly
known as Krupp Realty Advisors Limited
Partnership ("Assignor") and Berkshire
Mortgage Advisors Limited Partnership
("Assignee") [Exhibit 10.2 to Registrant's
report on Form 10-K for the year ended
December 31, 1994 (File No. 0-19244)].*
Lifestyles Apartments
(10.3) Modification Agreement by and between Krupp
Government Income Trust and Lifestyles at Boot
Ranch and M&D Palm Harbor, and FL-Tampa Inc.
[Exhibit 10.1 to Registrant's report on Form
10-Q for the quarter ended September 30, 1996
(File No. 0-19244)].*
(10.4) Escrow Deposit Agreement by and between Krupp
Government Income Trust and M&D Palm Harbor,
and FL-Tampa Inc. the general partners of
Lifestyles at Boot Ranch. [Exhibit 10.2 to
Registrant's report on Form 10-Q for the
quarter ended September 30, 1996 (File No. 0-
19244)].*
(10.5) Subordinated Promissory Note dated December
11, 1990 between Lifestyles At Boot Ranch (the
"Mortgagor") and Krupp Government Income Trust
(the "Holder") [Exhibit 10.1 to Registrant's
<PAGE>
Annual Report on Form 10-K for the fiscal year
ended December 31, 1990 (File No. 33-31942)].*
(10.6) Agreement RE Subordinated Note dated December
11, 1990 between Krupp Government Income Trust
and Krupp Mortgage Corporation [Exhibit 10.2
to Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1990 (File
No. 33-31942)].*
(10.7) Subordinated Multifamily Mortgage dated
December 11, 1990 between Lifestyles at Boot
Ranch (the "Mortgagor") and Krupp Government
Income Trust (the "Mortgagee") [Exhibit 10.3
to Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1990 (File
No. 33-31942)].*
(10.8) Additional Loan Agreement dated December 11,
1990 between FL-Tampa, Inc. and M & D Palm
Harbor, Inc (collectively, the "Borrowers")
and Krupp Government Income Trust (the
"Holder") [Exhibit 10.4 to Registrant's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1990 (File No. 33-31942)].*
(10.9) Additional Loan Note dated December 11,1990
between FL-Tampa, Inc and M & D Palm Harbor,
Inc. (collectively, the "Borrowers") and Krupp
Government Income Trust (the "Holder")
[Exhibit 10.5 to Registrant's Annual Report on
Form 10-K for the fiscal year ended December
31, 1990 (File No. 33-31942)].*
(10.10) Mortgage Note dated December 11, 1991 between
Lifestyles at Boot Ranch (the "Borrower") and
Krupp Mortgage Corporation (the "Holder").
[Exhibit 10.6 to Registrant's Annual Report on
Form 10-K for the fiscal year ended December
31, 1991 (File No. 0-19244)].*
(10.11) GNMA Purchase Agreement dated December 11,
1991 between Krupp Government Income Trust and
Krupp Mortgage Corporation. [Exhibit 10.7 to
Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1991 (File
No. 0-19244)].*
Windward Lakes Apartments
(10.12) Subordinated Promissory Note dated December
28, 1990 between the McNab-K C 3 Limited
Partnership (the "Mortgagor") and Krupp
Government Income Trust (the "Holder")
[Exhibit 10.6 to Registrant's Annual Report on
Form 10-K for the fiscal year ended December
31, 1990 (File No. 33-31942)].*
(10.13) Additional Loan Agreement dated December 28,
1990 between George Krupp, Douglas Krupp and
Krupp GP, Inc. (collectively, the "Borrowers")
and Krupp Government Income Trust (the
"Holder") [Exhibit 10.7 to Registrant's Annual
<PAGE>
Report on Form 10-K for the fiscal year ended
December 31, 1990 (File No. 33-31942)].*
(10.14) Additional Loan Note dated December 28, 1990
between Krupp GP, Inc., George Krupp and
Douglas Krupp (collectively, the "Borrowers")
and Krupp Government Income Trust (the
"Holder") [Exhibit 10.8 to Registrant's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1990 (File No. 33-31942)].*
(10.15) Agreement RE Subordinated Note dated December
28, 1990 between Krupp Government Income Trust
and Love Funding Corporation. [Exhibit 10.11
to Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1991 (File
No. 0-19244)].*
(10.16) Subordinated Multi-family Mortgage dated
December 28, 1991 between McNab-KC3 Limited
Partnership (the "Borrower") and Krupp
Government Income Trust (the "Lender").
[Exhibit 10.12 to Registrant's Annual Report
on Form 10-K for the fiscal year ended
December 31, 1991 (File No. 0-19244)].*
(10.17) GNMA Purchase Agreement dated December 28,
1991 between Krupp Government Income Trust and
Love Funding Corporation. [Exhibit 10.13 to
Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1991 (File
No. 0-19244)].*
River View Apartments
(10.18) Subordinated Promissory Note dated April 2,
1991 between Sterling Partners III Limited
Partnership (the "Mortgagor") and Krupp
Government Income Trust (the "Holder")
[Exhibit 19.1 to Registrant's report on Form
10-Q for the quarter ended June 30, 1991 (File
No. 0-19244)].*
(10.19) Agreement RE Subordinated Promissory Note
dated April 2, 1991 between Krupp Government
Income Trust and Love Funding Corporation
[Exhibit 19.2 to Registrant's report on Form
10-Q for the quarter ended June 30, 1991 (File
No. 0-19244)].*
(10.20) Subordinated Multifamily Mortgage dated April
2, 1991 between Sterling Partners III Limited
Partnership (the "Mortgagor") and Krupp
Government Income Trust (the "Mortgagee")
[Exhibit 19.3 to Registrant's report on Form
10-Q for the quarter ended June 30, 1991 (File
No. 0-19244)].*
(10.21) Supplement to Prospectus dated May 1, 1991 for
Government National Mortgage Association Pool
Number 280840 [Exhibit 19.4 to Registrant's
report on Form 10-Q for the quarter ended June
30, 1991 (File No. 0-19244)].*
<PAGE>
Mill Pond Apartments
(10.22) Subordinated Promissory Note dated May 28,
1991 between Mill Pond Limited Partnership
(the "Mortgagor") and Krupp Government Income
Trust (the "Holder") [Exhibit 19.5 to
Registrant's report on Form 10-Q for the
quarter ended June 30, 1991 (File No. 0-
19244)].*
(10.23) Agreement RE Subordinated Promissory Note
dated May 28, 1991 between Krupp Government
Income Trust and Krupp Mortgage Corporation
[Exhibit 19.6 to Registrant's report on Form
10-Q for the quarter ended June 30, 1991 (File
No. 0-19244)].*
(10.24) Subordinated Multifamily Mortgage dated May
28, 1991 between Mill Pond Limited Partnership
(the "Mortgagor") and Krupp Government Income
Trust (the "Mortgagee") [Exhibit 19.7 to
Registrant's report on Form 10-Q for the
quarter ended June 30, 1991 (File No. 0-
19244)].*
(10.25) Mortgage Note dated May 28, 1991 between Krupp
Mortgage Corporation (the "Holder") and Mill
Pond Apartments (the "Borrower") [Exhibit 19.8
to Registrant's report on Form 10-Q for the
quarter ended June 30, 1991 (File No. 0-
19244)].*
(10.26) Participation Agreement dated May 28, 1991
between Krupp Mortgage Corporation (the
"Mortgagee") and Krupp Government Income Trust
[Exhibit 19.9 to Registrant's report on Form
10-Q for the quarter ended June 30, 1991 (File
No. 0-19244)].*
(10.27) Assignment of Open End Mortgage Deed and
Security Agreement dated May 28, 1991 between
Krupp Mortgage Corporation (the "Assignor")
and Krupp Government Income Trust (the
"Assignee") [Exhibit 19.1 to Registrants
report on Form 10-Q for the quarter ended
September 30, 1991 (File No. 0-19244)].*
Waterford Townhome Apartments
(10.28) Subordinated Promissory Note dated June 12,
1991 between Waterford Apartment Corp. (the
"Mortgagor") and Krupp Government Income Trust
(the "Holder") [Exhibit 19.10 to Registrant's
report on Form 10-Q for the quarter ended June
30, 1991 (File No. 0-19244)].*
(10.29) Agreement RE Subordinated Promissory Note
dated June 12, 1991 between Krupp Government
Income Trust and Nichols/Conlan Financial
Company [Exhibit 19.11 to Registrant's report
on Form 10-Q for the quarter ended June 30,
1991 (File No. 0-19244)].*
<PAGE>
(10.30) Subordinated Multifamily Mortgage dated June
12, 1991 between Waterford Apartments Corp.
(the "Mortgagor") and Krupp Government Income
Trust (the "Mortgagee") [Exhibit 19.12 to
Registrant's report on Form 10-Q for the
quarter ended June 30, 1991 (File No. 0-
19244)].*
(10.31) Mortgage Note dated June 12, 1991 between
Nichols/Conlan Financial Company (the
"Holder") and Waterford Apartment Corp. (the
"Borrower") [Exhibit 19.13 to Registrant's
report on Form 10-Q for the quarter ended June
30, 1991 (File No. 0-19244)].*
(10.32) Assignment of Loan Documents dated June 12,
1991 by Nichols/Conlan Financial Company to
Krupp Mortgage Corp [Exhibit 19.14 to
Registrant's report on Form 10-Q for the
quarter ended June 30, 1991 (File No. 0-
19244)].*
(10.33) Participation Agreement dated June 12, 1991
between Nichols/Conlan Financial Company (the
"Mortgagee") and Krupp Government Income Trust
[Exhibit 19.15 to Registrant's report on Form
10-Q for the quarter ended June 30, 1991 (File
No. 0-19244)].*
Rivergreens Apartments
(10.34) Subordinated Promissory Note dated November
14, 1991 between Rivergreens Associates
Limited Partnership (the "Mortgagor") and
Krupp Government Income Trust (the "Holder").
[Exhibit 10.33 to Registrant's Annual Report
on Form 10-K for the fiscal year ended
December 31, 1991 (File No. 0-19244)].*
(10.35) Agreement Re-Subordinated Promissory Note
dated November 14, 1991 between Krupp
Government Income Trust and Krupp Mortgage
Corporation. [Exhibit 10.34 to Registrant's
Annual Report on Form 10-K for the fiscal year
ended December 31, 1991 (File No. 0-19244)].*
(10.36) Subordinated Multifamily Deed of Trust dated
November 14, 1991 between Rivergreens
Associates Limited Partnership (the
"Borrower"), Oregon Title Insurance Company
(the "Trustee") and Krupp Government Income
Trust (the "Lender"). [Exhibit 10.35 to
Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1991 (File
No. 0-19244)].*
(10.37) Mortgage Note dated November 14, 1991 between
Krupp Mortgage Corporation and Rivergreens
Associates Limited Partnership. [Exhibit 10.36
to Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1991 (File
No. 0-19244)].*
<PAGE>
(10.38) Participation Agreement dated November 14,
1991 between Krupp Mortgage Corporation and
Krupp Government Income Trust. [Exhibit 10.37
to Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1991 (File
No. 0-19244)].*
Audubon Villas
(10.39) Prospectus for Government National Mortgage
Association Pool Number 295307(CS) and Pool
Number 295308(PN). [Exhibit 10.38 to
Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1991 (File
No. 0-19244)].*
(10.40) Subordinated Promissory Note dated December
27, 1991 between Golf View Partners, Ltd. (the
"Mortgagor") and Krupp Government Income Trust
(the "Holder"). [Exhibit 10.39 to Registrant's
Annual Report on Form 10-K for the fiscal year
ended December 31, 1991 (File No. 0-19244)].*
(10.41) Agreement Re-Subordinated Promissory Note
dated December 27, 1991 between Krupp
Government Income Trust and Love Funding
Corporation. [Exhibit 10.40 to Registrant's
Annual Report on Form 10-K for the fiscal year
ended December 31, 1991 (File No. 0-19244)].*
(10.42) Subordinated Multifamily Mortgage dated
December 27, 1991 between Golf View Partners,
Ltd. (the "Borrower") and Krupp Government
Income Trust (the "Lender"). [Exhibit 10.41 to
Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1991 (File
No. 0-19244)].*
(10.43) Additional Loan Agreement dated December 27,
1991 between Capital Developments, Inc., Gus
M. Pelias, Jr., and Durham Partners, Ltd.
(collectively, the "Borrowers"), Golf View
Partners, Ltd. (the "Owner") and Krupp
Government Income Trust (the "Holder").
[Exhibit 10.42 to Registrant's Annual Report
on Form 10-K for the fiscal year ended
December 31, 1991 (File No. 0-19244)].*
(10.44) Additional Loan Note dated December 27, 1991
between Capital Developments, Inc., Gus M.
Pelias, Jr., and Durham Partners, Ltd.
(collectively, the "Borrowers") and Krupp
Government Income Trust (the "Holder").
[Exhibit 10.43 to Registrant's Annual Report
on Form 10-K for the fiscal year ended
December 31, 1991 (File No. 0-19244)].*
Coconut Palm Apartments
(10.45) Subordinated Promissory Note dated December
11, 1991 between CoClub Associates Limited
Partnership (the "Mortgagor") and Krupp
Government Income Trust (the "Holder").
<PAGE>
[Exhibit 10.44 to Registrant's Annual Report
on Form 10-K for the fiscal year ended
December 31, 1991 (File No. 0-19244)].*
(10.46) Agreement Re-Subordinated Promissory Note
dated December 11, 1991 between Krupp
Government Income Trust and Krupp Mortgage
Corporation. [Exhibit 10.45 to Registrant's
Annual Report on Form 10-K for the fiscal year
ended December 31, 1991 (File No. 0-19244)].*
(10.47) Subordinated Multifamily Mortgage dated
December 11, 1991 between CoClub Associates
Limited Partnership (the "Borrower") and Krupp
Government Income Trust (the "Mortgagee").
[Exhibit 10.46 to Registrant's Annual Report
on Form 10-K for the fiscal year ended
December 31, 1991 (File No. 0-19244)].*
(10.48) Additional Loan Agreement dated December 11,
1991 between Roger A. Hard, Robert V. Meehan
and The May Company L.P. (collectively, the
"Borrowers"), CoClub Associates Limited
Partnership (the "Owner") and Krupp Government
Income Trust (the "Holder"). [Exhibit 10.47 to
Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1991 (File
No. 0-19244)].*
(10.49) Additional Loan Note dated December 11, 1991
between Roger A. Hard, Robert V. Meehan and
The May Company L.P. (collectively, the
"Borrowers") and Krupp Government Income Trust
(the "Holder"). [Exhibit 10.48 to Registrant's
Annual Report on Form 10-K for the fiscal year
ended December 31, 1991 (File No. 0-19244)].*
(10.50) Mortgage Note dated December 11, 1991 between
Krupp Mortgage Corporation (the "Holder") and
CoClub Associates Limited Partnership (the
"Borrower"). [Exhibit 10.49 to Registrant's
Annual Report on Form 10-K for the fiscal year
ended December 31, 1991 (File No. 0-19244)].*
(10.51) GNMA Purchase Agreement dated December 11,
1991 between Krupp Mortgage Corporation and
Krupp Government Income Trust. [Exhibit 10.50
to Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1991 (File
No. 0-19244)].*
(10.52) Prospectus for Government National Mortgage
Association Pool Number 293805(CL) and Pool
Number 293806(PL). [Exhibit 10.51 to
Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1991 (File
No. 0-19244)].*
Mountain View Apartments
(10.53) Subordinated Promissory Note dated April 21,
1992 between Mountain View Ltd. (the
"Mortgagor") and Krupp Government Income Trust
<PAGE>
(the "Holder"). [Exhibit 19.1 to Registrant's
report on Form 10-Q for the quarter ended June
30, 1992 (File No. 0-19244)].*
(10.54) Agreement RE Subordinated Promissory Note
dated April 21, 1992 between Krupp Government
Income Trust and Krupp Mortgage Corporation.
[Exhibit 19.2 to Registrant's report on Form
10-Q for the quarter ended June 30, 1992 (File
No. 0-19244)].*
(10.55) Subordinated Multifamily Mortgage dated April
21, 1992 between Mountain View Ltd. (the
"Mortgagor") and Krupp Government Income Trust
(the "Mortgagee"). [Exhibit 19.3 to
Registrant's report on Form 10-Q for the
quarter ended June 30, 1992 (File No. 0-
19244)].*
(10.56) Additional Loan Agreement dated April 21, 1992
between Philip P. Mulkey, Henry V. Bragg and
Gregory V. Bragg (collectively, the
"Borrowers") and Krupp Government Income Trust
(the "Holder"). [Exhibit 19.4 to Registrant's
report on Form 10-Q for the quarter ended June
30, 1992 (File No. 0-19244)].*
(10.57) Additional Loan Note dated April 21, 1992
between Philip P. Mulkey, Henry V. Bragg and
Gregory V. Bragg (collectively, the
"Borrowers") and Krupp Government Income Trust
(the "Holder"). [Exhibit 19.5 to Registrant's
report on Form 10-Q for the quarter ended June
30, 1992 (File No. 0-19244)].*
(10.58) Mortgage Note dated April 21, 1992 between
Mountain View Ltd. (the "Borrower") and Krupp
Mortgage Corporation (the "Holder"). [Exhibit
19.6 to Registrant's report on Form 10-Q for
the quarter ended June 30, 1992 (File No. 0-
19244)].*
(10.59) Modification Agreement by and between Krupp
Government Income Trust and Mountain View Ltd.
[Exhibit 10.1 to Registrant's report Form 10-Q
for the quarter ended September 30, 1995 (File
No. 0-19244)].*
Red Run Apartments
(10.60) Subordinated Promissory Note dated May 5, 1992
between Red Run Limited Partnership (the
"Mortgagor") and Krupp Government Income Trust
(the "Holder"). [Exhibit 19.7 to Registrant's
report on Form 10-Q for the quarter ended June
30, 1992 (File No. 0-19244)].*
(10.61) Agreement RE Subordinated Promissory Note
dated May 5, 1992 between Krupp Government
Income Trust and Maryland National Mortgage
Corporation (the"Mortgagee"). [Exhibit 19.8 to
Registrant's report on Form 10-Q for the
<PAGE>
quarter ended June 30, 1992 (File No. 0-
19244)].*
(10.62) Subordinated Multifamily Mortgage dated May 5,
1992 between Red Run Limited Partnership (the
"Trustor") and Krupp Government Income Trust
(the "Lender"). [Exhibit 19.9 to Registrant's
report on Form 10-Q for the quarter ended June
30, 1992 (File No. 0-19244)].*
(10.63) Additional Loan Agreement dated May 5, 1992
between Red Run Corporation and Summit Towers
Company (collectively, the "Borrowers") and
Krupp Government Income Trust (the "Holder").
[Exhibit 19.10 to Registrant's report on Form
10-Q for the quarter ended June 30, 1992 (File
No. 0-19244)].*
(10.64) Additional Loan Note dated May 5, 1992 between
Red Run Corporation and Summit Towers Company
(collectively, the "Borrowers") and Krupp
Government Income Trust (the "Holder").
[Exhibit 19.11 to Registrant's report on Form
10-Q for the quarter ended June 30, 1992 (File
No. 0-19244)].*
(10.65) Deed of Trust Note dated May 5, 1992 between
Red Run Limited Partnership and Maryland
National Mortgage Corporation. [Exhibit 19.3
to Registrant's report on Form 10-Q for the
quarter ended September 30, 1992 (File No. 0-
19244)].*
(10.66) Participation and Servicing Agreement by and
between Maryland National Mortgage Corporation
and Krupp Government Income Trust. [Exhibit
19.4 to Registrant's report on Form 10-Q for
the quarter ended September 30, 1992 (File No.
0-19244)].*
Park Highland Apartments
(10.67) Subordinated Promissory Note dated June 5,
1992 between Park Highland Limited Partnership
(the "Mortgagor") and Krupp Government Income
Trust (the "Holder"). [Exhibit 19.12 to
Registrant's report on Form 10-Q for the
quarter ended June 30, 1992 (File No. 0-
19244)].*
(10.68) Agreement RE Subordinated Promissory Note
dated June 5, 1992 between Krupp Government
Income Trust and Krupp Mortgage Corporation.
[Exhibit 19.13 to Registrant's report on Form
10-Q for the quarter ended June 30, 1992 (File
No. 0-19244)].*
(10.69) Subordinated Multifamily Mortgage dated June
5, 1992 between Park Highland Limited
Partnership (the "Borrower") and Krupp
Government Income Trust (the "Beneficiary").
<PAGE>
[Exhibit 19.14 to Registrant's report on Form
10-Q for the quarter ended June 30, 1992 (File
No. 0-19244)].*
(10.70) Additional Loan Agreement dated June 5, 1992
between Intrawest Corporation and Park
Highland Apartments, Ltd. (collectively, the
"Borrowers") and Krupp Government Income Trust
(the "Holder"). [Exhibit 19.15 to Registrant's
report on Form 10-Q for the quarter ended June
30, 1992 (File No. 0-19244)].*
(10.71) Additional Loan Note dated June 5, 1992
between Intrawest Corporation and Park
Highlands Apartment, Inc. (collectively, the
"Borrowers") and Krupp Government Income Trust
(the "Holder"). [Exhibit 19.16 to Registrant's
report on Form 10-Q for the quarter ended June
30, 1992 (File No. 0-19244)].*
(10.72) Deed of Trust Note dated June 5, 1992 between
Park Highlands Limited Partnership and Krupp
Mortgage Corporation. [Exhibit 19.1 to
Registrant's report on Form 10-Q for the
quarter ended September 30, 1992 (File No. 0-
19244)].*
(10.73) Participation Agreement dated June 5, 1992 by
and between Krupp Mortgage Corporation and
Krupp Government Income Trust. [Exhibit 19.2
to Registrant's report on Form 10-Q for the
quarter ended September 30, 1992 (File No. 0-
19244)].*
Timber Ridge Apartments
(10.74) Subordinated promissory note dated September
30, 1992 between Exoho/Timber Ridge Associates
Limited Partnership and Krupp Government
Income Trust. [Exhibit 19.5 to Registrant's
report on Form 10-Q for the quarter ended
September 30, 1992 (File No. 0-19244)].*
(10.75) Additional loan dated September 30, 1992
between Mark IV and JLM Realty and Krupp
Government Income Trust. [Exhibit 19.6 to
Registrant's report on Form 10-Q for the
quarter ended September 30, 1992 (File No. 0-
19244)].*
(10.76) Additional loan agreement dated September 30,
1992 by and between Mark IV Realty Inc. and
JLM Realty, Inc. and Krupp Government Income
Trust. [Exhibit 19.7 to Registrant's report on
Form 10-Q for the quarter ended September 30,
1992 (File No. 0-19244)].*
(10.77) Subordinated deed of trust dated September 30,
1992 between Exoho/Timber Ridge Associates
Limited Partnership and Krupp Government
Income Trust. [Exhibit 10.78 to Registrant's
<PAGE>
Annual Report on Form 10-K for the fiscal year
ended December 31, 1995 (File No. 0-19244)].*
(10.78) Participation certificate with Krupp
Government Income Trust as registered owner.
[Exhibit 10.79 to Registrant's Annual Report
on Form 10-K for the fiscal year ended
December 31, 1995 (File No. 0-19244)].*
(10.79) Participation and Servicing Agreement by and
between Love Funding Corporation and Krupp
Government Income Trust. [Exhibit 10.80 to
Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995 (File
No. 0-19244)].*
(10.80) Deed of Trust Note dated September 30, 1992
between Exoho/Timber Ridge Associates Limited
Partnership and Love Funding Corporation.
[Exhibit 10.81 to Registrant's Annual Report
on Form 10-K for the fiscal year ended
December 31, 1995 (File No. 0-19244)].*
(10.81) Deed of Trust dated September 30, 1992 between
Exoho/Timber Ridge Associates Limited
Partnership and Love Funding Corporation.
[Exhibit 10.82 to Registrant's Annual Report
on Form 10-K for the fiscal year ended
December 31, 1995 (File No. 0-19244)].*
Lincoln Green Apartments
(10.82) Supplement to prospectus dated August 1, 1992
for Federal National Mortgage Association pool
number MX-073023. [Exhibit 19.8 to
Registrant's report on Form 10-Q for the
quarter ended September 30, 1992 (File No. 0-
19244)].*
(10.83) Subordinated promissory note dated September
15, 1992 by and between Lincoln Green
Associates Limited Partnership (the
"Mortgagor") and Krupp Government Income Trust
(the "Holder"). [Exhibit 19.9 to Registrant's
report on Form 10-Q for the quarter ended
September 30, 1992 (File No. 0-19244)].*
(10.84) Subordinated Multi-family Deed of Trust dated
September 16, 1992 by and between Lincoln
Green Associates Limited Partnership (the
"Borrower") and Krupp Government Income Trust
(the "Lender"). [Exhibit 19.10 to Registrant's
report on Form 10-Q for the quarter ended
September 30, 1992 (File No. 0-19244)].*
The Seasons
(10.85) Additional Loan Agreement dated September 16,
1993 between The Krupp Company Limited
Partnership-IV (the "Borrower") and Krupp
<PAGE>
Government Income Trust II (the "Holder")
[Exhibit 10.80 to Registrant's report on Form
10-K for the year ended December 31, 1994
(File No. 0-19244)].*
(10.86) Additional Loan Note dated September 16, 1993
between The Krupp Company Limited Partnership-
IV (the "Borrower") and Krupp Government
Income Trust II (the "Holder") [Exhibit 10.81
to Registrant's report on Form 10-K for the
year ended December 31, 1994 (File No. 0-
19244)].*
(10.87) Subordinated Promissory Note dated September
16, 1993 between Maryland Associates Limited
Partnership (the "Maker") and Krupp Government
Income Trust II (the "Holder") [Exhibit 10.82
to Registrant's report on Form 10-K for the
year ended December 31, 1994 (File No. 0-
19244)].*
(10.88) Pledge and Security Agreement dated September
16, 1993 by and between The Krupp Company
Limited Partnership-IV (the "Debtor") and
Krupp Government Income Trust II (the "Secured
Party") [Exhibit 10.83 to Registrant's report
on Form 10-K for the year ended December 31,
1994 (File No. 0-19244)].*
(10.89) The Deed of Trust dated September 16, 1993 by
and between Maryland Associates Limited
Partnership and Krupp Mortgage Corporation
[Exhibit 10.84 to Registrant's report on Form
10-K for the year ended December 31, 1994
(File No. 0-19244)].*
(10.90) Participation and Servicing Agreement made as
of September 16, 1993 by and between Krupp
Mortgage Corporation (the "Servicer") and
Krupp Government Income Trust II (the
"Participant") [Exhibit 10.85 to Registrant's
report on Form 10-K for the year ended
December 31, 1994 (File No. 0-19244)].*
(10.91) Assignment and Assumption Agreement dated
September 16, 1993 between Krupp Government
Income Trust II (the "Assignor") and Krupp
Government Income Trust (the "Assignee")
[Exhibit 10.86 to Registrant's report on Form
10-K for the year ended December 31, 1994
(File No. 0-19244)].*
Rosemont Apartments
(10.92) Participation and Servicing Agreement dated
July 14, 1994, by and between Rockport
Mortgage Corporation (the "Servicer") and
Krupp Government Income Trust (the
"Participant") [Exhibit 10.87 to Registrant's
report on Form 10-K for the year ended
December 31, 1994 (File No. 0-19244)].*
<PAGE>
(10.93) Deed of Trust Note dated July 1, 1994 between
Rosemont Ltd. and Rockport Mortgage
Corporation. [Exhibit 10.88 to Registrant's
report on Form 10-K for the year ended
December 31, 1994 (File No. 0-19244)].*
(10.94) Allonge to Deed of Trust Note dated July 1,
1994 between Rosemont Ltd. and Rockport
Mortgage Corporation [Exhibit 10.89 to
Registrant's report on Form 10-K for the year
ended December 31, 1994 (File No. 0-19244)].*
(10.95) Participation Certificate with Krupp
Government Income Trust as registered owner.
[Exhibit 10.96 to Registrant's report on Form
10-K for the year ended December 31, 1995
(File No. 0-19244)].*
* Incorporated by reference
(c) Reports on Form 8-K
During the last quarter of the year ended December 31, 1996,
the Trust did not file any reports on Form 8-K.
<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, on the
11th day of March, 1997.
KRUPP GOVERNMENT INCOME TRUST
By:
Douglas Krupp, Chairman of Board of Trustees and a
Trustee of Krupp Government Income Trust
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated, on the 11th day of March, 1997.
Signatures Title(s)
Chairman of Board of Trustees and a
Douglas Krupp Trustee of Krupp Government Income Trust
President and a Trustee of Krupp
Laurence Gerber Government Income Trust
Vice President and Treasurer of Krupp
Robert A. Barrows Government Income Trust
Trustee of Krupp Government Income Trust
Charles N. Goldberg
Trustee of Krupp Government Income Trust
E. Robert Roskind
Trustee of Krupp Government Income Trust
J. Paul Finnegan
<PAGE>
APPENDIX A
KRUPP GOVERNMENT INCOME TRUST
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 8 of FORM 10-K
ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION
For the Year Ended December 31, 1996
<PAGE>
KRUPP GOVERNMENT INCOME TRUST
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Accountants F-3
Balance Sheets at December 31, 1996 and 1995 F-4
Statements of Income for the Years Ended December 31, 1996,
1995 and 1994 F-5
Statements of Changes in Shareholders' Equity for the Years Ended
December 31, 1996, 1995 and 1994 F-6
Statements of Cash Flows for the Years Ended December 31, 1996, 1995
and 1994 F-7
Notes to Financial Statements F-8 - F-19
Supplementary Data - Selected Quarterly Financial Data
(Unaudited) F-20
All schedules are omitted as they are not applicable or not required, or the
information is provided in the financial statements or the notes thereto.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of
Krupp Government Income Trust:
We have audited the financial statements of Krupp Government Income
Trust (the "Trust") listed in the index on page F-2 of this Form 10-K.
These financial statements are the responsibility of management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Krupp
Government Income Trust as of December 31, 1996 and 1995, and the results
of its operations and cash flows for each of the three years in the period
ended December 31, 1996 in conformity with generally accepted accounting
principles.
Boston, Massachusetts
February 27, 1997, except
as to the information
presented in Note K for
which the date is
March 6, 1997
<PAGE>
KRUPP GOVERNMENT INCOME TRUST
<TABLE>
BALANCE SHEETS
December 31, 1996 and 1995
<CAPTION>
ASSETS
1996 1995
<S> <C> <C>
Participating Insured Mortgage Investments
("PIMIs") (Notes B, C and J):
Insured Mortgages $114,625,179 $115,131,611
Additional loans 20,749,108 20,749,108
Participating Insured Mortgages ("PIMs")
(Notes B, D and J) 48,479,897 57,691,223
Mortgage-Backed Securities and insured
mortgage ("MBS") (Notes B, E and J) 26,754,326 31,394,259
Total mortgage investments 210,608,510 224,966,201
Cash and cash equivalents (Notes B and J) 19,053,931 8,914,295
Interest receivable and other assets 1,707,799 1,862,335
Prepaid acquisition fees and expenses, net
of accumulated amortization of $6,090,173
and $4,909,201, respectively (Note B) 7,383,186 8,564,158
Prepaid participation servicing fees, net of
accumulated amortization of $1,610,677 and
$1,177,984, respectively (Note B) 2,880,328 3,313,021
Total assets $241,633,754 $247,620,010
LIABILITIES AND SHAREHOLDERS' EQUITY
Deferred income on Additional Loans (Note B) $ 7,325,414 $ 5,920,957
Other liabilities 27,733 20,577
Total liabilities 7,353,147 5,941,534
Commitments (Note H)
Shareholders' equity (Notes A, F and I):
Common stock, no par value; 17,510,000
Shares authorized; 15,053,135 Shares
issued and outstanding 233,015,255 240,103,655
Unrealized gain on MBS (Note B) 1,265,352 1,574,821
Total Shareholders equity 234,280,607 241,678,476
Total liabilities and Shareholders'
equity $241,633,754 $247,620,010
</TABLE>
The accompanying notes are an integral
part of the financial statements.
<PAGE>
<TABLE>
KRUPP GOVERNMENT INCOME TRUST
STATEMENTS OF INCOME
For the Years Ended December 31, 1996, 1995 and 1994
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Revenues:
Interest income - PIMs and PIMIs:
Base interest $12,807,392 $13,689,837 $13,752,680
Participation income 359,161 372,228 101,324
Interest income - MBS 2,305,613 2,607,682 2,401,681
Other interest income 885,874 530,669 590,279
Total revenues 16,358,040 17,200,416 16,845,964
Expenses:
Asset management fee
to an affiliate (Note G) 1,604,853 1,692,943 1,694,963
Expense reimbursements
to affiliates (Note G) 343,214 440,891 439,996
Amortization of prepaid fees,
expenses and organization costs 1,613,665 1,682,629 1,702,369
General and administrative 315,613 362,321 409,637
Total expenses 3,877,345 4,178,784 4,246,965
Net income $12,480,695 $13,021,632 $12,598,999
Earnings per share $ .83 $ .87 $ .84
Weighted average shares outstanding 15,053,135 15,053,135 15,053,135
</TABLE>
The accompanying notes are an integral
part of the financial statements.
<PAGE>
<TABLE>
KRUPP GOVERNMENT INCOME TRUST
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1996, 1995 and 1994
<CAPTION>
Total
Common Retained Unrealized Shareholders'
Stock Earnings Gain on MBS Equity
<S> <C> <C> <C> <C>
Balance at December 31, 1993 $253,621,211 $ - $ - $253,621,211
Dividends (6,970,092) (12,598,999) - (19,569,091)
Net income - 12,598,999 - 12,598,999
Balance at December 31, 1994 246,651,119 - - 246,651,119
Dividends (6,547,464) (13,021,632) - (19,569,096)
Net income - 13,021,632 - 13,021,632
Unrealized gain on MBS - - 1,574,821 1,574,821
Balance at December 31, 1995 240,103,655 - 1,574,821 241,678,476
Dividends (Notes F and I) (7,088,400) (12,480,695) - (19,569,095)
Net income (Note I) - 12,480,695 - 12,480,695
Change in unrealized gain
on MBS - - (309,469) (309,469)
Balance at December 31, 1996 $233,015,255 $ - $1,265,352 $234,280,607
</TABLE>
Shared issued and outstanding for each of the three years ended
December 31, 1996 are 15,053,135
The accompanying notes are an integral
part of the financial statements.
<PAGE>
<TABLE>
KRUPP GOVERNMENT INCOME TRUST
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1996, 1995 and 1994
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Operating activities:
Net income $12,480,695 $13,021,632 $12,598,999
Adjustments to reconcile net income
to net cash provided by operating
activities:
Amortization of premium and discounts (1,110) 8,663 9,738
Amortization of prepaid fees, expenses
and organization costs 1,613,665 1,682,629 1,702,369
Changes in assets and liabilities:
Decrease (increase) in interest
receivable and other assets 154,536 246,218 (192,851)
Increase (decrease) in other
liabilities 7,156 (17,148) 28,132
Net cash provided by operating
activities 14,254,942 14,941,994 14,146,387
Investing activities:
Principal collections on PIMs and PIMIs 855,308 844,835 706,793
Principal collections on MBS 4,331,574 3,554,556 12,538,168
Increase in deferred income on
Additional Loans 1,404,457 1,276,777 1,710,452
Investments in PIMs - - (1,586,359)
PIM prepayment 8,862,450 - -
Acquisition of MBS - (3,203,221) (8,221,086)
Net cash provided by investing
activities 15,453,789 2,472,947 5,147,968
Financing activity:
Dividends (19,569,095) (19,569,096) (19,569,091)
Net increase (decrease) in cash and
cash equivalents 10,139,636 (2,154,155) (274,736)
Cash and cash equivalents, beginning
of year 8,914,295 11,068,450 11,343,186
Cash and cash equivalents, end of year $19,053,931 $ 8,914,295 $11,068,450
</TABLE>
The accompanying notes are an integral
part of the financial statements.
<PAGE>
KRUPP GOVERNMENT INCOME TRUST
NOTES TO FINANCIAL STATEMENTS
A. Organization
Krupp Government Income Trust (the "Trust") was formed on
November 1, 1989 by filing a Declaration of Trust in The
Commonwealth of Massachusetts. The Trust is authorized to
sell and issue not more than 17,510,000 shares of beneficial
interest (the "Shares"). Berkshire Realty Advisors Limited
Partnership ("BRALP"), (see below) acquired 10,000 of such
Shares for $200,000 and 14,999,999 Shares were sold for
$299,480,263 net of purchase volume discounts of $519,717
under a public offering which commenced on April 19, 1990 and
ended on July 15, 1991. Under the Dividend Reinvestment Plan
("DRP"), 43,136 Shares were sold for $819,356. The Trust
shall terminate on December 31, 2029, unless earlier
terminated by the affirmative vote of holders of a majority of
the outstanding Shares entitled to vote thereon.
On December 29, 1994, Berkshire Mortgage Advisors Limited
Partnership, an affiliate of BRALP, acquired BRALP's 10,000
Shares and assumed the role of "Advisor" to the Trust.
The Trustees of the Trust desire that the Trust qualify as a
real estate investment trust ("REIT"), under the REIT
Provisions of the Internal Revenue Code of 1986 (the "Code"),
as amended. To qualify as a REIT for federal income tax
purposes, the Trust made a valid election on its 1990 federal
income tax return filed for the year ended December 31, 1990
to be so treated and must continually satisfy a range of
complex requirements. An election continues in effect until
voluntarily revoked or automatically terminated by the Trust's
failure to qualify as a REIT for a taxable year. The Trust
was organized and intends to conduct its operations to enable
it to qualify as a REIT under the Code. Qualification as a
REIT requires the Trust to meet certain criteria concerning,
among other things, its share ownership, the nature of its
assets, the source of its income and the amount of its
distributions to shareholders. However, should the Trust not
qualify as a REIT in any taxable year, it would be taxed as a
corporation and the distributions to shareholders would be
taxed as dividends to the shareholders of the corporation.
B. Significant Accounting Policies
The Trust uses the following accounting policies for financial
reporting purposes:
MBS
At December 31, 1995, the Trust in accordance with the
Financial Accounting Standards Board's Special Report on
Statement 115, "Accounting for Certain Investments in
Debt and Equity Securities", reclassified its MBS
portfolio from held-to-maturity to available-for-sale.
The Trust carries its MBS at fair market value and
reflects any unrealized gains (losses) as a separate
component of Shareholders' Equity. Prior to December 31,
1995, the Trust carried its MBS portfolio at amortized
<PAGE>
cost. The Trust amortizes purchase premiums or discounts
over the life of the underlying mortgages using the
effective interest method.
PIMs and PIMIs
The Trust carries its investments in PIMs and PIMIs
(consisting of an insured mortgage and Additional Loan)
at amortized cost as it has the ability and intention to
hold these investments. Basic interest is recognized
based on the stated rate of the Department of Housing and
Urban Development ("HUD") insured mortgage loan (less the
servicer's
Continued
<PAGE>
KRUPP GOVERNMENT INCOME TRUST
NOTES TO FINANCIAL STATEMENTS, Continued
B. Significant Accounting Policies, Continued
PIMs and PIMIs, Continued
fee) or the coupon rate of the Government National Mortgage
Association ("GNMA") or Federal National Mortgage
Association ("FNMA") MBS. The Trust recognizes interest
related to the participation features as earned and when it
deems these amounts as collectible. The Trust defers the
recognition of Additional Loan interest payments as income
to the extent these interest payments are from escrows
established with the proceeds of the Additional Loan. When
the properties underlying the PIMIs generate sufficient
cash flow to make the required Additional Loan interest
payments with funds other than from escrows, the Trust may
recognize income as earned and may commence amortizing
deferred interest amounts into income over the remaining
term of the Additional Loan.
The Trust also fully reserves the portion of any Additional
Loan base interest payment satisfied through the issuance
of an operating loan and any associated interest due on
such operating loan. The Trust will recognize the income
related to the operating loan when the borrower repays
amounts due under the operating loan.
Cash Equivalents
The Trust includes all short-term investments with
maturities of three months or less from the date of
acquisition in cash and cash equivalents. The Trust
invests its cash primarily in deposits and money market
funds with a commercial bank and has not experienced any
loss to date on its invested cash.
Prepaid Fees and Expenses
Prepaid fees and expenses represent prepaid acquisition
fees and expenses and prepaid participation servicing fees
paid for the acquisition and servicing of PIMs and PIMIs.
The Trust amortizes prepaid acquisition fees and expenses
using a method that approximates the effective interest
method over a period of ten to twelve years, which
represents the actual maturity or anticipated call date of
the underlying mortgage. Acquisition fees and expenses
incurred on potential acquisitions which were not
consummated were charged to operations.
The Trust amortizes prepaid participation servicing fees
using a method that approximates the effective interest
method over a ten year period beginning at final
endorsement of the loan if a HUD-insured mortgage loan and
at closing if a FNMA MBS.
<PAGE>
Income Taxes
The Trust has elected to be taxed as a REIT under the
Internal Revenue Code of 1986, as amended, and believes it
will continue to meet all such qualifications.
Accordingly, the Trust will not be subject to federal
Continued
KRUPP GOVERNMENT INCOME TRUST
NOTES TO FINANCIAL STATEMENTS, Continued
B. Significant Accounting Policies, Continued
Income Taxes, Continued
income taxes on amounts distributed to shareholders
provided it distributes annually at least 95% of its REIT
taxable income and meets certain other requirements for
qualifying as a REIT. Therefore, no provision for federal
income taxes has been recorded in the financial statements.
Estimates and Assumptions
The preparation of financial statements in accordance with
generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amount of assets and liabilities, contingent
assets and liabilities and revenues and expenses during the
period. Actual results could differ from those estimates.
C. PIMIs
The Trust has investments in nine PIMIs that in most cases
financed the construction and in all cases provide the
permanent financing of multi-family housing. One component of
a PIMI is either a securitized HUD-insured first mortgage loan
issued and guaranteed by GNMA or a sole participation interest
in a first mortgage loan originated under the Federal Housing
Administration ("FHA") lending program and insured by HUD
(collectively the "insured mortgages"). The FHA first
mortgage or the first mortgage underlying the GNMA security
provides the borrower (generally a limited partnership) with a
below market interest rate loan in exchange for providing the
Trust with participation in a percentage of the cash generated
from property operations and in a percentage of any
appreciation of the underlying property to a preferred return,
then a percentage of any appreciation thereafter. The
borrower conveys these rights to the Trust through a
subordinated promissory note and mortgage. In addition, the
Trust made an Additional Loan to the owners of the borrower to
provide additional funds for the construction and permanent
financing of the property. The owners generally collateralize
the Additional Loan through a pledge and security agreement
<PAGE>
that pledges their ownership interests in the borrower, and
their share of any distributions made from surplus cash
generated by the property and the proceeds realized upon the
refinancing of the property, sale of the property or sale of
the partnership interests. Amounts payable under the
Additional Loan are neither guaranteed nor insured.
The Trust receives monthly principal and interest payments on
the insured mortgage and is entitled to receive participation
interest under the subordinated promissory note and mortgage,
and semi-annual interest payments
("Base Interest") and preferred interest under the Additional
Loan. The Trust receives principal and interest payments on
the insured mortgages currently, because these payments are
insured or guaranteed; however, there are limitations to the
amount and obligation to pay participation interest and
Additional Loan interest.
The subordinated promissory note and mortgage entitles the
Trust to receive (i) Participating Income Interest generally
equal to 50% of (a) all distributable Surplus Cash (as defined
in the regulatory agreement of the HUD-insured first mortgage)
generated by the property (b) any unrestricted cash generated
from property operations and (c) to the extent available
Continued
KRUPP GOVERNMENT INCOME TRUST
NOTES TO FINANCIAL STATEMENTS, Continued
C. PIMIs, Continued
unexpended reserves and escrows, and (ii) Participating
Appreciation Interest generally equal to 50% of the net
proceeds or value of the property upon the sale, refinancing,
maturity or accelerated maturity, or permitted prepayment of
all amounts due under the insured mortgage and Additional Loan
less the Outstanding Indebtedness, as defined. Amounts
received by the Trust pursuant to the subordinated promissory
note as Participating Income Interest reduce amounts payable
as Preferred Interest and may reduce amounts payable as Base
Interest under the Additional Loan.
The insured mortgage and subordinated promissory note
generally have maturities of 30 to 40 years, however, under
the subordinated promissory note the Trust can generally
accelerate these maturity dates at any time after the ninth or
tenth anniversary of final endorsement for coinsurance and
insurance, but in certain cases for construction loans after
the eleventh or twelfth anniversary of initial endorsement
(commencement of construction) for coinsurance and insurance,
upon giving twelve months written notice for the payment of
all accrued participation interest through the accelerated
maturity date. The Trust can accelerate the maturity date for
payment of amounts due under the subordinated promissory note
and the insured mortgage providing the contract of coinsurance
<PAGE>
with the Secretary of HUD on the insured mortgage is canceled
prior to the accelerated maturity date.
Additional Loan Base Interest is payable from the following
sources: (i) any Surplus Cash received pursuant to the
subordinated promissory note as Participating Income Interest,
(ii) amounts conveyed to the Trust by the owners of the
borrowing entity representing distributions of Surplus Cash
and (iii) amounts in reserve accounts established with the
Additional Loan proceeds, if available, and any interest
earned on these amounts. If these sources are not sufficient
to make Base Interest payments the owners of the borrowing
entity must notify the Trust of the amount of the shortfall
and at its option the Trust could require a capital call from
the owners of the borrowing entity. The capital call would be
equal to 50% of the Base Interest shortfall and the Trust in
certain situations could convert the remaining 50% into an
operating loan or would forego 50% of the Base Interest
shortfall.
In addition to the Base Interest payments, the Additional Loan
requires the payment of Preferred Interest representing a
cumulative, non-compounded preferred return from the date of
final endorsement to the date of calculation at interest rates
ranging from 9.5% to 11% per annum on the original outstanding
balance of the insured mortgage plus the Additional Loan and
any other funds advanced by the Trust to the borrowing entity
or the owners of the borrowing entity until the insured
mortgage, Additional Loan and other funds (reduced by
principal collections) have been paid in full less: (i)
interest payments paid to the Trust under the insured
mortgage, (ii) Participating Income Interest and (iii) Base
Interest payments made under the Additional Loan including
amounts foregone by the Trust.
The insured mortgage and subordinated promissory note
generally cannot be prepaid for a term of five years from the
construction completion date or final endorsement and
thereafter may be prepaid in whole without penalty provided
all participation interest and amounts under the insured
mortgage are paid. Any prepayment requires not less than
ninety nor more than 180 days prior written notice.
Continued
KRUPP GOVERNMENT INCOME TRUST
NOTES TO FINANCIAL STATEMENTS, Continued
C. PIMIs, Continued
The Additional Loan generally may not be prepaid before
the fifth anniversary of the Agreement or the construction
completion date and thereafter may be prepaid in full without
penalty provided Preferred Interest and any amounts due under
the insured mortgage and subordinated promissory note are paid
in full.
<PAGE>
During August 1996, the Trust entered into a modification
agreement (the Agreement ) with the borrower of the
Lifestyles Apartments PIMI that reduces the interest paid
monthly on the insured mortgage by 1% per annum for a period
of 24 months. The Agreement also extended the prepayment lock
out period by five years and postponed the date when the Trust
can accelerate the maturity date five years. The Agreement
modified the terms of the Additional Loan as follows: base
interest will only be payable from 50% of available surplus
cash during each fiscal year up to a maximum payment of
$100,000; the Preferred Interest rate will be 10%; and the
Preferred Return will only be calculated on the outstanding
balance of the Additional Loan. The Agreement also amended
the participation features to increase the Participating
Income Interest percentage from 50% to 75% of surplus cash on
available surplus cash in excess of $200,000. In addition,
the borrower agreed to contribute $150,000 to an escrow
account controlled by the Trust to fund operating deficits of
the property and agreed to fund up to a maximum of $50,000 per
year for operating deficits at the property if deemed
necessary by GIT. Upon the sale, refinancing, maturity or
permitted prepayment, and following payment of the insured
mortgage and the Additional Loan principal, the Trust will be
entitled to receive the interest currently foregone on the
insured mortgage. However, the Trust and the borrower will
share equally in the proceeds until the borrower receives
repayment of the $150,000 contributed to the escrow. If there
are still sufficient proceeds, the Trust will then be entitled
to payment for any Preferred Interest and will then receive
50% of the remaining proceeds. Any amounts under the
participation features or the Preferred Return accumulated
prior to the modification have been foregone by the Trust.
The Trust's investments in PIMIs consist of the following at
December 31, 1996 and 1995:
<TABLE>
<CAPTION>
Original
Loan Interest Maturity Balance Outstanding
PIM Amount Rate Date at December 31,
1996 1995
<S> <C> <C> <C> <C> <C>
Lifestyles (GNMA)(a) $ 10,292,394 7.25% 5/1/32 $ 10,121,765 $ 10,165,489
Windward (GNMA)(b) 14,000,778 8.50%(b) 6/1/32 13,791,753 13,846,359
Audubon Villas(GNMA) 15,250,000 7.75% 9/15/33 15,056,168 15,121,241
Coconut Palm (GNMA) 16,155,100 8.25% 5/1/33 15,966,932 16,029,058
Mountain View (FHA) 9,547,700 7.625%
(c) 1/1/34 9,447,473 9,476,075
Red Run (FHA) 19,019,600 7.875%
(d) 5/1/34 18,832,455 18,909,592
Park Highland (FHA) 17,068,500 7.625% 1/1/34 16,869,418 16,944,707
Timber Ridge (FHA) 5,775,000 8.125% 10/1/29 5,634,320 5,675,651
The Seasons (FHA)(e) 9,075,351 7.875% 10/1/28 8,904,895 8,963,439
$116,184,423 $114,625,179
(g) $115,131,611
</TABLE>
Continued
KRUPP GOVERNMENT INCOME TRUST
NOTES TO FINANCIAL STATEMENTS, Continued
C. PIMIs, Continued
<TABLE>
<CAPTION>
Base Preferred
Outstanding Interest Interest
Additional Loan Balance Rate Rate
<S> <C> <C> <C>
Lifestyles (a) $ 1,817,665 7.5% 11%
Windward (b) 2,471,294 7.5% 11%
Audubon Villas 2,691,000 7.0% 10%
Coconut Palm 2,850,900 7.5% 11%
Mountain View (c) 1,553,600 7.0% 10%
Red Run 2,900,000 7.0% 10%
Park Highland 3,000,000 7.5% 9.5%
Timber Ridge 1,540,000 9.0% 11%
The Seasons (e) 1,924,649 9.0%
(f) 10%
$20,749,108
</TABLE>
(a) The Trust entered into an Agreement which reduced the
interest rate on the insured mortgage by 1% per annum
effective August 1, 1996 for a period of twenty-four
months, extended the lockout date by five years and
modified the terms of the Lifestlyes Additional Loan as
mentioned as above.
(b) Windward is affiliated with the Advisor of the Trust. As
of December 31, 1996, Windward was in technical default
on its Additional Loan for not making the full required
base interest payments on the Additional Loan. However,
Windward was negotiating with the Advisor and completed
these negotiations during the first quarter of 1997(see
Note K).
(c) The Trust entered into an agreement which reduced the
interest rate on the insured mortgage .5% per annum
effective July 1, 1995 for a period of eighteen months.
The borrower was also allowed to forego making four
semiannual interest payments beginning March 1, 1995.
These unpaid amounts will be payable from the net
proceeds of a sale or refinancing of the property.
(d) Received final endorsement during June 1994.
Construction-phase interest rate was 9.875% per annum.
(e) The total PIM and Additional Loan on this property were
$32,300,000 and $6,850,000, respectively, of which 72% is
held by Krupp Government Income Trust II. The Seasons is
affiliated with the Advisor of the Trust.
(f) The base interest rate was 6% per annum for the first
three years and beginning in September 1996 increased to
9% per annum.
<PAGE>
(g) The aggregate cost for federal income tax purposes is
$114,625,179.
Continued
KRUPP GOVERNMENT INCOME TRUST
NOTES TO FINANCIAL STATEMENTS, Continued
C. PIMIs, Continued
A reconciliation of activity for each of the three years in
the period ended December 31, 1996 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Balance at beginning of period $115,131,611 $115,612,833 $115,110,759
Acquisitions - - 893,026
Principal collections (506,432) (481,222) (390,952)
Balance at end of period $114,625,179 $115,131,611 $115,612,833
</TABLE>
Property descriptions:
Lifestyles Apartments ("Lifestyles") is a 236-unit garden style
apartment complex located in Palm Harbor, Florida.
Windward Lakes Apartments ("Windward") is a 276-unit garden
style apartment complex located in Pompano Beach, Florida.
Audubon Villas is a 308-unit apartment complex
located in Clearwater, Florida.
Coconut Palm Club ("Coconut Palm") is a 301-unit
apartment complex located in Coconut Creek, Florida.
Mountain View Apartments ("Mountain View") is a 256-
unit apartment complex located in Madison, Alabama.
Red Run Apartments ("Red Run") is a 304-unit
apartment complex located in Owings Mills, Maryland.
Park Highland Apartments ("Park Highland") is a 250-
unit apartment complex located in Bellevue,
Washington.
Timber Ridge Apartments ("Timber Ridge") is a 198-
unit apartment complex located in Vail, Colorado.
The Seasons is a 1,088-unit apartment complex located
in Laurel, Maryland.
D. PIMs
The Trust has investments in five PIMs at December 31,
1996. The Trust's PIMs consist of a GNMA or FNMA MBS
representing the securitized first mortgage loan on the
underlying property or a sole participation interest in a
first mortgage loan originated under the FHA lending
program on the underlying property (collectively the
"insured mortgages"), and participation interests in the
<PAGE>
revenue stream and appreciation of the underlying
property above specified base levels. The borrower
conveys these participation features to the Trust
generally through a subordinated promissory note and
mortgage (the "Agreement").
The Trust receives guaranteed monthly payments of
principal and interest on the GNMA and FNMA MBS and HUD
insures the mortgage loan underlying the GNMA MBS and the
FHA mortgage loan. The borrower usually cannot prepay
the first mortgage loan during the first five years and
may prepay the first mortgage loan thereafter subject to
a 9% prepayment penalty in years six through nine, a 1%
prepayment penalty in year ten and no prepayment penalty
thereafter. The Trust may receive interest related to its
participation interests in the underlying property,
however, these amounts are neither insured nor
guaranteed.
Generally, the participation features consist of the
following: (i) "Minimum Additional Interest" at rates
ranging from .5% to .75% per annum calculated on the
unpaid principal balance of the first mortgage on the
underlying property,
Continued
KRUPP GOVERNMENT INCOME TRUST
NOTES TO FINANCIAL STATEMENTS, Continued
D. PIMs, Continued
(ii) "Shared Income Interest" ranging from 25% to 30% of
the monthly gross rental income generated by the
underlying property in excess of a specified base, but
only to the extent that it exceeds the amount of Minimum
Additional Interest received during such month, and (iii)
"Shared Appreciation Interest" ranging from 25% to 30% of
any increase in Value of the underlying property in
excess of a specified base. Payment of participation
interest from the operations of the property is limited
to 50% of net revenue or surplus cash as defined by FNMA
or HUD, respectively. The aggregate amount of Minimum
Additional Interest, Shared Income Interest and Shared
Appreciation Interest payable by the underlying borrower
on the maturity date generally can not exceed 50% of any
increase in Value of the property. However, generally the
net proceeds from a sale or refinancing will be available
to satisfy any accrued but unpaid shared income or
minimum additional interest.
Shared Appreciation Interest is payable when one of the
following occurs: (1) the sale of the underlying property
to unrelated third party on a date which is later than
five years from the date of the Agreement, (2) the
maturity date or accelerated maturity date of the
Agreement, or (3) prepayment of amounts due under the
Agreement and the insured mortgage.
Under the Agreement, the Trust, upon giving twelve months
written notice, can accelerate the maturity date of the
<PAGE>
Agreement to a date not earlier than ten years from the
date of the Agreement for (a) the payment of all
participation interest due under the Agreement as of the
accelerated maturity date, or (b) the payment of all
participation interest due under the Agreement plus all
amounts due on the first mortgage note on the property.
On April 25, 1996, the Trust received a prepayment of the
Canyon Ridge Apartments PIM from the Federal National
Mortgage Association ( FNMA ) for the outstanding
principal balance of approximately $8.9 million. The
Trust is currently looking at investment opportunities to
reinvest the principal received. The borrower defaulted
on its first mortgage loan and FNMA intended to foreclose
on the property, but the borrower filed for bankruptcy
before this happened. The Trust subsequently collected
$200,000 of participation interest income through a claim
with the bankruptcy court.
The Trust's PIMs consisted of the following at December
31, 1996 and 1995:
<TABLE>
<CAPTION>
Original
Loan Interest Maturity Balance at December 31,
PIM Amount Rate Date 1996 1995
<S> <C> <C> <C> <C> <C>
River View (GNMA) $ 9,284,877 8.00% 1/15/33 $ 9,159,679 $ 9,199,196
Mill Pond (FHA) 7,812,100 8.15% 1/1/33 7,697,101 7,730,070
Waterford (FHA) 6,935,900 8.125% 8/1/32 6,841,912 6,872,203
(a)
Rivergreens (FHA) 10,003,000 8.005% 4/1/33 9,862,103 9,917,858
(b)
Canyon Ridge (FNMA)9,100,000 7.50% 10/1/01 - 8,878,321
Lincoln Green(FNMA)15,565,000 6.75% 10/1/02 14,919,102 15,093,575
(c)
Total $58,700,877 $48,479,897 $57,691,223
(d)(e)
</TABLE>
(a) Received final endorsement in March 1994. Construction-
phase interest was 10.125%.
(b) Received final endorsement during August 1994.
(c) Normal monthly benefit is based on a 30-year
amortization. All unpaid principal of approximately
$13,583,000 and accrued interest is due at the maturity
date.
(d) The aggregate cost for federal income tax purposes is
$48,479,897.
A reconciliation of activity for each of the three years in
the period ended December 31, 1996 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Balance at beginning of period $57,691,223 $58,054,836 $57,677,344
Acquisitions - - 693,333
PIM prepayment (8,862,450) - -
Principal collections (348,876) (363,613) (315,841)
Balance at end of period $48,479,897 $57,691,223 $58,054,836
</TABLE>
Property descriptions:
River View Apartments ("River View") is a 220-unit apartment
complex located in Columbia, South Carolina.
Mill Pond Apartments ("Mill Pond") is a 146-unit apartment
complex in Bellbrook, Ohio.
Waterford Townhomes Apartments ("Waterford") is a 122-unit
apartment complex in Eagen, Minnesota.
Rivergreens Apartments ("Rivergreens") is a 208-unit
apartment complex in Gladstone, Oregon.
Canyon Ridge Apartments ("Canyon Ridge") is a 162-unit
apartment complex in San Diego, California.
Lincoln Green Apartments ("Lincoln Green") is a 616-unit
apartment complex in Greensboro, North Carolina.
E. MBS
At December 31, 1996, the Trust s MBS portfolio had an
amortized cost of $25,488,974 and gross unrealized gains
of $1,265,352. At December 31, 1995, the Trust's MBS
portfolio had an amortized cost of $29,819,438 and gross
unrealized gains of $1,574,821. The Trust's MBS have
maturities ranging from 2008 to 2029.
In July 1995, the Trust completed funding a $4,978,200
FHA insured mortgage having an interest rate of 8.75% per
annum which it purchased for $4,953,309.
Continued
KRUPP GOVERNMENT INCOME TRUST
<PAGE>
NOTES TO FINANCIAL STATEMENTS, Continued
F. Shareholders' Equity
Under the Declaration of Trust and commencing with the
initial closing of the public offering of shares, the
Trust has declared and paid dividends on a quarterly
basis. During the period in which the Trust qualifies as
a REIT, the Trust has and will pay quarterly dividends
aggregating at least 95% of taxable income on an annual
basis to be allocated to the shareholders in proportion
to their respective number of shares.
In order for the Trust to maintain its REIT status with
respect to the requirements of Share ownership, the
Declaration of Trust prohibits any investor from owning,
directly or indirectly, more than 9.8% of the outstanding
Shares and empowers the Trustees to refuse to permit any
transfer of Shares which, in their opinion, would
jeopardize the status of the Trust as a REIT.
G. Related Party Transactions
Under the terms of the Advisory Service Agreement, the
Advisor receives an Asset Management Fee equal to .75%
per annum of the value of the Trust's actual and
committed invested assets payable quarterly.
The Trust also reimburses affiliates of the Advisor for
certain costs incurred in connection with maintaining the
books and records of the Trust and the preparation and
mailing of financial reports, tax information and other
communications to investors.
During the three years ended December 31, 1996, the Trust
received interest collections on Additional Loans with
affiliates of the Advisor of the Trust of $234,593,
$300,825, and $295,348, respectively.
H. Original Shares
Upon termination of the Trust, an affiliate of the
Advisor is committed to pay to holders of Original Shares
the amount (if any) by which (a) the Shareholders'
Original Investments exceed (b) all Dividends (as defined
in the prospectus) paid by the Trust with respect to such
Original Shares. Original Shares are those Shares
purchased during the Trust's initial public offering
either through purchase or through the dividend
reinvestment program and held until the last mortgage
held by the Trust is repaid or disposed of.
I. Federal Income Taxes
The reconciliation of the income reported in the
accompanying statement of income with the income reported
in the Trust's 1996 federal income tax return follows:
<PAGE>
Net income per statement of income $12,480,695
Add: Additional Loan interest deferred
for book purposes 1,729,278
Book to tax difference for amortization
of prepaid fees and expenses 968,335
Net income for federal income tax purposes $15,178,308
Continued
KRUPP GOVERNMENT INCOME TRUST
NOTES TO FINANCIAL STATEMENTS, Continued
I. Federal Income Taxes, continued
The Trust paid dividends of $1.30 per share during 1996
which represents approximately $1.01 from ordinary income
and $.29 represents a non-taxable distribution for
federal income tax purposes.
J. Fair Value Disclosures of Financial Instruments
The Trust uses the following methods and assumptions to
estimate the fair value of each class of financial
instruments:
Cash and Cash Equivalents
The carrying amount approximates fair value because of
the short maturity of those instruments.
MBS
The Partnership estimates the fair value of MBS based
on quoted market prices.
PIMs and PIMIs
There is no established trading market for these
investments, so management estimates the fair value of
the PIMs and PIMIs using quoted market prices of MBS
having the same stated coupon rate as the insured
mortgages and Additional Loans based on the estimated
fair value of the underlying properties. Management
does not include any participation income in the
Trust s estimated fair values, because Management does
not believe it can predict the time of realization of
the feature with any certainty. Based on the
estimated fair value determined using these methods
and assumptions, the Trust's investments in PIMs and
PIMIs had gross unrealized losses and gains of
approximately $5,668,000 and $889,000, respectively,
at December 31, 1996 and gross unrealized losses and
<PAGE>
gains of approximately $4,407,000 and $2,743,000,
respectively, at December 31, 1995.
At December 31, 1996 and 1995, the Trust estimated the
fair value of its financial instruments as follows:
(amounts in thousands)
1996 1995
Cash and cash equivalents $ 19,054 $ 8,914
MBS 26,754 31,394
PIMs and PIMIs:
PIMs 48,783 58,868
Insured mortgages 116,869 118,213
Additional Loans 13,424 14,827
$224,884 $232,216
Continued
KRUPP GOVERNMENT INCOME TRUST
NOTES TO FINANCIAL STATEMENTS, Continued
K. Subsequent Events
Windward Lakes Apartments
On February 6, 1997, the Trust, with the knowledge of the
independent Trustees, agreed to a workout with the
borrower of Windward Lakes Apartments PIMI, an affiliate
of the Advisor of the Trust. The terms are as follows:
a) interest rate relief for 1997 of 2% per annum and 1%
per annum for 1998 through 2000 on the insured mortgage;
b) the borrower, McNab KC-3 L.P., will put in $133,036 of
new equity into the property; c) the borrower will cap
the annual management fee paid to an affiliate to 3% of
revenues; d) the Trust s participation in current
operations shall be 50% of Surplus Cash as determined
under HUD guidelines; e) Base Interest on the Additional
Loan is payable from Trust s share of Surplus Cash but
accrues at 7% per annum; and f)the Trust s participation
in a sale or refinancing, after repayment of the first
mortgage and additional loans, interest rate relief and
accrued Base Interest and McNab s new equity, shall be
50% of any remaining proceeds up to an amount which would
result in the Trust having received a cumulative,
noncompounded preferred return of 10% on its investment
in the first mortgage and additional loans; any remaining
proceeds shall be distributed to McNab.
<PAGE>
Timber Ridge Apartments
On February 28, 1997, and March 6, 1997 the Trust
received a prepayment of The Timber Ridge Apartments
PIMI. The Trust received the Additional Loan and the
outstanding first mortgage principal balances of
$1,540,000 and $5,663,191, respectively, plus outstanding
interest. In addition, the Trust received $1.05 million
representing additional interest.
KRUPP GOVERNMENT INCOME TRUST
SUPPLEMENTARY DATA
SELECTED QUARTERLY FINANCIAL DATA
(Unaudited)
For the Quarter Ended
March 31, June 30, September 30, December 31,
1996 1996 1996 1996
Total revenues $4,120,423 $4,233,475 $3,961,045 $4,043,097
Net income $3,077,602 $3,264,669 $3,000,682 $3,137,742
Earnings per Share $ .20 $ .22 $ .20 $ .21
For the Quarter Ended
March 31, June 30, September 30, December 31,
1995 1995 1995 1995
Total revenues $4,339,068 $4,216,325 $4,441,047 $4,203,976
Net income $3,291,240 $3,155,275 $3,395,218 $3,179,899
Earnings per Share $ .22 $ .21 $ .22 $ .22
<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>
<CIK> 0000857264
<NAME> KRUPP GOVERNMENT INCOME TRUST
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 19,053,931
<SECURITIES> 210,608,510<F1>
<RECEIVABLES> 1,707,799
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,263,514<F2>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 241,633,754
<CURRENT-LIABILITIES> 7,353,147<F3>
<BONDS> 0
0
0
<COMMON> 233,015,255
<OTHER-SE> 1,265,352<F4>
<TOTAL-LIABILITY-AND-EQUITY> 241,733,754
<SALES> 0
<TOTAL-REVENUES> 16,358,040<F5>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,877,345<F6>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 12,480,695
<INCOME-TAX> 0
<INCOME-CONTINUING> 12,480,695
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,480,695
<EPS-PRIMARY> .83
<EPS-DILUTED> .83
<FN>
<F1>Includes Participating Insured Mortgage Investments ("PIMIs") (insured
mortgages of $114,625,179 and Additional Loans of $20,749,108), Participating
Insured Mortgages ("PIMs") of $48,479,897 and Mortgage-Backed Securities
("MBS") of $26,754,326.
<F2>Includes prepaid acquisition fees and expenses of $13,473,359 net of
accumulated amortization of $6,090,173 and prepaid participating servicing of
$4,491,005 net of accumulated amortization of $1,610,677.
<F3>Includes deferred income on Additional Loans of $7,325,414
<F4>Unrealized gain on MBS
<F5>Represents interest income on investments in mortgages and cash
<F6>Includes $1,613,665 of amortization for prepaid fees and expenses
</FN>
</TABLE>
